Risk assessment

War looms in Iraq; North Korea threatens a nuclear showdown; the U.S. is rushing troops to the Philippines to help combat terrorism.

War looms in Iraq; North Korea threatens a nuclear showdown; the U.S. is rushing troops to the Philippines to help combat terrorism.

Measuring and making sense of risks around the globe is a crucial task for bankers and investors alike. Since 1979, we at Institutional Investor have done our best to lend a hand, publishing in March and September our semiannual ratings of the creditworthiness of nations. These we compile by soliciting the views of financial institutions about the relative ability of the countries of the world to pay their debts. Many factors -- from broad assessments of political risk to narrower measures such as foreign currency reserves or debt service ratio -- figure in the analyses of these voters, who together oversee more than $20 trillion in assets. As such, the rankings also provide invaluable insight to the leaders of the countries themselves, helping them understand how they are perceived by the capital markets on which they often depend for crucial funding.

We are pleased that the rankings may soon play a new, important role. The Bush administration has proposed using them as part of the Millennium Challenge Account (see story, page 48), a major initiative in foreign aid. Scheduled to begin next year, the MCA program would distribute $5 billion during its first three years and $5 billion per year afterwards to developing countries that meet certain criteria in three broad areas: governing justly, investing in people and promoting economic freedom. The latter category includes an assessment of countries’ credit ratings, and, as proposed, it will rely on II‘s semiannual rankings.

The administration’s plan awaits congressional approval, but we are delighted to play a small part in a program that promises to provide much-needed aid to many of the world’s neediest countries. Our selection is a testament to the dedicated work of Senior Editor for Editorial Research Jane Kenney, who has helped shape the rankings during her more than two decades at the magazine, and of Associate Editor Emily Fleckner, who oversees this survey directly, coordinating the polling of more than 350 risk analysts worldwide. In coming months they will be broadening the data this magazine gathers in an effort to supply even more valuable insights into this critical area. I encourage readers who have any questions -- or suggestions -- to contact Jane (jkenney@iimagazine.com), Emily (efleckner@iimagazine.com) or me (mcarroll@iimagazine.com).

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