NO PROBLEMS COVERING EL SALVADOR'S JANUARY SHORT-TERM DEBT

UNCLAS SAN SALVADOR 000064 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: EFIN ECON PGOV ES SUBJECT: NO PROBLEMS COVERING EL SALVADOR'S JANUARY SHORT-TERM DEBT REF: A. 08 SAN SALVADOR 1392 ¶B. 08 SAN SALVADOR 1394 ¶C. 08 SAN SALVADOR 1364 ¶1. (SBU) SUMMARY. El Salvador will cover its short-term debt due in January with money from its recently approved Inter-American Development Bank (IDB) loan and funds from public institutions. Debt payments for February and March depend on El Salvador's proposed World Bank loan, which officials report is on track, and a possible loan from the Central American Bank for Economic Integration (CABEI). Provided these additional loans come through as planned, El Salvador should be able to cover its short-term debt through the end of the Saca Administration. END SUMMARY. ¶2. (SBU) Manuel Rosales, Director of Finance and Public Credit Policy, Ministry of Finance, told Econoff on January 15 that the Government of El Salvador (GOES) did not foresee any problems paying its January short-term debt. Rosales reported that the GOES had approximately $108 million in Letters of Treasury ("Letes") due "to the private sector" for January. The GOES will pay that debt using the remainder of the $200 million tranche it received from the IDB in December (ref A) and funds from public institutions. ¶3. (SBU) Rosales still hoped the GOES could convince the private banks to roll over their Letes, which he thought would help boost confidence in the system. Banco Agricola had already agreed to roll over some of its $16.5 million in December Letes for five months instead of the one month. Rosales requested USG assistance in "convincing Citibank" to do another rollover, but acknowledged that the situation had changed since December (ref B). According to Marcella de Jimenez, Executive Director of the private banking association ABANSA, the banks held a total of $145 million in Letes as of January ($185 million in the broader private financial system). ABANSA had not taken a position on Letes rollovers and each bank was negotiating separately with the GOES. ¶4. (SBU) The Ministry of Finance expected a proposed $450 million loan from the World Bank (ref C) would be approved soon, and the first $200 million tranche should be disbursed by the end of March. Separately, the GOES was negotiating with CABEI for an additional $150 million to purchase Letes. Rosales stated that these loans would provide enough funding to cover Letes through March. ¶5. (SBU) COMMENT: Provided the World Bank and CABEI loans are finalized and disbursed as expected, El Salvador should be able to cover the approximately $224 million in Letes due through the end of March. Once income tax revenues are collected in April, the GOES should likewise be able to cover the approximately $100 million in Letes due from April through the end of the Saca Administration on May 31. However, to avoid future liquidity pressures, the GOES will need to reduce its untargeted subsidy programs and take into account the decreased revenue it will likely collect this year due to the economic slowdown and possible recession. Blau