TFHO1: DE FACTO REGIME TOUTS IMF ACT AS SIGN OF

C O N F I D E N T I A L SECTION 01 OF 02 TEGUCIGALPA 000883

SENSITIVE
SIPDIS

STATE FOR EXIM/MICHELE WILKINS

E.O. 12958: DECL: 09/03/2019
TAGS: ECON AMB CONS DAO DCM AID FCS PAS POL ORA
SUBJECT: TFHO1: DE FACTO REGIME TOUTS IMF ACT AS SIGN OF
RECOGNITION

REF: A. TEGUCIGALPA 838

B. TEGUCIGALPA 771

C. TEGUCIGALPA 697

Classified By: Amb. Hugo Llorens, E.O. 12958, 1.4(d)


1. (C) Summary and Action Request: The Honduran de facto
regime is trumpeting the IMF,s inclusion of Honduras in the
worldwide increase in Special Drawing Rights (SDR) for
members as a sign of international recognition for the
regime. Honduras received an allotment of SDR 96 million
(approximately USD 150.1 million) and is expected to receive
an additional SDR 8.8 million (USD 13.8 million) for a
combined total of SDR 104.8 million (USD 163.9 million). The
first installment would increase the foreign exchange
reserves by approximately 7%. The Banco Central de Honduras
(BCH) states this will improve reserve coverage in terms of
months of importation and other financial indicators. It
remains to be seen whether or not other countries will
recognize the regime's authority to convert SDRs. Embassy is
concerned about the political benefit the de facto regime is
gaining from the replenishment and suggests the Department
consider requesting that the IMF limit the regime,s access
to the funds. Alternately, the Department could approach
other countries to encourage them not to exchange Honduras,s
SDRs for currency. End Summary.


2. (U) Following the G-20's meeting in London in April, the
International Monetary Fund (IMF) decided to increase its
allocation of Special Drawing Rights (SDR) to all member
countries to mitigate the effects of the global financial
crisis. On August 28, the IMF increased the general
allocation of SDRs for members by USD 250 billion. A second
one-time special allocation of USD 33 billion is scheduled
for September 9. Allocations are in proportion to a member's
quotas which are loosely based on its relative size in the
global economy. SDRs boost a member country's foreign
exchange reserves because they can be changed into
convertible currencies, providing additional resources for
use in international transactions.


3. (U) Honduras received SDR 96 million (approximately USD
150.1 million) and is expected to receive an additional SDR
8.8 million (USD 13.8 million) for a combined total of SDR
104.8 million (USD 163.9 million). The first installment
increased the foreign exchange reserves in the Banco Central
de Honduras (BCH) by approximately 7% overnight.


4. (SBU) These influxes, however, may be more apparent than
real. While the increase in Honduras' account at the IMF
boosts reserves on the books of the Central Bank, the de
facto regime may not have access to the reserves. Although
the IMF has recently acted to make SDRs more convertible,
SDRs may only be exchanged for convertible currencies among
member countries (either voluntarily or under the designation
mechanism where the IMF assigns members to exchange currency
for SDRs).


5. (SBU) Nevertheless, the Micheletti de facto regime is
publicizing the move as recognition of its legitimacy by a
principal world financial organization even though the
allocation increase to Honduras was technical in nature. The
de facto head of Banco Central de Honduras (BCH),Sandra de
Midence, was quoted in local press saying that, unlike the
other international financial institutions (e.g. World Bank,
Inter-American Development Bank, and Central American Bank
for Economic Integration),the IMF "is respecting that we are
a member country."


6. (SBU) Separately, the sharp declines in reserves seen
after the June 28 coup appear to have subsided (to be
reported septel). Multi-lateral lenders and other sources
had previously told EconOff that the de facto regime should
have sufficient reserves until January 2010 if it kept tight
controls on spending (ref A). In an August 31 press release,
the BCH stated that this increase would improve reserve
coverage in terms of months of importation and other
financial indicators.


7. (C) Action Request: Embassy is concerned about the

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political benefit the de facto regime is gaining from the
replenishment and suggests the Department consider requesting
the IMF to limit the regime,s access to the funds, or
approach other countries to encourage them not to exchange
Honduras,s SDRs for currency.
HENSHAW