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Guarantees

Guarantees. http://unstats.un.org/unsd/nationalaccount/AEG/papers/m2guarantees.pdf http://unstats.un.org/unsd/nationalaccount/AEG/papers/m3guarantees.pdf. Guarantees. Part of “balance sheet approach” – trend to look at positions to analyze economic problems, not just flows.

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Guarantees

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  1. Guarantees http://unstats.un.org/unsd/nationalaccount/AEG/papers/m2guarantees.pdf http://unstats.un.org/unsd/nationalaccount/AEG/papers/m3guarantees.pdf

  2. Guarantees • Part of “balance sheet approach” – trend to look at positions to analyze economic problems, not just flows. • Off-balance sheet obligations. • Important for assessing vulnerability (can hide debt).

  3. Examples of Guarantees • Guarantor and Debtor are related entities: • Government and government-owned enterprises. • Companies and their subsidiaries. • Guarantor and Debtor are at arm’s length: • Banker’s acceptances and other guarantees on a fee basis. • Government support for worthy private projects.

  4. Time of recognition • Granting of guarantee? • Activation of guarantee? • After default by guaranteed party.

  5. On the activation of a guarantee, if Debtor still exists, three steps occur: • Creditor’s liability to Debtor is eliminated. • Guarantor’s liability to Creditor is created. • Debtor’s liability to Guarantor is (usually) created. • More complex than usual transactions, because three parties involved.

  6. Current Treatment • (a) Before activation, guarantees are contingent assets and therefore outside the system. • (b) No specific guidance on classification of flows on activation in BPM5 or SNA. However: • GFSM has injection of equity for continuing subsidiaries and capital transfer otherwise; and • ESA95 has injection of equity and capital transfer cases; also mentions other volume changes when the original debtor disappears. • For bank guarantees, from general practice, it appears that service charge when issued; other volume changes if not recovered.

  7. Decisions • External Debt Statistics Guide suggests show expected liabilities under guarantees as a supplementary item. • AEG didn’t want to change asset boundary to include guarantees in general as assets, except when they: • Amount to a financial derivative; or • Are standardized guarantees (e.g., on student loans) – considered to be similar to insurance. • On activation: • Details still being discussed. • Attempt to have single solution, but evidence suggests different (some capital transfer, sometimes financial account transaction).

  8. Questions Are guarantees important issues in your country? How should they be recorded?

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