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The international investment position of the United States in 1992.

THE NET international investment position of the United States at yearend 1992 was -$521.3 billion when direct investment is valued at the current cost of replacing plant, equipment, and other tangible assets, and it was -$611.5 billion when direct investment is valued at the current stock-market value of owners' equity.

The negative position valued at current cost increased $156.5 billion from $364.9 billion at yearend 1991, and the negative position valued at market value increased $215.1 billion from $396.4 billion. The increases in both measures stemmed from net capital inflows, a rise in U.S. stock prices, price decreases in several major foreign stock markets, and depreciation of several leading currencies against the dollar. Foreign capital inflows reflected strong net purchases of U.S. bonds, a large build-up of foreign official assets in the United States, and moderate foreign borrowing by U.S. banks; inflows for foreign direct investment in the United States declined to a 20-year low. Partially offsetting the foreign net capital inflows were record U.S. outflows to purchase foreign securities and near-record outflows for U.S. direct investment abroad.

At current cost, the 1992 change in position consisted of net capital inflows of $78.6 billion; negative price changes of $34.5 billion, mostly reflecting price appreciation in foreign-held U.S. stocks; exchange rate depreciation of $45.2 billion; and "other" changes of $1.9 billion. The exchange rate depreciation was primarily in U.S. direct and portfolio investment in Europe and Canada, where currencies depreciated against the dollar from the end of 1991 to the end of 1992.

At market value, the change in the position consisted of net capital inflows of $78.6 billion; negative price changes of $107.6 billion, reflecting the combined impact of an increase in U.S. stock prices on foreign-held U.S. stocks and a drop in foreign stock prices on owners' equity in U.S. direct investment abroad; exchange rate depreciation of $31.3 billion; and "other" changes of $2.4 billion.

This article first discusses the major changes in U.S. assets abroad and the major changes in foreign assets in the United States on both a current-cost and market-value basis. It then presents detailed estimates on the U.S. direct investment position abroad and the foreign direct investment position in the United States; these detailed estimates by country, by industry, and by account are available only on a historical-cost basis.

Changes in U.S. Assets Abroad

Bank claims

U.S. bank-reported claims on foreigners decreased $25.0 billion, to $666.9 billion, in 1992 (table 1, line 23). Banks in the United States, especially foreign-owned banks, sharply reduced their dollar claims on the overseas interbank market and further reduced claims on other foreigners. Foreign currency claims declined because of large net repayments. The general reduction in cross-border positions of U.S. banks reflected the weakened economic demand for bank credit that resulted from the sharp slowdown in growth rates among industrial countries, further retrenchment of Japanese banks in the United States, and a trimming of inter-office positions by U.S.-owned banks. In addition, banks limited their international lending because of concerns over borrowers' creditworthiness.

[TABULAR DATA 1 OMITTED]

A decrease of $36.1 billion in interbank claims, including claims on banks' own foreign offices and unaffiliated foreign banks, was largely in claims on Japan and Caribbean banking centers. As a result of weakened credit demand from Japan, Japanese-owned banks in the United States scaled back their U.S.-dollar and yen claims on banks in Japan. U.S.-owned banks significantly reduced their outstanding claims (and liabilities) on their offices in the Caribbean banking centers because of the weak international loan environment. Partly offsetting these decreases was a step-up in U.S. bank lending to affiliated offices in Europe. Banks' claims on Asian oil-exporting countries also expanded, partly to finance reconstruction in Kuwait.

U.S. bank claims on foreign public borrowers declined $5.8 billion, mostly as a result of a further cutback in outstanding loans to Latin American countries. Other claims on private borrowers in several Caribbean countries increased $12.9 billion, reflecting U.S. security dealers' accelerated lending to Caribbean-based international bond funds.

U.S. bank customers' claims increased $4.0 billion as foreigners, especially sovereign borrowers, accelerated issuance of commercial paper in the United States.

Foreign securities

U.S. portfolio holdings of foreign securities increased $33.2 billion, to $327.4 billion (table 1, line 19). The increase was more than accounted for by record net U.S. purchases. U.S. holdings of foreign stocks increased $19.2 billion, to $178.0 billion, as near-record net purchases of $30.6 billion were partly offset by exchange rate depreciation of $12.3 billion; price appreciation was minimal (table 1, line 21). The exceptionally strong U.S. demand for foreign stocks was partly the result of continued foreign diversification by U.S. institutional investors. U.S. holdings of Western European stocks increased nearly $10.0 billion, as large net U.S. purchases of $17.0 billion and price appreciation of $5.0 billion were partly offset by an $11.0 billion exchange rate loss from depreciation of European currencies against the U.S. dollar. U.S. investors stepped up purchases of British and Swiss stocks, which appreciated 14 percent and 25 percent, respectively. U.S. purchases from Germany, France, and the Netherlands were dampened by a slide in market prices in those countries. Holdings of Japanese stocks decreased $2.0 billion, as net stock purchases of $4.0 billion were more than offset by price depreciation that resulted from a 22-percent drop in stock prices. U.S. holdings of Canadian stocks also decreased $2.0 billion, reflecting small net sales and price and exchange rate depreciation. Holdings of other Asian and of Latin American stocks increased substantially as a result of strong net purchases and price appreciation.

U.S. holdings of foreign bonds increased $14.0 billion, to $149.5 billion, as net purchases of $17.3 billion more than offset a $4.0 billion exchange rate loss; price appreciation was minimal (table 1, line 20). Record U.S. purchases--$25.5 billion--of dollar bonds newly issued in the United States by foreigners stemmed from falling U.S. long-term interest rates relative to rates abroad. Canadian and Western European borrowers accelerated their U.S. borrowing, accounting for $10.1 billion and $8.1 billion, respectively; the remaining issues were widespread by area, including large placements by Mexican and Korean borrowers and by international financial institutions. Redemptions of outstanding dollar bonds slowed to $6.5 billion, one-half of which was in Canadian-issued bonds. U.S. holdings of other bonds declined in value as a result of the $4.0 billion in exchange rate losses and $1.6 billion in net sales; for the second consecutive year, U.S. investors shifted heavily into British gilt-edged bonds, while selling Asian and other foreign bonds.

U.S. direct investment abroad and other private assets

U.S. direct investment abroad at current cost increased $11.0 billion, to $666.3 billion; at market value, it decreased $33.3 billion, to $776.3 billion (table 1, lines 17 and 18, respectively). Near-record capital outflows of $34.8 billion from U.S. parent firms reflected a large shift to intercompany debt outflows and an increase in reinvested earnings by foreign affiliates; net equity outflows slowed sharply. At current cost, capital outflows were mostly offset by exchange rate losses, which reflected translation of foreign affiliates' assets and liabilities from depreciating foreign currencies into dollars. At market value, falling stock prices in several major countries reduced U.S. owners' equity; exchange rate losses also reduced the value of U.S. investment abroad. (For details on direct investment developments in 1992, see the section "U.S. direct investment abroad" later in this article.)

Claims on unaffiliated foreigners reported by U.S. nonbanking concerns decreased $6.9 billion, to $111.7 billion (table 1, line 22). The decrease reflected reduced deposits in foreign banks in the United Kingdom, Canada, and Caribbean banking centers and exchange rate depreciation.

U.S. official reserve assets and other U.S. Government assets

U.S. official reserve assets decreased $8.9 billion, to $150.3 billion, reflecting large sales of German marks, exchange rate depreciation of foreign currency holdings, and a drop in the price of gold (table 1, line 5). Foreign currency holdings declined $5.9 billion, to $40.0 billion, mostly as a result of large capital inflows and exchange rate depreciation as reserve currencies declined in value against the dollar (table 1, line 9). During 1992, U.S. monetary authorities conducted several large off-market sales of German marks to German monetary authorities in an effort by both authorities to adjust the levels of their respective foreign currency holdings; at midyear, U.S. authorities sold marks against dollars in coordinated interventions in exchange markets. U.S. holdings of special drawing rights (SDR's) decreased $2.7 billion, to $8.5 billion, and the U.S. reserve position with the International Monetary Fund increased $2.3 billion, to $11.8 billion; these changes reflected a U.S. payment in SDR's for a quota increase in December 1992 and the associated offset to the U.S. reserve position (table 1, lines 7 and 8, respectively). Gold reserves fell $2.5 billion, to $90.0 billion, because of a drop in market price (table 1, line 6).

U.S. Government assets other than reserve assets increased $1.6 billion, to $80.8 billion; large debt repayments and reschedulings, which significantly lowered assets in 1991, were absent in 1992 (table 1 line 10) U.S. contributions to international financial institutions accounted for the rise in assets, as new lending nearly matched repayments.

Changes in Foreign Assets in the United States

Foreign official assets

Foreign official assets in the United States increased $41.3 billion, to $443.4 billion, as a result of capital inflows of $40.7 billion and price appreciation of $0.6 billion (table 1, line 26). The capital inflows, largely in the first half of the year, were nearly equally invested in U.S. Treasury securities and in U.S. bank instruments. During 1992, industrial countries acquired $16.2 billion in U.S. official assets, as Western Europeans' exchange-market-related purchases of dollars in the second quarter more than offset their exchange-market-related sales of dollars later in the year. Other countries, excluding OPEC countries, acquired $18.6 billion. Some Latin American countries continued to rebuild dollar reserves through capital inflows from improved investment opportunities, continuing privatization sales of government-owned enterprises, and foreign borrowings. Several newly industrialized countries in Asia, where economic growth continued strong, also accumulated dollar assets. Official transactions by OPEC countries, particularly by Middle Eastern members, added $5.9 billion to their dollar holdings.

Bank liabilities

U.S. liabilities to private foreigners and to international financial institutions reported by U.S. banks increased $18.6 billion, to $700.7 billion, as a result of borrowing from the interbank market by foreign-owned banks in the United States (table 1, line 42). In general, U.S. banks' funding requirements were curtailed by the weakness in domestic and international demand for bank credit.

U.S. offices, primarily of European banks, financed an expansion of their U.S. assets--in investment securities and nonbank loans--by drawing on dollar funds available at banks in Europe and Asia, mostly in the second half of the year. Dollar liabilities to Japan increased only moderately, as U.S. offices of Japanese banks were scaling back their international interbank exposure and their funding from home offices. Most foreign-owned banks in the United States tapped foreign dollar funds as a substitute for borrowing in the U.S. market for large time-deposits; foreign-owned banks had heavily utilized the U.S. market for large certificates of deposit in 1991 as a result of changes in reserve requirements in late 1990. Partly offsetting this buildup by foreign-owned banks, U.S.-owned banks cut back their international borrowing, especially from offices in the Caribbean banking centers.

U.S. banks' liabilities payable in foreign currencies declined $1.9 billion in 1992, reflecting net repayments on foreign currency loans through most of the year. There was a brief surge in currency-related borrowing in the third quarter.

Banks' custody liabilities increased $6.4 billion as some U.S. borrowers tapped dollar funds from Europe and from Caribbean banking centers.

U.S. Treasury securities

U.S. Treasury securities held by private foreigners and international financial institutions increased $35.4 billion, to $224.9 billion (table 1, line 37). The increase was due to record purchases of Treasury bonds; price depreciation of $1.5 billion reflected the slight fall in bond prices from yearend 1991 to yearend 1992. European net purchases surged in the first and fourth quarters reflecting upswings in the dollar's value and increases in U.S. interest rates relative to European rates. Japanese net purchases were mostly in the last 9 months of the year, when strongly rising U.S. bond prices spurred Japanese demand. Holdings by other Asian countries and by Canada also increased. The net purchases were partly offset by net sales by international investment funds in the Caribbean.

Other U.S. securities

U.S. securities other than U.S. Treasury securities held by private foreigners and international financial institutions increased $61.0 billion, to $617.3 billion (table 1, line 38). The increase resulted from strong foreign demand for fixed-income U.S. securities and from price appreciation in holdings of U.S. stocks in the fourth quarter that more than offset net sales of stocks during the rest of the year.

Foreign holdings of U.S. corporate and federally-sponsored agency bonds increased to $317.2 billion (table 1, line 39). The increase was due to strong net purchases of $34.6 billion and to price appreciation of $2.2 billion, which were partly offset by $4.1 billion in exchange rate depreciation of foreign-currency-denominated U.S. bonds. Foreign demand was strong for fixed-rate bonds, including mortgage-backed obligations issued by U.S. federally-sponsored agencies. Foreign net purchases accelerated in the second quarter, when bond prices began their steep ascent, and again in the fourth quarter, when the long-term interest-rate and exchange-rate differentials between the United States and several industrial countries moved sharply in favor of U.S. assets. In response to strong foreign demand (augmented by the need to refinance other debt), U.S. corporations, mainly financial firms, increased their overseas bond placements to $23.4 billion. U.S. borrowers made heavy use of straight fixed-rate long-term notes and, to a lesser extent, of medium-term and floating-rate notes; they issued nearly equal amounts in dollars and in foreign currencies, and they substantially diversified the types of foreign currencies used. Foreigners also sharply increased their net purchases of other U.S. bonds to $11.3 billion, and they were particularly attracted to the mortgage-backed federally-sponsored agencies' securities. Overall, foreign net purchases of U.S. bonds added substantially to holdings in the United Kingdom, where newly issued Eurobonds are underwritten before worldwide distribution. In addition, large net purchases increased holdings in Germany, in Asia (excluding Japan), and in the Caribbean where international funds accelerated their U.S. investments.

Foreign holdings of U.S. stocks increased $28.3 billion, to $300.2 billion (table 1, line 40). Price appreciation of $32.7 billion from strongly advancing U.S. stock prices, mainly in the fourth quarter, more than offset foreign net sales of $4.4 billion. Net sales in the first three quarters more than offset a switch to net purchases in the fourth. Net sales were bolstered by rising European stock prices early in the year and by appreciating European currencies against the U.S. dollar during the middle of the year. Foreign net sales also reflected a shift to fixed-income securities, as bond prices increased in relation to U.S. stock prices until the fourth quarter. In that quarter, foreign demand for U.S. stocks rebounded, as improvement in U.S. economic growth and in the outlook for U.S. corporate profits boosted U.S. stock prices and as the U.S. dollar recovered in exchange markets. For the year, Western European and Japanese holdings were reduced because of annual net sales, which more than offset price appreciation and net purchases late in the year. Japan's net sales, which occurred despite a steep drop in Japanese stock prices, reflected a movement by Japanese institutional investors into bonds. Canadian holdings were augmented by strong net purchases. Holdings by other Asian countries and by Caribbean mutual funds also increased, largely reflecting strong net purchases in the final quarter.

Foreign direct investment in the United States and other liabilities

Foreign direct investment in the United States at current cost increased $5.1 billion, to $492.3 billion; at market value, it increased $19.4 billion, to $692.3 billion (table 1, lines 35 and 36, respectively). Net capital inflows were significantly reduced, to the lowest level since 1972. Net equity inflows were nearly halved, and intercompany debt inflows shifted to small net outflows; reinvested earnings remained negative but less so, as operating losses by U.S. affiliates were reduced. The investment slowdown in the United States reflected fewer new investments, limited expansion of U.S. affiliates, and competing investment opportunities elsewhere in the world. On the market-value basis, the increase in U.S. stock prices resulted in substantial price appreciation in owners' equity. (For details on foreign direct investment developments in 1992, see the section "Foreign direct investment in the United States" later in this article.)

Liabilities to unaffiliated foreigners reported by U.S. nonbanking concerns increased $0.2 billion, to $46.3 billion; capital inflows of $0.7 billion were nearly offset by small valuation adjustments (table 1, line 41). Commercial liabilities, mostly in trade payables to Asian countries, accounted for the inflows. Financial liabilities were unchanged, as foreign borrowing was curtailed by U.S. firms' substantial cash reserves and by the relatively low cost of funding, particularly in long-term securities, in U.S. markets.

Direct Investment

The direct investment positions are valued on three alternative bases: The two current-price bases discussed earlier--current cost and market value--and a historical-cost basis (tables 4 and 5). In 1992, the U.S. direct investment position abroad valued on a current-cost basis rose $11.0 billion, to $666.3 billion; however, on a market-value basis, it decreased $33.3 billion, to $776.3 billion. On a historical-cost basis, it rose $25.7 billion, to $486.7 billion. The foreign direct investment position in the United States valued on a current-cost basis rose $5.1 billion, to $492.3 billion; on a market-value basis, it increased $19.4 billion, to $692.3 billion; on a historical-cost basis, it increased $5.2 billion, to $419.5 billion.

[TABULAR DATA 4 OMITTED]
Table 5.--U.S. Direct Investment Position Abroad and
Foreign Direct Investment Position in the United
States on a Historical-Cost Basis, 1982-92
 [Millions of dollars]
 Foreign direct
 Yearend U.S. direct investment investment position in
 position abroad the United States
1982 207,752 124,677
1983 207,203 137,061
1984 211,480 164,583
1985 230,250 184,615
1986 259,800 220,414
1987 314,307 263,394
1988 335,893 314,754
1989 381,781 368,924
1990 426,958 394,911
1991 460,955 414,358
1992 486,670 419,526


Estimates of the U.S. direct investment position abroad on all three bases for 1989 have been revised to incorporate data collected in BEA's 1989 benchmark survey of U.S. direct investment abroad, and estimates for years after 1989 have now been benchmarked to (that is, extrapolated from) that survey. Previously, the estimates for 1989 forward were benchmarked to the 1982 benchmark survey. For additional information, see "U.S. International Transactions, Revised Estimates for 1983-92" in this issue. A complete discussion of the benchmark revision will be published in the July Survey.

The following sections present estimates of the direct investment positions on a historical-cost basis only, because detailed estimates of the positions by country, by industry, and by account, which are discussed here, are only available on this basis. (For consistency, the estimates of earnings and reinvested earnings used in analyzing changes in the historical-cost positions are also on this basis; detailed estimates of these items, like the positions, are not available on the current-cost or market-value basis.) In the analysis that follows, information from outside sources, mainly press reports, has been used to supplement the survey data.

U.S. direct investment abroad

The U.S. direct investment position abroad valued at historical cost was $486.7 billion at yearend 1992 (table 6).(1) The positions in the United Kingdom, at $77.8 billion, and in Canada, at $68.4 billion, remained by far the largest.

[TABULAR DATA 6 OMITTED]

In 1992, the overall position increased $25.7 billion, or 6 percent, compared with an 8-percent increase in 1991. Although capital outflows in 1992 were at a near-record level, the 1992 rate of increase in the position was the slowest since 1984 because of large negative valuation adjustments, particularly currency translation adjustments, which reflected depreciation of major foreign currencies in relation to the U.S. dollar.(2)

Capital outflows for U.S. direct investment abroad increased $5.0 billion, to $37.1 billion. The strong pace of capital outflows reflected U.S. parents' ongoing interest in expanding their global operations. Investment continued to be attracted by the rapidly growing economies in the Pacific Rim area and in parts of Latin America. In addition, despite slower economic growth in many European countries last year, prospects for future growth resulting from the 1992 single-market initiative in the European Communities and from continued economic liberalization in Eastern Europe may have encouraged U.S. corporations to continue investing in those countries. Finally, in 1992, improved domestic profits, lower domestic interest rates, and a widening differential between U.S. and foreign short-term interest rates that favored U.S. borrowing may have increased U.S. parents' ability and willingness to finance affiliates' operations with U.S.-source funds.

The increase in capital outflows was more than accounted for by a large shift to intercompany debt outflows. Reinvested earnings were slightly higher than in 1991. These changes were partly offset by a sharp decline in equity capital outflows, following a near-record increase in 1991.

Intercompany debt flows shifted $12.9 billion, from an inflow of $1.4 billion to an outflow of $11.5 billion. The change was mostly accounted for by affiliates in finance (except banking), insurance, and real estate (FIRE). Shifts in intercompany debt flows were particularly large in the offshore financial centers of the Netherlands Antilles and Bermuda, and there was a sharp decrease in inflows from the United Kingdom Islands in the Caribbean, primarily the Cayman Islands. (Affiliates in these areas serve as financial conduits for the global operations of their U.S. parents.) In addition, there was a shift to outflows to petroleum affiliates in the United Kingdom and to manufacturing affiliates in Canada.

Reinvested earnings increased $1.4 billion, to $17.6 billion, in 1992. Although sluggish economic conditions abroad reduced affiliate earnings to their lowest level since 1987, affiliates reinvested a larger share of their earnings--35.5 percent--than in any year since then. The higher reinvestment rate may have reflected parents' reduced needs for funds from abroad as their domestic cash positions improved. In addition, some parents may have deferred repatriation of earnings in anticipation of a weaker dollar, which would increase the dollar value of those earnings.

Equity capital outflows fell $9.3 billion, to $8.0 billion, mainly because of a drop in U.S. parents' capital contributions to their affiliates. The fall also reflected smaller outflows for establishing, or acquiring new affiliates in 1992 than in 1991, particularly in Latin America and Europe, and a sizable inflow of equity capital that resulted from a U.S. parent's sale of its minority interest in a large Netherlands holding company of telecommunications equipment affiliates.

Valuation adjustments shifted $13.3 billion, to -$11.4 billion. Most of the shift resulted from a $12.0 billion decrease in currency translation adjustments, from -$1.8 billion in 1991 to -$13.7 billion in 1992; the decrease was largely attributable to the depreciation of major European currencies--particularly the British pound and the Italian lira--and of the Canadian dollar in it tends to raise the dollar value of net foreign-currency-denominated assets. relation to the U.S. dollar. The pound and the lira dropped sharply in value in September, when they were withdrawn from the Exchange Rate Mechanism of the European Monetary System. In contrast, the relatively small negative translation adjustment in 1991 reflected a more modest depreciation of several major foreign currencies against the dollar.

"Other" valuation adjustments decreased $1.3 billion, to $2.3 billion; the decrease was more than accounted for by a reduction in net capital gains.

Change in the position by account.--The $25.7 billion increase in the U.S. direct investment position abroad consisted of capital outflows of $37.1 billion and valuation adjustments of -$11.4 billion. Capital outflows consisted of reinvested earnings of $17.6 billion, intercompany debt outflows of $11.5 billion, and equity capital outflows of $8.0 billion.(3) Among valuation adjustments, translation adjustments of -$13.7 billion were partly offset by "other" valuation adjustments of $2.3 billion.

Change in the position accounts by industry.--Reinvested earnings, at $17.6 billion, continued to be a major source of funds for financing affiliates, accounting for nearly one-half of all capital outflows for U.S. direct investment abroad. Reinvested earnings were largest for manufacturing affiliates, at $9.0 billion, and for affiliates in FIRE, at $5.6 billion. Within manufacturing, reinvested earnings were largest in chemicals.

Net intercompany debt outflows occurred in all major industries except banking and services. Outflows were particularly large in FIRE, which accounted for nearly one-half of the total. The outflows in that industry mostly reflected U.S. parents' repayments of loans from their Netherlands Antillean finance affiliates. Outflows to Swiss finance affiliates, which U.S. parents use mainly as a conduit for distributing funds to their European operating affiliates, were also sizable. The remaining outflows were widespread by industry and mostly resulted from loans by U.S. parents to their affiliates.

Just over one-half, or $4.2 billion, of net equity capital outflows were in manufacturing. Net outflows were widespread in all major manufacturing subindustries; the largest outflows were in "other" manufacturing and in food products. In "other" manufacturing, the largest outflows reflected the expansion of a French affiliate's paper plant, the acquisitions of minority interests in an Israeli high-technology printing and imaging company and in a Czechoslovak tobacco products manufacturer, and the acquisition of a controlling share in a Polish paper mill. In food products, about one-half of the equity outflows reflected the capitalization of intercompany debt and thus was offset by an intercompany debt inflow.

Net equity capital outflows were $1.5 billion in "other industries" and $1.2 billion in banking. Among the largest outflows in "other industries" were the purchase of a Canadian gold mining company through an exchange of stock and the acquisition of a minority stake in a Thai joint venture that is expanding and modernizing the local telecommunications system. The majority of the outflows in banking reflected capital contributions to European affiliates, particularly in the United Kingdom. Bank affiliates may be boosting their capital to meet new minimum capital guidelines established by the Bank for International Settlements that are to be phased in by 1993.

The small net equity capital inflows in FIRE and petroleum masked large offsetting increases and decreases in those industries. In FIRE, inflows from the sale of a minority interest in the Netherlands holding company of telecommunications equipment affiliates were mostly offset by large capital contributions to Bermudan and British finance affiliates. In petroleum, inflows from the sale to the public of minority interests in several Canadian affiliates were largely offset by capital contributions to affiliates in several countries.

Changes in the position by country.--The $25.7 billion increase in the U.S. direct investment position abroad was spread among several major geographic areas. The largest increases were in Latin America and Other Western Hemisphere, in Asia and Pacific, and in Europe.

In Latin America and Other Western Hemisphere, the position increased $12.6 billion, or 17 percent, to $88.9 billion. The largest position increases in this area were in the Netherlands Antilles and Bermuda. In the Netherlands Antilles, a $3.8 billion increase mainly reflected repayments by U.S. parents of loans from their finance affiliates. In Bermuda, a $2.7 billion increase resulted mainly from capital contributions to finance affiliates. Increases were also sizable in Brazil and Mexico; they mainly resulted from reinvested earnings and reflected rising profits. (Affiliates in those two countries had the largest reinvested earnings of affiliates worldwide.)

New Source Data and Methodological Improvements

As is customary each June, the international investment position estimates incorporate new source improvements that parallel those incorporated into the U.S. international transactions accounts. For international investment position, there are four major changes:

(1) U.S. direct investment abroad for 1988 has been revised to incorporate the results of BEA's 19

of U.S. direct investment abroad. Estimates for years after 1989 have been extrapolated forwar

1989 position.

(2) Claims on foreigners reported by U.S. nonbanking concerns were revised to substitute foreign-s

data reported to the U.S. Treasury. Data from France, Germany, Italy, and the Netherlands on b

U.S. nonbanks were substituted for U.S. Treasury-reported data on U.S. nonbank claims on forei

substitutions were made beginning with 1989 for the French and Italian data, with 1983 for the

and with 1986 for the Netherlands data. The substitutions were made because coverage of the ne

is broader than the U.S. Treasury-reported data.

(3) U.S. claims reported by U.S. banks have been supplemented with BEA-derived estimates of foreig

paper placed in the United States and with Bank of England data on British certificates of dep

U.S. banks. These items are classified as part of bank-reported claims because they are held i

investors by U.S. banks.

(4) Foreign official and private holdings of U.S. securities--comprising U.S. Treasury marketable

federally-sponsored agency bonds, U.S. corporate and municipal bonds, and U.S. corporate stock

revised for 1989 to incorporate the results of the U.S. Treasury's Foreign Portfolio Investmen

Estimates for years after 1989 have been extrapolated forward from the 1989 results.

For a further discussion of these changes, see "U.S. International Transactions, Revised Estimates issue.

In Asia and Pacific, the position increased $7.1 billion, or 10 percent, to $78.2 billion. Most of the increase resulted from reinvested earnings and reflected continued robust economic growth. The position increased in nearly all major countries of the region, but the increases were largest in Hong Kong and Singapore. In Hong Kong, the position rose $2.0 billion, or 31 percent, mainly as a result of reinvested earnings, largely those of wholesale trade and electrical machinery affiliates. In Singapore, the position rose $1.3 billion, or 25 percent; the rise mainly reflected the reinvested earnings of affiliates in personal computer and peripherals manufacturing. In Japan, the position rose $1.3 billion, or 6 percent; here, growth in the position was dampened by the sale of a minority interest in an automobile manufacturer.

In Europe, the position rose $6.1 billion, or 3 percent, to $239.4 billion. Capital outflows of $13.4 billion were partly offset by a -$7.3 billion valuation adjustment that was related to foreign currency depreciation against the dollar. Within Europe, the increases were largest in Switzerland and France. In Switzerland, a $3.1 billion increase was due to repayments by U.S. parents of loans from finance affiliates and the reinvested earnings of affiliates in finance and wholesale trade. In France, a $2.5 billion increase resulted mainly from capital contributions to manufacturing affiliates and from several small acquisitions.

The United Kingdom and Canada had the largest positions, but the position in each country declined slightly. For both countries, sizable capital outflows were more than offset by large negative translation adjustments that reflected depreciation of the local currencies against the dollar.

Foreign direct investment in the United States

The foreign direct investment position in the United States valued at historical cost was $419.5 billion at the end of 1992 (table 7).(4) For the first time, Japan had the largest position, at $96.7 billion. The United Kingdom had the second largest position, at $94.7 billion, and the Netherlands had the third largest, at $61.3 billion.

In 1992, the position increased $5.2 billion, or 1 percent, compared with a 5-percent increase in 1991 and with annual increases averaging 16 percent in 1982-90. The 1992 slowdown was due to a substantial decline in capital inflows from $25.4 billion in 1991 to $3.4 billion in 1992. Valuation adjustments (see footnote 2) were $1.8 billion, compared with -$6.0 billion in 1991.

The decline in capital inflows was primarily due to a sharp drop in inflows of equity capital. Net equity inflows dropped $19.5 billion, to $22.5 billion, after a $14.3 billion decrease. These decreases, which brought net equity inflows to the lowest level since 1985, reflected several factors. Lackluster economic growth in the United States made new investments and expansions less attractive, and economic weakness in several industrialized countries reduced the availability of funds for investment. In addition, recent economic developments and market reforms in other parts of the world may have attracted some investment funds away from the United States. Total outlays by foreign investors to acquire or establish U.S. businesses--including outlays financed by equity capital inflows--were at the lowest level since 1983.(5)

Almost every industry had lower net equity capital inflows in 1992. The largest decreases were in manufacturing (down $7.3 billion, to $7.4 billion), real estate (down $2.9 billion, to $1.7 billion), and wholesale trade (down $2.4 billion, to $2.1 billion).

Reinvested earnings increased $6.9 billion, to -$11.6 billion. More than two-thirds of the increase was accounted for by affiliates in manufacturing. The increase reflected a $5.9 billion decrease in losses--from -$10.5 billion in 1991 to -$4.7 billion in 1992-and a $1.0 billion decrease in distributed earnings--from $7.9 billion to $6.9 billion.

Intercompany debt flows shifted $9.5 billion, from net inflows of $2.0 billion to net outflows of $7.5 billion. More than three-quarters of the shift was accounted for by affiliates in insurance and in finance (except banking). The net outflows resulted both from outflows in payables, as U.S. affiliates repaid debts to their foreign parents, and from outflows in receivables, as foreign parents borrowed funds from their U.S. affiliates. Payables shifted $5.5 billion, from a $4.5 billion inflow to a $1.0 billion outflow. Outflows on receivables increased $4.0 billion, to $6.5 billion.

Valuation adjustments shifted $7.8 billion, from -$6.0 billion to $1.8 billion. "Other" valuation adjustments shifted $8.2 billion, to $2.3 billion. Currency translation adjustments decreased $0.4 billion, to -$0.5 billion.

Change in the position by account.--The $5.2 billion increase in the foreign direct investment position in 1992 consisted of capital inflows of $3.4 billion and valuation adjustments of $1.8 billion. Within capital inflows, most of the $22.5 billion in net equity inflows was offset by reinvested earnings of -$11.6 billion and by net intercompany debt flows of -$7.5 billion. Within valuation adjustments, the $2.3 billion in "other" valuation adjustments was partially offset by translation adjustments of -$0.5 billion.

Change in the position accounts by industry.--Among the major industries, net equity capital inflows were largest in manufacturing, services, and banking. In manufacturing, most of the net inflows were in "other manufacturing," machinery, and chemicals and allied products. In "other manufacturing," a large inflow resulted from the formation of a joint venture between a Mexican class manufacturer and a New York-based specialty glass company. There were also large capital contributions from Japan into automobile manufacturing. In electrical machinery, Canadian parents made large capital contributions to their affiliates. In nonelectrical machinery, German parents made large capital contributions. In chemicals, almost all of the inflows were from European parents; the largest resulted from the purchase of the fragrance and cosmetics unit of a pharmaceutical company by a French company.

In services, almost one-half of the net equity capital inflows were to affiliates of Japanese parents. In banking, more than one-half of the net equity capital inflows were to affiliates of Japanese parents.

Reinvested earnings were negative in almost every industry, as some industries--most notably real estate, services, machinery manufacturing, and retail trade--suffered losses and as most others paid dividends that exceeded current-period earnings. The only industry with sizable positive reinvested earnings was chemicals and allied products manufacturing; within that industry, nearly three-quarters of the reinvested earnings were accounted for by companies that deal primarily in pharmaceuticals. Negative reinvested earnings were largest in real estate and in services, and they were fairly widespread by country.

Net intercompany debt outflows were largest in petroleum, followed by machinery manufacturing and insurance. In petroleum, almost all of the net outflows were to the United Kingdom and represented debt repayment. In machinery manufacturing, the net outflows were mainly to Europe and occurred in both payables and receivables, affiliates both repaid debts from, and loaned funds to, their parents. In insurance, the net outflows were more than accounted for by repayment of debt to parents in the Netherlands and France.

Change in the position by country.--In 1992, parents in Japan, the Netherlands, and Canada had the largest increases in position. Parents in the United Kingdom and Italy had the largest decreases. The changes in the positions of Italy and the Netherlands were largely accounted for by two offsetting valuation adjustments made to reflect a change in the ownership of an affiliate from an Italian parent to a Netherlands parent.

The position of Japanese parents increased $3.8 billion, to $96.7 billion. By industry, wholesale trade, services, and banking accounted for most of the increase; in each of these industries, Japanese parents made sizable capital contributions to their affiliates.

The position of Canadian parents increased $1.7 billion, to $39.0 billion. By industry, the largest increases were in retail trade and manufacturing. In retail trade, the increase resulted mainly from the removal of the negative value of a department store chain that had been in financial difficulty for several years and was liquidated. In manufacturing, Canadian parents made large capital contributions to affiliates in electrical machinery.

The position of British parents declined $5.7 billion, to $94.7 billion. By industry, most of the decrease was in petroleum and "other industries." in petroleum, the decrease was accounted for by debt repayment to parent companies. In "other industries," the decrease was due to a change in the ownership of an affiliate after it was merged with an affiliate in another industry. (1.) The position is the book value of U.S. direct investors' equity, and net outstanding loans to, their foreign affiliates. A foreign affiliate is a foreign business enterprise in which a single U.S. investor owns at least 10 percent of the voting securities, or the equivalent. (2.) Valuation adjustments to the historical-cost position are made to reflect differences between changes in the position, measured at book value, and capital flows, measured at transaction value. For the position on a historical-cost basis, there are no valuation adjustments for price changes, because prices are held constant at historical levels.

Currency translation adjustments to the position are made to reflect changes in the exchange rates that are used to translate affiliates' foreign-currency-denominated currency-denominated assets and liabilities into U.S. dollars. The precise effects of currency fluctuations on translation adjustments depend on the value and currency composition of affiliates' assets and liabilities; depreciation of foreign currencies in relation to the dollar usually results in negative translation adjustments, because it tends to lower the dollar value of net foreign-currency-denominated assets. Similarly, appreciation of foreign currencies in relation to the dollar usually results in positive adjustments, because (3.) For data on capital flows by account, see table 5 in "U.S. International Transactions, First Quarter 1993" on page 88 of this issue. (4.) The position is the book value of foreign direct investors' equity in, and net outstanding loans to, their U.S. affiliates. A U.S. affiliate is a U.S. business enterprise in which a single foreign direct investor owns at least 10 percent of the voting securities, or the equivalent. (5.) For a discussion of these and other factors affecting new foreign direct investment in the United States, see "U.S. Business Enterprises Acquired or Established by Foreign Direct Investors in 1992," Survey of Current Business 73 (May 1993): 113-123. Preliminary data from BEA'S survey of new foreign direct investments, summarized in that article, indicate that total outlays to establish or acquire U.S. businesses were $13 5 billion in 1992, down from $25.5 billion in 1991. These figures differ from those on changes in the foreign direct investment position presented here, largely because they cover only transactions involving the acquisition or establishment of new U.S. affiliates and because they include financing other than that from the foreign parent, such as local borrowing by existing U.S. affiliates. In contrast, changes in the position reflect transactions of existing, as ell as new U.S. affiliates (but only if the transactions are with the foreign parent or other members of the foreign parent group) and valuation adjustments.

However, the two types of data are related. Any outlays to acquire or establish U.S. businesses that are funded by foreign parents (or other members of the foreign parent group) are part of capital inflows, a component of the change in the position. Data on the sources of funding of outlays to acquire or establish new U.S. affiliates indicate that foreign parent groups funded billion in outlays in 1992, down from $14.1 billion in 1991.
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Title Annotation:statistics
Author:Scholl, Russell B.; Lowe, Jeffrey H.; Bargas, Sylvia E.
Publication:Survey of Current Business
Date:Jun 1, 1993
Words:7088
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