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Jamaican economy limited by policy options
published: Sunday | June 17, 2007
Keith Collister, Contributor
assembled in Montego Bay for the Euromoney conference that, in terms of economic policy, it did not really matter who won the election as anyone in office would face a very limited set of options.
In one sense, thisis clearly true, as Jamaica has one of the highest proportions of devoted to the payment of interest in the world, while most of what is left is devoted to the payment of wages.
Because Jamaica's debt is mainly held by locals, default is not an option, unlike in the case of a Belize, where virtually all the was held by foreigners.
However, as Bear Stearns' senior managing director Dr. Carl Ross noted in his presentation at Thursday's NCB Capital Markets seminar, Jamaica is underperforming by a substantial margin measured both against the majority of emerging markets and even against a peer group selected by Bear Stearns.
The peer group of Brazil, Turkey, the Dominican Republic, Uruguay and Indonesia have all, like Jamaica, had serious financial crises in the recent past, and either have or had, until very recently, a country risk rating similar to Jamaica.
Peer performance
Indeed, the problem is that those countries that formerly had the same rating as Jamaica are rapidly being upgraded, while Jamaica is not.
The reason is very clear from Ross's presentation. Since 1999 - whether the issue is real GDP growth, the fiscal deficit in terms of GDP, the current-account deficit as a percentage of GDP, or the external debt-to-GDP-ratio - all these peer groups have been performing much better than Jamaica.
Even the latter indicator underestimates the problem as our internal debt, and consequently overall debt service, is among the world's highest.
Looking at emerging-market countries in aggregate, the comparison worsens as it becomes clear that there has been a dramatic transformation in emerging-market finances and vulnerability.
In 1998, a year of emerging-market crisis, total emerging-market foreign exchange reserves of around US$700 billion were a fraction of the total external debt of nearly US$2,600 billion.
The International Monetary Fund forecasts that after growing exponentially for several years, the projected rise in foreign-exchange reserves this year will make them almost equal to their estimate of total external debt of nearly US$3,600 billion, or almost one-for-one coverage.
Theoretically, emerging-market countries would be in a position to pay off their total external debt in 2008, a far cry from the Third World debt-crisis situation of the past two decades, which still appears to inform much of the public discourse on the subject.
Vast improvements
Of course, as Ross notes, the countries with debt are not always the country's with the reserves, so the global average hides as much as it conceals.
Nevertheless, even looking solely at relatively highly indebted Latin America, vast improvements have occurred in the financial positions of Peru, Columbia, Brazil, and even Venezuela the latter is wholly driven by its oil windfall.
The consequence of all this is that according to Bear Stearns, at around eight per cent, Jamaican eurobond yields are nearly two percentage points above the six per cent yields available on comparable 10-year bonds from its peer group, which is itself somewhat above the yields available in much of the rest of the emerging-market universe.
However, while Ross does not currently believe owners of Jamaican bonds will benefit from much in the way of price appreciation from a significant improvement in our fundamentals, he sees our bonds as a good option for those interested in a higher rate of interest, with other higher-risk options including oil-rich Venezuela - their bond prices have been depressed by its President's rhetoric - and even recently restructured Belize.
Those willing to accept a lower yield in return for a lower risk in the region should look at Guatemala or Barbados.
JMMB profit dips
As expected, Jamaica Money Market Brokers (JMMB) reported a decline in its net earnings for its financial year from $1.62 billion last year to $1.15 billion or 75 cents per share for the year ended March 2007.
However, in their press briefing, the group noted they actually delivered better local performance, with the Jamaica profit before write-down and taxation rising by 24 per cent to $1.7 billion, despite a 23.5 per cent decline in net-interest income due to falling local-interest margins and the inverted U.S. yield curve.
This was driven mainly by a doubling of the gains from securities trading from $756 million to $1.57 billion, as well as an 82 per cent rise in fee and commission income.
The main contributor to this year's poor performance was the 80 per cent fall in net profits of its CMMB subsidiary due to the impact of the sharp rise in Trini-dadian and Barbadian interest rates on CMMB's net-interest income.
JMMB also wrote down a private, equity investment by $200 million as well as its position in Supreme Ventures, for a combined $254 million.
JMMB's prospects going forward look much better as they expect Trinidad to turn around this year, with CMMB likely to benefit from lower interest rates and a better Trinidad stock market, and continued growth in earnings from its Trinidadian banking subsidiary.
The brokerage expects its Jamaica net-interest income to at least stabilise, and while profits may not be quite as robust from trading, it says this should be treated as part of core earnings going forward in view of its economic and fixed-income expertise.
At its current price of $9.50, Donna Duncan may be proved right, that JMMB is a "medium to long-term buy", particularly in a better stock market.
keithcollister@cwjamaica.com
published: Sunday | June 17, 2007
Keith Collister, Contributor
assembled in Montego Bay for the Euromoney conference that, in terms of economic policy, it did not really matter who won the election as anyone in office would face a very limited set of options.
In one sense, thisis clearly true, as Jamaica has one of the highest proportions of devoted to the payment of interest in the world, while most of what is left is devoted to the payment of wages.
Because Jamaica's debt is mainly held by locals, default is not an option, unlike in the case of a Belize, where virtually all the was held by foreigners.
However, as Bear Stearns' senior managing director Dr. Carl Ross noted in his presentation at Thursday's NCB Capital Markets seminar, Jamaica is underperforming by a substantial margin measured both against the majority of emerging markets and even against a peer group selected by Bear Stearns.
The peer group of Brazil, Turkey, the Dominican Republic, Uruguay and Indonesia have all, like Jamaica, had serious financial crises in the recent past, and either have or had, until very recently, a country risk rating similar to Jamaica.
Peer performance
Indeed, the problem is that those countries that formerly had the same rating as Jamaica are rapidly being upgraded, while Jamaica is not.
The reason is very clear from Ross's presentation. Since 1999 - whether the issue is real GDP growth, the fiscal deficit in terms of GDP, the current-account deficit as a percentage of GDP, or the external debt-to-GDP-ratio - all these peer groups have been performing much better than Jamaica.
Even the latter indicator underestimates the problem as our internal debt, and consequently overall debt service, is among the world's highest.
Looking at emerging-market countries in aggregate, the comparison worsens as it becomes clear that there has been a dramatic transformation in emerging-market finances and vulnerability.
In 1998, a year of emerging-market crisis, total emerging-market foreign exchange reserves of around US$700 billion were a fraction of the total external debt of nearly US$2,600 billion.
The International Monetary Fund forecasts that after growing exponentially for several years, the projected rise in foreign-exchange reserves this year will make them almost equal to their estimate of total external debt of nearly US$3,600 billion, or almost one-for-one coverage.
Theoretically, emerging-market countries would be in a position to pay off their total external debt in 2008, a far cry from the Third World debt-crisis situation of the past two decades, which still appears to inform much of the public discourse on the subject.
Vast improvements
Of course, as Ross notes, the countries with debt are not always the country's with the reserves, so the global average hides as much as it conceals.
Nevertheless, even looking solely at relatively highly indebted Latin America, vast improvements have occurred in the financial positions of Peru, Columbia, Brazil, and even Venezuela the latter is wholly driven by its oil windfall.
The consequence of all this is that according to Bear Stearns, at around eight per cent, Jamaican eurobond yields are nearly two percentage points above the six per cent yields available on comparable 10-year bonds from its peer group, which is itself somewhat above the yields available in much of the rest of the emerging-market universe.
However, while Ross does not currently believe owners of Jamaican bonds will benefit from much in the way of price appreciation from a significant improvement in our fundamentals, he sees our bonds as a good option for those interested in a higher rate of interest, with other higher-risk options including oil-rich Venezuela - their bond prices have been depressed by its President's rhetoric - and even recently restructured Belize.
Those willing to accept a lower yield in return for a lower risk in the region should look at Guatemala or Barbados.
JMMB profit dips
As expected, Jamaica Money Market Brokers (JMMB) reported a decline in its net earnings for its financial year from $1.62 billion last year to $1.15 billion or 75 cents per share for the year ended March 2007.
However, in their press briefing, the group noted they actually delivered better local performance, with the Jamaica profit before write-down and taxation rising by 24 per cent to $1.7 billion, despite a 23.5 per cent decline in net-interest income due to falling local-interest margins and the inverted U.S. yield curve.
This was driven mainly by a doubling of the gains from securities trading from $756 million to $1.57 billion, as well as an 82 per cent rise in fee and commission income.
The main contributor to this year's poor performance was the 80 per cent fall in net profits of its CMMB subsidiary due to the impact of the sharp rise in Trini-dadian and Barbadian interest rates on CMMB's net-interest income.
JMMB also wrote down a private, equity investment by $200 million as well as its position in Supreme Ventures, for a combined $254 million.
JMMB's prospects going forward look much better as they expect Trinidad to turn around this year, with CMMB likely to benefit from lower interest rates and a better Trinidad stock market, and continued growth in earnings from its Trinidadian banking subsidiary.
The brokerage expects its Jamaica net-interest income to at least stabilise, and while profits may not be quite as robust from trading, it says this should be treated as part of core earnings going forward in view of its economic and fixed-income expertise.
At its current price of $9.50, Donna Duncan may be proved right, that JMMB is a "medium to long-term buy", particularly in a better stock market.
keithcollister@cwjamaica.com
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