NEW YORK, Aug 27 (IFR) - Grenada is expected to conclude its debt restructuring
ID: 2415872 • Letter: N
Question
NEW YORK, Aug 27 (IFR) - Grenada is expected to conclude its debt restructuring in a matter of weeks, the International Monetary Fund said on Thursday following a recent visit to the country. Under the April deal, bond creditors agreed to a 50% haircut and special warrants on some US$262m of international and local bonds related to the island's citizenship-by- investment program. Bondholders exchange their current holdings - securities on which the country defaulted in 2013 - for new 15-year amortising bonds with a 7% coupon. "It will be important to finalize this agreement promptly so as to clear uncertainty regarding financing and unleash confidence and investment," the IMF said. It said the restructuring - which gives Grenada debt relief worth 19% of its GDP - would be completed in the coming weeks. The deal is a much-needed reprieve for a country burdened with total public sector debt that reached 111% of GDP in 2014, according to IMF estimates. "Grenada is making solid progress implementing its homegrown economic program, restoring fiscal sustainability and laying the groundwork for stronger growth," the IMF said. The Fund is now forecasting 3.1% growth this year, compared to the 1.7% it had calculated earlier this year. The island nation defaulted on a US$193m 2025 international bond issue - and on local bonds with the same maturity - in 2013 in the wake of a series of hurricanes and the financial crisis. (Reporting By Paul Kilby and Krista Hughes; Editing by Marc Carnegie)
1. Assume you are a representative of the government, present a plan to the steering committee of the bondholders which would not erode investor confidence in existing and future debt securities issued by the government of Grenada. Your plan should outline the issues facing the government and how you plan to do the haircut. 2. How do you think the IMF assistance contributed to the overall success of the program? Comment on its role in such an exercise.
Explanation / Answer
1. Main reasons for Greneda's restructuring of the debt of $ 262 millon are as follows:
* The country's Economic growth slow down to 1.7%, So country cannot meet the obligaiton debt
* The country's Public Debt reached 111% of GDP, So naturally it cannot meet its obligation
* 50% of the Greneda's estimated 110,000 people live in property.
* Every 10 or so years, a hurricane wipes out a signifincant percentage of those islands gross domestic product
and the fmamcial hurricane of the 2008 fiscal crisis in the US cut deeply into the tourism trade upon which that
small nation rely
* Greneda is once colonised, now it has a big plantation, but still people are continued to be enslaved with rich
country. Earlier, US import bananas from Greneda, now it is getting from Latin America with which Greneda
cannot compete.
* The country's public debt is reached 111% of GDP
REMEIAL MEASURES TO STRENGHEN THE COUNTRY'S ECONOMY:
Now the island takes several measures to strengthen its economy. These steps are as follows:
1) The country taking steps to increase its Economic growth, due to those steps the county's growth rate increase
to 3.7%,earlier it is 1.7%.
2) The religious organizations are very sympathetic, so that they are trying to improve education, helping the
poor and participating in rehabilitation work after hurriacanes.
3) By increasing the tax revnues rather than slashing the government jobs, will be better for improving the
economic growth
4) Finally, there is a hope regarding the gowth of economy, so restructuring of debt no taking place with 50% cut
on the obligation and exchanging the old debt for 15 year amortizing bonds with 7% coupon rate of interest
2. IMF Assistance: IMF, generally should involve in such a great debt crisis. It should help in negotions with debt borrowers and lenders, it should not be in support of rich countries, and it shoudl not take stringent steps to auction the government property to recover the debt. It should not punish the public for the failure of the government. So,far IMF has not taken any constructive steps to resolve the crisis.
IMF should create a fund specially designed to lend poor countries with very very low interest.And some tmes it has to share the loss of debt with poor countries. And it has to bring together the member countries to help poor countries, particulary in case of debt crisis.
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