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NDX shortfall - Gov't approaches businesses to fill gap

Published:Tuesday | March 26, 2013 | 12:00 AM
Prime Minister Portia Simpson Miller and Finance Minister Dr Peter Phillips during their joint national address. - JIS

The Ministry of Finance, Planning and the Public Service has, over the past two weeks, reportedly been forced to return to some of the larger institutions involved in the 2013 National Debt Exchange (NDX).

Sources say the Government had quietly engaged about eight entities for assistance to fill a reported $10-billion shortfall after the close of the extended deadline for the NDX offer last month.

The NDX, Jamaica's second debt-exchange programme, was announced by Prime Minister Portia Simpson Miller and Finance Minister Dr Peter Phillips during an address to the nation on February 11. The programme, a major feature of the Government's economic strategy to satisfy requirements for a new International Monetary Fund (IMF) agreement, was projected to reduce the nation's debt-to-gross domestic product (GDP) ratio by 8.5 per cent, or around $17 billion per year until 2020.

The debt now stands at more than 140 per cent of the nation's GDP - a figure the administration wants to move to 95 per cent within seven years.

Reluctant signing

After Simpson Miller and Phillips' February address, 99 per cent of private-sector entities reluctantly signed on to the NDX, declaring their hands were tied and demanding that the Government not allow a recurrence.

But yesterday, a government source argued that going back to the entities was always on the table. The eight entities engaged are said to be the Bank of Nova Scotia, the National Commercial Bank, Jamaica Money Market Brokers, GraceKennedy, Guardian Life, Sagicor, Jamaica National Building Society, and Victoria Mutual Building Society.

Government officials have firmly rejected suggestions that the move constitutes yet another debt-exchange initiative that has been foisted on some entities in a bid to shore up the feeble economy as it anxiously awaits good news from the IMF.

The finance ministry also dismissed claims that it was a miscalculation by its technocrats that sent it scurrying for what it described as a "contingency" arrangement and not "NDX Two".

The Gleaner was, up to yesterday afternoon, unable to reach Governor of the Bank of Jamaica (BOJ) Brian Wynter, who was said to be "unavailable".

Pamela McLaren, senior director in the finance ministry's debt management unit, also could not be reached for comment.

In place for approval

With the "contingency arrangements" now a done deal, The Gleaner understands that Cabinet has been informed that all is in place for approval from the board of the IMF on Jamaica's side of the equation.

However, a highly placed source revealed that the month-end approval deadline is being thwarted by discussions involving the Inter-American Development Bank (IDB) and the World Bank over whether more than US$750 million announced by the IMF under a new extended fund facility should be increased.

A well-placed ministry source, who requested anonymity, argued that the entities had been forewarned of the likelihood that the Government would return to them.

"It was impossible to determine the precise value of the NDX take-up because of its voluntary nature," asserted the finance ministry insider. "There was no way that you could know beforehand. We had indicated to them that we may have to come back because you cannot know the price amount of the take-up … ."

People informed

The ministry official told The Gleaner, "You would need such a contingency, but it is definitely not another NDX … ."

Another Government official said, "When we had the calculations based on $860 billion because of certain percentages, one percentage did not come through, so that created a $10-billion shortfall, but some of the notes were not due until the 27th March."

The Government official added: "So they are talking to those people to come on-board. I know we are short about $10 billion, and the people in the Ministry of Finance were hoping to talk to these people as Thursday or Friday some bonds are due … ."

Under the NDX, the 12.5 per cent fixed-rate Jamaica dollar bond was exchanged for a new fixed-rate bond paying interest of 7.25 per cent and maturing in 2016.

Additionally, the maturing 6.75 per cent US-denominated bond was exchanged for a new bond paying interest of 5.25 per cent and maturing in 2020.

Phillips has said the transactions have been completed and everything is now before Cabinet.