Tuesday, February 27, 2007

Don't take my word for it

From The Economist's monthly email newsletter on Buenos Aires:

Argentina’s president, Néstor Kirchner, seems to be testing a new way to lower inflation: fiddling with the numbers. In January the government hired a new director for the consumer-prices section of the National Statistics and Census Institute (INDEC). Beatriz Paglieri, a trade specialist, has little experience with statistics, but she is backed by Guillermo Moreno, the secretary of internal trade and the chief negotiator of price-freezing agreements. Five days after Ms Paglieri’s appointment, INDEC announced that inflation in January had been just 1.1%, far below the 1.5-2% estimates of private economists.

The institute arrived at the lower figure by changing its methodology. Ms Paglieri dropped from the index the prepaid annual health-insurance plans, whose average cost increased 22% over the past year. She also changed her sampling of tourist companies, such that holiday costs for January rose by only 3.7%. It remains to be seen whether the move was merely a one-time adjustment. Should the statistical tinkering continue, Mr Kirchner’s reputation (and chances of re-election) might suffer, as might the country’s recovery from the financial collapse of 2001.
The biggest problem this country faces is that Kirchner is using so many tricks that can only be used once. These short-term, one-off solutions mean that, increasingly, the country's economy -- like the buses, the sidewalks, and the banking system here -- is held together by string.

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