Fears that Argentina may slip into prolonged recession are growing despite efforts by the government to paint a very different picture.
The latest private data show significant recent falls in fiscal revenue, import figures and industrial activity, indicating that the Argentine economy is heading for a major slowdown after five years of consecutive growth.
Private sector analysts consulted by the Financial Times predict gross domestic product contracting to between -2 per cent and -3 per cent for 2009. The estimates run in stark contrast to official figures, which boast 1.88 per cent year on year growth for May.
“The government will continue to report positive year-on-year growth…but there’s broad consensus that Argentina is currently going through an acute downturnâ€, argues David Duarte, Latin American economist with US-based analyst firm 4Cast.
Shaky investor confidence is most evident in the rapid flight of capital, which is estimated to have reached around $6.5bn in the second quarter of this year, according to Econviews, a local economic consultancy.
Much of the blame for the market’s concerns lies in the alleged manipulation of official economic data by the administration of President Cristina Fernández de Kirchner.
At the centre of the controversy stands Indec, the discredited national statistics office. Investors, for example, remain dubious of official inflation figures, which Indec puts at 5.3 per cent as of June. The estimate falls far short of the 12-15 per cent calculated by the majority of private sector analysts.
“There are too few observations to be sure that the worst of the recession is over. The problem is compounded by the lack of credible macro dataâ€, said Carola Sandy, Latin American analyst at Credit Suisse.
The opposition in Congress has said it will table a bill to revamp Indec. The government will also next week launch a formal “dialogue†with the private sector and labour unions to discuss potential reforms. The process follows an embarrassing defeat by Ms Fernández’s ruling party in mid-term elections last month.
Investors argue that any reform agenda should also feature a cut in public spending, which has increased by around 30 per cent in the past 12 months. Argentina faces a potential budget deficit this year for the first time since the Kirchners took power in 2003.
Other priorities on the ‘to do’ list should feature a renegotiation with the Paris Club and other international creditors, a reduction in public subsidies and a rise in interest rates, private economists argue.
“The government of Argentina has a lot of room to improve policies. Obviously the question is whether it will do it,†says Daniel Kerner, Latin American analyst at New York-based risk research firm Eurasia.
The answer, most argue, is “no’. A minor cabinet reshuffle earlier this month was interpreted as largely cosmetic, while calls to oust the minister in charge of Indec have gone unheeded.
“At this moment, we just see good intentions, but we don’t have concrete measures or announcements. The uncertainty is therefore hugeâ€, argues David Mermelstein, senior economist with Econviews.
Econviews’ latest monthly report maintains that the fundamentals of the Argentine economy remain sound, with the exchange rate under control and financial requirements “manageableâ€.
Even so, if government policy continues without change, political tensions will almost certainly increase, warns Alberto Ramos, senior economist for Latin America at US bank Goldman Sachs. That, in turn, could precipitate a major economic fall out.
“Conditions will deteriorate more because of political rather than economic problemsâ€, Mr Ramos states.
“Confidence is so weak at this stage, the public won’t support another policy mistake like the nationalisation of the [private] pension funds last yearâ€, he continues.
In the worse case scenario, Argentina could feasibly suffer its second default in less than 10 years. So finds a recent report by rating agency Standard and Poor’s. Should Argentina adopt “drastic and unanticipated measures†to meet its upcoming debt obligations, a panic by investors and possible default could well result, the report maintains.
The latest private data show significant recent falls in fiscal revenue, import figures and industrial activity, indicating that the Argentine economy is heading for a major slowdown after five years of consecutive growth.
Private sector analysts consulted by the Financial Times predict gross domestic product contracting to between -2 per cent and -3 per cent for 2009. The estimates run in stark contrast to official figures, which boast 1.88 per cent year on year growth for May.
“The government will continue to report positive year-on-year growth…but there’s broad consensus that Argentina is currently going through an acute downturnâ€, argues David Duarte, Latin American economist with US-based analyst firm 4Cast.
Shaky investor confidence is most evident in the rapid flight of capital, which is estimated to have reached around $6.5bn in the second quarter of this year, according to Econviews, a local economic consultancy.
Much of the blame for the market’s concerns lies in the alleged manipulation of official economic data by the administration of President Cristina Fernández de Kirchner.
At the centre of the controversy stands Indec, the discredited national statistics office. Investors, for example, remain dubious of official inflation figures, which Indec puts at 5.3 per cent as of June. The estimate falls far short of the 12-15 per cent calculated by the majority of private sector analysts.
“There are too few observations to be sure that the worst of the recession is over. The problem is compounded by the lack of credible macro dataâ€, said Carola Sandy, Latin American analyst at Credit Suisse.
The opposition in Congress has said it will table a bill to revamp Indec. The government will also next week launch a formal “dialogue†with the private sector and labour unions to discuss potential reforms. The process follows an embarrassing defeat by Ms Fernández’s ruling party in mid-term elections last month.
Investors argue that any reform agenda should also feature a cut in public spending, which has increased by around 30 per cent in the past 12 months. Argentina faces a potential budget deficit this year for the first time since the Kirchners took power in 2003.
Other priorities on the ‘to do’ list should feature a renegotiation with the Paris Club and other international creditors, a reduction in public subsidies and a rise in interest rates, private economists argue.
“The government of Argentina has a lot of room to improve policies. Obviously the question is whether it will do it,†says Daniel Kerner, Latin American analyst at New York-based risk research firm Eurasia.
The answer, most argue, is “no’. A minor cabinet reshuffle earlier this month was interpreted as largely cosmetic, while calls to oust the minister in charge of Indec have gone unheeded.
“At this moment, we just see good intentions, but we don’t have concrete measures or announcements. The uncertainty is therefore hugeâ€, argues David Mermelstein, senior economist with Econviews.
Econviews’ latest monthly report maintains that the fundamentals of the Argentine economy remain sound, with the exchange rate under control and financial requirements “manageableâ€.
Even so, if government policy continues without change, political tensions will almost certainly increase, warns Alberto Ramos, senior economist for Latin America at US bank Goldman Sachs. That, in turn, could precipitate a major economic fall out.
“Conditions will deteriorate more because of political rather than economic problemsâ€, Mr Ramos states.
“Confidence is so weak at this stage, the public won’t support another policy mistake like the nationalisation of the [private] pension funds last yearâ€, he continues.
In the worse case scenario, Argentina could feasibly suffer its second default in less than 10 years. So finds a recent report by rating agency Standard and Poor’s. Should Argentina adopt “drastic and unanticipated measures†to meet its upcoming debt obligations, a panic by investors and possible default could well result, the report maintains.
