Credit Suisse recently ranked the 20 riskiest nations, based on several factors: public and private debt, potential growth, credit ratings and credit-default swap spread. These all add up to their risk score.
The list implies the possibility of default.
"Many of the names at the top of the list are far from shocking, but investors might be surprised to see how poorly the United States ranks," said the Pragmatic Capitalist at www.pragcap.com.
"Of course, there are two ways to view this list. The bullish take and the bearish take. Some will say these nations should be avoided. On the other hand, as Goldman says about Ireland, with risk comes potentially great reward."
Like Thailand before the 1997 crisis, the countries on the list of riskiest nations have piled up debt through overconsumption and overinvestment by running a high current-account deficit and high private-sector credit. Most of them also have huge government debt that does not look sustainable.
During the 1997 crisis, Thailand's public finances remained sound, making it possible to bail out the banking sector.
The riskiest country for 2009 is Iceland, which continues to struggle with its debt. Its economy has collapsed along with a meltdown in its banking sector, whose assets are several times larger than the annual gross domestic product (GDP).
"Iceland's debt level is 'sustainable'," Mark Flanagan, head of the International Monetary Fund's mission to Iceland, told reporters in Reykjavik yesterday.
He said the country's external debt was "not far from" 307 per cent of GDP and that Iceland must scale back its financial system to where it is not too big to save.
Iceland's private-sector debt is now about 498 per cent of GDP, while government debt stands at 106 per cent. It also has a current-account deficit of 8 per cent of GDP.
Greece is the next-riskiest country. The European Union is now applying pressure on the country to put its financial house in order for fear that a Greek financial tragedy could hurt the European financial system as a whole.
Athens has also come under EU pressure to straighten out its finances and obey deficit limits intended to support the shared euro. Its government debt exceeds 100 per cent of GDP.
Greece's deficit spending is projected to reach 12.7 per cent of economic output this year - more than four times the EU's 3-per-cent limit for countries using the euro.
Prime Minister George Papandreou promised to bring the deficit down to below 3 per cent by the end of 2013 and pledged that Greece's debt, which has soared to a staggering ¤300 billion (Bt14.48 trillion), will begin to be reduced by 2012 at the latest.
Speaking to union and business leaders on Monday night, Papandreou announced measures that included slashing public-sector bonuses, caps on salaries for public-utility directors, defence-spending cuts and eliminating cost-of-living increases for state employees with salaries of more than ¤2,000.
Social-security and government operating expenditures will be cut by 10 per cent each, while the prime minister said the salaries of ministers and deputies - as well as his own - would also be curtailed.
He also called for taxes of up to 90 per cent on large bonuses for private bankers, the introduction of a capital gains tax and the resumption of inheritance and property taxes abolished by the previous government.
Most of the other countries on the list are Eastern European, especially former Soviet states: Hungary, Romania, Lithuania, Latvia, Ukraine, Bulgaria and Estonia.
The symptoms of economic illness are similar. After years of centralised planning, these economies have embraced liberalisation and taken in foreign capital and investment. Then they move into the overconsumption and overinvestment mode until reaching a point where they have a hard time meeting their debt obligations. This has forced the governments to extend their debts to save the economies.
Spain, another EU member, is ranked No 6, as it continues to face economic weakness and high debt.
The United States made it onto the list as the 14th-riskiest country, while surprisingly the UK, whose public finances are in a shambles, is nowhere to be found. In fact, the US's creditworthiness should put it higher up the list, because it continues to face unsustainable government debt. Standard & Poor's has threatened to lower the credit rating of both the US and the UK if they fail to put their houses in order.
Another country that should have been put on the list is Japan, whose government debt is approaching 200 per cent of GDP.