J. Paul Getty is thought to have said, “If you owe the bank $100 that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.” The little nation of Belize (population 356,600) appears to have taken this saying to heart. The Wall Street Journal reports:
Belize is insisting that creditors forgive 45% of what they are owed, or allow it to delay any debt payments for 15 years. Otherwise, it says it won’t make its next payment of $23.1 million due on Monday. And if Belize and its bondholders don’t reach a deal by Sept. 19, the country will default on its $543.8 million in outstanding debt—making it the first sovereign default since Greece forced creditors to take a 53.5% loss in March.
Like a callous teenager, Belize didn’t even bother to call. The bondholders’ butthurt is palpable.
Creditors say Belize didn’t tell them directly that it planned to skip a payment. The country simply posted its intention on the Central Bank of Belize’s website.
Here’s an excerpt from that Central Bank press release.
“The Step-Up Bond alone represents approximately one-half of Belize’s total recorded public indebtedness”, said Dean Barrow, Prime Minister of Belize and Minister of Finance and Economic Development. “The annual interest rate on this bond stepped up earlier this year to 8.5%. We simply cannot afford this coupon payment given the financing shortfalls and other challenges we face. Our hope, however, is that we can move quickly toward a sensible restructuring of the instrument.”
As Barrow alludes to, the annual interest on the SuperBond is set to increase from the 4.25% rate that the country has been paying since 2007 to an 8.5% rate that is set to kick in with this month’s payment.
Here’s what the Belize Chamber of Commerce and Industry had to say about the decision to play hardball:
In relation to the current debt restructuring of the “Super Bond”, the Belize Chamber of Commerce and Industry (BCCI) believes that, without exception, debts must be paid and that we must be financially responsible citizens. However, where the economic viability of our country is at stake, the terms of repayment should not be so onerous as to strangle or deter the country’s economic growth. It is in this vein that the BCCI, in principle, supports the renegotiation of the bond with the goal of making debt repayment more manageable. Our debt burden must be restructured so that it is sustainable in the long term thereby enabling Belize to honor its financial obligations without further damage to the economy.
First Greece, now perhaps Belize. It seems that sovereign debtors are finally waking up to the full implications of what it means to be, well, sovereign.