Jodi-Ann Gilpin, Gleaner Writer

FOLLOWING THE introduction of a second debt-exchange programme in three years, a major player in the insurance sector is urging the investment community not to over-rely on government paper.

Donovan Brown, chief executive officer at the Chancellor Insurance Company, made the call yesterday, days before the National Debt Exchange Offer (NDX) closes on Thursday.

"I don't think investing in government paper alone actually grows an economy," Brown stated in an interview with The Gleaner.

He added: "By law, for pensioners and others, it is a safe investment, but in terms of growing your company, we have to find other avenues of income streams."

Jamaica, with a debt-to-GDP ratio of 140 per cent, has embarked on the debt swap as it seeks to ink a board-level deal with the International Monetary Fund (IMF).

Jan Kees Martijn, head of the IMF mission to Jamaica, who signed off on a staff-level agreement with the country last week, has said "a successful debt exchange will require high participation from creditors to help secure financing assurances for a Fund-supported programme".

Brown told The Gleaner that a second debt exchange should serve as a strong signal to investors that it cannot be business as usual.

"When you are in a country and they have to turn to these types of measures, you have to really think of creative ways such as producing goods and services, among other ways, in order to stay afloat," Brown said.

"For example, banks, you can't really depend on government paper alone," Brown added.

"Banks would have to, maybe, change their lending strategies. Rather than lending money to buy cars primarily, you lend money to create new business so as to generate growth in the economy," he continued.

Brown was also quick to point out that the Government should properly manage this current debt exchange so as to avoid another one.

"If this current debt exchange is managed properly, then it can be good for the country. But if the proper measures such as the tax reform and pension reform are not implemented and we keep going for avenues such as the NDX and the JDX (Jamaica Debt Exchange), then we are going to be in serious trouble," he said.

Phillips has said the offer could lead to the reduction of the country's debt-to-GDP ratio by 8.5 per cent or around $17 billion per year between now and 2020.

When the Government introduced the JDX in 2010, it generated interest savings of at least three per cent of gross domestic product through the reduction in interest rates by seven percentage points and two percentage points on outstanding domestic and US dollar-denominated bonds, respectively.

The JDX had a participation rate of 99.2 per cent and resulted in a notable change in the maturity profile of the domestic debt. The average maturity of the domestic debt after the JDX increased to 8.9 years from 4.5 years, lowering pressures on interest rates and improving the Government's ability to respond to shocks.

Phillips, in closing the Budget Debate last May, drew attention to a comment from the IMF, which had said it "regretted that the successful debt exchange under the 2010 standby agreement had not been accompanied by fiscal consolidation to put Jamaica's public debt on a sustainable downward path".

jodi-ann.gilpin@gleanerjm.com