Country risk assessment methodology

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Methodology

The Euromoney country risk assessment uses nine categories that fall intothree broad groups: analytical indicators, credit indicators and market indicators. The weighted scores are calculated as follows: the highest score in each category receives the full mark for the weighting; the lowest receives zero. In between, figures are calculated according to the formula: Final score = weighting/(maximum score ­ minimumscore) x (score­ minimum score). The country risk ranking shows only the final scores after weighting. The categories are: * Economic data (25% weighting). Taken from the Euromoney global economic projections 1996­ 97 (see page **). Each country scores the average of the evaluations for 1996 and 1997. * Political risk (25%). Euromoney polled risk analysts, risk insurance brokers and bank credit officers. They were asked to give each country a score of between zero and 10. A score of 10 indicates no risk of non-payment; zero indicates that there is no chance of payments being made. Countries were scored in comparison both with each other and with previous years. Country risk was defined as the risk of non-payment or non-servicing of paymentfor goods or services, loans, trade-related finance and dividends, and the non-repatriation of capital. This category does not reflect the creditworthinessof individual counterparties in any country. * Debt indicators (10%). Scores are calculated using thefollowing ratios from the World Bank World Debt Tables 1995-96: debtservice to exports (A); current-account balance to GNP (B); external debt to GNP(C). Figures are the latest available, mostly for 1993. Scores are calculated bythe formula: C+(Ax2)­(Bx10). The higher the score, the better. Because of the lack of consistent economic data for OECD and richoil-producing countries, these score full points with the exception of Developing countries that do not report debt data to the World Bank score zero. * Debt in default or rescheduled (10%).
A score of between zero and 10 based on the amount of debt in default or that has been rescheduled over the past three years. Ten equals no non-payments; zero, all in default or rescheduled. Scores are based on the World Bank World Debt Tables 1995-96 and Euromoney estimates for countries which do not report under the debtor reporting system (DRS). * Credit ratings (10%). The average of sovereign ratings from Moody's, Standard & Poor's and IBCA. * Access to bank finance (5%). Calculated from disbursements of private, long-term, unguaranteed loans as a percentage of GNP. OECD countries which do not report under the debtor reporting system (DRS) score 5. Source:World Bank World Debt Tables 1995-96.* Access to short-term finance (5%). Scores are calculated takinginto account coverage available from US Exim Bank, NCM UK and ECGD and membership of OECD consensus groups. * Access to international bond and syndicated loan markets (5%). Reflects Euromoney'sanalysis of how easily the country might
tap the markets now, based largely on issues since January 1995. A score of five means no problem whatsoever; four, no problem on 95% of occasions; three, usually no problem; two, possible (depending on conditions); one, just possible in some circumstances; zero, impossible. * Access to and discount on forfaiting (5%). Reflects the averagemaximum tenor available and the forfaiting spread over riskless countries such asthe US, based on the average maximum tenor minus the spread. Countries for which forfaiting is not available score nothing. Data were supplied by Morgan Grenfell Trade Finance, West Merchant Bank, the London Forfaiting Company, Standard Bank and ING Capital.

Economic projections

Euromoney received replies from 20 economists at leading financial and economic institutions. They gave each country's economic performance a score out of 100, after making comparisons between countries and years. The world's fastest-growing, best-performing economy in an ideal year would score 100; the worst economy in a disastrous year would score zero. The economists were asked to look at sustained economic growth, monetary stability, current-account/budget deficit or surplus, unemployment andstructural imbalances. Respondents also gave their forecasts of real GNP growth for calendar years1996 and 1997. The scores in the ranking are the average of those forecasts. Our thanks go to the 35 political analysts and economists who took part inour economic projections and political risk survey. Those who did not wish to remain anonymous were:

R Bakhoven, ABN Amro Hoare Govett; P Papadopoulos, Arab Banking Corp; IColhoun, Bain & Co; S Mok, Bank of East Asia; G Seyler, Banque et Caissed'Epargne de l'Etat; R Shields, Chase Manhattan Bank; A Astrow, EconomistIntelligence Unit; D Perkins, Harvard University; H Weidum, Kredietbank; GHardouvelis, National Bank of Greece; D Kern, National Westminster Bank; TShigeoka, Nomura Research Institute; E Gelbard, Royal Bank of Canada; A Walde,Sal Oppenheim; W Molano, SBC Warburg; Y Miyakawa, Sumitomo Bank; H von derGroeben, Svenska Handelsbanken; H Fromlet, Swedbank