Guarantees

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Guarantees

• http//unstats.un.org/unsd/nationalaccount/AEG/pap
  ers/m2guarantees.pdf
• http//unstats.un.org/unsd/nationalaccount/AEG/pap
  ers/m3guarantees.pdf

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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 arms length
• Bankers 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.

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• On the activation of a guarantee, if Debtor still
  exists, three steps occur
• Creditors liability to Debtor is eliminated.
• Guarantors liability to Creditor is created.
• Debtors 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.

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Decisions

• External Debt Statistics Guide suggests show
  expected liabilities under guarantees as a
  supplementary item.
• AEG didnt 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).

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Questions

• Are guarantees important issues in your country?
• How should they be recorded?

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