Changes in the US international transactions accounts

Business Economics, July, 1999

Beginning with the release on June 17 of this year's annual revision of the U.S. international transactions (balance of payments accounts), the Bureau of Economic Analysis (BEA) will introduce several important changes in presentation in addition to the usual methodological and statistical revisions. These changes reflect the modification of the treatment of current-account and capital-account transactions and of compensation of employees, in order to bring them into closer alignment with international guidelines. These modifications, as well as several changes in presentation introduced in June, are discussed in this article. (The new treatment of transfer payments also was discussed in the February 1999 issue of the Survey of Current Business.) Additional information on these changes and a detailed discussion of the annual revision will appear in the July 1999 issue of the Survey.

BEA has been among those agencies in the United States and in other countries that have been both strong supporters of, and major contributors to, the development of the international guidelines recommended in the 1995 edition of the International Monetary Fund's Balance of Payments Manual.(1) Many important changes in the international guidelines introduced in 1995 were patterned after the innovations and changes undertaken by BEA in the U.S. international transactions and direct investment accounts in recent years. With the changes introduced in June, BEA has moved to eliminate two of the few remaining differences between the guidelines and the U.S. international accounts.

Current- and Capital-Account Transactions

As a result of the changes introduced in the annual revision, the U.S. international transactions are now classified into three groups: the current account, the capital account, and the financial account. Previously, the transactions were classified into two groups: the current account and the capital account. The current account was redefined by removing a part of the measure of unilateral transfers and including it in the new capital account. "Capital transfers" generally result in a change in the stock of assets of an economy, while current transfers affect the level of disposable income and influence the consumption of goods and services. To account separately for capital transfers, they are now included in the new capital account, and the previous capital account became the new financial account.

The newly defined capital account consists of capital transfers and the acquisition and disposal of nonproduced nonfinancial assets. The major types of capital transfers are debt forgiveness and migrants' transfers (goods and financial assets accompanying migrants as they leave or enter the country); the remaining types of capital transfers include the transfer of title to fixed assets and the transfer of funds linked to the sale or acquisition of fixed assets, gift and inheritance taxes, death duties, uninsured damage to fixed assets, and legacies. The acquisition and disposal of nonproduced nonfinancial assets include the sales and purchases of nonproduced assets, such as the rights to natural resources, and the sales and purchases of intangible assets, such as patents, copyrights, trademarks, franchises, and leases.

Although conceptually important, capital-account transactions are believed to be generally small in the U.S. accounts, but they are important to other countries; they also may occasionally be significant for the U.S. accounts, especially in the case of debt forgiveness and the transfer of major U.S. Government assets. Furthermore, extensive source data from which to prepare reliable estimates have not been developed. The new capital account includes estimates of U.S. Government debt forgiveness, which are shown as an outflow, and limited estimates of immigrants' transfers, which are shown as an inflow. Estimates of other types of capital transfers have not been developed, because of the lack of source data. Capital transactions in nonproduced nonfinancial assets are believed to be small, but only partial information is available. No details of the new capital account are shown, because the estimates are small and incomplete. In the future, BEA will attempt to improve the coverage of migrants' transfers, but the source data may be very difficult to develop. However, even if the estimates were to be revised by several multiples of their present levels, they would remain small items in the U.S. international accounts. In addition, data on purchases and sales of rights to natural resources are being collected by BEA and will be classified in the capital account when significant transactions are reported.

Some capital transactions remain in the current account because they cannot be disentangled from other current-account transactions or because they are conceptually difficult to classify as either current or capital transactions. However, large transactions will be judged on a case-by-case basis and classified as capital transactions if they clearly fit the definition of capital transactions, such as U.S. Government transfers of air bases abroad.