COMMERCIAL COURT RULES AGAINST GOG IN BOND DEFAULT

UNCLAS GEORGETOWN 000694 SIPDIS WHA/EPSC - ED MARTINEZ SIPDIS E.O. 12598: N/A TAGS: EFIN PGOV KJUS ECON GY SUBJECT: COMMERCIAL COURT RULES AGAINST GOG IN BOND DEFAULT Ref: GEORGETOWN 530 ¶1. On July 12, 2006, Guyana's newly christened Commercial Court ruled in favor of a plaintiff who had sued the GOG after it defaulted on a $US201,085 bond. The bondholder, Carol Correia, sued the GOG on June 29, 2006 seeking the principal plus 5% interest on the 12-year bond, which matured on May 17. Correia's affidavit claimed that Accountant General Hardat Outar refused to accept the bonds and make payment when she tried to redeem them in early June. The Commercial Court made its ruling after a representative of the Attorney General's office failed to appear. ¶2. This ruling would seem to set a precedent for the roughly US$25 million Guymine bond default that made headlines just over one month ago (Reftel). Citizens Bank, a subsidiary of Banks DIH (owner of Guyana's flagship brewery) and holder of US$21.7 million of the bonds, sued the GOG after the Finance Ministry announced on June 1 that it intends to seek Paris Club like terms for repayment. The GOG argues that the comparable treatment clause (Clause III, Paragraph 1) of the Paris Club Agreed Minutes of January 14, 2004, prevents it from according more favorable treatment to non-Paris Club creditors and contends that repaying the Guymine debt, specified by name in the Agreed Minutes, would jeopardize debt relief as a result. However, several financial commentators, including former Finance Minister Asgar Ally, under whose tenure the Paris Club terms were agreed to, suggest that the GOG would be better advised to roll the Guymine debt into U.S. dollar bonds or Guyana dollar denominated bonds fixed to the U.S. T-bill interest rate, arguing that the Paris Club has allowed repayment of commercial debt in similar instances. ¶3. The GOG's failure to appear seems puzzling. Paul Geer, head of the Financial Intelligence Unit, told EconOff that officials within the Attorney General's office told him the Attorney General was unaware of the suit. Geer, a former banker, speculates that, behind the scenes, the GOG may be deliberately dragging its heels so that it can then use a local court ruling ordering it to honor domestic bonds as justification for repaying the Guymine debt despite previously arguing that it was bound not to do so by the Paris Club Agreed Minutes. He also notes that an all-out default by the GOG will bankrupt Citizens Bank and possibly bring down the DIH conglomerate. ¶4. COMMENT: The timely ruling bodes well for the Commercial Court, which was established with assistance from the Inter-American Development Bank. The court was formally established on June 7, 2006 with a docket of twelve cases. The judgment against the GOG suggests the court is impartial, so far, and the quick deliberation is a positive sign that it is not subject to the lengthy delays that plague to rest of the judicial system. END COMMENT. THOMAS