Standard and Poor?s noted that US$21 million of the Bear Stearns loans were used to boost Belize?s foreign reserves. Our gross reserve position now stands at $110 million, but the net reserve position is $70 million. The additional money has moved the country?s financing gap from 560% of usable reserves, at the time of the agency?s last report in April, to 446% currently.

?Still, the country?s reserves remain dangerously low, especially in the context of the pegged foreign-exchange-rate regime, and its liquidity ratios are among the worst of the 107 sovereigns rated by Standard and Poor?s.?

The analysts, Olga Kalinina, CFA, and Helena Hessel of New York, also commented that the current political situation could have serious implications for Belize?s credit-worthiness.

?First, in the face of a very weak financial stance, the government?s decision-making ability and political capital have been severely impaired due to the loss of public confidence,? Kalinina and Hessel said. ?Second, the ongoing disruptions in economic activity (e.g., strikes, irregular supply of important utilities services) will negatively affect Belize?s economic and fiscal performance this year.?

It added that these conditions would likely impact tourism due to security concerns, reduce private investments, and lower the tax intake.

?Finally,? they concluded, ?should the Opposition (United Democratic Party [UDP]) come to power as a result of early elections, the likelihood of a debt restructuring could increase, as a new government may opt to alleviate the fiscal burden created by the previous administration.?

They went on to note that the PUP ?openly refuses to call early elections and maintains dominance in Parliament? Nevertheless, the PUP government is unlikely to survive its term if social protests escalate further.?

When S&P downgraded our ratings to all-time lows on April 4, 2005, it said that it did so due to ?the mounting liquidity pressures exacerbated by Belize?s dented ability to access external financing (both official and commercial) and the government?s worsening debt trajectory.?

In February, Minister of Finance, Hon. Said Musa, introduced two motions in the House of Representatives for an estimated US$215 million in financing. One loan was for US$78.9 million from the International Bank of Miami/Capital Markets Financial Services (CMFS), and the second was two private placements memoranda facilitated by Bear Stearns, for a total of US$136 million.

At the time, legislators and the media were told that the first loan was to refinance old loans, and the second set of loans were to be used to pay some old debt, and also to boost Belize?s international reserves. GOB did not explain that the Bear Stearns loans (of February, 2005) were intended to pay off the CMFS loan (of November, 2004).

Note that legislators approved both the Bear Stearns and CMFS loans on the same day, and the latter was taken to the National Assembly three months after the transaction had closed. Musa told legislators that the loan would have a term of 7 years.

However, Standard and Poor?s revealed today that ??the borrowing agreements between the Government of Belize and CMFS noteholders (dated November, 2004) stipulated that the proceeds of substantially all of the government?s next borrowing (in Belize?s case, the private placement [from Bear Stearns]) would be applied to retire US$79 million in CMFS notes.?

According to Standard and Poor?s, GOB had later gotten an agreement with the noteholders to pay only some of the loan, and the balance would be settled when GOB sells its 37% shareholding in the Belize Telecommunications Limited.

Musa had told the House that the Bear Stearns loan would be used as follows: US$42.5 million for debt servicing and US$51.1 million to build up the country?s international reserves.

However, the Standard and Poor?s report issued today said that US$42 million was to be set aside to pay an old bond due June, 2005, and coupon payments on two of Belize? global bonds, while the remaining US$51 million was to be used for the CMFS notes.

In a release from the Ministry of Finance this week, GOB reported that it has used US$30 million to pay down the CMFS notes. When we questioned earlier this week why GOB would use a higher interest debt to pay a lower interest debt, Financial Secretary Dr. Carla Barnett told Amandala that GOB did that to reduce the debt burden and to save on interest payments by paying off the loan early. She claimed that the interest rate on the CMFS loan would increase with time.

Dr. Barnett also told us that the agreement with CMFS was that any proceeds from the sale of BTL shares would be used to pay off the loan. (See page 16 of this issue.)