Outcomes of Meeting of IMF Committee on Balance of Payments Statistics, June 27 – July 1, 2005

1. Outcomes of Meeting of IMF Committee on Balance of Payments Statistics, June 27 – July 1, 2005

2. Outcomes of BOPCOM’s discussions • Migrants’ transfers • Personal effects not be recorded as transaction • Reclassification of financial assets and liabilities arising from change of residence “other changes” • Change of residence usually only applies to persons but may apply to some corporations, e.g., societas europea • AEG agreed

3. Outcomes of BOPCOM’s discussions • Technical assistance • Technical assistance represents supply of services by donor to recipient, funded by transfer • Debt instruments indexed to foreign currency • To be classified as denominated in foreign currency • Recommended currency of account and currency of settlement be clearly distinguished • AEG agreed

4. Outcomes of BOPCOM’s discussions • Interest and index-linked debt instruments • Retain present treatment of 1993 SNA (para. 7.104) all changes arising from indexation equal interest • AEG’s view: • Where linked to broad price index (CPI, GDP deflator, etc.): interest, as per 1993 SNA • Where linked to other types of index, use rate on comparable “plain vanilla” issue as interest component, and excess as other changes

5. Outcomes of BOPCOM’s discussions • Reinvested earnings • Continue present practice • “Income” not well defined or treated consistently create income expert group, not limited to balance of payments including national accountants and financial statisticians

6. Outcomes of BOPCOM’s discussions • Retained earnings of mutual funds • Follow AEG’s position (accept ESA95 treatment) • Need for further work on defining “collective investment schemes” • Financial gold • “Unallocated” gold: financial asset • “Allocated” gold: commodity • Further work required to determine instrument for “unallocated” gold • Not discussed by AEG but indications of approval

7. Outcomes of BOPCOM’s discussions • Fee on securities lending and gold lending • On securities lending and “unallocated” gold: property income (AEG agreed, treat as interest) • On “allocated” gold: service (AEG saw as trivial) • Fee on securities lending can be paid directly to custodian but represents a short-circuiting of two transactions: property income payable to lender, and service provided by custodian to lender • Further work by IMF and OECD to determine type of financial service by custodian to lender

8. Outcomes of BOPCOM’s discussions • Traded loans: criteria to become security • Absence of consensus, status quo obtains • AEG agreed, following elaboration of criteria in External Debt Guide • Goods for processing • Consistent treatment necessary (at present, varies, depending on circumstances) • Views divided • Extra data on fees, materials, finished goods • AEG: No change of ownership to be imputed. Discussion of implications for supply and use tables; reflection of globalized world

9. Outcomes of BOPCOM’s discussions • Merchanting • Need to reflect global production and marketing process properly • Concern about deviating from change of ownership principle but also grossing up goods transactions • Set up working group • AEG: further work required (participation in working group)

10. Outcomes of BOPCOM’s discussions • Guarantees • Premature to recognize guarantees prior to activation • Considered untenable preliminary AEG position (at December 2004, guarantee activation = capital transfers in all cases). • BOPCOM’s preference “other changes” in all cases, but accept alternative, on case-by-case basis: (i) capital transfers, (ii) financial claims, and (iii) other changes • In July 2005, AEG decided on case-by-case approach, but accepted TFHPSA proposal recognizing financial derivatives-type and insurance-type guarantees as asset at inception

11. Outcomes of BOPCOM’s discussions • Financial instrument classification • Accepted for BOP purposesbroad split of instrument and associated income, with additional split on supplementary basis • Equity Finance (equity securities (of which mutual funds, and of which money market mutual funds), reinvested earnings, other equity (not including insurance technical reserves) • Debt (debt securities (long/short), loans, currency and deposits, accounts receivable/payable (trade credit and advances, other) other debt instruments • Other (monetary gold, SDRs, net equity in insurance technical reserves and pension funds), financial derivatives (forwards and options) and employee stock options

12. Outcomes of BOPCOM’s discussions • Distinction between deposits and loans • Useful distinction but • Blurred in some instances, but not prescribe criteria • Further work by ECB • AEG agreed with above

13. Outcomes of BOPCOM’s discussions • Valuation of direct investment equity • Reassertion of market price principle • Split between quoted and unquoted: supplementary • Deemed acceptable: • Recent transaction • NAV, including intangibles and goodwill • NAV, excluding intangibles and goodwill • Apportioning global value of group to local unit, using appropriate indicator • Own funds at book value • Capitalization ratios • PIMs (or equivalent)

14. Outcomes of BOPCOM’s discussions • Valuation of direct investment equity (cont) • Further work, showing pros and cons • No consensus on ranking. Further work on descriptions • Less acceptable/inferior • Use of stock price indices to revalue accumulated flows • Historic or acquisition cost • Summing of transactions • Bilateral/CDIS

15. Outcomes of BOPCOM’s discussions • Land and buildings leased by nonresidents • Also to cover other natural resources • Needs clarification in new bop manual • Where effective change of ownership, create notional resident unit (in same manner as outright purchase) • Treat as equity • Valuation of acquisition of lease during its life not discussed

16. Outcomes of BOPCOM’s discussions • Institutional sector holding companies • If HC has no resident subsidiaries, then OFI • If resident subsidiaries, views divided. Status quo (assumes “predominant” activity of subsidiaries): subject to AEG views (January 2006) • Recognize problems with classification where resident and nonresident subsidiaries • Recognize potential conflict with currency union • Activity classification also to be discussed by ISIC

17. Outcomes of BOPCOM’s discussions • Nonresident SPVs linked to general govt • Felt TFHPSA proposal incompatible with residence concept • Rationale also applies to nongovernment units • Recognize need to resolve GFS problem, but not place residence at risk • Supported further work in wider context • AEG: provided for information only: Initial indications of concern. Support for alternative presentation (e.g., use of reconciliation account, satellite account)

18. Outcomes of BOPCOM’s discussions • Maturity and instrument split • Split on instrument in direct investment “other capital”, consistent with instrument split in 1993 SNA, to be recommended on supplementary basis • Maturity split (short/long) also on supplementary basis • Note meaning of these distinctions in many cases not clear between direct investor and direct investment enterprise

19. Outcomes of BOPCOM’s discussions • Concessional debt • See separate presentation • No consensus for inclusion of transfer in standard presentation but supplementary basis agreed • IMF to consider whether current or capital

20. Outcomes of BOPCOM’s discussions • Rescheduling • Rescheduling should not lead to whole instrument being rescheduled • Rescheduling of future interest payable/receivable could lead to transactions in new instruments • Need to clarify definition of rescheduling • For HIPC grant, when granted irrevocably, asset of recipient