Minister of Finance and Planning Peter Phillips has reiterated the Government’s decision to purchase US$3.25 billion of debt owed by the PetroCaribe Development Fund, citing that the move was absolutely necessary.

In his address to corporate heads at the Victoria Mutual Inaugural Economic Forum on Wednesday, Phillips stated that the deal was “absolutely necessary…since as a country we have failed to sustain economic growth.”

On Monday, the minister formally confirmed that three-quarters of the US$2 billion recently raised from the international capital markets, or US$1.5 billion, was used to purchase US$3.25 billion of debt owed by the PetroCaribe Development Fund to PDVSA Petróleo SA, Venezuela’s state-owned oil company.

This represented a cost of roughly US$0.46 per US dollar of debt, with the price paid being calculated on the net present value of the debt outstanding at December 2014, or virtually all the debt then outstanding.

“We have failed to achieve economic growth and I dare say that there is no real value in trying to engage in our traditional blame games. The most significant retardant in the country’s capacity to grow over the years has been the build-up of public debt,” Phillips told the audience.

He noted that the average purchasing power of income per person in 2012 remains the same as it was in 1972, some 40 years ago, while debt over the same period grew more than 600 per cent.

High debt level depleting the country’s budgetary resources and increases in the cost of borrowing to the country, given its high debt to GDP ratio, also led to the decision of the debt buy-back, according to Phillips.

“Successive Governments over the past 40 years had activities resulting in the build-up of debt…this is why I think we had reached the point where the fundamental reform of our macro economies became not just desirable, but absolutely necessary,” Phillips stated.

“In 2012, we were in a situation where we spent roughly 80 per cent of budget on debt servicing and wages, which in effect meant that the remaining 20 per cent was what we had to supply all the other services.”

The debt buy-back arrangement with Venezuela under the PetroCaribe Energy Corporation Agreement has also ensured the pay-out of the $62 billion on maturing bonds of the National Debt Exchange next February and is expected to reduce interest rates of local banking institutions.

“This pay-out will drive not only further reductions in commercial banking rates but should also see a build-up in other sources of credit in the private credit market, which will be an additional driver we hope and expect in relation to investment,” Phillips stated. “As we establish this platform and move forward, more possibilities will come forward.”

http://www.jamaicaobserver.com/business/Debt-buy-back-was-absolutely-necessary—Phillips-_19223738