Belize’s Debt Woes Shine Light on Caribbean Indebtedness

The tiny Central American country of Belize has until September 19 to reach an agreement with creditors after missing a $23 million bond payment on August 20. If no agreement is reached by then, the country will officially enter default, becoming the latest to do so in the hemisphere since Argentina defaulted on $95 billion worth of bonds in 2001. Belize is the most recent Caribbean country to seek debt restructuring in a region where some consider debt to be a “ticking time bomb.”

Given anemic economic growth and diminishing tourism receipts as a result of slow growth in the United States and Europe, Belize’s Prime Minister and Minister of Finance and Economic Development Dean Barrow says his country is unable to pay the 8.5 percent annual interest that a $547 million “super bond” began accruing in February of this year. That bond, due to mature in 2029, makes up half of Belize’s public debt. “We simply cannot afford this coupon payment, given the financing shortfalls and other challenges we face,” Barrow said. “Our hope, however, is that we can move quickly toward a sensible restructuring of the instrument.” To that end, his government offered creditors three main restructuring options. Those include combinations of introducing a 15-year grace period, extending the maturation of the loan by 13 to 33 years, an overall reduction in the interest rate, or a 45 percent reduction in the principal to be repaid.

Belize’s call for debt negotiations is the latest in a region saddled with the problem of debt and continued economic strain. Jamaica has been in ongoing debt negotiations with the International Monetary Fund (IMF) since 2010, and St. Kitts and Nevis negotiated a debt restructuring earlier this year. Financial Times’ beyondbrics blog notes that many Caribbean countries suffer under similar high debt loads—with an overall regional debt load of 55 percent of GDP—and struggle to repay amid poor economic growth and a flagging tourism industry. “Some of these countries are hanging by a thread,” UBS economist Gustavo Arteta told the Financial Times in another piece, adding “[t]he last five years have been tough, and the next five years are likely to be even tougher.” In terms of debt defaults, “maybe we’re moving from the Mediterranean to the Caribbean,” economist Manuel Lasaga told The Miami Herald.

Still, not everyone’s convinced of the need for a renegotiation in Belize. Economic data from the IMF in December 2011 considered Belize’s foreign debt outlook “broadly stable,” leading some analysts to conclude Belize’s demand for renegotiations shows an “unwillingness rather than an inability to pay,” says The Wall Street Journal. Recent Belizean economic data may confirm those suspicions. The government reported this month that GDP growth led by tourism and banana exports may reach 3 percent this year—a full point higher than expected. “This was not a country in dire straits,” Walter Molano of BCP Securities told the Journal. A.J. Mediratta of bondholder Greylock Capital Management added: "They're asking for more than Greece, but they're nowhere near the same level of distress.” Many consider the terms offered by Belize to be overly punitive. International finance Professor Arturo Porzecanski of American University called Belize’s proposals “a scalping” rather than a haircut, and noted it would “put Belize in the same league as the most punishing restructurings in sovereign history.”

Nevertheless, Barrow attempted to assuage investors, promising “It may appear Belize is asking for a lot, but we aren’t asking for more than the circumstances require.”

Learn More:

• Read a Question and Answer from the Belizean Central Bank on the Debt Restructuring Program.
• Watch Prime Minister Dean Barrow deliver a speech on the debt restructuring.
• Read a piece from the Financial Times' beyondbrics blog about the danger of high Caribbean indebtedness.
• Read a December 2011 IMF report on Belize’s economy.
• Access an interview on Belize’s debt restructuring with Eurasia Group’s Heather Berkman in World Politics Review.