Peru's false GDP: no more crazy pills for Otto

Wow, to actually, finally read a report in the English language about the growing scandal around Peru's heavily massaged GDP numbers is incredibly refreshing, dudettes and dudes. There's now a small glimpse of sanity at the end of a long, dark tunnel. Check out the Reuters report below.

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Doubts grow about accuracy of Peru GDP numbers

LIMA, May 22 (Reuters) - Official statistics on economic growth in Peru may be too optimistic and painting a picture showing economic expansion when in fact the Andean country is in a recession, two Peruvian academics said.

Peru's statistics agency, the INEI, started working with a new methodology for calculating gross domestic product in 2007, and its results sharply diverge from the previous model.

Bruno Seminario, an economics professor at the Universidad del Pacifico in Lima who has taken current data and run them threw the old model, says Peru's economy is in fact shrinking at a time when President Alan Garcia says his country is largely sidestepping fallout from the global downturn.

"This change (to a new methodology) has generated so many distortions that nobody knows what's going on," Seminario told Reuters in an interview on Friday.

INEI director Renan Quispe, who declined to comment for this article but in the past has insisted he has "improved" the method for calculating GDP, has measured growth at 3.14 percent in January, 0.19 percent in February, and 3.05 percent in March using his new methodology.

But Seminario said that when the INEI's previous model is used, the numbers look much worse and show economic contraction of 0.51 percent, 1.38 percent, and 1.71 percent in each of the first three months of this year.

He said Peru is suffering a recession similar to the one it fell into after the 1997-8 Asian financial crisis, and that Peru's economy has ground to a halt after surging nearly 10 percent each of the last two years on a boom in commodities prices.

Seminario said the results produced by the new methodology the INEI is using are counterintuitive at a time when other indicators and countries that rely on commodities exports are suffering sharper declines.

The current slowdown has caused critics to take a closer look at official GDP numbers.

Economists also complain that the new methodology is a bit of a black box, wasn't subjected to a public comment period by independent statisticians before being introduced, and that the official results suggest a series of flimsy assumptions were put into the new model.

"Nobody's seen the survey or the deflators," Seminario said. "The only sensible thing to do is for the INEI to publish both series of numbers."

He isn't the only critic.

Farid Matuk, the former head of the INEI who was fired from his job after Garcia took office, has also written that he thinks the numbers are inflated.

He has even gone so far to say that the government has filed several lawsuits against him in retaliation for criticizing the GDP numbers.

Garcia's chief of staff, Yehude Simon, denied that the lawsuits were politically motivated, local radio reported on Friday.

Critics say the INEI is being imprudent by deriving some key numbers from estimates, instead of actual surveys.

Still other critics have compared Garcia's administration to the Kirchner governments in Argentina, which private economists have criticized for manipulating official statistics for political ends.

"The strategy to alter part of the measurement of GDP is misguided because the sectors 'other services,' commerce, construction, among others, are measured between the four walls of the INEI," Matuk has said.

Peru's GDP: Solid proof of the Peru government's lies

If proof were needed that Peru's GDP figures showing "growth" in 2009 are fabricated beyond measure, then that proof arrived tonight.

Bruno Seminario, leading economist at the UP Universidad Pacifico, has just published this report that shows just how much of a sham the Twobreakfasts government's GDP figures really are. You'll remember that since Twobreakfasts took power the INEI stats office quietly and without any warning, the INEI stats office changed bosses (to an APRA friendly guy) and changed the methodology of GDP calculation. Much of the heavy criticism in recent weeks has been about this change (see this to find out details) because much of the calculation is now done in an uncheckable, black box style that is easily manipulated for political ends (and by all accounts, successfully done, too). So what Seminario has done is to take the raw data and apply the old methodology, i.e. that used in the governments previous to Twobreakfasts, and see how things pan out.

The change is massive, and here's the chart.


Instead of the 3.05% growth rate recorded by the present dubious method, March 2009 comes in at -1.73%, a stunning turnararound of 4.78%. In fact, according to the old method, Peru has been in recession for the whole of 2009. It now becomes clear why this bunch of liars wanted to change the method and also said nothing for three years about the changes. The difference between the two methodologies is just too great to dismiss and must raise serious, nay fatal, questions about the way the data is being collated, calculated and disseminated at present.

The discredited economic policies of Twobreakfasts, Carranza et al cannot be hidden behind a bunch of falsified numbers. The road being taken right now by Peru is the same road taken by Argentina in 2007 when Kirchner decided to change the bosses at INDEC to get himself a bunch of new and better macro numbers. Soon enough, inside the country incredulity turned to anger and anger to laughter, but the world outside Argentina simply turned its back on the country as an invetsment vehicle. This is the chronic damage that is caused by cooking the macroeconomic books.

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

Doe Run Peru: The truth will out

Reuters knocks one straight out the park. Here's the link and below is the story.

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Doe Run Peru faces renewed environmental criticism

Thu Mar 26, 2009 3:43pm EDT

LIMA, March 26 (Reuters) - With Doe Run Peru nearly shuttered amid sliding metals prices and tight credit, a Peruvian environmental group has released a new study saying the company dragged its feet on cleaning up the town around its smelter in La Oroya.

The company halted 95 percent of work this week at its sprawling plant after banks cut its credit lines, strangling its ability to buy concentrates.

The government is weighing whether to give Doe Run a $75 million bailout to save thousands of jobs. The government is also mulling whether to grant it an extension to meet terms of an environmental cleanup plan for La Oroya, long ranked as one of the world's most polluted cities.

"It's dirtier now than it was before," said Corey Laplante, a U.S. Fulbright scholar at the Peruvian Society for Environmental Law who led the study.

"If the government is going to give this bailout, it needs to attach a number of conditions: more transparent financial reporting, stronger public-participation mechanisms and stricter air-quality standards," he told Reuters.

Doe Run says it has been lowering emissions of polluting metals since it bought the smelter in 1997 from an old state-run company.

But Laplante says official data shows pollution has risen over a longer time frame, going back to 1995.

Using information from the Sindicato station that monitors lead in the air, Doe Run has said pollution fell 77 percent between 1997 and 2008.

Laplante says using 1997 as a baseline is misleading because pollution spiked that year, making pollution in subsequent years look low. When 1995 is used as the baseline, pollution at the station actually rose 6 percent through 2008, he said.

Victor Andres Belaunde, a Doe Run official, said data collected before 1997 may not be reliable, and the company cannot use data collected before it owned the smelter in its environmental compliance program.

When Doe Run bought the smelter -- which produces copper, zinc, lead and precious metals -- it was told it would need to spend little a more than $100 million to bring La Oroya into environmental compliance and solve a public health problem.

So far, Doe Run says it has spent $307 million, and that the total cost will end up being $500 million.

The compliance program still has not been completed. Initially, it was expected to take 10 years, but in 2006, the company got a three-year extension and now the government is being asked to grant another one.

Doe Run says the clean up job has turned out to be bigger than it thought.

Critics say it is stalling and that the company's owner, New York billionaire Ira Rennert of the Renco Group, has the money to accelerate the clean up.

But Peru has prohibited Rennert from taking profits out of Doe Run until the environmental program is complete. Now that work has halted at the plant, the future of a cleanup that was being financed by cashflows hangs in the balance.