Volkswagen's mistake shakes foreign trade

LAST year's surprisingly high boost in exports was presented as the main motor of Slovak economic growth. However, due to a statistical mistake, actual exports were probably lower than previously thought.
At the end of this January, the Statistics Office of the Slovak Republic announced that it had to postpone publishing the December 2003 foreign trade numbers because the Customs Directorate had to review export data.

LAST year's surprisingly high boost in exports was presented as the main motor of Slovak economic growth. However, due to a statistical mistake, actual exports were probably lower than previously thought.

At the end of this January, the Statistics Office of the Slovak Republic announced that it had to postpone publishing the December 2003 foreign trade numbers because the Customs Directorate had to review export data.

The Statistics Office says that previous data on exports must be amended by 1.75 percent. "The numbers will be published after the revision of input data, probably in the second half of February," stated the office on January 29.

The Customs Directorate found that there were mistakes in the customs declarations submitted by the carmaker Volkswagen, which did not update the prices of some of its exported cars in declarations during the last four months of 2003.

According to the previously published data, the Slovak foreign trade deficit reached Sk10.9 billion (€260 million) during the first eleven months of last year. Slovak exports represented Sk739.9 billion (€17.85 billion), which was 24 percent more than in the same period in 2002.

The Customs Directorate assumes the statistical mistake artificially increased Slovak exports by about Sk14 billion (€340 million).

"The number 14 billion is an educated guess. However, it should not be any higher," Silvia Balázsiková, a spokeswoman for the Customs Directorate, told The Slovak Spectator.

Therefore, instead of a forecasted foreign trade deficit for 2003 of about Sk11 - 14 billion (€270 - 343 million), we can expect it at about 30 billion (€720 million), say analysts.

The young Slovak market is sensitive to only a few economic indicators, and foreign trade is one of them. The Slovak crown weakened shortly after doubts arose about the trade data. Favourable exports had supported the currency's rising trends in 2003 and at the beginning of this year.

"The Slovak crown slipped immediately. It came close to the foreign exchange rate of Sk41.00 to the euro after opening at Sk40.50 to the euro. About 50 haliers during one day is quite a lot," said Marek Gábriš, an analyst at the ČSOB bank.

Foreign trade is one of the factors used to forecast economic growth, and is consequently a base for projecting state budget incomes and the public finance deficit.

Good foreign trade results were also a factor for the recent improvement of Slovakia's credit rating by the Fitch agency.

A similar case happened in the Czech Republic in 2002 when the officially presented trade deficit of Čk94 billion (roughly €3.16 billion) proved to be Čk39 billion (€1.28 billion) less than thought. The incorrect data entered Czech statistics through a miscommunication between statistics and customs offices.

Even though the Czech data finally showed an improvement in foreign trade, which, unfortunately, will not be the case in Slovakia, the head of the Czech Statistics Office, Marie Bohatá, resigned.

The mistake had to be taken seriously: The change in numbers touched predictions of GDP and affected all parts of the financial market - the Czech National Bank, commercial banks, analysts, and the government.

In Slovakia, neither the Statistics Office, nor the Customs Directorate feels it should be punished. They said the mistake was that of the exporter.

"It is not our fault. The Customs Directorate collected incorrect data," Eva Kelemenová, the spokeswoman for the Statistics Office, told the business daily Hospodárske noviny.

She sees no reason for personnel changes in office management like those in the Czech Republic. "For sure, I do not want to downplay the problem, but taking these numbers into account will not have such a great impact," she said to the Národná obroda daily.

The Finance Ministry supported the Customs Directorate, saying "it has been proven that neither the Finance Ministry nor the Customs Directorate made a mistake in foreign trade statistics.

"The data was collected from incorrectly filed customs declarations. And the filing entity is responsible for the data in those declarations," Peter Papanek, the finance minister spokesman, told The Slovak Spectator.

Volkswagen acknowledged its mistake and declared that employees of a company transporting new cars had not correctly updated their price lists, mostly with respect to the Touareg model. The result was the discrepancy in prices in customs declarations and letters of invoice.

The law punishes incorrect customs declarations and this could be costly for the carmaker. Sanctions, however, will depend on whether the exporter actually intended to fill the declarations in incorrectly.

According to the official Volkswagen statement, the mistake was not made on purpose. "Verification measures that have been taken in the past, unfortunately, did not prevent incorrect numbers from being sent from the Customs Directorate to the Statistics Office.

"After thorough analysis of the situation, Volkswagen is cooperating with customs administrators to prepare further measures to prevent such statistical discrepancies," said Jozef Uhrík, the chairman of Volkswagen's board of directors.

Although the Slovak top exporter did not hide its mistake and publicly freed the two state offices of blame, insiders said that the statistics and customs administrations should have appropriate control mechanisms that would identify such a problem earlier.

"Our control systems are sufficient. After all, we did detect the incorrect data. Otherwise, the mistake would have appeared only at the year-end book closing," said Balázsiková.

Even though foreign trade is one of the main components of GDP, the Statistics Office and analysts do not think that the bad numbers will significantly alter GDP growth in comparison to previous predictions.

"The Statistics Office does not think that it will need to revise the published data on GDP for the first three quarters of 2003. The office will release GDP for all of last year on March 2004", Kelemenová told The Slovak Spectator.

Originally, economists forecasted GDP growth by the end of 2003 at approximately 4 percent. They do not expect any dramatic changes.

"It is too early to talk about year-end GDP, as we do not know whether the Statistics Office will amend any other GDP components. If we presume it is only foreign trade that will be revised, then GDP growth might be just under 4 percent," said ČSOB analyst Gábriš.

Analysts do not believe that the slip of Sk14 billion (€340 million) in exports will have a significant impact on economic predictions, performance, or international credit ratings.

Compared to the Sk95 billion (€2.32 billion) foreign trade deficit in 2002, which was 8 percent of GDP, last year's actual deficit of about Sk30 billion (2-2.5 percent of GDP) will still be a great improvement.

"The foreign trade deficit has shown a favourable decrease, even though we must take the statistical mistake into account. I do not think it will have a big influence on the economy's year-end results," said Róbert Prega, an analyst at Tatra banka.

Economists agree that it is not exactly the size of the statistical mistake that matters; it is trust in official information. According to Gábriš, "the problem is that the revision raised concerns among investors."

The whole case also showed the vulnerability of the Slovak economy. The statistical mistake made in the declarations of just one company doubled the foreign trade deficit.

Volkswagen's exports represent about 20 percent of Slovakia's overall exports.

The top 15 exporters in Slovakia are responsible for approximately 40 percent of the volume of exported goods.

"The Slovak economy is sensitive. We now have a chance to change the situation with the help of new investors entering the economy," summarised Prega.

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