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JPMorganTakesOffenseAtArgentina’sFabricated Reserves Data
As wenotedpreviouslythereis a racetothebottom between the Argentine currency and its central bank’s reserve balance as day by day both slideseeminglyunceasingly. However, as JPMorgan notes in a rather aggressive note, a local press article sheds doubtsoverArgentina’s ‘honest’ reportingofinternational reserves. Though long used to the lies about inflation (that endedupwiththeeconomyminsterbeingfired and it beingdeemed ‘illegal‘ totellthetruth), JPMorgan blasts that during a balance of payments crisis – as Argentina is undergoing – suchmanipulationofofficialstatistics (andone so criticalformarketsentiment) isdetrimentaltotheneededconfidencebuilding around the transition in the FX regime and is "a veryverybad idea". Simply put, Argentina is over-stating its reserves… considerably.
Which hits the bottom of the chart first?
ViaJPMorgan,
Prior totheweekof peso devaluation (Jan 23) thereportingdiscrepancy (firstprintminus final report) wasrunningatanaveragedaily -$0.02 billion (and of no interest to investors), duringtheweekofdevaluationitjumpedto +$0.15 billion and the week following devaluation it increased further to +$0.29 billion. On Jan 30th (last comparable report) the discrepancy was +$0.45 billion.
Authorities have provided no explanation for the initial over-statement of reserves this implies, thus, inviting markets concern over reliability of reserve reporting. Note that the discrepancy between first print and final report does not necessarily imply that the quality of final reserve reporting is deteriorated (only that of the same-day estimate). But by tainting the reliability of first print it will raise market concern over potential lack of reliability of final reporting too.
While first print is preliminary and subject to revision, the size of recent discrepancies have no precedent. This suggest that the government may be attempting to manage expectations by temporarily fudging the "estimate " of reserve numbers (first print) while not compromising "actual" final reported numbers. If this is so, it is a dangerous game to play and one likely to back-fire.
During a balance of payments crisis – as Argentina is undergoing – such manipulation of official statistics (and one so critical for market sentiment) is detrimental to the needed confidence building around the transition in the FX regime.
Note that informal same-day estimates from market participants about that Central Bank intervention have been higher than same-day reporting of that intervention by authorities lately. With this backdrop in mind, the growing over-statement in same-day reserve level reporting will also lead to suspicion that same-day reporting of FX intervention in spot market by Central Bank is understated.
And as a gentle reminder of the mirage of currency devaluation/hyperinflation on stock returns (cough Japan cough) – here is Argentina’s MERVAL index adjusted for its currency (official and black market) – not the outperformer it was heralded…
Coming to a Develped Market near us soon?
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