Daniele Fano University of Rome Tor Vergata and Pioneer Investments, UniCredit Group.

1. Financial Accounts for Argentina, Brazil, China, India and Indonesia within the SNA standards: issues and challenges Daniele Fano University of Rome Tor Vergata and Pioneer Investments, UniCredit Group. Abhishek Gon PhD candidate in Banking and Finance, University of Rome Tor Vergata Belen Zinni PhD candidate in International Economics, University of Rome Tor Vergata OECD Working Party on Financial Statistics Paris, November29- December 1, 2010

2. Why Financial Accounts are so important… A complete and consistent set of figures: data on some relevant financial flows (such as public deficit) or financial stocks (such as the levels of debt for various sectors) exist for all countries. Only Financial Accounts provide within the SNA system a way of setting them within an exhaustive and logical framework, providing the best consistency check of flow and stock data Key financial stability indicators, for each domestic sector, for all sectors in conjunction and in the global context Effective policy monitoring tools: Monetary policy: velocity of money, open market operations Fiscal policy: dimensions, impact, sustainability Ways of assessing macro-trends, for example in terms of the public finance and the households’ ability to match life cycle needs

3. …especially for the G20 Emerging Economies • Financial development process, leading to a more complex array of financial instruments. Many of these economies are rapidly building a sophisticated domestic financial sector • Household finance becoming more relevant also because of demographic and life-cycle challenges; Government and Public Sector role evolving; • Interrelations across sectors becoming more complex; Non- Financial Corporations part of the Global Economy • These countries have an impact on International Stability

4. Ourobjectives • To document the progress in the implementation of Financial Accounts in: • Argentina • Brazil • China • India • Indonesia • Wherever these data are missing, to start filling this gap by collecting and approximating Financial Accounts data

5. Goldsmith’s pioneering work on National Financial BalanceSheets, and more recentcontributions • Goldsmith (1985) • Aron & Muellbauer (2006) • Davies, Sandstrom, Shorrocks and Wolff(2009) • The IMF • A Historical Public Debt Database by Abbas et.al. (2010) • International Financial Statistics (IFS) • The World Bank • Financial structure dataset by Beck and Demirgüç-Kunt (2010) • World Development Indicators (WDI) • Last but not least, the OECD, with the National Accounts database and additional databases such as Pensions.

6. Ourapproach Collecting flow and stock data according to the following rank of sources: 1- Financial Accounts / Financial Balance Sheets 2- Partial official data (Central Banks, National Statistics Offices, Regulators, Ministres, Secretariats, etc.) 3- Partial non official data (Professional Associations) 4- Approximations: based on the available official data and the economic literature 5- Estimations (important in order to try to draw a full picture but out of the scope of today’s discussion)

7. Some of the issues we face • Definition Issues: the same items may be called in a different way, there is a need for translation ( e.g. items that fall into uses are, in the context, assets, etc ..) • Item Breakdown Issues: in some cases the breakdown may not correspond to the SNA, both for sectors (e.g. Indonesia does not have a separate household sector), and for instruments • Exhaustiveness Issues: there may not be any way to match the sum of the items with a total derived from an independent source • Consolidation and Other Data Collection Issues: we do not really know to what extent the “intra-sector” data we use have been consolidated

8. Ranking differentsourcesof flow and stock data • In the followingtableswe report the qualityofeach data source asfollows: • - Full availability of data: covering both all asset categories and all institutional sectors as defined in the System of National • Accounts (SNA) 1993 and 2008 guidelines •  - Partial availability of data: covering some (not all) asset categories and/or some (not all) institutional sectors • - No availability of data: neither for any asset category nor for any institutional sector • u - Under investigation.

9. Ranking and assessingdifferent data sourcesof Financial Flows NB: Work in progress.

10. Ranking and assessingdifferent data sourcesof Financial Stocks NB: Work in progress.

11. A fewhighlights: presentingcollected data, withnecessarycaveats • Wewouldliketo end with some selectedhighlights on the countriesof interest, keeping in mind that: • Wewillreferonlytoforwhichwehave a high degreeofconfidence and that are consistentwith the SNA definitions • Weuse GDP asournuméraire (denominator) • Thesefigures do represent work in progress and are thereforesubjecttorevision

12. Argentina and Brazil: a tale oftwocountries While looking at Argentina and Brazil two questions are of obvious interest • Do we detect some medium-term trends? • What has been the impact of the recent financial crisis? We start by constructing the Household Financial Balance Sheets (and some main indicators concerning the General Government sector)as households are the key savings engine of the economy and play a key role in its overall equlibrium In fact we can say that while the medium term trends are the opposite, both countries have been relatively insulated from the impact of the recent crisis

13. Argentina and Brazil: a tale oftwocountries (cont.) • Medium term trends Brazil shows an impressive growth in domestic households assets and liabilities. In a period of strong GDP growth • Government and corporate securities held by the non-financial private sector, as ratio to GDP doubled from16% of GDP in 2000 to 32% in 2009 • In the same period pension fund holdings jumped from 12% of GDP to 16% of GDP and liabilities (loans) from 7% to 18% of GDP • In 2009 assets in mutual funds accounted for 28% of GDP Argentina on the contrary shows an erosion of household financial wealth • Currency and deposits go from 24% of GDP in 2000 to 17% in 2009 (especially due to the category Other deposits) • Mutual funds shares represent almost 2% of GDP in 2000; after the 2001 crises this ratio decreased significantly and in 2009 was 0.16% of GDP • Pension funds reserves were 13% of GDP in 2006; they became zero after the nationalization of pension funds in December 2008 • More recent trends • Both countries have been able to weather the crisis, keeping a public sector primary surplus and an acceptable current account deficit. • The crisis has not affected the trend in key household holdings

14. Argentina and Brazil: a tale oftwocountries (cont.) • Should we go back to Goldsmith’s intuition that the build-up of a domestic “financial superstructure” is at the basis of the economic development ? • In fact the evidence not only for Brazil, but also for example the Central and Eastern European Countries, is that in a context of steady growth the domestic financial sector and household financial wealth grow at a much higher rate than the GDP. • The case of Argentina shows that, in reverse, when growth hits a bottleneck, the “financial superstructure” can have not only an overall decline but also lose some pillars, as is the case of pension funds that have disappeared from the set of household assets as a result of their nationalization in 2008 We are exploring the notion of a threshold effect: before and beyond a certain level of GDP per capita, conditioned on other macroeconomic variables, household financial wealth seems to accumulate at different rates

15. India: the physiologyof a high savings high growthnationwithanincreasingly sophisticated financial system (1) • Indian Households consistent net lenders to all sectors. • Non-financial Corporations important & sophisticated borrowers. • Government “intermediation” role declining. • Important role of institutional investors (“other financial institutions”), within a relevant Financial Sector.

16. India: the physiology of a high savings high growth nation (2) From fiscal year 2001-2002… Beyond the SNA, a full “From Whom to Whom” Matrix.

17. India: the physiology of a high savings high growth nation (3) …to fiscal year 2007-2008

18. Non-FinancialCorporationsappearquitefinancial market - oriented. Liabilities: • Non-Financial Corporations’s two main sources of borrowing : Loans & advances and Corporate bonds. • Who bought Corporate Bonds in 2007-08? • Rest of the World are primary buyers of corporate bonds. • Besides Financial Intermediaries, Households share has increased substantially. • The role of Government has decreased over the period.

19. An examplewithrefernceto India vs South Korea and Non –financialcorporations India: translating the Flow ofFundsinto SNA standards

20. Indonesia: 2002 to 2005, a ‘foursector’ matrix • Indonesia has enjoyed a surplus with Rest of the World. • Financial Flows have been concentrated in traditional Deposits & Loans. • The Role of Government declining.

21. Summarizing Beware, but be not afraid of trespassing! • A long way to go • Beware • of partial data: • they may not be readily translatable in the SNA standards: ex insurance premiums • it is easy to miss some relevant components comprised in bank accounts, securities other than shares, equities, mutual funds • of cross-country comparisons: • data consolidation principles may differ • dncomplete data may lead to underestimation of single items • But, however cumbersome, progress can be done and it is useful • There is a wealth of data ready to be collected and assembled and… • As Anthony Atkinson once wrote, looking at the figures is always better than consulting one’s prejudices

22. References • Abbas, S.M. A., N. Belhocine, A. El-Ganainy and M. Horton. A Historical Public Debt Database, IMF Working Paper WP/10/245, Washington, DC. 2010. • Aron J. and J. Muellbauer. Estimating Household Financial Balance Sheets in South Africa, 1970-2003. Review of Income and Wealth, Series 52, Nº2, June 2006. • Beck, T. and A. Demirgüç-Kunt, Financial Institutions and Markets Across Countries and over Time: Data and Analysis. World Bank Policy Research Working Paper No. 4943, May 2009. • Coremberg. A. La riqueza de los argentinos. El balance de la economía argentina: una primera aproximación. Fundación Bolsa de Comercio, 2006. • Davies, J., S. Sandström, A. Shorrocks and E. Wolff. The level and distribution of global household wealth. National Bureau of Economics Research (NBER). Working paper 15508. November 2009. • Fano , D.., M. Georgieva, L. Marzorati and T. Sbano. Wealth effects in the new Europe countries. PGAM Economic Research. • Goldsmith, R. W. Comparative National Balance Sheets. A study of twenty countries 1688-1978. The University of Chicago Press, Chicago and London, 1985. • International Financial Statistics, International Monetary Fund online. • Lane, P. and G.M. Milessi-Ferretti. The External Wealth of Nations Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities, 1970-2004. Macrofinancial linkages. Trends, crises and policies. International Monetary Funds, Washington D.C, 2010. Chapter 8. • OECD statistics online. • World Development Indicators, World Bank, 2010.