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Tough future for Jamaica amid rising rates 0

Jun 13, 2013

As US Treasury rates rise, Jamaica is particularly exposed to the higher borrowing costs, because of financing needs in 2014 and 2015 following this year’s $932m-equivalent International Monetary Fund (IMF) agreement, investors say.

Yields on 10-year US Treasuries have backed up in recent weeks, repricing curves for dollar borrowers globally, as investors anticipate the Federal Reserve’s return to normal monetary policy. Markets expect the Fed will begin rolling off quantitative easing in the second half, and begin raising ultra-low interest rates in 2015. 

"If the overall rates go higher, one has to look at the countries that need to fund themselves, and Jamaica is at the top of the list," says Carl Ross, Oppenheimer's managing director of investments.

Ross says Jamaica ought to stick with the IMF program and show some record of implementation of the program first and at a later point reassess the debt markets. However, he is not positive on Jamaica beyond a six-month horizon, he says.

Investors are quickly readjusting their views on global rates. Most respondents to a Barclays survey in the second quarter said they expected yields on the US 10-year to be between 2% and 2.5% by the end of the year. Asked in the first quarter, a majority of respondents pointed to rates between 1.5% and 2% by year end.

"Some of these countries have high and unsustainable debt. In the case of Jamaica, we saw restructuring of global debt in 2010 and again this year. Moody’s just said recently that Belize and Jamaica will default again," says John Welch, executive director of macro strategy at CIBC World Markets.

"With the consecutive restructurings, the country has given itself two to three years to pursue aggressive measures to get its debt to manageable levels," says Sean Newman, portfolio manager at GE Asset Management. He notes however, positives for the country include recent Chinese investments.

Jamaica is rated CCC/Caa3/CCC+. Its debt burden stood at 132% of GDP in 2012, and the nation has a spotty track record when it comes to completing IMF programs, Fitch said in a recent report. Jamaica’s last bond of any kind was a $400m sale in 2011.

It got more than 98% acceptance in March for the National Debt Exchange, which targeted 860 billion Jamaican dollars ($9.12 billion) worth of debt denominated in local currency, US dollars and inflation-indexed notes.

Late last month, Jamaica's finance ministry visited the European buyside on a non-deal roadshow to of update investors on its budget and IMF program.

Ross, Newman and Welch spoke at the EMTA Central America and Caribbean Forum in New York Wednesday. LF


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