BELIZE UNSUSTAINABLE DEBT REVIEW - 2012

BELIZE GOVERNMENT INCOME REVENUE RUNS ABOUT $800 MILLION  A YEAR IN BZ CURRENCY, OR $400 USA MILLION A YEAR.  THE CURRENT DEBT SERVICE IS ABOUT ONE THIRD OF THE GOVERNMENT'S ANNUAL REVENUE.  OIL EXPORTS FROM TWO SMALL UNDERGROUND PONDS CONTRIBUTE, ONE THIRD OF ANNUAL GOVERNMENT REVENUES.  THE TWO OIL PONDS HAVE PASSED PEAK OIL, AND EXPECTED TO DECLINE TO NEAR ZERO OVER NEXT FIVE YEARS. WITH A POPULATION OF 300,000 PEOPLE, THE COUNTRY WOULD BE MODERATELY WELL OFF ECONOMICALLY AND ARE CURRENTLY SELF SUSTAINABLE IN FOOD PRODUCTION, IF IT WAS NOT FOR PAST POLITICAL MISTAKES, WHICH LED TO THE COUNTRY ACCUMULATING TOO MUCH INTERNATIONAL DEBT.  THE CURRENT PRIME MINISTER ON HIS SECOND TERM, HAS SHOWN HIMSELF STERN WHEN FACED WITH A DISTASTEFUL COURSE OF ACTION. IT WOULD NOT SURPRISE ANY OF THE POPULATION OF BELIZE, TO SEE HIM DEFAULT ON THE INTERNATIONAL DEBT.  IN FACT, LOCALLY, MOST BETS ARE BEING PLACED ON THIS HAPPENING! HE IS BEING ENCOURAGED TO DO SO, BY THE POPULATION; AS EVEN THE MOST SIMPLE MINDED CAN SEE ANNUAL GOVERNMENT REVENUES DECLINING TO AROUND $230 USA MILLION, ONCE THE OIL EXPORTS ARE GONE. LOCAL ECONOMIC EXPERTS PUT THE ABILITY OF BELIZE TO SERVICE DEBT IN THE NEXT FIVE YEARS, WHILE EXPERIENCING LOWER ANNUAL REVENUES, AT AROUND A TOTAL OF $15 USA MILLION PER ANNUM.  THE E.U. RECOMMENDED STANDARD IS 3% OF GDP.  IF BELIZE WERE TO ADOPT THAT MAXIMUM DEBT SERVICE FORMULA, IT WOULD BE ABOUT $10 USA MILLION PER YEAR.

Bloomberg:

Belize’s vow to restructure more than $500 million of dollar debt for the second time in five years has stoked the biggest bond decline in emerging markets. TCW Group Inc. is betting the rout has gone too far.

The yield on the Central American country’s $544 million of notes due in 2029 has surged 235 basis points to 19.4 percent since Jan. 31, when Prime Minister Dean Barrow said he would restructure the securities, without giving more details. The yields have climbed 872 basis points from a year ago and are the highest among 50 nations tracked by JPMorgan Chase & Co.’s EMBIG index. Notes sold by Argentina and Pakistan yield 12.6 percent and 11.8 percent, respectively.

Barrow said he would pursue more lenient terms for the government after the interest rate on the notes rose to 8.5 percent this year from 6 percent as part of an accord reached with bondholders in 2007. TCW says investors are overestimating the losses the country will seek to impose in any new agreement.

“What I think is likely is that they will propose a return to lower coupons and perhaps some maturity extension,” said Marcela Meirelles, a Latin America strategist in Los Angeles for TCW, which oversees $128 billion of assets and bought Belize bonds after the sell-off. “They can engineer a situation in which the debt service is once again manageable.”

Rating Cut

Moody’s Investors Service cut Belize’s credit rating for a second time this year on June 1 to Ca, 10 levels below investment grade, citing weak growth in the $1.4 billion tourism-based economy. Moody’s first cut the rating in February, prompting Barrow to say he “doesn’t give a damn” about ratings companies.

AJ Mediratta, a partner at Greylock Capital Management, is leading a group of inve points, the most in a month, to 18.68 percent at 8:50 a.m. New York time.

Roberto Sanchez-Dahl, who oversees $1.3 billion of emerging-market debt at Federated Investment Management Co., said he sold his Belize debt after the election-season comments because a lack of information led him to prepare for the worst.

“We decided there was not that much upside from there, given the very large political pressure for them to do something about it,” Sanchez-Dahl said in a telephone interview from Pittsburgh. “It looked like it could turn into a very complicated situation there, and under the current market environment, we just didn’t want to have any loose cannons there.”

Growth Forecast

The International Monetary Fund forecasts Belize’s economy will expand 2.8 percent this year after growing 2 percent in 2011, compared with 4 percent growth for the entire Central America region. About 35 percent of the country’s population lived in a dwelling without a flush toilet or refrigerator, according to a 2010 census.

The restructuring is Belize’s latest effort to control debt-servicing costs. The Central American country consolidated its debt into a so-called superbond in 2007 following higher spending related to tropical storms and hurricanes over the previous decade. At the time, the government said its recovery from storms left it with “heavy external debt obligations.”

‘Deal Breaker’

In 2007, Belize was spending a quarter of its revenue on interest payments. Public debt outlays equaled 13.6 percent of revenue from April 2011 to March 2012, according to the central bank. The jump in the superbond’s coupon ahead of the elections probably made continued payments a “deal breaker” for the government, said Franco Uccelli, senior economist for Central America and the Caribbean at JPMorgan in Miami.

Belize, which is wedged between Mexico and Guatemala on the Yucatan Peninsula, could expect yields on restructured debt to fall as low as 10 percent, Uccelli said. The country cut its debt-to-GDP ratio to about 84 percent last year from 100 percent in 2005, he said.

“They got a big relief in terms of their debt service burden” in the earlier debt restructuring, Meirelles said. “They don’t need a big haircut.”

To contact the reporters on this story: Adam Williams in San Jose, Costa Rica at awilliams111@bloomberg.net; Jonathan J. Levin in Mexico City at jlevin20@bloomberg.net

To contact the editor responsible for this story: David Papadopoul