INTERNATIONAL: Countries should swap risk
Using swaps, countries can manage and diversify their national risk while focusing their efforts on profiting from local industries with comparative advantages.
Our judgement
Country risk swaps offer a way around the classical trade-off in which countries are forced to choose between following the principle of comparative advantage -- concentrating in a reduced number of related industries -- and the principle of risk diversification -- participating in a large number of relatively unrelated industries.
See today's INTERNATIONAL: Countries can gain by swapping risk.