“Restructuring superbond is a must, but no devaluation – PM Dean Barrow

The former PUP administration amassed a gargantuan debt before leaving office in 2008, which the present United Democratic Party administration of Prime Minister Dean Barrow has every intention of paying, but with a new repayment plan over a longer term, and a lower rate of interest.

Belize defaulted on a US$23 million coupon payment on the superbond on Monday, August 20, which it announced  on  August 7, telling creditors in no uncertain terms that Belize simply cannot pay the usurious hike in interest rate from 6% to 8.5%, which the PUP agreed to when they bundled all their commercial debts into the BZ$1,124,200,000  “Superbond” in 2007.

But even if Belize defaults on paying the superbond altogether, there would be no devaluation of the Belize dollar, Barrow assured the nation, because the Belize currency is pegged to the United States dollar at a fixed $2.0175 rate of exchange.

At a two-hour press conference at the Belize Biltmore Plaza Hotel on Wednesday,  Barrow explained how he hopes to negotiate with Belize’s creditors and bond-holders for what he called “a necessary and just” restructuring of the “superbond.”

“We are absolutely confident of success. We’re absolutely confident that we can reach an agreed solution with our creditors,” Barrow assured the nation.

Belize must negotiate a rescheduling of payments, because Monday’s US$23 million default was unavoidable, and Barrow said he does not see how Belize’s financial circumstances will change in the foreseeable near future. Certainly not within the next 30 days, during which the negotiating team led by Senator Godwin Hulse, along with Ambassador Mark Espat, Financial Secretary Joseph Waight, and Central Bank Governor Glen Ysaguirre, hopes to negotiate a restructuring of Belize’s public and commercial debt, into a more manageable arrangement.

The negotiating team left for Washington immediately after Barrow’s presentation, because it will be meeting with representatives of the Inter American Development Bank.

Belize will be asking the IDB to partially guarantee the restructured bond, under whatever terms are worked out.

Simply put, the three scenarios the Belize government has offered creditors are: a 50-year “par” option, with a 15 year principal grace period and a 2% interest rate; meaning creditors get the full value of their bonds, in 50 years, and they would have to wait 15 years before we begin to repay the principal.

But the interest will only be 2%, not the 6% or the stepped-up 8.5% as was agreed to under the 2007 bond agreement.

Alternatively they can allow us to pay off our debt over 30 years, but they would only get 45% of the stated value of the bond. Belize would pay installments on the principal twice a year, with no grace period. The interest rate would start at 1% and step up gradually to 4%.

The third option also spreads the repayments over 30-year, and creditors would  get 45% of the stated value of the bond.

If they allow us a 5 year grace period before we have to begin to pay back the principal,  we would agree to pay back mortgage style at an 3.5% interest rate.

There have been unfavourable feedback from bondholders, on all three proposals, and Barrow said Belize is open to whatever alternative suggestions creditors may put forward to negotiate a new repayment plan that  Belize  can afford.

The Central Bank of Belize  posted Indicative Restructuring Scenarios on August 8, after consulting with external debt advisors, White Oak Advisory.

Central Bank reached out across continents to multiple individual creditors who together hold over 85% of the Superbond issued in 2007.

A group of bondholders who own approximately US$200 million worth of the bonds, formed a Creditor Committee, with which the White Oak advisors exchanged preliminary views, explaining Belize’s circumstances in great detail; addressing their queries and suggestions, all in good faith.

One consequence of Monday’s default was that Standard and Poor’s lowered Belize’s sovereign rating to “Selective Default” on Tuesday, August 21, but Barrow said a default on the superbond would not make Belize’s situation any worse, since  Belize is already locked out of capital markets.

Bondholders might begin litigation to recover their losses, and Barrow said he would cross that bridge when he comes to it. Belize’s creditors could hardly seize Belize’s assets abroad, as Barrow said he did not know about any assets that Belize has abroad.

Belize does not want to default, Barrow assured creditors, as he reminded them that UDP Administration has fulfilled every debt obligation since it took office, paying almost $300 million in interest on the Superbond. Creditors holding the bonds are not being asked to be first responders to Belize’s public debt crisis, he assured them.

International critics of the proposed 45% discount on the principal of the bond described it as “not a haircut, but a scalping”, and Barrow’s response was: “If the circumstances require ‘a scalping,’ then that is what the circumstances require.”

Belize has also consulted with the International Monetary Fund but a standby arrangement with the IMF is not an optionBelize would consider, Barrow declared.

He  began his presentation with a preamble of how the superbond came into being, citing the short-term, high-priced, external commercial loans to which the PUP administration resorted to fund bloated and corrupt financing needs.

Over six years from 2000- 2005, the PUP borrowed  money  totalling BZ $1,124,200,000, which became the Superbond.

The loans were contracted at interest rates exceeding 11%, and with so-called bullet maturities, or lump sum payment, due as early as five years after commencement. This increased Belize’s commercial external debt by BZ$90 million annually quadrupling Belize’s national debt by the time they left office in 2008.

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