Political Risk and Emerging Markets

For the export financier the question of political risk is that of asking whether the country or region in which a buyer is situated poses risks of non-payment under a financing arrangement. The following examples illustrate political risks of different sorts: In 1982 the Mexican government withheld payment on its debt to foreign commercial banks, precipitating a debt crisis which swept through Latin America and reverberated around the world’s financial markets.Prior to perestroika and the eventual collapse of the USSR, the Soviet Union’s credit was one of the best in the world. The end of the centralised system and the resulting political and economic transition has resulted in a weakening of the credit standing of many countries in central and eastern Europe.Civil war in Mozambique affected the ability of Tanzania, Zambia and Zimbabwe to export and import through the Indian Ocean port of Beira.