Caribbean bonds seen as steady lucrative investment
-says local merchant bank
by Nicosia Smith
Stabroek News
April 30, 2004
Officials from the Guyana Americas Merchant Bank Inc.(GAMBI), says local investors should invest in the international securities market, namely, bonds floated by Caribbean countries.
To this end, the merchant bank hosted a meeting on 'Investment in International Fixed Income Securities,' last Friday.
GAMBI is currently managing G$1.2B in bonds bought on the international market through a US broker for local investors, says Dr. Graham Scott, the bank's managing director.
Barbados, Trinidad and Tobago, Belize, Grenada and Jamaica have 12 US dollar bond-issues between them.
Scott says the T&T economy has experienced tremendous growth, adding that this growth has caused the risk premiums previously calculated on the bonds to shrink, thus increasing bond prices.
And one benefit from such investments is that under the Caricom Double Taxation Treaty, they involve no taxes.
Since the transactions are largely done through a computerized system, the bank provides its customers with monthly statements on the activity of their accounts. They also assess the investment needs, risks tolerance, desires of the potential investor and develop an appropriate investment needs portfolio for them.
Compared to investing in local Treasury Bills which is subject to a 20% withholding tax, Scott says bonds issued by Caribbean countries are far more lucrative, higher yielding and tax free.
Scott feels that the government should start issuing bonds with a life-span of over a year.
Suresh Beharry, managing director at Beharry Group of Companies applauded the presentation and believes that companies should get on board since the interest income would be coming back to benefit Guyana. Beharry was one of the 12 companies represented at the meeting which included financial institutions, supervisory bodies and the public sector.
Why Caribbean bond issues?
Currency Strength in Europe is seeing more persons coming to the Caribbean for vacations, so tourism is helping the Caribbean economy, says Geoffrey Bell, the feature speaker and chairman of the Merchant Bank.
Bell is president of Geoffrey Bell and Company which advises a wide range of central banks and governments on their international reserve asset and liability management programmes. Coupled with this, several new investments in the region are also giving good indications to other investors.
Barbados is the Caribbean leader in credit rating with an A- investment grade.
Bond holders in the Caribbean, Bell says, 'usually stick their bonds in their back pockets' and are very happy with the interest rates at the time of purchase. So he says even if interest rates in the US rise then the price of the Caribbean bonds are not likely to fall by the same amount.
Bell answered the question as to why interest rates around the world have remained low - ranging from 1% to 4.4% - hence keeping inflation rates low.
He explained that the abolition of exchange controls, meaning legislation which prevented citizens from taking money out of the country, has kept inflation rates low.
This therefore means that governments and central banks have to adopt good economic policies or the money leaves its shores.
Bell anticipates a period of low inflation for many years. He says it is a case of good growth but low inflation. At most he expects that inflation will enter a period of 2% plus and remain stable.
US and China accounted for 70% of world growth last year, according to Bell. China grew by over 9% and the US a little over 3% last year.
Guyana could benefit from the China boom says Bell by finding a niche 'good' - in the form of - raw materials or semi-manufactured goods that can be exported to that market. Brazil is cashing in on China's economic boom by exporting soil to that country.
Unlike Guyana, neighbouring Suriname already has a credit rating which is a start, according to Bell.
With a credit rating, if the economy performs well, then Guyana would attract bankers and investors. But with Guyana's commitments to international donors and the IMF the country may not at this time have the leeway to get a rating.