The international investment position of the United States at yearend 2005

Survey of Current Business, July, 2006 by Elena L. Nguyen

THE net international investment position of the United States was -$2,693.8 billion (preliminary) at yearend 2005, compared with -$2,360.8 billion (revised) at yearend 2004, with direct investment valued at current cost (table 1, chart 1). The value of foreign-owned assets in the United States continued to exceed the value of U.S.-owned assets abroad.

The -$333.0 billion change in the net investment position from yearend 2004 to yearend 2005 was largely due to record private net foreign purchases of U.S. securities, including Treasury securities, and to depreciation of most major foreign currencies against the U.S. dollar, which lowered the dollar value of U.S.-owned assets abroad. The impact of these net foreign purchases and exchange-rate changes was partly offset by price appreciation of U.S.-held foreign stocks that surpassed by a large amount price appreciation of foreign-held U.S. stocks.

On an alternative valuation basis with direct investment valued at the current stock market value of owners' equity, the net investment position was -$2,546.2 billion (preliminary) at yearend 2005, compared with -$2,448.7 billion (revised) at yearend 2004. This article features estimates valued at the current cost of direct investment; however, estimates valued at the stock market value of direct investment are mentioned when the two valuations of direct investment differ substantially. The differences between the two methods are limited to the valuation of direct investment. All financial transactions and all asset and liability positions except direct investment are identical under both of these valuation measures.

With direct investment valued at current cost, U.S.-owned assets abroad increased to $10,008.7 billion at yearend 2005 from $9,186.7 billion at yearend 2004 (table A).

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* Financial transactions increased the value of U.S. investments abroad by $426.8 billion in 2005 (table B), down significantly from a record increase of $867.8 billion in 2004. Increases in U.S. direct investment abroad and increases in claims reported by U.S. banks and by U.S. nonbanking concerns slowed sharply from 2004. In contrast, net U.S. purchases of foreign securities, mostly foreign stocks, picked up.

* Valuation adjustments increased the value of U.S. investments abroad by $395.2 billion (table B). Price appreciation of foreign stocks substantially increased the value of U.S. holdings of foreign stocks abroad. In contrast, exchange-rate depreciation of most major foreign currencies lowered the dollar value of U.S. investments abroad.

With direct investment valued at current cost, foreign-owned assets in the United States increased to $12,702.5 billion at yearend 2005 from $11,547.4 billion at yearend 2004.

* Financial transactions increased the value of foreign investments in the United States by $1,212.3 billion in 2005 (table C), down from a record increase of $1,450.2 billion in 2004. Foreign official net purchases of U.S. Treasury securities, as well as increases in U.S. liabilities reported by U.S. banks and by U.S. nonbanking concerns, slowed substantially. In contrast, private net purchases of U.S. securities, including U.S. Treasury securities, increased to a record.

* Valuation adjustments decreased the value of foreign investments in the United States by $57.2 billion, largely as a result of exchange-rate depreciation of foreign-currency-denominated U.S. corporate bonds (table C). Price depreciation of U.S. bonds, including U.S. Treasury securities, lowered the value of foreign-held U.S. bonds and more than offset price appreciation of U.S. stocks.

This article presents the major changes in U.S.-owned assets abroad and in foreign-owned assets in the United States in 2005. Tables 1 and 2 at the end of this article present estimates of the yearend positions by type of investment.

Changes in U.S.-Owned Assets Abroad

Bank and nonbank claims

U.S. claims on foreigners reported by U.S. banks and securities brokers increased $202.8 billion, to $2,430.7 billion, in 2005. The increase was more than accounted for by financial transactions of $213.0 billion. U.S. banks' own claims denominated in dollars increased to $1,816.5 billion from $1,653.0 billion (table D). Most of the increase in claims reflected interoffice transfers of funds in the form of loans and deposit placements. In 2005, both U.S.-owned banks and foreign-owned banks participated in sizable international syndicated lending facilities associated with mergers and acquisitions and corporate debt refinancings. Claims on other foreigners decreased to $357.6 billion from $383.2 billion as U.S. securities brokers and dealers received payments, mostly through the reversal of resale agreements with investment funds in the Caribbean.

U.S. banks' domestic customers' claims denominated in dollars increased to $466.2 billion from $413.3 billion, reflecting an upturn in deposits and an increase in holdings of short-term instruments. U.S. banks' claims payable in foreign currencies decreased to $148.0 billion from $161.6 billion, as most major foreign currencies depreciated against the dollar in 2005.