The International Monetary Fund reached a preliminary agreement for a $750 million loan to Jamaica after the Caribbean island vowed to restructure its local debt for the second time in three years.
The accord is “subject to the timely completion of prior actions to be taken by the Jamaican government,” including a debt exchange that “will depend critically on a high rate of participation of private creditors,” the IMF said today in an e-mailed statement. The IMF’s board will consider approving the loan by the end of March.
Prime Minister Portia Simpson Miller is asking bondholders to exchange 860 billion Jamaican dollars ($9.1 billion) of higher interest local currency debt for lower-yielding bonds. The drop in interest payments will enable the government to reduce its debt to 95 percent of gross domestic product within seven years from 140 percent today and revive growth, Simpson said in a nationally televised address on Feb. 11.
“Over the last three decades, the Jamaican economy has experienced very low economic growth, declining productivity, and reduced international competitiveness,” the IMF said. “An important factor behind these problems has been Jamaica’s unsustainable debt burden.”
Jamaica’s $14.5 billion economy shrank 0.6 percent in the third quarter, the third consecutive contraction. The nation’s central bank reserves plummeted to about $1 billion in January from $1.9 billion a year earlier and $2.6 billion in April 2011.
The Caribbean nation swapped $7.8 billion of local bonds for securities with longer maturities and lower interest rates in 2010, when its debt burden exceeded 120 percent of GDP. The accord paved the way for Moody’s Investors Service to raise Jamaica’s credit rating and the IMF to approve a 27-month, $1.27 billion stand-by credit.