Government of JamaicaGovernment of Jamaica Investor Presentation.pdf · Government of JamaicaGovernment of Jamaica Jamaica’s Economic Programme Investor Presentation January 14,

Government of JamaicaGovernment of Jamaica

Jamaica’s Economic Programme

Investor PresentationJanuary 14, 2010


2

Rt. Hon. Bruce Golding

– Prime Minister

Hon. Audley Shaw

– Minister of Finance and the Public Service

Brian Wynter

– Governor - Bank of Jamaica

Dr. Wesley Hughes

– Financial Secretary– Ministry of Finance and the Public Service

Pamella McLaren

– Senior Director Debt Management – Ministry of Finance and the Public Service

Representatives


3

Agenda

Assessment and Challenges

Economic Programme

Multilateral Financial Support

The Transaction: Jamaica Debt Exchange (“JDX”)




5

Economic growth below potential

High sensitivity to global economic and financial market shocks

Debt/GDP ratio high and rising

Interest cost crowding out public investment & services

Excessive nominal and real local interest rates

Recurring fiscal slippage and rigid expenditures



6

Real GDP

1.2%

3.2%

0.6%

-1.6%

-3.2%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

2005/06 2006/07 2007/08 2008/09 E2009/10

GD

P(%

RealG

row

th)


7

87% 89%

117%

122% 124% 123%120%

117%114%

124%

137%

80%

90%

100%

110%

120%

130%

140%

150%

1999/00

2000/01

2001/02

2002/03

2003/04

2004/05

2005/06

2006/07

2007/08

2008/09

E2009/10

Tota

lD

ebt/

GD

P(%

)

High Levels of Debt

Interest as % of Tax RevenuesDebt / GDP

57.0%

50.3%

47.6%

50.3%

65.1%

40.0%

45.0%

50.0%

55.0%

60.0%

65.0%

70.0%

2005/06 2006/07 2007/08 2008/09 E2009/10In

tere

stas

%ofT

ax


8

Domestic

55.5%

Multilateral

9.5%

External

35.0%

Assessment & Challenges

Most market debt is held domestically

– Total debt = J$1.3 trillion

100% of Domestic debt

Significant % of Global Bonds

Debt Portfolio Interest Expense Breakdown

– Domestic Debt is

76.3% of all Interest Costs

Most volatile

J$ 288 billion (27% of GDP) maturingin 24 months

Multilateral

3.1%

Domestic

76.3%

External

20.6%


9

Fiscal Performance

-3.3%-4.5% -4.6%

-7.3%

-10.0%

6.5%

4.8%6.2%

9.9%

7.5%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

2005/06 2006/07 2007/08 2008/09 E2009/10

%of

GD

P

Central Gov't Balance

Primary Balance


Economic Programme


11

Programme Framework

EconomicProgramme

FiscalReform

MultilateralFinancial Support

and Monitoring

Jamaica DebtExchange

(JDX)


12

Economic Programme

– Reduce public debt ratio

– Fiscal discipline andaccountability

– Raise real GDP growth rate

– Fiscal consolidation strategy

– Comprehensive domestic debtmanagement

– Reforms to strengthen thefinancial system

Objective Pillars


13

Fiscal Reform

The government is committed to reducing the overall public sector deficit

– 13.5% of GDP in 2009/10 to near balance in FY2013/14

Revenues:

– Increase in General Consumption Tax

– Introduction of General Consumption Tax on Electricity

– Income tax increase for persons earning above J$5 million and J$10 million

– Increase of Fuel Tax

Expenditures:

– Public wage and salary increase freeze through FY2011/12

– Non-debt recurrent expenditure will be reduced in real terms for FY2010/11

– Social safety net will be expanded


14

Structural Reform

Efficiency Gains & Rationalizations

– A committee appointed by the Prime Minister to present recommendations inSeptember 2010

– Publicly-owned commercial entities

Divestitures/Closures/Mergers

Reduce head count

Tax Administration

– The government will continue the comprehensive reform of tax administration

Fiscal Responsibility

– The government will pursue enactment of a Fiscal Responsibility Framework (FRF) toensure prudent fiscal management is achieved

Central Treasury Management System

– CTM will consolidate responsibility for treasury management in one agency andestablish a Treasury Single Account to enhance cash management


15

Monetary Policy & Financial System

Reduce Inflation

Flexible Exchange Rate

– The BoJ will continue to manage the monetary policy within the framework of amanaged floating exchange rate regime

Strengthen the financial system

– Financial System Support Fund (FSF)

– More effective supervision of the financial conglomerates

– More stringent capitalization requirements


16

-3.20%

0.60%

1.90% 1.90% 2.00%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

E2009/10 F2010/11 F2011/12 F2012/13 F2013/14

Real

GD

PG

row

th(%

)

Macro Framework

GDP Growth Inflation Range

BOP and Reserves

6.0%6.5%

7.0%7.5%

11.0%

7.0%7.5%

8.0%

9.5%

13.0%

5.00%

7.50%

10.00%

12.50%

15.00%

E2009/10 F2010/11 F2011/12 F2012/13 F2013/14

-5.1%-5.9%-6.7%

-8.8%-10.5%

$1,973$2,420 $2,462 $2,401

$1,873

-14.0%

-7.0%

0.0%

7.0%

14.0%

E2009/10 F2010/11 F2011/12 F2012/13 F2013/14

as

%o

fG

DP

-3,000

-2,000

-1,000

0

1,000

2,000

3,000

Reserv

es(U

S$

mil

lio

ns)

Balance of PaymentsGross Reserves (right axis)Net Reserves (right axis)


Multilateral Financial Support


18

IMF Stand-by Program Borrower: Bank of Jamaica

Amount: $1.25 billion

Tenor: 26 months

Quarterly Quantitative Targets

– Fiscal deficit

– Public Sector overall deficit

– Debt (direct and guaranteed)

Front Loaded Disbursement Schedule

Disbursement Schedule

$98.1$49.1 $49.1

$196.3

$49.1 $49.1 $49.1 $49.1

$638.0

$0

$100

$200

$300

$400

$500

$600

$700

Q1-'10

Q2-'10

Q3-'10

Q4-'10

Q1-'11

Q2-'11

Q3-'11

Q4-'11

Q1-12

US

$m

illio

ns

– Net International Reserves

– Net Domestic Assets

Fiscal Targets Monetary Targets


19

Financial System Support Fund (FSF)

A New Repo / Liquidity Program

Available to financial institutions participating with 100% of their Old

Bonds

Only the New Bonds are eligible collateral

0% hair cut

No mark to market

Also available to financial institutions not regulated by Bank of Jamaica

Funded by Ministry of Finance and administered by Bank of Jamaica


The Transaction: Jamaica Debt Exchange (“JDX”)


21

Objectives of the Transaction

Improve maturity profile

Achieve substantial, but balanced, cost savings

Control balance of fixed, variable, and USD instruments

Ensure banking system stability

Obtain substantially 100% participation rate

Simple offer for retail participation


22

Summary Term Sheet

January 26, 2010Expiration Date:

Settlement Date: February 16, 2010

Eligible bonds:

J$700 bn local law bonds (FR/VR/USD)

Marketable Bonds issued prior to December 31, 2009 and maturing after February 16,

2010

Transaction Type: Par-for-par exchange offer

Accrued interest paid in cash

New Bonds: 24 new benchmark bonds

Fixed Rate bonds are non-call life

Pricing: New J$ bonds priced in the range of 12-13% USD bonds priced near 7%

Allocation Rules:

All exchanges will be from shorter dated bonds to longer dated bonds Fixed Rate only to Fixed Rate USD only to USD Variable Rate to Variable Rate, Fixed Rate, or CPI-indexed

Targetparticipation:

Substantially 100%

Bonds maturing within two years and high coupon fixed rate bonds


23

Allocation Rules

Variable Rate “VR”

Fixed Rates “FR”

USD

FR

VR

CPI

USD

Not CallableStructure:

3mo - 30yrTenors:

11.00 - 13.25%Coupons:

Limited CallProtection

Structure:

1.5 - 22yrTenors:

T Bill + 1.0-1.50%Spread:


12 - 20yrTenors:

CPI + 2.00 - 4.25%Coupon:


3-6yrTenors:

6.75 - 7.25%Coupon:

Old Notes New Notes


24

Allocation Rules

Each Old Bond is assigned to one or more New Bond Groups based on:

– Structure of old bond “FR/VR/USD”

– Maturity

Refer to Appendix 1 in the Information Memorandum

Example: the checked boxes below show the New Bonds (or Package) the

holders of Old FR Bonds in each Group may choose

After: 12/31/2024

12/31/2017 - 12/31/ 2024

12/31/2014 – 12/31/2017

12/31/2012 – 12/31/2014

6/30/2011 – 12/31/2012

12/31/2010 – 6/30/2011

2/17/2010 - 12/31/2010

Maturity Range of OldNotes

FR-30

FR-14

FR-E

FR-D

FR-C

FR-B

FR-A

Group

x

x

14Y FixedShort FRPackage*

3Y Fixed 4Y Fixed 6Y Fixed 9Y Fixed30Y

Fixed

x x x x x

x x x x

x x x

x x

x

x


25

$100

$0

$40

$80

$120

2023 2024 2025

Reallocation Rules

$50bn cap

Reallocation Option ExercisedHypothetical Elections

The government may exercise its reallocations in the amortization profile

if it exceeds the $50bn cap

Example above: 14Y FR can be split into 3 bonds with the same coupons

– 30% New Fixed Rate 13.0Y



$30$40

$30

$0

$40

$80

$120

2023 2024 2025


26

Submitting an Offer

Eligible Investors: Jamaican Residents

Valid Submission: Submission Form + Note Certificate

Submission Form: Selection of New Bonds + Other Info

1 – 10 Certificates

10+ Certificates

Use Physical Offer Submission Form

Deliver to Bank of Jamaica

Use Electronic Offer Submission Form

Deliver to Ministry of Finance


27

Delivering Certificates

Required for all submissions

Appended to submission form for Physical Submissions

Delivered in ordered stack for Electronic Submissions

Special Situations:

Lost Certificate: Submit Indemnity Form

Late Certificate Delivery: Submit Deferred Delivery Form


28

Retail Offers

Available to smaller holders of physical certificates

– J$5 million or less per certificate

– J$25 million or less aggregate holdings

Simple and predictable - no complex allocation rules

Three year maturity with same type as Old Note

– J$ Fixed Rate

– J$ Variable Rate

– USD Fixed Rate

Retail offers delivered to Bank of Jamaica

Certificates must be delivered; no exception forms

Small holders also have option to submit regular submissions


29

Transaction Processing Timeline

Final Day to updateoutstanding TransferForms and backlog

• Cancellation of Old Bonds• Credit for New Bonds

• Receipt and confirmation• Authentication of old Notes• Prepare for issue of Notes• Prepare for Accrued Payment

January 14, 2010

Launch Date

January 26, 2010

Expiration Date

February 16, 2010

Settlement Date

Certificate Submission

Registration& Certificate

Delivery


Transaction Impact


31

0

30

60

90

120

150

180

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039

J$

billio

ns

USD

VR

FR

Pro-forma Impact of Exchange Offer

*Assuming allholders elect

shortest availableoption of same

instrument type

0

30

60

90

120

150

180

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039

2040

J$

billio

ns

USD

VRFR

Before Transaction

After Transaction*

USD

VR

FR

USD

VR

FR


32

New Benchmark Securities

Current Debt Portfolio Proforma Debt Portfolio


33

Debt Dynamics at a Fork in the Road

Jam

aic

a(B

+)

Tu

rke

y(B

-)

Bra

zil(B

+)

Uru

gu

ay

Pa

kista

n(B

)

Ukra

ine

(B)

Me

dia

nfo

rB

s

Be

lize(B

+)

Tu

rke

y(B

-)

Jam

aic

a(B

+)

Pa

kista

n(B

)

Bra

zil(B

+)

Uru

gu

ay

Me

dia

nfo

rB

s

Be

lize(B

+)

Ukra

ine

(B)

Source: IMF, excludes IMF debt

100

110

120

130

140

150

160

2004/052005/06

2006/072007/082008/09

E2009/10

F2010/11

F2011/12

F2012/13

F2013/14

Tota

lD

ebt/

GD

P(%

)

Active

Passive

Historical


34

Key Benefits of the Jamaica Debt Exchange

1) Enables the Economic Programme

2) Unlocks substantial multilateral support

3) New Bonds with call protection – provides upside

4) Enhanced liquidity of New Benchmark Notes – pricing efficiency and transparency

5) Reduced borrowing requirements and refinancing risk

6) Access to Financial System Support Fund (FSF) with preferential terms

7) First issuance of CPI-indexed bonds provides real return

8) USD bonds payable in USD rather than indexed local currency

9) New Variable Rate Notes with more frequent resets


35

Transaction Information

Ministry of Finance and the Public Service

www.mof.gov.jm Information Memorandum Investor Presentation Press Releases Certificate submission forms and instructions Electronic submission spreadsheet Q&A

Bank of Jamaica

www.boj.org.jm


Questions & Answers


37

New Benchmark Bonds

12.875%14 Year

Maturity Yield

3 Month 11.00%

6 Month 11.25%

1 Year 11.75%

2 Year 12.00%

3 Year 12.25%

4 Year 12.50%

6 Year 12.625%

9 Year 12.75%

30 Year 13.25%

Maturity Real Rate

12 Year 2% step to 4.00%

20 Year 2% step to 4.25%

11.75%

11.75%

11.75%

11.75%

11.75%

11.75%

11.75%

11.75%

11.75%

Initial FixMaturity* Margin Index / Pay Initial FixPeriod

1.5 Year 1.0% 1 Month 3 Month



5 Year 1.25% 3 Month 6 Month



10 Year 1.50% 3 Month 1 Year



Maturity Yield

3 Year 6.75%

4 Year 7.00%

6 Year 7.25%

Fixed Rate Variable Rate

USD CPI* Variable bonds are callable after certain dates

Fixed Rate, USD, and CPI bonds are not callable

Documents

Government of JamaicaGovernment of Jamaica Investor Presentation.pdf · Government of JamaicaGovernment of Jamaica Jamaica’s Economic Programme Investor Presentation January 14,