P.R. Statistics Institute, Planning Board to Bring Statistics to the 21st Century
BY EDISON REYNALDO MISLA
Afert years of questions on the reliability of official estimates and projections on Puerto Rico’s economy, the P.R. Statistics Institute has put in motion an ambitious five-year roadmap to finally modernize the commonwealth’s economic statistics.
The plan requires an investment of $3 million per year and is the result of a collaborative effort between Statistics Institute Executive Director Mario Marazzi and P.R. Planning Board Director for Economic & Social Planning Luis R. Benítez. Both agencies have signed an agreement to implement the initiative.
“The true cost of not getting this right five years from now is in-tolerably high,” Marazzi said to Caribbean Business. He cited the report by former International Monetary Fund official Anne Krueger that stated that “improved statistics and transparency could pay for themselves,” but they have an initial cost.
The institute has additional budgetary resources this fiscal year that it can make available to the Planning Board to improve the quality of their statistics, Marazzi explained. The board of the Statistics Institute had approved $500,000 for the improvement of National Account economic statistics.
The roadmap aims to ensure that Puerto Rico’s National Account statistics comply with global standards and adequately measure the size of the informal economy every year. It could also help facilitate Puerto Rico’s future re-entry in the World Economic Forum’s global competitiveness rankings, which this year abruptly excluded the island.
The economic statistics issue was highlight-ed recently in the so-called Krueger report. “Statistics on the wider economy need to be strengthened—urgently,” stated the study, which was released in early June. “Without them, the [Puerto Rico] commonwealth is flying blind.”
Milestones for the roadmap are slated for the spring of each year, to coincide with the re-lease of the Governor’s Statistical Appendix. For the first year, the underlying deflator methodology will be changed and the base year up-dated from 1954 to 2000, answering criticism from many economists and commonwealth bondholders. Such a change may have important government policy implications in the years ahead. “The numbers will change but what we care about most is how they change over time,” Marazzi said.
The Bureau of Economic Analysis (BEA) recommended in 2011 changing the methodology used to estimate banking and insurance services. “The BEA says that when we do this, the gross domestic product (GDP) will be lower, all else being equal.” At the same time, banking should be treated as an intermediate and not a final good, Marazzi explained, so it needs to be subtracted from the production, not added.
In some cases, changes in economic statistics reporting would be gradually phased in. In a given year, statistics would be published in the traditional manner alongside a table with the new data. “We have to do it this way so that the user can compare and see the impact [of the change],” Marazzi said. The following year, only statistics using the new methodology will be published.
The successful implementation of the road-map faces a number of critical challenges, foremost among them is that “there is no one in Puerto Rico who is an expert in the United Nations’ (U.N.) modern national accounting standards,” Marazzi said. Currently, Puerto Rico’s national accounting statistics are presented in compliance with the U.N. standards dating back to 1968. “We need support and resources from outside Puerto Rico, from people who are capable and experts in this area,” he noted. Another challenge is internal opposition to change stemming from the Planning Board’s own technical staff.
While gross national product (GNP) remains a useful economic indicator, the problem is that is has been “erased” from national accounting standards and substituted by GDP, Marazzi explained. Since 1993, GNP has been referred to as gross national in-come, he added. “We need to change the way we call things to be consistent with the rest of the world.”
While there has been an international push for the past seven years to make GDP the main economic indicator, local economists have argued, however, that GDP can’t be used to adequately measure the size of the local economy, Marazzi said. “If that is the case, then Puerto Rico doesn’t have the statistics to compare itself with the rest of the world. It’s a dead-end street [position].”