*EPF309 06/30/2004
Text: U.S. Negative Net Investment Position Hits New Record in 2003
(Foreign purchases of U.S. securities rise, Commerce Department says) (2150)

The negative net international investment position of the United States reached a new record in 2003, the Commerce Department says.

In a June 30 news release, Commerce said that at the close of 2003 the value of foreign investments in the United States exceeded the value of U.S. investments overseas by $2.430 trillion, up from a revised $2.233 trillion in 2002.

The department's calculations were based on a valuation method known as "current-cost," which uses the current cost of capital equipment, general price indexes for land and estimated replacement costs for inventories. Other valuation methods produce different results.

Commerce reported that the $197.9 billion difference from year-end 20002 to year-end 2003 was due primarily to large net foreign purchases of U.S. corporate bonds and U.S. Treasury securities. These were partially offset by the appreciation of most foreign currencies against the U.S. dollar, which raised the dollar value of U.S. investments overseas. Rising stock market prices also raised the value of U.S. investments abroad more than they raised the value of foreign investments in the United States.

Commerce also reported that foreign acquisitions of assets in the United States were $829 billion in 2003, up from $768 billion in 2002. Foreign official acquisitions of assets more than doubled from 2002 to the highest level on record -- due largely to foreign official purchases of U.S. Treasury securities. Net foreign purchases of U.S. securities other than U.S. Treasury securities slowed for the third consecutive year, net foreign purchases of U.S. stocks slowed, and foreign direct investment in the United States slowed to the smallest increase since 1992, the department said.

U.S. acquisitions of assets abroad in 2003 were $283.4 billion, up from $198.0 billion in 2002 and down from a record $569.8 billion in 2000, Commerce said.

Following is the text of the news release:

(begin text)

U.S. Department of Commerce
Bureau of Economic Analysis

U.S. Net International Investment Position at Yearend 2003

The U.S. net international investment position at yearend 2003 was a negative $2,430.7 billion (preliminary) with direct investment valued at current cost, as the value of foreign investments in the United States exceeded the value of U.S. investments abroad. At yearend 2002, the U.S. net international investment position was a negative $2,233.0 billion (revised).

The net investment position became $197.7 billion more negative from yearend 2002 to yearend 2003, mainly due to large net foreign purchases of U.S. securities (mostly of corporate bonds and U.S. Treasury securities). Partly offsetting this impact, appreciation of most foreign currencies against the U.S. dollar raised the dollar value of U.S.-owned assets abroad, especially of U.S.-held foreign stocks. Substantial increases in stock market prices raised the value of U.S. portfolio investment abroad somewhat more than it raised the value of foreign portfolio investment in the United States.

With direct investment valued at the current stock market value of owners' equity, the negative net investment position was $2,651.0 billion (preliminary) at yearend 2003, compared with $2,553.4 billion (revised) at yearend 2002. The $97.6 billion change in the net investment position on this basis resulted from the same factors as above.

Other highlights include:

In regard to transactions, foreign acquisitions of assets in the United States in 2003 were $829.2 billion, up from $768.2 billion in 2002, and the second largest on record after $1,046.9 billion in 2000. Foreign official acquisitions of assets more than doubled from 2002, to the highest level on record. The increase was largely accounted for by net foreign official purchases of U.S. Treasury securities. Net foreign purchases of U.S. Treasury securities by private foreigners also picked up, and inflows reported by U.S. nonbanks increased somewhat. Net foreign purchases of U.S. securities other than U.S. Treasury securities slowed for the third consecutive year; net foreign purchases of U.S. stocks slowed and transactions in U.S. agency bonds shifted to net foreign sales, more than offsetting a sharp increase in net foreign purchases of U.S. corporate bonds to a record level. Foreign direct investment in the United States slowed to the smallest increase since 1992, and inflows reported by U.S. banks also slowed.

U.S. acquisitions of assets abroad in 2003 were $283.4 billion, up from $198.0 billion in 2002, and down from a record $569.8 billion in 2000. U.S. investors shifted back to net purchases of foreign securities after having been net sellers for the first time in 2002; net U.S. purchases of foreign stocks increased substantially and net U.S. sales of foreign bonds declined. U.S. direct investment abroad rose to the highest level of outflows since the record in 1999. U.S. banks' claims on foreigners slowed to the smallest increase since 1994, and the increase in U.S. nonbanks' claims on foreigners also slowed.

Price appreciation of U.S. stocks increased the value of foreign holdings of U.S. stocks and increased the value of owners' equity of foreign direct investment in the United States on a market-value basis. Price appreciation of foreign stocks also increased the value of U.S. holdings of foreign stocks and increased the value of owners' equity of U.S. direct investment abroad on a market-value basis.

Appreciation of most foreign currencies against the U.S. dollar from yearend 2002 to yearend 2003 raised the dollar value of all foreign-currency-denominated assets and liabilities, especially the value of U.S.-held foreign stocks and U.S. direct investment abroad.

Valuation Methods for Direct Investment

The current-cost method values the U.S. and foreign parents' share of their affiliates' investment in plant and equipment using the current cost of capital equipment, in land using general price indexes, and in inventories using estimates of their replacement cost.

The market-value method values the owners' equity component of the direct investment position using indexes of stock market prices.

The historical-cost method values all assets and liabilities at their book value. Country and industry detail can be shown only under this method. Data on this basis are not presented in this release.

U.S.-owned assets abroad increased $789.2 billion to $7,202.7 billion with U.S. direct investment valued at current cost, and they increased $1,250.6 billion to $7,864.0 billion with U.S. direct investment valued at market value.

U.S. holdings of foreign securities increased $627.5 billion to $2,474.4 billion. Holdings of foreign stocks increased sharply as a result of large price appreciation, the appreciation of foreign currencies against the U.S. dollar, and net U.S. purchases. Holdings of foreign bonds were nearly unchanged as price appreciation and exchange-rate appreciation were largely offset by net U.S. sales.

U.S. direct investment abroad at current cost increased $229.0 billion to $2,069.0 billion; at market value, it increased $690.5 billion to $2,730.3 billion. In 2003, net financial outflows rose to $173.8 billion, but remained below record outflows of $224.9 billion in 1999. At both current cost and market value, financial outflows, exchange-rate appreciation of foreign currencies, and price appreciation all contributed to the increase in U.S. direct investment abroad.

Claims on foreigners reported by U.S. banks increased $201.6 billion to $1,776.3 billion. Most of the increase was due to "other" changes, reflecting a change in the statistical reporting system that has shifted some assets from U.S. claims reported by nonbanking concerns to U.S. claims reported by U.S. banks. Financial outflows from banks were the smallest since 1994.

Claims on unaffiliated foreigners reported by U.S. nonbanking concerns decreased $293.4 billion to $614.7 billion. Changes in the statistical reporting system and related changes in the methodology for calculating nonbank transactions and positions led to a substantial decline in the transactions and positions covered by the nonbank category; these changes are reflected in the estimate of "other" changes.

U.S. official reserve assets increased $25.0 billion to $183.6 billion, largely as a result of strong price appreciation in the market value of the U.S. gold stock and of exchange-rate appreciation.

Foreign-owned assets in the United States increased $986.8 billion to $9,633.4 billion with foreign direct investment valued at current cost, and they increased $1,348.2 billion to $10,515.0 billion with foreign direct investment valued at market value.

Foreign holdings of U.S. securities other than U.S. Treasury securities, excluding official holdings, increased $604.4 billion to $3,391.1 billion. Foreign holdings of U.S. stocks increased as a result of a price appreciation and net foreign purchases. Foreign holdings of U.S. bonds increased as a result of net foreign purchases, exchange-rate appreciation of foreign currencies, and price appreciation.

U.S. liabilities to private foreigners and international financial institutions reported by U.S. banks increased $368.8 billion, to $1,887.2 billion. Most of the increase was due to "other" changes, reflecting a change in the statistical reporting system that has shifted some liabilities from U.S. liabilities reported by nonbanking concerns to U.S. liabilities reported by U.S. banks. Financial inflows to banks slowed in 2003.

Foreign official assets in the United States increased $261.4 billion to $1,474.2 billion, the largest increase on record. The increase was mostly in purchases of U.S. Treasury securities.

Foreign holdings of U.S. Treasury securities, excluding official holdings, increased $84.9 billion to $542.5 billion. Sizable net foreign purchases more than offset price depreciation.

Foreign direct investment in the United States valued at current cost increased $48.8 billion to $1,554.0 billion, mostly as a result of net financial inflows. At market value, foreign direct investment in the United States increased $410.2 billion to $2,435.5 billion, mostly as a result of price appreciation in owners' equity resulting from an increase in U.S. stock prices. At both current cost and market value, net financial inflows slowed to $39.9 billion, the smallest increase since 1992.

U.S. currency held by foreigners increased $16.6 billion to $317.9 billion.

Liabilities to unaffiliated foreigners reported by U.S. nonbanking concerns decreased $398.1 billion to $466.5 billion. Changes in the statistical reporting system and related changes in the methodology for calculating nonbank transactions and positions led to a substantial decline in the transactions and positions covered by the nonbank category; these changes were reflected in the estimate of "other" changes.

Revisions

The previously published net international investment position in 2002 at current cost was a negative $2,387.2 billion, and at market value was a negative $2,605.2 billion.

This year, the estimates of foreign portfolio holdings of U.S. securities for 2000-2002 were revised to incorporate results from the U.S. Treasury Department's annual surveys of securities liabilities for June 2002 and June 2003. In addition, the estimates of U.S. portfolio holdings of foreign securities for 1994-1996 were revised to extend to these years the major methodological changes made in June 2003 at the time of the incorporation of the U.S. Treasury Department's Benchmark Survey of U.S. Portfolio Investment Abroad as of December 31, 2001.

Classification and methodology changes have been made to the bank and nonbank accounts. Positions of securities brokers and dealers have been reclassified to the bank accounts from the nonbank accounts. Methodology changes have identified some double-counting of transactions and positions in the counterparty country source data used to prepare the estimates; the duplicate coverage has now been removed from the accounts. Both of these changes are reflected in the "other" changes column of table 1.

In addition to the above improvements, all estimates are revised as a result of newly available or revised quarterly and annual survey results and other data. Revisions attributable to updated source data are for 1994-2002. The net result of revisions from all sources is to raise the value of U.S. assets abroad relative to the value of foreign assets in the United States for recent years.

A more detailed discussion of the U.S. net international investment position in 2003 and revised historical data will appear in the July issue of the Survey of Current Business. That issue will also contain an article about historical-cost direct investment positions, with detail by country and industry, and revised direct investment historical data.

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(Distributed by the Bureau of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)

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