CENTRAL BANK FOR ECONOMIC INTEGRATION PRESIDENT

C O N F I D E N T I A L TEGUCIGALPA 000092

SIPDIS

STATE FOR EEB, WHA
STATE PASS TO THE PASS
TREASURY FOR DAS NANCY LEE

E.O. 12958: DECL: 02/10/2019
TAGS: EFIN ETRD EAGR HO
SUBJECT: CENTRAL BANK FOR ECONOMIC INTEGRATION PRESIDENT
SEES DIFFICULT ECONOMIC AND FINANCIAL SITUATION

REF: TEGUCIGALPA 1114

Classified By: AMBASSADOR HUGO LLORENS FOR REASONS 1.4 (B & D).


1. (C) Summary: The president of the Central American Bank
for Economic Integration (CABEI) Nick Rischbieth met with the
Ambassador on February 2 to discuss the effects of the global
financial crisis on Central AMERICA and on CABEI's
operations. After a year of record disbursements, CABEI's
access to capital is drying up; he is reluctant to broadcast
it so as not to create alarm. In an effort to tap into
elusive lines of credit, he is leading a delegation of
regional Finance Ministers to Taiwan the week of February 9.
Richsbieth (please protect) noted that political developments
in Nicaragua, the elections scenario in El Salvador, and
uncertainty in Honduras and Guatemala was making his job of
coordinating common approaches to dealing with the
international financial crisis more difficult. End Summary.


2. (C) CABEI President Nick Rischbieth was recently elevated
to the position after the tragic death of former bank
president Harry Brautigam in the 2008 plane crash of Taca

390. In his courtesy call with the Ambassador, Rischbieth
expressed concern over CABEI's access to credit. He focused
on reassuring the Ambassador that CABEI has strong mid and
long-term prospects but is vulnerable because it does not
have immediate access to capital for its member countries.
He blamed "financial protectionism," specifically the
out-sized credit demands of larger economies for "crowding
out small sub-regional banks like CABEI." Rischbieth
characterized CABEI's need for USD 2 billion in capital as
"peanuts" compared to the USD 3 trillion credit required by
G-7 countries.


3. (C) In order to gain access to capital, Rischbieth is
encouraging CABEI member countries to knock on new doors. On
the week of February 9, he will lead a delegation of Finance
Ministers from five Central American countries to Taipei,
where they will request access to the USD 500 billion in
reserves held by Taiwan, which has observer status in CABEI.
In April, the bank's charter will be amended to include
Brazil, Korea, and possibly Italy as new shareholders.
Attempts to access credit through European banks and through
the U.S. Federal Reserve have fallen through. Rischbieth
expressed his interest in seeking a USG solution to CABEI's
liquidity problem, suggesting that the Fed give Central
America a credit line via CABEI as it did in Mexico and
Korea; he planned to visit Washington this week to petition
Treasury for a loan.


4. (C) Perhaps as troubling to Rischbieth as the inability
to access credit is the worsening political situation in
Central America. He complained about the radical leftward
lurch in Nicaragua, the election panorama in El Salvador and
growing uncertainty in Honduras and Guatemala. On the
economic front, Rischbieth complained about erratic
policy-making in the region and expressed fears of "creeping
socialism." He noted that the combination of the
international financial crisis and bad policy "may set back
the region another decade as was the case in the 80s." The
Ambassador noted that he was encouraging the Honduran
government to seek to negotiate a follow-on Stand-By
Agreement with the IMF as the best way to secure strong
development bank support for Honduras, as well as transmit a
strong message to the international and domestic investment
and financial communities of Honduras, commitment to
macroeconomic stability. The Ambassador mentioned that the
GOH,s populist rhetoric had painted the government into a
corner, particularly with the official vow not to devalue the
lempira. However, the Ambassador did mention as positive
that President Zelaya was seeking meetings with the IMF and
IDB in planned trips to Washington in the near-future.


5. (C) Comment: CABEI plays an important role in the
financial stability of Central America. The USG should
consider responding affirmatively to CABEI,s requests for
access to emergency lines of credit. In the case of Central
America, the creation of a small credit mechanism for CABEI
will go a long way to support the economic viability of these
small neighboring nations. In sum, finding a creative
mechanism by which CABEI could access U.S. capital may save
these economies from plunging into steep recessions later in
the year, which will adversely affect U.S. interest in a
stable Central America.
LLORENS