Peru's distorted economy

Farid Matuk has been in fine fettle these last few days, whacking into the hypocritical Twobreakfasts government by using the facts on offer, not the simple bluff and bluster served up by this most pathetic and unpopular of governments.

First up, via this Matuk post we see how Peru's economy is in fact two different economies; there's the one that the dumbasses at Moody's and S&P fawn about which is based on the 1/3rd of the population living in its capital, Lima. This chart taken from this report in La Republica (and re-labelled in English for your viewing pleasure) shows clearly the continued concentration of wealth in the capital, this despite all the silly lies proferred by Twobreakfasts about spreading the love around thew whole country:

(click to enlarge)

For the record, that's 53.3% of all employment in the country centred in one spot.

Next up from Matuk was this, separate but relate, subject. It seems that Peru's official lapdog INEI stats office, second in the continent only to Argentina's as manipulative bullshitters, want to measure the country's economy, GDP growth etc by ignoring those parts of the economy that haven't been performing so well! Yes indeed, all you need to do to get a positive GDP figure these days is to ignore the whole of the agricultural sector in your official census figures and make shit up later.

But Peru can get away with all this, y'see. Peru got da AmerikaFriend lurve. Peru not got da Hugo bad mojo. Peru got da media coverage that will never, ever question the substance and always go for the style.

Viva investment grade. Viva, viva, viva.

Peru economy: But of course, this time it's different.....

...cos Twobreakfasts says it's different. And he never lies.

This excellent chart is taken from the post "Never Forget The Past" by tippy top Peru stats guy, Farid Matuk. Check out the argument and more stats on the same theme at the original right here. And to get things right up to date, today the Peru gov't announced October imports down 28.3% YoY. Gotta love that "we're armour plated against the crisis" bullshit from Twobreakfasts last year.

The good news for Matuk is that he'll get his job back when Toledo is Prez.

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.

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: As long as we say we're growing, nobody minds

The headline is "Real Decline in Exports Masked"
(click to enlarge, Spanish language report)

Here's another exposé of the BS mathematics being used by Peru to pretend it's still growing. In its recent report, The Peru Central Bank (BCRP) admitted that export values had dropped significantly since the same time last year, but insisted that export volumes from the country has increased YoY by 0.2%. Now of course we know that export values have dropped significantly (just look at the prices for the metals), but it did seem weird that the BCRP was suggesting there's more volume traffic through Peru's ports right now, especially as anecdotal information from places like the main Callao seaport is that workers are idle and fear a round of layoffs.

So the revelation in Peru's La Republica this morning (see page above) from ace statsbuster Farid Matuk that the BCRP has been using a defunct stats baseline to calculate exports came as little surprise but welcome confirmation of the continued BS eminating from the Twobreakfasts government. According to Matuk, the BCRP uses a 1994 statistical index baseline to calculate exports, a database that was updated and made redundant in 1999 and then again in 2002. The BCRP should (if they actually cared about telling the truth) be using the 2002 dataset to make their calculations. And amazingly enough, by using the 2002 data the export volume results in a 7% drop YoY, not the 0.2% fantasy proposed by the bankers.

Still believe that Peru is "diffferent", is "armour-plated" and is "protected from the recession" like some fantasy island of love and harmony? Wanna buy that bridge of mine? The quotidian lies of the Twobreakfasts administration don't come for free, unfortunately. The ongoing deception of these people, as they try to lull Peruvians to sleep and get the world's applause as WonderCountry'09 is only pushing Peru closer to a nasty hard landing. Reality will bite eventually. It always does.

Peruvian economists and the ever-rising power of blogs

It's good to report that not just one but two of the Peru econobloggers featured on the IKN blogroll over there on the right, namely Jurgen Schuldt and Farid Matuk, have caused enough noise with their criticism of the mysterious and highly suspect Peru GDP calculation methods to be taken seriously at last.

Today, Peru's newspaper of record El Comercio (it's the paper of record because of style, not its mediocre substance) ran this feature which quoted both Matuk and Schuldt at length. The note is in Spanish but the content won't be novel for IKN readers. We've documented the ongoing BS spouted by President Twobreakfasts and company and the efforts of local critics on the subject to great length and the stench of doctored numbers is clear to anyone that bothers to scratch the surface. However, even the normally dormant and submissive Comercio is now picking up on the story, this because Peruvian econobloggers such as Schuldt and Matuk have managed to make so much noise that the official stats office, the INEI, has called a press conference on April 21st to explain (nay, reveal) how it makes its calculations.

That presser will be an interesting moment for local economists. Firstly, it'll be interesting to see if the conference actually takes place as the INEI are notorious date-breakers on this kind of thing. Secondly it will interesting to find out how the 69% of GDP calculations that are basically black box at the moment are made (Schuldt recently compared the methodology to the talents of a local star chef). Thirdly, it will surely be a lot of fun to find out how the INEI has managed to use exactly the same percentage growth figure for line items such as housing rentals for the last 26 months...to the hundredth, month after month. But perhaps what the INEI has in mind is a show'n'tell with no tricky questions afterwards.

It's all very reminiscent of Argentina and its laughably unaccountable INDEC stats office. Looking at the bigger picture for a second, that Peru is chosen by the World Bank as its latest poster child and then gets its clearly biased macroeconomic figures backed up by very same world bank is strange. That Peru runs a very similar economy to that of Chile and even though Chile's financial fundamentals are about a light year ahead of Peru's, Chile is now in recession and Peru growing...well that's strange too. That the whole raison d'etre of the Twobreakfasts administration is that of growth and growth and trickledown is under pressure and the best way to prop it up is to massage the headline number of all headline numbers is coincidentally strange.

But away from the local issues, the power of blogs is again demonstrated. In a previous age, the control of news dissemination was much easier for those who would prefer to give just one side of the story. But once again we witness today a mainstream media channel that is being forced to address an issue its bosses would rather ignore because of these pesky bloggers. Dissenters with solid arguments cannot simply be ignored until they go away in 2009, be that in Peru, Panama or Philadelphia. ¡Que Viven los Bloggers, carajo!

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.

Peru: an excellent source

Farid Matuk (for it is he)

Farid Matuk has a blog! Anyone who follows Peru economics, statistics and suchlike will know the name, so if you do add this link to your interwebnetpipes life.

It is (mainly) Spanish language, but I know that Matuk speaks and writes excellent English so if you are of the Castilian-challenged set and a google auto-translate leaves you wanting, there's always the option of mailing the guy. He even has one of those fancy "ask me a question" thingies on his blog that you can use.

I've been slow to notice that his blog existed (it started in Jan 2009 and holds his thoughts from 2002 onwards) but as of today it's part of the IKN blogroll over there on the right. I hope you take advantage of this resource as much as I will.