Belize fighting Superbond default

By BBN Staff: As Belizeans carry on about their daily lives, fascinated by US elections and whatever else draws their attention, the country and the lives of its people may soon be rocked by tremors slowly developing beneath the surface.

That tidal wave of of force, the wake up call this country has been hitting snooze on for the last few years, is the economy drawing nearer and nearer to total collapse. Many Belizeans, however, don’t have a complete understanding of what this really means though. And because understanding and explaining it involves a lot of legal and financial jargon, the government has been lucky enough to have dodged tough questions on the issue.

Now, though, things are perhaps too tough for even the government to dodge and sweep under the rug. The Prime Minister is in New York meeting with holders of 2038 Superbond trying to convince them to form a committee by the end of November. That committee, GOB is hoping, would re-open and re-extend the bond. This has now become necessary because the government does not have enough money to pay the coupon payment due on the Bond this coming February. This has been reported by the Wall Street Journal no less.

And the reason GOB cannot service the coupon payment in February is because it used US $67.5 Million from the Central Bank’s foreign reserves to pay Lord Michael Aschcroft’s Dunkeld and the BTL Employee’s Trust Ltd. over the BTL nationalization settlement. GOB did this after it had been warned by its own Central Bank Governor at the time, Glen Ysaguirre, that doing so would be “catastrophic”.

At the time Ysaguirre had written a letter to Financial Secretary Joseph Waight outlining the impending dangers of making such a move. That letter was leaked to the press and in it, Ysaguirre had said the Central Bank’s foreign reserves was around US $440 Million. Just weeks ago, however, new Central Bank Governor Joy Grant revealed the reserves had dropped to around US $315 Million.

It might not sound as alarming as it should but make no mistake, that is an absolutely disturbing development. According to the international benchmark for exchange rate sustainability Belize must have at least US $300 Million in reserves at all times to cover up to three months of import merchandise. The country is eerily close to that benchmark. Ysaguirre had warned that using CB reserves to pay Ashcroft would cause the reserves to fall “critically low” possibly making it difficult to maintain the 2:1 exchange rate page to the US dollar resulting in the devaluation of our own.

Now GOB has to make a coupon payment on the Bond in February, which it cannot because the economy is stuck in a rut and the country cannot afford to use anymore of CB reserves. To further complicate matters, there are three looming arbitration awards against GOB currently in US courts. GOB is likely to lose all three arbitration cases and the cost will reportedly total something in the range of US $100 Million, money GOB doesn’t have.

Those three judgments (Belize Social Development Ltd./BCB and Belize Bank Ltd./Newco Ltd. vs GOB) are being appealed by GOB but the government has a very slim chance of any successful outcome in their favor.

GOB is hoping to re-open and extend the Bond to ease its financial burden in the short-term but in the long-term these developments have the ability to greatly alter the quality of life and socio-economic conditions for all citizens. It is an issue that all concerned Belizeans should be monitoring and demanding answers for.

It remains to be seen if bondholders will respond favorably to GOB’s request to form a committee on short notice. It is also unclear how GOB will proceed in settling the three pending arbitration awards. FinSec Waight, however, has indicated that whatever option GOB is able to settle on, it needs to get it done by February in time for the start of the next fiscal year. Failing to do so could mean extremely bad business for Belize in the very near future.