IFC Satellite meeting at the ISI World Statistics Congress on “Assessing international capital flows after the crisis”
Rio de Janeiro, Brazil, 24 July 2015
Global capital flows and external positions since the global financial crisis1
Gian Maria Milesi-Ferretti, International Monetary Fund
1
This presentation was prepared for the meeting. The views expressed are those of the author and do not necessarily reflect the views of the BIS, the IFC or the central banks
and other institutions represented at the meeting.
GLOBAL CAPITAL FLOWS
AND EXTERNAL POSITIONS
SINCE THE CRISIS
The views expressed are
those of the author and not
necessarily those of the IMF
Gian Maria Milesi-Ferretti
International Monetary Fund and CEPR
Since 2007….



Compression in global current account imbalances….
But still expanding net asset and liability positions.
Large compression in global capital flows



Decline in flows to and from AEs…
Resilient flows to EMs (particularly FDI, portfolio)
Stop to the growth in external assets and liabilities as a
share of global GDP
Presentation


What has happened to “global financial
integration” since the crisis?
How has the external balance sheet of
emerging markets changed?
Capital flows have slowed after the crisis
esp. for advanced economies, financial ctrs
10
World Capital Inflows
(in percent of world GDP)
8
Emg mkts and dev. co.
Advanced econ (non FC)
6
Financial centers
4
2
0
1995
-2
1998
2001
2004
2007
2010
2013
Weak capital flows to and from adv. economies
4000
3000
2000
Derivatives net
Other inv. assets nonbanks
Other investment assets banks
Portfolio liabilities
FDI liabilities
Capital inflows
1000
0
-1000
-2000
-3000
2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1
Flows to emerging markets have been strong…
…but declining in recent quarters
500
400
Other incl. derivatives
Other investment liabilities banks
Portfolio liabilities
FDI liabilities
Total inflows
300
200
100
0
-100
-200
-300
2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1
Growth in cross-border positions stalled
Advanced economies and financial centers still dominate
250%
200%
Global external assets (ratio of world GDP)
Emerging and developing countries
Financial centers
150%
Advanced (non FC)
100%
50%
0%
1990
1993
1996
1999
2002
2005
2008
2011
2014
..despite the rising share of EMDEs in world GDP
120%
Emerging and developing countries
Financial centers
Advanced (non FC)
Shares of world GDP
100%
80%
60%
40%
20%
0%
1990
1993
1996
1999
2002
2005
2008
2011
2014
What explains the break in the upward
trend of financial integration?

Big reduction in cross-border debt holdings
Loans
 Securities


This reflects
Bank deleveraging
 More fragmentation within the euro area


But also large increase in EM share of world GDP

EMs have smaller external assets and liabilities
Declining world external assets and liabilities to
world GDP, 2007-2014….
20%
15%
10%
5%
0%
Reserves
-5%
Debt
Derivatives
-10%
FDI
-15%
Equity
-20%
-25%
Assets
Liabilities
….mostly reflecting deleveraging by banks
70%
60%
50%
40%
External assets of BIS-reporting banks
(in percent of global GDP)
Claims on nonbanks
Claims on banks
30%
20%
10%
0%
1990
1994
1998
2002
2006
2010
2014
…and a large decline in intra euro area claims
300%
250%
Intra euro-area external liabilities
(percent of euro area GDP)
FDI
Portfolio equity
Other investment
200%
Portfolio debt
150%
100%
50%
0%
2001
2004
2007
2010
2013
Change in AE external balance sheet, 2007-14
40%
Derivatives
Reserves
Other investment
30%
FDI
Portfolio equity
20%
Portfolio debt
10%
0%
-10%
-20%
Assets
Liabilities
Change in EM balance sheet, 2007-14:
more modest
6%
4%
2%
0%
-2%
-4%
Derivatives
Reserves
Other investment
FDI
-6%
Portfolio equity
Portfolio debt
-8%
-10%
Assets
Liabilities
Much ado about portfolio flows?


EM aggregate masks substantial heterogeneity
Portfolio debt liabilities
Change in external balance sheet, 2007-14
(percent of GDP)
15%
Latin America and Caribbean
10%
5%
0%
-5%
Derivatives
Reserves
Other investment
-10%
FDI
Portfolio equity
-15%
Portfolio debt
Assets
Liabilities
Change in ratio of portfolio liabilities to GDP, 2007-14
25
20
15
10
5
0
-5
-10
-15
-20
Portfolio equity
Portfolio debt
Challenges of measuring financial
integration





Difficulty in determining ultimate exposures
Offshore activity / inflation of cross-border positions
FDI: SPVs, SFIs etc (Netherlands has $4 trn in FDI
assets and liabilities, Luxembourg over $3 trn)
Portfolio equity: Investment fund industry
Other investment: routing of bank flows
Where do we go from now? Short term

Advanced economies:
 Cross-border
role of banks?
 Intra euro area flows?

Risks of reduced flows to EMs?
 Gradual
normalization of US monetary policy
 Growth in EMs below pre- and post-crisis trends
Where do we go from now? Medium term

Forces pushing for increased integration of EMs

Domestic financial development
 Increased presence of EM financial institutions on
global markets
 Gradual development of institutional investors
(example of Chile)
 More
FDI