Guarantees

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					                              Guarantees



http://unstats.un.org/unsd/nationalaccount/AEG/papers/m2guarantees.pdf
http://unstats.un.org/unsd/nationalaccount/AEG/papers/m3guarantees.pdf
                 Guarantees

Part of “balance sheet approach” – trend to look at
positions to analyze economic problems, not just flows.
Off-balance sheet obligations.
   Important for assessing vulnerability (can hide debt).




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      Examples of Guarantees
Guarantor and Debtor are related entities:
  Government and government-owned enterprises.
  Companies and their subsidiaries.
Guarantor and Debtor are at arm’s length:
  Banker’s acceptances and other guarantees on a fee
  basis.
  Government support for worthy private projects.




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          Time of recognition
Granting of guarantee?

Activation of guarantee?
   After default by guaranteed party.




                                        4
On the activation of a guarantee, if Debtor still exists, three
  steps occur:

 Creditor’s liability to Debtor is eliminated.
 Guarantor’s liability to Creditor is created.
 Debtor’s liability to Guarantor is (usually) created.

 More complex than usual transactions, because three
  parties involved.

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       Current Treatment
(a) Before activation, guarantees are contingent assets
and therefore outside the system.
(b) No specific guidance on classification of flows on
activation in BPM5 or SNA. However:
  • GFSM has injection of equity for continuing
    subsidiaries and capital transfer otherwise; and
  • ESA95 has injection of equity and capital transfer
    cases; also mentions other volume changes when the
    original debtor disappears.
  • For bank guarantees, from general practice, it
    appears that service charge when issued; other
    volume changes if not recovered.
                                                      6
                      Decisions
External Debt Statistics Guide suggests show expected liabilities
under guarantees as a supplementary item.
AEG didn’t want to change asset boundary to include guarantees in
general as assets, except when they:
   Amount to a financial derivative; or
   Are standardized guarantees (e.g., on student loans) – considered
   to be similar to insurance.
On activation:
   Details still being discussed.
   Attempt to have single solution, but evidence suggests different
   (some capital transfer, sometimes financial account transaction).
                                                              7
                     Questions

Are guarantees important issues in your country?

How should they be recorded?




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posted:9/25/2012
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