Left: Sanjaya Panth, division chief in the Western Hemisphere Department at the International Monetary Fund.   Right:Dr. Carl Ross, senior managing director and head of emerging markets and fixed income research at New York-based Bear Stearns and Company. - File photos

Keith Collister, Business Writer

Perhaps unsurprisingly, considering that leading regional finance magazine, Latinfinance had opted to hold its sixth Euromoney: Caribbean Investment Forum in Jamaica, the opening discussion topic of the conference was regional indebtedness.

More specifically, the session entitled 'Public Debt Management: The Return of Risk' featured some of the key international observers of Jamaica's debt situation - Standard and Poor's analyst Olga Kalinina, Bear Stearns' Dr. Carl Ross and Sanjaya Panth of the International Monetary Fund - all well known in Jamaican financial circles.

Kalinina began by noting that Jamaica, Suriname and even recently defaulted Belize all shared the same single B rating - near the bottom of the sub investment grade or less politely 'junk' bond category - from leading rating agency S&P.

Only small Grenada was at the bottom of the regional credit-worthiness barrel, being rated one further rung down with a C from S&P. This compares with investment grade Bahamas and Trinidad with ratings of A-, closely followed by Barbados at BBB+.

Kalinina ratings, particularly in Jamaica's case, were determined not so much by the size of the debt but by qualitative policy issues such as willingness to pay - Jamaica's was very high - and the efficiency of public spending.

BELIZIAN DEBT DEFAULT

Dr. Carl Ross, senior managing director of Bear Stearns and Company, noted that unlike some other debt restructurings, Belize's had been a negotiation, where the Belizians had been "open with their numbers", and had received significant technical support from the IMF because their "manpower was not that deep."

Supporting Kalinina's point on the importance of qualitative factors, he argued that "If the willingness in Belize had been there, like in Jamaica, Belize could have continued to pay their debt."

He further noted that Belize has defaulted despite lower fiscal deficits and higher growth than Jamaica.

Latinfinance director and conference moderator Christopher Garnett raised the issue of the role of the unfortunately named collective action clauses (CACs) in Belize's debt restructuring.

These legal clauses, designed to reduce the possibility of one or two holdouts preventing a sovereign debt restructuring, have had one of their first major tests in the case of Belize. When originally introduced, it was widely thought that by curtailing creditors' rights, the clauses would increase the cost of funds as investors would demand higher interest rates as an additional risk premium.

Ross advised, however, that he doesn't "think CAC's are going to raise the cost of funds even though they have now been exercised."

PAYING MORE TO BORROW

Recent international Jamaica bond issues have had CAC clauses without seemingly affecting their marketability.

The issue of whether emerging market risk is likely to be repriced - which means risky countries such as Jamaica would have to pay more to borrow - is to a large degree dependent on the international situation.

In analysing the situation overseas, the IMF's Panth argued that "2006 was a great year". He advised that so far there had seen only a slight growth slowdown in 2007, an there were some "clouds on the horizon" the outlook was for quite strong global growth this year.

Indeed, with a recovery in Germany, the motor for the European economy, and continued strong growth in Asia, particularly India and China, growth was in fact becoming better balanced.

However, he agreed that risks to his optimistic scenario included a U.S. slowdown, oil prices, huge U.S. current account deficits funded by Asia - and now oil producers - which all had the potential to create a disorderly adjustment and the likely consequent repricing of risk.

keithcollister@gleanerjm.com