ICRG Methodology (available at http://www.prsgroup.com/ICRG_Methodology.

aspx International Country Risk Guide The International Country Risk Guide (ICRG) rating comprises 22 variables in three subcategories of risk: political, financial, and economic. A separate index is created for each of the subcategories. The Political isk index is based on !"" points, #inancial isk on $" points, and %conomic isk on $" points. The total points from the three indices are divided b& t'o to produce the 'eights for inclusion in the composite countr& risk score. The composite scores, ranging from (ero to !"", are then broken into categories from )er& *o' isk (+" to !"" points) to )er& ,igh isk ((ero to -... points). The Political isk ating includes !2 'eighted variables covering both political and social attributes. ICRG advises users on means of adapting both the data and the 'eights in order to focus the rating on the needs of the particular investing firm. ICRG incorporates a /T&pe 00/ forecast (see 1hapter !, 0ntroduction, of P 2 textbook The Handbook of Country and Political Risk Analysis) in 'hich its experts provide a current assessment, a one3&ear assessment, and a five3 &ear assessment. The pro4ections of future conditions are framed in /best/ case and /'orst/ case scenarios. This provides managers 'ith a probabilistic future in 'hich to make 4udgments about risk management or insurance needs. 1ountr& anal&ses in ICRG include descriptive assessments and economic data (listed on this site under /,istorical Anal&ses/). ICRG provides ratings for !-" countries on a monthl& basis, and for an additional 25 countries on an annual basis under a different title. ---Llewellyn D. Howell, Ph.D.

!ac"grou#d o$ the ICRG Rati#g %ystem The ICRG model for forecasting financial, economic, and political risk 'as created in !.+" b& the editors of 0nternational eports, a 'idel& respected 'eekl& ne'sletter on international finance and economics. To meet the needs of clients for an in3depth and exhaustivel& researched anal&sis of the potential risks to international business operations, the editors created a statistical model to calculate risks and backed it up 'ith anal&ses that explain the numbers and examine 'hat the numbers do not sho'. The result is a comprehensive s&stem that enables various t&pes of risk to be measured and compared bet'een countries. 0n !..2, ICRG, its editor and anal&sts moved from 0nternational eports to The P 2 6roup, becoming

an integral part of the compan&7s services to the international business communit&. 0n 2eptember 2""!, P 2 launched ICRG online. 8ne advantage of the ICRG model is that it allo's users to make their o'n risk assessments based on the ICRG model or to modif& the model to meet their specific re9uirements. 0f particular risk factors have greater bearing on business or investments, composite risk ratings can be recalculated b& giving greater 'eight to those factors. :sed b& institutional investors, banks, multinational corporations, importers, exporters, foreign exchange traders, shipping concerns, and a multitude of others, the ICRG model can determine ho' financial, economic, and political risk might affect their business and investments no' and in the future. The s&stem is based on a set of 22 components grouped into three ma4or categories of risk: political, financial, and economic, 'ith political risk comprising !2 components (and !$ subcomponents), and financial and economic risk each comprising five components. %ach component is assigned a maximum numerical value (risk points), 'ith the highest number of points indicating the lo'est potential risk for that component and the lo'est number (") indicating the highest potential risk. The maximum points able to be a'arded to an& particular risk component is pre3set 'ithin the s&stem and depends on the importance ('eighting) of that component to the overall risk of a countr&. The ICRG staff collects political information and financial and economic data, converting these into risk points for each individual risk component on the basis of a consistent pattern of evaluation. The political risk assessments are made on the basis of sub4ective anal&sis of the available information, 'hile the financial and economic risk assessments are made solel& on the basis of ob4ective data. 0n addition to the 22 individual ratings, the ICRG model also produces a rating for each of the three risk factor groups plus an overall score for each countr&. After a risk assessment (rating) has been a'arded to each of the 22 risk components, the components 'ithin each categor& of risk are added together to provide a risk rating for each risk categor& (Political, #inancial, or %conomic). The risk ratings for these categories are then combined on the basis of a formula to provide the countr&7s overall, or composite, risk rating. As 'ith the risk component ratings, the higher the rating computed for the political, financial, economic, or composite rating, the lo'er the risk, and vice versa. 1onse9uentl&, the ICRG s&stem presents a comprehensive risk structure for the countr& 'ith ratings for its overall, or composite, risk, for its political, financial, and economic risk and for the risk components that make up these broad risk categories. This approach enables the user to track the effect of a single risk component, or group of components, on the overall risk of a countr&.

0n addition, ICRG also produces the information and data on 'hich the ratings for the individual risk components are determined, together 'ith its interpretation of that information or data. This enables the user of the s&stem to balance his;her o'n interpretation of the information and data against that of the ICRG staff. Back to Top

&he 'olitical Ris" Rati#g The aim of the political risk rating is to provide a means of assessing the political stabilit& of the countries covered b& ICRG on a comparable basis. This is done b& assigning risk points to a pre3set group of factors, termed political risk components. The minimum number of points that can be assigned to each component is (ero, 'hile the maximum number of points depends on the fixed 'eight that component is given in the overall political risk assessment. 0n ever& case the lo'er the risk point total, the higher the risk, and the higher the risk point total the lo'er the risk. To ensure consistenc&, both bet'een countries and over time, points are assigned b& ICRG editors on the basis of a series of pre3set 9uestions for each risk component. &() '*+I&IC,+ RI%- C*M'*.).&% / &able 0! The follo'ing risk components, 'eights, and se9uence are used to produce the political risk rating: POLITICAL RISK COMPONENTS %e1ue# Compo#e#t 'oi#ts ce (max. A 6overnment 2tabilit& !2 < 2ocioeconomic 1onditions !2 1 0nvestment Profile !2 = 0nternal 1onflict !2 % %xternal 1onflict !2 # 1orruption 5 6 >ilitar& in Politics 5 , eligious Tensions 5 0 *a' and 8rder 5 ? %thnic Tensions 5 @ =emocratic Accountabilit& 5 * <ureaucrac& Aualit& Total !""

Gover#me#t %tability / 23 'oi#ts This is an assessment both of the government7s abilit& to carr& out its declared program(s), and its abilit& to sta& in office. The risk rating assigned is the sum of three subcomponents, each 'ith a maximum score of four points and a minimum score of " points. A score of - points e9uates to )er& *o' isk and a score of " points to )er& ,igh isk. The subcomponents are:

6overnment :nit& *egislative 2trength Popular 2upport

%ocioeco#omic Co#ditio#s / 23 'oi#ts This is an assessment of the socioeconomic pressures at 'ork in societ& that could constrain government action or fuel social dissatisfaction. The risk rating assigned is the sum of three subcomponents, each 'ith a maximum score of four points and a minimum score of " points. A score of - points e9uates to )er& *o' isk and a score of " points to )er& ,igh isk. The subcomponents are:

:nemplo&ment 1onsumer 1onfidence Povert&

I#vestme#t 'ro$ile / 23 'oi#ts This is an assessment of factors affecting the risk to investment that are not covered b& other political, economic and financial risk components. The risk rating assigned is the sum of three subcomponents, each 'ith a maximum score of four points and a minimum score of " points. A score of - points e9uates to )er& *o' isk and a score of " points to )er& ,igh isk. The subcomponents are:

1ontract )iabilit&;%xpropriation Profits epatriation Pa&ment =ela&s

I#ter#al Co#$lict / 23 'oi#ts This is an assessment of political violence in the countr& and its actual or potential impact on governance. The highest rating is given to those countries 'here there is no armed or civil opposition to the government

and the government does not indulge in arbitrar& violence, direct or indirect, against its o'n people. The lo'est rating is given to a countr& embroiled in an on3going civil 'ar. The risk rating assigned is the sum of three subcomponents, each 'ith a maximum score of four points and a minimum score of " points. A score of - points e9uates to )er& *o' isk and a score of " points to )er& ,igh isk. The subcomponents are:

1ivil Bar;1oup Threat Terrorism;Political )iolence 1ivil =isorder

)xter#al Co#$lict / 23 'oi#ts The external conflict measure is an assessment both of the risk to the incumbent government from foreign action, ranging from non3violent external pressure (diplomatic pressures, 'ithholding of aid, trade restrictions, territorial disputes, sanctions, etc) to violent external pressure (cross3border conflicts to all3out 'ar). %xternal conflicts can adversel& affect foreign business in man& 'a&s, ranging from restrictions on operations to trade and investment sanctions, to distortions in the allocation of economic resources, to violent change in the structure of societ&. The risk rating assigned is the sum of three subcomponents, each 'ith a maximum score of four points and a minimum score of " points. A score of - points e9uates to )er& *o' isk and a score of " points to )er& ,igh isk. The subcomponents are:

Bar 1ross3<order 1onflict #oreign Pressures

Corruptio# / 4 'oi#ts This is an assessment of corruption 'ithin the political s&stem. 2uch corruption is a threat to foreign investment for several reasons: it distorts the economic and financial environmentC it reduces the efficienc& of government and business b& enabling people to assume positions of po'er through patronage rather than abilit&C and, last but not least, introduces an inherent instabilit& into the political process. The most common form of corruption met directl& b& business is financial corruption in the form of demands for special pa&ments and bribes connected 'ith import and export licenses, exchange controls, tax

assessments, police protection, or loans. 2uch corruption can make it difficult to conduct business effectivel&, and in some cases ma& force the 'ithdra'al or 'ithholding of an investment. Although our measure takes such corruption into account, it is more concerned 'ith actual or potential corruption in the form of excessive patronage, nepotism, 4ob reservations, Dfavor3for3favorsD, secret part& funding, and suspiciousl& close ties bet'een politics and business. 0n our vie' these insidious sorts of corruption are potentiall& of much greater risk to foreign business in that the& can lead to popular discontent, unrealistic and inefficient controls on the state econom&, and encourage the development of the black market. The greatest risk in such corruption is that at some time it 'ill become so over'eening, or some ma4or scandal 'ill be suddenl& revealed, as to provoke a popular backlash, resulting in a fall or overthro' of the government, a ma4or reorgani(ing or restructuring of the countr&Ds political institutions, or, at 'orst, a breakdo'n in la' and order, rendering the countr& ungovernable. Military i# 'olitics / 4 'oi#ts The militar& is not elected b& an&one. Therefore, its involvement in politics, even at a peripheral level, is a diminution of democratic accountabilit&. ,o'ever, it also has other significant implications. The militar& might, for example, become involved in government because of an actual or created internal or external threat. 2uch a situation 'ould impl& the distortion of government polic& in order to meet this threat, for example b& increasing the defense budget at the expense of other budget allocations. 0n some countries, the threat of militar& take3over can force an elected government to change polic& or cause its replacement b& another government more amenable to the militar&7s 'ishes. A militar& takeover or threat of a takeover ma& also represent a high risk if it is an indication that the government is unable to function effectivel& and that the countr& therefore has an uneas& environment for foreign businesses. A full3scale militar& regime poses the greatest risk. 0n the short term a militar& regime ma& provide a ne' stabilit& and thus reduce business risks. ,o'ever, in the longer term the risk 'ill almost certainl& rise, partl& because the s&stem of governance 'ill be become corrupt and partl& because the continuation of such a government is likel& to create an armed opposition. 0n some cases, militar& participation in government ma& be a s&mptom rather than a cause of underl&ing difficulties. 8verall, lo'er risk ratings

indicate a greater degree of militar& participation in politics and a higher level of political risk. Religious &e#sio#s / 4 'oi#ts eligious tensions ma& stem from the domination of societ& and;or governance b& a single religious group that seeks to replace civil la' b& religious la' and to exclude other religions from the political and;or social processC the desire of a single religious group to dominate governanceC the suppression of religious freedomC the desire of a religious group to express its o'n identit&, separate from the countr& as a 'hole. The risk involved in these situations range from inexperienced people imposing inappropriate policies through civil dissent to civil 'ar. +aw a#d *rder / 4 'oi#ts *a' and 8rder are assessed separatel&, 'ith each sub3component comprising (ero to three points. The *a' sub3component is an assessment of the strength and impartialit& of the legal s&stem, 'hile the 8rder sub3 component is an assessment of popular observance of the la'. Thus, a countr& can en4o& a high rating E F E in terms of its 4udicial s&stem, but a lo' rating E ! E if it suffers from a ver& high crime rate of if the la' is routinel& ignored 'ithout effective sanction (for example, 'idespread illegal strikes). )th#ic &e#sio#s / 4 'oi#ts This component is an assessment of the degree of tension 'ithin a countr& attributable to racial, nationalit&, or language divisions. *o'er ratings are given to countries 'here racial and nationalit& tensions are high because opposing groups are intolerant and un'illing to compromise. ,igher ratings are given to countries 'here tensions are minimal, even though such differences ma& still exist. 5emocratic ,ccou#tability / 4 'oi#ts This is a measure of ho' responsive government is to its people, on the basis that the less responsive it is, the more likel& it is that the government 'ill fall, peacefull& in a democratic societ&, but possibl& violentl& in a non3democratic one. The points in this component are a'arded on the basis of the t&pe of governance en4o&ed b& the countr& in 9uestion. #or this purpose, 'e have defined the follo'ing t&pes of governance: ,lter#ati#g 5emocracy The essential features of an alternating democrac& are:

A government;executive that has not served more than t'o successive terms, #ree and fair elections for the legislature and executive as determined b& constitution or statute, The active presence of more than one political part& and a viable opposition, %vidence of checks and balances among the three elements of government: executive, legislative and 4udicial, %vidence of an independent 4udiciar&, %vidence of the protection of personal liberties through constitutional or other legal guarantees.

5omi#ated 5emocracy The essential features of a dominated democrac& are:

A government;executive that has served more than t'o successive terms, #ree and fair elections for the legislature and executive as determined b& constitution or statute, The active presence of more than one political part&, %vidence of checks and balances bet'een the executive, legislature, and 4udiciar&, %vidence of an independent 4udiciar&, %vidence of the protection of personal liberties.

5e 6acto *#e7'arty %tate The essential features of a de facto one3part& state are:

A government;executive that has served more than t'o successive terms, or 'here the political;electoral s&stem is designed or distorted to ensure the domination of governance b& a particular government;executive, ,olding of regular elections as determined b& constitution or statute, %vidence of restrictions on the activit& of non3government political parties (disproportionate media access bet'een the governing and non3governing parties, harassment of the leaders and;or supporters of non3government political parties, the creation of impediments and obstacles affecting onl& the non3government political parties, electoral fraud, etc).

5e 8ure *#e7'arty %tate The identif&ing feature of a one3part& state is:

A constitutional re9uirement that there be onl& one governing part&, *ack of an& legall& recogni(ed political opposition.

,utarchy The identif&ing feature of an autarch& is:

*eadership of the state b& a group or single person, 'ithout being sub4ect to an& franchise, either through militar& might or inherited right.

0n an autarch&, the leadership might indulge in some 9uasi3democratic processes. 0n its most developed form this allo's competing political parties and regular elections, through popular franchise, to an assembl& 'ith restricted legislative po'ers (approaching the categor& of a de 4ure or de facto one3part& state). ,o'ever, the defining feature is 'hether the leadership, i.e. the head of government, is sub4ect to election in 'hich political opponents are allo'ed to stand. 0n general, the highest number of risk points (lo'est risk) is assigned to Alternating =emocracies, 'hile the lo'est number of risk points (highest risk) is assigned to Autarchies. !ureaucracy 9uality / : 'oi#ts The institutional strength and 9ualit& of the bureaucrac& is another shock absorber that tends to minimi(e revisions of polic& 'hen governments change. Therefore, high points are given to countries 'here the bureaucrac& has the strength and expertise to govern 'ithout drastic changes in polic& or interruptions in government services. 0n these lo'3 risk countries, the bureaucrac& tends to be some'hat autonomous from political pressure and to have an established mechanism for recruitment and training. 1ountries that lack the cushioning effect of a strong bureaucrac& receive lo' points because a change in government tends to be traumatic in terms of polic& formulation and da&3to3da& administrative functions. ,%%)%%I.G '*+I&IC,+ RI%0n general terms if the points a'arded are less than $"G of the total, that component can be considered as ver& high risk. 0f the points are in the $"3 5"G range it is high risk, in the 5"G3H"G range moderate risk, in the H"3 +"G range lo' risk and in the +"3!""G range ver& lo' risk. ,o'ever, this is onl& a general guideline as a better rating in other components can compensate for a poor risk rating in one component. 8verall, a political risk rating of "."G to -...G indicates a )er& ,igh iskC $"."G to $...G ,igh iskC 5"."G to 5...G >oderate iskC H"."G to H...G *o' iskC and +"."G or more )er& *o' isk. 8nce again, ho'ever, a poor political risk rating can be compensated for b& a better financial and;or economic risk rating.

Back to Top

&he )co#omic Ris" Rati#g The overall aim of the %conomic isk ating is to provide a means of assessing a countr&7s current economic strengths and 'eaknesses. 0n general terms 'here its strengths out'eigh its 'eaknesses it 'ill present a lo' economic risk and 'here its 'eaknesses out'eigh its strengths it 'ill present a high economic risk. These strengths and 'eaknesses are assessed b& assigning risk points to a pre3set group of factors, termed economic risk components. The minimum number of points that can be assigned to each component is (ero, 'hile the maximum number of points depends on the fixed 'eight that component is given in the overall economic risk assessment. 0n ever& case the lo'er the risk point total, the higher the risk, and the higher the risk point total, the lo'er the risk. To ensure comparabilit& bet'een countries the components are based on accepted ratios bet'een measured data 'ithin the national economic;financial structure. 0t is the ratios that are compared, not the data themselves. The points assigned to each component (ratio) are taken from a fixed scale. ,%%)%%I.G )C*.*MIC RI%As noted above, points are a'arded to each risk component on a scale from (ero up to a pre3set maximum. 0n general terms if the points a'arded are less than $"G of the total, that component can be considered as ver& high risk. 0f the points are in the $"35"G range it is high risk, in the 5"G3H"G range moderate risk, in the H"3+"G range lo' risk, and in the +"3!""G range ver& lo' risk. ,o'ever, this is onl& a general guideline as a better rating in other components can compensate for a poor risk rating in one component. 8verall, an economic risk rating of "."G to 2-.$G indicates a )er& ,igh iskC 2$."G to 2...G ,igh iskC F"."G to F-..G >oderate iskC F$."G to F...G *o' iskC and -"."G or more )er& *o' isk. 8nce again, ho'ever, a poor economic risk rating can be compensated for b& a better political and;or financial risk rating. &() )C*.*MIC RI%- C*M'*.).&% / &,!+) ;! G5' per (ead / &able < The estimated 6=P per head for a given &ear, converted into :2 dollars at the average exchange rate for that &ear, is expressed as a percentage of

the average of the estimated total 6=P of all the countries covered b& ICRG. The risk points are then assigned according to the follo'ing scale: G5' 'er (ead = o$ 'oi#ts average 2$"." plus $." 2""." to -.$ 2-... !$"." to -." !.... !""." to F.$ !-... H$." to .... F." $"." to H-.. 2.$ -"." to -... 2." F"." to F... !.$ 2"." to 2... !." !"." to !... ".$ :p to ... "."

Real G5' Growth / &able > The annual change in the estimated 6=P, at constant !.." prices, of a given countr& is expressed as a percentage increase or decrease. The risk points are then assigned according to the follo'ing scale: Real G5' Growth Cha#ge 'oi#ts (= 5." plus !"." $." to $.. ..$ -." to -.. .." F." to F.. +.$ 2.$ to 2.. +." 2." to 2.H.$ !.$ to !.. H." !." to !.5.$ ".$ to ".. 5." "." to ".$.$ 3".! to 3".$." 3".$ to 3".. -.$ 3!." to 3!.-." 3!.$ to 3!.. F.$ 32." to 32.F."

32.$ 3F." 3F.$ 3-." 3$." 35."

to 32.. to 3F.to 3F.. to 3-.. to 3$.. belo'

2.$ 2." !.$ !." ".$ "."

,##ual I#$latio# Rate / &able ? The estimated annual inflation rate (the un'eighted average of the 1onsumer Price 0ndex) is calculated as a percentage change. The risk points are then assigned according to the follo'ing scale: ,##ual I#$latio# Rate Cha#ge 'oi#ts (= I 2." !"." 2." to 2.. ..$ F." to F.. .." -." to $.. +.$ 5." to H.. +." +." to ... H.$ !"." to !!.. H." !2." to !F.. 5.$ !-." to !$.. 5." !5." to !+.. $.$ !.." to 2!.. $." 22." to 2-.. -.$ 2$." to F".. -." F!." to -".. F.$ -!." to $".. F." $!." to 5$.. 2.$ 55." to +".. 2." +!." to .$.. !.$ .5." to !." !!".. !!!." to ".$ !2... !F"." plus "."

!udget !ala#ce as a 'erce#tage o$ G5' / &able 2@ The estimated central government budget balance (including grants) for a given &ear in the national currenc& is expressed as a percentage of the

estimated 6=P for that &ear in the national currenc&. The risk points are then assigned according to the follo'ing scale: !udget !ala#ce = G5' 'oi#ts -." plus !"." F." to F.. ..$ 2." to 2.. .." !." to !.. +.$ "." to ".. +." 3".! to 3".. H.$ 3!." to 3!.. H." 32." to 32.. 5.$ 3F." to 3F.. 5." 3-." to 3-.. $.$ 3$." to 3$.. $." 35." to 35.. -.$ 3H." to 3H.. -." 3+." to 3+.. F.$ 3.." to 3... F." 3!"." to 2.$ 3!!.. 3!2." to 2." 3!-.. 3!$." to !.$ 3!... 32"." to !." 32-.. 32$." to ".$ 32... 3F"." belo' "."

Curre#t ,ccou#t as a 'erce#tage o$ G5' / &able 22 The estimated balance on the current account of the balance of pa&ments for a given &ear, converted into :2 dollars at the average exchange rate for that &ear, is expressed as a percentage of the estimated 6=P of the countr& concerned, converted into :2 dollars at the average rate of exchange for the period covered. The risk points are then assigned according to the follo'ing scale: Curre#t ,ccou#t = G5' = G5' 'oi#ts !"." plus !$."

Curre#t ,ccou#t = G5' = G5' 'oi#ts +." to ... !-.$ 5." to H.. !-." -." to $.. !F.$ 2." to F.. !F." !." to !.. !2.$ "." to ".. !2." 3".! to 3".. !!.$ 3!." to 3!.. !!." 32." to 3F.. !".$ 3-." to 3$.. !"." 35." to 3H.. ..$ 3+." to 3... .." 3!"." to +.$ 3!!.. 3!2." to +." 3!F.. 3!-." to H.$ 3!$.. 3!5." to H." 3!5.. 3!H." to 5.$ 3!H.. 3!+." to 5." 3!+.. 3!.." to $.$ 3!... 32"." to $." 32".. 32!." to -.$ 32!.. 322." to -." 322.. 32F." to F.$ 32F.. 32-." to F." 32-.. 32$." to 2.$ 325.. 32H." to 2." 32... 3F"." to !.$ 3F2.3F2.$ to !."

Curre#t ,ccou#t = G5' = G5' 'oi#ts 3F-.. 3F$." to ".$ 3F... 3-"." belo' "."

Back to Top

&he 6i#a#cial Ris" Rati#g The overall aim of the #inancial isk ating is to provide a means of assessing a countr&7s abilit& to pa& its 'a&. 0n essence, this re9uires a s&stem of measuring a countr&7s abilit& to finance its official, commercial, and trade debt obligations. This is done b& assigning risk points to a pre3set group of factors, termed financial risk components. The minimum number of points that can be assigned to each component is (ero, 'hile the maximum number of points depends on the fixed 'eight that component is given in the overall financial risk assessment. 0n ever& case the lo'er the risk point total, the higher the risk, and the higher the risk point total the lo'er the risk. To ensure comparabilit& bet'een countries the components are based on accepted ratios bet'een measured data 'ithin the national economic;financial structure. 0t is the ratios that are compared, not the data themselves. The risk points assigned to each component (ratio) are taken from a fixed scale. ,%%)%%I.G 6I.,.CI,+ RI%As noted above, points are a'arded to each risk component on a scale from (ero up to a pre3set maximum. 0n general terms if the points a'arded are less than $"G of the total, that component can be considered as ver& high risk. 0f the points are in the $"35"G range it is high risk, in the 5"G3H"G range moderate risk, in the H"3+"G range lo' risk and in the +"3!""G range ver& lo' risk. ,o'ever, this is onl& a general guideline as a better rating in other components can compensate for a poor risk rating in one component. 8verall, a financial risk rating of "."G to 2-.$G indicated a )er& ,igh iskC 2$."G to 2...G ,igh iskC F"."G to F-..G >oderate iskC F$."G to F...G *o' iskC and -"."G or more )er& *o' isk. 8nce again, ho'ever,

a poor financial risk rating can be compensated for b& a better political and;or economic risk rating. &() 6I.,.CI,+ RI%- C*M'*.).&% / &,!+) :! 6oreig# 5ebt as a 'erce#tage o$ G5' / &able 23 The estimated gross foreign debt in a given &ear, converted into :2 dollars at the average exchange rate for that &ear, is expressed as a percentage of the gross domestic product converted into :2 dollars at the average exchange rate for that &ear. The risk points are then assigned according to the follo'ing scale: 6oreig# 5ebt = G5' Ratio (= 'oi#ts "." to -.. !"." $." to ... ..$ !"." to !-.. .." !$." to !... +.$ 2" to 2-.. +." 2$." to 2... H.$ F"." to F-.. H." F$." to F... 5.$ -"." to --.. 5." -$." to -... $.$ $"." to $... $." 5"." to 5... -.$ H"." to H... -." +"." to +... F.$ ."." to .... F." !""." to 2.$ !"... !!"." to 2." !!... !2"." to !.$ !2... !F"." to !." !-... !$"." to ".$ !.... 2""." plus "."

6oreig# 5ebt %ervice as a 'erce#tage o$ )xports o$ Goods a#d %ervices /&able 20

The estimated foreign debt service, for a given &ear, converted into :2 dollars at the average exchange rate for that &ear, is expressed as a percentage of the sum of the estimated total exports of goods and services for that &ear, converted into :2 dollars at the average exchange rate for that &ear. The risk points are then assigned according to the follo'ing scale: 5ebt %ervice = AG% Ratio (= 'oi#ts "." to -.. !"." $." to +.. ..$ .." to !2.. .." !F." to !5.. +.$ !H." to 2".. +." 2!." to 2-.. H.$ 2$." to 2+.. H." 2.." to F2.. 5.$ FF." to F5.. 5." FH." to -".. $.$ -!." to --.. $." -$." to -+.. -.$ -.." to $2.. -." $F." to $5.. F.$ $H." to 5".. F." 5!." to 5$.. 2.$ 55." to H".. 2." H!." to H$.. !.$ H5." to H... !." +"." to +-.. ".$ +$." plus "."

Curre#t ,ccou#t as a 'erce#tage o$ )xports o$ Goods a#d %ervices / &able 2: The balance of the current account of the balance of pa&ments for a given &ear, converted into :2 dollars at the average exchange rate for that &ear, is expressed as a percentage of the sum of the estimated total exports of goods and services for that &ear, converted into :2 dollars at the average exchange rate for that &ear. The risk points are then assigned according to the follo'ing scale:

Curre#t ,ccou#t as = AG% Ratio (= 'oi#ts 2$." plus !$." 2"." to 2-.. !-.$ !$." to !... !-." !"." to !-.. !F.$ $." to ... !F." "." to -.. !2.$ 3".! to 3-.. !2." 3$." to 3... !!.$ 3!"." to 3!-.. !!." 3!$." to 3!... !".$ 32"." to 32-.. !"." 32$." to 32... ..$ 3F"." to 3F-.. .." 3F$." to 3F... +.$ 3-"." to 3--.. +." 3-$." to 3 -... H.$ 3$"." to 3$-.. H." 3$$." to 3$... 5.$ 35"." to 35-.. 5." 35$." to 35... $.$ 3H"." to 3H-.. $." 3H$." to 3H... -.$ 3+"." to 3+-.. -." 3+$." to 3+... F.$ 3."." to 3.-.. F." 3.$." to 3.... 2.$ 3!""." to 3!"-.. 2." 3!"$." to 3!"... !.$ 3!!"." to 3!!-.. !." 3!!$." to 3!!... ".$ 3!2"." belo' "."

.et I#ter#atio#al +i1uidity as Mo#ths o$ Import Cover / &able 2; The total estimated official reserves for a given &ear, converted into :2 dollars at the average exchange rate for that &ear, including official holdings of gold, converted into :2 dollars at the free market price for the period, but excluding the use of 0># credits and the foreign liabilities of the monetar& authorities, is divided b& the average monthl& merchandise import cost, converted into :2 dollars at the average exchange rate for the period.

This provides a comparative li9uidit& risk ratio that indicates ho' man& months of imports can be financed 'ith reserves. The risk points are then assigned according to the follo'ing scale: .et +i1uidity i# Mo#ths Mo#ths 'oi#ts !$ plus $." !2." to !-.. -.$ .." to !!.. -." 5." to +.. F.$ $." to $.. F." -." to -.. 2.$ F." to F.. 2." 2." to 2.. !.$ !." to !.. !." ".5 to ".. ".$ ".$ or less "."

)xcha#ge Rate %tability / &able 24 The appreciation or depreciation of a currenc& against the :2 dollar (against the euro in the case of the :2A) over a calendar &ear or the most recent !23month period is calculated as a percentage change. The risk points are then assigned according to the follo'ing scale: )xcha#ge Rate %tability ,ppreciatio 5epreciatio # Cha#geB # Cha#geB 'oi#ts plus mi#us "." to ... 3".! to 3-.. !"." !"." to !-.. 3$." to 3H...$ !$." to !... 3H.$ to 3... .." 2"." to 22.- 3!"." to 3!2.+.$ 22.$ to 2-.. 3!2.$ to 3!-.. +." 2$." to 2H.- 3!$." to 3!H.H.$ 2H.$ to 2... 3!H.$ to 3!... H." F"." to F-.. 32"." to 322.5.$ F$." to F... 322.$ to 32-.. 5." -"." to -... 32$." to 32... $.$ $" plus 3F"." to 3F-.. $." 3F$." to 3F... -.$ 3-"." to 3--.. -." 3-$." to 3-... F.$

)xcha#ge Rate %tability ,ppreciatio 5epreciatio # Cha#geB # Cha#geB 'oi#ts plus mi#us 3$"." to 3$-.. F." 3$$." to 3$... 2.$ 35"." to 35... 2." 3H"." to 3H... !.$ 3+"." to 3+... !." 3."." to 3.... ".$ 3!"" belo' "."

Back to Top

&he Composite Ris" Rati#g The method of calculating the Composite 'oliticalB 6i#a#cialB a#d )co#omic Ris" Rati#g remains unchanged. The political risk rating contributes $"G of the composite rating, 'hile the financial and economic risk ratings each contribute 2$G. The follo'ing formula is used to calculate the aggregate political, financial and economic risk: CPF R !country "# $ %&' !PR ( FR ( R# )here CPF R $ Composite political* financial and economic risk ratin+s PR $ Total political risk indicators FR $ Total financial risk indicators R $ Total economic risk indicators The highest overall rating (theoreticall& !"") indicates the lo'est risk, and the lo'est rating (theoreticall& (ero) indicates the highest risk. As a general guide to grouping countries on the basis of comparable risk, the individual risk of individual countries can be estimated using the follo'ing fairl& broad categories of 1omposite isk. )er& ,igh isk ,igh isk >oderate isk *o' isk )er& *o' isk ""." $"." 5"." H"." +"." to to to to to -... points $... points 5... points H... points !"" points

Back to Top

Ris" 6orecasts 0n addition to the current forecasts of Political, #inancial, %conomic, and 1omposite isk, the 01 6 team also produces one3 and five3&ear forecasts for each of the risk categories, produced using the same methodolog& that is used for the current risk forecasts. T'o forecasts are produced for each time period E a Borst 1ase #orecast (B1#) and a <est 1ase #orecast (<1#). The B1# is produced b& extrapolating the 'orst3case trend for each risk component in each risk categor& to produce a B1# for Political, %conomic, and #inancial isk. The <1# is produced b& extrapolating the best3case trend for each risk component in each risk categor& to produce a <1# for Political, %conomic, and #inancial isk. 2uch trends could be an accelerating build3up of debt, political fragmentation, 'orsening ethnic or religious tensions, inade9uate arrangements for government takeover in the case of the death or assassination of a leader, and so on. 0n approaching the forecasting exercise 'e make a 4udgment as to the JreasonablenessK of the trend or event identified and the abilit& of the government to counteract such trends. 1onse9uentl&, the B1# and <1# do not represent the possible extremes of risk, but a Jreasonabl& possibleK outcome if the trends identified are allo'ed to persist. 'rese#tatio# The risk forecasts are presented in the follo'ing tables.

Table 21: 8ne3 and #ive3&ear forecast of the 1omposite isk (B1# and <1#) and their isk 2tabilit&. Table F1: 8ne3 and #ive3&ear forecasts of Political isk (B1# and <1#) and their isk 2tabilit&. Table -1: 8ne3 and #ive3&ear forecasts of #inancial isk (B1# and <1#) and their isk 2tabilit&. Table $1: 8ne3 and #ive3&ear forecasts of %conomic isk (B1# and <1#) and their isk 2tabilit&. isk

0n addition, the one3 and five3&ear B1# and <1# for the 1omposite are presented in Table 2<, along 'ith the current 1 .

Back to Top

&ailori#g the %ystem The ICRG s&stem as it stands is produced for the general user, that is, it looks at the overall risk of countr& in terms of the general risk it represents. 2ome users ma& re9uire a more specific risk assessment that is geared to their o'n particular interests. #or example, a compan& engaged in international tourism 'ill be interested in countr& risk as it applies to its desirabilit& as a vacation destination. 0n this case the general risk assessment ma& not be of much help 3 it is possible for a countr& to present a ,igh isk in its 1omposite isk ating, but not present a significant risk to holida& makers because its composite risk is pulled do'n b& such factors as lo' financial or economic risk, a poor investment climate, and other non3threatening factors. 8n the other hand, a different countr& might en4o& a >oderate isk in its 1omposite isk ating because it has a stable government and acceptable economic;financial management, but still present a risk to tourists because of high crime, religious conflict, and so on. 0n such cases, a better understanding of the specific risk presented can be the ascertained b& looking at the assessments for individual risk components, such as internal conflict, external conflict, la' and order, religious tensions, etc. Another approach to making ICRG more specific to a particular user needs is for the user to change the 'eighting (Total isk Points) of the components he;she is interested in, 'hile reducing the 'eight of components of lesser interest. #or example, keeping 'ith the international travel compan&, one could increase the 'eighting of the eligious and %thnic tensions components from 5 to, sa& !2, 'hile reducing the 'eighting of, sa&, the 0nvestment Profile, <ureaucrac& Aualit&, and =emocratic Accountabilit& components to compensate. Cross7Chec"i#g ICRG provides not onl& the risk ratings for the countries it covers, but also the political information and financial and economic data on 'hich those ratings are based. 0t is therefore possible for the user to check through the information and data so as to assess the ratings given against his or her o'n assessments or against some other risk rating s&stem.

Co#clusio#

This, then, is the 'orking s&stem b& 'hich ICRG assesses the possibilities of a successful venture into a foreign market. *earning to appl& either the ICRG or Political isk 2ervices s&stem can pla& a vital role in &our investment and business decisions. @no' the risks and &ou 'ill be miles ahead of the competition as &ou seek business opportunities around the globe.