Structuring Macroeconomic Data for Business Decisions Before deciding for going international, business professionals need a lot

of quantitative and qualitative information on the partners home country economy. These data are usually presented in form of two different studies: 1. A Country Report; 2. A Market Survey. The country report contains data and arguments related to political, social, legal system, macroeconomic and information risks. Only when the country report is positive, a market survey will come in discussion. The political risk is related to the change of the governing body as a result of regular or early election. The social risk refers to strikes and other conflicts or tensions between employers and employees that might jeopardize a business or a transaction. Legal system risk means frequent change in legal regulations referring to businesses (legislative volatility) and/or weak implementation of legal provisions in real business life. Information risk is generated by fake information or by manipulated data by certain individuals or groups of interest in order to induce a wrong attitude or decision. Only data from guaranteed official sources should be considered by business professionals. Macroeconomic risks are referring to unexpected and strong changes in the economic trends of a country, changes that determine absolute or relative losses for a business. Businessmen and managers use a whole range of indicators aiming at sensing the different risks mentioned before. A grouping of these data in five categories (also known as a magic pentagon might be an appropriate structuring of the available information: 1. Economic growth indicators: - real growth rate of GDP in the previous 1-3 years; - gross fixed capital formation as % of GDP or investment ratio. 2. Price stability indicators: - consumer price index during the last 1-3 years or (by subtracting 100 from the CPI) the (annual) inflation rate in consumer price terms; - more rarely, the implicit GDP deflator is also showing up in this group of indicators. 3. Use of human resources indicators: - quota of active or occupied population in the total number of inhabitants; - number of unemployed persons and unemployment rate. 4. Social stability (harmony) indicators: - poverty ratio - number of work conflicts and/or average duration of strikes per 1,000 employees; - the spread between the highest and the lowest wages in a specific industry. 5. External sector equilibrium indicators: - current account imbalance as % of GDP;

- commercial account imbalance as % of GDP; - external debt as % of GDP or external debt per capita; - external debt service as % of exports income. Table No. 3.1 shows the main macroeconomic indicators for Romania. To the five groups of data, in specific transactions a businessman could be interested to learn also about the share of the public sector in a transition economy, the level and increase ratio of the postponed payments between economic actors, the increase ratio of the inventories (non marketed final products), the internal indebtness of the government, the % value of the public deficit as compared to the GDP or the grey economy estimation. A business professional might not have always the time to have a self-made pentagon of macroeconomic indicators. Sometimes he is referring only to one or two sensors of the economic cycle in order to estimate risks and opportunities for his business. Examples: - Interesting sensors during economic growth phases and boom periods of an economy: - number of new enterprises created in the economy or in a specific industry; - number of new work-places; - decrease of the unemployment rate; - increase of loans granted to private enterprises and entrepreneurs; - increase of the consumption and/or increase of investments in building projects; - increase of the consumer sentiment index, etc. - Sensors to be used to observe decrease or crisis periods in an economy: - number of businesses closed down; - number of new unemployed persons; - increase of the unemployment rate; - increase of the inventories of un-marketed goods, etc. It is important to note that different industries and activities within a national economy are usually in various stages of the economic cycle. See also Figure No. 3.2. Alternative instruments for sensing macroeconomic environment in a country The Index of Economic Freedom. The idea of producing a user-friendly instrument for policy-makers in order to quickly sense the economic freedom in a business environment was born at The Heritage Foundation in 1989. The purpose is to develop an index that measures the extent of economic freedom in countries around the world. To this end, a set of ten objective economic criteria has been established to grade and rank countries. While there are many theories referring to the origins and causes of economic development, it seems to be obvious that countries with the most economic freedom show higher rates of growth (a more consistent growth) and better living standards than those with less economic freedom. The Index of Economic Freedom is based on grades given by independent experts on a scale from 1 to 5 for the ten factors listed below. The higher the grade, the more government interference in the economy (hence the less economic freedom) there is. After grading each of the criteria, a simple arithmetical average of the ten grades gives the general score of a country. Facts and figures about the researched economies are

produced by American businessmen and officials and transmitted on a regular basis to the State Department of Trade. The criteria (factors) are: 1. Trade Policy 2. Taxation Policy 3. Government consumption as % of GDP 4. Monetary policy 5. Capital Flows across Borders and Foreign Investment 6. Banking Policy 7. Wage and Price Controls 8. Property Rights Preservation 9. Level of Regulations 10. Black Market Romania was enlisted the first time in 1995. It currently scores 3.70 and rank on position 131 out of 156 researched countries. Another very fashionable instrument sensing the business environment in a country is the Perceived Corruption Index estimated by The Transparency International organization. This is why it is also known as the Transparency Index. Experts of the organization estimate this index for each country by making use of the outcomes of a number of independent opinion surveys in the respective country. There are three target groups surveyed: businessmen, risk experts and citizens of the country. On this basis experts are grading on a scale from 1 to 10 the responses of each target group and establish an average grade and a standard deviation between the different dominant opinions expressed in the surveys. The lower the perceived bureaucracy and corruption in a country, the higher grade is granted. In 2003, Romania showed a score of 2.8 and ranked 83 among 133 countries. A way to easily sense the business environment in a country might be represented by the Business Barometers regularly published by various institutions in each country. They are based on monthly inquiries of managers aiming at scoring their expectations in the field of their business. The most important advantages of this instrument are two: - it shows not only the general perception of industrials, bankers and other categories of business professionals but also short term expectations of the managers differentiated by industries: - it is a user-friendly source of systematic information for every one. Country Risk Ratings are also a good source of information for business orientation. Ratings are the result of a systematic appraisal of the relative risks between countries from a financial and political viewpoint. They try to identify explicitly and, as far as possible, to quantify the international macroeconomic risks that concern a financial institution, whether investing, lending money or financing trade. Rating agencies are using different scaling systems and final score presentations. Finally, Stock Market Indices might be also used by business professionals to sense the immediate situation and the very short term outlook of the business environment in a country. Nevertheless, these index numbers have to be considered only as an indirect source of information for a correct and complete diagnosis of the business opportunities and risks existing in a given country.