No plan proposed to restructure external debt, says ministry official
Published:Friday | May 6, 2011 | 12:00 AM
Sabrina Gordon, Business Reporter
The Finance ministry's plan to reacquire some of its bonds and pursue a series of interest rate swaps are merely management tools and are not to be read as a plan for a second-round restructuring of Jamaica's liabilities, says its senior debt expert.
Finance Minister Audley Shaw disclosed the measures for containment of the external debt during his opening presentation for the Budget Debate on April 28.
"It's not a restructuring at all," said Pamela McLaren, senior director in charge of the ministry's Debt Management Unit on Tuesday, while dismissing the likelihood of a Jamaica Debt Exchange 2.
"If market conditions are favourable then we will look at some sort of buy-back. If people are trading and want to sell then we may buy, so its normal market transaction on the secondary market," McLaren said.
The original JDX, which covered J$702 billion of domestic debt only, was read by external creditors as a technical default on its debt, and Jamaica was initially punished by the ratings agencies. That changed after the swap of 350 bonds for 24 lower-priced instruments was successfully executed in February 2010 and the IMF put its imprimatur on a rescue plan for Jamaica .
The DMU head said there is no such proposal for a similar programme for the foreign debt, but that the ministry would be alert to market opportunities that allowed for eliminating liabilities.
"If there is a bond valued at $200 million, and we buy back $20 million, then for the $180 million we may do a swap say from euro-denominated into US dollar and get some savings," said McLaren.
"If Jamaica is in a position to reduce its debt, then capitalise on it!" she declared.
The external debt which was estimated at US$8.87 billion - J$761 billion equivalent - is projected to continue rising in local currency terms and peak within the medium term at J$829 billion at March 2014.
The finance ministry's 2011-12 debt management strategy speaks to plans to explore the feasibility of an external liability-management operation that will "seek market-friendly transaction, market conditions permitting" to smooth maturities of external debt and reduce interest-rate costs.
The strategy references buy-backs and interest rate swaps.
The successful use of such tools, says Dr Adrian Stokes, is all in the timing.
"This is not a novel concept; other emerging market countries have executed liability-management programmes in the prudent management of sovereign debt," said Stokes, a strategist and vice-president of Scotia Investments Jamaica Limited.
"The success will depend on how deals are structured and market timing," he said.
The finance ministry plans to stay out of the international capital markets this year, and will confine external borrowings, a targeted J$43 billion. to multilateral and bilateral sources.
Jamaica last raised US$400 million last year to finance the repayment of a bond maturing this month.
Bond issues of US$4.2 billion represent the largest creditor category of Jamaica's external debt, accounting for 47.3 per cent of the portfolio.
Bilateral and multilateral obligations represent 46.4 per cent.
In terms of currency decom-position, 82.4 per cent is denominated in US dollars and 13.6 per cent in euros.
While some market analysts said it was difficult to comment on the Government's real intentions concerning the country's external debt, it was suggested that one option would be to refinance using cheap loans.
"The hope would be to pay down maturing debt or retire it with cheaper multilateral debt," said Charles Ross, managing director of Sterling Asset Management.
"The government should be looking to save money on the external debt," Ross said.
Jamaica anticipates savings of J$40 billion annually from JDX 1.