Tweet
EDITORIAL - Take the eurobond in stride
Published: Friday | February 18, 2011 0 Comments
This newspaper welcomes the Government's successful placement of a US$400-million eurobond, whose interest of 7.95 per cent the finance minister, Audley Shaw, has celebrated as "the lowest rate at which Jamaica has ever raised funds on the international capital market".
The new bond will facilitate the rollover of one that is about to fall due, which was issued a decade ago at 11.75 per cent. In other words, the interest on the new debt is 3.8 percentage points lower than the one that was placed in 2001. This should mean an annual 'saving' on interest costs of more than J$1.3 billion.
As good as that number appears to be, neither the administration nor the country, at large, ought to allow it to mask the broader statement about the poor health of our economy and the urgency with which we have to approach its repair.
Here is our context.
Same premium as a decade ago
While it is true that a year ago, the markets might have rebuffed Jamaica, global interest rates are at historic low levels. For example, the one-year London Interbank Offered Rate (LIBOR) - broadly used as a reference rate for other debt - is now hovering at just under one per cent.
Jamaica, therefore, has been asked to pay a premium on its debt of around seven percentage points above the 12-month LIBOR. That premium approximates to what was demanded on the 2001 bond when LIBOR, in the first quarter of the year, ranged between 5.28 per cent and 4.67 per cent.
Baldly, while Jamaica is now benefiting from the general downward movement in rates, triggered by the global recession, our poor circumstance has not allowed us to extract any better premium than a decade ago.
That is not entirely the fault of the current administration, which not only inherited an underperforming economy in 2007, but not long afterwards was confronted with the global meltdown. The truth, however, is that the administration was slow to recognise and react to the crisis, assuming that it would be of little consequence to Jamaica.
That offers piece of the explanation of why, with much of the world on a path of recovery, though slowly, Jamaica recently marked its 14th consecutive quarter of negative growth and why the International Monetary Fund has concerns that fiscal adjustment is now being undertaken.
This brings us to our oft-repeated call for a robust debate on economic growth and job creation and for the administration to embrace the private sector in an aggressive search for ways for this to happen.
In this dialogue, all areas of economic and related policy must be open to scrutiny, and, if necessary, amendment. For instance, it might be useful to ask whether Jamaica can sustain last year's 4.4 per cent appreciation of its currency against the backdrop of inflation of 11.7 per cent, while that of its major trading partner, the United States, was under three per cent.
The bottom line: Jamaica has to pull out all the stops to drive economic growth and create jobs. That is a concentration of US President Barack Obama, who has named the CEO of General Electric to head a growth and job panel.
What might the Americans understand that we don't?
Published: Friday | February 18, 2011 0 Comments
This newspaper welcomes the Government's successful placement of a US$400-million eurobond, whose interest of 7.95 per cent the finance minister, Audley Shaw, has celebrated as "the lowest rate at which Jamaica has ever raised funds on the international capital market".
The new bond will facilitate the rollover of one that is about to fall due, which was issued a decade ago at 11.75 per cent. In other words, the interest on the new debt is 3.8 percentage points lower than the one that was placed in 2001. This should mean an annual 'saving' on interest costs of more than J$1.3 billion.
As good as that number appears to be, neither the administration nor the country, at large, ought to allow it to mask the broader statement about the poor health of our economy and the urgency with which we have to approach its repair.
Here is our context.
Same premium as a decade ago
While it is true that a year ago, the markets might have rebuffed Jamaica, global interest rates are at historic low levels. For example, the one-year London Interbank Offered Rate (LIBOR) - broadly used as a reference rate for other debt - is now hovering at just under one per cent.
Jamaica, therefore, has been asked to pay a premium on its debt of around seven percentage points above the 12-month LIBOR. That premium approximates to what was demanded on the 2001 bond when LIBOR, in the first quarter of the year, ranged between 5.28 per cent and 4.67 per cent.
Baldly, while Jamaica is now benefiting from the general downward movement in rates, triggered by the global recession, our poor circumstance has not allowed us to extract any better premium than a decade ago.
That is not entirely the fault of the current administration, which not only inherited an underperforming economy in 2007, but not long afterwards was confronted with the global meltdown. The truth, however, is that the administration was slow to recognise and react to the crisis, assuming that it would be of little consequence to Jamaica.
That offers piece of the explanation of why, with much of the world on a path of recovery, though slowly, Jamaica recently marked its 14th consecutive quarter of negative growth and why the International Monetary Fund has concerns that fiscal adjustment is now being undertaken.
This brings us to our oft-repeated call for a robust debate on economic growth and job creation and for the administration to embrace the private sector in an aggressive search for ways for this to happen.
In this dialogue, all areas of economic and related policy must be open to scrutiny, and, if necessary, amendment. For instance, it might be useful to ask whether Jamaica can sustain last year's 4.4 per cent appreciation of its currency against the backdrop of inflation of 11.7 per cent, while that of its major trading partner, the United States, was under three per cent.
The bottom line: Jamaica has to pull out all the stops to drive economic growth and create jobs. That is a concentration of US President Barack Obama, who has named the CEO of General Electric to head a growth and job panel.
What might the Americans understand that we don't?
Comment