Latest SIMSDI Metadata
Other Direct Investment Topics
Classification of Financial Derivatives Involving Affiliated Enterprises in the Balance of Payments Statistics and the International Investment Position (IIP) Statement (231 kb PDF file), 2002
Foreign Direct Investment Statistics: How Countries Measure FDI
Foreign Direct Investment Trends and Statistics (paper for Executive Board seminar)
Foreign Direct Investment Trends and Statistics: A Summary (paper for Executive Board seminar)
Other Selected Publications and Documents
Balance of Payments Home Page
Dissemination Standards Bulletin Board (DSBB): metadata on SDDS and GDDS data categories
External Debt Statistics: debt data, conference on capital flows and debt statistics, final draft Guide for Compilers and Users, and other selected publications
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A 1997 review of countries' practices for compiling data on foreign direct investment (FDI) transactions indicated that the treatment of three types of FDI transactions cause confusion among compilers:
The IMF subsequently examined these issues and presented a paper to the October 1999 meeting of the IMF Committee on Balance of Payments Statistics (the Committee), a copy of which is posted on the balance of payments website (http://www.imf.org/external/bopage/pdf/clarif.pdf—32Kb PDF file.) The Committee agreed with the recommendations in that paper, but asked for further discussion with interested groups, such as the OECD's Working Party on Financial Statistics (WFS), and the European Central Bank's Working Group on Balance of Payments and External Reserves (WGBP&ER), prior to making a final decision. The final decisions of the Committee are set out below.
Transactions with affiliated financial intermediaries
In the case of the transactions with affiliated financial intermediaries, confusion has arisen for three reasons:
Following discussions with the OECD WFS and the ECB WGBP&ER, the Committee at its October 2001 meeting reached the following decisions on the recommended treatment of transactions with affiliated financial intermediaries.
It is important to note that this last recommendation overturns the practice described in the BOP Textbook, which excludes from the FDI data transactions between nonfinancial FDI enterprises and affiliated SPEs with the sole purpose of financial intermediation. The effect of the recommendation is that there will no longer be any difference in the treatment of SPEs that have the sole purpose of financial intermediation and SPEs that have the primary purpose of financial intermediation—the FDI data are to include both (i) transactions between nonfinancial FDI enterprises and affiliated SPEs with the sole purpose of financial intermediation, and (ii) transactions between nonfinancial FDI enterprises and affiliated SPEs with the primary purpose of financial intermediation.
The Committee also agreed that, in light of concerns expressed by some members of the OECD and ECB groups, the decision about the inclusion in the FDI data of financial transactions between units that are not financial intermediaries and affiliated financial SPEs abroad would be re-examined in the context of the next revision of the Balance of Payments Manual. In the meantime, countries that exclude such transactions from the direct investment data are encouraged to explain their practices and if possible to publish memorandum items to facilitate international comparability.
Payments associated with the acquisition of a right to undertake a direct investment
In many developing or transition economies, the government requires the payment of a fixed amount of money by direct investors for the right to undertake a direct investment in the host economy. Often, but not always, these operating or concession rights are related to the extraction of natural resources. In transition economies, compilers refer to these payments as "bonuses". They are legal transactions and should not be associated with poor governance. The issue was to determine whether or not such bonuses constitute direct investment transactions and to recommend a common recording practice for such transactions.
Following consultations with the OECD and ECB groups, the Committee decided at its October 2001 meeting that the recommended treatment of payments for the right to undertake a direct investment is to be as follows:
The shutdown of an FDI enterprise established for natural resources exploration
The recommendation in paragraph 383 of BPM5 is that "expenditures of direct investment enterprises established for exploration of minerals and other natural resources in an economy are treated as capital expenditures (fixed capital formation)." In addition, the text stipulates that "if the exploration proves unsuccessful and results in a shutdown of the enterprise, no further balance of payments entries are recorded. Rather, a negative stock adjustment is made in the direct investment position of the direct investor in the host economy, and an equal reduction is made in the liability position of that economy to that of the direct investor. (Both adjustments fall under the heading other adjustments in the international investment position.)" Paragraph 60 of the OECD Benchmark Definition of Foreign Direct Investment (Benchmark) uses similar language.
However, some balance of payments compilers have argued that a stream of negative reinvested earnings flows should be recorded in the current account of the host economy over a number of years until the stock of fixed capital corresponding to the total exploration expenditures of the direct investment enterprise has been fully amortised as consumption of fixed capital, with corresponding entries recorded for the investing economy. Such treatment would be consistent with the System of National Accounts 1993 (SNA93), paragraph 10.91 of which recommends that the capitalized exploration costs should be amortized as consumption of fixed capital over the average service lives of such exploration assets. According to that argument, the direct investment enterprise continues to exist and the equity value remains until it is fully amortized. Each year, the direct investment enterprise will have negative reinvested earnings equivalent to the amortization of the exploration asset. If the amortization approach is not adopted, there is an asymmetric treatment of unsuccessful expenditures in natural resources exploration in the host economy's national balance sheets, as such expenditures of "national" enterprises would be amortized whereas those of direct investment enterprises would be written-off.
The paper presented to the Committee in 1999 argued that there were three possible approaches to treating the shutdown of an FDI enterprise established for natural resources exploration:
In light of the concurrence of the OECD and ECB groups, the Committee decided that the recommended treatment in instances of the shutdown of an FDI enterprise established for natural resources exploration is that the transactions should be recorded in accordance with the approach set out in BPM5 and the Benchmark, namely, to use the other adjustments heading of the IIP statement to show the reduction in assets, and to show no further entries in the balance of payments statistics.