Managing Country Risk

Chapter 3

Assessing Country Risk

Five states of risk management:

You know what you know.

You don’t know what you know.

You know what you don’t know.

You don’t know what you don’t know.

You know but you don’t want to know.

Professor Walter Ingo, New York University

Introduction

As has been noted in the previous chapters, politics and economics are inextricably linked. They do not exist in a vacuum and their impact on each other cannot be separated. Similarly, the link between probability and consequences also cannot be separated. Risk may simply be defined as risk = probability × consequences.¹ In other words, the higher the probability that an event may occur, the greater its likely consequences. The word risk comes from the ancient Greek word ...