HONDURAS' FINANCIAL REFORM LAWS: THREE DOWN, ONE

C O N F I D E N T I A L TEGUCIGALPA 001984 SIPDIS STATE FOR EB, WHA/EPSC, AND WHA/CEN DOL FOR ILAB TREASURY FOR DDOUGLASS STATE PASS AID FOR LAC/CAM E.O. 12958: DECL: 09/02/2014 TAGS: ECON EFIN EINV PGOV HO SUBJECT: HONDURAS' FINANCIAL REFORM LAWS: THREE DOWN, ONE TO GO REF: TEGUCIGALPA 1899 Classified By: Economic Chief Patrick Dunn; reasons 1.4 (b) and (d). ¶1. (SBU) Summary: The Honduran Congress has approved three of the four financial sector reform laws required under the IMF agreement. The three that have passed are the shortest and simplest of the laws, leaving the longest and most important for last. However the President of the Banking Commission is confident that this fourth will also pass within the weeks to come, and discounts recently publicized opposition to the law from some Congressmen as empty political posturing. While the GOH badly missed its original IMF-imposed deadline of June 30 for the implementation of these reforms, the general consensus among the IMF, GOH and Post is that late is better than never. End Summary. ¶2. (SBU) On August 27, EconOffs met with the President of the National Banking Commission (Honduras' banking regulator), Dr. Ana Cristina Mejia de Pereira, to discuss the progress of the four financial sector reform laws which, under the terms of the IMF agreement, were to have been passed by June 30. Mejia informed us that three of the four laws have been approved by Congress, and are currently undergoing a final legal review, after which they must be signed by the President and published in the official federal register (La Gaceta) to enter into legal force. The three laws that have been approved are reforms of the Central Bank, the National Banking Commission (CNBS),and the bank insurance fund (FOSEDE). Each of these laws is relatively short, and is a revision of existing legislation, which contributed to their relatively easy passage through Congress. Post will provide a more detailed description of the bills septel once their final form is known. ¶3. (SBU) The fourth and most important of the reforms, the financial institutions law, is still being reviewed by Congress. Since this is an entirely new piece of legislation, and is quite long, Congress is inspecting it more closely than it did the other three. Mejia cited the bill's complexity and this more thorough than usual debate as the reason for the bill's slow progress. As of August 27, approximately 70 of the 180 articles in the bill had been debated. Mejia assured EconOffs that she has been going personally to Congress every morning to move the debate along, provide guidance, and attempt to ensure the new law is not gutted during mark-up. ¶4. (C) Mejia acknowledged that there is opposition to the bill from certain quarters, namely those bankers who have the most to gain from maintaining the status quo of looser regulation of the sector. Specifically, she mentioned that Jorge Bueso (of Banco Occidente),Guillermo Bueso (of Banco Atlantida),and Jaime Rosenthal (of Banco Continental, also an opposition Liberal Party (PL) congressman and one of many PL presidential candidates),are opponents of the bill, as they are directors of the three banks that would have the most difficulty adjusting under the new laws. As reported in reftel, Rosenthal announced publicly last week that he had succeeded in halting debate on the financial institutions law, but Mejia was dismissive of these claims, saying that as soon as Rosenthal left town, debate began again. Despite the opposition that exists, Mejia assured us that sufficient numbers of Congressmen in both major parties understand the importance of the law so that its ultimate passage is not in doubt. ¶5. (C) Comment: Mejia is clearly placing a very high priority on the passage of the financial institutions law, and has the support of the Ministry of Finance in doing so. While the GOH badly missed its original IMF-imposed deadline of June 30 for the implementation of these reforms, the general consensus among the IMF, GOH officials, and Post is: better late than never. Palmer Palmer