Peru: The lies behind the miracle

As the old chestnut goes there are lies, damned lies and statistics. Never truer in the pretzelmath world of banana republic statistics offices that first ask what result the government wants and then supplies. This chart, taken from data supplied by top Peruvian economist Bruno Seminario of Lima's Pacific University (and also the guy in charge of leading Peru economics site "Actualidad Económia del Perú") shows how the current government of Alan García has spun lies into the growth "miracle" of Peru.

What we have here are two sets of monthly GDP calculations for the period 2009 to date. The blue line shows the GDP calculation published by the official stats office INEI for the period. However the red line shows what the GDP results would have been if the INEI hadn't changed the methodology of its calculations in 2006 when Twobreakfasts came to power.

It's one of the little snippets of data that gets lost amongst outside observers. In 2006 the INEI went under orders of Twobreakfasts and the head guy was changed to one of García's favourites. The INEI then set about using a new methodology that it didn't even admit to until repeatedly challenged on the strange results being offered up in 2009. Not only that, but the old method was a clearly published dataset and calculation that could be tracked accurately by third parties (hence Semanario can still apply the old method and get an correct reading). However the INEI has never published the "new improved" method or explained to anyone outside its building how they now calculate the GDP number that's fed to the world.

These days the "old method" would give a +7.9% GDP growth headline while the "new improved" offers 9.2%. A difference, but not as much as the papered over period of 2009 when the world and his wife could see Peru was going through the same recession as anywhere else but the INEI cooked the books to make it look much better than reality.

Farid Matuk Explains Peru's False GDP Figures

After the farcical claims of 3.05% GDP growth in March that were published last week, the view that Peru's government statistics have now joined those of Argentina in the lie&joke league status is now beyond much question. However last Friday Peru's national daily La Primera published an interview with Farid Matuk who explained in chapter and verse just where the false statistics were coming from, how they were being manipulated and by how much things were being overestimated by the Twobreakfasts government. Here below is a translation of the interview. Read and learn.

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Farid Matuk Unmasks The False Statistics of the INEI

The INEI statistics office is altering economic growth and poverty reduction data by order of the government. GDP manipulation is the order of the day.

In the following interview, Farid Matuk warns that the INEI is overestimating by two percentage points the growth figures and lowering poverty figures sicne 208 to favour the government. He calls INEI chief Renán Quispe a liar and states that the monthly GDP estimate is a farce invented by the first government of President Alan García in order to show its presumed success.


A Reuters survey forecasts a 2.3% GDP growth in March and the Ministry of Economy and Finance (MEF) estimates 3.9%. What figure do you consider GDP to be in March?

Farid Matuk: In fact I do not see any positive growth for March. The growth figure is being manipulated or overestimated by the government by around two percentage points since 2008.

How is this manipulation of the figures done?

FM: Via the change in methodology, from the accurate economic formula to the actual survey. The manipulation was started gradually, little by little up to 2007. But from 2008 until today the overestimation of the figures has been a steady 2%. The overestimations 18 months into this government can no longer be masked without being scandalous. Thus since 2008 2% should be taken away from the figures presented by the INEI to get a true result.

How did the INEI make its statistics previously?

FM: The central difference is that before the INEI published spreadsheets that allowed anyone to check the accuracy of the results. So when in 2006 the methodology was taken away from the Web I warned via a op-ed column in a local newspaper the something twisted was coming from this government. And time has proved me right.

What did these spreadsheets allow?

FM: They allowed information transparency. Previously the INEI estimates be they for the transport or commercial sector were obtained via mathematical calculations performed in an Excel spreadsheet. Now these estimations come from a secretive survey that nobody sees.

In fact Quispe called the previous mathematical methodology obsolete, and due to this argument changed the survey method.

FM: So why didn't he say anything for three years? If it were true that the previous method were obsolete and they realized in 2006, why didn't they say that it was wrong? Why did they remain silent? Why because it's a lie! So when the problem is discovered they invent an abili to hide that they're manipulating the numbers.

But Renán Quispe has admitted the change in methodology at the INEI

FM: Yes, but three years after the moment he should have and only now because of the pressure from public opinion. As the saying goes, in the mouth of a liar the truth becomes doubtful, now that he (Renán Quispe) could have told us that the change in mathematical formula and the current secret survey is to improve the INEI study. But he didn't do that.

Why is there so little transparency in the INEI information?

FM: The INEI has been manipulating the figures in order to create false growth or a false success for this government. What we have now is an INEI that is altering economic growth figures and poverty reduction figures so that the same numbers as the previous governments of Toledo and Fujimori seem more successful. In fact, there is no achievement under this current government, the growth and poverty numbers are similar to those from the 1980s. The figures presented by the INEI is disproportionate and incoherent with reality.

So Peru now has a biased INEI Statistics Office tonces ahora los peruanos tenemos un INEI parcializado

FM: Correct, we have a non-transparent statistics office that has become a propaganda organism for the supposed successes of this government and this is an institutional error. Unfortunately the INEI has confused its function and believes it must only give good news when in fact we must understand that when there is inflation it's a problem for the Central Bank, if there is unemployment it's a problem for the Ministry of Work, if the economy doesn't grow it's a problem for the Ministry of the Economy. If the information is bad or good it is not a problem for the INEI.

Do you question the INEI's monthly GDP measurement?

FM: Yes, because it's a farce, a fantasy invented by the first government of President García in his vanity. Only Canada and Finland, two of the most developed nations, can measure their GDP on a monthly basis. Not even in the USA or the Eurozone countries do they take a monthly measurement due to its complexity and high costs.

Therefore the supposed GDP measurement, what is it?

FM: It's nothing. What the INEI shows us monthly is nothing. The monthly GDP is like a bath of flowers or like reading tarot cards*.

What does the INEI really measure?Qué realmente mide mensualmente el INEI?

FM: The supposed monthly INEI measurement is nothing more than a physical total of 30% of the economy. That is to say, the total production, how many tonnes or physical units of copper, fishmeal etc have been sold. But these physical units do not allow me to determine the added value of the product or the GDP. One thing is physical prodution, daily sales totals etc, and another is the added value. The former is easy to calculate, the latter is complicated to inform. It's one thing to ask the owner of a business for the number of products they sold in a month and another to ask "how much did you make?", because they need time to give you the information that neds to include payments for expenses, operating costs, tax payments, salaries for workers etc.

What could the INEI give us?

FM: The same as the Chilean statistics office that reports monthly on total production based on a fraction of the economy, which in the case of Peru would be 30% (agriculture, fishery, mining, manufaturing, energy and water). Thus the INEI could coherently say that the monthly physical production has increased by 5, 10, 20 etc points.

*translated in essence, not literally

Peru's February GDP Growth +0.19%

How many breakfasts?
LatAm's worst President is about to get his trasero
served to him on a plate next mealtime

Now will you start believing me and stop believing the intellectually redundant bullshitter Twobreakfasts and his party of liars and thieves?

This is the link that takes you to the 33 page PDF published by Peru's INEI stats office this afternoon. Most level-headed commentators knew that Peru was slowing down, but these numbers are nothing short of shocking. Peru has hit a brick wall and its people are about to find out just how much their President has been hoodwinking them all.

I've spent a good hour poring over the numbers trying to find some saving grace. Construction is still holding up, but the real soft centres are the 7.45% drop in the manufacturing sector and the commerce sector, the key to understanding the internal demand economy, down 0.71%. I immediately recall the utter balderdash published by Fitch and S&P when they upped Peru to investment grade, as they both used the "strong internal economy breaking away from the traditional economic motors" kind of argument as centrepiece. Total lies.

Trickledown doesn't work, period. Bringing back Luis "world's luckiest economist" Carranza (luck's run out though) as some sort of half-assed economic supersub won't work, period. Telling people to "think positively" and assuring them that Peru is a Utopian oasis in the storm hasn't worked, period. And now going forward we'll see the difference in reaction between the prudent countries that have warned their citizens of the storm (e.g. Chile) and the irresponsible that used ostrich politics (e.g. Peru).

If the main Spanish language report is too heavy for you, check out this resumé in English from AP for the main points, or maybe this one from DJNW or perhaps this one from Reuters. And don't say I didn't try to warn you. We're all in the crapper on this one...said it before and I'll say it again. The only difference is the level of preparation that countries have done so far. Peru hasn't lifted a finger and now it will pay heavily for its mistake.

Peru's false GDP numbers

Click to enlarge

Not content with merely pointing out the obvious about how Peru's GDP forecast for 2009 (officially +5%) floats in the realm of the impossible, Farid Matuk has now started another firestorm. The Matuk claim, which is backed up by some very solid statistical work, is that Peru's GDP didn't grow by the announced 3.14% in January but just 0.1%, the difference in the figures created by statistical jiggery-pokery that any serious country would never be able to get away with. Above is the screenprint of the report in yesterday's La Republica. Here's Matuk's blog to find out more (and there's a lot more).

For me it's yet another lesson in how the blogosphere trumps the traditional media, providing cutting edge analysis and insight where all around are lax and mediocre mainstream journalists. This is especially true in Peru where the so-called serious dailies, headed up by El Comercio, are a version of Peru on Prozac that reflect the "no problem here, move along now, nothing to see here" line of President Twobreakfasts.

Farid Matuk's critique of how Peru measures its GDP started at his blog (example post here, but there are more...go explore, hispanophones) and picked up by the centre-left newspaper La Republica, just about the only daily that bothers to criticize the government using facts and not simple reactionary bluster, opens a veritable can of worms that will surely be met by the usual Twobreakfasts defence (first silence then Ad Hom attacks and BS). The moneyline picked out by the Republica sums up the argument:

"The problem is that 70% of the real GDP is not measured in surveys but between four walls"

That 'between four walls' expression can be translated as either 'smoke filled rooms' or as a black box situation. Basically the point is that the 70% of the components that make up Peru's GDP calculation are chosen in an arbitrary manner and have little or no scientific rigour. One example of many found by Matuk is the GDP growth added by house rentals in Peru; every month since January 2007 the figure has been +3.54%..not a hundreth more or less for the last 24 calculations. And to stress, that just one example of many many red flags on offer.

Importantly, it's not just Matuk that is saying these things now, as other highly-respected local economists have chimed in on the issue. For example Pedro Francke of the PUCP (U. Catolica) in Lima says that the INEI (Peru stats office) calculations are "strange and are deeply attention grabbing." He continues by saying that the INEI "has modified the calculation formulae and applied them to a new database, and the worst is that some of the data have been omitted completely. The INEI is obliged to explain what is happening because we are not seeing managerial transparency." Today Francke has added to his quotes by writing this article that Spanish speakers will find well worth reading.

Or put throught the Ottotrans™, Peru's government is making shit up and pretending that the country is growing at a far faster rate than reality. This comes as no surprise to anyone that watches the country closely. It also comes as no surprise that the IMF endorse these phony numbers for that body has a nefarious history of pumping its posterboy du jour, as anyone who remembers the praise heaped upon the Argentina of Carlos Menem by the IMF will quickly and easily remember.

Shock Horror! Economists wildly overestimate Peru's GDP figure again

Twobreakfasts' secretary reads the INEI press
release and wonders how to break the news

¡Pero que sorpresa!

Over at Reuters, the economists* polled put Peru's January GDP figure at an average of 4.0%. Meanwhile Bloomberg (who must have bothered to interview one bearish guy) had the average of those polled at 3.4%. As late as last week Peru's Finance Ministry estimated January GDP at 4.5%.

The Peru stats office, INEI, reported the figure two hours ago. Peru's January GDP growth came in at 3.14%, way below 'expert' opinion. In amongst the numbers manufacturing dropped by 2.69%, commerce grew by 2.53% and the building/construction sector upped by 4.5% (which sounds good but is a very disappointing result and way below expectations). Agro dropped by 1.46% and fishery by 21.05%. Mining activity grew by 10.69% (not export prices but oh my, hard landing for Month-over-Month figures coming in that sector in the months to come) and the mining services sector upped 5.99%.

But don't let that worry you, because Twobreakfasts says it's going to be 5% this year, and Carranza says 5% this year, and the Central Bank says 5% this year, and the IMF says 5% this year. I mean, why on earth should you listen to me and ignore all those utterly reliable and impartial sources?

*dumbasses in suits