Managing Country Risk in an Age of Globalization (eBook)
542 Seiten
Palgrave Macmillan (Verlag)
978-3-319-89752-3 (ISBN)
This book provides an up-to-date guide to managing Country Risk. It tackles its various and interlinked dimensions including sovereign risk, socio-political risk, and macroeconomic risk for foreign investors, creditors, and domestic residents. It shows how they are accentuated in the global economy together with new risks such as terrorism, systemic risk, environmental risk, and the rising trend of global volatility and contagion. The book also assesses the limited usefulness of traditional yardsticks of Country Risk, such as ratings and rankings, which at best reflect the market consensus without predictive value and at worst amplify risk aversion and generate crisis contamination. This book goes further than comparing a wide range of risk management methods in that it provides operational and forward-looking warning signs of Country Risk. The combination of the authors' academic and market-based backgrounds makes the book a useful tool for scholars, analysts, and practitioners.
Michel Henry Bouchet is currently Distinguished Finance Professor at SKEMA Business School as well as strategy adviser. He has held senior positions at BNP, the World Bank, and the Institute of International Finance. He also served as CEO of Owen Stanley Financial SA. and as senior adviser for ING Barings. Bouchet graduated in Economics from the University of Paris X and from the Paris Institut d'Etudes Politiques. He also holds a Master and Ph.D. in International Relations from University of South Carolina. He received his HDR from University Paris-Dauphine.
Charles A. Fishkin has held senior positions across the spectrum of financial services, spanning a career of 30 plus years. He led the first agency wide risk management program at the United States Securities and Exchange Commission, serving as the Director of the Office of Risk Assessment. He is the author of The Shape of Risk: A New Look at Risk Management (Palgrave 2006). He is an adjunct faculty in the Masters Program in Financial Engineering at Bernard M. Baruch College of The City University of New York. He has a BA in Economics, with General Honors, from The University of Chicago.Amaury Goguel is the scientific Director for the MSc Financial Management and Investment (FMI) program at SKEMA Business School in Paris. He was previously head of SKEMA's MSc in Corporate Financial Management (CFM). Goguel holds a Ph.D. in Economics from Lille University. He also holds master's degrees from the College of Europe (Bruges), Paris 1 Sorbonne, and Complutense University of Madrid. He served as a consultant on global finance, European affairs, and political parties.
Foreword by Tanya S. Beder 5
Contents 8
List of Figures 10
List of Tables 15
Managing Country Risk in an Age of Globalization: Introduction 19
1 Assessing Risk in a Global Economy 26
1.1Introduction 26
1.2What Is Risk? 26
1.2.1A Multifaceted Concept 26
1.2.2Risk, Uncertainty, and Ambiguity 27
1.2.3A Spectrum of Diverse Issues 30
1.2.4A Source of Loss and Gain 33
1.2.5The Effect on Other Outcomes 33
1.2.6A Function of Perspective 34
1.2.7Inherent Versus Residual Risk 34
1.2.8Risk Appetite 35
1.3What Is Risk Management? 38
1.3.1A Way of Thinking 38
1.3.2What Risk Management Requires 38
1.4Conclusion 40
References 43
2 What Is Country Risk? 45
2.1Introduction—The Discovery of Risk 45
2.2The Emergence of Risk Assessment 46
2.3Risk, Uncertainty, and Volatility 50
2.4What Is Country Risk All About? 53
2.5The Evolution in the Nature and Scope of Country Risk 55
2.6Defining Country Risk 65
2.7The Main Components of Country Risk 66
2.8How Does Country Risk Materialize? 70
2.9Is There an Optimal Institutional Organization for Country Risk Management? 72
2.10Conclusion 72
Appendix 2.1: Four Examples of Country Risk Exposure 73
References 75
3 Country Risk in the Age of Globalization: Cycles and Dynamics. A Review of Literature 77
3.1Introduction to the Main Approaches to Country Risk Analysis 77
3.1.1The Analysis of Country Risk Has Continuously Evolved 77
3.1.2The Scope of Country Risk Has Continuously Evolved 78
3.1.3Puzzling Over the Anatomy of Crises 79
3.1.4The Global Financial Crisis Has Changed the “Frame Analysis” 80
3.2Is Country Risk Prediction Doomed to Failure in the Age of Globalization? 82
3.2.1Quantitative Versus Qualitative Approach 83
3.3What About New Kind of Crises and New Related Indicators? 84
3.3.1Push Versus Pull Factors 84
3.3.2In the Long Run, We Are All Dead 87
3.4The Cyclic Nature of Crises Is Increasingly at the Heart of Country Risk Analysis 87
3.4.1Sources of Cycles 88
3.4.2Bunches of Defaults 88
3.4.3Amplifying Factors and Minsky Moment 89
3.4.4Recurrent Cyclic Patterns 91
3.4.5Vicious Spirals 92
3.4.6Distorted Incentives 93
3.5Additional Sources of Cycles and Volatility 94
3.5.1Prices and Exchange Rates 94
3.5.2Risk Appetite and Market Sentiment 95
3.5.3Commodities are also “Super-Cyclical” 95
3.5.4Real Estate Cycles and Global Impact 96
3.6Globalization and Country Vulnerabilities 99
3.6.1Holistic Perspective and Interactions 99
3.6.2Vulnerability Factors Identified by Scholars 99
3.6.3Tolerance and Resilience Factors 100
3.6.4“Communicating Vessels” Effect 100
3.7Structural Vulnerabilities 103
3.7.1Trade Vulnerabilities 103
3.7.2A Mix of Structural Weaknesses and Growth Bottleneck 104
3.8Developing Countries: Geometrically Variable Models 105
3.8.1Setting the Scene 105
3.8.2Inequalities and Wealth Gap 105
3.8.3Institutions and Governance 106
3.8.4The Paradox of Plenty 107
3.9Concluding Remarks 110
References 110
4 Country Risk Assessment: The Key Role of Official Information Sources 117
4.1Introduction: Assessing Uncertainty to Manage Risk 117
4.2The Key Sources of Country Risk-Related Economic Intelligence 119
4.3Official Sources of Country Risk Information: The National Institutions 120
4.3.1The Role of the Paris Club 120
4.3.2The Role of OECD Countries’ Export Credit Agencies 120
4.3.2.1 Compagnie Française D’Assurance et de Crédit à L’Exportation (Coface) 121
4.3.2.2 US Export-Import Bank (EXIM) 121
4.3.2.3 The Role of OECD Countries’ Central Banks and Treasuries 123
4.3.2.4 The Role of the Bank of Canada’s Comprehensive Debt Database 124
4.3.2.5 US Fed, US Treasury, Office of Financial Research, and FFIEC 124
4.3.2.6 The US Central Intelligence Agency 127
4.4Official Sources of Country Risk Information: The Multilateral Institutions 129
4.4.1The Role of the International Monetary Fund 130
4.4.2The Role of the World Bank Group 131
4.4.3The Role of the BIS in Providing International Bank Claims and Liabilities Data 136
4.4.4The Joint Aggregation Efforts of the BIS, the World Bank, the IMF, and the OECD 139
4.4.5The Role of Regional Development Banks 140
4.4.6UNDP and UNCTAD as Sources of Information Regarding Human Development, FDI, and International Trade 143
4.4.6.1 The United Nations Program for Development 143
4.4.6.2 The United Nations Conference for Trade and Development (UNCTAD) 145
4.5Databases from Scholars and Universities 147
4.6Conclusion 147
References 148
5 Country Risk Assessment: The Role of Private Sources of Market and Economic Intelligence 150
5.1Introduction: Economic Intelligence, Ratings and Models: Underlying Assumptions, Limitations, and Best Practices 150
5.2Model Deficiencies Justify Incorporating Economic and Human Intelligence 152
5.3The Growing Role of Quantitative Measures of Country Risk and the Limitations of Models 153
5.4The Pros and Cons of Country Risk Ratings 157
5.4.1Recurrent Pitfalls in the Methodology or Interpretation of Ratings 159
5.5Bond Ratings Agencies 161
5.5.1Moody’s Sovereign Default Research 162
5.5.2The Emergence of China’s Rating Agency Dagong 163
5.5.3A New Kid on the Credit Rating Block: INCRA? 164
5.5.4DBRS Rating Agency 165
5.6Country Risk Indices of Magazines 166
5.6.1Euromoney Country Risk (ECR) 166
5.6.2Institutional Investor Country Risk Scoring 167
5.7Ratings From Data Providers with Cross-Expertise: FTSE-Russell Indices, Beyond-Ratings, and Market Access 168
5.8Ratings from Think Tanks and Global Consultants 169
5.8.1Heritage Foundation 169
5.8.2The Cato Institute 170
5.8.3Brookings Institution 170
5.8.4A. T. Kearney: The FDI Confidence Index 172
5.8.5Marsh’s Political Risk Analysis Service 172
5.8.6IMD-Lausanne: World Competitiveness Index 173
5.8.7WEF Global Competitiveness Index 175
5.8.8Transparency International: The Corruption Perception Index 176
5.8.9The Economic Complexity Index (ECI) 176
5.8.10The Economic Policy Uncertainty Index 177
5.8.11The Fragile States Index (FSI) 177
5.9Commercial and Non-merchant Banks as Sources of Country Risk Intelligence 178
5.9.1The Institute of International Finance: The Global Banking Industry’s Country Risk Think Tank 178
5.9.2Citibank 179
5.9.3Natixis and Credit Agricole 180
5.9.4Blackrock Country Risk Index 180
5.9.5JP Morgan’s EMBI Global (Emerging Markets Bond Index) 182
5.9.6The MSCI’s Standard Index 182
5.9.7VIX CBOE and Skew Volatility Index 182
5.10The Role of Specialized Country Risk Assessment Companies 183
5.10.1TAC Economics 183
5.10.2The Political Risk Services (PRS) and the International Country Risk Guide (ICRG) 183
5.10.3The Economic Intelligence Unit (EIU) 185
5.10.4Eurasia Group 185
5.11Conclusion 186
References 186
6 Volatility, Spillovers, and Crisis Contamination: The New Dynamics of Country Risk Since the 1980s and 90s in the Globalized Market Economy 189
6.1The Lack of Domestic Savings Can Lead to a Balance of Payment Crisis. How Do You Identify This Condition? 189
6.1.1Relationship Between Savings and Investments 189
6.1.2Consequences of Savings and Investments Misalignment 191
6.1.3What Explains the Link Between a Country’s Lack of Domestic Savings and Dependency on External Capital? 192
6.1.4To Keep in Mind 196
6.1.5Current Account Interpretation 198
6.1.6The Role of Investments 199
6.2The Rate of Savings Determines a Country’s Capital Inflows or Outflows. But What About Their Allocation? 201
6.2.1Implications of Imperfect Exchange Rate Adjustment? 202
6.2.2Investment Strategies with Self-Fulfilling Effects 202
6.3Which Instruments Can Be Used to Measure a Country’s Vulnerability to Carry-Trade Activities? 205
6.4Driving Forces of Current Instability and Global International Capital Flows 206
6.4.1What Drives Global Liquidity? 207
6.4.2Where Does the Global Liquidity Cycle Originate? 208
6.4.3How Can the Recipient Countries Manage Exposure to Global Liquidity? 208
6.4.4To Keep in Mind 211
6.5From Net to Gross Capital Flows 213
6.6The Asymmetric Monetary System Exacerbates Country Risk for the Most Fragile Countries 214
References 226
7 Fragility and Vulnerability of Integrated Areas 229
7.1Pegged Exchange Rates Introduce New Sources of Vulnerability 229
7.1.1Many Exchange Rate Regimes Coexist 229
7.1.2Exchange Rate Operations Introduce Sources of Vulnerability 230
7.1.3Risk of Speculative Attack 232
7.1.4What Happens When Domestic and Foreign Assets Become Imperfect Substitutes? 232
7.1.5Risks and Constraints of Central Bank Intervention 233
7.1.6What Usually Causes Investors’ Expectations to Change? 234
7.1.7Inconsistent Policies 234
7.1.8Beyond “Conventional Wisdom” 235
7.2The Balance of Payment Distress Can also Be Rooted in a “Twin Crisis” 236
7.2.1How to Identify a “Twin Crisis?” 236
7.2.2Which Exchange Rate Indicators May Be Informative? 237
7.2.3Which Are the Main Scenarios of Twin Crises? 238
7.3Are Fully Integrated Monetary Areas More Vulnerable to a Balance of Payment Crisis? 239
7.3.1Where Does the Risk Arise? 240
7.3.2How Do You Estimate the Risk of a Balance of Payment Crisis in Integrated Areas? 241
7.4Dangerous Feedback Loops Between Sovereign and Private Economic Actors 242
7.5Volatile Private Capital Outflows: How Do You Spot the Sudden Stop of Capital Flows in a Single Currency Area? 243
7.6Does the Uneven Spread of Liquidity Within a Monetary Area Increase a Country’s Risk? 244
7.7Monetary Area Fragility to External Shocks and the Risk of Contagion 245
7.7.1Monetary Area Fragility 245
7.7.2Risk of Asymmetric Shocks 246
7.8Fragile Economic Design of Single Currency Area 249
7.8.1The New Impossible Trinity 249
7.8.2Specific Systemic Risk 251
7.9Conclusion 258
References 258
8 At the Root of Country Risk: The Balance of Payments from Liquidity to Solvency Crisis 261
8.1Introduction: The Challenge of Balance of Payments Data Availability 261
8.2Interpreting the Balance of Payments 264
8.2.1Current Account and Demand-Supply Imbalance 264
8.2.2Current Account and Domestic Policy Measures 271
8.2.3Exchange Rate Devaluation 271
8.3Conclusion 284
References 284
9 Root Causes and Consequences of Political Risk: Defining Political Risk and Its Various Dimensions 286
9.1Introduction: The Rising Importance of Political Risk 286
9.2Defining Political Risk 290
9.3Political Turbulence in the Age of Globalization 291
9.4The Root Causes of Sociopolitical Instability 295
9.5Where Does Social Turbulence Come from? 297
9.6Conclusion 300
Appendix 9.1: Ratings of Tunisia’s Sovereign Risk 1994–2017 306
References 306
10 The Root Causes and Consequences of Political Risk: From Bad Governance to Wealth and Political Power Concentration and Social Instability 309
10.1Introduction 309
10.2The Role of Governance in Stimulating Inclusive Growth and Stabilizing Sociopolitical Systems 309
10.2.1From economic growth to sustainable and inclusive development? 310
10.2.2The crucial role of governance in transforming growth into development 311
10.3The Centrifugal Forces of Market Globalization 312
10.4The Relationship Between Corruption, Business Conditions, Income Distribution, and Sociopolitical Instability 313
10.4.1Corruption and Domestic Business Conditions 314
10.4.2The Combination of Corruption, Income Inequality, and Political Risk 316
10.5The Role of Democratic, Legal, and Regulatory Systems 319
10.6Assessing the Risks of Sociopolitical Destabilization? Hard Data Versus Subjective Analysis 322
10.6.1The Prince Model 322
10.6.2Macro-Political Economy Analysis 323
10.6.3Rating Agencies 325
10.6.4Specialized Political Risk Ratings 329
10.7Conclusion 330
Appendix 10.2 Concise Survey of Academic Literature Regarding the Relationships Between Country Risk Stability, Institutions, Democracy, and Socioeconomic Development 330
References 336
11 Why Emerging Markets Do Not Hold a Monopoly on Country Risk in the Twenty-First Century: An Analysis of Monetary and Systemic Risks in the OECD and in the Euro-Zone 339
11.1Introduction 339
11.2Is the Threat of Secular Stagnation in the OECD Only an Academic Assumption? 340
11.3The Main Structural Causes of Weaker Economic Growth in Developed Countries: The Role of Productivity Growth 342
11.4The Consequence of Weaker Economic Growth on Country Risk 345
11.5To What Extent Does the EU’s Maastricht Treaty Create a Socioeconomic Policy Straightjacket? 346
11.6Could Europe’s Debt and Budget Ratio Targets Become Sources of Country Risk? 348
11.7Shrinking Growth Rates and Rising Debt Levels: The Trap Risk 349
11.8The Consequences of Quantitative Easing Programs on Country Risk in Developed Countries and in the Global Economy 351
11.9Country Risk and the “Liquidity Glut” Challenge 357
11.10The Mix of Consequences of Expansionary Monetary Policy on Growth Prospects 358
11.11Conclusion: The Stubborn Challenge of Identifying Crisis Signals in Developed Countries 359
Appendix 11.1 The Maastricht Treaty’s Convergence Criteria in the Euro-Zone 366
References 367
12 Country Risk and External Debt Sustainability 370
12.1Introduction. Living Beyond One’s Means with a Current Account Deficit: How Much Is Too Much? 370
12.2Gross Versus Net Capital Inflows and External Financing Requirements 373
12.3Sources of Reliable Data Regarding Flows and Debt Indicators 375
12.4Liquidity and Solvency Indicators 375
12.5The Debt Crisis Threshold Issue: Is There Life Beyond 90% Debt/GDP? 377
12.6Measuring the “Real” Debt Burden on Economic Growth 379
12.7Analyzing the Various Triggers of a Country’s Debt Crisis 381
12.8Debt Structures, Risk of Mismatch, and Solvency 384
12.9The Challenge of External Debt Sustainability Analysis 386
12.10The Relationship Between External Indebtedness and Economic Growth 388
12.10.1Capacity Versus Willingness to Meet Debt Payment Obligations 388
12.10.2Providing Liquidity or Solvency Relief? 391
12.11No Silver Bullets for Debt Restructuring Workouts: Rescheduling, Refinancing, Debt Conversion, or Debt Reduction? 393
12.12Where Will the Next Crisis Come From? 397
12.13Summing Up and Conclusion 398
Appendix 12.1: The Relationship Between GDP Growth Rate and the Debt/GDP Ratio 400
Appendix 12.2: The “Odious Debt” Concept 401
Appendix 12.3: The Paris Club of Official Creditors 401
References 402
13 In Search of Early Warning Signals of Country Risk: Focusing on Market Price Signals 405
13.1Introduction: Looking for a Range of Warning Indicators of Upcoming Country Crisis for Predicting the Uncertain 405
13.2Looking for the Canary in the Coal Mine 407
13.2.1Expecting Risk Signals from Credit Rating Agencies 408
13.2.2Expecting Risk Signals from Stock Market Prices 412
13.2.3Balance of Payments and Debt Ratios 413
13.2.4Country’s Debt Structure 414
13.2.5Capital Markets’ Yield Volatility 415
13.2.6What About Country Risk Signals from CDS? 417
13.2.7Is the VIX a Reliable Signal of Risk Increase? 420
13.3Conclusion 422
References 428
14 In Search of Early Warning Signals of Country Risk: Focusing on Capital Flight 430
14.1Introduction: Observing Domestic Residents’ Risk Hedging Strategy 430
14.2So What Should We Do? 431
14.3The Renewed Interest in Private Capital Outflows 433
14.4Private Capital Outflows and Corruption: Unsuspected Bedfellows? 436
14.5Focus on Analysis and Data Sources 442
14.5.1Defining the Dependent Variable 442
14.5.2The Key Explanatory Variables for Stimulating Capital Flight 443
14.6Where Does Capital Flight Come from? 444
14.7Conclusion 445
Appendix 14.1: Empirical Analysis of the Relationship Between Corruption and Overseas Private Bank Deposits 454
References 455
15 Country Risk Mitigation Strategies 460
15.1Introduction 460
15.2Identifying Country Risk Exposure 460
15.3Ways to Mitigate Country Risk 464
15.4Traditional Approaches 464
15.4.1Analysis and Economic Intelligence 465
15.4.2Credit Risk Assessment 465
15.4.3Scenarios 465
15.4.4Risk Limits 465
15.4.5Risk Diversification 466
15.5Market’s Risk Mitigation Devices: Credit Default Swaps, Collateral, and Master Netting Agreements 466
15.5.1Credit Default Swaps (CDS) 466
15.5.2Collateral or Performance Assurance 467
15.5.3Master Netting Agreements 467
15.6Cofinancing and Guarantee Operations 468
15.6.1Cofinancing Operations 468
15.6.2Guarantees 470
15.7The Risk Mitigation Objectives of Regional Development Banks: The Role of the Asian Development Bank (ADB) 473
15.8Bilateral Guarantee of OECD Countries 474
15.9The Country Risk Mitigation Role of the Multilateral Investment Guarantee Agency (MIGA) 476
15.10The Role of National Risk Guarantee Agencies: The Overseas Private Investment Corporation 477
15.11Export Credit Agencies (ECAs) 478
15.11.1US Export Guarantee Program 478
15.11.2Compagnie Française d’Assurance pour le Commerce Extérieur (Coface) 478
15.11.3The Berne Union and Export Credit Agencies (ECAs) 479
15.12Dispute Resolution 480
15.13Brady Plan 480
15.14Political Risk Mitigation 481
15.15Conclusion 482
Appendix 15.1 Best Practices for Mitigating Risk in FX Transactions 485
References 486
16 Glossary: The 200 Most Important Terms and Concepts for Country Risk Management 488
Country Risk: By Way of Conclusion 517
Afterword by Florencio de Silanes 523
Index 526
| Erscheint lt. Verlag | 4.8.2018 |
|---|---|
| Sprache | englisch |
| Themenwelt | Wirtschaft ► Betriebswirtschaft / Management ► Finanzierung |
| Wirtschaft ► Betriebswirtschaft / Management ► Unternehmensführung / Management | |
| ISBN-10 | 3-319-89752-7 / 3319897527 |
| ISBN-13 | 978-3-319-89752-3 / 9783319897523 |
| Haben Sie eine Frage zum Produkt? |
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