Analysis and Plans, presents an assessment of 1997 survey data and a summary of improvements introduced, as a result of countries' participation in the 1997 Coordinated Portfolio Investment Survey, into national systems for collecting data on international (cross-border) portfolio investment The chapter reviews developments that occurred in international financial markets in the 1980s and 1990s, and the Godeaux Report assessment and recommendations about global data on international portfolio investment flows and stocks. The objectives set for the 1997 survey, the scope of survey results, and the process by which results have been assessed in the chapter. Since publication of the Godeaux Report, substantial expansion and evolution have occurred in exchange and over-the-counter markets for financial derivatives covering a range of financial risks. These markets now have the capacity, in effect, to change the currencies, maturities, and marketability of the financial instruments underlying associated derivative contracts. It is recommended that vigorous efforts should be made to secure the participation of more major investing countries in order to address the under-reporting of global portfolio investment assets and to confirm the reliability of the global data on portfolio investment liabilities.
The Analysis of 1997 Coordinated Portfolio Investment Survey Results and Plans for the 2001 Survey (Analysis and Plans) is intended to complement the Results of the 1997 Coordinated Portfolio Investment Survey (1997 CPIS), which was published by the International Monetary Fund (IMF) in January 2000. This second publication, Analysis and Plans, presents an assessment of 1997 survey data and a summary of improvements introduced, as a result of countries’ participation in the 1997 CPIS, into national systems for collecting data on international (cross-border) portfolio investment.1
Unprecedented growth in the volume, complexity, and globalization of international financial transactions occurred during the 1980s and 1990s. Changes in international capital markets created additional avenues for raising capital, investing, and hedging risk. A broad range of new participants entered the markets. As a result, there was commensurate growth in the portfolio investment component of total international financial flows (see Chart 1).
The reliability of country data reported for the world Current Account, Capital Account, and Financial Account has been a matter of concern since the 1980s. Tables 7 and 8 show that discrepancies existed in these accounts through the 1990s. Although the large, negative discrepancy for the world Current Account declined (see Table 7), this decrease probably masked large, offsetting imbalances. In particular, the imbalance in portfolio and other investment income increased. Imbalances in components of the world Financial Account also grew during the 1990s (see Table 8). Consequently, it is almost certain that data now being reported on both Current Account and Financial Account transactions contain substantial deficiencies. Authors of the Godeaux Report noted that deficiencies in data reported for the Financial Account were associated with deficiencies in data reported for Financial Account positions. This observation was confirmed, in respect to portfolio and other investment, by end-December 1997 estimates. (These estimates were previously discussed in the section on 1997 CPIS results.)
The twenty-nine countries that participated in the 1997 CPIS accounted for approximately 80 percent of estimated world holdings of portfolio investment in the form of equities and long-term securities. The major investing countries/territories that did not participate included Germany, Luxembourg, Switzerland, Hong Kong SAR, and a number of offshore financial centers. Nonparticipants indicated that their primary reasons for not taking part in the 1997 CPIS were the difficulty of obtaining, from nonresident custodians, data on portfolio investments of resident households; the lack of participation by important partner countries; the absence of plans to compile IIP statements; and concern that the release of confidential data to CPIS compilers might discourage investment. These issues must be successfully resolved prior to implementation of the 2001 CPIS. The participation of the major investing countries and OFCs is essential if the 2001 CPIS is to provide a reliable measure of world holdings of portfolio investment assets and an equally reliable measure, which will be based on estimates from partner countries, of each participating country’s portfolio investment liabilities. The participation of other countries is essential, as well, to achieve broader application of BPM5 methodology. Therefore, vigorous efforts should be made to secure the participation of more major investing countries in order to address the under-reporting of global portfolio investment assets and to confirm the reliability of the global data on portfolio investment liabilities.