Belize gets more oxygen from bondholders

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By Richard Harrison: In the third quarter of last year, the Government of Belize (GOB) called up the Belize Bond holders in New York to request an unprecedented third restructuring of the countries only international bonds of US$530 million.

The bond holders knew that this was a distress call….an S.O.S. from the GOB….which had run the country to almost broke, after the last restructuring in 2013….by choking the private productive sector, pursuing an extravagant public-sector driven economic strategy riddled by mass corruption, squandering the PetroCaribe windfall of around $450 million between 2012 and 2016, while doing absolutely nothing to re-engineer public policy to create a more competitive and productive economy.

The bond holders rejected the new restructure offer made by the GOB negotiating committee, telling them to go home and come back with a more home-grown fiscal reform package that was more credible and realistic.

While Belize remains in the intensive care unit, this new agreement serves as a dose of fresh oxygen for the Government and people of Belize…..the bond holders still want the best for Belize….but does Belize want the best for itself?

Belize had squandered the oxygen fed to it by way of two previous bond restructurings….by way of concessionary PetroCaribe credit facilities….by way of significant grant funds from Taiwan and the EU….but mostly by the poor and middle-income people of Belize withstanding significant increasing hardships and sacrifice as things, in general, have become much more difficult for them.

The bondholders have forced the GOB to agree to grow the GDP by 2% annually over the next three years….and that if it fails to do that, then the GOB must invite the IMF to intervene in the management of the economy….and be required to pay smaller quarterly payments instead of semi-annual payments.

By pushing the payments of principal all the way to five annual payments to be made from 2030-2034, the bond holders are basically making a long-term investment in Belize…and telling the world that they still believe that Belize…and the Belizean people….is good for long-term investment. Of course they will have made back their original investments through interest collected during the 20 years from 2009-2029, so that move is largely symbolic….but important. They will have turned junk bonds into something of value.

There are three bond market issues that would have encouraged bond holders to do this:

(1) the bond market is much bigger than Belize bonds….and it does not want to start a contentious confrontational bond restructuring wave across the world, which would increase the volatility and risk associated with bonds that are much more bigger and important than the Belize Bonds

(2) by keeping the bond “healthy” and out of default range, the market value of the bonds may actually increase as a percentage of book value, and

(3) it is better for the bond holders to show they believe in the long-term growth potential of Belize, and showing that they are great partners to have around to do more business if and when Belize gets its act together; which may get them more important business across the world.

So….everybody wins! Congratulations to Prime Minister of Belize, Hon. Dean O. Barrow, and his team on achieving the unprecedented.

Around April-fools day each year, GOB presents the annual public sector budget estimates…along with any new public policy statements….and this year everyone is waiting to see what changes in fiscal policy would have calmed the nerves of the bond holders….because Belizeans will be the last to know….perhaps they will know when the changes are being read in the House of Representatives and passed through its required three readings in the same day….and perhaps made retroactive, as many times they have done before.

If the GOB continues to protect the status quo at all costs….and does nothing to improve the competitiveness and productivity of the economy….continuing to choke the private productive sector and the poor and middle-income….the economy will continue to falter….and PM Barrow and his government will be hard pressed to deliver GDP growth above 2%…and we will end up full-circle in the clutches of the IMF.

The government must use the relief to do several things:

1. It must pay down the $45 million needed to remove the tax on fuel, except a 10% GST…..for at least six months, before taking the second step….lowering and broad-basing the GST….a part of a comprehensive tax reform package to be phased in over the next 12 months…as the GOB has committed to 2% growth in each of the next three years, including this year 2017-18. Actions and results must be short term.

2. It must undertake to free up the domestic private sector from the same bondage of debt and default which the GOB found itself in. The state of the GOB is merely a reflection of the state of all the economic actors in Belize, in general. The same grace that the bond holders have given to the GOB, is the same grace that the GOB must pass on to the private productive sector. All debts need to be revisited and restructured where possible, so that individuals and businesses start to generate free cash flow. The real estate market will tighten and property/collateral values will go up….allowing Belizean investors to secure more investment capital. Belizean investors are who will give us rapid, early growth if we make it possible for them….foreign investors will take longer to gain confidence in investing in Belize. The same prescription of hair-cut, decrease in interest rates and pushing back principal payments would be reasonable.

3. The previous two actions will boost employment rapidly….creating the market for a robust housing construction and rehabilitation sector, financed and refinanced at 6.25% p.a. over 20-30 years. This is vital, as it will take longer to rebuild the agricultural productive sector and create new productive entities.

4. Use the time now to engage in negotiations for debt-for-nature swaps and debt-for-education swaps to convince foreign governments to help us reduce our significant debt problem….of which the Belize Bond is only a part….while Belize provides services of importance to them.

5. Use the time to unify Belizeans at home and abroad, as united we are much stronger and can do much more.

If you see these things happening…..you will know that the GOB is acting in the best interest of ALL Belizeans….giving every citizen just opportunity to own more of a faster growing Belize….according to his merit, ability and integrity.

If the actions taken lean towards maintaining and growing the status quo….favoring foreign investors over domestic investors….maintaining fiscal incentives and market distortions that favor a few rich people, while continuing to over-burden the poor and middle-income Belizeans….this coalition of the willing will fall apart…and we have agreed to end up in the clutches of the IMF.

On behalf of all Belizeans….thank you to the Belize Bond holders!

The views expressed in this article are those of the writer and not necessarily those of Breaking Belize News.

This article was written by Richard Harrison, Belizean investor in production and services businesses in Belize. He holds a Master’s in Business Administration degree from Lancaster University.

 

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