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The international investment position of the United States in 1983.

THE net international investment position of the United States declined $43.6 billion to $106.0 billion in 1983. The last decline was in 1977. A shift to net capital inflows, mainly those reported by U.S. banks, accounted for most of the 1983 decline. Net valuation changes largely reflected price appreciation of U.S. stocks held by foreigners, which more than offset price appreciation of foreign stocks held in U.S. portfolios and other changes (table 1).

The decline in the net investment position of the United States in 1983, as in 1977, partly reflected much stronger expansion in economic activity in the United States than in other leading countries. Both the U.S. merchandise trade and current-account deficits increased sharply, from $36.5 billion and $9.2 billion in 1982, to $61.1 billion and to $41.6 billion in 1983, respectively. Net recorde capital inflows to offset the current-account deficit occurred in 1983 as the United States curtailed its lending and stepped up its borrowing abroad. High nominal and real U.S. interest rates facilitated the adjustment, especially in the second half of the year, when a rise in U.S. rates added to the foreign demand for dollar assets. In addition, the dollar appreciated for the third consecutive year in exchange markets, rising 11 percent on a trade-weighted basis against 10 major currencies.

The large statistical discrepancy in the U.S. international transactions accounts for 1979-83 suggests possible overstatement of the net investment position, assuming that a significant part of that discrepancy was unrecorded net capital inflows. Thus, the net U.S. investment position should be interpreted with caution. Changes in U.S. Assets Abroad Bank claims

The most significant change in the net investment position in 1983 was related to the shift of U.S. banks to being net borrowers of funds in international markets from having been net suppliers of funds in 1980-82. In addition to the significant dropoff in claims, which is discussed in this section, there was a large increase in liabilities to foreigners related to the financing of the strong U.S. economic expansion (see the section on changes in foreign assets in the United States).

Claims on foreigners reported by U.S. banks increased moderately, $25.4 billion, to $430.0 billion in 1983 (line 19). Claims had increased $111.1 billion in 1982, which included the initial establishment of International Banking Facilities (IBF's). The international demand for U.S. bank credit was constrained in 1983 by limited expansion abroad, the related decline in world trade, and reduction in some countries' need for balance of payments financing. In addition, U.S. banks were reluctant to increase their exposure in the Eurodollar interbank market and in Latin America in view of mounting external debt problems that surfaced in mid-1982. Most of the 1983 increase in claims was on own foreign offices in the Caribbean; a limited amount was on public borrowers in Latin America as the U.S. share of International Monetary Fund (IMF) and internationally negotiated financing arrangements. Mexico received $5.0 billion of the $6.3 billion increase in U.S. bank claims on Latin American Republics in 1983. At year-end, U.S. claims on Latin American Republics amounted to $110 billion, or 2k percent of U.S. banks' total claims. (These figures do not include claims of U.S.-owned banks' overseas offices on Latin American Republics, which amounted to $32.0 billion and decreased $7.3 billion in 1983.)

Claims on U.S. banks' own foreign offices increased $16.7 billion, compared with $30.6 billion in 1982. Claims on unaffiliated banks and other foreigners increased $14.7 billion, compared with $76.4 billion, Banks' claims for domestic customers' accounts decreased $6.0 billion, compared with an increase of $4.0 billion, reflecting a drop in Eurodollar certificates of deposit held by U.S. money market mutual funds. Foreign securities

Sharply rising foreign stock markets led to record net U.S. purchases of foreign stocks of $4.0 billion and a $4.6 billion appreciation in the value of U.S. holdings (line 17). Exchange rate losses were $0.9 billion. At yearend, holdings totaled $26.5 billion. Net U.S. purchases of British, French, and Swedish stocks were $1.2, $0.4, and $0.4 billion, respectively; price appreciation added 28 percent to the value of holdings of European stocks. U.S. net purchases of Japanese stocks were $0.9 billion, augmented by a 12-percent price appreciation. Additions to U.S. holdings of Canadian stocks--the largest position in U.S. portfolios--were limited to $0.5 billion, despite a 26-percent price appreciation.

Net U.S. purchases of foreign bonds decreased $3.0 billion, to $3.7 billion, reflecting reduced new bond offerings in the United States (line 16). At yearend, holding totaled $58.3 billion. Lower foreign than U.S. interest rates, and attractive terms in international bond markets, were contributing factors. U.S. holdings depreciated $2.0 billion in value. Holdings of Canadian bonds depreciated $0.7 billion and net purchases declined to $1.1 billion, as Canadians placed isssues in international and their domestic markets. U.S. diversification into Western European bonds accelerated, favoring outstanding British bonds. World Bank issues in the United States slowed. U.S. direct investment abroad and other private assets

U.S. direct investment abroad increased $4.6 billion to $226.1 billion, following last year's $6.8 billion decrease (line 14). Equity capital and intercompany account inflows dropped to $4.2 billion from $11.1 billion, largely reflecting a drop to $5.0 billion from from $9.9 billion in inflows of funds through finance affiliates in the Netherlands Antilles. U.S. corporations relied more on internally generated funds and equity financing. Reinvested earnings were up, to $9.1 billion from $6.4 billion. Limited expansion abroad raised earnings in a few industrial countries, especially earnings of automotive affiliates in Canada.

Other claims on unaffiliated foeigners reported by U.S. nonbanking concerns increased $5.3 billion to $33.5 billion, following a $6.6 billion decrease (line 18). In 1982, nonbanking concerns withdrew deposits from abroad, party to replace the recession-induced drop in internally generated funds. As business activity, profits, and working capital increased strongly in 1983, funds were again placed abroad, mainly in U.K. and Caribbean banking centers and in Canada. U.S. official reserve assets and other U.S. Government assets

U.S. official reserve assets decreased $0.2 billion to $33.7 billion. Exchange rate changes decreased reserve assets $1.4 billion; capital flows increased assets $1.2 billion (line 3). Drawings of dollars from the IMF by Latin American countries increased the U.S. reserve position with the IMF. Payment of the U.S. share of the IMF quota increase at yearend of $0.7 billion in special drawing rights and $0.3 billion each in German mark and Japanese yen holdings increased the U.S. reserve position with the IMF $1.3 billion. Other declines in foreign currency holdings reflected redemption of the last of U.S. Treasury foreign currency notes denominated in German marks and Swiss francs, and repayment by Brazil and Mexico of their drawings under reciprocal and special currency arrangements with the United States.

Other U.S. Government assets increased $5.0 billion to $79.3 billion (line 8). The increase in 1983, as in 1982, was largely Government assistance to developing countries in the Middle East and capital subscriptions and contributions to international financial institutions (excluding the IMF). Changes in Foreign Assets in the United States Bank liabilities

U.S. liabilities to foreigners and international financial institutions reported by U.S. banks, including U.S. Treasury securities, increased $57.2 billion to $314.3 billion (lines 30 and 35). In 1982, when the establishment of IBF's increased reported liabilities, these liabilities increased $73.2 billion. A strong dollar, favorable interest rate differentials, and the safe haven attraction of the United States were contributing factors. In the second half of the year, when U.S. rates rose sharply and increased the differential with rates abroad, large bank inflows to finance U.S. economic expansion and sharply lower bank outflows to foreigners resulted in U.S. banks becoming substantial net borrowers from foreigners for the year for the first time since 1979.

Nearly $25.6 billion of the 1983 increase in liabilities was to U.S. banks' own foreign offices in the Caribbean and United Kingdom. U.S. banks relied on deposits in overeas offices by nonbank U.S. residents and on net principal repayments of interbank Eurocredits by other foreign banks to finance their drawings from foreign offices. U.S. liabilities to unaffiliated and other foreigners increased $23.4 billion; nearly one-half were inflows from other

banks. Holdings of U.S. Treasury securities increased $8.1 billion as purchasers--especially customers in the United Kingdom, Switzerland, and Japan--were attracted by rising U.S. interest rates. U.S. securities

Foreign holdings of U.S. securities other than U.S. Treasury securities increased $21.1 billion to $114.6 billion, following an $18.2 billion increase (line 31). Holdings of U.S. stocks appreciated 18 percent, or $14.1 billion; net purchases added a record $6.4 billion (line 33). Exceptional interest in stocks was evident worldwide as U.S. and foreign stock markets recovered from lackluster performances in the 1981-82 recession years. In 1983, German, Swiss, and British residents accounted for most net purchases, whereas in 1980-82--following removal of outward portfolio investment restrictions in the United Kingdom in late 1979--British residents dominated net foreign purchases. Net British purchases dropped to $1.8 billion in 1983, from $3.1 billion in 1982. Net purchases by Germany were $1.0 billion, up from $0.3 billion; by Switzerland, $1.3 billion, shifting from sales of $0.6 billion; and by Canada, $1.2 billion, up from $0.2 billion.

Foreign holdings of U.S. corporate and other bonds increased $0.6 billion tl $17.4 billion (line 32). Rising interest rates led to a $1.6 billion price decline, which partly offset the $2.2 billion in net foreign purchases. German purchases slowed, while Swiss and Japanese purchases increased. Foreign official assets

Foreign official assets in the United States increased $4.9 billion to $193.9 billion (line 21). Most official placements in the United States were invested in time deposits and U.S. Treasury bills in 1983. Following reductions in 1982, dollar assets of a number of industrial countries--including France, Italy, United Kingdom, Canada, and Japan--increased $10.2 billion. Dollar assets of OPEC members decreased $8.6 billion, as revenues were curtailed by falling petroleum demand and weak petroleum prices in world markets. Dollar holdings of other countries, mostly in Asis, increased $3.8 billion. Foreign direct investment in the United States and other liabilities

Foreign direct investment in the United States increased $11.6 billion to $133.5 billion, as equity capital and intercompany account inflows slowed for the second consecutive year (line 29). Reinvested earnings increased slightly in 1983, in contrast to a decrease in 1982. The strength of the dollar and rising U.S. stock prices tended to limit direct investment inflows.

U.S. liabilities to unaffiliated foreigners reported by U.S. nonbanking concerns decreased $1.9 billion to $25.2 billion, mostly to United Kingdom and Caribbean banking centers, and to countries in Asia (line 34). Trade payables to Middle East petroleum exporters were reduced and U.S. businesses repaid some Euromarket borrowings.
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Author:Scholl, Russell B.
Publication:Survey of Current Business
Date:Jun 1, 1984
Words:1923
Previous Article:U.S. international transactions, first quarter 1984.
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