Country risk - Emerging economies caught in the storm

    - The global crisis is affecting emerging country risk
    - The crisis has revealed their vulnerabilities, but with contrasting
    - Analysis of risk in Russia, Turkey and India

    PARIS, Jan. 15 /CNW Telbec/ - Euler Hermes has published its analysis of
country risk in a global economic crisis. Country risk takes on another
dimension in a recessionary environment. Emerging countries are faced with
dwindling sources of external financing, the recession of the major economies
and falling commodities prices. These difficulties have been exacerbated by
bank liquidity problems, volatile exchange rates and the withdrawal of foreign
capital. These economies' weaknesses, less visible during growth periods, have
resurfaced. Countries that seemed perfectly safe a short while ago now
represent a risk for the companies that do business with them.
    Against this backdrop, Euler Hermes Country Risk Analyst David Atkinson
said: "The present economic crisis is affecting all countries, with no
exception. Although some countries are in a better position to resist the
crisis, many are experiencing a rapid deterioration in their situation. It is
essential that trade partners and exporters keep a close watch on these
countries, on the reforms implemented and on future trends".

    Emerging economies are slowing

    Euler Hermes is forecasting growth of less than 1% for the global economy
in 2009 with the large developed economies experiencing their first recession
since World War II. At the same time, emerging economies are being severely
hurt by a world crisis that does not correspond to a normal economic cycle.
The decoupling theory, whereby emerging economies would continue to grow, has
been largely invalidated. These countries now face numerous problems:

    - Wide-scale withdrawal of foreign investment
    - Drop in exports
    - Tumbling commodities prices (oil, etc.)

    Against this difficult background, Euler Hermes expects economic growth to
slow sharply in emerging countries.

    Regional real GDP    2003-2006          2007          2008          2009
    (% change)              annual                Euler Hermes  Euler Hermes
                           average                 projections   projections
    Emerging Europe            6.8           7.0           5.4           2.0
      Russia                   7.1           8.1           6.1           1.5
      Turkey                   7.5           4.5           2.3           1.0
    Emerging Asia              8.4           9.2           7.1           5.0
      China                   10.5          11.9           9.2           7.0
      India                    8.7           9.0           7.0           5.0
    Latin America              4.6           5.5           4.6           1.9
      Brazil                   3.4           5.1           5.5           2.3
      Mexico                   3.3           3.3           2.0           0.0
    Middle East & Africa       5.8           5.7           5.9           4.6

    A growing number of high-risk countries

    The overall trend in the risk ratings assigned by Euler Hermes to each
country (see methodology) reflects the general trend in risk of international
trade. With the risk ratings of 16 countries downgraded in 2008, international
trade has entered a more turbulent period.

                                                   Net Country Grade Changes
                                                          2000            -1
                                                          2001            -5
                                                          2002            -8
                                                          2003            +3
                                                          2004           +11
                                                          2005            +1
                                                          2006            -1
                                                          2007            +3
                                                          2008           -16

    At the individual level, each country's rating reflects its sensitivity to
a downturn in its environment and its capacity to stand firm. In the present
conditions, individual country risk ratings can change rapidly and should
therefore be monitored closely by exporters and their partners. Since the
economic crisis worsened, Euler Hermes has downgraded the country risk ratings
of eleven countries:

                                                                Grade Change
                                            South Korea            A  to  BB
                                            Hungary                B  to   C
                                            Romania                B  to   C
                                            Bulgaria               B  to   C
                                            Lithuania              B  to   C
                                            Guatemala              B  to   C
                                            Jordan                 B  to   C
                                            Iceland                A  to   D
                                            Argentina              C  to   D
                                            Pakistan               C  to   D
                                            Vietnam                C  to   D

    Euler Hermes has identified a group of more vulnerable countries:

    - With a C rating: Hungary, Romania, Russia, Turkey, Lithuania, Bulgaria,
      Latvia, Kazakhstan, Indonesia, Dominican Republic, Honduras and Jamaica
    - With a D rating: Iceland, Ukraine, Serbia, Bosnia Herzegovina, Vietnam,
      Argentina, Venezuela, Ecuador, Kenya, Lebanon and Pakistan

    Some countries are in a better position than others to face the crisis

    Some countries have resources and structures that offer more shelter from
the global crisis: Singapore (rated AA), Chile (A), Czech Republic (A), Hong
Kong (A), Malaysia (A), Slovenia (A), Taiwan (A), Bahrain (BB), Botswana (BB),
Brazil (BB), Israel (BB), South Korea (BB), Kuwait (BB), Mexico (BB), Oman
(BB), Poland (BB), Qatar (BB), Saudi Arabia (BB), Slovakia (BB), South Africa
(BB), Thailand (BB) and Tunisia (BB).

    Russia: liquidity crunch and tumbling oil prices

    Russia's economic growth is expected to slow significantly, from 6.1% in
2008 to 1.5% in 2009 according to Euler Hermes estimates, after several strong
years (7.4% in 2006 and 8.1% in 2007). The rapid slowdown was visible in the
fourth quarter of 2008 with a very sharp fall in industrial production. The
business slowdown has been accompanied by a slump in the share prices of
listed Russian companies (down 70% in six months) and the weakening of the
rouble, down 13% against the dollar, despite heavy intervention.
    Foreign exchange reserves have decreased by more than 25% since August
2008 and the fall in the price of oil will have a significant impact on the
fiscal and external current account balances. Euler Hermes has left its C
rating unchanged but notes the risks from banking and corporate foreign
exchange illiquidity and lower oil prices.

    Turkey: strong inflation and low foreign exchange reserves

    Turkey's economic growth has slowed significantly since 2007 (6.9% in
2006, 4.5% in 2007). Euler Hermes is expecting economic growth to stand at
2.3% in 2008 and fall to 1.0% in 2009. Inflation remains relatively high.
Euler Hermes estimates that the inflation rate will have risen to 10.1% in
2008 and remain at a similar level in 2009 (10%).
    The large current account deficit and reliance on short time capital
flows is a key vulnerability and the Turkish Lira has fallen sharply. Foreign
exchange reserves have also fallen but currently still cover 3.5 months of
imports, though only 60% of external debt due in 2009.
    Euler Hermes has left its C rating unchanged but is closely monitoring
the situation, including developments with regards to the IMF programme
currently under discussion.

    India: substantial foreign exchange reserves but limited possibilities

    India recorded a sharp downturn in industrial activity in the fourth
quarter of 2008. The banking sector has been relatively sheltered from the
global financial crisis directly though credit conditions have tightened
noticeably. The Indian stock market and exchange rates have also been
affected. Economic growth has slowed significantly but remains relatively high
in the global context (7.0% in 2008 and 5.0% in 2009 according to Euler Hermes
    Government support for the currency have significantly decreased into
foreign exchange reserves but these still cover seven months of imports and
the total stock of external debt. However, the size of the fiscal deficit
considerably constraints government action to offset the slowdown in economic
    Euler Hermes has maintained its B rating. Regional and political
uncertainties will also need to be monitored.


    Euler Hermes assigns each country a risk rating that reflects the
country's economic and political risk. The economic factors taken into account
are the macroeconomic indicators (indebtedness, fiscal deficit, etc) and
institutional and structural factors. The political factors taken into account
are the efficiency and stability of the political system in place. The
combination of these two types of indicators are reflected in a rating - AA,
A, BB, B, C or D; AA is the strongest rating. This classification constitutes
a first filter for any credit limit request and influences the terms and
conditions of cover extended by Euler Hermes.

    Euler Hermes country risk analysis

    Three Euler Hermes specialists, two in London and one in Hamburg, are
dedicated to country risk. A country risk committee, which also includes
representative of group subsidiaries, meets every two months. The country risk
specialists' work is published in a weekly bulletin. Any change in a country's
risk results in an immediate, ad hoc review.
    David Atkinson is one of Euler Hermes' three country risk analysts. He
joined the group in 1999 and and has established a Group-wide framework for
country risk analysis. Previously, David spent twenty-five years in
international banking as an emerging markets and country risk analyst,
specialising in Latin America, Eastern and Southern Europe and East Asia
including China. David is based in the United Kingdom and holds a degree in
Economics from the University of Nottingham.

    Euler Hermes is the worldwide leader in credit insurance and one of the
    leaders in the areas of bonding, guarantees and collections. With 6,000
    employees in over 50 countries, Euler Hermes offers a complete range of
    services for the management of B-to-B trade receivables and posted a
    consolidated turnover of (euro) 2.1 billion in 2007.

    Euler Hermes has developed a credit intelligence network that enables it
    to analyse the financial stability of 40 million businesses across the
    globe. The group protectsworldwide business transactions totalling
    (euro) 800 billion.

    Euler Hermes, subsidiary of AGF and a member of the Allianz group, is
    listed on Euronext Paris. The group and its principal credit insurance
    subsidiaries are rated AA- by Standard & Poor's.

    These assessments are, as always, subject to the disclaimer provided

    Cautionary Note Regarding Forward-Looking Statements: Certain of the
statements contained herein may be statements of future expectations and other
forward-looking statements that are based on management's current views and
assumptions and involve known and unknown risks and uncertainties that could
cause actual results, performance or events to differ materially from those
expressed or implied in such statements. In addition to statements which are
forward-looking by reason of context, the words "may, will, should, expects,
plans, intends, anticipates, believes, estimates, predicts, potential, or
continue" and similar expressions identify forward-looking statements. Actual
results, performance or events may differ materially from those in such
statements due to, without limitation, (i) general economic conditions,
including in particular economic conditions in the Allianz SE's core business
and core markets, (ii) performance of financial markets, including emerging
markets, (iii) the frequency and severity of insured loss events, (iv)
mortality and morbidity levels and trends, (v) persistency levels, (vi) the
extent of credit defaults (vii) interest rate levels, (viii) currency exchange
rates including the Euro-U.S. Dollar exchange rate, (ix) changing levels of
competition, (*) changes in laws and regulations, including monetary convergence
and the European Monetary Union, (xi) changes in the policies of central banks
and/or foreign governments, (xii) the impact of acquisitions, including
related integration issues, (xiii) reorganization measures and (xiv) general
competitive factors, in each case on a local, regional, national and/or global
basis. Many of these factors may be more likely to occur, or more pronounced,
as a result of terrorist activities and their consequences. The matters
discussed herein may also involve risks and uncertainties described from time
to time in Allianz SE's filings with the U.S. Securities and Exchange
Commission. The Group assumes no obligation to update any forward-looking
information contained herein.

For further information:

For further information: Press relations/Euler Hermes group: Raphaele
Hamel, +33 (0)1 4070 8133,; Agence Rumeur
Publique: Salima Ait Meziane, +33 (0)1 5574 5223,

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