g Be Risk Rating

8/11/2019 g Be Risk Rating

1/83

MH BOUCHET/CERAM-Global Finance

Country Risk Analysis

SOVEREIGN RISK RATINGMarch 2008


2/83


Various approaches to country risk

assessment

Qualitative analysis: financial, macroeconomic, legal,regulatory and political parameters; COFACE, Nord/SudExport, EIU, IIF

Quantitative approach : rating and scoring

Econometric approach and modelization

Analytical approach: crisis typology (Indosuez)

Principal Component Analysis

Logit Analysis

Non-linear conditional analysis (threshold levels &

breaking points: TAC)


3/83


Specialized Country Risk Ratinginstitutions

BERI (Business Environment Risk Index) Dun and Bradstreet, Moody s, S & P, Fitch Institutional Investor Frost & Sullivan Euromoney Fraser Instiotute Credit Risk International (Paris) International Country Risk Guide (NY/London) Coface & Ducroire Heritage Foundation Transparency International DBRS:

http://cache.dbrs.com/pdf/20752303634573.pdf?transactionID=421961


4/83


Quantitative approach: Rating

Means: Transforming a number of observations(Delphi method, surveys) or quantitative indicators

into onenumber. The various indicators can be weighted regarding

their impact on creditworthiness and risk.

End-product: one single grade to assess past andcurrent country risk situation with possible cross-country comparisons across time


5/83


6/83


Shortcomings of rating agences (C.Kuhner, Schmalenbach Business review, January 2001)

Rating agencies are to be independent third parties that areconsulted in the course of a market transaction. The goal is toovercome 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 requesta rating * Procyclical bias, hence followjng the majority opinion of

market participants without any early warning signals nor

predictability track record


7/83MH BOUCHET/CERAM-Global Finance

Asia, LTCM, US Subprime crises:some lessons to learn?

Any agency which rated the Republic of Korea at thehigh investment grade rating of AA- (in the case ofFitch IBCA and S&Ps) or A1 (in the case of Moodys)

before the crisis, and which now rates Korea at a

speculative grade B-, was clearly either wrong initiallyor subsequently. Clients are entitled to expect us toperform better in the future!

Fitch IBCA January 13, 1998

When the facts change, I change my mind J.M Keynes



Rating = poor early warning signals?

South Korea wa s rated as Italy and Sweden as late asOctober of 1997! But abrupt downgrading to junk bondstatus during the crisis

There were no early warnings about Korea from us or,

to the best of our knowledge, from other marketparticipants and our customers should expect a better job

from us

FICHT IBCA January 14, 1998



The Perceived Situation

Was the crisis anticipated by rating agencies?

June 1996 June 1997 June 1996 June 1997

Indonesia BBB BBB Baa3 Baa3

Korea AA- AA- A1 A1Malaysia A+ A+ A1 A1

Philippines BB BB+ Ba2 Ba1

Thailand A A A2 A2

Standard & Poor' s Moody' sCredit Ratings



EUROMONEYs Risk Rating

1996 1997 1998 1999 2000 2006 2007

Korea 28 30 42 44 29 37 38

Thailand 45 51 54 49 65 57 60Philippines 55 57 55 53 78 80 78

Malaysia 33 35 56 46 46 46 49Indonesia 45 49 91 98 107 85 81



Quantifying Country Risk

OverallCountry

RiskRating

PoliticalRisk

Rating

TransferRisk

Rating

30%

70%

Political FactorsPolitical factor APolitical factor BPolitical factor C

Financial FactorsFinancial factor AFinancial factor BFinancial factor C

Weights30%5020

Weights30%4030



Country Risk Rating

Foreign investment risk decision matrixcombines ratings of financial and political risk

Financial Risk

PoliticalR

isk

High Low

Low

High

AcceptableZone

High riskZone

Decision dependingon market and profit

potential



Moodys Sovereign Ratings 02/2008


14/83


15/83


Country risk ratings?

Country risk analysis cannot & shouldnot be boiled down to bond rating!

Risk might stem from a wide range ofstrategies, including FDI, exporting and

importing, lending, portfolio investment,consultancy contracts.


16/83


Quantitative Country Risk Appraisal Methods

BERI: Business Environment Risk Index(F.T. Haner, California-based) www.beri.com Swiss-based private source for risk rating on over 130

countries

created in the late 1960s, the oldest risk assessmentservice. Delphi Method with a panel of 105 internationalexperts rating 15 criteria for current and medium-term

business horizon

3 components of country risk: business climate, politicalstability, currency and repayment risk.

FORELEND reports (Forecast of Country Risk for

International Lenders)


17/83


BERI S.A.

Economic, financial, monetary, operating andpolitical conditions are integral components of the0 (worst case) to 100 (best case) system forassessing countries.

Two risk indexes three times a year: ORIOperations Risk Index and PRI Political Risk

Index.

Output: Remittance and repatriationFactor: the R Factor, with forecasts for +1

year and +5 years.


18/83


BERI S.A.

Worst country ratings Venezuela Pakistan Colombia Indonesia EcuadorNigeria

Ivory CoastNorth Korea


19/83


EuromoneySemi-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 financialmarkets (market access, spreads, selldown, terms andmaturity)

Scoring between 100 (excellent) and 0 (considerable risk) + Panel of political analysts to measure short-term risk of

destabilization


20/83


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 theweighting; the lowest receives 0. In between, figures arecalculated according to the formula: final score = (weighting /(maximum score-minimum score)*(maximum score-minimumscore). 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 toshort-term finance (5%), Access to capital markets (5%) and

Discount on forfaiting (5%).


21/83


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%


22/83


EUROMONEY: end-2007 Rating

1= Luxemburg 2. Norway

3. Switzerland 14= France 19= Japan

26= HongKong

28= Taiwan

42= Poland 44= Chile 50= Mexico

54= China 62= Tunisia 65= Morocco 69= Egypt

79= Algeria 184= North Korea

EUROMONEY C t Ri k R ti


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EUROMONEY: Country Risk Rating

End-2001

14= Singapore

28= Tawan

30= HongKong

40= Chile

39= Hungary

40= Brunei

42= Poland

45= China

56= Malaysia

89= Romania

93= Bulgaria

163= Congo

End-2005

9= Ireland

19= Singapore

22= New Zealand

35= Hungary

58= China

73= Iran

74= Vietnam

77= Russia

85= Algeria

96= Indonesia

127= Ivory Coast

182= Cuba

200720=Singapore41=Hungary42= Poland54= China

57= Russia

76= Vietnam77= Algeria79= Iran85= Indonesia167= Ivory Coast

178= Congo182= Cuba185= North Korea

EUROMONEY Ri k R ti I C t


24/83


EUROMONEY Risk Rating: Ivory Coast

0

20

40

60

80

100

120

140

160

180

1980

1981

1982

1984

1985

March

87

Sept.

89

Dec.97

March

98

Sept.

98

March

99

Sept

.99

March

2000

Sept

.01

Sept.

02

March

03

Sept

.03

Sept

.05

March

06

Rank

Higher Risk

Lower Risk

Coup dtatPolitical upheaval


25/83


Scoring/Rating of Country Risk

Institutional Investor 0-100 semi-annual Rating of 136 countries creditworthiness

based on survey of 100 leading international bankers Best: Switzerland, Germany, Netherlands, United States, United

Kingdom, France, Luxembourg Singapore, Taiwan, Chile Worst: Cuba, Nigeria, Benin, Sudan, Iraq, Congo, Sierra Leone,

North Korea, Albania, Angola

II Global average rating as of March 2000 = 41 II Global average rating as of March 2007 = 45

I i i l I Ri k R i


26/83


Institutional Investor Risk Rating

Risk information provided by leading international banks.

Bankers are asked to grade each of the countries on ascale from 0 to 100, with 100 representing those countrieswith the best creditworthiness.

The sample for the study, updated every six months,

ranges from 75 to 100 banks. The names of all participantsin the survey are kept strictly confidential.

Banks are notpermitted to rate their home country. Theindividual responses are weighted (> importance to responsesfrom banks with greater worldwide exposure and moresophisticated country analysis systems)

Inst tut onal Investor R sk Rat ng 1981 2007


27/83


Inst tut onal Investor R sk Rat ng 1981-2007Ivory Coast

0

20

40

60

80100

120

140

160

180

Sept

.81

March

82

March

87

Sept

.89

Dec.97

March

98

Sept

.98

March

99

Sept

.99

March

2000

March

2002

March

2003

March

04

March

05

Sept

.05

March

06

Sept

.06

March

07

Sept

.07

Ran

k

Higher Risk

Lower Risk

FCFA devaluationCoup dtat


28/83


Institutional Investor: 2007 rating

1. Switzerland2. Norway

3. Luxemburg4. Netherlands

5. Finland6. Germany13. France17. Spain21. Italy

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

I tit ti l I t


29/83


Institutional Investor2007 Risk Rating of ASIA

Singapore= 16

Australia= 18

Hongkong= 24

Taiwan= 26 South Korea= 28

China= 34

Malaysia= 38

Thailand= 54

India= 58

Philippines= 73

Indonesia= 76

Vietnam= 77

Pakistan= 86 Sri Lanka= 100

Laos= 132

Cambodia= 140

Myanmar= 168

North Korea= 173


30/83


Institutional Investor (2007 rating)

From Best to. Worst

Switzerland, Norway, UK,

Germany, USA, Sweeden

Congo, Afghanistan, Mali

Netherlands, France, US Chad, Togo, Cambodia

Austria, Canada, Singapore,

Australia, Japan

Yugoslavia, Cuba, RCI

Denmark, Belgium, Canada Albania, Haiti, Angola, Iraq,N. Korea, Sudan

Greece, Chile, Spain, Kuwait

Italy, Taiwan, HK, China

Nicaragua, Cuba, Zambia,

Togo, Ethiopia, Myanmar,

Liberia, Somalia, Zimbabwe

I i i l I Ri k R i


31/83


Institutional Investor Risk Rating

20

40

60

80

100

120

140

160

180

Dec.81

Dec.97

mars-98

Sept.98

mars-99

Sept.99

March00

Sept.03

March04

Sept.05

March06

sept-06

March07

Ivory Coast Ukraine Chile Mexico

Brazil Algeria Russia

I i i l I Ri k R i 1981 2007


32/83


Institutional Investor Risk Rating 1981-2007

20

40

60

80

100

120

140

160

180

Dec.81

Dec.97

mars-

98

Sept.98

mars-

99

Sept.99

March

00

Sept.03

March

04

Sept.05

March

06

sept-06

March

RCI Russia

I t ti l C t Ri k G id


33/83


International Country Risk Guide 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, Economicand Financial. Each Risk Category is made up of a number of Risk

Components. The sum of the Risk Points assigned to each RiskComponent within each Risk Category determines the overall risk for thatcategory.

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 High Risk 50.0 to 59.5pointsModerate Risk 60.0 to 69.5 points Low Risk 70.0 to 79.5 pointsVery Low Risk 80.0 to 100 points

I t ti l C t Ri k G id RCI


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International Country Risk Guide: RCI

40

45

50

55

60

65

70

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

Rating

Composite Political, Financial and Economic Risk Rating with weighted average

Coup dtat

FORECAST

OECD Credit rating


35/83


OECD Credit rating

1997 Knaepen Package= convergence on the pricing of officially supported

medium and long term export credits.One of the key elements of the Knaepen Package is a system for assessingcountry credit risk and classification of the countries into 7 categories.The Country Risk Classification Method measures the country credit risk, i.e.the

likelihood that a country will service its external debt.The Country Risk Classification Method uses an econometric modelbasedon quantitative indicators, e.g. the financial and the economic situation andthe payment experience of the countries and takes account of possiblequalitative factors, e.g. political and other economic and financial factors not

included in the quantitative Econometric Model.The details of the Country Risk Assessment Model are confidential and not

published.http://www.oecd.org/document/49/0,2340,fr_2649_34169_1901105_1_1_1_1,00.html

OECD C di i
http://www.oecd.org/document/49/0,2340,fr_2649_34169_1901105_1_1_1_1,00.htmlhttp://www.oecd.org/document/49/0,2340,fr_2649_34169_1901105_1_1_1_1,00.html


36/83


OECD Credit rating

The final classification, based only on valid country risk elements,is a consensus decision of the sub-Group of Country Risk Expertsthat involves the country risk experts of the Participating ExportCredit Agencies.

The sub-Group of Country Risk Experts meets several times ayear. These meetings are organized so as to guarantee that everycountry is reviewed each time a fundamental change is noticed andat least once a year.

The meetings are confidential and no official reports of thedeliberations are made.8 country risk categories from 0 (no risk) to 7 (high risk)


37/83


OECD Country risk classification in 2008

0 1 2 3 4 5 6 7

Greece

Austria

CzechRep

Chile

China

Israel

Algeria

Morocco

Albania Bolivia

HaitiCambodia

Belgium

Canada

France

HongKong Hungary

Poland

SouthAfrica

Brazil

Peru

Panama

Philippines

IndonesiaPakistan Cameroon

Niger

Nigeria

USA

UK

Trinidad

&Tobago

Thailand

RussiaRomania

Vietnam Argentina

Kuwait

Mexico

Malaysia

Mexico

Bulgaria

Guatemala Gabon

RCI

COFACE


38/83


COFACE140 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

C f dit R ti (2008)


39/83


Coface credit Rating (2008)

Canada= A1

Australia= A1 USA= A1 Japan= A1 Chile= A2 Korea= A2

Thaland = A3 China = A3 Mexico = A3 India = A3 Croatia=A3 Poland = A3 Roumania =A4 Tunisia= A4 Algria = A4 Brazill= A4

Cameroun= B

gypt = B Russia= B Indonsia= B Turkey = B

Ukraine= C Congo= C Argentina = C

Iran= D Venezuela= D RCI= D Nigeria= D

Tunisia: Macroeconomic indicators
http://images.google.com/imgres?imgurl=http://membres.lycos.fr/querties/2e_plan/bombe.jpg&imgrefurl=http://membres.lycos.fr/querties/&h=483&w=267&sz=8&tbnid=usIvhDRDJHKGdM:&tbnh=126&tbnw=69&hl=en&start=3&prev=/images%3Fq%3Dbombe%26svnum%3D10%26hl%3Den%26lr%3D


40/83


Tunisia: Macroeconomic indicatorssource: Coface

Mds $ 2003 2004 2005 2006e 2007(e) 2008(p)

Croissance conomique(%)

5,6 6 4 5,4 6 6,2

Inflation (%) 2,7 3,6 2 4,5 3 3

Solde public/PIB (%) -3,4 -2,6 -3 -2,8 -2,7 -2,6

Exportations 8 9,7 10,5 11,5 13,5 14,5Importations 10,3 12,1 12,5 14 16,3 17,7

Balance commerciale -2,3 -2,4 -2 -2,5 -2,8 -3,2

Balance courante/PIB

(%)-2,9 -1,9 1,1 -2,3 -2,5 -2,8

Dette extrieure/PIB

(%)83,7 81,2 75 70 67 63

SD/Export b&s (%) 11 14,5 13,8 17,3 12,5 11,3

Rserves en mois

d'import.

2,7 3 3,2 4,5 4,7 4,7

Coface: Payment arrears index in Tunisia


41/83


Coface: Payment arrears index in Tunisia(index 100= 1995)

AT KEARNEY: the globalizaton


42/83


AT KEARNEY: the globalizatonindex

Index that measures a countrys global links, fromforeign direct investment to international travel,telephone traffic, and Internet servers

Indicators combined into 4 sub-categories:

Economic integration (trade, FDI, portfolio capital flows,income payments, receips) Technology (number of Internet users, Internet hosts,

secure servers)

Personnal contact (international travel, tourism,international telephone traffic, cross-border transfers) Political engagement (foreign embassies, participation in

UN missions, number of memberships in internationalorganisations)

Th Gl b li i i d


43/83


The Globalization index2001 2002 2003 2004

Ireland 6 1 1 1

United States 12 12 11 7

Chile 26 34 31 34

Argentina 39 44 48 44

Brazil 44 58 57 58

Morocco 42 46 29 46France 16 13 12 15

Japan 29 38 35 38

Russia 45 39 45 39

China 48 53 51 53


44/83


Globalization Index: The Top 20/62 1. Singapore

2. Ireland

3. Switzerland

4. US

5. Netherlands 6. Canada

7. Denmark

8. Sweden

9. Austria

10. Finland

11. New Zealand

12. UK

13. Australia

14. Norway 15. Czech Rep.

16. Croatia

17. Israel

18. France

19. Malaysia

20. Slovenia

52. Russia

54. China

62. Iran

ATKearney

AT KEARNEY: the FDI confidence


45/83


AT KEARNEY: the FDI confidenceindex

The FDI confidence index is constructed using primarydata from a proprietary survey administered to seniorexecutives of the worlds 1000 largest corporations.

The survey is designed to gauge the likelihood ofinvestment in specific markets in order to gain insightsinto likely trends in global FDI flows over the next one tothree years.

Index values are based on non-source country responsesabout various markets (eg: the index ranking for theUnited States reflects all non-US company responses

about the US market)

FDI Confidence Index (AT Kearney)


46/83


FDI Confidence Index (AT Kearney),

FDI Confidence Index

0 0,5 1 1,5 2 2,

China

US

UK

Germany

FranceItaly

Spain

Canada

Mexico

Australia

Poland

Brazil

Czech Rep

India

Netherlands

Thailand

South Korea

Singapore

0-3 scale

World Economic Forum: Global


47/83


World Economic Forum: Globalcompetitiveness ranking

Growth prospects of 131 countries: up-to-date andcomprehensive data source available on thecomparative strengths and weaknesses of leading

economies of the world.Countries in The Global Competitiveness Report

are ranked by the Growth Competitiveness Index

(GCI) (GCI Rankings) and the MicroeconomicCompetitiveness Index (MICI) (MICI Rankings),which combined encapsulate the relative strengthsand weaknesses of growth within each economy.


48/83

Global Competitiveness Index 2006 2007


49/83


Global Competitiveness Index 2006-2007

United States 1 Cambodia 110

Ni 111


50/83


2008Ranking

Switzerland 2

Denmark 3

Sweden 4

Germany 5

Finland 6

Singapore 7

Japan 8

United Kingdom 9

Netherlands 10

Korea, Rep. 11

Hong Kong SAR 12

Canada 13

Taiwan, China 14

Austria 15Norway 16

Israel 17

France 18

Australia 19

Belgium 20

Nicaragua 111

Burkina Faso 112

Suriname 113

Nepal 114

Mali 115

Cameroon 116

Tajikistan 117

Madagascar 118

Kyrgyz Republic 119

Uganda 120

Paraguay 121

Zambia 122

Ethiopia 123

Lesotho 124

Mauritania 125

Guyana 126

Timor-Leste 127

Mozambique 128

Zimbabwe 129

Burundi 130

Chad 131

IMD World Competitiveness ranking


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IMD World Competitiveness ranking

The World Competitiveness Yearbook : annualstudy on the competitiveness of nations.

It analyzes and ranks the ability of nations toprovide an environment that sustainscompetitiveness

Extensive coverage of 55 countriesOver 300 competitiveness criteria are selected.

IMD Criteria


52/83


IMD Criteria

EconomicPerformance (74 criteria) Macro-economic evaluation of thedomestic economy.

GovernmentEfficiency

(84 criteria) Extent to which government policiesare conducive to competitiveness.

Business Efficiency (66 criteria) Extent to which enterprises areperforming in an innovative,profitable and responsible manner.

Infrastructure (90 criteria) Extent to which basic, technological,scientific and human resources meetthe needs of business.

Over 320 competitiveness criteria

IMD Growth competitiveness Index 2007


53/83


IMD Growth competitiveness Index 2007

1. USA = 1/55

2.

Singapore3. HongKong

4. Luxemburg

5. Denmark

6. Switzerland

15. China

16. Germany

20. UK

24. Japan

26. Chile

27. Inda

France = 28

Korea= 29

Russia = 43

Mexico= 47

Brazil= 49

Argentina= 51

Poland= 52

Indonesia= 54

Venezuela = 55

323 criteria within 5 main categories


54/83


Competitivenessindex 2007-IMD

IMD 2007 Competitiveness Index


55/83


p

1. USA

2. Singapore

3. HK

3. Luxembourg

4. Denmark 5. Switzerland

15. China

16. Germany

20. UK

24. Japan

26. Chile

27. India

28. France 29. Korea

30. Spain

33. Thailand

35. Hungary

38. Colombia

43. Russia

44. Romania 47. Mexico

55. Venezuela

BEST

PriceWaterhouseCoopers Opacity Index


56/83


PriceWaterhouseCoopers Opacity Index The index is based on a major co-operative effort to

assess the adverse impact of opacity of capital (thecost of borrowing funds) in a number of countries.

It is based on 5 components: Corruption in government bureaucracy

Laws governing contracts or property rights Economic (fiscal, monetary, and tax-related)

Accounting standarts

Business regulations

Together, these create the acronym CLEAR

(Corruption, Legal, Economic, Accounting,

Regulatory). A high degree of opacity in any of these

areas will raise the cost of doing business and curtailthe availability of investment capital.



57/83



China (from worst)Russia IndonesiaSouth KoreaTurkeyVenezuelaEcuador

IndiaKenya

Israel HongKong

Italy

Mexico UK

USA

Chile

Singapore (to best)

Corruption+ Legal + Economic + Accounting + Regulatory

W ld B k1. Singapore

2 New Zealand


58/83


World Bank:Doing Business

in 2008

2. New Zealand

3. USA

4. KongKong

5. Denmark

6. UK

7. Canada

8. Ireland

9. Australia

10. Iceland

11. Norway

12. Japan

15. Thailand

31. France(44 in2006)

33. Chile83. China88. Tunisia

91. Vietnam

106. Russia

120. India122. Brazil

178 countries

10 indicators

France: Overall business conditions (IFC)


59/83


France: Overall business conditions (IFC)

THAILAND: Overall business conditions (IFC)


60/83


THAILAND: Overall business conditions (IFC)

Heritage Foundation: Index of economic freedom


61/83


g

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 ofgovernment, the rule of law, regulatory burdens,restrictions on banks, labor market regulations,black market activities

Criteria of economic freedom


62/83


Criteria of economic freedom To measure economic freedom and rate each country, the

Indexis based on 50 independent economic variables within

10 broad categories of economic freedom:1. Trade policy,

2. Fiscal burden of government,

3. Government intervention in the economy,4. Monetary policy,

5. Capital flows and foreign investment,

6. Banking and finance,

7. Wages and prices,

8. Property rights,

9. Regulation, and

10. Black market activity

Heritage Foundation: 2008Economic Freedom Index(10 institutional and economic criteria)


63/83


Economic Freedom Index(10 institutional and economic criteria)

1. HongKong

2. Singapore

3. Irland

4. Australia

5. USA

6. New Zealand

7. Canada8. Chile

9. Switzerland

10. UK

13. Netherlands

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 economyculture + protectionist trading stances + persistent obstacles to foreign takeovers of domestic

companies+ sluggish growth + persistently high unemployment rate + stubborn budget deficit

Fraser Institute


64/83


Fraser Institute Since 1975

130 countries Annual Index of Economic Freedom in the world: reliable

measure of cross-country differences in economicfreedom, using third-party data to help ensure objectivity

Criteria: government quality, legal structure, security ofproperty rights, access to sound money, personal choice,freedom to exchange with foreigners and to compete in

markets, quality of regulations and institutionalstrength

Fraser Institutes Index of Economic Freedom


65/83

MH BOUCHET/CERAM-Global FinanceSource: http://www.fraserinstitute.ca/shared/readmore.asp?sNav=pb&id=852

H D l t I d


66/83


Human Development Index

HDI developed by UNDPA composite index measuring average

achievement in three basic dimensions of

human development-a long and healthy life,knowledge and a decent standard of living, asmeasured by real GDP per capita on a

purchasing power parity basis.

154. Haiti

155. Gambia

1. Norway

2. Iceland


67/83


UNDP

HDI

156. Senegal

157. Eritrea

158. Rwanda

159. Nigeria

160. Guinea

161. Angola

162. Tanzania, U. Rep. of

163. Benin

164. Cte d'Ivoire

165. Zambia166. 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

177. Niger

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

HDI- Life Expectancy 1970-2005


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HDI Life Expectancy 1970 20051970-75 2000-05

Norway 74.4 79.3

Iceland 74.3 80.6

Australia 71.7 80.2

Ireland 71.3 77.7

Sweden 74.7 80.1

Canada 73.2 79.9

Japan 73.3 81.9

United States 71.5 77.3

Switzerland 73.8 80.5

Netherlands 74.0 78.3

Finland 70.7 78.4

Luxembourg 70.7 78.4

Belgium 71.4 78.8

Austria 70.6 78.9

Denmark 73.6 77.1

France 72.4 79.4

Italy 72.1 80.0

United Kingdom 72.0 78.3

Spain 72.9 79.5

New Zealand 71.7 79.0

HDI- Life Expectancy 1970-2005
http://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_NOR.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_ISL.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_AUS.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_IRL.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_SWE.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_CAN.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_JPN.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_USA.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_CHE.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_NLD.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_FIN.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_LUX.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_BEL.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_AUT.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_DNK.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_FRA.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_ITA.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_GBR.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_ESP.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_NZL.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_NZL.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_ESP.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_GBR.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_ITA.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_FRA.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_DNK.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_AUT.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_BEL.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_LUX.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_FIN.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_NLD.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_CHE.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_USA.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_JPN.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_CAN.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_SWE.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_IRL.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_AUS.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_ISL.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_NOR.html


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e pecta cy 970 0051970-75 2000-05

Senegal 40.1 55.6

Eritrea 44.3 53.5

Rwanda 44.6 43.6

Nigeria 42.8 43.3

Guinea 39.3 53.6

Angola 37.9 40.7

Tanzania, U. Rep. of 49.5 46.0

Benin 47.0 53.8

Cte d'Ivoire 49.8 46.0

Zambia 50.2 37.4

Malawi 41.8 39.6

Congo, Dem. Rep. of the 46.0 43.1

Mozambique 40.7 41.9

Burundi 44.1 43.5

Ethiopia 43.5 47.6

Chad 40.6 43.6

Central African Republic 43.5 39.4

Guinea-Bissau 36.5 44.6

Burkina Faso 43.8 47.4

Mali 38.0 47.8

Sierra Leone 35.4 40.6

Ni er 38.4 44.3

COUNTRIES X & Y: A multi-index composite graph
http://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_SEN.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_ERI.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_RWA.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_NGA.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_GIN.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_AGO.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_TZA.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_BEN.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_CIV.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_ZMB.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_MWI.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_COD.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_MOZ.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_BDI.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_ETH.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_TCD.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_CAF.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_GNB.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_BFA.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_MLI.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_SLE.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_NER.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_NER.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_SLE.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_MLI.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_BFA.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_GNB.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_GNB.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_GNB.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_CAF.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_TCD.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_ETH.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_BDI.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_MOZ.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_COD.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_MWI.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_ZMB.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_CIV.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_BEN.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_TZA.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_AGO.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_GIN.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_NGA.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_RWA.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_ERI.htmlhttp://hdr.undp.org/hdr2006/statistics/countries/data_sheets/cty_ds_SEN.html


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0

20

40

60

80CPI

Euromoney

Competitiveness

Doing Business

Corruption

Ec. Freedom


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NSE Risk Rating

Rating covers about 100 developing countries

Objective: Market potential assessment for foreigninvestor

Means: Country risk rating issued once a yearMethodology: 4 parameters computed

Sovereign financial risk Financial market risk Political risk

Business environment risk

Nord Sud Export index


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Nord Sud Export index

Country risk ratings with 4 factors:Sovereign financial risks (public debtsovereign

default riskinconvertible risk)

Market financial risks (systemic and volatilit risksmastering of the macroeconomic fundamentalsdevaluation risks)

Political risks (external conflictsgovernment

stabilitysocial homogeneity)Business environment (FDIgood governance

labor conditions)


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NSE Rating Methodology

Each rating stems from weighted averageof 60 variables

43 qualitatives variables

17 qualitative variables

Each variable is graded from 0 (worst) to 7

(best)


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Exemple NSE Rating Procedure

Parameter 1: Sovereign financial risk

Factor 1 (weight 4/10):Public debt burden in theeconomy, computed from 6 quantitative variables

Factor 2 (weight 4/10):Sovereign default risk, from 4quantitative and 2 qualitative variables

Factor 3 (weight 2/10):Non convertibility risk,from 2 quantitatives and 1 quantitative variables

Nord Sud Export: export country risk


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No d Sud po t: e po t cou t y s

Risk classes Type of risk rate

7 Very low risk (eg:OCDE)

From 541 to 700

6 Low risk From 431 to 540

5 Moderate risk From 381 to 430

4 Rather high risk From 321 to 380

3 High risk From 271 to 320

2 Very high risk From 161 to 270

1 Dangerous risk From 1 to 160

Nord Sud Export: investment country


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S p yrisk

Export Investments

Sovereign risks

(15 criteria)

30% 10%

Market risks

(15 criteria)

40% 30%

Political risks(15 criteria)

10% 30%

Business environment

(15 criteria)

20% 30%


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Nord Sud Export: investment country


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p yrisk ratings

Hong-Kong: 7 Singapore: 7

Chile: 7

South Korea: 6 Malaysia: 6

Costa-Rica: 6

Mexico: 6 Egypt: 6

Mauritius: 6

Oman: 6

Myanmar: 2 Yemen: 2

Nigeria: 2

Irak:1 Republic of the Congo: 1

Kirghizstan: 1

Tadjikistan:1

Heritage Foundationestablished since 1985,

PricewaterhouseCooperss Opacity Index

The Institute forManagement


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in partnership with theWSJ, an economicfreedom index for some

160 countries, bothindustrialized anddeveloping. The rankingis based on ten socio-political and economic

criteria, includingpolitical stability, stateinterference, investmentcodes, regulatoryframework, institutionalstrength, and corruptionscope.

www.heritage.org

measures the lack ofclear, accurate, formaland widely accepted

practices in acountrys business

environment. As such,it focuses on therelative state of

corrupt businesspractices, thetransparence of the

legal system and thequality of the

regulatoryframework. It

measures the resultingextra risk premium

that stems fromadditional business

and economic costs.www.opacityindex.com/

Developments World

Competitiveness

Reportanalyses 49

industrialized andemerging economiesaround the world basedon a far-reaching surveysince 1989. Its analysis

of the institutionalframework addressesissues such as state

efficiency, transparencyof government policy,

public services

independence frompolitical interference,bureaucracy as well asbribery and corruption.

www.imd.ch

Freedom Housesince 1972monitors the progress and

The Political and

Economic Stability

Political and Economic

Risk Consultancy (PERC)
http://www.opacityindex.com/http://www.heritage.org/http://www.opacityindex.com/http://www.imd.ch/http://www.imd.ch/http://www.opacityindex.com/http://www.heritage.org/


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monitors the progress anddecline of political rightsand civil liberties in 192countries. FH publishes anannual survey of theProgress of Freedom in theworld. The ranking is basedon a wide survey of regionalexperts, consultants, and

human rights specialists.Political stability and civilliberties are ranked on ascale of 1 (best) to 7(worst).

www.freedomhouse.org/ratings/index.htm

Economic StabilityIndex of LehmanBrothers and Eurasiameasures relative stabilityin around 20 EMCs byintegrating politicalscience theories withfinancial marketsdevelopments. The

monthly evaluation usesboth quantitative andqualitative criteria,including institutionalefficiency, political

legitimacy, economicperformance, andgovernmenteffectiveness.www.legsi.com

Risk Consultancy(PERC)specializes in strategicbusiness information andanalysis in East andSoutheast Asia, withemphasis on corruption andbusiness costs. Annual riskreports survey over 1,000senior expatriates living in

to obtain their perceptionsof corruption, labor quality,intellectual property rightsrisks and other systemicshortcomings.

www.asiarisk.com

Business Environment

Ri k I t lli (BERI)Political Risk Servicesi k l

WORLD BANK: Given itsi li di l i h
http://www.freedomhouse.org/ratings/index.htmhttp://www.freedomhouse.org/ratings/index.htmhttp://www.legsi.com/http://www.asiarisk.com/http://www.asiarisk.com/http://www.legsi.com/http://www.freedomhouse.org/ratings/index.htmhttp://www.freedomhouse.org/ratings/index.htm


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Risk Intelligence(BERI)provides a Political RiskIndex assessing the social

and political environment ofa country. It is built on theopinion and scores providedby a hundred experts with a

diplomatic or politicalscience background.

Governance quality isincluded into political risk

analysis along withgovernment effectiveness

and social indicators.

http://www.beri.com

risk analyses cover ahundred countries and areupdated on a quarterly

basis. InternationalCountry Risk Guidemeasures and trackscorruption perception ingovernment, law andorder, expropriation risk,as well as the quality ofbureaucracy. Thesemeasures stem from thesubjective assessment ofexperts around the world.

http://www.prsgroup.com

unique policy dialogue withmore than 180 countries,

the Bankhas developed a

comprehensive database ofcomposite governanceindicators, measuring

perceptions of voice andaccountability, politicalstability, government

effectiveness, regulatoryquality, rule of law, and

corruption.www.worldbank.org/wbi/go

vernance/

The London-basedEconomist Intelligence

To look upon governanceand corruption, Moodys

Standard and Poorsrating approach is both
http://beri.com/http://prsgroup.com/http://www.worldbank.org/wbi/governance/http://www.worldbank.org/wbi/governance/http://www.worldbank.org/wbi/governance/http://www.worldbank.org/wbi/governance/http://prsgroup.com/http://beri.com/


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Unit(EIU) provides acomprehensive -year

forecasting country risk

analysis on some 100EMCs., on a quarterly basis.The EIU method flows fromexperts answers to a series

of 77 predetermined

qualitative and quantitativequestions.http://www.eiu.com

takes into considerationthe structures of socialinteraction, social and

political dynamics, aswell as the economicfundamentals. Moodys

relies on the judgment ofa group of credit risk

professionals to weighthe various risk factors aswell as the impact of each

of these factors uponbusiness prospects.

http://www.moodys.com

quantitative and qualitative.It is based on a checklist of

10 categories, including

governance and politicalrisk. The political riskfactors gauge the impact of

politics on economicconditions, as well as the

quality of governance andthe degree of governmentsupport in the population.

S&P assigns short term andlong-term ratings.

http://www.standardandpoors.com

Euromoneypublishesratings of some 180

Institutional Investorsratings are published

TransparencyInternational, a non-profit
http://eiu.com/http://www.moodys.com/http://standardandpoors.com/http://standardandpoors.com/http://standardandpoors.com/http://standardandpoors.com/http://www.moodys.com/http://eiu.com/


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countries since 1982 on asemi-annual basis. The

methodology is built from

a blend of quantitativecriteria and qualitativefactors coming from

surveys with about 40political analysts and

economists. Political riskreceives a 25% weighting,as much as economic

performance. Countries aregraded on scale from 0(worst) to 100 ( best).www.euromoney.com

twice a year since 1979to assess the

creditworthiness of about

150 countries, based on asurvey of some 100international bankers

perception ofcreditworthiness,

including economic,financial and socio-political stability criteria.

The resulting scorescales from zero (veryhigh chance of default)to 100 (least chance of

default).www.institutionalinvesto

r.com

non-governmentalorganization in Berlin,

provides an annual survey

of corruption practices innearly 90 countries since1995. The Corruption

Perception Index is basedon a wide network of

information sources withlocal NGOs, domestic andforeign corporations,

investors, and businesscontacts.

www.transparency.org
http://www.euromoney.com/http://www.institutionalinvestor.com/http://www.institutionalinvestor.com/http://www.transparency.org/http://www.transparency.org/http://www.institutionalinvestor.com/http://www.institutionalinvestor.com/http://www.euromoney.com/

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