Thursday, January 14, 2010
Jamaican Debt Swap Could Open Door To IMF Loan, Credit Upgrades
By Kejal Vyas
Dow Jones Newswires
NEW YORK -(Dow Jones)- The stars started to align for the Jamaican government Thursday as staff members of the International Monetary Fund agreed to give the Caribbean country a $1.25 billion stand-by loan.
The announcement comes as government officials are asking holders of around 701 billion Jamaican dollars ($7.9 billion) of local debt to exchange it for lower-yielding, longer-maturity bonds starting Thursday.
In an address to the nation Wednesday night, Prime Minister Bruce Golding said the successful completion of the deal is a crucial step for the country to control expenses and meet guidelines under the IMF program. Officials expect to save $452 million, equivalent to 3.4% of gross domestic product, in interest payments over the next year thanks to the debt swap.
If the exchange isn't successful, the government said, "there will be no IMF program, as the offer is integral to the Medium Term Economic Program it has developed in partnership with the IMF," according to a statement on the official government Web site.
The exchange offer will remain open until Jan. 26, one day before the IMF's executive board is to formally approve the credit line.
The $1.25 billion loan, which will be available to Jamaica for 27 months, is seen helping the country weather the global crisis. In the past year, the island nation has been hit hard by a sharp decline in the output of bauxite and alumina output, key exports for the country, as well as a fall in remittances from overseas and a slowdown in tourism revenue.
Both Standard & Poor's and Fitch Ratings Thursday said they will likely raise Jamaica's sovereign debt ratings after the completion of the exchange.
RBS economist Boris Segura said it's likely the debt swap will see a high participation. "If it doesn't happen, the country doesn't get the IMF loan, but at the same time, existing bondholders get a default," he told Dow Jones Newswires.
The IMF estimates the Jamaican economy contracted by 3.6% in 2009 and will see another slight decline in 2010.
The $7.9 billion dollars in local debt represents a little more than half of the country's total outstanding debt. For holders of the bonds, there won't be any reduction in the principal, but maturities will be stretched out 2.5 years and yields will be fixed at 12%. That's a dramatic cut as the bonds currently carry interest rates that average 18%, with yields as high as 28%.
In a statement, IMF Managing Director Dominique Strauss-Kahn said the loan should help the country obtain another $1.1 billion in funding from other international sources.
"Strong policies and an ambitious reform agenda are necessary now to start a process of transformation in the Jamaican economy," he said.
About $400 million of the IMF loan will go toward the formation of a fund for the financial sector, which will support institutions that may face liquidity problems from having participated in the swap.
The plan only applies to local debt and doesn't affect dollar-denominated debt, "which is far less burdensome in terms of its interest rates," according to the government site.
Copyright
2009 Dow Jones Newswires
Jamaican Debt Swap Could Open Door To IMF Loan, Credit Upgrades
By Kejal Vyas
Dow Jones Newswires
NEW YORK -(Dow Jones)- The stars started to align for the Jamaican government Thursday as staff members of the International Monetary Fund agreed to give the Caribbean country a $1.25 billion stand-by loan.
The announcement comes as government officials are asking holders of around 701 billion Jamaican dollars ($7.9 billion) of local debt to exchange it for lower-yielding, longer-maturity bonds starting Thursday.
In an address to the nation Wednesday night, Prime Minister Bruce Golding said the successful completion of the deal is a crucial step for the country to control expenses and meet guidelines under the IMF program. Officials expect to save $452 million, equivalent to 3.4% of gross domestic product, in interest payments over the next year thanks to the debt swap.
If the exchange isn't successful, the government said, "there will be no IMF program, as the offer is integral to the Medium Term Economic Program it has developed in partnership with the IMF," according to a statement on the official government Web site.
The exchange offer will remain open until Jan. 26, one day before the IMF's executive board is to formally approve the credit line.
The $1.25 billion loan, which will be available to Jamaica for 27 months, is seen helping the country weather the global crisis. In the past year, the island nation has been hit hard by a sharp decline in the output of bauxite and alumina output, key exports for the country, as well as a fall in remittances from overseas and a slowdown in tourism revenue.
Both Standard & Poor's and Fitch Ratings Thursday said they will likely raise Jamaica's sovereign debt ratings after the completion of the exchange.
RBS economist Boris Segura said it's likely the debt swap will see a high participation. "If it doesn't happen, the country doesn't get the IMF loan, but at the same time, existing bondholders get a default," he told Dow Jones Newswires.
The IMF estimates the Jamaican economy contracted by 3.6% in 2009 and will see another slight decline in 2010.
The $7.9 billion dollars in local debt represents a little more than half of the country's total outstanding debt. For holders of the bonds, there won't be any reduction in the principal, but maturities will be stretched out 2.5 years and yields will be fixed at 12%. That's a dramatic cut as the bonds currently carry interest rates that average 18%, with yields as high as 28%.
In a statement, IMF Managing Director Dominique Strauss-Kahn said the loan should help the country obtain another $1.1 billion in funding from other international sources.
"Strong policies and an ambitious reform agenda are necessary now to start a process of transformation in the Jamaican economy," he said.
About $400 million of the IMF loan will go toward the formation of a fund for the financial sector, which will support institutions that may face liquidity problems from having participated in the swap.
The plan only applies to local debt and doesn't affect dollar-denominated debt, "which is far less burdensome in terms of its interest rates," according to the government site.
Copyright
2009 Dow Jones Newswires