Govt. defends derivatives deal

The Ministry of Finance and Central Bank today issued a joint press release which offers their version of a controversial financial transaction that cost the government over three million U.S. dollars. According to the release, the proposal to convert a twenty-nine point one million U.S. dollar loan note into Japanese Yen came from Citibank of New York, who acted as the offering’s paying agent. The swap, as it is called, from U.S. dollars into Yen was done as a hedge to take advantage of lower interest rates prevailing on the Japanese market and against a background of a strong exchange ratio for the dollar against the Yen. The proposal was accepted by the Central Bank Board and legislation was passed in August 2001 allowing the transaction to take place. While over the note’s three and a half year life the interest rate disparity resulted in a two and a quarter million U.S. dollar savings, the unexpected fall of the dollar against the Yen and other major currencies produced a loss of over five and a half million U.S. dollars on redemption of the note. The result was a net deficit of over three point two million U.S. dollars that the Government of Belize had to make good.

G.O.B. officials have characterized the transaction as normal and prudent given the circumstances prevailing at the time, while critics have called it reckless, amounting to gambling with the public’s money. News Five’s attempt verify the official account with independent sources at the Central Bank were unsuccessful.