Jamaica to borrow from the international capital markets
Published:Friday | September 17, 2010 | 12:00 AM
Lavern Clarke, Business Editor
CORAL CABLES, Miami:
Jamaica will return to borrowing from the international capital markets, and while Finance Minister Audley Shaw placed no timeline on when, he declared in an international forum on Wednesday that Jamaica has no interest in expensive foreign cash.
Jamaica's borrowing needs are currently being fed by multilateral institutions, from which Government has so far secured more than US$1 billion at interest rates ranging from 0.63 per cent to 5.0 per cent.
The inflows track below Shaw's estimated US$1.3 billion losses to Jamaica from bauxite/alumina, tourism and remittance fallouts in the crisis, which Shaw said approximates 20 per cent of the national budget and 10 per cent of GDP.
Shaw has long noted his preference for the cheaper donor-agency credit, but speaking in Miami, Florida, he told the Americas Conference 2010 that Jamaica would get back into the commercial markets at some point, while signalling that buyers of its bonds should not expect coupons in the 10-11 per cent range that were in play pre-crisis.
"When we get back into the international capital markets, we expect to raise funds at no more than seven to eight per cent," said Shaw on the closing day of the conference. "I am sending that signal."
The rate tracks closely with the 7.0 per cent coupon that US-dollar denominated domestic bonds now average after the Jamaica Debt Exchange (JDX) bond swap.
The swap has been so successful for Jamaica that there have been suggestions that Shaw consider a similar exchange on Jamaica's foreign debt - which, inclusive of bonds and multilateral loans, currently carries servicing costs of J$47 billion.
Asked whether any such move was on the table, Shaw told the Financial Gleaner, ahead of his conference address, that "nothing like that is under consideration." It would, he said, send a bad signal to the markets which would automatically label it a default.
Instead, Shaw said, his energy is now focused on dragging from the commercial banks compromise on the pace of lowering lending rates - he wants them to move faster - to build on gains already seen under the JDX in falling interest rates.
Prime lending rates are still averaging 17-18 per cent, while the JDX bonds are at 12 per cent on average, and policy rates and and Treasuries are at 8.0 per cent.
Interest rates
On the issue of fees - which produce billions in profits for the banks and are criticised by their clients as excessive - the minister said he has asked the Bank of Jamaica to produce a comparative study on what local banks charge their consumers relative to the rest of the world.
The study, Shaw told The Financial Gleaner, was not meant to be used as a tool for interference in how the banks conduct business, but rather to inform any discussions he has on the issue with the Jamaica Bankers Association.
Inside the conference, Shaw also raised the issue of interest rates and his tussle with the commercial banks, which he said were reluctant to cut the cost of credit too aggressively because they were more keen on maintaining return on equity that currently averaging 22 per cent - a level, he said, was above global benchmarks.
The Jamaican debt exchange was a precondition of the International Monetary Fund agreement that gave Jamaica access to US$2.7 billion in loans from the IMF and other multilaterals.
Jamaica has already hurdled two IMF tests and "we expect to pass the September test as well", Shaw said.
His confident declaration to the conference comes as the country continues to feel pressure from public-sector workers demanding that Jamaica stick to a previous agreement on a seven per cent wage hike.
Shaw told the Financial Gleaner that "IMF agreement or no IMF agreement", Jamaica cannot afford the increase. The public sector is to retrench jobs, but already feeling the pressure from unions, Shaw said Government would likely start the process by not filling positions left vacant through attrition.
But he was unable to say immediately the rate of attrition seen in Government annually, leaving open to question whether this strategy could make serious inroads into bringing down salaries from 11 per cent of GDP to the nine per cent agreed under the IMF pact.
If Jamaica were to pay the seven per cent salary increase, Shaw told the Financial Gleaner, it would force the Government back into the market earlier than expected, and with the "smell" of need for funds, bondholders would likely demand a high premium on any debt raised, derailing gains under the JDX.