By Al Edwards, Business Co-ordinatorUNITED STATES credit agency Bear Stearns' senior managing directors Gregory Fisher and Carl Ross have given Jamaica the thumbs up, saying the main economic indicators have suggested the country was no longer susceptible to external shocks.
The two were making presentations at a seminar at the Courtleigh Hotel, New Kingston, yesterday on the prospects of regional sovereign debt.
At the seminar, attended by leading members of the financial fraternity, Mr. Ross opined that Jamaica was now attempting to attain macroeconomic stability, with a reduction in interest rates, foreign exchange stability and economic growth but cautioned that all these elements must be sustained for a protracted period. He also noted that US investors were taking an increasing interest in Jamaican bonds.
Mr. Ross said that six months ago, among the primary concerns were the war in Iraq, its impact on oil prices and the economic global recovery. This, he saw as presenting a huge risk factor for Jamaica and other Caribbean countries.
"Now we are in the middle of the year, the Iraq war is all but over, the global economy is sputtering but a meltdown is not imminent, and oil prices have stabilised," he said. "So now the key risks have shifted from being external to being internal and so the focus is back on how countries are dealing with fiscal and monetary policy."
Speaking exclusively with Wednesday Business, Mr. Ross said: "In my opinion, the key issue for Jamaica right now, from a credit standpoint, is to stabilise the debt dynamics, that is, the debt-to-GDP ratio and stabilise the debt service numbers.
He suggested that to do so Jamaica has to achieve
economic growth, as well as pay keen attention to the budget, the fiscal deficit, foreign exchange and interest rates. "At this point in time, the reason I like Jamaica is that all four of these variables are moving in the right direction," he said. "You've got interest rates that are trending down, growth that is trending up, the budget deficit that is trending down and the exchange rate is now stable. When all four of these are working in conjunction, you can start to stabilise the debt dynamic and that is what is happening right now in Jamaica."
Mr. Ross added that US investors were now eyeing Jamaican bonds because the important economic variables were looking positive and over the last two months the emerging markets had been more unstable than they had been over the last six months.
"Some of the key countries in the emerging markets, like Brazil, have been under pressure. This is an asset reallocation phenomenon that is occurring in the US investor base, as well as a recognition that the right variables in Jamaica are moving at the right direction at this time," he said.
RAISING FUNDS LOCALLY
While interest rates are indeed trending down, with two cuts over the last five weeks, the Jamaican Government has not yet ventured into the international capital markets to address the budget deficit. Rather, it has sought to raise funds locally with the last debenture raising some $6.04 billion.
"I think from my standpoint if the Government had brought global bonds to the market at around pre and post-budget time and it was not well received, it would have been disappointed. Now almost six months after, the numbers are certainly looking more attractive and in the near-term, things are looking good. It is my opinion that if the Government went to the market about now, it would be well received in the investment community," said Mr. Fisher.
Added Mr. Ross: "Mind you, we can't second-guess when and if the Government will go to market. But it is fair to say that investors have a more benign view of Jamaica right now than they did six months ago but the fact of the matter is Jamaica is still in a relatively tenuous credit situation.
"When a big US or European investor buys bonds of a country they are looking at a longer horizon than just three months. I think the future of Jamaica is still murky enough so that we are seeing foreign investors dabbling in Jamaica rather than outright taking up long positions. Mind you, they are dabbling for the first time in probably a year-and-a-half but that is significant because of the change in Jamaica's fortunes," Mr. Ross said.
