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Jun 17, 2005

Ralph: derivatives venture was justified

Story PictureAnother hot issue that has been bubbling on the streets of Belize City this week were allegations that the Government of Belize had done business transactions on the derivatives market. As we understand it, what G.O.B. did was to use millions of U.S. dollars it borrowed from Solomon Smith and Barney and convert it to Japanese Yen, hoping that as the currency gained strength, when the money was converted back to U.S. currency, the country would have made some extra cash. It didn’t quite work out that way, and in the end, millions of dollars were lost. This afternoon, News Five spoke to the then Finance Minister Ralph Fonseca about the details of the transaction.

Ralph Fonseca, Min. of Home Affairs
?Sometime in 2001, the Board of the Central Bank had a discussion which involved either expanding the basket of currencies that we use to back up the Belizean dollar or getting involved in the derivatives market or hedging the Belize dollar or the U.S. dollar against some other currency. Most of the countries in the Caribbean at the time, and in the world, were hedging their U.S. dollar obligations against the Yen, because at the time, the Yen was depreciating very fast?I think it was around one-twenty-two or something like that. So the government, the Board of the Central Bank made a recommendation to the Government to pass an Act, which would allow the Central Bank to get into the derivatives business. That Act was passed in the National Assembly in 2001; it was not a capricious action. And then using that Act, the Central Bank entered into one contractual arrangement with Citibank. I think they hedged the Solomon Smith Barney loan–which was in U.S. dollars–against the equivalent in Yen at the time, one being at nine and a quarter percent and the Yen being at some six point some percent. So as long as the Yen did not appreciate past that point when you do the arithmetic, then there was a chance that we could have save some money. As it turned out, because of the world situation and because of what has been happening with the U.S. dollar, which has been devaluing very fast against other world currencies, the Government made two point five million dollars and lost about five million dollars. So they have a net loss at the end of the contract of about three million dollars.?

Janelle Chanona
?Some people have categorised this as gambling. Would that be your definition of this kind of business transaction??

Ralph Fonseca
?Well again, if you want to be sensational and outrageous, you can say it?s gambling, but you?re talking about people that are doing calculations based on expectations, based on real factors, real information that?s coming to them. And at that time, nobody foresaw what is happening today, what has been caused by 9/11, what has been caused by the Iraqi war, the huge charge against the U.S. dollar, the huge deficit in the U.S., the huge balance of payments deficits that the U.S. has, all of these things have devalued the U.S. dollar and those things were never contemplated at that time.?

Dean Barrow, Leader of the Opposition
?There is a book that I want to present to the ex-Minister of Finance called ?Investing for Dummies?, because he had to have been a dummy and the Government of Belize had to have been dummies to have ever played around with the derivatives market. Everything that I have consulted, every expert source that I have looked at tells me you don?t fool around with the derivatives market unless you know absolutely what you are doing and unless you have money to burn. It is the most speculative, it is the most risky venture imaginable, and for us in the straightened circumstances in which we have been over the past two years, to have taken that sort of risk is absolutely astounding.?

But in the end, Barrow would not make his presentation to Minister Fonseca as speaker of the House Elizabeth Zabaneh adjourned today’s proceedings in the middle of a presentation by area representative for Mesopotamia, Michael Finnegan. All bills regarding tax increases had their three readings in the National Assembly today.

Viewers please note: This Internet newscast is a verbatim transcript of our evening television newscast. Where speakers use Kriol, we attempt to faithfully reproduce the quotes using a standard spelling system.

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