Professional Forecasters Failed Venezuela
As bad as the economic crisis of 2003 was, a recent study shows that Venezuela's professional economic forecasters grossly overestimated the crisis.
Analysts, experts, and economists failed in the past year by over 80% in their predictions for the development of the Venezuelan economy. The cause: the use of statistics as a weapon of political war. No doubt, making predictions in economies that are subject to a high degree of volatility and to factors of continuous political destabilization is a complicated task. But in Venezuela economic information has been used for political ends, supplying political discourse with a supposedly technical wrapper, supposed statistical support, and with constant announcements of imminent cataclysms, default, moratoriums, non-payment, and bankruptcy.
Currently there is a report circulating among financial institutions that comes from the finance ministry, where it is asserted that the average error of Venezuela’s professional economic forecasters—Gustavo García, Pedro Palma, Francisco Rodriguez, Efraín Velasquez, Orlando Ochoa, and the companies VenEconomia and Datanalisis—reached an average error of 83%. The prize was won by Gustavo García and the most accurate was Francisco Vivancos. The average inflation rate they forecast was 45% (an error of 67% relative to the actual figure). The most inaccurate figure came form VenEconomia, which forecast an inflation rate of 58%.
With regard to economic growth, the forecast was for a 35% economic contraction for 2003, but the average prediction was 17%, a figure that exceeded the actual value by 63%. The big forecasters also failed magnificently with regard to the fiscal deficit, and in predicting the active interest by an error of 82% and the passive interest rate by 93%. Forecasts involving unemployment erred by 52% and the figure for the international reserves erred by 47%.
There are interesting things in the study, such as a positive correlation between the degree of error and the forecaster’s degree of exposure in the national media. Also, there is an open contradiction between forecasts, realities, and the behavior of economic actors. An economic scenario was created, which would fail to provide reliable information for decision-making. And if these forecasts noticeably affected the attitude of local economic actors, they did not exercise the same influence on the behavior of foreign actors.
International analysts appeared to be less aggressive and more consistent, evaluating the recovery of our economic fundamentals more objectively and appreciated the recovery of the oil industry (PDVSA).
Now the pundits are returning for the attack and are speaking of the winds of devaluation, even though the national budget foresees an average exchange rate with the dollar at 1,920 bolivars. It is time we speak about the real economy and not about desired virtual and destabilizing scenarios.
Editor’s note: The figures used for the report were preliminary, as of late 2003. Actual figures at that time were as follows: inflation: 27%; fiscal deficit: 3%; GDP: -11%; active interest rate: 20%; passive interest rate: 16%; unemployment: 14.1%; $ reserves: $19.8 billion.