Professional Documents
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RiskRating
RiskRating
RiskRating
MH BOUCHET/CERAM-Global Finance
Shortcomings/Cons reductionist oversimplistic risk of self-fulfilling prophecy little predictive value weighted average tends to bury salient trends Gives market consensus
often made of herd instinct
MH BOUCHET/CERAM-Global Finance
(C.
Rating agencies are to be independent third parties that are consulted in the course of a market transaction. The goal is to overcome asymmetric information between both market sides by using standardized quality assessement methods. Criticisms: * Power without accountability * Conformity bias * Sociocultural bias * Punishment of disobedient firms/countries that do not request a rating * Procyclical bias, hence followjng the majority opinion of market participants without any early warning signals nor predictability track record
MH BOUCHET/CERAM-Global Finance
MH BOUCHET/CERAM-Global Finance
MH BOUCHET/CERAM-Global Finance
MH BOUCHET/CERAM-Global Finance
1997 30 51 57 35 49
1998 42 54 55 56 91
1999 44 49 53 46 98
2000 29 65 78 46 107
2006 37 57 80 46 85
2007 38 60 78 49 81
28 45 55 33 45
Malaysia Indonesia
MH BOUCHET/CERAM-Global Finance
MH BOUCHET/CERAM-Global Finance
Political Risk
Acceptable Zone
High
Financial Risk
Low
MH BOUCHET/CERAM-Global Finance
MH BOUCHET/CERAM-Global Finance
MH BOUCHET/CERAM-Global Finance
Swiss-based private source for risk rating on over 130 countries created in the late 1960s, the oldest risk assessment service. Delphi Method with a panel of 105 international experts rating 15 criteria for current and medium-term business horizon 3 components of country risk: business climate, political stability, currency and repayment risk. FORELEND reports (Forecast of Country Risk for International Lenders)
MH BOUCHET/CERAM-Global Finance
BERI S.A.
Economic, financial, monetary, operating and political conditions are integral components of the 0 (worst case) to 100 (best case) system for assessing countries. Two risk indexes three times a year: ORI Operations Risk Index and PRI Political Risk Index.
Output: Remittance and repatriation Factor: the R Factor, with forecasts for +1 year and +5 years.
MH BOUCHET/CERAM-Global Finance
BERI S.A.
Worst country ratings Venezuela Pakistan Colombia Indonesia Ecuador Nigeria Ivory Coast North Korea
MH BOUCHET/CERAM-Global Finance
Euromoney
SemiSemi-annual country risk scoring of 185 countries, both OECD and EMCs Rating Methodology:
Panel of 32 leading economists in international financial institutions evaluing country performance in the financial markets (market access, spreads, selldown, terms and maturity ) Scoring between 100 (excellent) and 0 (considerable risk) + Panel of political analysts to measure short-term risk of destabilization
MH BOUCHET/CERAM-Global Finance
Euromoney
Euromoney establishes an overall score for countries using nine weighted categories which are calculated as follows: the highest score in each category receives the full mark for the weighting; the lowest receives 0. In between, figures are calculated according to the formula: final score = (weighting / (maximum score-minimum score)*(maximum score-minimum score). The ranking shows the final scores after weighting. Categories = Economic performance (25% weighting), Political Risk (25%), Debt indicators (10%), Debt in default or rescheduled (10%), Credit ratings (10%), Access to bank finance (5%), Access to short-term finance (5%), Access to capital markets (5%) and Discount on forfaiting (5%).
MH BOUCHET/CERAM-Global Finance
Rating: EUROMONEY
Growth performance: 25% (GDP projections) Political risk: 25% External debt indicators: 10% (debt/GDP et debt/X) External payment default and rescheduling: 10% Credit rating Moody s or S&P: 10% Short-term credit market access: 5% Commercial bank MT credit: 5% Capital markets access: 5% Spread over US Treasury bills: 5%
MH BOUCHET/CERAM-Global Finance
MH BOUCHET/CERAM-Global Finance
2007
20=Singapore 41=Hungary 42= Poland 54= China 57= Russia 76= Vietnam 77= Algeria 79= Iran 85= Indonesia 167= Ivory Coast 178= Congo 182= Cuba 185= North Korea
MH BOUCHET/CERAM-Global Finance
Higher Risk
R an k
100 80 60 40 20 0
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Political upheaval
MH BOUCHET/CERAM-Global Finance
Ma
MH BOUCHET/CERAM-Global Finance
Risk information provided by leading international banks. Bankers are asked to grade each of the countries on a scale from 0 to 100, with 100 representing those countries with the best creditworthiness. The sample for the study, updated every six months, ranges from 75 to 100 banks. The names of all participants in the survey are kept strictly confidential. Banks are not permitted to rate their home country. The individual responses are weighted (> importance to responses from banks with greater worldwide exposure and more sophisticated country analysis systems)
MH BOUCHET/CERAM-Global Finance
Higher Risk
R an k
100 80 60 40 20 0
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MH BOUCHET/CERAM-Global Finance
ar
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60. Tunisia 67. Morocco 68. Algeria 72. Egypt 78. Venezuela 91. Argentina 117. Bolivia 124. Gabon 134. Cameroun 153. Congo 157. RCI 166. Iraq 171. Zimbabwe
MH BOUCHET/CERAM-Global Finance
MH BOUCHET/CERAM-Global Finance
Worst
Congo, Afghanistan, Mali Chad, Togo, Cambodia Yugoslavia, Cuba, RCI Albania, Haiti, Angola, Iraq, N. Korea, Sudan Nicaragua, Cuba, Zambia, Togo, Ethiopia, Myanmar, Liberia, Somalia, Zimbabwe
MH BOUCHET/CERAM-Global Finance
Ukraine Algeria
Chile Russia
Mexico
MH BOUCHET/CERAM-Global Finance
RCI
Russia
MH BOUCHET/CERAM-Global Finance
The ICRG Risk Rating System assigns a numerical value (risk points) to a predetermined range of risk components according to a preset weighted scale for each country covered by the system (PRS) The risk components are grouped into 3 categories - Political, Economic and Financial. Each Risk Category is made up of a number of Risk Components. The sum of the Risk Points assigned to each Risk Component within each Risk Category determines the overall risk for that category. The total Risk Points for each Risk Category are further combined, according to a formula, to produce a Composite Risk Rating. Very High Risk 00.0 to 49.5 points Moderate Risk 60.0 to 69.5 points Very Low Risk 80.0 to 100 points High Risk 50.0 to 59.5points Low Risk 70.0 to 79.5 points
MH BOUCHET/CERAM-Global Finance
65
FORECAST
60 Rating 55
50
Coup dtat
45 40
avr-99 mai-99 juin-99 juil-99 aot-99 sept-99 oct-99 nov-99 dc-99 janv-00 fvr-00 mars-00 avr-00 spt-00 sept-01 sept-02 sept-03 2006
Composite Political, Financial and Economic Risk Rating with weighted average
MH BOUCHET/CERAM-Global Finance
MH BOUCHET/CERAM-Global Finance
MH BOUCHET/CERAM-Global Finance
1
Czech Rep
HongKong
2
Chile China Hungary Poland
3
Israel Algeria Morocco South Africa
6
Albania
7
Bolivia Haiti
Cambodia
Cameroon
Trinidad Thailand Vietnam & Russia Tobago Romania Kuwait Mexico Mexico Bulgaria Malaysia
MH BOUCHET/CERAM-Global Finance
Guatemala
Gabon RCI
COFACE
140 countries Country rating definition:
Investment grade A1= steady economic and political situation A2= weak default probability A3= adverse circumstances may lead to worsening payment record A4= patchy payment record could be worsened by adverse economic/political developments Speculative grade: B= unsteady economic and poltical environment C= bad payment record D= high risk profile and very bad payment record
MH BOUCHET/CERAM-Global Finance
Cameroun= B gypt = B Russia= B Indonsia= B Turkey = B Ukraine= C Congo= C Argentina = C Iran= D Venezuela= D RCI= D Nigeria= D
MH BOUCHET/CERAM-Global Finance
Croissance conomique (%) Inflation (%) Solde public/PIB (%) Exportations Importations Balance commerciale Balance courante/PIB (%) Dette extrieure/PIB (%) SD/Export b&s (%) Rserves en mois d'import.
MH BOUCHET/CERAM-Global Finance
MH BOUCHET/CERAM-Global Finance
2002
1 12 34 44 58 46 13 38 39
2003
1 11 31 48 57 29 12 35 45 51
2004
1 7 34 44 58 46 15 38 39 53
53 MH BOUCHET/CERAM-Global Finance
MH BOUCHET/CERAM-Global Finance
ATKearney
0-3 scale
2,5
MH BOUCHET/CERAM-Global Finance
MH BOUCHET/CERAM-Global Finance
United States Switzerland Denmark Sweden Germany Finland Singapore Japan United Kingdom Netherlands Korea, Rep. Hong Kong SAR Canada Taiwan, China Austria Norway Israel France Australia Belgium
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131
2008
Ranking Cameroon
Tajikistan Madagascar Kyrgyz Republic Uganda Paraguay Zambia Ethiopia Lesotho Mauritania Guyana Timor-Leste Mozambique Zimbabwe Burundi
MH BOUCHET/CERAM-Global Finance
IMD Criteria
Over 320 competitiveness criteria
Economic Performance Government Efficiency Business Efficiency (74 criteria) Macro-economic evaluation of the domestic economy. Extent to which government policies are conducive to competitiveness. Extent to which enterprises are performing in an innovative, profitable and responsible manner. Extent to which basic, technological, scientific and human resources meet the needs of business.
(84 criteria)
(66 criteria)
Infrastructure
(90 criteria)
MH BOUCHET/CERAM-Global Finance
USA = 1/55 2. Singapore 3. HongKong 4. Luxemburg 5. Denmark 6. Switzerland 15. China 16. Germany 20. UK 24. Japan 26. Chile 27. Inda
Competitiveness
index 2007IMD
MH BOUCHET/CERAM-Global Finance
MH BOUCHET/CERAM-Global Finance
Singapore 2. New Zealand 3. USA 4. KongKong 5. Denmark 6. UK 7. Canada 8. Ireland 9. Australia 178 countries 10. Iceland 10 indicators 11. Norway 12. Japan 15. Thailand 31. France (44 in2006) 33. Chile 83. China 88. Tunisia 91. Vietnam 106. Russia 120. India 122. Brazil MH BOUCHET/CERAM-Global Finance
1.
World Bank:
MH BOUCHET/CERAM-Global Finance
MH BOUCHET/CERAM-Global Finance
Heritage Foundation: Index of economic freedom Economic freedom = absence of government coercion or constraint on the production, distribution, or consumption of goods and services beyond the extent necessary for citizens to protect and maintain liberty itself. The Index includes a broad array of institutional factors determining economic freedom: corruption, non-tariff barriers to trade, the fiscal burden of government, the rule of law, regulatory burdens, restrictions on banks, labor market regulations, black market activities
MH BOUCHET/CERAM-Global Finance
Heritage Foundation: 2008 Economic Freedom Index(10 institutional and economic criteria) HongKong 2. Singapore 3. Irland 4. Australia 5. USA 6. New Zealand 7. Canada 8. Chile 9. Switzerland 10. UK 13. Netherlands
1.
Japan = 17 Korea= 41 Mexique= 44 France = 48 Thaland = 54 Tunisia= 84 Morocco= 98 Brazil= 101 Algria= 102 China = 126 Russia= 134 Venezuela = 148 North Korea = 157
France = Over-regulated labor market and overly intrusive state + statist political economy culture + protectionist trading stances + persistent obstacles to foreign takeovers of domestic companies + sluggish growth + persistently high unemployment rate + stubborn budget deficit
MH BOUCHET/CERAM-Global Finance
Fraser Institute
Since 1975 130 countries Annual Index of Economic Freedom in the world: reliable measure of cross-country differences in economic freedom, using third-party data to help ensure objectivity Criteria: government quality, legal structure, security of property rights, access to sound money, personal choice, freedom to exchange with foreigners and to compete in markets, quality of regulations and institutional strength
MH BOUCHET/CERAM-Global Finance
Source: http://www.fraserinstitute.ca/shared/readmore.asp?sNav=pb&id=852
MH BOUCHET/CERAM-Global Finance
MH BOUCHET/CERAM-Global Finance
1. Norway 2. Iceland 3. Australia 4. Ireland 5. Sweden 6. Canada 7. Japan 8. United States 9. Switzerland 10. Netherlands 11. Finland 12. Luxembourg 13. Belgium 14. Austria 15. Denmark 16. France 17. Italy 18. United Kingdom 19. Spain 20. New Zealand
154. Haiti 155. Gambia 156. Senegal 157. Eritrea 158. Rwanda 159. Nigeria 160. Guinea 161. Angola
UNDP HDI
162. Tanzania, U. Rep. of 163. Benin 164. Cte d'Ivoire 165. Zambia 166. Malawi 167. Congo, Dem. Rep. of the 168. Mozambique 169. Burundi 170. Ethiopia 171. Chad 172. Central African Republic 173. Guinea-Bissau 174. Burkina Faso 175. Mali 176. Sierra Leone
MH BOUCHET/CERAM-Global Finance
177. Niger
2000-05
79.3 80.6 80.2 77.7 80.1 79.9 81.9 77.3 80.5 78.3 78.4 78.4 78.8 78.9 77.1 79.4 80.0 78.3 79.5 79.0
2000-05
55.6 53.5 43.6 43.3 53.6 40.7 46.0 53.8 46.0 37.4 39.6 43.1 41.9 43.5 47.6 43.6 39.4 44.6 47.4 47.8 40.6 44.3
MH BOUCHET/CERAM-Global Finance
38.4
35.4
Corruption
Competitiveness
Doing Business
MH BOUCHET/CERAM-Global Finance
MH BOUCHET/CERAM-Global Finance
Factor 1 (weight 4/10):Public debt burden in the economy, computed from 6 quantitative variables Factor 2 (weight 4/10):Sovereign default risk, from 4 quantitative and 2 qualitative variables Factor 3 (weight 2/10):Non convertibility risk, from 2 quantitatives and 1 quantitative variables
MH BOUCHET/CERAM-Global Finance
MH BOUCHET/CERAM-Global Finance
MH BOUCHET/CERAM-Global Finance
Rate
From 0 to 215 From 216 to 295 From 296 to 350 From 351 to 405 From 406 to 430 From 430 to 485 From 486 to 540 From 541 to 700
MH BOUCHET/CERAM-Global Finance
MH BOUCHET/CERAM-Global Finance
Heritage Foundation PricewaterhouseCoopers established since 1985, s Opacity Index in partnership with the measures the lack of clear, accurate, formal WSJ, an economic and widely accepted freedom index for some practices in a 160 countries, both countrys business industrialized and environment. As such, developing. The ranking it focuses on the is based on ten sociorelative state of political and economic corrupt business criteria, including practices, the political stability, state transparence of the interference, investment legal system and the codes, regulatory quality of the framework, institutional regulatory strength, and corruption framework. It scope. measures the resulting www.heritage.org extra risk premium that stems from additional business and economic costs. MH BOUCHET/CERAM-Global Finance www.opacityindex.com/
The Institute for Management Developments World Competitiveness Report analyses 49 industrialized and emerging economies around the world based on a far-reaching survey since 1989. Its analysis of the institutional framework addresses issues such as state efficiency, transparency of government policy, public services independence from political interference, bureaucracy as well as bribery and corruption. www.imd.ch
Freedom House since 1972 monitors the progress and decline of political rights and civil liberties in 192 countries. FH publishes an annual survey of the Progress of Freedom in the world. The ranking is based on a wide survey of regional experts, consultants, and human rights specialists. Political stability and civil liberties are ranked on a scale of 1 (best) to 7 (worst). www.freedomhouse.org/rati ngs/index.htm
The Political and Economic Stability Index of Lehman Brothers and Eurasia measures relative stability in around 20 EMCs by integrating political science theories with financial markets developments. The monthly evaluation uses both quantitative and qualitative criteria, including institutional efficiency, political legitimacy, economic performance, and government effectiveness. www.legsi.com
Political and Economic Risk Consultancy (PERC) specializes in strategic business information and analysis in East and Southeast Asia, with emphasis on corruption and business costs. Annual risk reports survey over 1,000 senior expatriates living in to obtain their perceptions of corruption, labor quality, intellectual property rights risks and other systemic shortcomings. www.asiarisk.com
MH BOUCHET/CERAM-Global Finance
Business Environment Risk Intelligence (BERI) provides a Political Risk Index assessing the social and political environment of a country. It is built on the opinion and scores provided by a hundred experts with a diplomatic or political science background. Governance quality is included into political risk analysis along with government effectiveness and social indicators. http://www.beri.com
Political Risk Services WORLD BANK: Given its risk analyses cover a unique policy dialogue with hundred countries and are more than 180 countries, updated on a quarterly the Bank has developed a basis. International comprehensive database of Country Risk Guide composite governance measures and tracks indicators, measuring corruption perception in perceptions of voice and government, law and accountability, political order, expropriation risk, stability, government as well as the quality of effectiveness, regulatory bureaucracy. These quality, rule of law, and measures stem from the corruption. subjective assessment of www.worldbank.org/wbi/go experts around the world. vernance/ http://www.prsgroup.com
MH BOUCHET/CERAM-Global Finance
The London-based Economist Intelligence Unit (EIU) provides a comprehensive -year forecasting country risk analysis on some 100 EMCs., on a quarterly basis. The EIU method flows from experts answers to a series of 77 predetermined qualitative and quantitative questions. http://www.eiu.com
To look upon governance and corruption, Moodys takes into consideration the structures of social interaction, social and political dynamics, as well as the economic fundamentals. Moodys relies on the judgment of a group of credit risk professionals to weigh the various risk factors as well as the impact of each of these factors upon business prospects.
http://www.moodys.com
Standard and Poors rating approach is both quantitative and qualitative. It is based on a checklist of 10 categories, including governance and political risk. The political risk factors gauge the impact of politics on economic conditions, as well as the quality of governance and the degree of government support in the population. S&P assigns short term and long-term ratings. http://www.standardandpoor s.com
MH BOUCHET/CERAM-Global Finance
Euromoney publishes Institutional Investors Transparency ratings of some 180 ratings are published International, a non-profit countries since 1982 on a twice a year since 1979 non-governmental semi-annual basis. The to assess the organization in Berlin, methodology is built from creditworthiness of about provides an annual survey a blend of quantitative 150 countries, based on a of corruption practices in criteria and qualitative survey of some 100 nearly 90 countries since factors coming from international bankers 1995. The Corruption surveys with about 40 perception of Perception Index is based political analysts and creditworthiness, on a wide network of economists. Political risk including economic, information sources with receives a 25% weighting, financial and sociolocal NGOs, domestic and as much as economic political stability criteria. foreign corporations, performance. Countries are The resulting score investors, and business graded on scale from 0 scales from zero (very contacts. (worst) to 100 ( best). high chance of default) www.transparency.org www.euromoney.com to 100 (least chance of default). www.institutionalinvesto r.com
MH BOUCHET/CERAM-Global Finance