ARE U.S. INTERNATIONAL TRANSACTIONS STATISTICS ADEQUATE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85-01156R000100140007-5
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 8
• Document Creation Date: December 21, 2016
• Document Release Date: August 20, 2008
• Sequence Number: 7
• Content Type: REPORT

COMMERCE
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Are U.S.?ternational Transactions Statics Adequate?
If one views "adequate" according to either of two rather extreme definitions
of the term, U.S. international transactions statistics conform to neither and
can be characterized as being in a less dramatic position -- somewhere in
between "no more than barely sufficient" and "fully sufficient for a specified
or implied requirement." In fact, the international (and national) statistics
of most leading nations are in the same boat -- certainly with room for improve-
ment but of reasonably high quality and "adequate" for most analytical and
policy purposes.
THE STATISTICAL DISCREPANCY
The emergence of very large statistical discrepancies (errors and omissions)
in the U.S. international accounts in the past few years, particularly the
positive (inflow of) $41.4 billion in 1982, has g_~nerated an increasing number
of comments concerning both the adequacy of the accounts and the allocation of
the discrepancy between the current account (goods, services -- including
investment income -- and unilateral transfers) and the capital account (bank-
reported flows, direct and portfolio investment, etc.). It should be stated
that a large discrepancy per se does not indicate that the accounts are worse
than if there were a small, or even zero, discrepancy. The discrepancy is a
net figure, resulting from errors and/or omissions on the credits and/or debits
side of the accounts (conceptually, recorded credits and debits should be equal
and offsetting, but in practice almost never are in any specific time period, due
to differences in timing and recording methods and/or recording, gaps.) Even
under a strict exchange control system, a discrepancy could arise.
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? Given the expansio?f international transactions fan increasingly inter-
dependent world, it would be surprising if there were not some increase in
the discrepancy, although the size of the U.S. discrepancy in recent years
remains troublesome. Parallel with the growing discrepancy in the overall
U.S. international accounts has been a growing statistical asymmetry in
global current account statistics. This development suggests, as the
International Monetary Fund (IMF) has noted, that "at least part of the
discrepancy may be in the current account." Some private sector observers
have been much less guarded in their comments, attributing as much as one-half
(or $20 billion) of the 1982 U.S. discrepancy to the current account, emphasizing
a probable underreporting of services exports and of investment income receipts,
and relating that to the world current account discrepancy. The Bank for
International Settlements (BIS), in contrast, has commented that the large
U.S. discrepancy, in the main, "probably consists of unidentified capital
inflows", largely attributable to interest.rate differentials, concerns about
the international debt crisis and the international banking system, and the
strength of the dollar (actual and expected).
A technical point to be noted is that the discrepancy in the U.S. international
accounts (involving an unknown mix of errors and omissions in both our current
account and capital account statistics) is, despite some similarities and
possible overlaps, not directly relatable to the world current account asymmetry
or discrepancy (representing a residual difference between total world payments
and receipts on current account only, ignoring all capital flows).
In any event, specific allocations of the discrepancy to particular sectors of
the international accounts can be misguided and inappropriate. There is no
-reason to presume that the net effect of improved reporting in the current
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'account sector would to increase receipts, ratheRhan increase payments.
In fact, there might be a better case to be made for exactly the opposite
conclusion (see discussion of service accounts in the next section). Given
the political, economic and financial, and military uncertainties in many
areas, in contrast to the relative stability in and favorable prospects for
the United States, there is reason to agree with the BIS that most of the
U.S. discrepancy is accounted for by unreported capital inflows. Also supporting
this view is the extreme quarter-by-quarter volatility of the discrepancy
(swinging, during 1980 for example, from a $67 billion annual-rate inflow in
Q2 to a small annual-rate outflow of $56 million in Q4) combined with an
apparent correlation of some of its widest swings with developments such as
exchange-market expectations of a weaker or stronger dollar; tightening or
loosening of U.S. monetary policy, including early-1980 domestic credit-
controls; and a possible differential confidence effect of the initial LDC
debt crisis, in Q3 last year, on Euro-dollar versus U.S. banks (see chart).
An analysis by the Iv1F of the large global current account asymmetry "provides
some reassurance that the main outlines of the global payments pattern would
remain essentially similar if the asymmetry could be eliminated." The same
degree of reassurance would seem to be in order for the United States current
account. Nonetheless, any meaningful analysis of overall U.S. international
transactions should 'include unrecorded flows -- the discrepancy -- as well as
recorded flows.
THE CURRENT STATUS OF THE U.S. INTERNATIONAL ACCOUNTS
The following is a brief review of selected components of the U.S. international
accounts, their relative reliability and current and prospective efforts to
improve them. Within the current account, the merchandise trade statistics are
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in reasonably good gape, with no evidence of recee deterioration. The Census
Bureau's basic data, and BEA adjustments to them for balance of payments purposes,
often exhibit unusual monthly volatility, but this is not a quarterly or an
annual problem. Efforts to improve monitoring of merchandise trade transactions
should continue, to reduce possible undercounting of U.S. trade flows, particularly
exports.
Among the service accounts, the estimates for a number of components need improve-
ment. This is largely a reflection of reporting gaps in BEA surveys and the
voluntary nature of some of these surveys (as opposed to mandatory reporting in
many of the other accounts). To narrow reporting gaps, BEA has expanded the
survey of foreign contract operations of U.S. companies to collect more data; has
increased the number of questions pertaining to services and the number of
separate service industries in the 1982 survey of U.S. direct investment abroad;
has cooperated with the U.S. Travel and Tourism Administration in the institution
of new surveys of foreign travelers in the United States and U.S. residents
traveling abroad, so as to increase response rates; and, if resources are
available, will collect additional information on trade in services, including
a new annual survey of foreign contract operations in the United States, and
a new annual survey of U.S. direct investment abroad (with an emphasis on
services). Reporting to BEA on military items in the services accounts is improved,
compared with earlier years, due to close monitoring and improved cooperation
with the appropriate Defense agencies. The transportation accounts were revised
for 1980-1932, reflecting improvements in methodology; the results were published
in the June 1983 Survey of Current Business (with the net effect of increasing
payments). Close cooperation with most large reporting corporations has continued
to produce reliable estimates for the direct investment income accounts.
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Estimates for receiW and payments of income on pdWolio investment have
benefited from recurrent discussions with and visits to money market center
banks concerning appropriate yields, fees, spreads, etc., to be applied to
reported principal amounts of various types of loans to and borrowings from
foreign branches, banks, and non-bank foreigners. Revisions to methodology
have been instituted several times in recent years as a result of such
discussions, which have served to keep the estimates more attuned to market
practices. The net effect has been to reduce net receipts substantially.
(In addition, to whatever extent past cumulative errors and omissions inflows
may have been accounted for by unreported portfolio capital inflows, sub-
sequent accruals of investment income payments on these financial liabilities
have been missing from our estimates, resulting in a corresponding overstatement
of net portfolio income.) In sum, the above factors tend to support the
proposition that reporting gaps in the services accounts could just as well
result in a net understatement of payments as of receipts. Indeed, revisions
in recent years, reflecting new information and improved methodology, have
reduced receipts, or increased payments, by substantial amounts in trans-
portation and in investment income.
Although regional and bilateral allocations of overall international transactions
statistics are subject to important reservations, there are indications of rather
wide discrepancies between U.S. and Japanese data. Thus, it might be worthwhile,
if resources could be committed and if the Japanese, would agree, to plan and
initiate a bilateral current account reconciliation with Japan. Preliminary
U.S. Customs efforts toward a merchandise trade reconciliation with Japan are
being explored. The successful U.S.-Canadian current account reconciliations
of recent years would serve as the model, although the unique degree of
cooperation between the United States and Canada is not likely to be duplicated,
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and there are rathride differences, including lQuage, conceptual framework
and accounting practices, between Japan and the United States.
It is in the private capital accounts that most of the unrecorded inflows of
foreign funds probably are concentrated. To the extent that there is a strong
desire on the part of some foreign investors, for whatever reasons, not to
reveal-the identity of the ultimate investor, there is not much that can be done
to change the situation. As a result, there probably are substantial slices,
particularly of foreign portfolio investments and, to a lesser extent, foreign
real estate investments, that are mistakenly regarded by U.S. reporting institutions
as domestic (U.S.) investment. Among the gaps in capital flow statistics, other
than this "masking" problem, the most important is probably associated with
portfolio investment inflows. Although reports are clearly ..quired by existing
regulations on any transactions which would change reporters' claims on or
liabilities to any foreign entity, reports to Treasury on such flows, particularly
by nonfinancial corporations, and to a lesser extent by banks, may be plagued
by uncertainties as to whether the reporting requirements apply to some trans-
actions, including new financial market practices and instruments. As for direst
investment estimates, although both surveys and data underlying the estimates
have improved markedly in recent years, and, in particular, more resources have
been allocated to the increasingly important flo;.s associated with foreign direct
investment, in the United States, such data probably are still subject to reporting
gaps, especially those involving complex legal structures and/or forms of
management and ownership.
SU 'L4.RY AND CONCLUSIONS
In sum, U.S. international transactions statistics can be characterized as adequate,
but certainly with room for significant improvement. The emergence of a very large
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statistical discrepiy is uncomfortable, to say thW east, but should not
be viewed as an indicator of unreliability of the statistics. Rather, it is,
to a great extent, an indicator of global economic, financial, socio-political
and military instability, and of the relatively stable conditions and more
promising outlook for the United States than many other leading areas.
Although needed efforts to improve U.S. statistics are underway, it should not
be expected that such efforts will lead to a disappearance of significant
diminution of the statistical discrepancy in short order. Improvements should
be expected to result in better estimates for the appropriate accounts, whatever
the discrepancy might be. Hopefully t and there are indications thus far in
1983, particularly in the second quarter, that this indeed may be the case --
the record 1982 discrepancy will not be repeated in 1983. But the discrepancy
may remain rather large until there are improved prospects for a more stable
and prosperous world economy.
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 E3illionc
of Dollars
18
16
14
12
10
Rr~liem
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_z
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Statistical Discrepancy in
U.S. Balance of Payments
(Quarterly data, not aaanonally adjusted)
1970 1971 1972 1973 1974. 1975 1976 1977 1978 1979 1980 1981 1982 1983
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