Jamaica Nixes Restructure to Calm Market

Jamaica has decided against a restructuring proposed by holders of its $7 billion in domestic bonds, opting instead to rely on an expected package from the IMF to help cover the debt burden. “Cabinet, after careful consideration of the proposal and mindful of the uncertainty in the market has decided that the government will not be pursuing this proposal,” finance minister Audley Shaw says in a statement. A group of Jamaican banks had proposed to restructure the sovereign’s short-term domestic debt, say foreign investors holding the sovereign bonds. “Discussions in the market about this initiative raised concerns about the government’s debt strategy,” says Shaw. Domestic liabilities account for 55% of the sovereign’s total debt, which stood at 106% of GDP as of March, according to Fitch. GDP was $12.2bn in 2008, according to the US state department. Jamaica plans to use a $1.2bn stand-by agreement with the IMF, under negotiation since the spring, to ensure ability to meet payments. “The proposed stand-by agreement with the International Monetary Fund will ensure stability in our balance of payments,” says Shaw. “The government is taking the necessary steps to deal with its fiscal challenges,” he adds. Fitch calls securing the agreement “critical” given increased external vulnerabilities, weak fiscal profile and rising interest burden. “The agreement with the IMF could likely get it through until 2011,” says a US-based investor holding Jamaica, noting that a restructuring seems unlikely in the near future. The sovereign’s 8% 2019 bond – trading recently in the high 70s – was unchanged on the news, according to traders. Fitch rates Jamaica B with a negative outlook. The sovereign has long prided itself on the fact that it has always honored the national debt.