Poverty in Argentina: A Silent Crisis?

UNCLAS BUENOS AIRES 000699 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ECON EFIN PGOV AR SUBJECT: Poverty in Argentina: A Silent Crisis? REF: Buenos Aires 160 -------------- SUMMARY -------------- ¶1. (SBU) According to official GoA statistics, poverty levels continued to fall in the second half of 2008, reaching 15.3% of the urban Argentine population (with extreme poverty declining to 4.4%). However, doubts about the validity of other official Argentine statistics have led many analysts and social activists to question official poverty figures. A number of private analysts calculate poverty above 30% using more accurate estimates for inflation and household incomes. They argue that the GoA's deliberate underestimation of the level of poverty allows it to claim that it has doubled social spending for the poor and reduced poverty, when in fact per capita social spending has declined in real terms and poverty appears to be rising. End Summary. -------------- POVERTY IN ARGENTINA - THE OFFICIAL NUMBERS -------------- ¶2. (SBU) According to the National Bureau of Statistics (INDEC), poverty in Argentina continues its steady fall from its peak-level of over 50% following the 2001-02 crisis. In a report released in March, INDEC stated that the percentage of the urban population living below the poverty line during the second half of 2008 fell to 15.3% from 17.8% in the previous quarter. (The urban population comprises roughly 90% of the total population of Argentina.) Extreme poverty (destitution) fell to 4.4% from 5.1% during the same period. INDEC defines a poor person (individual or family member based on average income per capita) as one who cannot afford to purchase a basket of basic consumer goods and services (defined and adjusted monthly by INDEC). The "extreme poor" are defined as unable to afford an even more basic food consumption basket. INDEC only tracks poverty in the urban, not rural, population. -------------- POVERTY IN ARGENTINA - THE TRUTH? -------------- ¶3. (SBU) As Post has reported on a regular basis since early 2007, private sector analysts widely suspect that INDEC has systematically underreported official "headline" inflation (or Consumer Price Index - CPI),which is ostensibly based on the cost of the consumption basket of goods and services (Reftels). Poverty statistics, however, are not/not based directly on the CPI. Rather, INDEC estimates poverty and extreme poverty based on its own estimates of the values of the two aforementioned consumption baskets. Nevertheless, INDEC calculates the values of these consumption baskets using the prices collected for the CPI analysis. In this way, the widely suspected manipulation of inflation statistics also indirectly results in the manipulation of the values of the consumption baskets. This is one of the main arguments many observers use in questioning the validity of INDEC's reported poverty statistics. ¶4. (SBU) In addition to the poverty consumption baskets, INDEC uses its national urban household income surveys to calculate poverty and destitution levels. INDEC conducts these household surveys four times per year in the 31 major urban areas of Argentina. Although these reports were made public in the past, INDEC has not made them public since the second quarter of 2007. This lack of transparency has raised suspicions among the private organizations that monitor poverty issues in the country. ¶5. (SBU) In April, eight well-known Argentine academic organizations demanded that INDEC provide public access to its household survey databases, suggesting that they suspected that INDEC's published aggregate results were inaccurate. These organizations published a joint communique stating that INDEC's "denial of access to the survey databases undermines the analysis of socioeconomic issues in areas as sensitive as poverty, labor markets, health, and education." ¶6. (SBU) In the absence of accurate government statistics, many local economic think tanks and consultants have built their own poverty indices, based on their own income surveys and estimates for "true inflation," in order to present a more accurate picture of poverty levels in Argentina. To date, the consensus among these analysts is that the actual poverty rate in urban Argentina is about 30% or higher as of late 2008. -- SEL Consultores, for example, after noting that poverty rates fell from 2003 to 2006, reports that the rate began to climb again in 2007. Based on its own research and surveys, SEL estimates that poverty reached 32.3% in mid-2008. -- Ecolatina Consultants, headed by former Economy Minister Lavagna, reports that poverty was 30.5% in the second half of 2008, up from 30.3% in the first half. -- The research unit of labor confederation Argentine Workers Central (CTA),headed by economist and national Congressman Claudio Lozano, has hired former INDEC employees to develop poverty figures using INDEC's former operating procedures. (Note: INDEC fired these employees in 2007 after they refused to participate in implementing INDEC's new system of measuring inflation.) The CTA reports poverty at about 33.5% at the end of 2008. -- Prefinex Consultants also estimates the poverty rate at close to 30% and highlights that the result is an increasing risk of malnutrition among the poor in Argentina. -------------- RELEVANCE TO GOA CLAIMS OF POVERTY REDUCTION -------------- ¶7. (SBU) An assessment of how well the GoA is faring in its various programs to assist the poor depends critically on which set of poverty statistics one believes. Policies to assist the destitute in Argentina are basically channeled through five social programs: the Head of Households Plan (Plan Jefes de Hogar Desocupados), Unemployment Benefits (Seguro de Capacitacion y Empleo),the Families Plan (Plan Familias),the Food Security Plan (Plan de Seguridad Alimentaria),and the Non-Contributing Pensions Program (Programa de Pensiones no Contributivas). Using GoA data, SEL Consultores calculates that GoA social spending under these five plans targeting the poorest communities increased 30% in nominal terms between 2006 and 2008 to 6.35 billion pesos (slightly over US$1.7 billion or about 0.6% of GDP as of year-end 2008). ¶8. (SBU) Furthermore, using GoA estimations of rapidly declining poverty and inflation levels, SEL calculates that total social expenditures more than doubled in real per capita terms during the same period. However, when SEL uses its own inflation and poverty estimates, it calculates that real per capita social spending for the poor actually fell 28% during this period. (Comment: According to World Bank officials, the rolls for inclusion in GoA subsidy program for heads of households have been closed since 2003, leaving many people who would otherwise qualify without any form of government assistance.) -------------- COMMENT -------------- ¶9. (SBU) Artificially low inflation statistics allow the GoA to argue that its economic model of fiscal stimulus, maintaining a competitive currency, and government intervention succeeded in promoting high growth between 2003 and 2008 without overheating the economy and spurring damaging inflation. Similarly, artificially low poverty rates allow the GoA to claim it is increasing social expenditures on the poor and reducing poverty. Unfortunately, neither claim appears valid. The clear consensus among reputable private sector organizations is that "true" poverty and inflation levels are both more than double official reported numbers. Since poverty has a lower profile than inflation -- which has complicated wage negotiations and adversely impacted investors' willingness to invest in this country -- the underestimation of poverty levels has not become a political liability for the government ahead of this month's mid-term elections. On the contrary, President Cristina Fernandez de Kirchner's government, which, in grand Peronist tradition, draws significant political support from the urban poor, is still able to tout lower poverty rates as one of its main accomplishments. If private sector estimates are correct, a significant percentage of the urban population remains under the poverty line, but is no longer considered officially poor. This inaccurate reporting has adverse consequences for the most vulnerable, as it prevents an accurate diagnosis of Argentina's poverty challenges, leaving many people outside of the GoA's social safety net. KELLY