Honduras to Seek $1 Billion in Loans, Visit IMF.

Wilfredo Cerrato, Honduras's Finance Minister, told the assembled press on March 7 that Honduras will seek to place $1 billion in bonds in the international market in 2015, and that he would head a delegation traveling to Washington, DC later this month to learn what conditions must be met for Honduras to re-establish a borrowing agreement with the IMF, which he also hopes will be in place sometime in 2015.

The Honduran press only covered one part of this story.  Can you guess which?

The international press primarily reported on the bonds story, though some did lead with the IMF trip. Cerrato told them the bond placement was specifically to convert short term high interest internal debt issued by the Honduran banks to long term, lower interest, international bonds.  Two year high-interest bonds will be replaced by 10 year lower interest bonds.

This kind of short term debt was largely shunned until Roberto Micheletti Bain, head of the post-coup de facto government, was forced to make deals with Honduran banks in 2009 because no international placement of bonds was possible after the coup. 

That use of Honduran banks, that benefits the upper class of Honduras which owns them, continued under Porfirio Lobo Sosa. So government debt payments went from $65.8 million per year in 2008, to a yearly debt payment of $789.6 million when Lobo Sosa left office in January 2014.

The Hernandez government projects that the 2014 debt payment will reach $930 million (!) with the borrowing it must do this year to balance the budget.

But that story is not being publicized by the Honduran press.

Instead, they chose to report only on the visit to the IMF to learn about the necessary conditions for arranging a new loan agreement.  Cerrato told the press that he projected a new agreement could be signed this coming April.  One wonders what that optimism is based on, since Honduras has not formally spoken to the IMF yet, and the Hernandez government has not  yet begun to achieve the financial goals they set for themselves.

Honduras successfully placed $1 billion in bonds in two sales in 2013, and the proceeds from those bonds were used to pay down some of the more egregious short term loans and finance the Lobo Sosa government deficit spending for 2013. With debt service reaching nearly $1 billion by the end of this year, the Hernandez government will find itself trapped continuing to seek external financing, if it wants to avoid an austerity budget even harsher than what seems to be in the works.

Honduras seeks $250 million in US Capital Market

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.

Can Hondutel Be Saved?

Hondutel, the Honduran national telephone company, is in trouble. Big trouble.

As wired telephones become less important in residences and businesses in Honduras, Hondutel's income has fallen significantly; its income in 2011 was 2489.7 million lempiras (about $131.3 million dollars).  At the same time its costs rose to 2583.2 million lempiras (about $136.3 million dollars).  Since January, 2010, Hondutel has added over 1200 new employees, an increase of 33%, and those employees have received salary increases over the last two years.

It is unclear whether this poor economic performance will have any impact on the presidential aspirations of Romeo Vasquez Velasquez, the candidate for the newly formed right-wing political party, the Patriotic Alliance of Honduras.

Vasquez Velasquez, notorious for his role in the kidnapping of former president José Manuel Zelaya during the 2009 coup, was rewarded on retiring with the directorship of Hondutel, a role for which his military service manifestly has not prepared him.

President Porfirio Lobo Sosa has appointed a commission to suggest ways in which Hondutel, the state telecommunications company, can be made solvent. The commission can collect information and make suggestions. Vasquez Velasquez, however, remains in charge.

Losses at Hondutel are not new.  They've been going on for years.

They have become important now because as part of a new agreement with the IMF for stand-by funds, the Honduran government must present a balanced budget plan and show that it can and is sticking to it.

The new commission, headed by Hector Guillen, the Finance Minister, has 30 days to make recommendations.  Guillen made it clear that Hondutel is looking for strategic investors.  Over the last several years, several international telecommunications companies have expressed interest in a strategic partnership or outright purchase of the state-owned company. This never worked out, due to the lack of a mechanism to allow private investment in state-owned companies.

Guillen said it will be up to the commission to find a structure that makes such investment possible. Whether they find interested investors or not, Honduras continues to be not just open for business, but up for sale.

Closing the deal.....

Yesterday the Lobo Sosa government failed to close a deal with the International Monetary Fund for standby funding for the government of Honduras for the next 18 months. This was an important test of the government's political capital as well as its economic capital, and it failed.

So why did the deal fall through at the last minute? The newspaper El Tiempo reported today that the IMF wants to be sure the Lobo government continues sound fiscal policies into the next year by examining its budget proposal in September.

The first negotiations between the IMF and the Lobo Sosa government began in March with a visit where the IMF reviewed the fiscal plans of the government. Among their suggestions, made in a public press release, was that the government needed to contain spending, especially the spending on salaries of public employees. The IMF also recommended that the government strengthen the finances of public institutions such as ENEE and Hondutel, strengthen the government pension plan, and improve the financial situation of the cities.

In response the government passed a set of new taxes, quite unpopular with business, but supposedly designed to have minimal impact on the poor.

It also started a new program financed by government bonds, that gives 10,000 lempiras to poor families. It has had to pay these piecemeal as its cash reserves are quite low and the market for government bonds could not absorb the full cost in a single offering. A new bond offering for $26 million towards this program was being offered by the government today.

Another response, however, weakened the Instituto Nacional de Jubilaciones y Pensiones de los Empleados Publicos del Poder Ejecutivo (INJUPEMP). The Secretary of Finances determined that the fund had over 1000 million lempiras it could invest, and decided to use those funds to retire the debt of the government Electric Company (ENEE) which buys electricity from private power plants that generate electricity using bunker oil. These plants are mostly owned by Honduran businessmen.

Honduras needs the standby agreement to finance budget shortfalls and to fund emergencies. In light of its failure to secure the agreement on this visit of the IMF, the government had to try to put a good face on its failure. All it could seem to find to brag about was there was an agreement that in the next year there would be no new taxes.

The lack of an IMF agreement highlights the failure of the Lobo government to completely unlock international finances. Instead, it has had to issue bonds backed by INJUPEMP funds, and others backed by the money owed to Petrocaribe to finance normal government spending. For now, the international financial community is keeping Honduras broke.

This Week in Honduras: Money or Human Rights?

The most significant news leads in Honduran papers this weekend concern the impending visit of a delegation from the IMF this coming week.

William Chong Wong, Minister of Finances, is quoted as saying that Honduras does not intend to cover up the real grim financial news simply to give a good impression. Reportedly, Honduras stands to receive $300 million if the visit by the IMF goes well.

The business community, represented by the head of the Asociación Nacional de Industriales (ANDI), Adolfo Facussé, and Aline Flores, director of the Chamber of Commerce and Industry of Tegucigalpa (CCIT), is reported to be behind the government's efforts to convince the IMF to release funding to Honduras.

FOSDEH, the Foro Social de la Deuda Externa de Honduras (Social Forum on the External Debt of Honduras), publicly called for the government not to cover up the real numbers. Mauricio Díaz Burdeth, coordinator of the forum, is quoted as saying "All the macroeconomic indicators are in the red and it will be very difficult to find a favorable one, owing to the grave financial situation."

Díaz Burdeth added that the visit by IMF, the second this year, is without doubt an important point in the economic agenda of the country.

But that is not, we would argue, the most important visit Honduras is hosting this week.

Instead, we draw attention to the unsigned lead editorial in El Tiempo on Saturday May 15, headlined "The CIDH in Honduras".

The editorial comments on the reported return to Honduras this coming week of a delegation from the Interamerican Commission on Human Rights, "due to the grave and continued violations since the 28th of June 2009 based upon the coup d'Etat." It is a reminder that there is a consciousness in Honduras of the real continuing urgency of confronting the social, legal, and human rights effects of the coup d'Etat:

To prepare its report on Honduras the CIDH made an exhaustive investigation on the ground, which was introduced at its opportunity to the de facto government and the international community.

Nonetheless, this work, of high legal quality in its specialty, did not have, it appears, influence to restrain the abuses and violations of public power against the opposition to the coup d'Etat and their tremendous collateral consequences, as evidenced by the series of assassinations of journalists under the current regime.

Thanks to this lamentable situation, the CIDH included Honduras in the ominous "black list" of the countries in which human rights are disrespected in an aggressive manner, an odious position that never before had stained the history of our country.

To have an idea of the importance of the presence of the CIDH at this time, it is enough to take into account the composition of this delegation, headed by its president Felipe González, in which participates his vice president Paulo Sergio Pinheiro, the general secretary Santiago Cantón, and the special secretary for liberty of expression, Catalina Botero.

The investigation by the CIDH about the situation of human rights in Honduras is key in relation to the work assigned to the Truth Commission, a consequence, at the time, of the diplomatic process orchestrated by the Organization of American States to create an exit from the political crisis derived from the coup d'Etat.

In the same way, this investigation is part of the process for the reinsertion of Honduras in the continental and world community, since to succeed in such a purpose it is indispensable to establish the responsibilities for the offences committed through violation of human rights and political rights, something that, apparently, does not figure in the intentions of the Truth Commission.

Because of the way that political events in Honduras have been developing, in the framework of the political crisis that still remains insoluble, the reticence of the international community to normalize relations with the actual regime, ignoring the breaking of constitutional order, will not disappear nor will it be mediated, except on the part of a few governments inclined-- for their own convenience-- to excuse coups at the hands of oligarchs.

The return of the CIDH to our country in the present circumstances also has the virtue of refreshing the spirit for the defense of human rights, and, very particularly, for the validity of liberty of expression, that needs constant international support in societies, like ours, where the anti-culture of forced silence and of self-censorship is an everyday practice.

Human rights, or international monetary support. Which is, in the end, more important for Honduras at this juncture?