Magazine article Risk Management

Surveying the Territories

Magazine article Risk Management

Surveying the Territories

Article excerpt

China. Russia. Latin America. Asia. These are the world's emerging markets. But in their present state, the potential risks are enormous. Speaking at a RIMS New York Chapter Breakfast Seminar, Marsh vice president of global specialty services Heidi Hepburn, and managing director of global business practices at Aon Risk Services, Philip Gawthorpe, addressed the issues that risk managers face with global expansion. Hepburn provided an overview of the political and credit risk, while Gawthorpe examined the insurance sector.

Political and Credit Risks

China's potential as a market is enormous, but the gates to business success do not swing wide open. The Asian financial crisis has slowed China's export economy, the government has been slow to reform the insolvent banking sector and fraud remains persistent. Even though there have been some changes--China now allows foreign investments of up to 100 percent of a local company--the future is unclear.

But if experts are fight and the financial crisis has come to a head, most of the so-called Asian Tigers should be looking at positive growth. Thailand has experienced an increase in exports and its gross domestic product. And banking reform, with increased investment from foreign institutions, could mean "investment great" status in six to eight months. Malaysia's unusual controls may also be doing the job as its currency lock and taxation on foreign investment income boost the economy. Political stability, however, is still questionable. And South Korea, although it faces a downsizing of major corporations, has the potential to thrive.

The only malignant tumor among the Tigers is Indonesia. Political and civil unrest persists and the government seems unable to get a grasp on the nearly institutionalized graft problem. The outlook is grim: a decreasing GDP, flat economy, and sloth-like progress in the privatization of government-owned banks and corporations.

Bad news is also the only news for the once great Russian bear. The August 1998 collapse of the ruble spelled disaster. Virtually all foreign investment has dried up, and with the current government instability, things won't improve soon.

In Latin America, the infamous problems of Brazil remain a significant risk. Even after the IMF bailout last year, the currency experienced a 40 percent devaluation in January 1999. Even if they manage to boost employment and the economy, these are small steps. In Colombia, with its consistent terrorism problems, the privatization of government industries could lead to 30,000 lost jobs, and serious local unrest. …

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