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Rescue plan to be outlined today

Published:Wednesday | January 13, 2010 | 12:00 AM

Arthur Hall, Senior Gleaner Writer

Prime Minister Bruce Golding will address the nation today as the Government prepares to outline the details of its latest plan to rescue the economy and convince the International Monetary Fund (IMF) to lend the country US$1.3 billion.

But the key component of the announce-ment will be a dept-swap type programme designed to save the Government up to $40 billion in interest payments each year.

Golding has spent the past week meeting with Cabinet members and key technocrats before huddling with sector leaders in a bid to convince them the measures are necessary, no matter how painful.

Already, one of the country's leading bankers has given the thumbs up to the plan, while several others have shown interest in the proposal, which would see them swapping high-cost, domestic debt for new instruments at lower interest rates.

Keith Duncan of Jamaica Money Market Brokers (JMMB) has indicated his support for the plan, even though industry experts say that is one of the institutions which could be hard hit by any reduction in the rates.

"The fact is that there is going to be some pain but the financial sector has been seeing wonderful profits over the last many years and I think we can absorb some pain," Duncan said.

That should be good news for the Golding administration, which has quietly indicated that another major institution seems set to announce its support.

Debt management programme

It is expected that the prime minister will use this address to the nation to announce a debt-management programme which would require holders of domestic debt to take a sizeable cut in their interest payments.

The Government on Monday signalled to the market that it was heading to a period of lower interest rates, with the floating of a bond instrument with a 12 per cent return. This is the lowest rate offered on a government instrument in almost two years.

If the administration manages to move the rates on its entire stock of domestic debts into that 12 per cent ballpark, the savings for the administration would be a big part of what the doctor ordered.

But any such move would have to get the nod from the local financial sector, which has been considering the proposed debt-management programme since it was placed on the table at the start of the week.

Officials of the leading financial institutions have so far refused to comment publicly on the Government's proposal.

However, the bankers agree that the debt management plan is wide-ranging, different and very technical.

"It could negatively impact some entities but the Government has indicated that it is prepared to offer financial support to the tune of US$400 million," one banker said.

"The Government should be prepared for a possible downgrade from the international rating agencies, but that would be a minor inconvenience if Golding can get the financial sector to buy into the proposal now on the table," another banker said.

But international financial analyst Gregory Fisher has said any move to lower interest rates would be welcome by the international capital market.

Fisher has also said Jamaica should not concern itself with the capital market, but should pay attention to ensuring that it got the best possible and most workable deal with the IMF.

That is a position echoed by government officials who, yesterday, admitted that without the debt management deal the IMF agreement would not be signed.

This would mean that the country would, apart from losing access to a standby arrangement, lose possibly more than US$1 billion which would become available from multilaterals if the country gets the stamp of approval from the fund.

The IMF board is scheduled to discuss Jamaica's request on January 27.

The matter is to be debated in Parliament next Tuesday.