BUSINESS MONDAY - BOLD MOVE

Fortress highlights pros and cons of Government’s debt reform

GOVERNMENT’S announcement to restructure its debt has been described by the Fortress Fund Managers as a bold and a very public first step down a road that, if followed, will be part of a broad reform programme.

In a note to investors, Fortress officials said that while it could lead to a significantly improved economic performance in coming years, the short run though will almost certainly lead to permanent losses for current holders of Government of Barbados debt.

The Fortress officials were referring to Prime Minister Ms. Mia Mottley’s announcement that her Government would be seeking to restructure its internal and external debt as part of a comprehensive reform programme, with support anticipated from the International Monetary Fund (IMF).

“The good news is that a programme supported by the IMF can bring access to multi-year funding at low interest rates,” they said, noting however that the “bad news is that getting there will not be easy for the country”.

However, they said that the Fortress’ Barbados Funds have little or no exposure to Government bonds.

“At Fortress we have been concerned for the last several years about just such a development. Our Barbados Funds (Fortress Caribbean Growth Fund and Fortress Caribbean High Interest Fund) have been positioned accordingly with little or no exposure to Government of Barbados bonds, and that remains true to today,” they said.

It was revealed that in the case of the Fortress Caribbean High Interest Fund, it has meant accepting a lower return in recent years to protect capital.

“But thankfully, after one time comes another,” they said, noting that looking forward, as asset prices adjust to more appropriate levels and the Government reform programme develops, they are hopeful that conditions will once again allow them to invest normally in this area.

The Fund Managers said that over the next few months as the debt restructuring negotiations take place, and the various reports inevitably appear in the news, there will be a few points worth noting. These include the fact that debt restructuring is a simple concept, it will take time, and that attention will shift from debt ratings to the reform programme.
(JB)

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