LatinFinance - September/October 2013 - 24

JAMAICA
debt

Jamaica’s first quarter debt restructuring bought it some time. Whether
it will be enough depends on the island’s success with a difficult economic
turn-around. By Mariana Santibáñez

Breaking the cycle

T

imes are tough for Jamaica. at nearly 150% of GDP, the caribbean nation is
struggling with one of the highest debt burdens in the world. its economy barely grew last
year, and has contracted in three of the last five.
now, an imf program aims to lower the country’s public debt to a more sustainable level,
and bolster economic growth.
Since the deal was signed in may, authorities have pressed ahead with structural reforms,
but concerns linger over how successful they will be, given the country’s past difficulties in
turning the tide on the economy.
“they have shown they can run primary surpluses in short bursts, but they haven’t
shown they can sustain them,” says carl Ross, managing director of investments at
oppenheimer. “this time has to be different.”
Jamaica’s fiscal performance has been surprisingly strong — but the country must focus on
reducing debt-to-GDP and continue with tough austerity measures.
finding a way to get its debt under control is critical for Jamaica. the country’s next bond
redemption is next year and authorities are already engaging with investors.
‘Drastic’ measures
earlier this year, the government took steps to tackle interest costs on its overwhelming debt
load through an exchange offer — its second in three years. although the deal did not alter
the principal amount outstanding, it cut interest rates and extended maturities.
the caribbean nation pushed for a strong take-up, ultimately getting 98% participation in
the swap which was closed in the first quarter.
the process was a smooth one between the local financial sector, the finance ministry
and the central bank, says Dylan coke, senior investment banker at Jamaica’s national
commercial Bank.
“there was a very good consensus among locals that something drastic needed to be
done,” he says. “one of the things of which we take comfort in from an investment bank’s
perspective is the certainty and predictability. the imf program brought that.”
Known as the national Debt exchange (nDX), the deal targeted $9.12 billion worth of
bonds in 25 series denominated in Jamaican and US dollars, as well as inflation-linked notes.
the strong participation by bondholders will take around 8.5 percentage points off

24 l atinfina nce.com - September/October 2013

Jamaica’s debt to GDP ratio by 2020.
the exchange was also seen as a
precondition for signing a fresh imf deal.
in may, the fund approved a $932 million
facility for Jamaica, part of a $2 billion
package which also includes disbursements
from the World Bank and the iDB.
Fresh determination
the imf cash depends on Jamaica moving
ahead with measures to increase growth,
employment and competitiveness, as well
as demanding extensive fiscal reform. the
government is front-loading sweeping
changes to the tax system and public
finances — including the introduction of
a fiscal rule — in a bid to get the economy
performing better, fast.
this year and next, the budget targets a
central government primary surplus of 7.5%
of GDP. tax reforms are also in the works.
Despite having embarked on several
fiscal adjustment programs in the past, the
new package’s aggressive, comprehensive
plan for reforms will help boost its chances
of success, the imf says. additionally,
Jamaica’s new administration — in place
since early 2012 — has a parliamentary
majority and a tenure that spans most of the
program’s four years.
Jamaica aims to cut its debt to 96% of
GDP by 2020, and grow at 2% a year from
2014, says Darlene morrison, deputy
financial secretary at the government’s
economic management division.
“We are progressing, but things are not
going to change overnight,” she says.
morrison highlights weak tax collection
and a practice of borrowing to fund
spending as causes of Jamaica’s debt
problems.
“like everywhere else, there are
elections every four or five years,” she says.
“Governments decide what they want to do,
and the only way [to fund what they wanted
to do] was to fund with debt, contributing


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LatinFinance - September/October 2013

Table of Contents for the Digital Edition of LatinFinance - September/October 2013

Latin Finance - September/October 2013
Contents
Front notes
People news
Debt news
Equity news
M&A news
After the storm
Advantage Mexico
Treading water
New structures
Mexico
Regaining the Initiative
Deficit Ahead
Building up
Switching Course
Brazil
Work in progress
Extreme makeover
Mind the gap
Brazilian life insurance
Andean
Breaking the fall
Reaching out
Market movers
Paraguay
Smoothing the cycles
Thinking big
Parting Shot
LatinFinance - September/October 2013 - Latin Finance - September/October 2013
LatinFinance - September/October 2013 - Cover2
LatinFinance - September/October 2013 - Contents
LatinFinance - September/October 2013 - 2
LatinFinance - September/October 2013 - 3
LatinFinance - September/October 2013 - Front notes
LatinFinance - September/October 2013 - 5
LatinFinance - September/October 2013 - People news
LatinFinance - September/October 2013 - 7
LatinFinance - September/October 2013 - Debt news
LatinFinance - September/October 2013 - 9
LatinFinance - September/October 2013 - Equity news
LatinFinance - September/October 2013 - 11
LatinFinance - September/October 2013 - M&A news
LatinFinance - September/October 2013 - 13
LatinFinance - September/October 2013 - 14
LatinFinance - September/October 2013 - 15
LatinFinance - September/October 2013 - 16
LatinFinance - September/October 2013 - 17
LatinFinance - September/October 2013 - 18
LatinFinance - September/October 2013 - 19
LatinFinance - September/October 2013 - 20
LatinFinance - September/October 2013 - 21
LatinFinance - September/October 2013 - 22
LatinFinance - September/October 2013 - 23
LatinFinance - September/October 2013 - After the storm
LatinFinance - September/October 2013 - 25
LatinFinance - September/October 2013 - Advantage Mexico
LatinFinance - September/October 2013 - 27
LatinFinance - September/October 2013 - Treading water
LatinFinance - September/October 2013 - 29
LatinFinance - September/October 2013 - 30
LatinFinance - September/October 2013 - New structures
LatinFinance - September/October 2013 - 32
LatinFinance - September/October 2013 - 33
LatinFinance - September/October 2013 - 34
LatinFinance - September/October 2013 - 35
LatinFinance - September/October 2013 - 36
LatinFinance - September/October 2013 - 37
LatinFinance - September/October 2013 - 38
LatinFinance - September/October 2013 - 39
LatinFinance - September/October 2013 - 40
LatinFinance - September/October 2013 - Mexico
LatinFinance - September/October 2013 - Regaining the Initiative
LatinFinance - September/October 2013 - 43
LatinFinance - September/October 2013 - Deficit Ahead
LatinFinance - September/October 2013 - 45
LatinFinance - September/October 2013 - Building up
LatinFinance - September/October 2013 - 47
LatinFinance - September/October 2013 - 48
LatinFinance - September/October 2013 - 49
LatinFinance - September/October 2013 - 50
LatinFinance - September/October 2013 - 51
LatinFinance - September/October 2013 - Switching Course
LatinFinance - September/October 2013 - 53
LatinFinance - September/October 2013 - 54
LatinFinance - September/October 2013 - 55
LatinFinance - September/October 2013 - 56
LatinFinance - September/October 2013 - Brazil
LatinFinance - September/October 2013 - Work in progress
LatinFinance - September/October 2013 - 59
LatinFinance - September/October 2013 - 60
LatinFinance - September/October 2013 - 61
LatinFinance - September/October 2013 - Extreme makeover
LatinFinance - September/October 2013 - 63
LatinFinance - September/October 2013 - 64
LatinFinance - September/October 2013 - 65
LatinFinance - September/October 2013 - 66
LatinFinance - September/October 2013 - Mind the gap
LatinFinance - September/October 2013 - 68
LatinFinance - September/October 2013 - 69
LatinFinance - September/October 2013 - Brazilian life insurance
LatinFinance - September/October 2013 - 71
LatinFinance - September/October 2013 - 72
LatinFinance - September/October 2013 - Andean
LatinFinance - September/October 2013 - Breaking the fall
LatinFinance - September/October 2013 - 75
LatinFinance - September/October 2013 - 76
LatinFinance - September/October 2013 - Reaching out
LatinFinance - September/October 2013 - 78
LatinFinance - September/October 2013 - 79
LatinFinance - September/October 2013 - 80
LatinFinance - September/October 2013 - 81
LatinFinance - September/October 2013 - Market movers
LatinFinance - September/October 2013 - Paraguay
LatinFinance - September/October 2013 - Smoothing the cycles
LatinFinance - September/October 2013 - 85
LatinFinance - September/October 2013 - Thinking big
LatinFinance - September/October 2013 - 87
LatinFinance - September/October 2013 - Parting Shot
LatinFinance - September/October 2013 - Cover3
LatinFinance - September/October 2013 - Cover4
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