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Moody's says deal with Fund will not improve credit rating, downgrades Jamaica
BY HAROLD G BAILEY Observer Correspondent editorial@jamaicaobserver.com
Thursday, November 19, 2009
NEW YORK, USA - Moody's Investors Service has cautioned Jamaica that the inking of a deal with the International Monetary Fund (IMF) in the near term will not automatically improve the country's credit rating.
The warning by Moody's vice-president and senior analyst, Alessandra Alecci - the second by a rating agency in a month - came just ahead of yesterday's downgrade of Jamaica's local and foreign currency government bond ratings to Caa1 from B2 by the international rating agency.
Alecci, in an interview with the Observer, said "details of any (IMF) agreement will be crucial, and will have to be thoroughly scrutinised", adding that the country might have to restructure its debt, which could lead to potential losses for bondholders.
".If this is the case, and depending on the estimated losses to investors, a different rating than now obtains would have to be assigned to Jamaica," said Alecci. She said Jamaica's previous B2 rating was "among the lowest we have assigned to any sovereign nation", which means that yesterday's downgrade to Caa1 is a severe blow to the Government, which is already struggling under the weight of the recession.
Moody's, in citing reasons for its downgrade, said yesterday that "options to restore debt sustainability without a debt restructuring are narrowing despite the strong resolve of the authorities to avoid a rescheduling. Delays in reaching an IMF agreement are also an issue of concern."
Said Moody's: "After several months of negotiations with the IMF and various statements indicating progress, there are signs that an agreement with the IMF may not be within reach yet. Such agreement is crucial to maintain confidence, meet this year's Government funding needs and provide foreign currency inflows to sustain the external position."
The international rating agency added that even though an IMF programme would probably give some much-needed breathing room to the fiscal position, the size of the public debt was such that Jamaica was unlikely to restore debt sustainability in the medium term without some sort of meaningful debt restructuring at some point.
Two weeks ago, Standard and Poor's (S&P), another of the international rating agencies, downgraded Jamaica's creditworthiness. That led to the Jamaican Government questioning the factors which were used by the agency to arrive at its conclusion.
S&P later said that it stood by its assessment of the country's credit situation.
In the meantime, Alecci, in the Observer interview, warned that a messy restructuring with major losses to investors would have significant implications for the local financial system, given the fact that the system is exposed to the Government's debt.
Late last week, IMF spokesman Andreas Adriano, while acknowledging that a quick end to the talks would be in everyone's interest, described the negotiations with Jamaica as complex and that it was in everybody's interest that they are not rushed.
He said he could give no date when the talks would be concluded or if further discussions were to take place following the latest round of negotiations, which ended in Washington last week.
- With additional reporting by Observer staff reporters in Kingston
BY HAROLD G BAILEY Observer Correspondent editorial@jamaicaobserver.com
Thursday, November 19, 2009
NEW YORK, USA - Moody's Investors Service has cautioned Jamaica that the inking of a deal with the International Monetary Fund (IMF) in the near term will not automatically improve the country's credit rating.
The warning by Moody's vice-president and senior analyst, Alessandra Alecci - the second by a rating agency in a month - came just ahead of yesterday's downgrade of Jamaica's local and foreign currency government bond ratings to Caa1 from B2 by the international rating agency.
Alecci, in an interview with the Observer, said "details of any (IMF) agreement will be crucial, and will have to be thoroughly scrutinised", adding that the country might have to restructure its debt, which could lead to potential losses for bondholders.
".If this is the case, and depending on the estimated losses to investors, a different rating than now obtains would have to be assigned to Jamaica," said Alecci. She said Jamaica's previous B2 rating was "among the lowest we have assigned to any sovereign nation", which means that yesterday's downgrade to Caa1 is a severe blow to the Government, which is already struggling under the weight of the recession.
Moody's, in citing reasons for its downgrade, said yesterday that "options to restore debt sustainability without a debt restructuring are narrowing despite the strong resolve of the authorities to avoid a rescheduling. Delays in reaching an IMF agreement are also an issue of concern."
Said Moody's: "After several months of negotiations with the IMF and various statements indicating progress, there are signs that an agreement with the IMF may not be within reach yet. Such agreement is crucial to maintain confidence, meet this year's Government funding needs and provide foreign currency inflows to sustain the external position."
The international rating agency added that even though an IMF programme would probably give some much-needed breathing room to the fiscal position, the size of the public debt was such that Jamaica was unlikely to restore debt sustainability in the medium term without some sort of meaningful debt restructuring at some point.
Two weeks ago, Standard and Poor's (S&P), another of the international rating agencies, downgraded Jamaica's creditworthiness. That led to the Jamaican Government questioning the factors which were used by the agency to arrive at its conclusion.
S&P later said that it stood by its assessment of the country's credit situation.
In the meantime, Alecci, in the Observer interview, warned that a messy restructuring with major losses to investors would have significant implications for the local financial system, given the fact that the system is exposed to the Government's debt.
Late last week, IMF spokesman Andreas Adriano, while acknowledging that a quick end to the talks would be in everyone's interest, described the negotiations with Jamaica as complex and that it was in everybody's interest that they are not rushed.
He said he could give no date when the talks would be concluded or if further discussions were to take place following the latest round of negotiations, which ended in Washington last week.
- With additional reporting by Observer staff reporters in Kingston
So, if we love our children, we are not patriotic?!? The JFJ is not the problem here.
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