Monday, January 03, 2011

Luxembourg II: Disclose all bilateral FDI positions!

We had an email from a trusted correspondent in the Netherlands, in relation to our recent Luxembourg blog (and note that we've updated that blog now with a correction.)

The text below, which is more or less pasted unchanged from the email, is a tad wonkish (and requires reading that other blog first), but contains a number of useful data sources and is well worth reading for those who are interested in this kind of thing.
"The spotlight is now entirely on Luxembourg, but that's not really fair, because Luxembourg is simply one of the few countries disclosing conduit positions. And it has done so for a while already, on the website of its central bank, here. (The SPE/Special Purpose Entity columns indicate this FDI routed through Luxembourg.) This data has not had any exposure so far; I found out about them myself quite recently.

It’s somewhat odd that Luxembourg reports FDI data including SPE positions to the IMF. The other major country disclosing SPE positions is the Netherlands. However, it does so in a separate table published by the central bank, here. (Table 12.14 presents FDI positions including SPEs; separate SPE positions can be obtained by substracting the figures in table 12.10 from 12.14).

The Netherlands removes SPE positions from the FDI data reported to the IMF (and OECD, UNCTAD, etc). If you included them, at the end of 2009, FDI positions in the Netherlands would be US$ 3,572 billion ($3.5 trillion; EUR 2,561 bn) and foreign FDI positions by Dutch companies were USD 2908 bn (EUR 2085 bn). That is way more than Luxembourg and even slightly more than the U.S. And there are other conduit countries too. Some reporting countries probably include SPE positions just like Luxembourg (eg. China, P.R.: Hong Kong), others probably don't (eg. Ireland, Switzerland). That makes the data set inconsistent, which does away with the IMF’s claim that “The CDIS database contains data that are consistent and comparable across countries [...]”

What I find most remarkable about the IMF data, though, is that so many bilateral FDI positions are classified as confidential. See this and this, for example. Apparently, some countries find these data very sensitive (notably Hong Kong, France, Japan, Netherlands, Poland, Portugal, Spain, and Switzerland), but others do not. This has nothing to do with tax havens, it seems: for example, FDI from Belgium in the Cayman Islands is disclosed whereas FDI from Australia in Canada is suppressed. This is ridiculous, especially as many of these data points (including FDI from Australia in Canada) are readily available from SourceOECD. (However, the IMF project has much more reporting countries, hence the added value of this data set.)

I guess that some countries apply confidentiality provisions when they collect data through company surveys, covering the situation where an investment position can be attributed to only one or a few companies. Yet I'd say no data point should be suppressed. It is consistent with country-by-country reporting: if companies would be required to disclose their international investments themselves, which we want them to, then it must certainly be possible to disclose aggregated data.

We should make the case for disclosing all bilateral FDI positions. End the secrecy! The IMF should be fighting it, not contributing to it."

We at TJN wholeheartedly endorse this call. For despite the seemingly arcane nature of these numbers, several trillion dollars are involved here, bathed in secrecy. This is an important matter, and we will return to this theme.

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