GOJ ISSUES NEW GLOBAL BOND

UNCLAS KINGSTON 001405 SIPDIS STATE FOR WHA/CAR/ (WBENT),WHA/EPSC (JSLATTERY) SANTO DOMINGO FOR FCS AND FAS TREASURY FOR L LAMONICA E.O. 12958: NA TAGS: ECON EFIN JM SUBJECT: GOJ ISSUES NEW GLOBAL BOND ¶1. The GOJ issued a ten-year eurobond amounting to USD 300 million with a coupon of nine percent per year on May ¶25. This has given the GOJ 60 percent of the USD 500 million it expected to raise on the external capital market this fiscal year. The bond for which Bear Stearns was the lead broker initially sought to raise USD 200 million, but had to be increased to satisfy demand. The nine percent purchase price was also the lowest rate at which Jamaica has raised funds on the international capital market, as other bond rates range from 10.5 to 12.75 percent. These conditions, combined with the fact that most of the offer was taken up by first time subscribers to Jamaica's debt, is a clear indication of increasing confidence in the country's macro-economic program. ¶2. The placement took place against the background of a B1e and B rating by Moody's and Standard and Poors, meaning that the bond is below investment grade, but the issuer currently has the ability to meet its financial obligations, although adverse conditions could impair ability and willingness to pay. The less than favorable rating was balanced by Jamaica's impeccable payment record, as the country has never defaulted on its debt, which has the first call on revenues. The GOJ's intention to balance the budget in 2005/06 and the country's recent economic performance would have also stimulated investor confidence. ¶3. The successful placement will allow the GOJ to reduce its presence in the domestic market, with Ministry of Finance (MOF) officials already signaling their intention to hold back on incurring debt the MOF planned to source locally to make it easier for the Bank of Jamaica (BOJ) to reduce interest rates. Not surprisingly, the BOJ responded immediately by cutting the interest rates applicable to all its open market instruments. The reductions range from 0.4 percent on short-term instruments to 0.9 percent at the longer end. The bank said that, in addition to the endorsement from international investors, the rate adjustment reflected the steady improvement in Jamaica's economic environment as demonstrated by buoyant exchange flows, stable money and foreign exchange markets and increasing reserves. ROBINSON