XVII. Compiling BOP and IIP Statements by Partner Country
Author:
International Monetary Fund
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Language:
English
Print Publication Date:
15 Mar 1995
Keywords:
BOOK; BOP compiler; BOP.; goods; enterprise; BOP transaction; security transaction; BOP statement; model enterprise survey form; BOP transactions; balance of payments transactions; Income; Imports; Credit; Exports; Foreign direct investment; Africa; Global
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Abstract

807. The preceding seven chapters are concerned with the compilation of global BOP statistics—that is, economic transactions of a country in respect of all other countries. Similar statistics can be compiled on a regional basis to show a country’s transactions with residents of a selected foreign country or group of countries. In this Guide, these countries are referred to as partner countries, and this chapter examines methods by which the compiler may compile BOP statements by partner country.175

Overview

807. The preceding seven chapters are concerned with the compilation of global BOP statistics—that is, economic transactions of a country in respect of all other countries. Similar statistics can be compiled on a regional basis to show a country’s transactions with residents of a selected foreign country or group of countries. In this Guide, these countries are referred to as partner countries, and this chapter examines methods by which the compiler may compile BOP statements by partner country.175

808. Compilation of BOP statistics on a regional basis provides many analytical and compilation benefits. Partner country statistics provide information that enables users to develop greater insight into BOP aggregates. Governments use partner country statistics as a basis for policy formulation and bilateral negotiations. Use of partner country statistics facilitates bilateral reconciliations and, therefore, enhances the quality of BOP statistics. Partner country statistics may also be used in the preparation of world aggregate BOP statistics.

809. In compiling partner country statistics, the compiler must decide on the principle of classification and the list of countries or country groupings to be shown.

810. The principle of classification used in BOP regional statistics is also based on change of ownership. Application of this concept to regional BOP statistics means that, for transactions in goods, the country classification should be based on the countries of residence of the former owners of imports and of the new owners of exports; for transactions in services, on the country of residence of the provider or the recipient of the service; for income, on the country of residence of the entity earning or incurring the income; and, for transfers, on the country to which the offset transaction is recorded. For the IIP statement, liabilities should be classified by the country of residence of the owner of the claim, and assets should be classified by the country of the liability holder.

811. For financial transactions, there are two possible means of classification considered to be in accord with the change-of-ownership principle. One is the debtor/creditor principle, in which transactions in a country’s external liabilities are classified by the country of the owner of the claim (the creditor) and transactions in a country’s financial assets are classified by the country that incurs the liability (the debtor).176 The other is the transactor principle, in which transactions are classified by the country of the nonresident counterparty to the transaction.

812. The example shown in table 17.1 illustrates the difference between debtor/creditor and transactor principles. In this example, a resident of country A sells securities issued by a resident of country B to a resident of country C. Table 17.1 on page 180 shows entries that would be recorded for securities if a classification based on the transactor principle or on the debtor/creditor principle were used.

Table 17.1

Use of Transactor Principle and Debtor/Creditor Principle to Record the Sale of Securities by Partner Country

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813. In data sources available to the compiler, the classification by country may not be based on a strict change-of-ownership concept. For example, security transactions may be classified by country of issue and transactions in goods by country of origin or consumption. The BOP compiler may wish to publish supplementary statistics based on alternative classifications. For example, publication of information on securities classified by country of issue could help an analyst gain a better understanding of international capital markets and the impact of these markets on the BOP.

Multilateral Settlements

814. Multilateral settlements arise when an entity in one economy undertakes a transaction with a resident of a second economy and the payment for that transaction involves a claim on a resident of yet another economy. This practice requires compilers to record offsetting entries in regional BOP accounts in order to balance them for particular countries or regions. The entries are called multilateral settlements. In practice, entries will typically be combined with net error and omission items as it is generally not possible to measure a pure multilateral settlement item.

815. An example illustrates these points. Country A imports a good, valued at 100, from country B and uses a bank account in country C to make the settlement. However, as a result of measurement errors, the payment is recorded as 102. In compiling a partner country BOP statement, country A would classify imports to country B, but the transaction in foreign currency assets would be attributed to country C. To balance the various accounts, the compiler would have to record multilateral settlements items for countries B and C. Table 17.2 shows the entries that would be recorded in a partner country classification of BOP transactions for country A. The table demonstrates the necessity for creating the multilateral settlement item to balance the accounts and also shows that these entries cancel each other when accounts are consolidated.

Table 17.2

Balance of Payments Transactions of Country A with Partner Countries

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In practice, this item will be combined with net errors and omissions as actual multilateral settlements are difficult to measure.

Countries and Regional Groupings

816. The choice of countries and regional groupings to be included in the country classification is not always straightforward. Nevertheless, a good starting point is the “Standard Country or Area Codes for Statistical Use”177 published by the United Nations. This document includes standard lists of countries, country codes, and various regional groupings. It also describes relationships between customs areas and the country classification. In the former, for example, Belgium and Luxembourg, which share a common customs boundary, are grouped together—as are Botswana, Lesotho, South Africa, and Swaziland. (Namibia, which was not independent at the time the United Nations document was prepared, is now also part of the Southern African Customs Union.)

817. When the debtor/creditor principle is used, a particular problem emerges for transactions in monetary gold and SDRs. These financial assets do not represent claims on nonresidents, and there is no country of debtor, as such. To overcome this problem, compilers might include in regional BOP statements a notional country or countries in which transactions in these items could be recorded. The same solution is suggested for regional IIP statements, which are affected by the same problem.

Use of ITS to Compile Partner Country Statistics

818. ITS are described in chapter 2, which includes a discussion of the international guidelines, concepts, and definitions that ITS compilers are expected to follow.178 The guidelines set out concepts that could be used to classify data by partner country for ITS and provide a useful discussion of each concept.

819. According to the change-of-ownership principle, imports would be classified by country of purchase—the country where the importer’s co-contractor is domiciled or has its business—and exports would be classified by country of sale—the country where the exporter’s co-contractor is domiciled or has its business. However, ITS guidelines reject this concept as ITS essentially measure the movement of goods rather than the change of ownership of goods. The guidelines illustrate the logical conflict by using an example, shown in table 17.3, in which a resident of country A buys goods produced in country B and sells the goods to a resident in country C but ships the goods directly from country B to country C.

Table 17.3

Use of the Change-of-Ownership Principle to Record Goods by Partner Country in ITS

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820. This table uses the purchase/sale (change of ownership) concept and shows transactions of countries B and C with country A, which would not record the transaction in ITS as there is no physical movement of the good into or out of country A. If goods were shipped by country A, the shipment would be treated as direct transit trade (unless the goods were cleared through customs into country A—an unlikely event) and thus would not be recorded. Another problem with the use of the purchase/sale concept with ITS is that agents often act on behalf of principals and, according to the guidelines, identification of principals can consume considerable time and resources.

821. Another concept used to classify partner country data for ITS is country of origin and consumption. The country of origin is the country in which the goods are produced or manufactured, whereas the country of consumption is the country known at the time of dispatch as the country in which the merchandise is intended to be consumed, utilized, or further processed.179 As the guidelines point out, determinations of country of origin are usually straightforward, but determinations of country of consumption are much more difficult.180

822. Still another classification concept is country of consignment or destination. For imports, the country of consignment is the country from which goods were initially dispatched, without any commercial transactions taking place in intermediate countries, to the importing country. For exports, the country of destination is the “country known at the time of dispatch to be the final country where goods are to be delivered.”181 The guidelines consider this concept to be the most suitable for ITS. Table 17.4 provides examples of transactions recorded by using this and the origin/consumption concept. In the example, petroleum is produced and refined in country B and purchased by a resident of country A, who imports the petroleum and stores it in country A. Subsequently, the petroleum is exported to country C.

Table 17.4

Use of the Origin/Consumption and Consignment/Destination Concept to Record Goods by Partner Country in ITS

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823. Table 17.4 shows that, if the concept of origin and consumption is used, both countries A and C record an import as originating in country B, and both countries A and B record an export as being consumed in country C. If the consignment/destination approach is used, country B shows an export as destined for country A; country A shows an import consigned from country B and destined for country C; and country C shows an import consigned from country A. In other words, the consignment/destination approach produces a symmetrical treatment not achieved by the origin/consumption approach.

824. The guidelines state:

The system of attribution by country of origin is more in line with the present preoccupations in world trade, that is, the Generalized System of Preferences, the GATT multi fibers agreement, etc. However, virtually all customs documents now require that the country of consignment be given. Consequently, the following is recommended. In the case of imports, the country of origin should be recorded. However, the country of consignment should be collected as additional information. In the case of exports, the country of last known destination is recommended. It is not recommended that the country of attribution according to the concept of country of purchase and sale be collected.

825. The consignment/destination concept, which is a close proxy to the change-of-ownership principle preferred for the BOP, achieves a symmetry that the origin/consumption concept cannot. In fact, apart from transactions that involve merchanting and are recorded in goods, the concept of consignment/destination is the same as the change-of-ownership principle required for use in the BOP. This Guide recommends that the ITS compiler produce ITS on a consignment/destination basis and that the BOP compiler use these data to compile partner country statistics on goods. Transactions in goods could be adjusted to a complete change-of-ownership basis if the BOP compiler collects data on gross purchases and sales of goods classified by country from enterprises involved in merchanting—a subject that is discussed in chapter 4, paragraphs 138-139. Suitable questions in respect of certain merchanting transactions are contained in part G of model form 6.

826. In ITS guidelines, selection of the country to which imports and exports are classified is based upon the customs area (see paragraph 816).

Use of Other Sources to Compile Partner Country Statistics

827. There are no international standards for an ITRS, and the method of country classification varies from country to country. Generally, the classification is based on the country of residence of the nonresident transactor and, in most cases, this is appropriate for BOP purposes. For the recording of financial transactions, an ITRS generally supports the transactor (rather than the debtor/creditor) principle.

828. A particular problem in using an ITRS to compile partner country statistics is that the nonresident principal to a transaction may use an agent who is a resident of a different country. For example, a resident of country A may use a security broker in country B to purchase securities from a resident in country C. It is unlikely that the two principals (in countries A and C) will know each other’s identities, and the ITRS in each of these countries will probably reflect transactions with country B. This classification is inconsistent with the change-of-ownership principle. A similar problem will occur when nominees are used to undertake transactions for nonresident principals. In practice, relatively little—other than analyzing information that may be available from international financial centers on these types of transactions—can be done to overcome these problems,

829. If ES are used to compile BOP statistics, the compiler should ensure that information is classified by partner country in accordance with the change-of-ownership principle. With regard to financial transactions, ES generally support the debtor/creditor (rather than the transactor) principle, and the model enterprise survey forms shown in appendix 2 have been designed on this basis. However, there could be problems with identifying the countries of residence of purchasers of bearer securities issued by enterprises of the compiling country. In such cases, some compilers classify the transactions to a category called international capital markets. While this solution is practical, it is not optimal, and it reduces the usefulness of information for bilateral comparisons. Securities issued by the compiling country and held by nonresident nominees located in countries other than the country of the nonresident principal are likely to be misclassified in ES. In practice, apart from the use of partner country sources, little can be done to overcome this problem.

830. When other BOP sources are used, the compiler should make every effort to ensure that partner country information is classified correctly. If it is not possible to obtain correctly classified data from the source, the compiler should, at least in significant cases, investigate alternative sources to obtain supplementary information.

831. The compiler may not wish to obtain partner country detail each time a collection is conducted and may prefer instead to collect this information on a less frequent basis. In this case, partner country BOP estimates can be interpolated or extrapolated on the basis of partner country information from benchmark collections.

832. If partner country data are not available from a BOP source, an alternative source could be used to determine partner country shares. For example, partner country estimates for trade credits could be derived from an analysis of partner country shares for imports and exports. Care should be taken to ensure that the supplementary source exhibits a partner country pattern similar to that of the item that the source is being used to measure.

Treatments of Certain Direct Investment Transactions

833. In this section, treatments of a number of direct investment transactions are examined in order to illustrate application of the change-of-ownership concept.

Investment Income Flows

834. The first example concerns the treatment of investment income. Table 17.5 shows investment income flows among three entities in a direct investment relationship. An enterprise in country A has a wholly owned subsidiary in country B which, in turn, has a wholly owned subsidiary in country C.

Table 17.5

Income Accounts of Enterprises in Countries A, B, and C

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Other current income includes interest, dividends, and reinvested earnings on direct investment receivable less interest payable.

Income earned by the enterprise in country A includes an interest receipt of 35 from the enterprise in country C on a loan made by the enterprise in country A to the enterprise in country C.

835. Table 17.6 shows relevant income entries recorded in the regional BOP statements of countries A, B, and C. There are no reinvested earnings and dividend transactions between the enterprise in country A and the enterprise in country C because reinvested earnings and dividends payable by the enterprise in country C are solely attributable to the enterprise in country B. Should an analyst want information on the ultimate source of income of the enterprise in country A, a concept other than the change-of-ownership principle would be required in the partner country classification. However, income payable by the enterprise in country C for a loan made by the enterprise in country A should be shown as an income payment between countries A and C.

Table 17.6

Partner Country Income Statistics for Countries A, B, and C

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Note: The associated financial transactions are not shown.

Complex Settlement Transactions

836. Table 17.7 shows certain financial flows among three entities in a direct investment relationship. An enterprise in country A has a wholly owned subsidiary in country B which, in turn, has a wholly owned subsidiary in country C. These financial flows consist of book entries in which the enterprise in country A makes a loan to the enterprise in country B, which obtains imports from the enterprise in country C. In return, the enterprise in country C is issued shares in the enterprise in country A.

Table 17.7

Partner Country Statistics for Countries A, B, and C

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Cover Balance of Payments Compilation Guide
Balance of Payments Compilation Guide
ISBN:
9781557754707
Publication Date:
15 Mar 1995
Publisher:
International Monetary Fund
DOI:
https://doi.org/10.5089/9781557754707.071
Pages:
396