Finance Minister Dr Omar Davies has explained that the Government’s decision to raise US$350 million on the capital market was triggered by fears of a Chinese stock market disaster.

Davies was responding to a question from the Opposition spokesman on finance, Audley Shaw, about the decision to raise the funds following Davies’ recent undertaking in the House that no further debt would be acquired during the last quarter of the current financial year.

“I take note of reports that the minister has raised some US$350 million on the capital market earlier than expected,” said Shaw. “While it might be good news that he has raised these funds, I would like for the minister to indicate, in raising these funds early, what are the implications for additional interest charges?”

Davies responded that there has been some instability in the international capital markets occasioned mainly by a sharp drop in the stock market in China, which has created some jitters.

“In weighing all things, although we would have more difficulty, all other things being equal, all other things are not necessarily equal if China catches a cold,” he said. “So what we had to decide is whether we should make double certain and borrow in advance.”

Davies explained that the way the issue would be dealt with was that the Ministry of Finance will sell the bulk of the foreign exchange to the Bank of Jamaica (BOJ) and, in return, the BOJ will provide the Ministry of Finance with an interest rate which would correspond to what it would cost it to absorb that liquidity, if the money were put out.

“So, in this way we are protecting the Ministry of Finance from that additional interest cost,” said Davies. “The differential between what it would cost to borrow locally as opposed to the foreign exchange.”

He said that the interest rate on the bond is 8.125% per annum.