IMF Watch: Why Bank Interest Rates are not Trending Down Fast Enough

The Jamaica Debt Exchange (JDX) allowed the country to reduce its debt obligation by exchanging high interest government paper for lower interest paper at longer maturities. Collectively, Jamaican taxpayers have benefited from a lower debt profile and interest savings of over US$500-million in 2010. That said, Jamaican borrowers have yet to reap the benefits of a low interest rate regime. Hence the paradox – it costs the nation less than 9% per annum to borrow money from local investors, yet borrowers continue to pay upwards of 33% to borrow money from the financial sector.

 Prior to the JDX, the Jamaican taxpayer was saddled with debt from government issued securities valued at approximately $700-billion in local  fixed rate, variable rate and USD denominated bonds with interest rates ranging from 11% to 33%. Instituted in January of 2010, nearly 99% of bond holders took the offer to accept lower interest securities at longer maturities. Subsequent to the JDX, this debt burden was reduced by US$500 million in 2010 alone. Projections are that overall interest expense saving will top out at roughly J$42.8 billion. MMThe JDX was a key  component in Government’s negotiations with the International Monetary Fund (IMF) on a long awaited standby funding arrangement. In press releases issued during the December 2009 to January 2010 period, the Government noted that failure to garner the requisite support from the investing public would have far reaching implications for the government and the wider economy. Such a scenario would greatly jeopardize the successful completion of this crucial lending arrangement with the IMF.

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