The Caribbean debt crisis: God v bondholders; Small, debt-ridden countries could benefit from divine intervention

November 8, 2013 Leave a comment

The Caribbean debt crisis: God v bondholders; Small, debt-ridden countries could benefit from divine intervention

Nov 9th 2013 |From the print edition

THE pulpits of Grenada, a spice-scented Caribbean island of 100,000 souls, have been ringing with an ungodly phrase recently: debt restructuring. Ever since the government defaulted on its dollar bonds in March, churchmen have called for a write-off of two-thirds of its debt, using the term “jubilee” in its Christian sense, meaning a one-off forgiveness of sins. Priests of different denominations met with the International Monetary Fund (IMF) last month. They sit on a debt committee with government ministers. Keith Mitchell, the prime minister, recently thanked them for their support and quoted the Book of Matthew to explain the need for austerity measures.The reason debt relief has risen so high up the heavenly agenda is that, like many islands in the Caribbean, Grenada’s finances are in an unholy mess, and threaten to push up poverty. Most countries in the region were hit by a collapse in tourism after the financial crisis in 2008-09. Governments tried to spend their way out of stagnation, causing deficits to rise. The IMF calculates that public debt in the region averaged 70% of GDP in 2012, and current-account deficits were a staggering 23%.

Meanwhile, growth has been negligible or negative of late. In Grenada, for instance, the economy shrank by 1.2% a year on average between 2008 and 2012. “A lot of the Caribbean countries are stuck in a classic debt trap,” says Carl Ross of Oppenheimer, a securities firm. “They need to cut government spending, but that further reduces already low levels of GDP growth.” Like heavily indebted countries in the euro zone, he adds, several Caribbean states have joined a currency union, and so cannot devalue to boost exports and tourism.

The result has been a string of sovereign defaults in the region since 2010, in Antigua and Barbuda, Belize, Jamaica and St Kitts and Nevis as well as Grenada. Despite debt restructurings, Jamaica and St Kitts and Nevis still have government debt of more than 1.4 times GDP. Investors’ appetite for more Caribbean debt is uncertain: Barbados recently shelved an attempt to raise $500m in international markets. There is much to pray for.

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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