Tuesday, October 7, 2014

Honduras Finding IMF Accord Difficult

Honduras failed to come to an agreement with the International Monetary Fund (IMF) for stand-by funding of the Honduran government over the next three years last week.  Negotiations have now entered overtime with a deadline of today, October 7.  Without an agreement and a dramatic reduction in deficit spending, the Honduran government of Juan Orlando Hernandez will have trouble making payments on the existing debt accumulated by the unrestrained deficit spending of the defacto government of Micheletti Bain and his successor Porfirio Lobo Sosa.

Marlon Tabora, President of the Central Bank, has been leading the negotiations with the IMF in Washington, DC since the beginning of last week.  He has met with high level officials within the IMF including Alejandro Werner, Director of the Western Hemisphere Department.

There are two real sticking points in the negotiations.  First, the IMF is requiring Honduras to divest itself of the state owned electric company (Empresa Nacional de Energia Electrica) and to programatically reduce the deficit spending from its current 5.2% of Honduras's Gross National Product to 1.7% by 2017.  Given the National Party's propensity to overspend on security (military, new police forces like the TIGRES, FUSINA, etc) and gutting of social welfare programs, this reduction would leave it with little to nothing to spend on development, infrastructure, or economic stimulation, all areas which need more investment by the government.

While the conversations were extended two days into this week, Tabora has until this Friday, October 10, to negotiate a letter of intent with the IMF. Without a signed letter of intent by the end of this week, Tabora will not be able to present to the full IMF at its November 10 Directors meeting for final approval.  Such an agreement was expected to provide between $190 and $200 million to meet this year's deficit.  Without it, the government will have to sell bonds in the internal and external financial markets at substantial interest in order to pay for its current spending.

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