ITEM IN THE BALANCE OF PAYMENTS STATEMENT AND
EXPLANATIONS REGARDING THE MEASUREMENT PROCEDURE
1.Introduction
2.The
Coverage of the “Other Goods and Services Income”
3.The
System of Recording “Other Income” and Related Examples
4.The
Problem of Decomposition and the Present Approach
5.Evaluation
and Comparison with Other Countries
6.The
Revision of the Approach
7.Discussions
with the IMF and Recommendations
1.
Introduction
In
a broad sense, the balance of payments is a statistical statement that systemically records,
for a specific time period, the economic transactions of an economy, involving
the trade of goods and services, between residents (central government,
banks, real persons, legal entities and institutions) and non-residents
as well as the financial claims on, and liabilities to the rest of the
world, at the time of a change in ownership, based on the principle of
double entry book keeping system.
In
conformity with the concept and recording principles established by the
International Monetary Fund (IMF), the balance of payments statement, which
is published by the Central Bank of the Republic of Turkey, is compiled
on the basis of data furnished by banks operating in Turkey and data on
foreign trade and surveys for travel and shuttle trade furnished by the
non-banks.
On
the other hand, due to the liberalization of the exchange rate regime and
the diversification of economic activities and financial instruments; methods,
which are developed with respect to the survey results, are adopted in
the classification of some specific items constituting the “Other Goods
and Services Income”.
The
coverage of this item, difficulties in decomposition, related solution
oriented studies and the estimation method is discussed herebelow.
2.The
Coverage of Other Goods and Services Income
“Other
Goods and Services Income”, which is under the Current Account Balance
in the balance of payments “Summary Presentation” published by the Bank,
is classified into three broad categoriesTravel,
Interest and Other. Of these, the components that constitute
the Other item are presented herebelow:
Other
Income
·Freight
Income
(Transportation income associated with export and import transactions)
·Other
Transportation Income (Income
receipts on passanger transportation, luggage and alike)
·Direct
Investment Earnings (Income
receipts on construction servicesabroad)
·Other
Official and Private Goods, Services Income
·Foreign
Exchange Purchases against Turkish Lira From Foreign Exchange Deposit Accounts
Of Residents (Incomeconverted
into Turkish lira from the FX accounts that are opened via invisible transactions
income)
·Official
Sector (Income
receipts of the embassies and similar public sector)
·Financial
and Foreign Trade Services (Income
receipts on commission services and banker’s transactions and other services
income associated with foreign trade)
·Other (Income
from abroad in the form of remittance that can not be categorized on an
activity basis albeit invisible transaction income)
3.The
System of Recording “Other Income” and Related Examples
With
respect to the recording methodology, “Other income” is categorized as
follows:
a)
Transactions reported by the banking system on an activity basis:
These data are obtained through declaration on activity basis during the
direct conversion of foreign exchange gained by these activities into Turkish
lira.
Example:If
a firm, which renders transportation services abroad, declares the transaction
on an activity basis in converting the income receipts (denominated in
foreign currency) to Turkish lira, these receipts will be coded as “Freight”
by the banks. Moreover, if FX accounts are held with these receipts and
subsequently amounts from these accounts are converted into Turkish lira
and if this is declared, it will be coded and reported as “Freight”.
b)Transactions,
that are not reported on an activity basis by the banking system, albeit
known to be invisible income items: These
transactions consist of the foreign exchange that comes from abroad and
converted into Turkish lira by the bank and which can not be reported on
an activity basis as no declaration requirements exist within the framework
of the liberalizing foreign exchangeregulations
albeit invisible transaction income on the basis of the activity of the
account holder.
Example:If
a firm, which renders transportation services abroad, does not declare
the nature of the transaction in converting the income receipts (denominated
in foreign currency) to Turkish lira, banks code these receipts as “Other”
rather than “Freight”.
c)
Transactions that involve the conversion of foreign exchange into Turkish
lira from the FX accounts held with the banks: These
transactions consist of the foreign exchange that is converted into Turkish
lira from the FX accounts of the residents in Turkey and that can not be
categorized albeit known to be partly invisible
transaction income.
4)
The Problem of Decomposition and the Current Approach
The
identification and decomposition of income associated with the invisible
transactions has become complicated in Turkey as in the other countries
due to:
·Liberalization of foreign exchange importation by Decree No. 32 regarding the Protection of The Value of The Turkish Lira,
·Deregulation involvingthetreatment of FX accounts,
·Void
of any obligations to bring the invisible transactions income inwards and
convert into Turkish lira,
·Void
of any obligations to declare the nature of the activity involving the
foreign currencies that are converted into Turkish lira.
Although
there is no difficulty pertaining to the items which can somehow be categorized
on an activity basis, surveys have been conducted within banks at various
times to enable the categorization of the “foreign currency converted into
Turkish lira from the FX accounts of residents in Turkey” that have a significant
share in the banking system.In
the aforementioned
surveys, the source of the FX accounts held by residents in Turkey from
which foreign exchange is converted into Turkish lira has been sought to
be determined on the basis of the activity of the account holders with
respect to the addresses
of the account holders. These kinds of foreign exchange accounts are mostly
held in
return of,
·Foreign
exchange held for the purpose of saving (domestic savings)
·Foreign
exchange returns on exports
·Workers’ remittances
·Income
receipts on travel
·Income
receipts on construction servicesabroad
·Freight
income on foreign transactions
·Foreign
exchange receipts of shuttle trade
Of
these, export returns, travel and shuttle trade receipts which are based
on the data furnished by other sources and which are already included in
the related income items of the balance of payments is excluded to avoid
double-counting and
the portion that is associated with domestic transactions is excluded as
that portion is not the subject of the balance of payments. Construction
services abroad, which is in the remaining part is added to Direct Investment
Earnings by the determined ratio, and the residual
is added to
Other Official and Private Goods and Services Income.
5.
Evaluation and Comparison with Other Countries
As
indicated above, the most significant items in the “Other Official and
Private Services Income”, which consists of four items, are “Foreign
Currency Converted into Turkish Lira From Foreign Exchange Accounts Of
Residents” and “Other” with respect to the amounts. The
increase in the “Foreign Currency Converted into Turkish Lira From
Foreign Exchange Accounts Of Residents” stems
from the fact that the yield of TL investment instruments has been higher
than as that of the foreign exchange and real and legal persons meet their
TL needs from these accounts. The “Other” item represents income that can
not be identified on an activity basis by the banks due to the regulations
albeit invisible transaction income.
To
detect whether the figures that are embodied in the balance of payments
and recorded under the “Other” income, as they can not be categorized,
are high; the same item of some countries has been compared for the 1990’s.
Accordingly,
while the ratio of“Other” income,
which can not be categorized on an activity basis, to total invisible transactions
income (excluded are freight, other transportation and travel) has been
50 % in Germany and Spain, 60 % in Italy, 95 % in Greece, 80 % in Korea
over the past 7-8 years, this ratio is approximately 70 % in Turkey.
6.
The Revision of the Approach
The
rapid growth of the item
“Conversion of foreign currency into Turkish
lira from the foreign exchange accounts of residents in Turkey held for
the purpose of saving” over the last years has entailed the ratios,
which are utilized in the decomposition, to be revised; as the item, which
is reported by the banks, has a significant share in the Other Private
and Official Services Income that is recorded under the Other Goods and
Services Income in the balance of payments. Therefore percentage distribution
based on the activity of the account holder and type of transaction regarding
the foreign currencies converted into Turkish lira from the foreign exchange
accounts has been verified again through a sampling method in which the
related branches of the banks, which represent the 62 % of the total with
respect to transactions involving the conversion of foreign currencies
into Turkish lira from the foreign exchange accounts in 1999, are included
in the sample space. Moreover, reporting errors, which were detected in
the meantime, have been corrected.
7.Discussions
with the IMF and Recommendations
As
mentioned above, the recording methodology of balance of payments is
based on the standards and principles that are established by the IMF for
all countries and the items of some specific countries, which are not included
in the standard definitions, are reflected in the balance of payments within
the framework of a compatible classification in line with the considerations
of the IMF balance of payments specialists. Thus, the intended changes
associated with the balance of payments are undertaken in conformity with
the IMF specialists.
Within
the context, meeting was held with the IMF on the difficulties faced in
the compilation of the balance of payments and the survey results, aiming
to overcome some of the difficulties.
During
the aforementioned meeting; the results of the survey, which had been conducted
by the Bank, were discussed with the IMF authorities and in line with the
viewpoint of the Bank, a consensus has emerged on the following issues;
·Conducting
periodic surveys annually, preferably quarterly to enable
the more precise reflection of the seasonal and conjectural changes in
the balance of payments,
·Adjustment
of the figures for a year or two years earlier regarding
the results of the survey conducted in May 1999.
All
of these views and recommendations have
been indicated in the May 21, 1999 dated
“Office Memorandum”
that is prepared and delivered
to the Bank by the IMF.
As
a result, in line with the aforementioned survey results and discussions
with the IMF, the figures of 1998 have been revised as follows; Other
Goods and Services Income - “Other” has fallen to 16.144 million US dollars
from 17.044 million US dollars, Current Account Surplus has fallen to 1.871
million US dollars from 2.692 million US dollars despite the net positive
change of 78 million US dollars made by the State Institute of Statistics
regarding the foreign trade statistics, Net Errors and Omissions item,
which has a negative sign, has narrowed decreasing to - 2.197 million US
dollars from -3.018 million US dollars.