Home' Trinidad and Tobago Guardian : April 16th 2015 Contents BG8 | NEWS
BUSINESS GUARDIAN www.guardian.co.tt APRIL 2015 • WEEK THREE
Creditors of Grenada with
US$262 million of defaulted
bonds have agreed to a debt
restructuring that will leave
them half of the original face
value, the Caribbean island's
government said in a state-
ment published on its website last Thursday.
The eastern Caribbean island with a pop-
ulation of 110,000 will give the bondholders
US$131 million in international and local-cur-
rency securities due in 2030 with an interest
rate of 7 percent, according to a government
statement. A committee of institutional
investors from the US, UK and Caribbean
agreed to the terms, Natasha Marquez-
Sylvester, the head of debt management, said
by phone. The accord has yet to be made final,
The swap would mark the second restruc-
turing in the past decade for Grenada, an
US$836 million economy that has struggled
to recover from hurricane damage in 2004
and 2005 and a global recession that took a
toll on tourism. The country's debt, in pro-
portion to gross domestic product, stood at
117 percent in 2014, second only to Jamaica
in the Caribbean, according to International
Monetary Fund estimates.
Grenada's defaulted 2025 bonds are trading
at about 32 cents on the dollar, according to
data compiled by Bloomberg.
In 2013, Grenada defaulted on US$193.5
million in international bonds and several local
bonds, a portion of which was held by inter-
national investors, including Franklin Advisers
Inc., Grantham Mayo Van Otterloo & Co. and
T. Rowe Price Associates.
Bondholders have agreed to an overall prin-
cipal reduction of 50 per cent after exchanging
their holdings for a new 15-year amortizing
bond that carries a 7 per cent coupon.
Half of the 50 per cent haircut will take
effect upfront. The remaining reduction will
take effect on the successful completion of
the International Monetary Funds's last review
of an extended credit facility that is expected
to end in late 2017 or early 2018.
As an additional compensation for their
losses, bondholders will also receive a portion
of the revenues that may be generated by the
island's Citizenship by Investment program.
The principal on the new bonds will be
repayable in 29 equal installments commencing
on March 2016 and ending in March 2030.
Grenada is expected to complete the restruc-
turing through an exchange offer in the second
quarter of 2015 once documentation for the
new notes has been finalized.
In 2013, the island nation defaulted on inter-
national and local bonds due 2025 after the
global financial crisis and a series of hurricanes
devastated the economy.
Despite its small size, the agreement is being
closely watched by international investors, as
Greece and Ukraine are striving to sort out
their debt problems with creditors.
The agreement could provide a road map
for other countries. "Grenada is just the first
domino. There are other countries that are
about to go through debt restructuring," said
Eric LeCompte, executive director of Jubilee
USA Network, which helped negotiate the
Grenada deal. In the Caribbean, Jamaica,
Antigua and Barbuda, St. Lucia, St. Vincent
and the Grenadines and Dominica have large
debt loads, he said.
The deal is likely to provide the island with
a significant reprieve. The relief represents 19
per cent of Grenada's gross domestic product,
the statement said. But the country still has
US$907 million in public-sector debt.
Grenada's default took place after hurricanes
wreaked havoc on the island's economy, whose
tourism industry had already suffered from
the global financial crisis.
The country's economy is expected to grow
by 1.2 per cent in 2015, according to the Inter-
national Monetary Fund, and its public debt
projected to reach 110.2 per cent of GDP.
(Bloomberg, Reuters, WSJ)
Those who did not pay attention US President Barack
Obama's visit to Jamaica last week missed a chance to see
how the International Monetary Fund (IMF) can crush an
Jamaica's stagnant economy is a textbook example of
how IMF-imposed austerity can backfire. Governments
become so focused on paying off their debts that federal
spending dries up. Without money flowing out of gov-
ernment coffers, it's difficult for an economy so reliant
on one sector --- in Jamaica's case, tourism --- to grow. It's
the argument against cuts in government spending that
Greek Prime Minister Alexis Tsipras has been unsuccessfully
making across Europe for months.
A new report by the Center for Economic Policy and
Research concludes the Jamaican economy is suffocating
three years into an IMF austerity program. The Caribbean
island nation paid $138 million more to the IMF than it
received last year, the report found --- even though Jamaica
still owes the World Bank and Inter-American Development
Bank over $650 million through 2018.
Simply put, Jamaica doesn't have money to spend
because most available funds are spent servicing its enor-
mous debt, and the government can't bring in enough
cash to pay off its loans.
The enormous amount of money being spent paying
off loans is exasperating cycles of poverty and low job
growth that date back decades. Jamaica's poverty rate has
doubled since 2007, and its unemployment rate --- 14.2
per cent --- is higher than it was at the depths of the Great
"This has been a problem for decades," Jake Johnston,
who wrote the CEPR report on Jamaica, told Foreign Policy.
"If we look at the last couple of years, tourism has picked
up, remittances have picked up. It's been offset by this
high level of austerity."
But the Obama administration continues to back
Jamaica's deal with the IMF.
Ricardo Zuniga, the National Security Council's senior
director for western hemisphere affairs, told reporters as
Obama prepared to embark that the White House continues
to support Jamaica's handling of its debt crisis --- and
what he called a "strong performance over the last two
years in working with the IMF, the World Bank, and others
to address that." (Forbes)
Grenada's creditors agree to restructure
US$262 Million of Bonds
New report says IMF programme crushing Jamaica's economy
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