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