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  The Balance of Payments II Capital Account International Finance CFVG-May 2009 Professor: M.H. Bouchet
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US Current account deficit -7% PBI  US Treasury, IMF US$ billion
Major net Importers of Capital Source: IMF 2007
Major net Exporters of Capital Source: IMF 2007
* The US CAD dilemma * ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
The US CAD dilemma… revisited (1) ,[object Object],[object Object],[object Object],[object Object],[object Object]
The US CAD dilemma… revisited (2) ,[object Object],[object Object],[object Object],[object Object],[object Object],Fed RB NY, June 2007
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Capital account ,[object Object]
The Capital Account ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],From less liquid items to more liquid items!
Table of Uses and Sources
The Capital/Financial Account ,[object Object],[object Object],[object Object],[object Object],Source: Eiteman/Pearson
The Financial Account ,[object Object],[object Object]
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Sources of external financing ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Developing countries that have relied  less  on foreign capital have grown faster!  (IMF/03-2007)
Where do capital flows go ?
Who finances whom? Current account balances of OECD (30) and EMCs (160)  US$ billion Source: IIF, IMF-WEO 2009
EMCs shrinking current account surpluses
Net external capital sources for EMCs  IIF/IMF US$ billion
Private flows  & FDI are a key source of growth financing for EMCs Source: IIF-2009
Net Private Capital Flows to E MCs (Equity, FDI, Portfolio, Banks + non-banks)   Billion of US$ Source: IIF/IMF
Net FDI and portfolio capital flows to EMCs  US$ billion Source: IMF/IIF
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What is FDI? ,[object Object],[object Object],[object Object],[object Object]
FDI’s Benefits and challenges ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Challenges Benefits
Source: US GAO 02/2008
FDI Flows worldwide  in % of total volume Source: CNUCED/2007 Total= $1833 billion * IDE In = $81 billion, et IDE Out= $115 billion (OCDE et BDF) France= $81 billion* (7,1% of total)
Total FDI inflows in US$ trillion Post-2003 bounceback has been driven by OECD markets.  FDI flows to EMCs will remain buoyant in 2007-10, averaging over US$400bn per year, but growth rates will be modest as privatisation tails off and the global economy slows.
OECD* (65%) EMCs  (35%) ASIA (50%) LATIN AMERICA (25%) GLOBAL ECONOMY EMCs LATIN  AMERICA   MEXICO (15%) CHILE (10%) PERU (4%) CHINA (36%) ASIA GLOBAL FDI FLOWS 2008 = $1500 billion  Source: IIF, OECD/UNCTAD $92 billion *  30 countries - Mexico
30 most attractive Emerging markets for FDI ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Σ  Economic + Political risk Market potential AT Kearney GRDI
TOP 25 Global Confidence Index AT Kearney 2007
Most attractive emerging markets High Risk Lows Risk
China: FDI Flows In billions of US$ Source: OECD
Financial self-sustaining process = high saving rate, stronger banking sector= < dependance on external capital flows Source: OCDE
FDI Flows in Vietnam (BOP source) In millions of US$,  actual disbursed as of 08 Source: IMF Jan-April 09: VN attracts US$6,35 billion in registered FDI, down 17% compared to 08,  mostly in services.
Overview of FDI in Vietnam ,[object Object]
Main sources of FDI in Vietnam ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],60%
FDI in Vietnam by Sector
TOP 10 INVESTOR NATIONS IN VIETNAM
Contribution of FDI to Vietnam’s Economy ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
France: FDI Flows In & Out Ratio OUT/IN= 1,8 Source: FMI & OCDE 2008
Outsourcing and job losses in Europe Source: European Fondation for the improvement of living and working conditions/2006
Outsourcing and sectoral job losses in Europe Source: European Restructuring Monitor/2006
Offshoring and job losses in Europe
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Gross private capital flows to LACs
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Vietnam’s foreign exchange reserves
China’s rising official reserve assets US$ billion Source: IMF 2006/IIF
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Net errors and omissions ? ,[object Object],[object Object]
In millions of US$ Source: IIF
Vietnam’s errors & omissions in US$ million
Russia:  Net Errors & Omissions   US$ billion Source: IMF-IFS/IIF
Peru and Capital flight
6. Exceptional Financing ,[object Object],[object Object],[object Object],[object Object],[object Object]
IMF Disbursements and Repayments In SDR million Credits Repayments
Total IMF Credit Outstanding for all Members
Risk Management and BOP Analysis   + Export of goods f.o.b. -  Imports of goods f.o.b. =  Trade balance +/-  Exports/Imports  of non-financial services + /- Investment income/expenditures (credit/debit) + (-) Private/Official  unrequited transfers =  Current account balance +/- FDI +/- Portfolio capital Flows +  LT Capital Inflows -  Debt Servicing Payments +/- ST Capital Flows Reserve Variation
External Finance Analysis: The dual face of  Country Risk ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Liquidity and Solvency Thresholds ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
US Payments statistics: the basic balance ,[object Object],[object Object]
US International Investment Position ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Net US external investment position in US$ billion Source: IMF-2009 International assets-International Liabilities
Net US external investment position in US$ billion ,[object Object],[object Object],[object Object]
The History of the U.S. Balance of Payments   Stage I : The U.S. is a  young debtor nation  (1770-1870) -Current account deficit due to the need to import most goods and inability to produce many goods for export. -Capital account surplus due to a great deal of foreign investment in the U.S. in the areas of roads, farming, cattle ranches, railroads, and canals.  Stage II : The U.S. is a  mature debtor nation  (1870-1920) - Current account deficit due to large investment income being paid back to foreign investors based on the investment of stage I. Merchandise account in surplus -- exports > imports.  Stage III : The U.S. is a  young creditor nation  (1920-1945) -Huge surplus in the current account due to large volume of postwar (WWI) exports. -Capital account in deficit due to a great deal of U.S. investment in Europe for postwar reconstruction.  Source: http://www.digitaleconomist.com/bop_4020.html
Stage IV : The U.S. is a  mature creditor nation  (1945-1980) -Merchandise deficit --  exports < imports  but an investment income surplus with a slight net surplus overall. -Capital account is in deficit largely due to postwar (WW II) reconstruction in Europe and Japan. Stage V :  (1980- ) -Large (and growing) deficit in the merchandise accounts (Trade Deficit) and slight surplus in the investment income accounts. -Large surplus in the capital account partially to finance the above merchandise deficit (foreign individuals and banks lending money to individuals in the U.S.) Additionally, since the U.S. has had a low inflation rate since 1982 and consistent economic growth , the U.S. has been a good place to invest relative to the rest of the world. However the current inflow of capital investment could eventually lead to large investment income payments in the near future. The investment income surplus may soon be eroded thus worsening the current account deficit.

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2.2. Balance Of Payment Capital Account To Finance Ca Deficit

  • 1. The Balance of Payments II Capital Account International Finance CFVG-May 2009 Professor: M.H. Bouchet
  • 2.
  • 3.
  • 4.
  • 5. US Current account deficit -7% PBI US Treasury, IMF US$ billion
  • 6. Major net Importers of Capital Source: IMF 2007
  • 7. Major net Exporters of Capital Source: IMF 2007
  • 8.
  • 9.
  • 10.
  • 11.
  • 12.
  • 13.
  • 14. Table of Uses and Sources
  • 15.
  • 16.
  • 17.
  • 18.
  • 19. Developing countries that have relied less on foreign capital have grown faster! (IMF/03-2007)
  • 20. Where do capital flows go ?
  • 21. Who finances whom? Current account balances of OECD (30) and EMCs (160) US$ billion Source: IIF, IMF-WEO 2009
  • 22. EMCs shrinking current account surpluses
  • 23. Net external capital sources for EMCs IIF/IMF US$ billion
  • 24. Private flows & FDI are a key source of growth financing for EMCs Source: IIF-2009
  • 25. Net Private Capital Flows to E MCs (Equity, FDI, Portfolio, Banks + non-banks) Billion of US$ Source: IIF/IMF
  • 26. Net FDI and portfolio capital flows to EMCs US$ billion Source: IMF/IIF
  • 27.
  • 28.
  • 29.
  • 30. Source: US GAO 02/2008
  • 31. FDI Flows worldwide in % of total volume Source: CNUCED/2007 Total= $1833 billion * IDE In = $81 billion, et IDE Out= $115 billion (OCDE et BDF) France= $81 billion* (7,1% of total)
  • 32. Total FDI inflows in US$ trillion Post-2003 bounceback has been driven by OECD markets. FDI flows to EMCs will remain buoyant in 2007-10, averaging over US$400bn per year, but growth rates will be modest as privatisation tails off and the global economy slows.
  • 33. OECD* (65%) EMCs (35%) ASIA (50%) LATIN AMERICA (25%) GLOBAL ECONOMY EMCs LATIN AMERICA MEXICO (15%) CHILE (10%) PERU (4%) CHINA (36%) ASIA GLOBAL FDI FLOWS 2008 = $1500 billion Source: IIF, OECD/UNCTAD $92 billion * 30 countries - Mexico
  • 34.
  • 35. TOP 25 Global Confidence Index AT Kearney 2007
  • 36. Most attractive emerging markets High Risk Lows Risk
  • 37. China: FDI Flows In billions of US$ Source: OECD
  • 38. Financial self-sustaining process = high saving rate, stronger banking sector= < dependance on external capital flows Source: OCDE
  • 39. FDI Flows in Vietnam (BOP source) In millions of US$, actual disbursed as of 08 Source: IMF Jan-April 09: VN attracts US$6,35 billion in registered FDI, down 17% compared to 08, mostly in services.
  • 40.
  • 41.
  • 42. FDI in Vietnam by Sector
  • 43. TOP 10 INVESTOR NATIONS IN VIETNAM
  • 44.
  • 45. France: FDI Flows In & Out Ratio OUT/IN= 1,8 Source: FMI & OCDE 2008
  • 46. Outsourcing and job losses in Europe Source: European Fondation for the improvement of living and working conditions/2006
  • 47. Outsourcing and sectoral job losses in Europe Source: European Restructuring Monitor/2006
  • 48. Offshoring and job losses in Europe
  • 49.
  • 50. Gross private capital flows to LACs
  • 51.
  • 52.
  • 54. China’s rising official reserve assets US$ billion Source: IMF 2006/IIF
  • 55.
  • 56.
  • 57.
  • 58. In millions of US$ Source: IIF
  • 59. Vietnam’s errors & omissions in US$ million
  • 60. Russia: Net Errors & Omissions US$ billion Source: IMF-IFS/IIF
  • 62.
  • 63. IMF Disbursements and Repayments In SDR million Credits Repayments
  • 64. Total IMF Credit Outstanding for all Members
  • 65. Risk Management and BOP Analysis + Export of goods f.o.b. - Imports of goods f.o.b. = Trade balance +/- Exports/Imports of non-financial services + /- Investment income/expenditures (credit/debit) + (-) Private/Official unrequited transfers = Current account balance +/- FDI +/- Portfolio capital Flows + LT Capital Inflows - Debt Servicing Payments +/- ST Capital Flows Reserve Variation
  • 66.
  • 67.
  • 68.
  • 69.
  • 70. Net US external investment position in US$ billion Source: IMF-2009 International assets-International Liabilities
  • 71.
  • 72. The History of the U.S. Balance of Payments Stage I : The U.S. is a young debtor nation (1770-1870) -Current account deficit due to the need to import most goods and inability to produce many goods for export. -Capital account surplus due to a great deal of foreign investment in the U.S. in the areas of roads, farming, cattle ranches, railroads, and canals. Stage II : The U.S. is a mature debtor nation (1870-1920) - Current account deficit due to large investment income being paid back to foreign investors based on the investment of stage I. Merchandise account in surplus -- exports > imports. Stage III : The U.S. is a young creditor nation (1920-1945) -Huge surplus in the current account due to large volume of postwar (WWI) exports. -Capital account in deficit due to a great deal of U.S. investment in Europe for postwar reconstruction. Source: http://www.digitaleconomist.com/bop_4020.html
  • 73. Stage IV : The U.S. is a mature creditor nation (1945-1980) -Merchandise deficit -- exports < imports but an investment income surplus with a slight net surplus overall. -Capital account is in deficit largely due to postwar (WW II) reconstruction in Europe and Japan. Stage V : (1980- ) -Large (and growing) deficit in the merchandise accounts (Trade Deficit) and slight surplus in the investment income accounts. -Large surplus in the capital account partially to finance the above merchandise deficit (foreign individuals and banks lending money to individuals in the U.S.) Additionally, since the U.S. has had a low inflation rate since 1982 and consistent economic growth , the U.S. has been a good place to invest relative to the rest of the world. However the current inflow of capital investment could eventually lead to large investment income payments in the near future. The investment income surplus may soon be eroded thus worsening the current account deficit.