SICA ANNOUNCES STRATEGY TO DEAL WITH GLOBAL

C O N F I D E N T I A L SECTION 01 OF 02 TEGUCIGALPA 001115 SIPDIS STATE FOR WHA, INL AND EEB TREASURY FOR ANNA JEWELL AND SARAH SENICH E.O. 12958: DECL: 12/10/2018 TAGS: EFIN ECON PGOV KINL PREL SOCI SNAR PBTS PNAT KDEM, HO SUBJECT: SICA ANNOUNCES STRATEGY TO DEAL WITH GLOBAL ECONOMIC CRISIS TEGUCIGALP 00001115 001.2 OF 002 Classified By: Ambassador Hugo Llorens for Reasons 1.4 (b) and (d) ¶1. 1. (SBU) Summary: Central American leaders announced a 59-point regional strategy at the 33rd summit of the Central American Integrated System (SICA) in San Pedro Sula December 5 covering a range of topics from security and financial cooperation, to tourism, environment and migration. In response to predicted impact of the global financial crisis, the countries agreed to study the feasibility of adopting of a common Central American currency and creating a regional monetary fund. Honduran President Manuel "Mel" Zelaya passed the SICA presidency to Nicaraguan President Daniel Ortega during the summit. The strategy was announced against a backdrop of division within the Honduran government on its IMF standby agreement. End Summary. ¶2. (SBU) The Central American Integrated System (SICA) summit in San Pedro Sula December 4 and 5 concluded with the announcement of a 59-point strategic plan that covered a range of political, security and economic issues. The public statement by SICA said the plan was designed to stave off economic downturn in Central America in the face of the global financial crisis. Leaders of the SICA member states jointly agreed to promote fiscal stability through prudent monetary measures and to create a joint credit fund, the parameters of which are undefined. The leaders also agreed to create a Central American common currency and a common passport. However, a senior official at the Honduran Central Bank told econoff the measures were unrealistic and that he believed SICA is unlikely to follow through with implementation, especially on the common currency. ¶3. (U) The SICA plan covered a number of security issues, highlighting the need for a combined security strategy for Central America and Mexico. SICA members reiterated the importance of prompt ratification of the Central American Treaty on Detentions and Extradition, referenced activities to combat youth violence, and encouraged further cooperation within the Police Directors, Commission of Central America. Appreciation for USG assistance in the security area was mentioned, as was a desire to continue a dialogue with both Mexico and the United States on the Merida Initiative and security issues in general. ¶4. (SBU) The financial elements of the SICA strategy were announced against the backdrop of increasing divisions between the Honduran Finance Ministry and the Central Bank over the future of the IMF Standby Agreement Honduras signed in April 2008. Central Bank President Edwin Araque has taken a hard-line position and publicly criticized the IMF. Nevertheless, Finance Minister Rebecca Santos wants to re-engage the Fund and told the Ambassador she intends to be in Washington December 19 for IMF staff talks. In the private sector, there are also divisions between those who believe an IMF agreement is the only way to ensure macroeconomic stability and others who believe an IMF-mandated devaluation of the exchange rate could ignite inflation and lower living standards for Hondurans. ¶5. (U) The summit marked the end of President Zelaya's six-month term as SICA President pro tempore. He was succeeded by Nicaraguan President Daniel Ortega. ¶6. (C) Comment: The 59-point plan contains an extremely broad range of goals, most with little specifics on how they will be accomplished. Though many of the statements serve as appropriate reminders of the potential for increased regional cooperation, we expect only minimal progress in the short term. The security agreements may be more serious, especially if the countries can use the opportunities presented by the Merida Initiative to increase regional cooperation. The idea of a common currency is not new, and TEGUCIGALP 00001115 002.2 OF 002 there are many barriers to suggest the Central American commitment to this idea is low. In the case of Honduras, at the recent ALBA meeting, President Zelaya did not object to the proposal to create a common currency for members of that organization. Beyond the statement of good intentions, we doubt Honduras has a serious commitment any time soon to either plan. However, the U.S. economic crisis could have a major negative impact on Central American economies. In this regard, hard economic reality hopefully will force the Central Americans to adopt prudent monetary and fiscal policies and to seek to coordinate these polices. End Comment. LLORENS