Monday, October 29, 2007

Don’t cry for me Argentina

Recent reports from notable sources have accused Argentina with manipulating their economic data in order to reduce the amount of interest that the government must pay on inflation indexed debt. About 40 percent of the nation's $136 billion debt is inflation-based securities; the tampering caused bond holders to miss out on over $250 million in interest payments in the past twelve months. In reaction, ‘Argentina's benchmark inflation-linked bonds have tumbled 24 percent this year, making the country's debt market the worst performer in the world’.

Governments always have a temptation to manipulate economic data for their own political or fiscal agendas. Most governments do toy with the figures by regularly changing the definition of employment or altering the mix of items factored into inflation. The situation in Argentina demonstrates what occurs when a government takes it one step too far.

Argentine Debt Devastated by Data Suspicion, Election

Despite the meteoric rise of the Latin American stock indexes over the past years; the situation in Argentina is a prime example of the risk in this region’s markets.