Belize loses $3m on cross-currency swap with Citigroup

The government of Belize has revealed that a dollar/yen interest rate swap left it on the wrong side of changes in the strength US dollar - and more than $3 million out of pocket.

Citigroup acted as fiscal and paying agent for the deal, which saw $29.1 million in 9.25% Belize government notes issued by Solomon Smith Barney exchanged for the equivalent amount in yen-denominated 7% bonds. Under the terms of the swap transaction, the bonds would be converted back into US dollars at maturity this month.

Although the advantage in interest rates gave the government a $2.3 million net gain, this was outweighed by the $5.6 million conversion loss, giving the government a total net loss of $3.2 million.

The Belize treasury and central bank said Citigroup had proposed the transaction, which marked the central bank's first foray into the derivatives market since a law change in the country in 2001 that enabled the body to engage in derivatives transactions.