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Belize In Bond Chokehold, Nears Default

by Mike Godfrey,, Washington

24 August 2012

The government of Belize confirmed on August 20 that it is was unable to find USD23m to pay creditors a scheduled coupon payment as part of a USD544m bond deal negotiated prior to the financial crisis, which as of 2012 pays a yield of 8.5%.

While Belize has a comparatively low fiscal deficit, expected to rise to 2.5% of gross domestic product this year, from 1.1% in 2011, the bond was negotiated based on substantially higher pre-crisis interest rates. Under the 2007 deal, which was negotiated to service half of the nation's debt, the coupon rate increased from 6% to 8.5% this year, and is due to mature in 2029.

Under a first proposal with creditors, Belize has been said to be offering 20 cents on the dollar, substantially lower than that offered following Argentina's default in 2001, and in the Greek bailout, which offered around 30 cents on the dollar. The Belize government has said however that it is committed to meeting with creditors to find an amicable solution to restructure the debt under more favourable terms. Parties to the deal must do so within a 30-day grace period, starting August 20, 2012, or Belize will default on the bond.

Each of three scenarios proposed by the Central Bank extend the bond's maturity period to at least 2042, or as late as 2062. Those options proposed to expire in 2042 would involve a 45% 'haircut', with either a set 3.5% coupon throughout, with a five-year grace period, or a gradually-increasing coupon rate starting at 1% and rising to 4% from 2026. The other option involves a 2062 maturity date, a 15-year grace period and a 2% rate but no principal reduction.

TAGS: tax | investment | economics | interest | fiscal policy | international financial centres (IFC) | Belize | offshore

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