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