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Gov't pleased with overwhelming support for debt exchange

NDX success

Friday, February 22, 2013    

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JAMAICA was last night clearing its first hurdle towards a new International Monetary Fund (IMF) agreement, having secured a more than 97 per cent take-up of the National Debt Exchange (NDX).

"We are pleased with the overwhelming support," Information Minister Sandrea Falconer told the Jamaica Observer. "The numbers are being finalised, but so far they are in excess of 97 per cent. We will give a complete report to the country tomorrow (today)."

Finance Minister Dr Peter Phillips had explained that without a 100 per cent subscription to the NDX, Jamaica would not have been able to secure the IMF's support for funding.

The NDX, which closed last night after a week on offer, is the sequel to the Jamaica Debt Exchange (JDX) of 2010.

It was announced by Phillips in a national broadcast on February 11 and aims to lower the Government's annual finance costs by $17 billion, shaving an average of two percentage points off interest rates on $860 billion of the country's domestic debt.

More specifically, the NDX is seeking to swap 27 of the 30 JDX benchmark notes for new NDX notes, leaving $38 billion of debt untouched, apparently because they already carry coupon rates of seven to 8.5 per cent.

It was the second time in three years that holders of Government bonds and financial institutions were being asked to take a cut on interest.

But despite some criticism levelled at the Government for the measure, it was clear by Wednesday this week that the programme would be a success, as three of the four largest holders of government debt said they would participate.

The three — Scotiabank Group, Sagicor Group and Jamaica Money Market Brokers (JMMB) — jointly called on investors to support the transaction.

Guardian Life Insurance and GraceKennedy subsidiaries, including First Global Bank, First Global Financial Services and Jamaica International Insurance Company, had also said that they would fully take up the offer.

The Administration was even more assured of success because of the full participation of public sector bodies, including the National Insurance Fund, which hold 19 per cent of the domestic debt.

"Jamaica's fiscal problems are very serious, and without strong action by the Government, supported by the IMF, we would be placing Jamaica in an untenable position," said Scotiabank Jamaica President Bruce Bowen. "We believe that without this transaction there is no IMF agreement for Jamaica; something that is needed to rebuild confidence in our economy with our multilateral partners and international investors."

GraceKennedy CEO Don Wehby said that his group's board approved full participation after it was decided that the "adverse impact" would be short term and would not materially affect the financial position of the group.

"The board considered participation in the NDX to be in the best long-term interests of the shareholders of GraceKennedy Limited," he said.

JMMB said that it chose to exchange its bonds with the understanding and firm commitment from the GOJ that they will fulfil all other prior actions necessary to secure an agreement with the IMF, which in turn will provide balance of payment support to the country and boost confidence for early stabilisation of the Jamaican dollar.

JMMB CEO Keith Duncan said that partnership between all stakeholders is critical to the economic recovery process and in realising the "fiscal stability and growth that we all desire".

"To get it right this time we need real genuine partnership," he said. "We call on the GOJ to really change the game by choosing to build trust and enter into genuine partnership with all Jamaicans."

The transaction is a prior action required by the IMF before taking the staff-level agreement with Jamaica to its board for approval.

Alternatives to the debt exchange in order to secure an IMF agreement, might have had a devastating impact on Jamaica's financial sector, according to Richard Byles, president and CEO of Sagicor Jamaica Group.

"For too long Jamaica has failed to achieve its potential economically," he said. "As difficult as the sacrifice is being asked of investors, we must come together as a private sector and society, and make this economic programme work."

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