Daniele Fano University of Rome Tor Vergata and Pioneer Investments, UniCredit Group.

Abhishek Gon PhD candidate in Banking and Finance, University of Rome Tor Vergata

Belen Zinni PhD candidate in International Economics, University of Rome Tor Vergata

OECD Working Party on Financial StatisticsParis, November 29- December 1, 2010

Financial Accounts for Argentina, Brazil, China, India and Indonesia within the SNA standards: issues and challenges

A complete and consistent set of figures: data on some relevant financial flows (such as public deficit) or financial stocks (such as the levels of debt for various sectors) exist for all countries. Only Financial Accounts provide within the SNA system a way of setting them within an exhaustive and logical framework, providing the best consistency check of flow and stock data

Key financial stability indicators, for each domestic sector, for all sectors in conjunction and in the global context

Effective policy monitoring tools:

Monetary policy: velocity of money, open market operations

Fiscal policy: dimensions, impact, sustainability

Ways of assessing macro-trends, for example in terms of the public finance and the households’ ability to match life cycle needs

Why Financial Accounts are so important…

Financial development process, leading to a more complex array of financial instruments. Many of these economies are rapidly building a sophisticated domestic financial sector

Household finance becoming more relevant also because of demographic and life-cycle challenges; Government and Public Sector role evolving;

Interrelations across sectors becoming more complex; Non- Financial Corporations part of the Global Economy

These countries have an impact on International Stability

…especially for the G20 Emerging Economies

1) To document the progress in the implementation of Financial Accounts in:

Argentina Brazil China India Indonesia

2) Wherever these data are missing, to start filling this gap by collecting and approximating Financial Accounts data

Our objectives

Goldsmith (1985)

Aron & Muellbauer (2006)

Davies, Sandstrom, Shorrocks and Wolff(2009)

The IMF • A Historical Public Debt Database by Abbas et.al. (2010)• International Financial Statistics (IFS)

The World Bank• Financial structure dataset by Beck and Demirgüç-Kunt (2010)• World Development Indicators (WDI)

Last but not least, the OECD, with the National Accounts database and additional

databases such as Pensions.

Goldsmith’s pioneering work on National Financial

Balance Sheets, and more recent contributions

Collecting flow and stock data according to the following rank of sources:

1- Financial Accounts / Financial Balance Sheets

2- Partial official data (Central Banks, National Statistics Offices, Regulators, Ministres, Secretariats, etc.)

3- Partial non official data (Professional Associations)

4- Approximations: based on the available official data and the economic literature

5- Estimations (important in order to try to draw a full picture but out of the scope of today’s discussion)

Our approach

Definition Issues: the same items may be called in a different way, there is a need for translation ( e.g. items that fall into uses are, in the context, assets, etc ..)

Item Breakdown Issues: in some cases the breakdown may not correspond to the SNA, both for sectors (e.g. Indonesia does not have a separate household sector), and for instruments

Exhaustiveness Issues: there may not be any way to match the sum of the items with a total derived from an independent source

Consolidation and Other Data Collection Issues: we do not really know to what extent the “intra-sector” data we use have been consolidated

Some of the issues we face

Ranking different sources of flow and stock data

In the following tables we report the quality of each data source as follows:

- Full availability of data: covering both all asset categories and all institutional sectors as defined in the System of National

Accounts (SNA) 1993 and 2008 guidelines

- Partial availability of data: covering some (not all) asset categories and/or some (not all) institutional sectors

- No availability of data: neither for any asset category nor for any institutional sector

u - Under investigation.

Ranking and assessing different data sources of

Financial Flows

Rank Sources Argentina Brazil China India Indonesia

1 Financial Accounts - Flows X X ~

2 Partial Official Data Central Bank X National Statistics Offi ce Regulators u u Other government sources X X X

3 Partial Counterparty Data Trade associations X X u u

4 International Sources

5 Approximations u u u u

6 Estimations u u u u u

NB: Work in progress.

Ranking and assessing different data sources of

Financial Stocks

NB: Work in progress.

Rank Sources Argentina Brazil China India Indonesia

1 Financial Balance Sheet - Stocks X X X

2 Partial Official Data Central Bank X X National Statistics Offi ce X u X X Regulators u u Other government sources X X X X

3 Partial Counterparty Data Trade associations u u

4 International Sources

5 Approximations u u u

6 Estimations u u u u u

We would like to end with some selected highlights on the countries of interest, keeping in mind that:

We will refer only to for which we have a high degree of confidence and that are consistent with the SNA definitions

We use GDP as our numéraire (denominator)

These figures do represent work in progress and are therefore subject to revision

A few highlights: presenting collected data, with necessary caveats

While looking at Argentina and Brazil two questions are of obvious interest

Do we detect some medium-term trends? What has been the impact of the recent financial crisis?

We start by constructing the Household Financial Balance Sheets (and some main indicators concerning the General Government sector) as households are the key savings engine of the economy and play a key role in its overall equlibrium

In fact we can say that while the medium term trends are the opposite, both countries have been relatively insulated from the impact of the recent crisis

Argentina and Brazil: a tale of two countries

Medium term trends

Brazil shows an impressive growth in domestic households assets and liabilities. In a period of strong GDP growth Government and corporate securities held by the non-financial private sector, as

ratio to GDP doubled from16% of GDP in 2000 to 32% in 2009 In the same period pension fund holdings jumped from 12% of GDP to 16% of GDP

and liabilities (loans) from 7% to 18% of GDP In 2009 assets in mutual funds accounted for 28% of GDP

Argentina on the contrary shows an erosion of household financial wealth Currency and deposits go from 24% of GDP in 2000 to 17% in 2009 (especially due

to the category Other deposits) Mutual funds shares represent almost 2% of GDP in 2000; after the 2001 crises this

ratio decreased significantly and in 2009 was 0.16% of GDP Pension funds reserves were 13% of GDP in 2006; they became zero after the

nationalization of pension funds in December 2008

More recent trends

◦ Both countries have been able to weather the crisis, keeping a public sector primary surplus and an acceptable current account deficit.

◦ The crisis has not affected the trend in key household holdings

Argentina and Brazil: a tale of two countries (cont.)

Should we go back to Goldsmith’s intuition that the build-up of a domestic “financial superstructure” is at the basis of the economic development ?

In fact the evidence not only for Brazil, but also for example the Central and Eastern European Countries, is that in a context of steady growth the domestic financial sector and household financial wealth grow at a much higher rate than the GDP.

The case of Argentina shows that, in reverse, when growth hits a bottleneck, the “financial superstructure” can have not only an overall decline but also lose some pillars, as is the case of pension funds that have disappeared from the set of household assets as a result of their nationalization in 2008

We are exploring the notion of a threshold effect: before and beyond a certain level of GDP per capita, conditioned on other macroeconomic variables, household financial wealth seems to accumulate at different rates

Argentina and Brazil: a tale of two countries (cont.)

India: the physiology of a high savings high growth nation with an increasingly sophisticated financial system (1)

Indian Households consistent net lenders to all sectors.

Non-financial Corporations important & sophisticated borrowers.

Government “intermediation” role declining.

Important role of institutional investors (“other financial institutions”), within a relevant Financial Sector.

Beyond the SNA, a full “From Whom to Whom” Matrix.

India: the physiology of a high savings high growth nation (2)From fiscal year 2001-2002…

Assets Liab. Assets Liab. Assets Liab. Assets Liab. Assets Liab. Assets Liab Assets Liab.

1. Banking 0 . 0 0 . 0 (-) 0 . 6 (-) 0 . 3 1 . 7 4 . 2 0 . 5 3 . 0 0 . 7 2 . 7 6 . 7 2 . 1 9 . 1 11 . 6

2. Other F. In. (-) 0 . 6 0 . 3 0 . 0 0 . 0 0 . 7 5 . 9 0 . 0 2 . 6 0 . 0 0 . 0 3 . 6 0 . 3 3 . 7 9 . 1

3. Non Fin.C. 1 . 5 0 . 0 (-) 2 . 7 (-) 0 . 2 0 . 0 0 . 0 0 . 0 0 . 0 1 . 3 0 . 3 0 . 1 0 . 0 0 . 2 0 . 2

4. Gov. 4 . 6 1 . 4 7 . 0 1 . 0 0 . 4 0 . 3 0 . 0 0 . 0 0 . 2 0 . 4 3 . 7 0 . 1 15 . 9 3 . 2

5. ROW 3 . 2 0 . 2 (-) 0 . 1 (-) 0 . 4 0 . 1 0 . 2 0 . 0 0 . 5 0 . 0 0 . 0 0 . 0 0 . 0 3 . 2 0 . 5

6. Households 2 . 1 6 . 7 0 . 3 3 . 6 0 . 0 0 . 1 0 . 1 3 . 7 0 . 0 0 . 0 0 . 0 0 . 0 2 . 5 14 . 1

7. Other 1 . 2 1 . 3 5 . 7 0 . 8 2 . 3 3 . 0 1 . 8 2 . 2 0 . 0 (-) 0 . 5 0 . 0 0 . 0 11 . 0 6 . 8

TOTAL 11 . 9 10 . 0 9 . 8 4 . 5 5 . 1 13 . 7 2 . 5 12 . 0 2 . 2 3 . 0 14 . 1 2 . 5 45 . 6 45 . 6

Assets - Liab* 1 . 9 5 . 3 (-) 8 . 6 (-) 9 . 5 (-) 0 . 7 11 . 7 0 . 0

From whom/ to whom

Banking Other F. Instit. Non Fin. C.

* financial surplus (+); financial deficit (-)sources: reserve bank of india (2009), gdp quaterly data.

Statement: Financial Flows India- Sector-wise 2001-2002 (all figures as percentages of gdp)

Gov. R O W Households Total

India: the physiology of a high savings high growth nation (3)…to fiscal year 2007-2008

Assets Liab. Assets Liab. Assets Liab. Assets Liab. Assets Liab. Assets Liab

1. Banking 0 . 0 0 . 0 (-) 0 . 2 1 . 3 0 . 7 9 . 3 0 . 4 2 . 1 0 . 5 8 . 6 10 . 2 3 . 8

2. Other F. In. 0 . 0 1 . 1 0 . 0 0 . 0 2 . 0 3 . 7 0 . 0 0 . 2 0 . 0 0 . 0 5 . 4 0 . 2

3. Non Fin.C. 5 . 6 1 . 1 2 . 6 1 . 9 0 . 0 0 . 0 0 . 0 0 . 0 9 . 6 1 . 7 0 . 8 0 . 0

4. Gov. 5 . 3 4 . 8 6 . 3 0 . 6 0 . 1 0 . 0 0 . 0 0 . 0 0 . 2 1 . 2 0 . 1 0 . 0

5. ROW 8 . 2 0 . 8 0 . 1 1 . 6 1 . 2 1 . 6 0 . 0 0 . 3 0 . 0 0 . 0 0 . 0 0 . 0

6. Households 3 . 8 10 . 2 0 . 2 5 . 4 0 . 0 0 . 8 0 . 0 0 . 1 0 . 0 0 . 0 0 . 0 0 . 0

7. Other 3 . 1 1 . 2 1 . 0 (-) 0 . 3 7 . 4 5 . 0 1 . 3 1 . 7 0 . 0 (-) 2 . 7 0 . 0 0 . 0

TOTAL 26 . 1 19 . 2 9 . 9 10 . 5 12 . 2 20 . 5 1 . 7 4 . 5 10 . 3 8 . 8 16 . 6 4 . 0

Assets - Liab* 6 . 9 (-) 0 . 6 (-) 2 . 8 1 . 5 12 . 6

R O W Households

* financial surplus (+); financial deficit (-)

sources: reserve bank of india (2009), gdp quaterly data.

Statement: Financial Flows India- Sector-wise 2007-2008 (all figures as percentages of gdp)

From whom/ to whom

Banking Other F. Instit. Non Fin. C. Gov.

Non-Financial Corporations appear quite financial market - oriented.

Liabilities:

•Who bought Corporate Bonds in 2007-08?

Non-Financial Corporations’s two main sources of borrowing : Loans & advances and Corporate bonds.

Rest of the World are primary buyers of corporate bonds. Besides Financial Intermediaries, Households share has increased substantially. The role of Government has decreased over the period.

Years 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

Corporate Bonds / Loans & Advances (%) 57.04 21.38 -19.14 40.14 88.21 25.86 31.98

Source: Reserve Bank of India, Flow of Funds Accounts of the Indian Economy, 2001-02 to 2007-08.

Financial Institutions Government Sector HouseholdsRest of the World &

Discrepency17.92 0.04 14.78 67.26Corporate Bonds

Sectorwise share of Corporate Bonds 2007-08 (%)

Source: Reserve Bank of India Monthly Bulletin, October 2009.

India: translating the Flow of Funds into SNA standards

Flows as percentage of GDP

Years

Countries Korea India Korea India Korea India

I. Net acquisition of Financial assets 5.94 5.22 4.50 4.36 6.67 4.61

Currency & deposits 1.88 2.36 0.60 2.17 2.49 3.12

Securities others than shares -0.26 2.18 2.28 1.10 0.16 -0.51

Loans 0 0.68 0 1.06 0 2.01

II. Net Incurrence of Liabilities 11.62 4.21 8.19 4.80 12.60 9.68

Currency & deposits 0 -0.15 0 -0.07 0 -0.24

Securities other than shares -0.31 -0.63 0.01 1.15 2.16 3.86

Loans 4.48 3.32 0.35 2.87 2.74 4.37

III. Net Financial Transactions/ ~Net Lending or Borrowing -5.67 1.01 -3.69 -0.44 -5.93 -5.07

Source: Korea- National Accounts of OECD Countries 1997-2008

Note: Financial Years for India adjusted to Solar years

India: Flow of FundsAccounts of the Indian Economy 2001-02 to 2007-08, Reserve Bank Of India

2003 2004 2005

Sector: Non-Financial Corporation

Indonesia: 2002 to 2005, a ‘four sector’ matrix • Indonesia has enjoyed a surplus with Rest of the World.• Financial Flows have been concentrated in traditional Deposits & Loans.• The Role of Government declining.

Sectors:

Average Flow 2002-2005

Normalised S.D

Average Flow 2002-2005

Normalised S.D

Average Flow 2002-2005

Normalised S.D

Average Flow 2002-2005

Normalised S.D

Gross Savings 2.50 1.06 6.03 0.09 23.22 0.21 -3.05 0.36Financial Assets:

Net acquisition of Financial assets 7.13 0.51 -0.54 9.26 22.42 0.53 3.96 1.19 Currency & deposits 0.41 3.35 0.04 5.13 0.47 -0.31 2.19 Securities others than shares -1.08 1.92 -0.73 3.81 1.54 0.95 0.47 2.62 Loans 5.81 0.39 -0.12 0.83 0.09 4.86 2.03 1.63 Shares & other equity 0.07 0.92 -3.53 1.37 9.11 0.98 1.06 0.66 Insurance & technical reserves 1.38 0.28 Other accounts receivable 1.77 0.42 0.12 0.11Financial Liabilities:

Net Incurrence of Liabilities 4.91 1.09 -1.92 2.62 22.97 0.61 7.01 0.64 Currency & deposits 5.02 0.67 0.49 2.77 Securities others than shares -0.97 2.67 -1.19 1.68 1.92 0.69 0.10 2.01 Loans -0.34 1.97 0.38 4.28 7.85 0.47 0.01 33.33 Shares & other equity -3.84 1.58 10.51 0.95 0.03 1.22 Insurance & technical reserves 1.38 0.28 Other accounts payable 1.84 0.42Net Financial Transactions 2.21 1.16 0.67 1.82 -0.55 4.84 -3.05 0.43Source: BUDAN PUSAT STATISTIK (Central Bureau of Statistics - Indonesia) www.bpr.go.id, Flow of Funds 2002 to 2005.

Rest of the World

Financial Transactions (Flows)/Indonesia: 2002 to 2005(All figures in Percentage GDP)

Financial Corporation General Government Other Non- Financial Domestic Sectors

A long way to go

Beware◦ of partial data:

they may not be readily translatable in the SNA standards: ex insurance premiums

it is easy to miss some relevant components comprised in bank accounts, securities other than shares, equities, mutual funds

◦ of cross-country comparisons: data consolidation principles may differ dncomplete data may lead to underestimation of single items

But, however cumbersome, progress can be done and it is useful◦ There is a wealth of data ready to be collected and assembled and…

◦ As Anthony Atkinson once wrote, looking at the figures is always better than consulting one’s prejudices

Summarizing Beware, but be not afraid of trespassing!

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Beck, T. and A. Demirgüç-Kunt, Financial Institutions and Markets Across Countries and over Time: Data and Analysis. World Bank Policy Research Working Paper No. 4943, May 2009.

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de Comercio, 2006.

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Press, Chicago and London, 1985.

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OECD statistics online.

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