Honduras mulls debt issue

22/03/2010 | Sid Verma, Greg Brosnan

Honduras's new government is considering its first ever international bond sale, finance minister William Chong has said

Honduras’s new government is considering its first ever international bond sale, finance minister William Chong has said.

“We want to reorganize our internal debt,” Chong said in an exclusive interview with Emerging Markets. “Some international organizations are helping us create a programme to be able to reorganize this debt with bonds or some other type of instrument for the international markets.”

A bond issue would be a central part of the country’s return to the world financial market following the coup last summer that deposed left-leaning President Rafael Zelaya and brought Porfirio Lobo to power.

Chong said it was still weighing whether to perfom the operation in local or international markets, and did not give a timeframe or say how much debt Honduras might sell. He said he had to be sure such an operation would lower the cost of the debt servicing.

The announcement comes as Honduras begins to gain recognition again in the international financial community under new President Porfirio Lobo.

The IDB paused all new loans to Honduras after Roberto Micheletti toppled President Manuel Zelaya last summer with the backing of the military – but agreed to resume lending last week, becoming the latest international institution to bring the Central American nation back into the fold.

“We already have some IDB financing in the pipeline, including some that is being reactivated,” said Chong. “Next week we’re meeting with the IDB to redefine some projects and talk about the future.”

Honduras’s new government still faces major hurdles. It faces tough questions about its human rights record, and about its treatment of opponents during the political crisis. It is not yet officially recognized by the UN, the Organization of American States or a host of countries including left-leaning Venezuela and its hemispheric allies.

But the IMF and the World Bank have already made overtures. The IMF released Honduras’s share of special drawing rights (SDRs) to the central bank in September. An IMF delegation is currently in Tegucigalpa analyzing Honduras’s fiscal accounts, and Chong said he will meet with them on his return from Cancun.

Chong expects GDP to grow 2.5% this year. Last year it fell 2%, he said, partly because of the political crisis, but also because of the slowdown in global demand which led some export processing plants to close. He said the fiscal deficit from last year was probably equivalent to a staggering 6.1% of GDP.

“The problem was two-fold. There was no public investment and the government had to finance itself by expanding its internal debt,” he said. “It left us with a very large floating debt and our internal debt tripled.”

To build legitimacy among Zelaya’s embittered leftist supporters, Lobo’s government must show it is putting the country’s poor first.

Chong said that easing poverty would be a priority as it made its fiscal plans for 2010. “We will cut spending, bring in more revenue and eliminate [tax] exemptions and special regimes,” he said.

“These measures can’t be allowed to to hurt the poorest people,” he said. “The human being is the focus of our country’s development.”

Some civil society organisations that monitor IFIs’ activities are disturbed at the ease with which funding to Honduras has been resumed for the new leadership.

Mark Weisbrot of the Centre for Economic Policy Research told Emerging Markets yesterday: “The administration is of questionable legitimacy and that’s why half the hemisphere don’t recognise it. The administration ran an illegal election campaign during which newspapers were shut down.”

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