Guatemala poised for bond sale

22/03/2010 | Greg Brosnan

Guatemala is planning a $500 million bond sale toward the middle of the year, finance minister Alberto Fuentes Knight told EM in an interview

Guatemala is planning a $500 million bond sale toward the middle of the year, likely in international markets, finance minister Alberto Fuentes Knight told Emerging Markets in an exclusive interview.

He also said Guatemala is talking to the IMF about entering its Flexible Credit Line (FCL) programme.

On the possible bond issue Fuentes Knight said: “It’s going to be $500 million. We are going to send [the proposal] to Congress next week. We see good opportunities for issuing abroad, with low yield.”

The bond sale will be part of a bid to roll over the country’s $350 million global bond coming due next year.

Fuentes Knight declined to say whether Guatemala had chosen an investment bank to lead the sale. He also said there was still a possibility of issuing in the local debt market, where there is considerable liquidity.

Economists are warning that as developed countries start issuing more debt, emerging markets nations could have difficulties issuing at good rates unless their fiscal policies are in order.

While impoverished by a 36-year civil war that claimed 200,000 thousand lives before ending with 1996 peace accords, Guatemala has historically been one of the most fiscally prudent countries in Central America.

But it also has one of the region’s lowest tax takes as a percentage of GDP, and one of the conditions of peace accords signed between leftist guerillas and the government was to raise that tax take.

Fuentes Knight said that Guatemala was advancing rapidly on a new fiscal reform proposal, and that his ministry hoped to come to a major agreement as early as next week to take the process forward – although he acknowledged that politically it would be challenging.

“It’s not easy because we’re a minority government,” he said.

On the possibility of starting an FCL programme with the IMF, Fuentes Knight said: “It’s a good idea, because Guatemala has very solid macroeconomic fundamentals.

“We’ve spoken to people from the Fund [about an FCL] and they recognize that the central American countries [...] have played a pioneering role in coming to agreements with the fund in times of crisis. This type of agreement [FCL] could have a very significant impact in terms of credibility.”

“Guatemala, like other small and open economies often has the reputation of following the fortunes of the US,” he said. “Last year proved that isn’t always the case.”

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