CUBA STANDARD — Natural disasters and politics are, of course, unpredictable, but other aspects that shape an economy can be measured, trends can be laid out, and forecasts can be made — even in an economy notorious for its information deficit and the lack of clear signals.
Welcome to the Cuba Standard Economic Trend Index, the first publicly available tool that takes the pulse of the Cuban economy. Put together by a team of experts led by Pavel Vidal, the index — known as CSETI — is a composite of five basic measures.
“The objective is enabling the nowcasting of the island’s economic situation, using an independent measure,” says Vidal, a former Central Bank economist and researcher at the Center for the Study of the Cuban Economy (CEEC) at the University of Havana, who now teaches at Universidad Javeriana in Colombia. “The CSETI will allow the anticipation of Cuban GDP growth and offer an up-to-date signal to investors about the state of the Cuban economy.”
The CSETI, which comes as part of the Cuba Standard Economic Trend Report, makes it unnecessary to wait until the government announces partial GDP growth information — twice yearly, in the sessions of the National Assembly — or to depend on the reports the National Information and Statistics Office (ONEI) publishes with much delay on its website.
Investors in many countries around the globe count on indexes that anticipate the official release of quarterly GDP figures. They are usually put together by universities, research centers, consulting firms, central banks and private financial institutions. In all cases, the variables that make up the index are based on data by the statistics office of the respective country, on manufacturing, employment, consumption, personal income, confidence indexes, among others.
In the case of Cuba, this is impossible, due to the insufficient and lagging information released by ONEI.
From ONEI, the CSETI only takes monthly visitor arrival statistics to gauge the export of tourism services. The remainder of ONEI reports, on agriculture, manufacturing, farmers’ market sales, and on investments, have delays of more than six months, and the historical series are incomplete, which is why they can’t be used in the index.
To get around this problem, the CSETI is based on the following strategy:
On the one hand, the Cuban GDP trend has a proven high correlation with variables of the balance of payments: Exports, imports, terms of trade, and external financing.
On the other hand, although Cuba doesn’t publish monthly information on trade, the main trade partners do report monthly data on exports and imports with Cuba. So the CSETI includes data from trade partners as a mirror of Cuban export and import statistics.
Also available are up-to-date statistics on international commodity prices, allowing to make estimates of the terms of trade. In addition, it is feasible to count on some proxy variables to estimate real external financing. This way, the index includes four categories of series. Additionally, the CSETI incorporates a fifth category that approximates Cuba’s dependency on Venezuela — the monthly trade exchange between the two countries.
So, the theoretical and empirical framework of the balance-of-payments constraint growth, plus the mirror information of Cuba’s foreign trade, as well as other international data, allowed us to make use of the first-ever economic activity index for the Cuban economy.
In total, the Cuba Standard Economic Trend Index counts with 28 variables taken on a monthly base from January 1998 to the present. It includes information on real exports and imports of the 10 leading trade partners, it retrieves data on nickel, sugar, oil and food prices, and it approximates real external financial flows, as well as the dependency on Venezuela.
The Kalman Filter econometric technique used in the index allows estimating a common component of the evolution of the 28 variables. The method makes it possible to separate the idiosyncratic (particular) movement of each series from the common component of all series. This signal contained in the combination of the 28 variables draws together the state of the economy every month, making up the CSETI.