Argentine alert as inflation spectre stalks half the world

Argentina is defaulting on its sovereign debt yet again, this time by stealth. Wealthier Portensos with a nose for trouble are pulling their savings out of Buenos Aires banks. Most are buying dollars, or slipping across the Rio de la Plata to deposit their stash in Uruguay.

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Argentina's trick this time, under the presidential double act of Nestor and Cristina Kirchner, has been to purge the National Statistics Office and appoint a friend to manage inflation data.

The official Consumer Price Index (CPI) is 8.9pc. This is the benchmark used to set payments on inflation-linked bonds, now 40pc of the country's debt.

The true inflation rate is more than 25pc, according to union staff of the statistics office. They allege manipulation. St Luis province is issuing its own data, three times higher.

"Argentina is engineering a partial default on its domestic debt," said Professor Carmen Reinhart, from Maryland University.

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Defaults - 89 of them - occur with monotonous regularity in the same cluster of states, usually triggered by a global slowdown and a commodity slide.

Those with big domestic debts often resorted to "partial defaults" through the easy path of inflation.

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"Governments that have repeatedly inflated away or defaulted on their debts will, in all likelihood, not hesitate to default again," she said.

Never buy a bond until you know who runs the statistics office.