Sun | May 19, 2019

Our hands are tied - Stakeholders reluctantly accept new debt exchange

Published:Wednesday | February 13, 2013 | 12:00 AM
Richard Byles, president and CEO of Sagicor Life Jamaica, after addressing the audience during the launch of the National Debt Exchange.
Minister of Finance Dr Peter Phillips speaks with Bruce Bowen, president of the Jamaica Bankers' Association. - photos by Ricardo Makyn/Staff Photographer

Anastasia Cunningham, News Coordinator

It was not a happy group inside the Bank of Jamaica Auditorium in Kingston yesterday morning as Prime Minister Portia Simpson Miller and Minister of Finance and Planning Dr Peter Phillips hosted the launch of the National Debt Exchange (NDX).

The second of its kind in three years, Simpson Miller has indicated that the offer is a critical component of both the anticipated International Monetary Fund (IMF) agreement and the country's debt-reduction programme.

The serious, distressed demeanour of those within the room full of bankers, financiers, investors, union leaders, creditors and private-sector leaders mirrored that of Bruce Bowen, president and chief executive officer (CEO) of the Bank of Nova Scotia Jamaica Limited and president of the Jamaica Bankers Association, as well as Richard Byles, president and CEO of Sagicor Life Jamaica Limited. They both declared that while they were onboard with the deal and urged others to join them, they were not happy to be placed in such a position for a second time, especially in such a short period.

In 2010, the Government created the Jamaica Debt Exchange (JDX), which swapped $702 billion worth of domestic bonds. A precursor to the 2010 IMF agreement, the JDX extended maturities, reduced coupon rates and reduced government interest payments. Many felt, however, that that deal was not properly capitalised on.

Hopes to reduce debt

With this new deal, the Government is hoping to help reduce its $1.7-trillion debt, which stands at 140 per cent of the country's gross domestic product (GDP), to 95 per cent within seven years.

During a national broadcast on Monday, Phillips urged bondholders to accept the offer, which he said would make possible a reduction in the country's debt-to-GDP ratio by 8.5 per cent or approximately $17 billion between now and 2020.

"I do remember standing here three years ago and saying it wasn't a happy day. Obviously the same sentiment exists today," said Bowen.

"For too long Jamaica has been spending more than it earns, which is the blunt reality. As a result, we have gotten ourselves in a situation that is getting increasingly difficult for the Government to service its debt, but more importantly, increasingly difficult for the Government to do what governments are elected to do, which is to look after its citizens with education, security, health and other important social services."

Bowen said the stakeholders have all agreed that this was not a perfect deal or even a great deal, but it was the only deal given the dire situation facing the country.

"The brutal reality of the situation is that out of a lot of bad options and given the limited time we have, this is a better financial decision. We all know that without this, there is no IMF programme," he said.

"Notwithstanding all the weaknesses, problems, unanswered questions, not knowing the full details or having the assurance that it will take place, we know that without this debt exchange, Jamaica's sovereign risk is higher and will get to an unacceptable level over the short term."

Bowen said after making these sacrifices, it was imperative that the Government act and follow through on the tough political decisions that were needed, allocate the resources necessary to implement the plan and build on the partnership with the stakeholders to facilitate growth and improve economic welfare for Jamaicans.

"Once we have all sacrificed, the ball is in your court. We are counting on you to follow through on your half of the commitment," Bowen told Simpson Miller and Phillips, to loud applause from the room.

Not happy

An equally solemn Byles said: "Today I stand before you representing 32,000 pension clients and 220,000 life insurance policyholders, who, for the second time in three years, will see income from their bonds cut arbitrarily by the Government, bonds that indeed they are required by law to buy. It will not surprise you, therefore, that I am not a happy man.

"I only take solace in the fact that the alternative would have been far, far worse. It would have been a haircut of at least 30 per cent or default."

Acknowledging that he was fully aware of the tough fight the Jamaican negotiating team put up to "avoid this calamity", he added, "I am hopeful of the future, but, like many, I am angry that we let this debacle happen again and, like many, I am determined to play a much more active role in ensuring we run a fiscally responsible government.

"Because, no matter how well we operate our businesses, if the economy is weak and the debt very high, our businesses will always be at risk."