By Kristina Cooke

BUENOS AIRES (Reuters) - The Argentine Senate late
Wednesday passed a bill to restore credibility to the
country's widely questioned statistics agency in an opposition
move stepping up political pressure on the government ahead of
the 2011 elections.

President Cristina Fernandez's government is accused of
under-reporting inflation and overstating growth for political
gain and investors see an overhaul of the INDEC statistics
bureau as key to Argentina's drive to clean up its reputation
with creditors after a 2002 default.

Wall Street analysts say low-balling the inflation data
helps the government save on inflation-linked debt repayments.

Fernandez has defended the INDEC and official inflation
data, which is less than half private estimates. But if the
lower house of Congress passes the reform bill, as expected,
analysts say a veto could be politically costly.

The bill forms part of an opposition effort to put the
government on the defensive ahead of an October 2011
presidential election. Fernandez is expected to let her husband
and predecessor, Nestor Kirchner, run for election as the
presidential couple seeks to take turns in power.

"What has happened is that the government wants to continue
manipulating the inflation data and with this law they won't be
able to, because the system is rigorous and there are a lot of
controls," opposition Senator Gerardo Morales told reporters
after the bill was passed following hours of debate.

The bill will go to the lower house of Congress, where the
opposition has a majority, before being sent to President
Fernandez.

The proposal aims to make the INDEC an independent agency
monitored by a congressional commission and calls for an
investigation into the bureau's actions since Kirchner
purportedly put the statistics agency in the hands of his ally
Domestic Commerce Secretary Guillermo Moreno three years ago.

It would also seek to reinstate personnel fired in the 2007
shake-up and allows for a 150-day implementation period.

Renegade INDEC statisticians protest every time the
government reports inflation, forming a ring outside the INDEC
building.

"We do not expect any immediate changes to how INDEC is run
or to the credibility of its statistics," Carola Sandy, an
analyst at Credit Suisse, wrote in a note to clients.

"But the approval of this bill would be a step in the right
direction in terms of restoring, over the medium term, the
credibility of Argentine statistics," she said.

Barclays Capital sees a presidential veto if the bill
passes both houses of Congress, which may be difficult for the
legislature to override.

BEYOND THE IVORY TOWER

If Argentina is found to have meddled in inflation data it
would be more than just a political headache for the
government.

If inflation-linked debt investors were short-changed for
the past three years, it could open Argentina up to a flood of
lawsuits.

At least 35 percent of the Argentine government
debt is inflation-linked, according to estimates by Credit
Suisse's Sandy.

Argentina defaulted on $100 billion in debt in 2002, most
of which was renegotiated in 2005 and 2010, However, it is
still in arrears to creditor like foreign governments grouped
in the Paris Club.

Officially, Argentine data puts annual inflation at 11
percent, while private economists and business
leaders estimate the rate at between 20 and 25 percent.

Some trade unions have secured annual pay hikes of around
30 percent in recent months and last week the government hiked
the minimum wage by 23 percent.

High inflation decimates workers' purchasing power and
savings. The rise in food prices is most painful for the poor,
Fernandez and Kirchner's core support base.

That makes inflation data a topic for conversation in
Argentina far beyond the ivory towers of academia and central
banking.

"You mention INDEC to any Argentine and they will say you
can't believe it," said Miguel Kazka, a taxi driver in Buenos
Aires.

That lack of credibility also compounds business and
investor nervousness about putting money to work in Argentina,
analysts say.

"More credible inflation statistics would definitely help
lift some of the uncertainty surrounding Argentina for
investors," said Sebastian Briozzo, an analyst for Standard &
Poor's.
( Editing by W Simon )