Implementation of BPM6: Changes in the Component of Indonesia’s Balance of Payments (BOP) and International Investment Position (IIP) - Bank Sentral Republik Indonesia
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September 21, 2019
​Bank Indonesia will implement the sixth edition of Balance of Payments and International Investment Position Manual (BPM6) published by the International Monetary Fund (IMF) in Balance of Payment publication (starting from August 2014) and IIP publication (starting from September 2014). Below is the detail information of shifting impact from BPM5 to BPM6 on current account and financial account of Indonesia’s BOP and also on IIP component.
 
 
A.     Current Account
 
The primary changes in current account are reclassification and change of names of several standards component. These changes will mostly affect the goods and services accounts, i.e:
 
1.     Manufacturing services
Manufacturing services include activities such as processing, assembling, and packing of physical inputs undertaken ​​by enterprise that is not the owner of the goods concerned based on contract, and for the work accomplished the enterprise get a fee from the owner of the goods.
 
In BPM5, goods undergoing processing by an entity other than the owner imputed change of ownership from the owner to the nonresident processor. These transactions were recorded on a gross basis as part of exports and imports of goods under the item “goods for processing”.
 
Recording of physical inputs sent for processing in Indonesia (inward processing) involves two transactions, i.e. as imports at the time of the goods received by Indonesia for processing and as exports when the goods are dispatched abroad after processing. On the other hand, physical inputs sent for processing abroad (outward processing) are recorded as exports when the goods are sent abroad for processing and as imports when the goods returned to Indonesia after processing abroad.
 
In BPM6, the imputed change of ownership of physical inputs is eliminated; hence no transactions of exports and imports of goods are recorded in the BOP. Conversely, the provision of processing services on goods is recorded as 'manufacturing services' within the services account, that is in the amount of fees received/paid.
 
Indonesia’s BOP currently could only identify inward processing activities, whereas Indonesia is the provider of manufacturing services. The implementation of BPM6 in relation to manufacturing services will result in:
 
·         reduced gross value of exports and imports of goods 
·         increased exports of services amounting to fee received for processing undertaken, that is equivalent to net exports and imports of goods for processing that represents the fee received.
 
Comparison of the BOP data related to changes in methodology for recording manufacturing services can be seen in the following table.
 
 
Table 1. Comparison of BPM5 and BPM6 Recording of Manufacturing Services 
 graph1.png

2.     Financial Intermediation Services Indirectly Measured (FISIM)
Changes in services account also attributable to the expansion of financial services coverage that includes financial intermediation services indirectly measured (FISIM) calculation.
Financial services consist of all services provided by the financial intermediaries and auxiliaries, excluding insurance and pension fund, by imposing:
·         Explicit charges (such as transfer fee or administration fee);
·         Margin of buying/selling transactions;
·         Assets management cost deducted from property income receivable; or
·         Indirect charges (FISIM) through the margin between actual interest and reference rate.
Actual interest includes both element of income and charge for services. In practice, interest offered by financial institutions to their depositors is lower than interest they charged to borrowers.
Based on convention, FISIM is only calculated from loans and deposits:
·         For loans: the difference between interest actually payable and the amount that would be payable by debtors if the reference rate were used;
·         For deposits: the difference between interest actually earned and the interest that would be earned by depositors if a reference rate were used. 
In Indonesia’s BOP, recording of FISIM is a reallocation of a certain part of primary income to services account, and does not have impact on total transaction. Currently, the estimated Indonesia’s net FISIM is deficit. Consequently, adoption of BPM6 by reallocating FISIM from income account to services account will decrease primary income deficit (improve primary income account) but at the same period will increase services account deficit.
 
B.     Financial Account
The major change in financial account is related to presentational format of direct investment. In BPM5, direct investment data were presented based on directional principle, that is, Indonesian direct investment abroad and foreign direct investment in Indonesia (FDI). Referring to this principle, the total direct investment for each investment direction is recorded as net assets and liabilities, that is:
1.     Indonesian direct investment abroad that consists of:
a.     Equity capital
§  Claims on direct investment enterprises abroad in the form of equity capital and reinvested earnings, subtracted with
§  Liabilities to direct investment enterprises abroad in the form of equity capital and reinvested earnings.
b.     Other capital
§  Claims on direct investment enterprises abroad in the form of inter-company lending, subtracted with
§  Liabilities to direct investment enterprises abroad in the form of inter-company lending.
 
2.     Direct investment in Indonesia that consists of:
a.     Equity capital
§  Liabilities to direct investors abroad in the form of equity capital and reinvested earnings, subtracted with
§  Claims on direct investors abroad in the form of equity capital and reinvested earnings.
b.     Other capital
§  Liabilities to direct investors abroad in the form of inter-company lending, subtracted with
§  Claims on direct investors abroad in the form of inter-company lending.
Meanwhile, BPM6 requires direct investment to be recorded on a gross assets and liabilities basis, i.e.:
1.     Direct investment – assets, represents the sum of:
a.     Equity capital
§  Claims on direct investment enterprises abroad in the form of equity capital and reinvested earnings, added with
§  Claims on direct investors abroad in the form of equity capital and reinvested earnings.
b.     Other capital
§  Claims on direct investment enterprises abroad in the form of inter-company lending, added with
§  Claims on direct investors abroad in the form of inter-company lending.
2.     Direct investment – liabilities, consist of:
a.     Equity capital
§  Liabilities to direct investment enterprises abroad in the form of equity capital and reinvested earnings, added with
§  Liabilities to direct investors abroad in the form of equity capital and reinvested earnings.
b.     Other capital
§  Liabilities to direct investment enterprises abroad in the form of inter-company lending, added with
§  Liabilities to direct investors abroad in the form of inter-company lending.
 
With those reclassifications, the value of each direct investment assets and liabilities are different with the amount of direct investment abroad and direct investment in Indonesia, but the level of net direct investment in BPM6 remains the same with BPM5. For analytical purposes, direct investment data that based on the investment direction will still appear as 'memo item'. Comparison of direct investment data in the balance of payments between BPM5 with BPM6 can be seen in Appendix Table 6.
 
C.      Indonesia’s International Investment Position (IIP)
Indonesia’s IIP statistics is a statistical statement that shows the value and composition of Indonesia’s financial assets and financial liabilities to non-residents at a point in time. Financial assets can be in the form of claims on non-residents or gold bullion held as part of reserve assets. Net IIP represents the difference between the value of the financial assets and liabilities, and for Indonesia, net IIP is negative because the amount of financial liability is greater than the amount of financial asset.
IIP statistics is closely related to the BOP statistics, explicitly on the financial account including reserve assets. IIP statistics can be seen as a reconciliation balance sheet that describes the position of Indonesia’s foreign financial assets (FFA) and foreign financial liabilities (FFL) in two consecutive point of time accompanied by component changes, i.e. changes recorded in BOP’s financial account transactions and other changes (prices changes, exchange rate changes, and other adjustments). In other words, financial transaction in the BOP is one of the causes of increased or decreased in Indonesia’s IIP in a given period. The relationship between the Indonesia’s BOP and IIP can be seen in the following chart.
 
Chart 1. Relationship between BOP and IIP Statistics
graph2.png
In line with the changes in the Indonesia’s BOP financial account, major changes in Indonesia’s IIP is associated with the presentation of direct investment position data which formerly based on directional principle, that is Indonesia’s direct investment abroad and foreign direct investment in Indonesia, and now is based on the asset/liability principle. Direct investment assets and liabilities position data will be different with the direct investment abroad and direct investment in Indonesia in BPM5, but the net direct investment position will remain the same.
 
Changes in Indonesia’s BOP and IIP publication can be seen in the attachment tables below. Further questions may be submitted by email to bnp@bi.go.id or by phone to Ms. Pujiastuti (+6221 2981 8328), Mr. Bayu D. Atmanto (+6221 29816688), or Mr. Andy J. Prasetyo (+6221 29814182).

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