GOVERNMENT has essentially already secured 15 per cent of the support it will need for its planned debt exchange transaction that will involve the swapping of over $720 billion in its domestic debt for lower yielding bonds. The Bank of Jamaica (BOJ) and other public bodies own $110 billion of the domestic debt.

But fundamental to the programme, which is expected to yield savings of $40 billion on interest payments next fiscal year, is the support of financial institutions that hold 63 per cent of the domestic debt, which earn up to 92 per cent of their revenue from Government’s interest payment to them.

According to a Jamaica Information Service (JIS) press release issued late Monday, “Government sources are insisting that, if they do not complete the exchange offer, there will be no International Monetary Fund (IMF) programme, as the offer is integral to the Medium Term Economic Programme it has developed in partnership with the IMF”.

“The programme is aimed at bringing into a sustainable range, the amount of Government resources devoted to servicing local debt, and reducing the debt in a manner that is fair to all holders of Government paper,” said the release.

Prime Minister Bruce Golding is expected to address the nation through a broadcast tonight, but the Government has already said it will not proceed with the transaction unless it gets “substantially, 100 per cent participation”.

On the other hand, financial institutions earn a significant portion of their revenues from the interest payments they receive from government securities, which would be reduced under the Government’s planned debt swap.

These institutions held $454 billion of the $722 billion in local public debt up to last October, and have the most to lose under a debt swap.

The largest holders of the domestic debt include merchant banks, trust companies and brokers with $247 billion; insurance companies with $108 billion; commercial banks with $87 billion and building societies holding $12.5 billion at the end of October last year. Superannuation and pension funds, including BOJ’s superannuation fund held $89 billion.

Last night, stakeholders declined to comment on the impact that the debt swap would have on their revenues while some were still working at determining how the exchange will impact their balance sheets.

What’s clear is that institutions will have to decide if they will accept the Government’s proposal in less than two weeks — the IMF’s board is scheduled to decide on the US$1.3-billion standby facility support, required to plug the balance of payment gap created by the loss in foreign exchange revenues, on January 27.

Even while financial sector sources say that there is general acceptance among financial firms, many of them earn the bulk of their revenues from interest income.

Jamaica Money Market Brokers (JMMB) earned 92 per cent of its operating revenues at $7.5 billion from interest income at $6.9 billion for its half-year ending September 30 2009; this however drops to 56 per cent when net interest income (interest income minus interest expense) is compared with operating revenues.

JMMB didn’t differentiate between interest on loans and earnings from securities, however, investment and resale agreement was $110.5 billion of its total asset base of $124.4 billion while loans and notes receivables totalled $3.4 billion at the end of September 2009.

Mayberry Investment Limited (MIL) earned 85 per cent of its $2.1 billion gross operating revenue from interest income over nine months to September 30, 2009; however this drops to 30 per cent when net interest income is compared with operating revenues.

MIL’s investment securities at the end of September 30, 2009 totalled $14.7 billion, while total assets stood at $23.8 billion. Loans and other receivables totalled $1.9 billion.

Pan Caribbean Financial Services earned 79 per cent of its $7 billion gross operating revenue for the nine months ending September 30, 2009 from interest on securities.

Capital & Credit Financial Group earned two-thirds of its $6.2 billion gross operating revenues or $4.1 billion from interest on investments during the 12 months to September 30, 2009.

National Commercial Bank of Jamaica earned $22.3 billion or 51 per cent of its $43.8 billion gross income from interest from securities for its year to September 30, 2009.

Scotia Group Jamaica earned $18.1 billion or 37 per cent of its $47.9 billion gross operating income from interest from securities during its financial year that ended October 31, 2009.

At the same time, Government plans to use US$400 million from the IMF and multilateral funding to create a Financial Sector Support Fund, to provide a source of liquidity to eligible financial institutions that may be affected by the issuing of new bonds in the exchange.