Balance of payments

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The balance of payments, also known as balance of international payments and

abbreviated B.O.P., of a country is the record of all economic transactions
between the residents of the country and the rest of the world in a particular
period (over a quarter of a year or more commonly over a year). These
transactions are made by individuals, firms and government bodies. Thus the
balance of payments includes all external visible and non-visible transactions
of a country. It is an important issue to be studied, especially in international
financial management field, for a few reasons. First, the balance of payments
provides detailed information concerning the demand and supply of a country's
currency. For example, if Mauritius imports more than it exports, then this
means that the supply of rupees is likely to exceed the demand in the foreign
exchanging market, ceteris paribus. One can thus infer that the Mauritius rupee
would be under pressure to depreciate against other currencies. On the other
hand, if Mauritius exports more than it imports, then the rupee would be likely
to appreciate. Second, a country's balance-of-payment data may signal its
potential as a business partner for the rest of the world. If a country is grappling
with a major balance-of-payment difficulty, it may not be able to expand
imports from the outside world. Instead, the country may be tempted to impose
measures to restrict imports and discourage capital outflows in order to
improve the balance-of-payment situation. On the other hand, a country
experiencing a significant balance-of payment surplus would be more likely to
expand imports, offering marketing opportunities for foreign enterprises, and
less likely to impose foreign exchange restrictions. Third, balance-of-payments

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data can be used to evaluate the performance of the country in international
economic competition. Suppose a country is experiencing trade deficits year
after year. This trade data may then signal that the country's domestic industries
lack international competitiveness. To interpret balance-of-payments data
properly, it is necessary to understand how the balance of payments account is
constructed.[1][2] These transactions include payments for the country's exports
and imports of goods, services, financial capital, and financial transfers. It is
prepared in a single currency, typically the domestic currency for the country
concerned. Sources of funds for a nation, such as exports or the receipts of
loans and investments, are recorded as positive or surplus items. Uses of funds,
such as for imports or to invest in foreign countries, are recorded as negative or
deficit items.

Under a fixed exchange rate system, the central bank accommodates those
flows by buying up any net inflow of funds into the country or by providing
foreign currency funds to the foreign exchange market to match any
international outflow of funds, thus preventing the funds flows from affecting
the exchange rate between the country's currency and other currencies. Then
the net change per year in the central bank's foreign exchange reserves is
sometimes called the balance of payments surplus or deficit. Alternatives to a
fixed exchange rate system include a managed float where some changes of
exchange rates are allowed, or at the other extreme a purely floating exchange
rate (also known as a purely flexible exchange rate). With a pure float the
central bank does not intervene at all to protect or devalue its currency,
allowing the rate to be set by the market, and the central bank's foreign
exchange reserves do not change, and the balance of paym

The Balance of Payments Divided

The BOP is divided into three main categories: the current account, the capital
account, and the financial account. Within these three categories are sub-

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divisions, each of which accounts for a different type of international monetary
transaction.

The Current Account

The current account is used to mark the inflow and outflow of goods and
services into a country. Earnings on investments, both public and private, are
also put into the current account.

Within the current account are credits and debits on the trade of merchandise,
which includes goods such as raw materials and manufactured goods that are
bought, sold or given away (possibly in the form of aid). Services refer to
receipts from tourism, transportation (like the levy that must be paid in Egypt
when a ship passes through the Suez Canal), engineering, business service fees
(from lawyers or management consulting, for example) and royalties from
patents and copyrights. When combined, goods and services together make up
a country's balance of trade (BOT). The BOT is typically the biggest bulk of a
country's balance of payments as it makes up total imports and exports. If a
country has a balance of trade deficit, it imports more than it exports, and if it
has a balance of trade surplus, it exports more than it imports.

Receipts from income-generating assets such as stocks (in the form of

dividends) are also recorded in the current account. The last component of the
current account is unilateral transfers. These are credits that are mostly worker's
remittances, which are salaries sent back into the home country of a national
working abroad, as well as foreign aid that is directly received.

The Capital Account

The capital account is where all international capital transfers are recorded.
This refers to the acquisition or disposal of non-financial assets (for example, a
physical asset such as land) and non-produced assets, which are needed for
production but have not been produced, like a mine used for the extraction of

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diamonds. The capital account is broken down into the monetary flows
branching from debt forgiveness, the transfer of goods, and financial assets by
migrants leaving or entering a country, the transfer of ownership on fixed assets
(assets such as equipment used in the production process to generate income),
the transfer of funds received to the sale or acquisition of fixed assets, gift and
inheritance taxes, death levies and, finally, uninsured damage to fixed assets.

The Financial Account

In the financial account, international monetary flows related to investment in

business, real estate, bonds and stocks are documented. Also included are
government-owned assets such as foreign reserves, gold, special drawing rights
(SDRs) held with the International Monetary Fund (IMF), private assets held
abroad and direct foreign investment. Assets owned by foreigners, private and
official, are also recorded in the financial account.

The Balancing Act

The current account should be balanced against the combined-capital and

financial accounts; however, as mentioned above, this rarely happens. We
should also note that, with fluctuating exchange rates, the change in the value
of money can add to BOP discrepancies. When there is a deficit in the current
account, which is a balance of trade deficit, the difference can be borrowed or
funded by the capital account. If a country has a fixed asset abroad, this
borrowed amount is marked as a capital account outflow. However, the sale of
that fixed asset would be considered a current account inflow (earnings from
investments). The current account deficit would thus be funded. When a
country has a current account deficit that is financed by the capital account, the
country is actually foregoing capital assets for more goods and services. If a
country is borrowing money to fund its current account deficit, this would
appear as an inflow of foreign capital in the BOP.

Liberalizing the Accounts

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The rise of global financial transactions and trade in the late-20th century
spurred BOP and macroeconomic liberalization in many developing nations.
With the advent of the emerging market economic boom - in which capital
flows into these markets tripled from USD$50 million to $150 million from the
late 1980s until the Asian crisis - developing countries were urged to lift
restrictions on capital and financial-account transactions to take advantage of
these capital inflows. Many of these countries had restrictive macroeconomic
policies, by which regulations prevented foreign ownership of financial and
non-financial assets. The regulations also limited the transfer of funds abroad.
With capital and financial account liberalization, capital markets began to grow,
not only allowing a more transparent and sophisticated market for investors but
also giving rise to foreign direct investment (FDI). For example, investments in
the form of a new power station would bring a country greater exposure to new
technologies and efficiency, eventually increasing the nation's overall GDP by
allowing for greater volumes of production. Liberalization can also facilitate
less risk by allowing greater diversification in various markets.

The Bottom Line

The balance of payments is divided into the current account, capital account,
and financial account. Theoretically, the BOP should be zero.

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Members,

Recognizing the provisions of Articles XII and XVIII:B of GATT 1994

and of the Declaration on Trade Measures Taken for Balance-of-Payments
Purposes adopted on 28 November 1979 (BISD 26S/205-209, referred to in this

5
Understanding as the "1979 Declaration") and in order to clarify such
provisions1;

Application of Measures
1. Members confirm their commitment to announce publicly, as soon as
possible, time-schedules for the removal of restrictive import measures taken
for balance-of-payments purposes. It is understood that such time-schedules
may be modified as appropriate to take into account changes in the balance-of-
payments situation. Whenever a time-schedule is not publicly announced by a
Member, that Member shall provide justification as to the reasons therefor.
2. Members confirm their commitment to give preference to those
measures which have the least disruptive effect on trade. Such measures
(referred to in this Understanding as "price-based measures") shall be
understood to include import surcharges, import deposit requirements or other
equivalent trade measures with an impact on the price of imported goods. It is
understood that, notwithstanding the provisions of Article II,
3. Members shall seek to avoid the imposition of new quantitative
restrictions for balance-of-payments purposes unless, because of a critical
balance-of-payments situation, price-based measures cannot arrest a sharp
deterioration in the external payments position. In those cases in which a
Member applies quantitative restrictions, it shall provide justification as to the
reasons why price-based measures are not an adequate instrument to deal with
the balance-of-payments situation
4. Members confirm that restrictive import measures taken for balance-of-
payments purposes may only be applied to control the general level of imports
and may not exceed what is necessary to address the balance-of-payments
situation. In order to minimize any incidental protective effects, a Member
shall administer restrictions in a transparent manner. The authorities of the

1
Nothing in this Understanding is intended to modify the rights and obligations of Members
under Articles XII or XVIII:B of GATT 1994. The provisions of Articles XXII and XXIII of
GATT 1994 as elaborated and applied by the Dispute Settlement Understanding may be invoked with
respect to any matters arising from the application of restrictive import measures taken for balance-of-
payments purposes.

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importing Member shall provide adequate justification as to the criteria used to
determine which products are subject to restrictiona Member shall use
discretionary licensing only when unavoidable and shall phase it out
progressively. Appropriate justification shall be provided as to the criteria used
to determine allowable import quantities or values.

Procedures for Balance-of-Payments Consultations

5. The Committee on Balance-of-Payments Restrictions (referred to in this
Understanding as the "Committee") shall carry out consultations in order to
review all restrictive import measures taken for balance-of-payments purposes.
The membership of the Committee is open to all Members indicating their wish
to serve on it. The Committee shall follow the procedures for consultations on
balance-of-payments restrictions approved on 28 April 1970 (BISD 18S/48-53,
referred to in this Understanding as "full consultation procedures"), subject to
the provisions set out below.
6. A Member applying new restrictions or raising the general level of its
existing restrictions by a substantial intensification of the measures shall enter
into consultations with the Committee within four months of the adoption of
such measures. The Member adopting such measures may request that a
consultation be held under paragraph 4(a) of Article XII or paragraph 12(a) of
Article XVIII as appropriate. If no such request has been made, the Chairman
of the Committee shall invite the Member to hold such a consultation. Factors
that may be examined in the consultation would include, inter alia, the
introduction of new types of restrictive measures for balance-of-payments
purposes, or an increase in the level or product coverage of restrictions.
7. All restrictions applied for balance-of-payments purposes shall be
subject to periodic review in the Committee under paragraph 4(b) of Article XII
or under paragraph 12(b) of Article XVIII, subject to the possibility of altering
the periodicity of consultations in agreement with the consulting Member or
pursuant to any specific review procedure that may be recommended by the
General Council.

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8. Consultations may be held under the simplified procedures approved on
19 December 1972 (BISD 20S/47-49, referred to in this Understanding as
"simplified consultation procedures") in the case of least-developed country
Members or in the case of developing country Members which are pursuing
liberalization efforts in conformity with the schedule presented to the
Committee in previous consultations. Simplified consultation procedures may
also be used when the Trade Policy Review of a developing country Member is
scheduled for the same calendar year as the date fixed for the consultations. In
such cases the decision as to whether full consultation procedures should be
used will be made on the basis of the factors enumerated in paragraph 8 of the
1979 Declaration. Except in the case of least-developed country Members, no
more than two successive consultations may be held under simplified
consultation procedures.

Notification and Documentation

9. A Member shall notify to the General Council the introduction of or any
changes in the application of restrictive import measures taken for balance-of-
payments purposes, as well as any modifications in time-schedules for the
removal of such measures as announced under paragraph 1. Significant
changes shall be notified to the General Council prior to or not later than 30
days after their announcement. On a yearly basis, each Member shall make
available to the Secretariat a consolidated notification, including all changes in
laws, regulations, policy statements or public notices, for examination by
Members. Notifications shall include full information, as far as possible, at the
tariff-line level, on the type of measures applied, the criteria used for their
administration, product coverage and trade flows affected.
10. At the request of any Member, notifications may be reviewed by the
Committee. Such reviews would be limited to the clarification of specific
issues raised by a notification or examination of whether a consultation under
paragraph 4(a) of Article XII or paragraph 12(a) of Article XVIII is required.
Members which have reasons to believe that a restrictive import measure

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applied by another Member was taken for balance-of-payments purposes may
bring the matter to the attention of the Committee. The Chairman of the
Committee shall request information on the measure and make it available to
all Members. Without prejudice to the right of any member of the Committee
to seek appropriate clarifications in the course of consultations, questions may
be submitted in advance for consideration by the consulting Member.
11. The consulting Member shall prepare a Basic Document for the
consultations which, in addition to any other information considered to be
relevant, should include: (a) an overview of the balance-of-payments situation
and prospects, including a consideration of the internal and external factors
having a bearing on the balance-of-payments situation and the domestic policy
measures taken in order to restore equilibrium on a sound and lasting basis; (b)
a full description of the restrictions applied for balance-of-payments purposes,
their legal basis and steps taken to reduce incidental protective effects; (c)
measures taken since the last consultation to liberalize import restrictions, in
the light of the conclusions of the Committee; (d) a plan for the elimination
and progressive relaxation of remaining restrictions. References may be made,
when relevant, to the information provided in other notifications or reports
made to the WTO. Under simplified consultation procedures, the consulting
Member shall submit a written statement containing essential information on
the elements covered by the Basic Document.
12. The Secretariat shall, with a view to facilitating the consultations in the
Committee, prepare a factual background paper dealing with the different
aspects of the plan for consultations. In the case of developing country
Members, the Secretariat document shall include relevant background and
analytical material on the incidence of the external trading environment on the
balance-of-payments situation and prospects of the consulting Member. The
technical assistance services of the Secretariat shall, at the request of a
developing country Member, assist in preparing the documentation for the
consultations.

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Conclusions of Balance-of-Payments Consultations
13. The Committee shall report on its consultations to the General Council.
When full consultation procedures have been used, the report should indicate
the Committee's conclusions on the different elements of the plan for
consultations, as well as the facts and reasons on which they are based. The
Committee shall endeavour to include in its conclusions proposals for
recommendations aimed at promoting the implementation of Articles XII and
XVIII:B, the 1979 Declaration and this Understanding. In those cases in which
a time-schedule has been presented for the removal of restrictive measures
taken for balance-of-payments purposes, the General Council may recommend
that, in adhering to such a time-schedule, a Member shall be deemed to be in
compliance with its GATT 1994 obligations

Balance of Payments Methodology

I. General The DNCI
(Direction National de Centers Internationals)
is responsible for compiling Argentina’s balance of payments statistics. These
data are published quarterly in the Economic Report (Informed Economic)
And in the Quarterly Balance of Payments and Foreign Assets and Liabilities
Estimates (Estimations trimestrales del balance de pagesy de actives passives
externs—DNCI) They are also available on the Internet
(http://www.mecon.gov.ar/cuentas/internacionales/).The methodology used to
compile Argentina’s balance of payments has been recently revised and
updated to ensure its compliance with the guidelines established in the

BPM5
and to reflect the country’s changing economic situation. The data revision
process has required finding new sources of information and developing new
estimation methodologies. Revised data were released in April 1999, together
with the updated methodology (“Methodologies de Estimation del Balance de
Pagos,” DNCI, April 1999) as well as the main changes included in the new

10
data set (“Presentación de la Actualización Metodológica del Balance de
Pagos,” DNCI, April 1999). Data based on the revised methodology are
available from 1992 onwards. All these documents are available on the Internet
(same site quoted above).Major data sources used for the balance of payments
compilation depend on the sector that accounts for the transaction. General
government and central bank transaction estimates are based mainly on
information provided by the Treasury, the central bank, and the state
governments (through surveys). Financial sector data are estimated mainly
from the balance sheet information reported to the central bank. Other private
sector transaction estimates are based mainly on customs data (for goods
transactions) and on enterprises’ information collected through their balance
sheets or through surveys (for example, the debt survey, foreign direct
investment survey, survey of services). Completing the main sources used for
the estimates are additional sources like the survey of international tourism,
migration authority’s data, Security Central Depository Inc. and stock exchange
data, and information available in other countries. The Quarterly Balance of
Payments and Foreign Assets and Liabilities Estimates pamphlet also includes
estimates of external assets and liabilities of the resident sectors. Balance of
payments data are compiled in U.S. dollars.II. Specific Items: Balance of
Payments Current Account Goods The National Institute of Statistics and
Census (Institute National de Estadísticay Census–INDEC) compiles statistics
on foreign trade on the basis of customs documents. Imports and exports are
recorded in the balance of payments in f.o.b. terms. In case those operations of
exports or imports do not produce customs documents but have to be included
in the statistics of foreign trade, auxiliary sources of information are employed.
Services

Transportation
INDEC compiles statistics on transportation. Data on passenger fares, on-board
services, and excess baggage charges are obtained from surveys of the sea, air,

11
and road passenger transport companies operating in Argentina. Data include
both the international operations of resident carriers (credit) and the domestic
operations of nonresident carriers (debit). For road transport, the estimates are
based on the number of international trips provided by the companies and on
the cost of the tickets. They are also based on surveys conducted monthly of
departing and incoming buses to ascertain information on the average
occupancy rate of the vehicles and the percentage of resident and nonresident
passengers. The credit entries for freight services cover freight charges
collected by resident transport companies for goods exported or transported
between foreign ports. These data are obtained from a survey of resident
shipping companies and airlines. The debit entries cover freight charges paid
to nonresident companies for import ed goods. The charges are calculated as
the difference between the total freight for imports, as indicated by foreign
trade statistics, and freight charges on imports collected by resident companies,
obtained from the survey. For road transport, compilers assume that resident
companies provide approximately 30-35 percent of freight on imports and
exports, as shown in the trade statistics. For sea transport, the credit entries for
other transportation services are derived from a survey that covers the country’s
principal ports and various companies that provide services related to sea
transport. For air transport, the data are derived from a survey of foreign
airlines operating in Argentina. The debit entry for sea transport is derived from
the survey of resi dent shipping companies. For air transport, the data are
derived from the survey of resident airlines operating abroad. Data on other
transports come from a survey of resident and nonresident bus companies.
Travel This item is calculated on the basis of the estimated number of
passengers entering and departing Argentina, the number of days they stay, and
the estimated average expenditure per person. To improve the estimates for
this account, the institute conducted surveys at main border crossings in 1996
(For more details, see Estimation de la Cuenca Viejas del Balance de Pages–
May 1999.) Other services Communications. The data for this item are based
on a survey of telecommunications and postal service companies on their

12
foreign operations. INDEC comp iles the data. Construction. This account
covers work abroad by resident construction enterprises on construction and
installation projects that are carried out in a year or less. The data are based on
information from the builders’ national register of public works (Registry
National de Constructors de Boras Publicans) and on the exchange market
reporting system since 2002. Insurance. The data on insurance of imports are
based on information from the statistics of foreign trade and from the rate of
cost of the insurance service. The data on
reinsurance come from the insurance enterprises supervisory agency
(Superintendence de Saguaros de la Nation).

Financial
. The entries cover commissions paid by the government, and commissions on
securities issued by t he private nonfinancial sector. The data on commissions
paid by the government are obtained from operations reported by the Treasury
Secretariat (Secretarial de Hacienda MEYOSP) and the central bank. Data on
commissions paid by the private nonfinancial sect or are derived from a survey
of securities issued and from information provided by the resident entity Caja
de Valor’s .Computer and information services. These data are based on a
survey of companies that provide and receive database and other computer r
elated services INDEC compiles the data. Royalties and license fees. There are
two main sources of information: 1) a survey directed to associations of writers
and music composers and 2) the balance sheets of companies that receive or
pay royalties. A quarterly survey covers more than 150 companies which
account for more than 70 percent of the total. A bigger survey that covers more
than 1.000 companies (99 percent of the total) is conducted yearly. Other
business. The me chanting and other trade related services are based on data
from the exchange market reporting system since 2002. The entries for
operational leasing services are derived from information provided by various
airline and sea transport companies. Other business service data are obtained
from a survey. Personal, cultural, and recreational. This account includes the

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transactions related to producing or distributing broadcasting programs, movies
and television shows, and musical and theatrical shows. Data are collected
through a quarterly su rvey of the main channels of air television and cable
television of the country , film distributors, theater and musical associations,
and the Argentine Society of Artists and Composers (Societal Argentina de
Artistes y Compositors). Also, this account includes sports shows, museums,
libraries, etc. Regarding sports activities, compilers derive data from a
quarterly survey of sports associations that perform international transactions.
Government, n.i.e.Compilers base estimates of foreign expenditures in
Argentina (credits) on the number of nonresidents working in foreign
embassies and consulates in Argentina and their average expenditures. The
latter are updated according to the evolution of the consumer price index in
Argentina measured in U.S. dollars. The credit entries also include data
provided by the Foreign Office (Ministerial de Relations Exteriorsy Cult) on
consular fees collected abroad. The debit entries cover expenditures abroad
from the government and other public agencies represented in foreign countries
(as shown in their budgets).

Income
Compensation of employees Employees’ wages The estimates include only
domestic employees’ wages. No information on border and seasonal workers is
included. Credit information comes from the shipping companies survey. Also,
the Foreign Office provides information every three years about domestic
employees working in foreign diplomatic representations in the country. When
this information is not available, expenditures are updated using the Argentine
Consumer price index adjusted by the exchange rate. Debit is derived from
budgetary data about wages paid to nonresidents in public entities with
representation abroad. Investment income Data are estimated on an accrual
basis. Direct investment The credit and debit entries for the financial sector are
derived from income and loss statements of banks. For other sectors, the credit
entries include an average accrued income on real estate investment abroad and

14
income on direct investment abroad by resident companies. The information is
collected from the resident enterprises’ balance sheets. The debit entries for the
nonfinancial private sector are derived from balance sheet data provided on a
quarterly basis by a sample of enterprises. The estimates are revised
with the results of the annual survey of big enterprises compiled by INDEC.
For insurance and pension fund companies, estimates are based on information
compiled by their supervisory agencies. Portfolio investment
.
Debt securities
: For interest earned by the financial system, compilers estimate data from the
financial system’s consolidated balance sheet data on holdings of portfolio
investments. The Treasury Secretariat provides information on interest earned
by the nonfinancial public sector from assets invested abroad (mainly interest
accrued on holdings of bonds held as guarantees for refinanced foreign debt
obligations). The debit entry estimates for resident financial entities are based
on balance sheet data. For the nonfinancial public sector, thedata sources are
the Treasury Secretariat and a survey of the foreign obligations of state
governments. To estimate the nonresidents’ share of interest payments on
securities, compilers use the ratios and methodology employed to determine the
residence of securities holders (see note to portfolio investment in the financial
account). For the nonfinancial private sector, the debit entries include interest
on bonds, negotiable notes, and commercial papers issued abroad and are based
on the survey conducted to collect related data.

Equity securities
: The debit entries comprise income estimates based on distributed dividends
data collected from the Stock Exchange. (For estimates of nonresident holdings
of these securities, see the financial account.) Other investment The central
bank reports interest earned by the resident financial sector from the investment
of international reserves. For interest earned by the rest of the financial system,
data are estimated from the financial system’s consolidated balance sheet

15
data on holdings of interest
-bearing liquid assets and credits or other types of financing provided to
nonresidents. The Treasury Secretariat provides information on interest earned
by the nonfinancial public sector from assets invested abroad. For the
nonfinancial private sector, interest credits are estimated by applying different
rates to the assets invested abroad (bank deposits, trade financing, and portfolio
investment). (See the financial account for these assets estimates.)
The debit entries for the central bank are obtained from central bank records.
For other resident financial entities, estimates are based on balance sheet data
and the average rates applicable to each type of liability: deposits of
nonresidents, use of lines of credit from abroad, and correspondents’ credits.
For the nonfinancial public sector, the data sources are the Treasury Secretariat
and a survey of the foreign obligations of state governments. For the
nonfinancial private sector, the debit entries are based on the average terms of
the international organizations’ loans and on data collected through the debt
survey directed (twice a year) to this sector’s enterprises.

Current transfers
General government The credit entries cover fines collected by the government
from nonresidents for infractions of national regulations and laws, and taxes on
external payments. The debit entries are derived from information contained in
the budgets of all government agencies and data from the central bank on
payments for foreign transfers on behalf of, and by order of, the government. It
includes also retirement and survivorship pensions paid to non residents, as
informed by the social security entity (Administration National de la Seguridad
Social

ANSES).
Other sectors Data on workers ‘remittances are based on estimates of the
number of certain foreigners (Peruvians, Paraguayans, Bolivians, Chileans)

16
living in Argentina and of the average amount of remittances. The credit entries
for other private transfers cover retirement and survivor ship pensions paid to
Argentine residents, which are based on information provided by various
countries and grants from members of the Organization for Economic
Cooperation and Development (OECD). The debit entries for taxes on external
receipts are derived from surveys.

Capital Account
This item includes patents, copyrights, and similar assets purchased and sold,
and football players’ transfer rights between residents and nonresidents.
Financial Account Direct investment Direct investment flows include equity
participation of 10 percent or more by foreign investors. The data include
reinvested earnings and the provision of loan capital between direct investors
and subsidiaries, branches, and associated enterprises (intercompany debt).Data
on direct investment abroad and in Argentina for the resident financial sector
are derived from the financial statements of these institutions. For the
nonfinancial public sector, the data refer to direct investment in Argentina
through privatization of public companies; information is obtained from the
Treasury Secretariat and from state governments. For the nonfinancial private
sector enterprises, estimates of direct investment abroad are based on
information collected from the firms’ balance sheets and related statements.
Foreign direct investment in Argentina includes reinvested earnings, equity
participation, and changes in ownership. Reinvested earnings are estimated on
the basis of accounting data obtained from a quarterly survey of a sample of
enterprises with foreign direct investment. These data are provisional and are
revised with information obtained from the annual survey conducted by
INDEC. Information on changes in equity holdings is derived from information
on the acquisitions and sales of equity capital published in the newspapers. This
information is verified on a quarterly basis with the enterprises, and it is revised
when the annual survey data are available. Intercompany debt is collected
through the debt survey directed to private nonfinancial enterp Rises.Portfolio

17
investment Equity securities Equity securities issued abroad (ADRs) are
supposed to be held by nonresidents. For equity securities issued in Argentina,
data on the residence of the holders are available from the records of the
Securities Central Depository Inc.

Debt securities
Data for both assets-and liabilities-related transactions by the financial sector
are estimated from the financial system’s consolidated balance sheet data on
holdings of portfolio investments. The data are affected by valuation changes.
The Treasury Secretariat provides information on asset investment abroad by
the nonfinancial public sector. Debt securities issued abroad by the
nonfinancial public sector are supposed to be held by nonresidents, except for
holdings of some resident entities, such as banks, pension funds, insurance
companies, and public sector organizations. For securities issued in Argentina,
data on the residence of the holders are available from the records of the
Securities Central Depository Inc. A complementary survey of state
governments is conducted to collect information on their issues of securities
abroad.

Balance Data

Balancing is a mandatory pre-processing step for neural network training. The distribution of
input vectors is modified in order to get a flat distribution for the output quantity (target log),
in the training data set. Balancing is done automatically when training from picksets or on a
target log that is containing lithology codes. In both cases, the output values are discrete
(integers), thus Balancing can be automated safely. An ordinary log will show continuous
values between a minimum and maximum.

Based on the histogram display the user may:

 Adjust the output level for the flat distribution using the Data picks per class
parameter.

 Train for a range of values smaller than the extracted minimum and maximum values
by specifying another Data range to use.

The over-represented classes will be decimated to the data point per class parameter.

The under-represented classes will be duplicated to the data point per class parameter, with a
small change of the target value for each duplicated vector. This change is controlled by the

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parameter Percentage noise when adding, but the default value will be appropriate for most
situations. The binning is automatically performed to compute the number of classes based on
minimum, maximum and number of picks. At least 10 classes will be used, with a maximum
of 100 classes. 20 and 50 classes may be used to reach an optimal of 25 vectors per class. This
optimal is considered as the best compromise between statistical representation and training
speed.

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