March 8, 2012 / 9:54 AM / 8 years ago

UPDATE 5-Belize steps closer to bond talks with ruling party win

* Belize centrist UDP narrowly re-elected

* Barrow wants lower rates, longer maturity for bond

* Tiny Central American country among top 20 debtors

By Krista Hughes

BELIZE CITY, March 8 (Reuters) - Belize’s centrist ruling party won a second term in power on Thursday, moving the tiny Central American country closer to a renegotiation of its $550 million overseas debt.

The ruling United Democratic Party (UDP) won a narrow majority in parliament, winning 17 seats in the 31-seat body while the opposition People’s United Party won 14, chief elections officer Josephine Tamai said, leaving the UDP well short of the 25-to-6 advantage it enjoyed in its first term.

Prime Minister Dean Barrow said before the vote that if re-elected his first act would be to obtain more favorable terms for Belize’s so-called superbond, which makes up half of the country’s debt and is equivalent to 40 percent of its gross domestic product.

“We are looking for a lower interest rate and a longer maturity period, beyond that I can’t go at this point,” Barrow told reporters on Thursday.

The interest rate on the bond stepped up to 8.5 percent this year and will account for 12 percent of estimated annual government revenue. The country of 313,000 people faces a further squeeze when principal repayments come due in 2019.

“The first thing that we do after being re-elected is to announce an appointment of a team to go and renegotiate that superbond,” Barrow said on Feb. 19.

Ratings agencies Moody’s Investors Service and Standard & Poors downgraded Belize’s foreign-currency sovereign rating well into ‘junk’ territory in February and both have warned weak growth and falling oil production could make the debt difficult to service.

“We need to renegotiate the bond because it’s a burden on the country,” interior decorator Nel Ayuso, 49, said in Belize City. “The economy was moving slowly and that had a lot to do with him (Barrow) losing support.”

Belize, about the same size as the U.S. state of Massachusetts, is better known for its laid-back atmosphere and pristine coral reefs than as an investment destination.

But the bonds’ inclusion in JP Morgan’s benchmark EMBI Global Index means they are likely held by more fund managers than the issue’s relatively small size suggests.

Belize’s debt rose a point in price on news of the poll result to bid 51 cents on the dollar, pushing the yield down to 19.23 percent, well short of the 24 percent high reached on Feb. 10. But the yield over U.S. Treasuries is still 1,722.87 basis points, well above levels for highly speculative nations such as Iraq or Venezuela, according to Reuters data.


“The market has chosen to view the situation from a benign standpoint. My view is that it’s in the best interest of the government to negotiate a reasonable agreement but it could turn ugly if they choose not to,” said JP Morgan analyst Franco Uccelli. “Now that the election is behind us they will probably regroup and see what the best course of action is.”

So far Barrow, a 61-year-old lawyer, has given no details of what he might suggest to creditors. Analysts said outright default was unlikely but options might include a request for lower interest rates, delayed principal repayment, cash-flow relief or an extended maturity on the 2029 bond.

Boris Segura, a Latin American strategist at Nomura Securities, said the coupon could be lowered to as little as 5 percent and the maturity pushed out to 2042.

“If they restructure the debt and achieve fiscal consolidation, which hasn’t been the case for the last few years, that would bring lower interest rates which will help growth,” he said, adding the bonds were attractively priced.

Belize’s total debt accounts for about 80 percent of GDP, or $3,200 per capita - lower than the 150 percent debt ratio Argentina had when it defaulted in 2002, but well above the sub-10 percent Ecuador enjoyed at the time of its 2008 default.

International Monetary Fund estimates show Belize, whose $1.25 billion economy relies heavily on tourism and agricultural exports like sugar and bananas, was the world’s 13th most indebted nation in 2011.

Per capita economic output is half the average for Central America and the Caribbean and nearly half the population - a mix of Creoles, Spanish-speaking Mestizos, Maya Indians, African-descended Garifuna and German-speaking Mennonites - lives in poverty.

In addition to the economy, offshore oil drilling and security were key election issues, after the homicide rate rose 70 percent from 2005 to 2010 to 41.7 murders per 100,000, on a par with neighboring Guatemala, according to the United Nations.

“I wouldn’t like drilling off our beautiful island,” said primary school teacher Maria Guerrero, 49, a native of San Pedro, on Ambergris Caye, off Belize’s northern coast. “I want to keep it so my grandson can enjoy it too.”

The ruling UDP has promised to hold a referendum on offshore drilling and to cut the murder rate back to 25 per 100,000.

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