IMF Loan Makes Jamaica Dollar Hemisphere's Best Performer

The International Monetary Fund-led bailout following Jamaica’s second debt restructuring in three years helped the Caribbean island’s dollar outperform all other currencies in the Western Hemisphere this month.

After tumbling 6.5 percent in the first four months of the year, the Jamaican dollar has climbed 0.1 percent this month to 98.725 per dollar, the only one of 16 Latin American and Caribbean currencies tracked by Bloomberg to gain against the greenback. The Brazilian real and Mexican peso both lost about 5 percent versus the dollar over the same period, respectively, while the Canadian dollar fell 2.2 percent.

Prime Minister Portia Simpson Miller’s government restructured about $9 billion in local bonds in March as economic growth contracted five quarters in a row and central bank reserves plunged. That paved the way for about $2 billion in loans this month from the IMF, World Bank and Inter-American Development Bank.

“If the IMF is happy, it will continue to disburse funds and this will continue to keep the ship afloat for the foreseeable future,” said Franco Uccelli, a Latin America and Caribbean analyst at JPMorgan Chase & Co. in Miami. “Everything is contingent on the Jamaicans staying the course right now.”

Central bank reserves tumbled 51 percent in April from a year earlier to $866 million, prompting policy makers to create a U.S. dollar-indexed bond and four new certificates of deposit to staunch demand for foreign currency. Reserves should recover “gradually” to about $1.2 billion in the 2013-2014 fiscal year, the IMF said in a report this month.

Debt-to-GDP

Simpson Miller’s government is also making progress in narrowing the budget deficit after the restructuring, according to the IMF. The first-quarter deficit of $72 million was less than the $77 million forecast by the government. The country’s ratio of debt-to-gross domestic product reached 140 percent last year, the IMF said, more than the 93 percent that triggered a European Union bailout of Cyprus.

Jamaica’s budget “outperformed projections, with the central government primary surplus improving to 5.4 percent of gross domestic product, mainly owing to a decline in primary expenditure,” the IMF said May 21. “Although the full benefits of the reform agenda may take time to materialize, the reforms are urgent.”

U.S. Stimulus

Demand for most global currencies and bonds eased this month on speculation that the Federal Reserve will pare back stimulus efforts. The yield on benchmark 10-year U.S. bonds have jumped 44 basis points this month, the biggest increase since December 2010, to 2.11 percent. All 16 major global currencies tracked by Bloomberg have weakened against the dollar this month.

The yield on Jamaican dollar debt rose six basis points this month through May 29 to 7.4 percent, according to JPMorgan’s CACI index.

The IMF accord and the central bank’s efforts helped “diminish speculative and hoarding activities,” which had undermined the Jamaican dollar, Gregory Samuels, head of trading at Scotia Investments Jamaica Limited, said by e-mail.

Still, the rally won’t last as the government is “more comfortable” depreciating the currency at a “moderate pace” to boost exports and tourism, said Dino Hinds, vice president of markets and trading at Mayberry Investments Ltd. in Kingston.

Officials at the central bank didn’t respond to messages left by Bloomberg News.

Default Probability

Economically, Jamaica is still struggling to ignite growth. Moody’s Investors Service warned in a May 20 report that Jamaica and Belize, which restructured about $544 million of global bonds this year, face a “high probability” that they will default again.

Jamaica’s GDP declined 0.5 percent in the fiscal year ending March 31, the IMF said. Tourist arrivals fell 2.5 percent to 541,000 in the first quarter, according to the Jamaican Tourist Board. Unemployment climbed to 14.2 percent in the fourth quarter from 13.7 percent in the previous three-month period. Growth will probably rebound to 0.4 percent this year, according to the median estimate in a Bloomberg survey of five economists.

“It’s really one of the weakest credits in the Caribbean and all of Latin America,” said Uccelli. “It’s obviously so highly indebted, and with the precarious fiscal situation and the inability to grow, once you combine those factors, it’s very difficult really to improve your outlook unless some drastic measures are undertaken, and that’s what the government is trying to do now.”

To contact the reporters on this story: Eric Sabo in Panama City at esabo1@bloomberg.net; Anna Edgerton in Miami at aedgerton@bloomberg.net

To contact the editors responsible for this story: Bill Faries at wfaries@bloomberg.net; David Papadopoulos at papadopoulos@bloomberg.net

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