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Barbados suspends payments to external creditors

Published:Tuesday | June 12, 2018 | 12:00 AM
Barbados Prime Minister Mia Mottley

Barbados' economic outlook has taken another hit with a decision by the Mia Mottley-led government to suspend payments to external creditors.

That decision has upended expectations and left holders of US-dollar bonds facing the prospect of tough debt negotiations in coming months.

While it was expected that the country would have defaulted, foreign accounts had assumed that they would be excluded from any debt-restructuring mechanism. As a result, creditors have formed a group comprising the largest institutional holders of dollar bonds and investors who hold a loan syndicated by Credit Suisse. They were expected to select a financial adviser as soon as last week, while Barbados has already engaged White Oak Advisory.

"Barbados' payment record, which up until now has been unblemished in the international markets, has suffered a blow," said an investor close to the situation.

By leaving dollar bonds out of a restructuring, the sovereign bond would have created some goodwill with foreign accounts and hence would have left external financing avenues open, said analysts.

That was the model Jamaica pursued in 2013, when it carried out a domestic debt restructuring, and what the International Monetary Fund suggested in its recent Article IV consultations.

"It is clear in the Article IV that the IMF was not focused on private sector involvement," said Nathalie Marshik, head of sovereign research at Oppenheimer & Co.

Government sources argue otherwise, noting that anyone who had paid close attention to the country's debt dynamics would have realised foreign debt had to be part of the equation.

"The price of the securities didn't reflect the true credit profile," a source close to the government told IFR. "They took their eyes off the external liquidity position of the country."

With the new government winning a landslide victory in May and coming to power with substantial dollar payments in the coming months, it had to act quickly to preserve liquidity.

Dipping into a central bank reserves of just US$220m for external debt payments would have left the country with even less to cover import costs and maintain its exchange rate peg.

Taken from Nasdaq News