Click to edit Master title style,Click to edit Master text styles,Second level,Third level,Fourth level,Fifth level,Analyzing Country Risk,CHAPTER 6,PART I.THE MEASUREMENT OF POLITICAL RISK,I.MEASURING POLITICAL RISK,A.Country-specific perspective,THE MEASUREMENT OF POLITICAL RISK,B.Political Stability,1.Measured by:,a.Frequency of government changes,b.Level of violence,c.Number of armed insurrections,d.Conflict with other states,THE MEASUREMENT OF POLITICAL RISK,C.Economic Factors,1.Indicators of political unrest,a.Rampant inflation,b.Balance of payment deficits,c.Slowed growth of per capita GDP,THE MEASUREMENT OF POLITICAL RISK,D.Subjective Factors,1.Profit Opportunity Recommendation,2.Political Risk and Uncertain Property Rights,THE MEASUREMENT OF POLITICAL RISK,3.Capital Flight,a.Definition:,the export of savings by a,nations citizens because of,safety-of-capital fears.,b.Measurement:use the,balance-of-payment account,THE MEASUREMENT OF POLITICAL RISK,c.Causes of capital flight,1.)Inappropriate economic policies,2.)Expectation of devaluation,3.)High political risk,PART II.ECONOMIC AND POLITICAL FACTORS,II.Economic and Political FactorsPrimary focus:How well is the country doing economically?,A.Fiscal Irresponsibility,-high government deficits,B.Monetary Instability,C.Controlled Exchange Rate System,-currency usually overvalued,D.Wasteful Government Spending,-inability to service foreign debt,ECONOMIC AND POLITICAL FACTORS,D.Resource Base,-lack of strong work ethic,E.Country Risk and Adjustment to External Shocks,1.What are the impacts of external shocks:,-how well a nation responds varies,ECONOMIC AND POLITICAL FACTORS,2.Key Indicators of Country Risk,a.Relative size of government debt,b.Money expansion,c.Existence of government-imposed barriers to market forces,ECONOMIC AND POLITICAL FACTORS,2.Key Indicators of Country Risk(cont),d.Level of tax rates,e.Amount of government-owned firms,f.Political and fiscal responsibility,g.Amount and extent of corruption,ECONOMIC AND POLITICAL FACTORS,3.Key indicators of economic health,a.Structural incentives,b.Legal structure,c.Clear incentives to save,d.Open economy,e.Stable macroeconomic policies,PART III.COUNTRY RISK ANALYSIS IN INTERNATIONAL BANKING,Country Risk and the Terms of Trade,What ultimately determines a nations ability to repay foreign loans?,-the speed of adjustment,COUNTRY RISK ANALYSIS IN INTERNATIONAL BANKING,The Governments Cost/Benefit Calculus,-debt to wealth ratio,-cost of default,-fluctuations in the terms of trade,COUNTRY RISK ANALYSIS IN INTERNATIONAL BANKING,Lessons from the International Debt Crisis of 1982,Economic reforms that work:,Strong head of state,Viable economic plan,Competent economic team,Support“at the top,Sell the program to all levels of society,