Monday, August 7, 2006

by Mica Rosenberg

Belize (Reuters), BELMOPAN: Belize said last week it was committed to a 'market-friendly' restructuring of its nearly $1 billion foreign debt but that negotiations with creditors would dictate how much lenders stood to lose.

The tiny Central American nation's government said it would restructure a $960 million external debt load, including international bond debt, that has become unsustainable.

Ratings agency Standard & Poors said the plan amounted to a default for the cash-strapped nation of jungles and pristine coral reefs, which has borrowed heavily in recent years to recover from a series of punishing hurricanes.

"We are committed to serving our debt as long as the cash flow allows us to," Prime Minister Said Musa, who also is the country's finance minister, told reporters.

"I don't think they are going to be surprised," he said when asked how financial markets would react to the plan.

"I think they expected this," he said. "We are doing the negotiation in a market-friendly way, we are not waiting for a default. We are going to them first and we plan to pay."

Musa said that more than half of the country's foreign debt was owed to private creditors such as bondholders and banks.

The government also has said it will ask for help from multilateral lenders in easing its burden.

Musa said that the amount of money lenders could expect to lose would depend on the upcoming negotiations.

PENNILESS PARADISE

Musa said a series of hurricanes had forced the country to borrow heavily to recover.

Known as British Honduras until independence in 1981, the tiny ex-colony nestled between Mexico and Guatemala is at the mercy of killer storms that forced it to move its capital inland from ramshackle Belize City in 1970.

"The economy was in a deep recession, the country was broke (due to hurricanes) and we had to get the private sector moving again," said Musa. "We started a major expansionary program ... to pay for the program we took on a lot of debt."

Officials declined to specify exactly how much of the country's debts were in the form of market-traded bonds.

But Financial Secretary Carla Barnett told Reuters a big $70 million bond payment due in October would be hard to meet.

"That payment could be a big problem," she said.

The government has said that most of its external commercial debt, as well as that of its public sector entities, would be affected in the restructuring, which it aims to complete by the fourth quarter of 2006.

Belize's ratio of debt to gross domestic product is over 90 percent and the government spends more than 27 percent of its fiscal revenue on interest payments.

Negotiations with creditors are beginning immediately and the government has hired Houlihan Lokey Howard & Zukin as financial adviser.

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