The Balance of Payments Textbook, like the Balance of Payments Compilation Guide, is a companion document to the fifth edition of the Balance of Payments Manual. The Textbook provides illustrative examples and applications of concepts, definitions, classifications, and conventions contained in the Manual and affords compilers with opportunities for enhancing their understanding of the relevant parts of the Manual. The Textbook is one of the main reference materials for training courses in balance of payments methodology.
141. BOP statistics are arranged within a coherent structure to facilitate analysis, which is undertaken for many reasons—including policy formulation, policy monitoring, projections, studies of the behavior of real and financial markets, and bilateral and multilateral comparisons. The list of standard components contained in the BPM provides an international standard for the structural system within which BOP statistics are compiled. This chapter focuses on classifying international transactions according to the system of standard components.
166. As defined in the BPM, the goods component of the balance of payments covers general merchandise, goods for processing, repairs on goods, goods procured in ports by carriers, and nonmonetary gold. General merchandise (sometimes referred to as merchandise) is defined for BOP purposes as covering (with a few specific exceptions) all movable goods for which actual or imputed changes of ownership occur between residents and nonresidents.
509. Direct investment is a category of international investment in which a resident entity in one economy (the direct investor) acquires a lasting interest in an enterprise resident in another economy (the direct investment enterprise). Direct investment implies a long-term relationship between the direct investor and the direct investment enterprise and a significant degree of influence by the direct investor on the management of the direct investment enterprise. Direct investment comprises the initial transaction between the two entities—that is, the transaction that establishes the direct investment relationship—and all subsequent transactions between the entities and among affiliated enterprises, both incorporated and unincorporated.
International Monetary Fund. External Relations Dept.
This paper explains how the World Bank carries out its most characteristic activity: the identification, preparation, appraisal, and supervision of projects for economic development. The paper highlights that project lending is intended to ensure that the World Bank funds are invested in sound, productive projects with the purpose of contributing both to the borrowing country’s capacity to repay and to the development of its economy. It is in the coincidence of these two purposes that the Bank’s functions as an international financial institution merge with those that it has increasingly assumed as a development institution.
287. According to the BPM, the BOP current account is divided into three broad categories: goods and services (which is subdivided into the same two components), income, and current transfers. The goods component is discussed in chapter 4. Chapter 5 deals with issues associated with the recording of transactions in services. Definitions and treatments of each of the items in this component are elaborated upon.
371. Income, in economic accounts such as the balance of payments, consists of earnings arising from the provision of the factors of production: land, labor and capital. Ownership of land, according to BOP concepts, is always attributed to residents. Consequently, income receivable (such as rent) for the use of land will generally be a transaction between residents and, therefore, outside the scope of the balance of payments.13 Accordingly, the income component of the balance of payments is restricted to income earned from the other two factors of production: labor and capital. Income earned from the former is called compensation of employees, while income earned from the latter is called investment income.
415. Chapters 4, 5, and 6 have dealt with three components of the current account: goods, services, and income. Chapter 7 focuses on transactions recorded under current transfers, which constitute the remaining component of the current account. Components of the capital account (part of the capital and financial account) are also examined. Recorded in the capital account are capital transfers, which are closely related in concept to current transfers, and transactions concerning the acquisition or disposal of non-produced, nonfinancial assets (such as patents and copyrights). However, before these items are discussed in detail, consideration will be given to topics relevant to the recording, in the balance of payments, of both current and capital transfers.
445. Previous chapters of the Textbook have covered transactions recorded in the BOP current account and in the capital account portion of the capital and financial account. This chapter is concerned with concepts pertaining to the financial account. Topics such as the definition of financial account transactions, coverage, time of recording, valuation, and classification are examined. In subsequent chapters, individual components of the financial account are discussed in greater detail.
555. The portfolio investment component of the financial account covers transactions in equities, other securities, and financial derivatives—except when these transactions relate to the direct investment or reserve assets components of the financial account. Both short- and long-term instruments are covered under portfolio investment. The essential characteristic of instruments classified as portfolio investment is that such instruments are traded or tradable. That is, the instruments offer investors the flexibility to shift, regardless of the underlying maturity of the instrument, invested capital from one instrument to another. Portfolio investors are more concerned than direct investors about rates of return that are independent of any influence investors may have and about being able to move funds quickly if circumstances so dictate.