Expert Meeting on Capacity Building in the Area of FDI: Data Compilation and Policy Formulation in Developing Countries

Transcription

1 United Nations Conference on Trade and Development Expert Meeting on Capacity Building in the Area of FDI: Data Compilation and Policy Formulation in Developing Countries December 2005 Revision of the IMF Balance of Payments Manual: The Direct Investment Functional Category Recommendations of the Direct Investment Technical Expert Group and Decisions of the IMF Committee on Balance of Payments Statistics by Neil Patterson Statistics Department International Monetary Fund

2 Revision of the IMF s s Balance of Payments Manual: the Direct Investment Functional Category Recommendations of the Direct Investment Technical Expert Group and Decisions of the IMF Committee on Balance of Payments Statistics Neil Patterson Statistics Department IMF Statistics Department 1 December 12, 2005

3 Revision/Review of the Existing Suite of Macroeconomic Statistical Guidelines 1. Existing guidelines introduced in the early 1990s. In light of various changes since that time, the international statistical community (represented by several high-level groups) decided that a review was needed. Revised guidelines will be issued around 2007 or 2008 (Balance of Payments Manual at end 2008) 2. The System of National Accounts, 1993, the Balance of Payments Manual, fifth edition (BPM5), the OECD Benchmark Definition of Foreign Direct Investment, third edition (Benchmark Definition), and various other guidelines are being reviewed/revised in coordination, and with the objective of complete consistency. 3. To support the revision of BPM5 and the consistent revision of the Benchmark Definition, the IMF s Statistics Department, supported by the IMF Committee on Balance of Payments Statistics (IMF Committee), and the OECD s Workshop on International Investment Statistics (OECD WIIS) established the Direct Investment Technical Expert Group in Statistics Department 2

4 Working Arrangements for the Review of the Direct Investment Methodological Guidelines: DITEG 1. DITEG was created as a joint IMF/OECD expert group to make recommendations for the revision of BPM5 and the Benchmark Definition. It held three meetings in 2004 and 2005 and has been terminated at the conclusion of its work. 2. DITEG was jointly chaired by IMF and OECD, serviced by a joint secretariat, and contained expert representatives from 13 countries (in all of the world s regions) and 5 international organizations (including UNCTAD). 3. DITEG s work program was based on a list of items identified by the IMF Committee and the OECD WIIS for review and resolution. 4. The IMF Committee and the OECD WIIS considered the recommendations and made decisions. The conclusions of both groups were very similar reflecting the close cooperation and high transparency between them and the staffs. 5. All the issues and outcome papers, as well as the IMF Committee decisions, are posted on the IMF s external website ( Statistics Department 3

5 Overall Outcomes of the Review 1. The major feature of the review is that the existing guidelines in the balance of payments are, in the main, unchanged or align even more closely with national accounting principles. 2. However, the deliberations led to recommendations for new supplementary detail in the balance of payments to assist in direct investment analysis. This reflected evolving user requirements, e.g. in the context of globalization. Several areas of research work remain. Some additional user needs, beyond the balance of payments, e.g. data by economic activity, will be described in the Benchmark Definition. 3. The work will also lead to improved clarity in the revised manual, as well as a significant amount of valuable compilation guidance. Statistics Department 4

6 Among the Most Important Areas that are to Remain Unchanged (but with Some Enhanced Compilation Guidance) are: 1. The 10 percent ownership threshold for establishing a direct investment relationship. 2. The market price principle for the measurement of direct investment stocks, which was reaffirmed and emphasized. For unlisted enterprises, several alternatives (depending on circumstances) were identified as acceptable as proxies for market valuation. 3. Special Purpose Entities (SPEs) in the economies in which they are registered or incorporated. 4. The recognition of the Fully Consolidated System (FCS) as the ideal conceptual basis for delineating the scope of the direct investment relationship. Two proxy measures, the US Method and the EU Method (or the 10/50 rule ) were deemed acceptable for approximating the FCS. 5. The retention of reinvested earnings as a transaction. Statistics Department 5

7 Among the Most Important Changes are: 1. A strict application of the asset/liability principle, so that asset claims of direct investment enterprises on their direct investors are no longer netted against liabilities. Similarly, income flows are to be grossed up. (To achieve alignment with national accounting principles). Presently, the guidelines recommend that income payable and receivable between a direct investment enterprise and its direct investor be netted. 2. Permanent debt between affiliated financial institutions is no longer to be considered direct investment. 3. Subject to a decision by national accounting experts, SPEs that are holding companies are to be treated, in institutional sector classifications for the balance of payments and national accounts, as other financial institutions. In those instances where such a holding company has subsidiaries in the same economy, it is the view of the IMF Committee that the group enterprise should be classified also on the basis of the predominant activity of the local group to assist analysis of direct investment data. Statistics Department 6

8 Some Areas Where Supplemental Detail or Clarification is Required, but Additional Work is Needed 1. While SPEs should be included in direct investment, where the size of stocks and flows may be misleading for analysis at direct investment in a particular country, the data should be reported as an of which item using national definitions. Attempts at developing an international definition of SPEs have been unsuccessful, but further work will be undertaken in drafting the Benchmark Definition to include criteria to identify SPEs and to provide guidance to national compilers. 2. New breakdowns relating to mergers and acquisitions should be shown in the balance of payments as supplementary items. Further work on the development and harmonization of basic concepts and definitions and recording methods will be required. 3. Definitions of mutual funds and similar organizations need to be developed in order to clarify whether or not some such institutional units should be excluded from direct investment. Statistics Department 7

9 Next Steps 1. During 2006, the IMF staff will prepare the first draft of the new Balance of Payments Manual, with the first set of draft chapters to be posted on the IMF s external website by the end of Through 2007 and 2008, there will be country review, regional seminars, and redrafting leading to posting of a revised draft at end 2007 and the final draft at end During 2006 until it completes work in 2007, the OECD Benchmark Advisory Group (BAG) a drafting group established by the OECD WIIS will continue work on the Benchmark Definition. Through this period, the IMF staff will collaborate with the OECD staff and the BAG, and there will be close coordination to address the unresolved issues. Comments on the various drafts of the balance of payments manual, and its direct investment sections, will be encouraged and welcomed. Statistics Department 8