The IMF's Statistical Systems in Context of Revision of the United Nations' A System of National Accounts
Chapter

2 Treatment of International Organizations

Author(s):
Vicente Galbis
Published Date:
September 1991
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Author(s)
Gérard G. Raymond

The statistical treatment of international organizations in balance of payments methodology is examined. In particular, the paper reviews the current methodology and the practical application of the concept of what constitutes the residents of an economy with respect to international and regional organizations for national accounts and balance of payments statistics. Section I provides a compendium of the current methodology according to the United Nations' A System of National Accounts (SNA) and the IMF's Balance of Payments Manual (BPM). Section II presents a revised definition of the concept of international organizations. Section III covers a number of practical considerations in the application of this concept, and Section IV presents conclusions.

I. Current Methodology for International and Regional Organizations

In a strict sense, an international organization can be defined as one that involves two or more countries; a regional organization, similarly, is one that pertains to a given geographic region. A regional organization involving two or more countries would also be an international organization. A more precise definition of these two statements is needed, however, to narrow down the criteria for defining international organizations.

The BPM (paragraph 57) states that “international bodies that do not qualify as enterprises …, comprising most political, administrative, economic, social, or financial institutions in which the members are governments … are not considered residents of any national economy, including that in which they are located or conduct their affairs,” Similarly, the SNA (paragraph 5.113) states that “international bodies, such as political, administrative, economic, social or financial institutions, in which the members are governments, are not considered residents of the country in which they are located or operate,” These statements stipulate the two conditions that have been used to define international organizations:

  • International bodies that comprise most political, administrative, economic, social, or financial institutions in which the members are governments (this condition identifies the types of organizations, in which members have to be governments, that are treated as international organizations)

  • International bodies that do not qualify as enterprises (this restrictive condition stipulates that enterprises are not treated as international organizations).

II. Proposals for a Revised Definition

The application of the conditions above has not always yielded satisfactory results. For example, difficulties of interpretation have arisen with regard to some international entities, such as the Bank for International Settlements (BIS), that have members that are not governments but are closely related to the official sector. In addition, the restrictive condition stipulating that international bodies should not qualify as enterprises has also created problems of interpretation because most financial institutions are part of the enterprise sector. These issues are of sufficient importance to warrant a revised definition of the concept of international organizations in the SNA and BPM (see Chapter 1 in this volume).

An international organization can be defined as an organization that is not legally controlled by any higher or external authority—that is, an organization that derives its authority directly from the authority of its members—in other words, from the authority of independent states. The supreme authority of any sovereign state is its government.1 Governments may delegate part of their responsibility and authority in specific fields to national entities or agencies—for example, the central bank—and in addition may confer on international organizations part of their authority in other fields (and, as a consequence, assume certain responsibilities).

An international organization has sovereign status because it is not subject to the jurisdiction of any single government or entity and has specific functions, privileges, and powers that are usually set forth in the constitution or charter of the organization, to which the states wishing to pursue common objectives within the formal organization have agreed. The concept of sovereignty is characterized by the unlimited authority of the international organization to exercise its powers without intrusion by any superior or external authority. Central authorities of sovereign states, which are usually the members of the international organization, join there in mutual pursuit of definite goals. International organizations are given the authority and responsibility to deal with specific issues at an international level in a more efficient manner than is possible or desirable for sovereign states acting unilaterally. Sovereign states have created a variety of political, administrative, financial, technical, health, labor, economic, and social international organizations.2

The proposed new definition of an international organization can be based on two considerations. First, it must have authority derived directly from the authority of its members. Second, it must have sovereign status; that is, the laws and regulations of the country or countries in which the international organization is located do not apply to the international organization.

III. Practical Considerations

A country can be identified by three criteria: its physical territory, its population, and its sovereign government. A country is located in a definite area; it regards only certain persons as its legitimate inhabitants; it has an officially designated set of persons and institutions exclusively authorized to make and enforce laws for all the people within its territory; and it is recognized as such by other countries.

For balance of payments and national accounts purposes, the economy of a country is said to comprise households, nonfinancial enterprises, financial institutions, private nonprofit institutions, and general government that are residents of the country. A government operates in the territory of the country, is resident of the country, and controls the sectors of that country. Because an international organization is not considered to be a resident of a national country, it must be considered as a resident of a notional economy that comprises only the international organization in question.

Practical considerations should be taken into account in specifying the criteria defining international organizations. First, an organization physically located or operating in an economy that is not subject to the rules of the government of that economy or any single government of another economy should be treated as an international organization.

Second, the number of member countries in an organization should also be a determining factor in considering its status as international. For example, an entity that has members from 100 countries should certainly be classified as an international organization. However, where there are only two countries in an organization it may be better not to treat that organization as an international organization. This approach would be necessary in order to avoid an unacceptable proliferation in the number of international organizations. Instead, a two-country organization may have to be divided into two separate entities operating in the two member countries and treated as residents of the countries in question. From the analytical and statistical viewpoint, it would not be suitable to treat all entities in which there were members from more than one economy as international organizations. The critical question is the number of members that can determine a truly international organization.

Third, consideration should be given to the relative importance of the entity itself compared with the economies of its members and with other international organizations; this significance might be measured by the volume of financial transactions of the organization.

Thus, it is possible that the number of member countries in any two organizations might be the same, but only one may be treated as an international organization because of these other considerations. What is clear is that analytical and practical considerations should be applied by countries in order to treat international organizations consistently and to avoid creating asymmetries.

The decision to treat an organization as being international can only be made on a case-by-case basis. For example, the European Investment Bank (EIB), which currently has 12 members, had investment income and interest expenses of SDR 2 billion and SDR 1.9 billion, respectively, in 1984. These flows were larger than the gross current account credits and debits of over 50 member countries of the IMF. The importance of the transactions of the EIB can also be compared with those of the IMF itself. The operational income and expenses of the IMF were SDR 3.5 billion and SDR 3.3 billion, respectively, for the year ended April 30, 1985, when the Fund had 148 members.

The treatment of multinational central banks—such as the Eastern Caribbean Central Bank (ECCB), the Banque Centrale des Etats de l′Afrique de l′Ouest (Central Bank of West African States, BCEAO), and the Banque des Etats de l′Afrique Centrale (Bank of Central African States, BEAC)—is an illustration. The ECCB functions as the central bank of its seven member countries. Under existing institutional arrangements the foreign assets of the ECCB are placed at the disposal of the currency union, with no specific formula for their allocation among individual members; no separate country accounts are maintained by the ECCB. For balance of payments purposes, the ECCB is currently treated as a domestic institution in each of the member countries. The financial transactions, and the assets and liabilities of the ECCB, are allocated to its members according to formulas that are used as proxies.

The BCEAO performs the functions of a central bank in its seven member countries. A national agency is maintained in the capital of each member country, and subagencies have been established within the territory of the West African Monetary Union (WAMU; or Union Monetaire Ouest-Africaine, UMOA). The BCEAO maintains separate accounts for the assets and liabilities of the agencies in each member country. The transactions of the agencies and subagencies in each country are considered as transactions of a resident central bank. The headquarters of the BCEAO is currently treated as an international organization by the BCEAO and France. Similarly, the BEAC functions as the central bank of its six member countries. The statistical treatment of its activities parallels that of the BCEAO.

There are three possibilities for allocating the transactions of international and regional entities: treating the entities as residents of one national economy, as residents of more than one national economy, or as transactors residing outside any national economy. International organizations are not considered residents of any national economy, including that in which they are located or from which they conduct their affairs. The only resident entity in the economy that constitutes an international organization is the international organization itself.

IV. Conclusions

The methodology used for the treatment of international organizations can be refined, as this paper has shown. The restrictions can be narrowed down, and the application of the concept of an international organization can be more precisely defined. Even with the refinements, however, there is no final determination about where to draw the line between international entities that, for accounting purposes, have to be split up into separate entities operating in the member countries of the entity and international entities that have to be treated as separate economies. Resolution of this problem might be assisted by a comprehensive review of country practices in this area.

“As applied to international relations, the legal theory of sovereign states has been considered to mean the right of a state to manage all its affairs, whether external or internal, without control from other states”; S.S. Goodspeed, The Nature and Function of International Organizations (Oxford and New York: Oxford University Press, 1959), p. 10.

For example, the IMF, the Organization for Economic Cooperation and Development (OECD), the United Nations (UN) and its agencies, and the World Bank (the International Bank for Reconstruction and Development, IBRD, and its affiliates—the International Development Association, IDA, and the International Finance Corporation, IFC).

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