Nov 2009 Financial News

'Downgrade groundless' Ratings agency being hasty, says Gov't

Nov 03, 2009

The Government last night said that Standard & Poor's' downgrade of Jamaica's long-term foreign and domestic currency ratings yesterday was hasty and groundless and insisted that the change of leadership at the Bank of Jamaica was unrelated to the Government's discussions with the International Monetary Fund (IMF).

The administration's response to S&P's downgrade from CCC+ to CCC appeared to have received support from the International Monetary Fund (IMF) which said it was making progress in its discussions with the Government to fashion a loan agreement.

"The IMF mission currently in Jamaica is working closely with the authorities toward developing a strategy to address current economic challenges and define policies that could be supported under an IMF standby arrangement," IMF spokesman Andreas Adriano said in a news release reacting to S&P's action.

"These discussions cover both the current and next fiscal years and the medium term, and we are examining a range of policy options. We are continuing to make progress," added Adriano who said the IMF mission will provide an update on the discussions by the end of this week.

Standard & Poor's announced the downgrade late yesterday evening, giving as its reason the resignation of Jamaica's central bank governor Derick Latibeaudiere, who was the country's lead negotiator for the IMF standby facility.

According to the international ratings agency, Latibeaudiere's resignation has created more uncertainty about the timeframe for reaching an agreement with the IMF.

Last Friday, the finance ministry announced that Latibeaudiere had resigned with immediate effect after reaching a mutual agreement with Finance Minister Audley Shaw.

The ministry also said that Financial Secretary Dr Wesley Hughes had been appointed to take over the role as lead negotiator and that former former Financial Services Commission boss Bryan Wynter will replace Latibeaudiere on December 1.

However, highly placed sources say that Latibeaudiere was pushed out and a senior Government official told the Observer that his departure would likely benefit the Administration's negotiations with the IMF.

Latibeaudiere is known not to favour a proposal for Jamaica to restructure its debt. He has also taken a lot of flak for maintaining high interest rates in order to mop up liquidity.

Yesterday, the Opposition People's National Party (PNP) weighed in on the S&P rating as well as the sudden resignation on Sunday of Police Commissioner Hardley Lewin. The party called on the prime minister "to provide a frank and fulsome response to the deepening crises facing the country".

". it is now past urgent for the prime minister to come clean to the nation," said PNP president Portia Simpson Miller. "The prime minister must indicate to the country his administration's plans to retrieve the situation and give a sense of direction which, to date, has been missing."

Yesterday, S&P's pointed out that on August 5 it had downgraded Jamaica to CCC+ with a negative outlook.

"At that time, we highlighted the fact that Jamaica's severe fiscal situation as well as the vulnerabilities in the Government's debt profile may give it incentives to renegotiate with its creditors, particularly its resident creditors that hold the larger bulk of Jamaican debt," the international ratings agency said.

"Since then, the Government's room to manoeuvre continues to narrow as it becomes increasingly difficult to further cut public expenditures - as reflected, in part, in the recently amended budget - in order to sustain an interest burden of about 60 per cent of general government revenue," said S& P's credit analyst Roberto Sifon Arevalo.

The agency said that "the negative outlook on the ratings signals the growing risk of a debt exchange operation that could be an event of selective default under our distress debt exchange criteria".

It also said that while the Government's engagement with the IMF is a positive effort to address the long-standing structural issues in Jamaica, "recent events highlight the complexity of the negotiation process and create more uncertainty about the timeframe for reaching an agreement with the fund".

But last night, the Government described the rationale provided by S&P as "premature and unwarranted".

Finance Minister Shaw, in a statement, pointed to the appointment of Dr Hughes to lead the talks and highlighted Dr Hughes's role as a member of Jamaica's negotiating team during the last IMF agreement in the 1990s.

"In addition, he has been fully involved with the current negotiations from the onset," said Shaw. "As financial secretary, he would have been leading most of the discussions around fiscal issues in any case."

Shaw also said that the Bank of Jamaica (BOJ) would see a smooth transition to new leadership when Wynter, a former deputy governor of the BOJ and an executive of CARTAC in Barbados, takes up leadership as the new governor. He also noted that Audrey Anderson, who is acting as governor for the month of November, is a seasoned senior central banker with over 30 years experience.

Shaw said that it was unfortunate that Standard and Poor's did not seek to get further and better particulars from him in relation to their concerns with Latibeaudiere's departure which, he insisted, was totally unrelated to the IMF discussions and had instead to do with internal governance issues at the Bank of Jamaica, a matter which will be dealt with by the prime minister in a statement to Parliament today.


Source:
Jamaica Observer
Tuesday, November 03, 2009

http://www.jamaicaobserver.com/news/html/20091102T180000-0500_163067_OBS__DOWNGRADE_GROUNDLESS_.asp