Mon 04/27/2015 15:44 PM
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A number of small Caribbean nations will likely follow Grenada in seeking to restructure outstanding debts with their creditors over the next several months, and they have already launched talks, Jubilee USA Network Executive Director Eric LeCompte told Reorg Research in a telephone interview. Jubilee USA is a religious development agency that describes itself as having an alliance of more than 75 U.S. organizations and 400 faith communities that works on global financial reform and debt relief issues.

LeCompte said that Antigua and Barbuda, St. Vincent and the Grenadines, Dominica and St. Lucia face problems and challenges similar to those that prompted Grenada to seek to restructure outstanding debts with creditors.

“St. Lucia is right there, and Dominica, St. Vincent and the Grenadines, these are countries that are really right in line right now. Some of them are now having conversations with the International Monetary Fund and private creditors. They are trying to deal with it before a default or debt restructuring not on their terms. These countries are trying to plan the restructuring that they will go through fairly soon,” LeCompte said.

LeCompte participated in negotiations surrounding Grenada's recently unveiled restructuring plan, which still needs to be approved by Parliament and the creditors but is expected to be completed this quarter. He lauded aspects of the deal, including a 50%, two-step haircut for bondholders and other lenders.  

“Grenada is really important, because it sets some precedents of dealing with the IMF as well as with private creditors, and institutes a higher standard of responsible lending and borrowing through local legislation. These are all important precedents that we hope to see with these additional restructurings that will be taking place in the months and years ahead,” LeCompte said.

The small islands carry large debt loads relative to their size, with Antigua and Barbuda carrying a 89% debt-to-GDP ratio, St. Lucia a 77% ratio, Dominica a 70% ratio and St. Vincent and the Grenadines a 67% ratio, according to the Jubilee Network.

Antigua and Barbuda - which along with all the economies in the East Caribbean uses the East Caribbean dollar (XCD) currency - expects a XCD$103.1 million ($38 million) budget deficit for 2015, according to the budget address presented by Antigua and Barbuda Prime Minister Gaston Browne. It is being financed through several measures, including a debt restructuring that will save some XCD$74 million.  The government also plans to raise XCD$177 million through the issuance of new securities and XCD$113 million through the sale of assets, including shares in the West Indies Oil Company and the Half Moon Bay tourism development.

The total public debt of St. Vincent and the Grenadines hit XCD$1.51 billion, or around $559.2 million, as at Sept. 30, 2014, the equivalent of 77.6% of GDP, according to the 2015 budget address by Prime Minister Ralph Gonsalves. External debt hit XCD$882.7 million, while domestic debt was XCD$631.2 million, Gonsalves reported during his January budget address. The government said that it expects total debt to increase to XCD$1.64 billion, or 82% of GDP, this year, but that it should gradually decline after the completion of the new Argyle International Airport this year. Total public debt is expected to decline to 68.4% of GDP by 2020 and reach the Eastern Caribbean Central Bank’s target of 60% by 2024, Gonsalves said.

St. Lucia reported total public debt of XCD$2.692 billion, around $997 million, with a debt-to-GDP ratio of 73.6%, as of fiscal year 2014.

Dominica reported total debt of XCD$862.5 million, or about $319.4 million, or 75% of GDP, according to the its 2014-2015 budget address. External debt debt totaled XCD$632.4 million and domestic debt totaled XCD$230.1 million.

LeCompte also said that Grenada and other Caribbean nations need a “hurricane clause,” which would place a moratorium on payments if the country is struck by natural disaster. Grenada successfully included such a provision in a restructuring of a $36.6 million debt with the Export-Import Bank - EXIM - of Taiwan, but it is still in talks regarding a similar clause related to a $262 million debt with bondholders.

However, LeCompte said that the Grenada restructuring did not go far enough. “There was some good news, but the reality is that Grenada is not at of the woods yet.”

While praising the “leadership” of private creditors who agreed to a 50% haircut, LeCompte pointed out that the restructuring represented roughly a 20% cut in Grenada's overall debt.

“Grenada is going to have to do something with the rest of its debt if it is to really get on a sustainable path,” LeCompte said. “Twenty percent of the overall debt has been reduced, and we probably need an additional 20% to 30% to get Grenada to permanent sustainability.”

Much of the nation's remaining debt is with the U.S. government and other Paris Club countries, as well as the IMF and other international development institutions, the kind of debt, he said, that is usually off limits to restructuring. Private talks have already begun on the issue.

“There are ongoing conversations regarding that. There is nothing public about it yet,” he said, adding that restructuring that debt will be “much more difficult.”

The Grenada government reported total debt outstanding of XCD$2.56 billion, or roughly $948 million, as of Dec. 31, with central government debt totaling XCD$2.11 billion -  about  XCD$475.6 million in domestic debt and XCD$1.639 billion in external debt. That external debt consists of XCD$768.39 million in bonds and XCD$870.92 million in loans. Jubilee estimates that after a successful restructuring, the country would still have $520 million in external debt.

LeCompte said that there were various reasons why these Caribbean nations have built up unsustainable debt burdens, but he pointed to a core common denominator.

“The reality is the islands of the Caribbean are very vulnerable to external threats. That could come in the form of a hurricane, or even worse than a hurricane, it can come in the form of a financial crisis, and all of a sudden there are no tourists arriving at your shore,” he said.

In fact, Grenada's harsh fiscal landscape took shape after two hurricanes hit the island in 2004 and 2005, and then the economy was rattled by the global financial crisis of 2008, which dealt a major blow to tourism across the Caribbean. “Tourism dried up, taxes dried up, and all of a sudden, the country does not have the money to pay its creditors. Those are some real common denominators,” he said.

Grenada also exemplifies another problem shared by its Caribbean neighbors: the lack of comprehensive  bankruptcy rules to restructure debts. He noted that the island had to to deal with bondholders and the EXIM separately.

“Caribbean leaders and finance ministers have been at the forefront of calling on the IMF for an international or regional bankruptcy process to work out the debts. They recognize that even a restructuring may not prevent them from having to deal with an additional restructuring or default a few years down the line,” LeCompte said.

LeCompte, who participated in the IMF's spring meeting last week in Washington, D.C., said that the agency is considering procedures that would make it easier for countries to restructure their debt, but he added that possible implementation is still years away.
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