CRISIS IN EMERGING MARKETS CONTINUES, SAYS THE EIU, AS ITS COUNTRY RISK SERVICE IDENTIFIES A RECORD NUMBER OF VULNERABLE COUNTRIES- Economist..
In its just published Risk Ratings Review, the Economist Intelligence Unit's Country Risk Service identifies a record 22 countries as "losers" (a deterioration of four points or more or a rating decline of a letter grade, between A and E). This is the most of any single three-month period since the EIU launched its revised country risk ratings system in the first quarter of 1997. The large number of "losers" is an indication that the fallout from the Asian crisis is not over within Asia itself and that the repercussions of the crisis have contributed to problems in other countries—most importantly Russia—where the economic shock in August has spawned its own round of regional contagion. Of the 22, only four were on the same list three months earlier, an indication of the extent and depth of the on-going troubles in emerging markets.
Country Risk Service "Losers"
Quarterly 1998 ratings "Losers"
Asia & Australasia Hong Kong, Malaysia, Papua New Guinea, Philippines, Sri Lanka
Latin America & the Caribbean Argentina, Brazil, Trinidad & Tobago, Venezuela
Sub-Saharan Africa Gabon
Middle East & North Africa Bahrain, Iran, Jordan, Yemen
Eastern Europe & the former Soviet Union Kazakhstan, Lithuania, Romania, Russia, Slovakia, Ukraine, Uzbekistan
Southern Europe Cyprus
Watchlist Possible "losers"
Angola, Cameroon, Argentina, Bolivia, Brazil, China, Colombia, Gabon, Ghana, Honduras, Hong Kong, Iran, Jordan, Kazakhstan, Kuwait, Libya, Malaysia, Moldova, Nigeria, Pakistan, Philippines, Oman, Romania, Russia, Saudi Arabia, Slovakia, South Africa, Turkey, Trinidad & Tobago, Ukraine, United Arab Emirates, Venezuela, Vietnam, Yemen
* A loser is a country whose overall score has deteriorated (increased) by four points or more or whose letter rating has been downgraded in the last three months.
** Possible losers are countries where the EIU expects a deterioration in the score of four points or more in the next six months.
East European countries have suffered the most
Among the regions, Eastern Europe & the former Soviet Union led with seven "losers", a direct consequence of the aftershocks of the Russian rouble devaluation and Russia's effective default on government debt in August. Ukraine experienced the largest single point fall of any of the 100 countries assessed by the Country Risk Service, with a ten-point increase in its overall riskiness indicator. Ukraine is also on the list of "potential losers", an indication that there may be more bad news to come. Asia & Australasia was second with five "losers" as the impact of the Asian crisis intensified in some countries-- such as Malaysia and the Philippines--that had previously appeared to escape the worst of the regional crisis.
A further 34 countries expected to deteriorate
Even more worrying, of the 100 countries assessed 34 were identified as "possible losers"—also a record—and a sign that the EIU believes a deterioration in the score of four points or more in the next six months is possible for many countries. This suggests that the outlook for emerging markets continues to be influenced by the many and varied knock-on effects of the Asian crisis, possible further repercussions from the financial crisis in Russia, and the vulnerability of Brazil to a sharp devaluation, which would have severe consequences for other major economies inside and outside the region.
Oil producers are particularly vulnerable
"Potential losers" were identified in all six regions covered the Country Risk Service. Among these, oil producers, across all regions, stand out as particularly vulnerable. The EIU expects oil prices to slide even further in 1999, putting considerable pressure on these countries' current accounts and budget deficits.
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