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Aug 8, 2012

Superbond due on August 20th

The Ministry of Finance and Economic Development has released what it calls the Indicative Restructuring Scenarios on the five hundred and fifty-seven million U.S. dollar super bond. The document is available on the Central Bank’s website at www.centralbank.org.bz.  A negotiating team led by Mark Espat has been meeting with multilateral partners to fine-tune macro economic projections and finding ways to offset the nineteen point five million dollars shortfall in oil revenues. They have also been talking with the former owners of Belize Telemedia and B.E.L., on compensation. B.T.L. was nationalized in 2009 and B.E.L. in 2011, and according to the document, former shareholders of B.T.L. and Fortis are willing to consider out of court settlements. In the document, the Government presents three options that it will pitch to the holders of the Superbond. The Government says each of the three options would close financing gaps in a sustainable manner. The first option extends the Superbond maturity to 2062 at two percent interest. It includes a fifteen year grace period. The second option extends the Superbond to 2042. There is no grace period, but there is a forty-five percent discount on the principal. Interest will step up gradually from one to four percent throughout the period. The final option has a five year grace period as well as a forty-five percent principal discount and three point five percent interest throughout the term, which also ends in 2042. The government has had to commit to boost revenues while putting a cap on expenditures and investments.

 

Some of the measures were built into the budget and have been approved such as the VAT on petroleum products and the hotel sector as well as the reform of the banking sector regulation. Others are projected to be put in place by the end of the year or in the next fiscal year to ensure that fiscal targets are realized. With all the options presented, the government is seeking to pay less and at a later stage. The next coupon payment of the Superbond is due on August twentieth for forty-six million dollars with an interest of eight point five percent. On the other hand, S & P has revised the economic outlook from stable to negative, which reflects that low growth and investment, rising crime, public sector wage pressures, and hard budget constraint will reduce ability to pay debt service.  With additional constraints from declining oil production, the country remains dependent on external financing and it is expected that net Foreign Direct Investment will fall below the current account deficit in 2012 for the first time since 2005.

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5 Responses for “Superbond due on August 20th”

  1. Storm says:

    What a mess. I prefer option 1, because we do not take the easy way out of a deadbeat nation by discounting the principal of the debt. And in today’s economic climate, 2% interest isn’t ridiculously low [well, not for a nation with better credit].

    We need to tighten our national belt and work and scrimp and save our way out of the fiscal hole which we dug for ourselves and our children. We have some good national assets still, and with wise and honest leadership, we can get out of this mess and have a brighter future.

    But — what “investments” is the government talking about? Investment means spending to create future profit — government doesn’t do that, and it is misleading to talk that way. Government only spends and taxes, and the power to tax is the power to destroy, so it must be used sparingly. Let private people invest and build businesses and create jobs, with reasonable taxes and balanced government budgets, and we will be OK soon. No other option will save the nation.

  2. Louis says:

    Creditors won’t accept such a low offer, as it is obviously done in bad faith. So Mark Espat better go back to the drawing board and come up with a far better offer.

    In case of a default, creditors would be better off suing Belize in New York and getting the Super Bond accelerated, so it becomes due and payable ALL AT ONCE IMMEDIATELY.

    A default would surely create a confidence crisis in Belize, so Dean Barrow’s government probably wouldn’t last anyway. Barrow would probably be ousted by his own UDP.

    Most UDP members understand the importance of having good relations with creditors unlike the Prime Minister.

    Then Super Bond creditors would have the option of negotiating with a new and more sensible Prime Minister.

    In Africa there is country called Gabon. Last year Gabon decided to stop payments on its own Super Bond, mistakenly thinking it was a good idea, along the lines of Dean Barrow actually.

    Now that Gabon is in total isolation and shunned by the international community, they have realized that stopping payments wasn’t worth it, and is causing many more problems than benefits.

    Gabon recently announced that they will continue paying their Super Bond coupons, and make good on past defaulted coupons.

    I certainly don’t want Belize to become another Gabon.

    A Super Bond default would only bring more poverty and suffering to the Belizean people.

    LET US LEARN FROM GABON.

  3. Ricky Malthus says:

    It is unbelievable that GOB is dictating terms of repayment in violation of current legal agreement. What is it that the minister doesn’t understand about financing that he is presenting these ridiculous options to the creditors? Based on the dearth of data available to the public, the illustrious, prescient(sarcasm) prime minister will stumble once again from fiasco to fiasco to financial catastrophe. Prime Minister and advisors are demonstrating egregious fiscal and monetary incompetence.

  4. Louis says:

    Ricky, that is correct. Creditors won’t accept any of those scenarios.

  5. BMNJ says:

    First, we have oil; now, we have gold. Something is wrong!!

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