Political risks to be covered

Political risks are related either to the country of a foreign buyer or borrower, or to a third country which can cause the exporter, investor or financier to incur a credit loss. Political risks include restrictions on transfer of the credit currency, rescheduling of debts, expropriation, and war or insurrection.

Sovereign risk is caused by an entity that represents the full faith and credit of State. In most cases this is the Ministry of Finance or the Central Bank.

When Finnvera covers only the political risks involved, the commercial risks associated with the buyer, the borrower or the guarantor are not covered.

Political risks are assessed by continuously following the creditworthiness of the countries with political risk. The term political risk refers to all factors or events which influence the country¿s economy, internal stability and international relations.

Political risk may materialise as the consequence of a long course of events, or may result from internal or external economic and political shocks. Political risks are assessed according to the following criteria:

Economic growth potential

• structure of the economy
• natural resources
• export composition
• geographic location
• demographic factors

Economic policy

• macroeconomic factors
• credibility of economic policy
• budget deficits

Vulnerability

• size of the economy
• dependence on exports/imports
• dependence on foreign aid

Indebtedness and finance

• balance of payments
• foreign debt
• access to finance

Foreign and domestic policy

• political structure and continuity
• efficiency of administration
• international relations