Central Bank Says Payment Would Destroy Belize’s Economy

An official letter which was filed by the Government in the CCJ proceeding comes as close as we’ve ever seen to G.O.B. acknowledging that the sky is falling. It’s dated July twenty-second, and is addressed to Financial Secretary Joseph Waight, from Governor of the Central Bank Glenford Ysaguirre. Ysaguirre wasted no time on niceties, but goes straight to the matter of the additional U.S. seventy million in play on the litigation table. The Governor writes, “it is necessary to advise all concerned that it would be destructive for the economy of Belize if the Central Bank were to even attempt to facilitate any such request for an additional amount of foreign currency given the current level of official foreign reserves and the other external demands facing the bank.” Ysaguirre then throws a left hook, reminding G.O.B. that, “While the Central Bank acts as the fiscal agent for the Government, it also has a wider mandate to protect the fixed exchange rate peg and to promote economic growth and financial system stability.”

So what exactly has the Central Bank Governor so spooked? He explains in great detail in the letter, listing and totaling the demands on the country’s foreign reserves from foreign debt obligations, foreign owned entities in Belize, commercial banks and the offshore sector – a figure of one hundred and ninety-three million U.S. dollars. Ysaguirre states that, “The Dunkeld and Trust requirements would take the demand up to U.S. two hundred and sixty-three million. A recent increase in net outflows has caused the gross official reserves to shrink from U.S. five hundred and thirty-four point seven million one year ago, to U.S. four hundred and twenty-two million today. To address the demands above, along with the additional demands of Dunkeld and the Trust, would immediately push the reserves to crisis levels.”

And then the governor starts with the real bad news, the current state of the economy even without the request by Dunkeld and the Trust. He reminds G.O.B. that both the IMF and the Central Bank are already projecting a sharp downward trend for the reserves in the short and medium term, and he outlines the factors. According to Ysaguirre, “growth in the economy slowed to one percent last year. It is expected that there will be further slowing in 2016. To bear this out, in the first quarter of this year the economy contracted by two percent.” Tourism has been the only good news for the government, but Ysaguirre reveals that, “service providers have been bringing in less U.S. dollars than expected and the growth in foreign exchange inflows is marginal, less than one percent.” There’s no better news from the Free Zones, where Ysaguirre reports that, “once a valuable source of foreign exchange, free zone exports are down nineteen percent up to May 2016.”

And then there is the really, really bad news. Central Bank Governor Glenford Ysaguirre warns G.O.B. that, “without domestic adjustments and increased inflows, it is going to be very difficult, if not impossible, for the Bank to protect the exchange rate peg of Belize two dollars to U.S. one dollar.” Ysaguirre pulls absolutely no punches, claiming that, “when reserves are inadequate, growth is strangled: an unacceptable state of affairs in a country which has a forty percent poverty rate and a very open economy.” He rounds off the crisis factors by writing, “per capita GDP declined by two point four percent last year and it is likely to fall further in 2016. In the absence of foreign exchange our economy suffocates, resulting in increased poverty, crime and risk that we won’t be able to meet obligations to other creditors and trading partners.”

Long story short – Ysaguirre informs G.O.B. that the Central Bank will be unable to provide the additional U.S. demanded by Dunkeld and the Trust, stating that, “coupled with the other current demands, which pre-existed the present demand and some of which must be satisfied in part or in whole as a matter of the country’s economic survival, payment of such an amount would greatly deplete our resources and destroy our already fragile economy.” Ysaguirre closes with the final figurative nail in the economic coffin, stating that the international benchmark for exchange rate sustainability is three months of merchandise imports. Meeting all the demands on the foreign reserves, says Ysaguirre, will deplete our reserves to the point of only six weeks of imports. That, he states quite clearly, would be catastrophic. Prime Minister and Minister of Finance Dean Barrow is due back in the country on Friday.