Summary
This chapter sets out the purpose, scope, and modalities of the Coordinated Survey.
I. Introduction
1. International flows in the form of portfolio investment—equities and debt securities—have increased significantly in the 1980s and 1990s, reflecting the liberalization of financial markets, financial innovation, and the changing behavior of investors. This activity has attracted the attention of policymakers, market participants, and independent researchers, but the reliability of the statistics has been undermined by deficiencies in data compilation systems. These deficiencies were highlighted by the report, in 1992, of the International Monetary Fund’s (the IMF’s) Working Party on the Measurement of International Capital Flows. This group found that recorded portfolio liabilities far outweighed portfolio assets at the worldwide level (external assets should equal external liabilities if perfectly measured). External assets were understated by as much as US$400 billion even at the end of 1988, and judging from the available transactions data (see below), the understatement appears to have further increased in the 1990s.
2. Concerned by such discrepancies, the IMF Committee on Balance of Payments Statistics1 decided in 1993 to promote the idea of a Coordinated Portfolio Investment Survey,2 at the reference date of end-December 1997. The benefits were seen as facilitating cross-country comparisons, permitting data exchanges, encouraging standardization, and spreading best statistical practice among countries. To develop the framework for the Coordinated Survey, the Committee created, in October 1994, the Task Force on Coordinated Portfolio Investment Survey, which has produced this Survey Guide.
Global Portfolio Investment Net Transactions
(in billions of U.S. dollars)
Global Portfolio Investment Net Transactions
(in billions of U.S. dollars)
1991 | 1992 | 1993 | 1994 | ||
---|---|---|---|---|---|
Assets | 322.0 | 352.1 | 511.2 | 307.0 | |
Liabilities | 429.7 | 457.8 | 728.1 | 365.1 | |
Difference | |||||
(Liabilities | |||||
less assets) | 107.7 | 105.7 | 216.9 | 58.2 |
Global Portfolio Investment Net Transactions
(in billions of U.S. dollars)
1991 | 1992 | 1993 | 1994 | ||
---|---|---|---|---|---|
Assets | 322.0 | 352.1 | 511.2 | 307.0 | |
Liabilities | 429.7 | 457.8 | 728.1 | 365.1 | |
Difference | |||||
(Liabilities | |||||
less assets) | 107.7 | 105.7 | 216.9 | 58.2 |
II. Purpose of the Coordinated Survey
3. The purpose of the Coordinated Survey is to improve estimates of portfolio investment in the form of equity and long-term debt. Specifically, the objectives are:
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To collect comprehensive information, with geographical detail, on the stock of cross-border equities and long-term bonds and notes for use in the compilation or improvement of international investment position (IIP) statistics on portfolio investment capital. The IIP statistics, in turn, can provide information to check the coverage of recorded estimates of portfolio investment capital flows and associated investment income transactions recorded in the balance of payments.
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To exchange the bilateral data. When the results of the Coordinated Survey become available, the participating countries, with the assistance of the IMF’s Statistics Department, plan to exchange these data among themselves and with other countries. By exchanging comparable data (so far as confidentiality constraints permit), participating countries should be able to improve their estimates of nonresident holdings of their portfolio investment liabilities as well as associated capital flows and investment income data. (Information on the geographic distribution of nonresident creditors also becomes known.)
III. Scope of the Coordinated Survey
4. Each participating country will conduct its own national survey at the reference date of end-December 1997. To meet the objectives set by the Committee, each national survey must incorporate certain mandatory features. These mandatory features constitute the framework for the conduct of the Coordinated Survey and are incorporated in the model survey forms contained in appendices II to IV. Because the model forms meet the objectives of the Coordinated Survey, they may be used to conduct the national survey.
Mandatory features are as follows:
Date
5. The national survey is to be conducted in respect of portfolio investment positions as at December 31, 1997.
Assets
6. The national survey must cover portfolio investment assets of domestic residents, that is, securities issued by nonresidents and owned by domestic residents3—outward investment.
Type of securities
7. The national survey must cover equity securities and debt securities with an original maturity of over one year (long-term), issued by nonresidents and owned by domestic residents. Equity securities and long-term debt securities must be reported separately. These categories of securities are more fully defined in chapter XIX of the fifth edition of the IMF Balance of Payments Manual (BPM5) and in appendix V of this Survey Guide.
Country breakdown
8. To enable data to be exchanged, a full geographic attribution of nonresident securities4 owned by domestic residents is a mandatory feature of the Coordinated Survey. In other words, securities are to be geographically allocated by the country of residency of the issuer, by type of security. The country breakdown is to be based on the International Standards Organization (ISO) code 3166. Securities issued by international organizations (IO) are not to be allocated to the country in which the IO is located but rather to a separate IO category. Guidance on geographic attribution is provided in chapter 3; the model survey forms in appendices II, III, and IV contain the ISO country breakdown.5
Methodology
9. The concepts and principles underlying the Coordinated Survey conform with those contained in BPM5. The most important of these for the conduct of the Coordinated Survey are defined in appendix V of this Survey Guide. When compilers apply the concepts and principles to their surveys, practical reporting issues will arise for which consistent treatment across countries is required. Guidance is provided in chapter 3. It is important for purposes of data exchange that methodology be applied as consistently as possible across countries.
IV. Modalities of the Coordinated Survey
10. Because a considerable degree of complexity is involved in organizing a portfolio investment survey—no matter which approach is taken—compilers are strongly recommended to undertake initial investigations with financial market participants before coming to a decision on the approach to take. This issue is discussed in chapter 2, section IIA.
11. In determining the approach to take, national compilers must focus on two key issues: who to survey (coverage) and the degree of detail to request. This will determine the collection methods to use. Guidance on how to make these important decisions is provided in chapter 2, sections IIB and IIC. Chapter 3 guides compilers on the technical applications of the concepts and methodology contained in BPM5. Chapter 4 provides some practical advice on preparing for the national survey; and appendices II to IV provide model survey forms.
Collection of Additional Information
It is recognized that, for domestic statistical purposes, national compilers may want to extend the scope of the national survey beyond the mandatory requirements of the Coordinated Survey, although in doing so, compilers would increase the complexity of the exercise. Hence, it is important that national compilers consider the objectives and scope of their national survey at the outset. Set out below are some possible extensions. These extensions are not mandatory.
Liabilities
Compilers might consider extending the national survey to include securities issued by domestic residents and owned by nonresidents (that is, portfolio investment liabilities of residents—inward investment). The national survey would then cover both outward and inward investment. Compilers could compare the data from the inward survey with that received from the data exchange. Compilers might also consider asking custodians about nonresident securities held on behalf of nonresident investors. This information could be exchanged on a bilateral basis, for instance, if countries knew that a certain group of investors held nonresident securities with nonresident custodians.
Type of securities (other than equity and long-term debt)
The national survey could be extended to include, in addition to equities and long-term debt, nonresident money market instruments owned by domestic residents (e.g., treasury bills and certificates of deposit) and financial derivatives. While this extension of the national survey (particularly to financial derivatives) would add to its complexity, the advantages are:
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the lower marginal cost of collecting this extra information by extending this survey, rather than instituting other new surveys; and
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assurance to compilers that data are correctly classified; for instance, survey respondents need to distinguish between short- and long-term instruments on the survey report form.
Currency breakdown
The national survey could be extended to include a currency breakdown of nonresident securities owned by domestic residents. This provides compilers with more scope to verify income data using position data, because the yields calculated will be more accurate if they are computed by currency.
Sectoral breakdown
National compilers may want to identify, in their national survey, the economic sector of domestic investors, for instance, pension funds and insurance companies, etc., and/or the economic sector of the issuer of the nonresident securities, for instance, government securities. This would provide information of analytical use.
Frequency
National compilers might consider repeating their own national survey to further develop and improve position statements. If survey respondents are informed that the national survey will be repeated at a predetermined frequency, for instance, annually, five-yearly, etc., they might be more willing to invest in techniques to guarantee the success of the initial survey.
A. Coverage
12. National compilers will have to investigate how to achieve comprehensive coverage of domestic resident investment in nonresident securities. They should be mindful that the population of investors is not necessarily the population to be surveyed.
Decisions will have to be made on which entities should be surveyed. The possibilities are:
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primarily end-investors (e.g., banks, security dealers, pension funds, insurance companies, mutual funds, etc.);
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primarily custodians, who hold or manage securities on behalf of others; or
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both end-investors and custodians.
13. The advantages and disadvantages of each approach are explained in chapter 2. No matter which approach is taken, it is vital that national compilers have a degree of understanding of the relationship between domestic investors and survey respondents, so as to avoid under- or double counting. Chapter 2 and appendix VI guide compilers on this important issue.
B. Degree of Detailed Information
14. The data required to meet the objectives of the Coordinated Survey can be collected through either a security-by-security approach—where survey respondents provide information on nonresident securities owned by individual instrument held—or an aggregated approach—where nonresident securities owned are reported by survey respondents in aggregate for each counterpart country, in a common (usually domestic) currency.
15. The advantages and disadvantages of the two approaches are given in detail in chapter 2. Whichever approach is taken, it is important that good control checks be established in order to ensure high quality data (see chapter 4, section VI and appendix VIII).
C. Other Modalities
16. Considerable other preparation is required for a portfolio investment survey, namely, establishing a timetable, taking account of legal and confidentiality considerations, developing a mailing list of survey respondents, choosing/developing computer software to process the data provided, and maintaining quality-control checks. Chapter 4 provides guidance on these modalities.
D. Network of National Compilers
17. The Task Force recognized that national compilers, as they prepare for their national survey, might require advice in addition to that provided in this Survey Guide. To assist national compilers, a network of contacts has been established, designating compilers with considerable expertise in conducting portfolio investment surveys. This network will be coordinated by the IMF. National compilers who require advice can write to:
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Mr. Mahinder S. Gill
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Balance of Payments and External Debt Division 1
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Statistics Department
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International Monetary Fund
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700 19th Street, N.W.
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Washington D.C. 20431
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United States
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Telephone number: (202) 623–7921
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Facsimile number: (202) 623–6033
E. Data Exchange
18. Once the survey data have been collected, compiled, and checked for quality, national compilers will supply them to the IMF, who will facilitate exchange of data among countries. Data can be denominated either in domestic currency or in U.S. dollars. Details regarding data exchange are not included in this Survey Guide but will be finalized before the reference date of end-December 1997. To help ensure international comparability, and for future reference, each country will be required to provide documentation, for instance, survey forms, etc., to the IMF on how it conducted the survey.