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Capital Markets

Debt restructuring: Belize defaults on external debt

The tiny Caribbean nation of Belize hasn’t been able to catch a break since being devastated by four hurricanes and major storms between 1998 and 2002. The cost of rebuilding following those storms, along with a certain degree of fiscal recklessness, resulted in a massive increase in Belize’s debt: private-sector obligations alone rose from $296 million in 2001 to $646 million in 2003 – an increase that has now led to imminent default.

Belize has tightened its fiscal belt: a deficit of 8% of GDP in 2004/05 became just 3.1% in 2005/06. The country’s debt stock is also down from its highs: the private sector is now owed $574 million.

But Belize’s efforts proved to be too little, too late, and in August the country announced a “rearrangement” (effectively a default) of its external debts. Belize’s bonds, pricing in an expected haircut, are now trading in the mid-70s to yield about 16%; Richard Segal, head of emerging market research at Argo Capital Management in London, says that they’re “trading at a post-rescheduling yield of 11.5% to 12%”.

The economy is certainly in sufficiently bad shape to warrant a restructuring. Current account deficits average about 20% of GDP, and uncommitted foreign reserves are forecast to end 2006 at just $43 million – less than a month’s worth of imports.

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