LatinFinance - September/October 2013 - 25

to the country’s debt problems.”
Despite bold plans for fiscal reform,
getting Jamaica’s economy moving again
will be difficult.
“any fiscal adjustment is like a catch-22,”
says franco Uccelli, executive director of
emerging markets research at JPmorgan.
“You can’t grow because you can’t stimulate
and you can’t stimulate because the fiscal
situation is weak. How do you fix that? that
has been the predicament for so many
years.”
there is no easy solution to Jamaica’s
debt problem. Since the mid-1990s, real
GDP growth averaged less than 1% per year.
today, over a third of government revenues
goes toward interest payments.
Jamaica’s debt-to-GDP ratio ballooned
between 1996 and 2003, rising to 147% from
76% as the country struggled with financial
crisis, according to the caribbean Policy
Research institute (capri).
the think-tank points to the
government’s absorption of debt from a
bank bail-out vehicle in the wake of the
country’s financial crisis as a root cause
of a surge of debt in the early 2000s. that
compounded a rise in government debt
which came with the development of a
domestic capital market in the mid-1990s,
capri says.
JPmorgan’s Uccelli describes the
sovereign’s relationship with local investors
as one of mutual reliance.
“[local investors] are well aware of the
precarious situation of the government,
and the two are willing to dance together
because they need one another,” he
says. “investors cannot turn their back
on the government because they have
too much exposure to it. if they don’t
support the government financially and as
a consequence it is forced to default, the
financial sector would sink with it.”
Steps to market
international investors, however, may need
more convincing.
morrison says that while Jamaica has
bought itself some time with its first quarter
debt exchange, it expects ultimately to
return to the international debt capital
markets.
Jamaica’s finance ministry met european
and US accounts for non-deal related
investor updates in may and June. on the
roadshow, investors said they wanted to
see the triple-c rated sovereign advance
with the imf program before they would
consider putting in fresh cash.

CLOUDY OUTLOOK: International investors may need some
convincing before they welcome
Jamaica back to the bond market

Franco Uccelli, jpMorgan

“Any fiscAl
Adjustment is like
A cAtch-22. you cAn’t
grow becAuse you
cAn’t stimulAte And
you cAn’t stimulAte
becAuse the fiscAl
situAtion is weAk”

But with debt redemptions in 2014
and 2015, Jamaica is vulnerable to rising
benchmark interest rates if US monetary
policy tightens. investors say that Jamaica
might consider refinancing a eurodenominated note that matures next year.
the $184 million-equivalent 2014 bond was
sold in 2004 — the last time the country
issued in euros, according to Dealogic.
Jamaica’s last international bond was a
$400 million sale in 2011.
But morrison says the sovereign does
not need to access the bond market

immediately. in addition to a multilateral
financing package, the country has loans
from china, on which it pays 3% interest.
“the government of Jamaica has so far
delivered to its commitment to improving
economic indicators of the country. We are
still seeking what else we can do in helping
to facilitate growth in moving the country
forward,” morrison adds.
Jamaica is expected to continue buying
cheap oil through Venezuela’s Petrocaribe
facility, accessing bilateral loans where
possible, and financing itself through the
domestic market.
meanwhile, the four-year imf program
will be closely monitored — not least by
investors keenly aware that the country
has just a small window to turn itself
around. LF

September/October 2013 - l atinfina nce.com 25
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