Friday, January 30, 2009

BELIZE FINANCIAL STATUS REVIEW Feb 1st - 09

Ray Auxillou, reporter on the economy of Belize.

photo - image Dean Barrow, Minister of Finance of Belize.




BELIZE FINANCIAL STATUS - Feb. 1st, 2009

The Belize economy is going to be good for projections through 2009. This is due mainly to an infusion of macro spending infra-structure support, using $200 million Bz., of FOREIGN LOANS by the UDP Government. There will be a sort of mini-boom and by the end of 2009, we should see GDP rise by at least 1% for one year.
How much the government spending on infra-structure, for macro economic growth reasons, will actually be reflected in the longer term, say at least the last three years of the UDP term in government, will remain to be seen. Long term, we are building in recessionary corrections for following governments, who will have to revert to austerity measures and a tightened economic situation. In the series of BOOM and BUST cycles favored by Caricom style English, debt financing driven government economics, we are for this year at least, in a BOOM year in Belize. Sort of like the three years the PUP did the same thing, the political term before last, when they went on a three year borrowing spree.
Like the Eastern Caribbean CARICOM countries, that are reputed to be over extended in DEBT FINANCING, to the tune of 170% of GDP, Belize is also increasing the overall National Debt to GDP ratio, expected to be over 100% of GDP by the time the end of this fiscal year. Economic announcements are made by Belmopan in April. The goal in a well managed economy is a National Debt to GDP ratio of below 3% GDP.
The Banks in Belize are fairly stable and not over exposed on their real estate portfolios. Unlike the outside world, margins for real estate loans are high, collateral is usually based on solid valuations, at least in an expanding economy and population. The exception if any, or weakness in the real estate loan market, are the Government institutions, who traditionally make loans based on low false collateral evaluations. Bank liquidity seems to be adequate for the moment. We have to watch the EXPORT figures and TOURISM figures, to more appreciate how liquidity is going to be effected, mostly for the government tax revenues on an annual basis. Liquidity for 2009 should remain stable, despite some economic downturn in sugar and tourism revenues; but the high debt ratio is building in a DEEP DEPRESSION for the Belize economy, down the line at the longer term situation. Many are concerned about DEVALUATION again in Belize before the UDP leave office in four years, or shortly thereafter. Recently in Iceland, with the collapse of their government, because of their private banks investing too high a percentage of their funds in high interest, high risk mortgage portfolios ( gambling on financial swaps and bets ). Icelandic citizens saw their private public SAVINGS wiped out and the currency devalued 50%, and the story is not over yet in ICELAND. The government of Belize does not have insurance, or guaranteed bank savings accounts. Should such a DEVALUATION occur in Belize it would be more damaging economically, long term to the nation, than twelve category five hurricanes striking Belize in one season. Undoubtedly there would be massive migration to other countries. People would vote on UDP management policies with their feet and leave.
The Chinese community into grocery retailing are doing well, keeping profit margins fairly low and going for volume sales, with rapid rotation of inventories. The Hindu merchants are likewise doing well, because in their case they are concentrating on population growth and sales of household goods, that all young people need, as they start their families and proceed through life. While the sales may be slower, profit margins are very high, sometimes over 200% to compensate for lower sales volumes. The construction industry remains strong and will do so through 2009 and into 2010. Hardware stores are rotating the fast moving inventories about every 80 days. Steel re-bar and cement is being consumed on two week cycles. Tiles for floors on three month cycles. Being an agrarian society, Belize can revert easily to a former colonial life style of self sufficiency, subsistence and hunter-gatherer methods of survival, though it would mean in the case of a national debt caused DEVALUATION, in losing two thirds of our population to migration someplace else, for a more stable life style.
The fly in the ointment for the Belize Economy are the two political party governments, following a high debt financing policy, favored by CARICOM countries under the British style parliamentary system. Liquidity for the government revenues, despite a probable increase of 10% a year on average, will cycle downwards for the next few years, based on shrinking customary agrarian and tourism cash flows into the Belize economy. Some sort of breakthrough into light manufacturing is needed to increase export valuations and overall economic spending within Belize. The only export target so far, is the agro-processed exporting niche market. Some sort of manufactured items need to be made in Belize and exported also. Would such endeavors see government assistance, and or protections? That is a question most people feel not! The predatory nature of government institutional growth and expenditure costs is discouraging people from such endeavors. Both the government attitudes must change and that of people willing to try their hand at high risk experiments in light manufacturing.
The core of growth in Belize is controlled primarily by the high debt ratio to GDP. With a liquidity tax revenue base, running around $750 million to $850 million a year in revenues, for the remaining four years of the UDP term in office. The projections indicate that a depressionary cycle is in the offing, if not disastrous; because of the looming costs associated with the alleged SUPER BOND escalating costs eating up too much of the government revenues. Currently the SUPER BOND interest payments are consuming $250 million of government revenues approximately, and the government is trying to maintain costs within the $500 million figure. Alas, when the interest rate jumps 50% to $375 million a year, we are not going to be able to pay the interest. Shortly after that, the SUPER BOND interest rates are scheduled to double again to $725 million a year. Coupled with the twenty year loans currently borrowed during 2008, in the amount of $200 million and the UDP have announced more loans are in the pipeline. Spacing those existing loans payback over twenty years, means that payback would be roughly $500 million over twenty years, and this projects to an additional $25 million a year to pay. Manageable, if it was not for the SUPER BOND. Twenty years is a long time and that means four new governments taking five year terms, and if history is any guide, each of those governments based on our two political parties mean they in turn will be borrowing loans, or wish to during those four terms of office covering the twenty years. The only person that grasped the enormity of the debt financing crisis, was past Prime Minister Musa, who went on an austerity schedule for six years, which effectively cut the National Debt to GDP ratio from 127% of GDP to 76 % of GDP. The current government policies are shooting the National Debt ratio back up again and expected to increase once more over 100% of GDP, like the financially mismanaged Eastern Caricom island countries.
There is another option open to the Government, as a trader I favor this one. As the debt and economic crisis for Belize develops, as the SUPER BOND interest rates increase, the inability of the Government of Belize to handle the SUPER BOND LOAN COSTS will create a PANIC in the BOND HOLDERS, as well it should. Unable to pay, Belize is going to have to at some point go bankrupt again under current circumstances. The media are reporting that average price of the SUPER BOND was .32 cents on the dollar, when it was reported that Lord Ashcroft picked up about $17 million of the SUPER BOND. There are if I remember correctly, a couple of BILLION outstanding? As a trader and if I was the GOB I would go into LADDERING. This is a trading methodology and term. Get someone like Chavez to loan the money on concessionary terms and set up buy orders, every 10% down as the price of the SUPER BONDS falls from 32% on the dollar, as the economic crisis situation deepens. This will occur as the scheduled two interest rate increases come on line. Simply buy up the SUPER BOND on shrinking bid and ask values as the panic hits BOND HOLDERS. It is going to be a choice for them, of losing it ALL, or taking what they can get.
The devil is in the details. The details are that this government does indeed take in enough revenues to maintain and expand our economy, if they had no loans to pay.

1 comment:

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