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A World Bank Study
Reflections In retrospect, it is difficult to ignore the reality that roughly four years after these forecasts were so optimistically uttered, the Enron bankruptcy became the largest bankruptcy in American history and that its downfall also brought about the dissolution of Arthur Andersen, one of the largest accountancies in the world. Inflated revenues from Enron’s trading activities and the masking of debt resulted in a massive loss to shareholders (the stock price fell from US$90.00 per share in August 2000 to US$0.12 in January 2002). Widespread loss of employment (both at Enron and elsewhere) was exacerbated, in many instances, by employees’ loss of their pensions (which were 62 percent invested in Enron’s stock). A group of senior Enron executives were eventually convicted of various crimes. At the time of the 1997 symposium, however, all of these events were still a few years away. But the skies over Enron’s Dabhol project had already begun to darken. In retrospect, it is difficult not to read into Powers’s paper a frantic search for mechanisms to avoid the unfolding imbroglio that was to engulf Dabhol’s shareholders, lenders, and political risk insurers for many years. Enron did not build a political risk trading book, and, as far as these authors are aware, CATEX did not include political risk events. Finite insurance in the political risk area has been very limited, and the relatively few transactions of which the authors are aware have occurred in combination with other perils (and have been included at a relatively low level). On the plus side, over the past dozen years, there have been new entrants into the political risk investment insurance market and traditional insurers have gradually expanded their capacity as well as their per-country and per capita limits. It should be noted that Linda Powers left Enron shortly after the first symposium (that is, long before the infamous scandal broke) to cofound a successful venture capital firm in the biotechnology field. Malcolm Stevens From his many years as head of the United Kingdom’s Export Credits Guarantee Department (ECGD), his service as President of the Berne Union from 1989 to 1992, and his service as Secretary General of the Berne Union from 1992 to 1998, Malcolm Stevens offered not only his paper titled “A Perspective on Political Risk Experience,” but also a substantial historical perspective on the entire political risk investment insurance industry. He began his paper by iterating four general points: 1. Political risks are not a thing of the past. 2. Political risks themselves are undergoing great changes. 3. There is now (then 1997) an uncomfortably large grey area between political and commercial risks. 4. The next 10 years are unlikely to be like the last 10 years. They will be far more risky for both investors and lenders.