BANK of Jamaica Governor Brian Wynter last week made the case for the National Debt Exchange (NDX), better known as the JDX 2 after the original Jamaica Debt Exchange in February 2010.

He told the insurance sector that those 'outside' had said What was needed was a very large haircut, "as your situation can't be fixed by financial or monetary policy, and without it there is no point in talking to you, as the burden of getting there will be impossible for you to sustain".

But the Government's team had to convince those who held that view that they can't do that, and back them away from that kind of logic. He added that if the NDX did not succeed, the chances of getting an International Monetary Fund (IMF) programme fell to zero.

Richard Byles of Sagicor, publicly, and others in the financial sector, privately, have quantified the size of the initially demanded haircut — meaning reduction in face value — as 25 per cent, which would have reduced our debt to GDP ratio from around 140 per cent to roughly 110 per cent, but would have had an extremely severe impact on the balance sheets of local private sector financial institutions.

Instead, the IMF has accepted a programme that reduces our debt to 95 per cent by 2020, a 45 per cent reduction over seven years, of which the NDX is just one component. In fact, the NDX affects $860 billion of Government debt, and is designed to save Jamaica $17 billion a year in interest costs, or about 1.25 per cent of GDP annually. This would reduce our debt by 8.5 per ecnt of GDP by 2020, with the balance of the reduction supposedly being achieved through a combination of growth, tax increases, and wage restraint.

The debt swap extends the maturity of the existing locally issued bonds an average of three to five years (a few bonds are longer), with investors getting an instrument with the same face value and type as before. The current holder of a fixed rate instrument will get another fixed rate instrument with a lower interest rate and longer maturity. For example, the holder of a fixed rate bond with a 12.25 per cent coupon (interest rate) due on February 24, 2013 will now get a new fixed rate bond due on February 10, 2016 with a coupon reduced by five per cent to 7.25 per cent.

To offset the much greater price impact, there is a reduction in interest rates on the longer fixed rate instruments. The holder of a fixed rate 2019 coupon of 12.75 per cent will get a 2024 bond with a lower interest rate to 11 per cent. The holder of a variable rate instrument will get a longer maturity variable rate instrument with a sharply reduced interest margin (now only between one quarter and one half of a per cent) over treasury bill rates.

Slightly different terms apply to the two (each) of the local US dollar and Consumer Price Index (CPI) linked bonds affected, although the US dollar bond maturing in 2014 has been excluded from the offer, and there is an option for all holders to convert into a CPI bond maturing in 2040.

Most importantly, from the perspective of fairness, individual holders of bonds of variable rate, fixed rate and US dollar bonds of under $25 million, or US$200,000, maturing in 2013 and 2014 have the option of new "retail" notes that mature in 2014. Jamaican dollar investors will get a one-year note at a fixed rate of seven per cent maturing in 2014, and US dollar investors will get a new five per cent note in US dollars also maturing in 2014.

Pensioners who need money now to live, or the sick anticipating high medical bills, or just the average salary man looking to buy a house, would be well advised to take advantage of this option.

Finally, the FSC has advised that they will not take any regulatory action against pension trustees solely due to them deciding to participate in the NDX. This makes the NDX, which closes at 2:00 pm today, like the JDX, in the words of the Godfather movie, "an offer we can't refuse".