Poverty: Is It Getting Better Or Worse?

Argentine President Cristina Fernandez often boasts that poverty has declined impressively in recent years, thanks largely to government economic policies. And nobody doubts that for many years poverty was declining.

But not everyone thinks Fernandez is being fully forthcoming about the matter these days. Most economists think poverty is actually rising as inflation pinches purchasing power at a faster rate than wage hikes lift it. Inflation, economists say, is akin to a tax that flattens peoples’ wallets. Most of the debate over poverty centers on the impact of inflation. Is it the culprit? According to Fernandez, inflation is not a problem, and those who question this assertion are “irresponsible” partisans looking to penalize the government for its success.

Government data put annual inflation at 9%. Private sector economists, however, say the real figure is likely between 22% and 30%. The gap between the official estimate and private sector estimates lies at the heart of the debate over poverty. If inflation really is as low as the government says it is, then the government’s claims that poverty is falling seem plausible, especially since, according to the government, wages are rising by between 20-35% annually. But if private estimates are correct, then it becomes harder to believe that poverty is declining because not everyone’s wages are rising, and especially not by as much as 35%. Indeed, poor workers are often left out of collective bargaining agreements and often fail to see their wages rise inline with those of middle and upper class workers.

Last week the national statistics agency, INDEC, reported that poverty had declined to 17.8% in the first quarter of 2008 from 23.4% a year earlier. (In 2003 poverty totaled 54%, according to INDEC.) Assuming a population of 40 million Argentines, this would put the number of poor people at around 7 million, if the government’s data are correct. But many economists think the percentage of poor people in Argentina surpasses 30%, which would put the number of people living in poverty at around 12 million.

Ernesto Kritz, who studies poverty and employment data at the Society of Labor Studies, wrote in a report last week that poverty in the first half totaled 32.3%, up from 28.3% a year ago.

Part of the reason for the difference between Kritz’s estimates and the government’s is disagreement over the rate of inflation and the cost of a so-called “basic basket” of goods (mainly food and drink items) used to calculate poverty. INDEC says the cost of that basket declined over the past year while Kritz – and almost all other economists – say it has risen notably. Kritz says the cost of the basket is up 29% on the year.

The difference between private sector data, like those put forth by Kritz, and the government’s data is dramatic, and the consequences of this are not merely academic. At stake is not only the government’s credibility but also its approach to eliminating poverty and, therefore, poverty itself. The stakes could not be higher. Unfortunately, for the president, those who dare to question the government’s numbers are engaging in irresponsible political gamesmanship instead of patriotic whistle blowing.

For more detailed information about this issue, you can see a piece I wrote about it here.

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