Ministry of Finance and Inter-American Development Bank (IDB) officials have confirmed that the Jamaica is among borrowers which took advantage of the offer to convert the interest rates on some of its existing loans with the multilateral lending institution.
Last weekend, on August 1, some 41 governments and government-guaranteed institutions accepted the IDB conversion offer and converted US$26 billion of outstanding debt - representing more than half of the IDB's total loan portfolio - to new interest rates and/or US dollars to take advantage of the historically low USD interest rates.
The total participation rate was 76 per cent of the US$34.8 billion debt eligible for conversion under the offer, which resulted in the IDB amending 518 loan contracts in its existing portfolio.
The offer was opened on January 14 and gave borrowers the option to convert 'adjustable rate' loans to fixed rate loans or loans tied to the three-month London Interbank Offered Rate, LIBOR, or a combination of both.
The IDB introduced adjustable rate loans over a decade ago but borrowers have found it difficult to forecast the payments and hedge their risks because these rates reflect the pool of IDB borrowings.
The adjustable rates were used in two types of loans: the bank's currency pooling system and its single currency facility loans.
According to the IDB, this is the first time that it has offered its borrowers this conversion option.
"By using fixed or LIBOR-based interest rates on IDB loans, borrowers will be able to better forecast the cost of their debt and take advantage of readily available financial instruments to hedge their currency and interest rate risks," the bank said in a release Monday announcing take-up of the conversation offer.
"In addition, the offer gives countries the opportunity to combine IDB funding with othermarket sources, a measure that also helps mitigate certain types of risks."
Pamela McLaren, head of the debt management Unit at the Ministry of Finance told the Financial Gleaner that after a detailed and prudent assessment of the eligible loans in the GOJ debt portfolio with the IDB, the decision was taken to convert 100 per cent of Jamaica's pooled currency loans, and over 50 per cent of the single currency loan facilities.
The total loan balances out-standing in both categories as at the end of June 2009 were US$93 million and US$444.6 million respectively, which converts to $47.8 billion.
Jamaica at the end of March 2009 had the equivalent of J$56 billion in outstanding debt to the IDB, denominated in about 10 currencies.
A second conversion offer will be available to borrowers in 2010 under similar terms and conditions, and on a similar timetable and schedule as the 2009 offer.
renee.shirley@yahoo.com