Honduras will seek to sell $250 million in sovereign bonds in the United States in December.
To that end, it dispatched a team of government dignitaries to the United States to discuss the markets and the feasibility of placing the bonds. María Elena Mondragón, head of the Banco Central de Honduras,
and Wilfrido Cerrato, the Finance minister, will meet with
Representatives of the International Monetary Fund and the World Bank to
talk about the possibility of placing these bonds at an acceptable
rate. The funds raised will be used to support 2013 government spending.
The last time Honduras sought to place bonds, they found the 10% interest rate that would have been required too high. That seems unlikely to be much better now. In August, S&P reduced Honduras's debt rating to practically junk levels.
The Lobo Sosa government has been chronically late in paying government employees and contractors. Just today it reported that it had 5,900 million lempiras (about $295 million) backlog of payments owed, a backlog that it currently cannot pay.
Part of that debt is due to inefficiencies in collecting taxes owed the government. Collections are running about 2,000 million lempiras ($100 million) behind projections and have been since April. The other part is due to spending more that was even projected to come in through taxes and other forms of income.
The bonds Honduras seeks to place in the US capital market are not all it needs to close out the year. It will also seek to place a further 3,000 million lempiras ($150 million) in bonds internally. The Honduran government projects that if it places all these bonds, it will close the year with its debt equal to about 40.7 % of the Gross Domestic Product, better than the 45% of GDP predicted at the beginning of the year.
Honduran government monetary policy, especially the tactic of not paying segments of the workforce, has resulted in numerous public employee strikes. Last week it was the transit police, who were owed two months salary. This week it's the doctors, janitors, nurses, and medical staff at government hospitals, who are owed more than three months of back salary.
The police settled their strike after receiving one month's back pay.
Instead of paying the medical workers part of their back pay, Lobo Sosa had their strike declared illegal.
There is no money to pay these government workers without placing bonds, in part because of the $18.7 million payment made mid-September on the existing $500 million in bonds.
Do we need to say it: Honduras is broke.