By Kay Menzies
Certain realities are very much present in our daily economic life in Belize. For example, the population is, at this point, fully aware that we have a huge debt burden relative to our country’s size. Most are also to some extent aware that US$547 million of this debt is in the form of bonds known elsewhere as the 2029 bonds, referring to the year they fall due, but best known locally as the Superbond.
During the summer, the government of Belize, having made the promise to do so in the run-up to the March 2012 elections, initiated discussions with bondholders aimed at restructuring the Superbond, and on Aug. 14 announced that it would be unable to make the Aug. 20 coupon payment of $23 million.
The government subsequently made a partial payment of $11.7 million on 20th September, and we are advised that bondholders agreed to a 60-day extended deadline within which to negotiate and reach an agreement on restructuring the instrument.
It is less obvious to the local population that this flurry of non-payment/payment activity has put us in the international headlines, at least of business and economic publications. It is also not immediately obvious locally why a small, developing country’s debt negotiations are being followed so closely internationally.
However, any sovereign debt restructuring or default in the current global economic atmosphere sets a precedent, and as such is watched closely to see what that precedent will be for other countries. So while Belize does not claim to be in the same league as Greece, we are being watched just as closely.
Subsequent to a release dated Oct. 2 stating that the bond negotiations had commenced and that a confidentiality agreement had been signed by all parties, the silence promised by that release has been complete.
However, regardless of the outcome, Belize will have a bond to pay, and will continue to have additional debt burdens outside of the bond. The government’s argument for restructuring the Superbond is that with total public debt a notch below 100 percent of GDP (an estimate which reflects an assumed cost compromise for two utilities nationalized previously), and with the Superbond at 36 percent of that total, the current payment structure in the context of our current rate of GDP growth is the straw that will break our economic back before much more time passes.
Therefore, given that much of that debt falls outside the current discussions, while the negotiators negotiate the rest of us in Belize should be thinking about what happens next.
Even without explaining the intricacies or the global context, it is generally understood that we must pay our debts; that the government cannot simply refuse to pay its creditors without serious and lasting consequences. The desire is to restructure those payments such that the basic requirements for economic growth will not be impaired for the sake of debt servicing, which will be extremely difficult if we cannot kick start economic growth beyond the average of 2 percent we have seen over the last five years.
However, in order to achieve real economic growth, we also recognize that Belize must establish itself to be a desirable investment location for both foreign and local investors. After two nationalizations, downgrades by major ratings agencies, and constant coverage of the activity surrounding the partial coupon payment, we realize this is a challenge. Therefore, any fiscal breathing room that may be gained by a positive outcome to the negotiations now under way should be used for and accompanied by measures that make the country visibly investment-friendly.
After a forum held with business leaders on Nov. 23, 2011, Prime Minister Dean Barrow convened an advisory body now known as the Economic Development Council (EDC) and comprised of public and private sector leaders, including myself as President of the Belize Chamber of Commerce and Industry (BCCI). This body has been tasked to suggest changes and policy adjustments that would improve Belize’s investment climate and make doing business in Belize easier and more attractive.
Over the past 10 months, the EDC has returned many recommendations for action in several different areas of the economy, including a recommendation for tax reform and several others intended to decrease the bureaucracy and cost of starting new businesses, thereby paving the way for increased entrepreneurship.
Other topics of discussion include port development, mass transit, access to finance and ICT. The EDC’s recommendations, if implemented, should go a long way toward improving Belize’s investment image in real and practical ways, which is undeniably important to a country that needs to create economic growth in order to meet an overwhelming debt burden while simultaneously addressing its population’s social needs.
Kay Menzies is the president of the Belize Chamber of Commerce and Industry.