Identifier
Created
Classification
Origin
09TEGUCIGALPA697
2009-08-04 21:53:00
UNCLASSIFIED
Embassy Tegucigalpa
Cable title:  

TFH01: DE FACTO REGIME PREPARES 2009 HONDURAS

Tags:  BBSR EAID ECON EFIN HO 
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DE RUEHTG #0697/01 2162153
ZNR UUUUU ZZH
O 042153Z AUG 09
FM AMEMBASSY TEGUCIGALPA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0319
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE IMMEDIATE
RUEAIIA/CIA WASHDC IMMEDIATE
RUCPDOC/DEPT OF COMMERCE WASHDC IMMEDIATE
RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC IMMEDIATE 1154
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC IMMEDIATE
RUMIAAA/USSOUTHCOM MIAMI FL IMMEDIATE
UNCLAS SECTION 01 OF 03 TEGUCIGALPA 000697 

SIPDIS

STATE FOR EXIM/MICHELE WILKINS

E.O. 12958: N/A
TAGS: BBSR EAID ECON EFIN HO
SUBJECT: TFH01: DE FACTO REGIME PREPARES 2009 HONDURAS
BUDGET

UNCLAS SECTION 01 OF 03 TEGUCIGALPA 000697

SIPDIS

STATE FOR EXIM/MICHELE WILKINS

E.O. 12958: N/A
TAGS: BBSR EAID ECON EFIN HO
SUBJECT: TFH01: DE FACTO REGIME PREPARES 2009 HONDURAS
BUDGET


1. (SBU) Summary: The 2009 Honduran Budget was introduced
and approved by the de facto regime July 2009. The Honduran
fiscal year is from January to December, and the exiled
government had yet to submit its 2009 budget (which was due
to Congress on September 15, 2008). Central government
revenues include taxes of Lps. 40 billion (USD 2.1 billion),
non-taxes of Lps. 2 billion (USD 107 million),internal
capital transfers of Lps. 1 billion (USD 57 million),
external capital transfers, donations and loans of Lps. 10.5
billion (USD 555.5 million),public debt of Lps. 10 billion
(USD 541 million) and other revenue sources. Central
government expenditures increased only 4.9 percent in nominal
terms over the approved 2008 budget (Lps. 64 billion from
Lps. 61 billion). The budget prepared by the de facto regime
show a USD 1.1 billion deficit that must be covered by a
combination of internal and external financing. The 2009
budget contemplates external financing of USD 555.5 million
that could be impacted by the cut-off of foreign assistance
resulting from the political crisis. The de facto regime is
anticipating financing USD 544.3 million of the fiscal
deficit through domestic sources, however much of this
financing is already in place. Although the de facto regime
will face an enormous challenge in closing the fiscal gap,
this challenge is not insurmountable. The 2009 budget as
presented by the de facto administration includes a number of
initiatives and projects developed with technical assistance
(currently suspended) from OTA over the last three years.
End Summary.

--------------
Approved 2009 Budget
--------------


2. (U) The 2009 Honduran Budget was introduced and approved
by the de facto regime July 2009. The Honduran fiscal year
is from January to December, and the exiled government had
yet to submit its 2009 budget (which was due to Congress on
September 15, 2008). The approved budget is Lps. 112.9
billion (USD 6 billion),which is Lps. 64 billion (USD 3.4
Billion) for the central government and Lps. 61 billion (USD
2.6 billion) for the decentralized government organizations
less offsetting flows.

-------------- 2009 Budget Revenues



3. (U) Central government revenues include taxes of Lps. 40
billion (USD 2.1 billion),non-taxes of Lps. 2 billion (USD
107 million),internal capital transfers of Lps. 1 billion
(USD 57 million),external capital transfers, donations and
loans of Lps. 10.5 billion (USD 555.5 million),public debt
of Lps. 10 billion (USD 541 million) and other revenue
sources. The de facto Minister of Finance Nunez stated that
this budget assumed promised international assistance because
she had not been notified of any cancellations.

-------------- 2009 Budget Execution


4. (U) Central government expenditures increased only 4.9
percent in nominal terms over the approved 2008 budget (Lps.
64 billion from Lps. 61 billion). Major expenditure
increases include Education - increase of 12 percent (Lps. 20
billion from Lps. 18 billion),Health - increase of 22.8
percent (Lps. 9 billion from Lps. 7.4 billion),Ministry of
Finance - increase of 18.6 percent (Lps. 3 from 2.5 billion)
and the Road Fund - increase of 43.6 percent (1.4 billion
from Lps. 959 million in part to provide maintenance as
required in the MCC compact). Expenditure decreases include
a reduction in Central Administration Financial Services of
74 percent (Lps. 5.5 billion to Lps. 1.4 billion) for
reductions in travel allowances, tickets, advertising,
gasoline, electricity, cell phones, and non-essential
material; 39 percent in Natural Resources and the Environment
(Lps. 489 million from Lps. 806),and 32 percent in Science
and Technology (Lps. 547 million from Lps. 804 million),

--------------
Financing the Fiscal Deficit
--------------


5. (U) The budget prepared by the de facto regime show a USD
1.1 billion deficit that must be covered by a combination of
internal and external financing.


TEGUCIGALP 00000697 002 OF 003



Lempiras USD
(Millions) (Millions)
Transfers and Donations
Multilateral 683.0 36.1
Bilateral 292.1 15.5
MCC 1,077.6 57.0
Debt Relief 3,987.4 211.0
Budget Support 574.0 30.4
SUBTOTAL 6,614.0 349.9

Foreign Loans 3,886.1 205.6
SUB EXTERNAL FINANCE 10,500.1 555.5

GOH Bonds 6,518.0 344.9
Loan Banco Central 3,768.0 199.4
SUB INTERNAL FINANCE 10,286.0 544.3

TOTAL FINANCING REQUIREMENT 20,786 1,099.8


-------------- External Finance


6. (U) The 2009 budget contemplates external financing of
USD 555.5 million that could be impacted by the cut-off of
foreign assistance resulting from the political crisis;
however this reduction in finance due to the cut-off would be
modified by a number of factors such as how much has already
been disbursed and how much is already committed and will be
disbursed in the future. For example, almost all of the MCC
funds are already committed and will be disbursed in 2009
(approximately USD 11 million of 2010 funds are at risk). At
a recent meeting of the international donor community (G-16)
most participants stated that ongoing projects would continue
but that new projects are being paused. The Treasury
Department's Office of Technical Assistance (OTA) Resident
Advisors will be interviewing the major donors to try and
quantify the cuts affecting the 2009 budget.


7. (U) Although the status of debt relief is unknown, this
will not have much impact on the budget because this amount
would be applied to the related debt service which the
government is already not paying (this item appears to be a
holdover from the 2008 budget pending final resolution of the
debt relief). The only amount that will definitely be cut is
budget support. The reductions will be modified by how much
has already been disbursed. (Much of this support was
already being curtailed because of the lack of agreement
between the exiled government and the IMF, as well as the
lack of a 2009 budget law).

-------------- Internal Finance


8. (U) The de facto regime is anticipating financing USD
544.3 million of the fiscal deficit through domestic sources
however much of this financing is already in place. The
Central Bank loan of USD 199.4 million was mostly disbursed
in the first half with the balance disbursed in July. The de
facto administration is in the process of converting this
short term loan into a 10 year maturity. Further, the
government placed USD 158.7 million of bonds in the first
half of the year leaving USD 186.2 million to raise in the
second half which they are doing through a series of actions
including new issues, rollovers and swaps.

-------------- Conclusion for Financing the Fiscal Deficit


9. (SBU) Although the de facto regime will face an enormous
challenge in closing the fiscal gap, this challenge is not
insurmountable. Most of the domestic finance is already in
place and the Office of Public Credit, working with the
Central Bank, is using the techniques and procedures
developed in coordination with the OTA Debt Advisor to raise
the necessary finance. More investigation is necessary to
determine the full impact of the aid cut-off. An early
appraisal indicates that the impact will be much less than it
would appear based on the enormous amount of external finance
indicated in the budget.

--------------
OTA Initiative in the 2009 Approved Budget
--------------


TEGUCIGALP 00000697 003 OF 003



10. (U) The 2009 budget as presented by the de facto
administration includes a number of initiatives and projects
developed with technical assistance (currently suspended)
from OTA over the last three years.


11. (U) The human resources project of the OTA Tax Team that
had been ignored by the Zelaya administration and in danger
of falling apart was included in the 2009 budget of the de
facto regime. We have been advised that the Tax
Administration (DEI) is in the process of implementing the HR
project as well as other OTA initiatives (the Executive
Committee for Reform, the Performance Committee System,
mid-year review and funding for the Large Taxpayer
Organization). The contract for the funding of OTA's work on
the HR project by the World Bank (WB-FIDE) is due to expire
in November 2009. Although OTA has already proposed an
extension to complete the remaining critical components of
the project and to provide a transition for the new
government, this funding is likely to be negatively impacted
by the aid cut-off resulting in unknown negative consequences.


12. (U) The 2009 budget includes language referencing the
debt limits contained in the Public Indebtedness Policy
2009-2013 document which the OTA Debt Advisor helped to
develop. In addition, the approved budget law includes new
language permitting the Office of Public Credit to use swap
programs to modify the profile of public debt and notes that
swaps do not affect the total debt outstanding. The Office
of Public Credit has on its own initiative begun working with
the Central Bank to develop the procedures for the swap
program as well as returning to the procedures developed over
the last several years regarding debt issuance and management
that had been discarded by the Zelaya administration.

--------------
More detailed information to follow
--------------


13. (U) This is a preliminary review. We plan to get
additional information from international counterparts and
non-government officials in order to provide more details.
Due to the US no contact policy, we will not be meeting with
regime counterparts.
LLORENS