Survey cuts through economic fog

VILNIUS - Statistics never lie, so the old saying goes, but statisticians sometimes do. Or at least make mistakes. The numbers themselves are viewed as cold, unbending facts, but who is doing the calculations usually has an impact on the final figures.

Witness: a survey conducted back in June by the Lithuanian Free Market Institute forecasts 5.7 percent GDP growth in 1999. Until recently, the government stood by its official figure of 7 percent, even in light of the financial meltdown in Russia. The institute found GDP growth in the first half of 1998 was about 5 percent. Again, the government puts the number at 7 percent.

"Our research is based on only one assumption - that the market participant who makes economic decisions on a daily basis knows what is going on in the market," said Guoda Steponaviciene, head of the Free Market Institute, which conducted the survey to offer a clearer picutre of Lithuania's economic health.

Forty-eight repondents from the business and finance communites made estimates about 12 macroeconomic variables which the institute used to help draw their conclusions for the current macroeconomic situation and forecasts.

Elena Leontjeva, president of the institute, said estimating a country's budget based on overly optimistic indicators is "unreasonable."

"We saw that the 1999 budget was not based on a realistic GDP prognosis," said Leontjeva. "There is a wish to spend budget money that is difficult to collect for the budget. It is very dangerous to do that because when those revenues are not collected, entrepreneurs will be blamed for that as well as those who do not pay taxes to the state."

In early November, an IMF mission in Vilnius also voiced the belief that the official GDP forecast was too cheery. Later in the month, after the effects of the Russian crisis on the economy were considered, the government slashed the estimate to 5.5 percent. The decision naturally led it to tinker with the budget planned for 1999, which ended up getting pared by 3 percent.

IMF Managing Director Shigemitsu Sugisaki, who visited Vilnius for two days in late November, praised various economic developments in Lithuania.

While he said the reduced 1999 GDP prognosis was within the range of reason, he added that it was still on the optimistic end of the scale. The IMF office in Vilnius stated the organization is predicting closer to 4 percent GDP growth in 1999.

Tricky figures

Although the institute's survey was conducted last June, local experts managed to take "those adverse factors that were not articulated publicly at that time" into account.

According to the institute, the survey respondents were able to provide a more modest judgement of macroeconomic indicators even though the evidence of Russia's huge financial woes was only beginning to surface.

"It is very likely, therefore, that the economic collapse [in Russia] was regarded [at that time as a] possibility rather than a fact," read an institute press release. "In autumn, Lithuanian authorities began to adjust official forecasts of GDP growth, putting them at a similar level to that reported by institute's survey participants."

Leontjeva called the diminished official GDP forecast figure "more realistic," but stressed the need to operate along certain principles when revising the budget becomes necessary.

"It is important to know how the budget will be revised if there is not enough income," said Leontjeva. "Whether all the articles of expenditure will be cut by the same proportion or whether there will be some kind of expenditure which will be abolished at first.

"Without such a principle, there is always a problem: what will be financed and what will not be financed?"

Steponaviciene said the GDP indicator is rather tricky to estimate, thus the need for several predictions from different sources.

Inflation and other indicators

Inflation consistently appears heftier in the institute's survey results than in official statistics. The participants put inflation at 4.6 percent in the first six months of 1998, approximately twice as high as official numbers. Survey forecasts bumped the figure even higher to 8.5 percent for the period starting mid-1998 and ending mid-1999.

"The Department of Statistics calculates inflation based on the basket of consumption goods and services, which was compiled based on the 1995 consumption structure," Steponaviciene said.

"Based on this structure, a certain weight is attached to each component of the basket. What people buy today may not necessarily be reflected in the basket. The experts made their estimates of inflation based on prices which are relevant today."

The polled experts supplied "more cautious" readings than official statistics on other macroeconomic indicators as well. While they posted higher numbers in areas such as unemployment and the shadow economy, the experts' were less conservative than the government when it came to of profit margin, return on equity and investments also loomed higher than what the Department of Statistics reported.