Abstract

The Report evaluates statistical practices relating to the measurement of international capital flows. In particular, the principal sources of statistical descrepancies in the component categories of the capital account in the global balance of payments are addressed.

© 1992 International Monetary Fund

Cover design and interior by IMF Graphics Section

Library of Congress Cataloging-in-Publication Data

Report on the measurement of international capital flows.

      • p. cm.

    • Includes bibliographical references.

    • ISBN 9781557753076

    • 1. Capital movements-Statistical methods. 2. Capital movements-Statistical services.

  • I. International Monetary Fund.

  • HG3891.R47 1992

  • 332’.042—dc20

92-24762

CIP

Price: $19.50

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Contents

  • Terms of Reference of the Working Party

  • Explanatory Note on Sign Conventions

  • Composition of the Working Party

  • Executive Summary

    • Introduction

    • Findings

    • Major Recommendations

      • Recommendations Applicable at the National Level

      • Recommendations Applicable to the Fund and Other International Organizations

      • One Final Recommendation

  • I. Introduction and Summary

    • Establishment of the Working Party

    • International Capital Markets in the 1980s

      • Financial Liberalization

      • Financial Innovation

      • Trends in International Financial Flows in the 1980s

    • Economic Policy Concerns

    • Working Party Program

    • Findings for Major Capital Flow Categories

      • Direct Investment

      • Portfolio Investment

      • Other Capital

      • Reserves and Liabilities Constituting Foreign Authorities’ Reserves

    • Overall Statistical Results

      • Adjusted Global and Regional Accounts

      • Actions Needed

      • Prospects and Costs

    • Addendum: Revised Data from the 1991 Yearbook

  • II. Concepts and Methods

    • Conceptual Framework

    • Common Methodological Problems

      • Achieving Adequate Coverage

      • Defining Residence

      • Classifying Transactions

      • Correct Timing

      • Deriving Flows from Stock Data

      • Foreign Exchange Conversion

      • Inconsistencies in Company Accounting Standards

    • National Compilations: Improvements Planned

    • The Role of the Fund and Other International Organizations

    • Conclusions and Recommendations

  • III. Direct Investment

    • Introduction

    • Definition

    • Reinvestment of Earnings

      • Description and Global Imbalances

      • Country Practices and Adjustments

      • Bilateral Comparisons

      • Concluding Remarks

    • Other Direct Investment Capital Flows

      • Description and Global Imbalances

      • Country Practices and Adjustments

      • Bilateral Comparisons

      • Concluding Remarks

    • Data Sources and Methods

    • Conclusions and Recommendations

  • IV. Portfolio Investment

    • Introduction

    • Definition

    • Country Practices and Adjustments

      • Bonds

      • Equities

      • Bilateral Comparisons

    • Coverage of Portfolio Transactions

      • Private Individuals

      • Financial Intermediaries

      • Other Financial Institutions

      • Concluding Remarks

    • Stock of Cross-Border Bonds

    • Conclusions and Recommendations

  • V. Other Capital: Overview and Short-Term Marketable Instruments

    • Overview of “Other Capital” in Balance of Payments

    • Short-Term Marketable Instruments

    • Reported Data on Short-Term Instruments

    • Forms of Short-Term Marketable Instruments

      • Euronotes

      • Foreign Commercial Paper in the U.S. Market

      • Eurodollar Certificates of Deposit

      • Treasury Bills

    • Conclusions and Recommendations

  • VI. Other Capital: Nonbank Capital Flows Measured from International Banking Statistics

    • Introduction

    • International Banking Statistics

    • Nonbank Transactions with Foreign Banks

      • Nonbank Claims on Foreign Banks

      • Nonbank Liabilities to Foreign Banks

      • Summary Comparisons

    • Conclusions and Recommendations

  • VII. External Debt in Balance of Payments Data and IBRD Debt Statistics

    • Introduction

    • International Debt Statistics

    • Long-Term Debt

    • Short-Term Debt

    • Conclusions and Recommendations

  • VIII. Transactions in Official Reserve Assets

    • Introduction

    • Instrument Composition of Reserve Transactions

    • Special Questionnaire Responses

    • Swap Transactions in the European Monetary System

    • Instrument Allocation of Foreign Exchange Transactions

    • Adjustments to the Reserves/LCFAR Discrepancy

    • Conclusions and Recommendations

  • IX. Offshore Financial Centers

    • Introduction

    • Forms of Offshore Activity

    • Six Offshore Financial Centers

      • Sources of Data

      • Adjustment to Capital Accounts

      • A Balance of Payments Statement for Offshore Activities

      • Conclusions on Six OFCs

    • Hong Kong

    • OFC Activity in Other Countries

    • Conclusions and Recommendations

  • X. International Organizations

    • Data Improvement Initiatives

    • International Organization Accounts

    • Balance of Payments of International Organizations

    • Staff Pension Funds

    • Conclusions and Recommendations

  • XI. Concealed Capital Flows and Balance of Payments Statistics

    • Introduction

    • The Measurement Problem

    • Balance of Payments Accounting Framework

    • Alternative Data Sources

    • Drug Trafficking and Other Illegal Activities

      • Estimates of Market Size and Capital Flows

      • Drug Flows and Balance of Payments Statistics: Two Examples

    • Conclusions

  • XII. International Investment Positions and Investment Income

    • Global Asset and Liability Positions

      • The Role of Position Statistics

      • Major Categories of Investments

    • Reconciliation of Flows and Stocks

    • Relation to Income Accounts

    • Geographic Allocations

    • Conclusions and Recommendations

  • XIII. Compiling and Completing the Global Matrix

    • Introduction

    • Management of the Fund’s Balance of Payments Data Base

      • Publication of the Data

      • Collection and Compilation of Capital Account Data

      • Relationship Between Part 1 and Part 2 Data

      • Other Fund Data Bases

      • Estimation Procedures

    • Role of Fund Estimates in the Global Totals

    • Effects of the U.S.S.R.’s Balance of Payments Data on the Global Capital Account Discrepancy

    • Conclusions and Recommendations

  • Statistical Appendices

  • I. Respondents to Special Questionnaire on International Capital Flows

  • II. Draft Fifth Edition of the Balance of Payments Manual

  • III. Survey of National Direct Investment Practices

    • Background

    • Survey Results

      • Percentage Threshold

      • “Indirect Connections”

      • Real Estate

      • Mobile Equipment

      • Construction Activity

      • Direction of Investment

      • Sectoral Coverage

      • Coverage of Forms of Capital Flows

      • Realized and Unrealized Capital Gains and Losses

      • “Reverse Transactions”

      • Sources and Methods

  • IV. Detailed Direct Investment Tables

  • V. The BIS International Bond Data Base

  • VI. Criteria for the Geographic Allocation of Securities Transactions

  • VII. Estimation of Global Stock of Cross-Border Bonds

    • Liabilities

    • Assets

  • VIII. Do Revisions Reduce the Global Capital Account Discrepancy?

  • List of Charts

  • 1. Global Capital Account Transactions Compared with Transactions in Goods and Services, 1983–90

  • 2. Balance of Payments Accounts of Major Countries, 1990

  • List of Tables

  • 1. Global Capital Account Discrepancies, 1986–89

  • 2. Global Capital Account Discrepancies, After Adjustment, 1986–89

  • 3. Global Capital Account Discrepancies, 1983–89

  • 4. Global Capital Account Discrepancies and Adjustments, by Major Components, 1986–89

  • 5. Adjustments to “Other Capital” Indicated by International Banking Statistics, 1986–89

  • 6. Global Balance of Payments Accounts As Reported and Adjusted, 1986–89

  • 7. Countries Ranked by Reported 1986–89 Capital Flows

  • 8. Global Capital Account Discrepancies, 1984–90

  • 9. Standard Capital Account Components in the Fourth Edition of the Balance of Payments Manual

  • 10. Discrepancies on Global Direct Investment Capital Flows, 1986–89

  • 11. Global Direct Investment Discrepancy and Adjustments, 1986–89

  • 12. Global Reinvestment of Earnings Discrepancy and Adjustments, 1986–89

  • 13. Excess of Bilateral Outward Reinvestment of Earnings over Inward Reinvestment of Earnings Among Four Major Countries, 1986–88

  • 14. Discrepancy on Global Other Direct Investment Capital Flows and Adjustments, 1986–89

  • 15. Excess of Bilateral ODI Outflows over Inflows Among 11 Countries

  • 16. Discrepancies on Global Portfolio Investment Capital Flows, 1986–89

  • 17. Global Portfolio Investment Discrepancies and Adjustments, 1986–89

  • 18. Adjustments to Transactions in Bonds, 1986–89

  • 19. LCFAR Compared with Net Reserve Transactions, 1986–89

  • 20. Adjustments to Transactions in Equities, 1986–89

  • 21. Japanese Net Portfolio Investment in U.S. Bonds, Comparison of Bilateral Data, 1986–89

  • 22. Stock of Cross-Border Bond Assets and Liabilities, Year-end 1988

  • 23. Global Discrepancy on “Other Capital” Flows, Sector Balances, and Adjustments, 1986–89

  • 24. Adjustments to “Other Capital” Flows Relating to Cross-Border Transactions in Short-Term Instruments, 1986–89

  • 25. Cross-Border Transactions in Short-Term Instruments, 1987–88

  • 26. Comparison of Euronotes and Private Sector Cross-Border Short-Term Paper Liabilities by Country, Year-end 1988

  • 27. Outstanding Debt in the Euronote Market, by Country, 1987–89

  • 28. Comparison of U.S. Holdings of Foreign Short-Term Instruments with Foreign Commerical Paper Issued in the U.S. Market, Year-end 1989

  • 29. Eurodollar CDs Held by Banks in the United Kingdom for Nonresidents, by Country, Years-end 1986–89

  • 30. Official Sector Cross-Border Short-Term Paper Liabilities, Years-end 1986–88

  • 31. Adjustments to Nonbank “Other Capital” Suggested by International Banking Statistics, 1986–89

  • 32. Nonbank Claims on Foreign Banks: Comparison of IBS and National Balance of Payments Estimates, Annual Average Flows, 1986–89 (Countries That Use International Banking Statistics)

  • 33. Nonbank Claims on Foreign Banks: Comparison of IBS and National Balance of Payments Estimates, Annual Average Flows, 1986–89 (Countries That Do Not Use International Banking Statistics but That Have Balance of Payments Items Comparable to IBS)

  • 34. Nonbank Claims on Foreign Banks: Comparison of IBS and National Balance of Payments Estimates, Annual Average Flows, 1986–89 (Countries Not Included in Tables 32 and 33)

  • 35. Nonbank Liabilities to Foreign Banks: Comparisons of IBS and National Balance of Payments Estimates, Annual Average Flows, 1986–89 (Major Countries with Comparable Balance of Payments Item)

  • 36. Nonbank Liabilities to Foreign Banks: Comparisons of IBS and National Balance of Payments Estimates, Annual Average Flows, 1986–89 (Countries Not in Table 35)

  • 37. Summary Comparisons for Nonbank “Other Capital” Flows: IBS and National Balance of Payments Estimates, Annual Average Flows, 1986–89

  • 38. Drawings Net of Repayments in the Form of Long-Term Credit, 13 Countries, 1986–89

  • 39. Debt-Restructuring Agreements with Brazil and Mexico, 1987–89

  • 40. Net Borrowings in the Form of Short-Term Debt, 1986–89

  • 41. Reserve Transactions by Standard Fund Components, 1986–89

  • 42. Discrepancy Between Reserve Transactions and LCFAR, 1986–89

  • 43. Foreign Exchange Reserve Transactions, Detail Provided to Working Party

  • 44. Foreign Exchange Reserve Transactions, by Detail Provided to the Working Party, 1986–89

  • 45. Instrument Detail of Transactions in Foreign Exchange Reserves, 1986–89

  • 46. Reserves, LCFAR, and Adjustments, 1986–89

  • 47. Identified Portions of LCFAR Adjustments to “Other Capital,” 1986–89

  • 48. Summary of Capital Account Adjustments for Activity in Offshore Centers

  • 49. Cross-Border Banking Positions for Offshore Financial Centers, Years-end 1985 and 1989

  • 50. Six Offshore Financial Centers: Adjustments of Balance of Payments Statements to Include Offshore Banking Activity, Net Annual Average Flows, 1986–89

  • 51. Total Effect of Adjustments to IBS Data, Direct Investment, Portfolio Investment, and Short-Term Securities Statistics, for Six Offshore Financial Centers, Net Annual Average Flows, 1986–89

  • 52. Balance of Payments Statement for Offshore Financial Activity of Six Offshore Centers, Annual Average Flows, 1986–89

  • 53. Capital Account Transactions of International Organizations, 1986–89

  • 54. Capital Account Balances of Selected International Organizations, 1986–89

  • 55. Balance Sheet Structure of Major International Organizations, Years-end 1985 and 1989

  • 56. Balance of Payments Accounts of International Organizations, 1986–89

  • 57. Total Assets of Staff Pension Funds of Selected International Organizations, Year-end 1988

  • 58. Range of Cumulative Capital Flight Estimates for Selected Countries, 1976–84

  • 59. Comparison of IBS and Balance of Payments Statistics on External Assets of Nonbanks for Selected Countries and Groups

  • 60. Illegal Trade as Reflected in Balance of Payments Accounts: Example 1

  • 61. Illegal Trade as Reflected in Balance of Payments Accounts: Example 2

  • 62. International Investment Positions, Year-end 1988

  • 63. Holdings of Securities by Industrial Countries, 1988

  • 64. Adjustments to Reported Current Account Net Investment Income, 1986–89

  • 65. Correspondence Between WEO and Statistics Department Categories of Capital Flows

  • 66. Contribution of Country Reports and Fund Estimates to Global Balances, 1986–89

  • 67. Total Capital Account Flows and Discrepancies: Effects of Revisions, 1986–88

  • 68. Capital Account Balances and Adjustments for U.S.S.R. and Selected Socialist Countries, 1986–89

  • 69. Global Reinvestment of Earnings Discrepancy and Adjustments, 1986–89

  • 70. Bilateral Comparisons of Reinvestment of Earnings, 1986–88

  • 71. Discrepancy on Global Other Direct Investment Capital Flows and Adjustments, 1986–89

  • 72. Bilateral Comparisons of Other Direct Investment Capital Flows, 1986–88

  • 73. International Bonds, by Type and by Currency of Issue, 1986–89

  • 74. Methods Used by Selected Countries to Estimate Bond Positions

  • 75. Global Stock of Cross-Border Bond Assets and Liabilities, Year-end 1988

  • 76. Revisions Analysis of Capital Account Discrepancy: Discrepancy Amounts, 1982–89

  • 77. Revisions Analysis of Capital Account Discrepancy: Revision Amounts, 1982–88

  • 78. Revisions Analysis of Capital Account Discrepancy: Revisions Due to Selected Coverage Changes, 1982–88

  • 79. Revisions Analysis of Capital Account Discrepancy: Other (“Normal”) Revisions, 1982–88

Terms of Reference of the Working Party1

The Working Party will evaluate statistical practices relating to the measurement of international capital flows and, in particular, investigate the principal sources of discrepancy in the component categories of the capital account in global balance of payments statistics and consider a course of action that could be adopted by the International Monetary Fund and national compilers with a view to minimizing these discrepancies over time.

The principal focus of the Working Party’s activities will be the following major categories of the capital account: (a) direct investment, (b) portfolio investment, (c) other long-term and short-term capital flows, and (d) reserves and liabilities constituting foreign authorities’ reserves. In undertaking the investigation, the Working Party is asked to assess the adequacy of the coverage of reported international capital flows in light of related data on selected aspects of international assets and liabilities, that is, the Fund’s reporting system for international banking statistics, the World Bank’s debtor reporting system, the Organization for Economic Cooperation and Development’s creditor reporting system, the Bank for International Settlements’ statistics relating to the banking system, and the role of offshore financial centers. In addition, the Working Party is asked to investigate ways to assess the magnitude of unrecorded international capital flows that constitute the international underground economy, in particular those involving illicit trade in drugs and arms and the related financing (capital) transactions. These flows are thought to be important, but their dimensions are not known. In pursuing its work, the group will be assisted by a technical staff of up to five professionals provided by the Fund and based in Washington.

The chairman of the Working Party will determine, in consultation with other members, the program of work and the timing of the meetings. An interim report of the Working Party will be presented to the Managing Director no later than December 1990, and the final report no later than December 1991, for subsequent consideration by the Executive Board.

Explanatory Note on Sign Conventions

Like general business accounting, balance of payments accounting is based on a number of conventions. The first and most basic of these conventions is the double-entry system. Each debit has a corresponding credit with the opposite sign, and vice versa. Credits, or receipts, are given a positive sign ( + ). Debits, or payments, are given a negative sign ( − ).

In total, for every country, the deficit ( – ) or surplus (+) on the current account should equal the net capital account (with the opposite sign). Unfortunately, “errors and omissions” do occur, sometimes in very large amounts. The sum of the three (with their respective signs) must be zero in order to conform with the double-entry convention.

When capital flows are recorded in the balance of payments, inflows are given a positive sign (or no sign) and outflows are given a negative sign. When all inflows and outflows are added up, a positive balance indicates that recorded inflows are larger than recorded outflows; in other words, in total, there is either a net increase in the country’s liabilities to, or a net decrease in its assets with, the rest of the world. Conversely, a negative sign indicates that outflows are larger than inflows and there is either a net increase in the country’s assets with, or a decrease in its net liabilities to, the rest of the world. This convention is followed in the tables and in the comments included in this report. Most table headings include the notation “outflows ( – )” to reflect this convention.

For the world as a whole, every inflow into one country is an outflow from another country; if all transactions are properly recorded, their total should add up to zero. When the global total is not zero, there appears a “discrepancy,” or an “imbalance,” in the accounts.

A discrepancy with a negative sign simply reflects the fact that the total of recorded outflows exceeds the total of recorded inflows. Conversely, a discrepancy with no sign in the tables reflects the fact that the total of recorded inflows exceeds the total of recorded outflows. The existence of a discrepancy is not necessarily of analytical economic significance. It simply shows that data have been recorded incompletely or nonsymmetrically.

Use of the adjectives “positive” or “negative” in this document reflects no value judgment about the phenomena revealed by the data being considered; these terms apply solely to the statistical nature of the discussion.

When transactions occur across borders between economic agents belonging to different “sectors” of their respective economies, the total of these subgroups for the world need not necessarily add up to zero. Such sectoral figures sometimes appear in tables with “discrepancies” and “outflows ( − )” included in their headings. In such tables the interpretation of nonzero global balances as discrepancies applies only to the lines showing totals and not to the sectoral subtotals shown in other lines of the tables. Wherever possible, notes and text indicate which of the figures should total to zero and which should not. The authors apologize for the unavoidable complication.

The following symbols have been used throughout this report:

  • … To indicate that data are not available.

  • — To indicate that the figure is zero or less than half the digit shown, or that the item does not exist.

“Billion” means a thousand million.

Details may not add to totals shown because of rounding.

Composition of the Working Party

Chairman

Baron Jean Godeaux, Former Governor, National Bank of Belgium

Members

Ian Castles, Australian Bureau of Statistics

Jose A. Girao, Statistical Office of the European Communities

Javier Guzman C., Banco de Mexico

Ernesto Hernández-Catá, IMF, Research Department

John E. Kidgell, Central Statistical Office, United Kingdom

J. Steven Landefeld, U.S. Department of Commerce

Alessandro Leipold, IMF, Exchange and Trade Relations Department

Edmond Malinvaud, Collège de France

Helmut Mayer, Bank for International Settlements

John B. McLenaghan, IMF, Statistics Department

Marius van Nieuwkerk, De Nederlandsche Bank, N.V.

D.C. Rao,1 The World Bank

Rudolf Seiler, Deutsche Bundesbank

A. Seshan,2 Reserve Bank of India

Kazuko Tanaka, Ministry of Finance, Japan

Erwin Veil,3 Organization for Economic Cooperation and Development

Ex officio

John E Wilson, U.S. Federal Reserve Board

Members of the Technical Staff

John F. Wilson (Director)

Arie C. Bouter

John Motala (Statistics Canada)

Neil Patterson (Australian Bureau of Statistics)

Samuel Pizer

Stephen P. Taylor

Secretarial and Research Staff

Jennifer Dye

James Higham

Yoon Sook Kim

Alice McPhillips