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

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SUMMARY
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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.

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POVERTY IN ARGENTINA - THE OFFICIAL NUMBERS
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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.

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POVERTY IN ARGENTINA - THE TRUTH?
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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.

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RELEVANCE TO GOA CLAIMS OF POVERTY REDUCTION
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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.)

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COMMENT
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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