LOBO ECONOMIC ADVISOR SEEKS INFORMAL TALKS WITH

C O N F I D E N T I A L TEGUCIGALPA 001321 SIPDIS E.O. 12958: DECL: 12/22/2019 TAGS: EFIN ECON PGOV PREL HO IMF SUBJECT: LOBO ECONOMIC ADVISOR SEEKS INFORMAL TALKS WITH IMF AND TREASURY REF: TEGUCIGALPA 1315 Classified By: Simon Henshaw, Charge d'Affaires a.i., for reasons 1.4 b and d. ¶1. (C) Summary: Maria Elena Mondragon, an economic advisor on President-elect Pepe Lobo's transition team, told the Economic Counselor on December 17 that the new government will urgently need international assistance, including budget support and technical advice. She said that informal talks before the January 29 inauguration with technical experts from the U.S. Treasury's Office of Technical Assistance (OTA) and the International Monetary Fund (IMF) would be very useful, and asked the USG to encourage the IMF to agree to hold working-level technical meetings with the transition team. Mondragon told the Economic Counselor that the transition team will hold an intensive series of meetings with the de facto government January 4-12. Mondragon was not particularly concerned about the de facto government's plan to hold minimum wage discussions, saying that it is preferable to the alternative of defaulting to President Zelaya's agreements with various categories of government workers. End summary. ¶2. (C) The Economic Counselor met on December 17 with Maria Elena Mondragon, who headed the central bank during the administration of President Maduro and currently serves as economic advisor on President-elect Pepe Lobo's transition team. Mondragon expressed concern about the poor fiscal situation and said that the new government will urgently need international assistance. She appealed to the USG to encourage the IMF to allow technical experts to hold informal discussions with the transition team. Although Mondragon has met informally with the IMF's local representative, she said that IMF will not allow any other meetings, even informal, low-profile discussions. A reversal of this stance, she said, will require a high-level decision, which she believes will only be possible if the U.S. raises the issue. Mondragon repeated this request at a lunch that Lobo hosted the next day for the Ambassador and members of the Embassy staff (reftel). ¶3. (C) Mondragon said that it would also be extremely useful if the transition team could begin informal discussions with the in-country debt specialist from OTA. This would be an opportunity for the team to learn about OTA's technical programs on debt and other areas and also to discuss how the new government should deal with the poorly structured debt it will inherit from the Zelaya government and the de facto regime. ¶4. (C) Mondragon said that the fiscal situation is extremely complicated. She noted that many of the Zelaya government's expenditures had been made without budgetary authority and that a number of these expenditures are before the Supreme Accounting Tribunal (TSC) for review. There is an urgent need for budget support, she said. However, the transition team will not obtain the full picture until it holds a series of meetings with de facto government representatives from January 4 to 12. De facto finance minister Gabriela Nunez will lead the discussions from the government side. ¶5. (C) The Economic Counselor noted that the de facto government had announced plans to begin discussions with the private sector on the minimum wage on December 21. (Note: After the meeting, the wage discussions were postponed to December 29. This issue has important implications for the government because government salaries, which make up a high percentage of the government budget, are tied to the minimum wage by various formulas. President Zelaya approved a 60 percent rise in the minimum wage at the end of 2008, which contributed significantly to the government's current financial difficulties. End note.) The Economic Counselor asked Mondragon whether the transition team would have any role in these discussions. Mondragon said that it would not. Asked whether she was concerned about the de facto government's decision to move ahead on this issue, Mondragon said that this was preferable to the new government entering office with no agreement, a situation that would require the government to revert to President Zelaya's agreements with various categories of government workers. She said, however, that she hoped that there would not be a significant increase in the minimum wage, since this would lead to an increase in unemployment and a decline in investment. ¶6. (C) Comment: While it is important for the USG to avoid adopting a "business as usual" approach that could reduce the pressure on the Micheletti regime to implement the Tegucigalpa-San Jose Accord, we should consider the idea of low-profile and informal discussions between the economic transition team and technical experts from OTA and the IMF. As Mondragon pointed out, the Lobo administration will inherit serious fiscal problems. Lobo's economic team is capable, but it lacks access to in-depth technical expertise on debt, budgeting and other areas. If working-level technical talks are delayed, the new government, under pressure to act quickly as short-term debt matures, may end up taking actions that the experts would have advised against and that could be difficult to reverse. End comment. HENSHAW HENSHAW