Political Risk Insurance and Bilateral Investment Treaties: Making the Connection

in The Journal of World Investment & Trade
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Although political risk insurance polices and bilateral investment treaties are two of the most effective ways to manage political risks, most professionals in the international investment community do not incorporate either into their risk-reward analysis of cross border projects in emerging markets. Moreover, those investors and their advisers who do consider protections in one risk management do not explore protections provided in the other. The failure to contemplate how either or a combination of both tools can mitigate exposures to political perils often forces companies to make investment decisions based on incomplete information. By considering the different ways in which these tools respond to different loss scenarios, foreign investors and their advisers can establish a clear risk tolerance level and maximize their opportunities for growth in developing countries.

The Journal of World Investment & Trade

Law • Economics • Politics

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References

11)

Kennedy, C. (1988): “Political Risk Manageqment: A Portfolio Planning Model”, Business Horizons, Vol. 31, p. 21

18)

Johnston, supra note 18 at 5.

20)

Yackee, supra note 1 at 424; Those MNCs and their advisers who review the contents of BITs usually examine the clauses that establish whether or not a foreign investor qualifies for protection. Otherwise known as “treaty planning,” this process usually takes place during the site selection process. While treaties are subject to changes, the planning exercise helps investors maximize the chances that BIT provisions will protect them in the event they suffer losses arising out of politically motivated actions. MNCs that explore for and extract natural resources of host countries are the most frequent victims of political risk losses.

29)

In its issue on June 28, 2002, the Economist referred to the economic situation a collapse, which could be “likened to the Great Depression of the 1930’s in the United States.”

33)

Joint Economic Committee (2003), Office of Jim Saxton, Argentina’s Economic Crisis, Causes and Cures June, staff report, http://www.hacer.org/pdf/Schuler.pdf.

84)

Joint Economic Committee (2003), Office of Jim Saxton, Argentina’s Economic Crisis, Causes and Cures June, staff report, http://www.hacer.org/pdf/Schuler.pdf.

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