On Wednesday, May 5, 2010, MIGA convened a panel discussion on the state of political risk in the world economy, which proposed to answer the pregnant question: “Are we moving into a riskier world?”
MIGA Chief Operating Officer, James Bond, moderated a panel that included:
- Mansoor Dailami, Manager of the International Finance Development Prospects Group of the World Bank;
- Uri Dadush, Senior Associate and Director of the International Economics Program of the Carnegie Endowment for International Peace; and
- Julie Martin, Senior Vice President of the Political Risk and Structured Credit Practice of Marsh USA.
The panelists brought to the table a diverse range of experience in foreign direct investment (FDI) and political risk insurance (PRI), but all tended to agree on one core point – political risks exposed by the global financial crisis of 2008-10 remain formidable, and “we are not out of the woods yet”. Among the greatest concerns, not surprisingly, were the risks relating to excessive sovereign debt and the specter of possible sovereign defaults. With headlines full of concerns over bail-out packages for comparatively well-off Euro-area members, it perhaps goes without saying that emerging market economies face even greater challenges.
On the other hand, one theme that developed was the apparent resilience of emerging markets in the global financial crisis, at least in a relative sense. The panelists agreed that FDI into emerging markets did not decline as steeply as might have been expected as a result of the crisis; this, combined with investors’ greater sensitivity to political risk indentified in MIGA’s report World Investment and Political Risk 2009, drove the conclusion that higher demand for PRI products may be around the corner. This begs the question of whether the industry is ready and able to adapt to investors’ changing needs.
Finally, the panelists noted that a more multipolar world was emerging for FDI, whereby many key, high-profile investments were being made from “south to south” and even “south to north” – i.e., out of emerging markets to other emerging markets and even into developed countries.
Watch the entire event here (requires RealPlayer)