Threat of energy expropriation in Latin America casues spike in political risk

Political risk trends in emerging markets are taking on a troublesome retro feel back to the 70s, in a sense led by energy-sector expropriation moves in South American countries, A.M. Best has reported.
The A.M. Best analysis cites the findings of a political risk index calculated by the emerging markets team at broker Alliant Insurance Services Inc.
According to A.M. Best, Alliant Emerging Markets said its Political Risk Index rose 5% over the past 12 months, the largest increase in five years.
The most immediate cause for the escalating risk index is the rising expropriation risk in Latin America. But regulatory uncertainty in Central Asia and worsening credit conditions in Eastern Europe and Southeast Asia are also part of the problem, A.M. Best says.
John Minor, head of Alliant Emerging Markets, the broker’s political and credit risk unit, told BestWeek trade credit risks worldwide are trending upward, driven by “a return to the type of old-fashioned expropriation risks many thought were gone.”
A.M. Best quotes Minor as saying expropriation risks are rising rapidly in Latin America in particular, where governments in countries such as Venezuela, Bolivia and Argentina are either seizing private assets or reneging on debt commitments.
Referring to the 5% rise in Alliant’s political risk index, Minor told A.M. Best that “increases in credit risk insurance losses tend to be a precursor to larger financial crises.”
“Whenever there’s a sharp increase in credit defaults, we look for signs of bigger financial loss,” Minor is quoted as saying. “We’re seeing that right now in Eastern Europe and Southeast Asia countries like Hungary and Turkey.”
A number of factors are contributing to the deteriorating trade credit quality, said Minor. Among them are inflation, an oversupply of credit capacity and a lack of rigorous credit management.
Alliants top credit risks include the:
rising threat of financial crisis in Hungary, Thailand and Turkey, as indicated by short-term credit default rates; and
rising credit risk for U.S. hedge funds, private equity and financial firms lending to unrated or unreliably rated Eastern European counterparties in Hungary, Ukraine, Poland, Belarus and Romania.