A Model for Diversifying International Loan Portfolios

principal components are applied to third world debt countring rating data to establish which economies exhibit systematic versus unsystematic elements of risk. a graphic extension of principal components is useful in providing a picture of countries with economies that diverge from the group. the level of systematic risk in a country economy was found to correspond to levels of rescheduling of external debt. therefore, measures of systematic risk can be used as predictors of the likelihood that a country will reschedule debt. a listing of diversificatin prospects for inclusion in international portfolios of country loans is provided