Super attorneys contracted by bondholders

As was reported on Tuesday, superbond negotiations between bondholders and the government have hit a major snag. The bondholders have rejected government’s latest counter proposal and have hired a team of lawyers including the former US executive director of the World Bank as an advisor, which according to the Financial Times, “Is a clear warning shot to highlight that litigation could soon be on the cards.” Many analysts opine that the country is not following the right recipe with regards to its debt problem. The chain of events that led to the rejection are as follows:  On August twentieth, Belize missed a twenty-three million dollar coupon payment due to creditors on the five hundred and forty-four million ‘superbond’. This was followed by several downgrades by international rating agencies that placed the country into a ‘default’. After the rejection of what was seen as more than a fifty percent discount on the original value of the bond, the Government then offered to pay half of the amount due with a grace period of sixty days.  On November twenty-first, a counter proposal was offered by the bondholders, which offered some debt relief of more than one hundred and fifty million. This was turned down by the government and a counter offer was submitted on November twenty-ninth; that was out rightly turned down by bondholders on Tuesday. In essence, the government finds itself in a very precarious situation. It is claiming that it is in financial stress; however, the IMF recently completed its yearly review of the country’s economy and concluded that, “Belize is experiencing an output rebound despite decline in oil production. In 2012, real Gross Domestic Product (GDP) growth is expected at three point five percent to four percent.  The IMF also suggests that the government’s primary surplus target of two percent of GDP is within reach.” This is contrary to the government’s position that it is unable to meet its debt obligations. At the same time, the US Treasury has blocked Belize from funding via the Inter American Development Bank. In the statement released on Tuesday by the bondholders, their analysis complements that of the IMF, in that they also point to a stronger forecast for growth which differs from that of the Government.  The IMF statement highlights the need for stronger and sustained economic growth which could be achieved by sound macroeconomic policies and renewed structural reform efforts aimed at underpinning private sector development and attracting foreign direct investment.

Meanwhile, reports from the Financial Times, UK; the Wall Street Journal, Reuters among other analysts, conclude that the country’s recent economic improvement could jeopardize its case for such a large debt reduction.  So for now, the pressure is intensifying on the government.