REGIONAL DEVELOPMENT BANK NORMALIZES RELATIONSHIP

C O N F I D E N T I A L TEGUCIGALPA 000154 SIPDIS E.O. 12958: DECL: 02/16/2020 TAGS: EFIN ECON PREL PGOV HO SUBJECT: REGIONAL DEVELOPMENT BANK NORMALIZES RELATIONSHIP WITH HONDURAS REF: A. 09 TEGUCIGALPA 618 ¶B. 09 TEGUCIGALPA 880 Classified By: Ambassador Hugo Llorens for reasons 1.4 b and d. ¶1. (C) Summary: Central Bank Honduras President Maria Elena Mondragon told the Ambassador on February 17 that the GOH had received a letter from CABEI confirming the normalization of Honduras' relationship with the bank. In a separate meeting, President of the Central American Bank for Integration (CABEI) Nick Rischbieth confirmed to Embassy officers that the bank is ready to be fully operational in Honduras after pausing new lending following the June 28, 2009 coup d'tat. Nicaragua had raised several administrative objections to CABEI's resumption of operations in Honduras, he said, but they did not provide a sufficient basis for continuing to block Honduras's full participation. Disbursements can be fully resumed once Honduras pays $5 million in arrears. Rischbieth said that a vote among Central American countries on whether to accept the new Honduran representative, who is President Porfirio "Pepe" Lobo's daughter, was underway, with four countries voting in favor and Nicaragua's vote still outstanding. This step is an important symbol of Honduras's reintegration into the region as well as being important to the cash-strapped government in practical terms. End summary. ¶2. (U) The Millennium Challenge Corporation Director and Economic Counselor met on February 15 with CABEI Executive President Nick Rischbieth and Jose Enrique Avila, the bank's country director for Honduras, to discuss Honduras's status in CABEI. CABEI had placed new lending to Honduras on hold after the June 28, 2009 coup d'tat following an instruction from the Central American Integration System (SICA) (ref A). The bank's board of governors was scheduled to decide formally on Honduras' status in September (ref B),but never did so, and the unofficial "paused" status remained in effect throughout the POLITICAL crisis. ¶3. (C) Rischbieth provided background on CABEI's decision-making in the months following the coup. He said that the reason for the board of governors' failure to make a formal decision on Honduras' status was that the board meeting at which the issue was being discussed ended early following the unexpected return of President Zelaya to the country and the resulting curfew. Rischbieth said that he had tried before the inauguration to get formal agreement from the board to resume full operations following the January 27 inauguration of President Lobo, but a decision on the issue was postponed. Nicaragua, Rischbieth said, had raised several procedural objections to the resumption of normal operations, such as the fact that formal approval of the appointment of the new Honduran representative to CABEI had not been completed. (The designated representative is Tania Lobo, a daughter of President Lobo who previously worked at CABEI. Voting among Central American countries on the appointment stood at 4 to 0, with Nicaragua's vote outstanding.) Rischbieth said that, since these issues are of an administrative nature and not at the policy level, they will not require action by the board of governors. The only remaining obstacle to new lending to the Honduran government, he said, is that it owes approximately $5 million in arrears. CABEI management does not expect any board interference in issuing disbursements once this debt is repaid. Rischbieth called into question CABEI's decision to pause funding in the first place, saying that he had obtained a legal opinion stating that this violated the bank's regulations. ¶4. (SBU) During the Ambassador's February 17 courtesy call with Central Bank of Honduras President Maria Elena Mondragon, Mondragon said that the GOH had received a letter from CABEI confirming the normalization of Honduras' relationship with the bank. ¶5. (SBU) Comment: CABEI's resumption of operations is important symbolically and substantively as a signal of Honduras' reintegration into the region. It is also important in practical terms, since the cash-strapped government has lacked access to international lending and has been relying on short-term debt to meet its financing needs. End comment. LLORENS