HONDURAS: IMF Postpones Letter of Intent

By Thelma Mejía Reprint | | Print |

Thelma Mejia

TEGUCIGALPA, Mar 11 1997 (IPS) - The International Monetary Fund (IMF) postponed signing of a letter of intent with the Honduran government, as it was not convinced the nation was capable of applying further economic adjustments.

IMF delegates visited Tegucigalpa for two weeks in order to analyse the past history of economic reforms in the country.

Its conclusion found the changes carried out by the government of President Carlos Roberto Reina, had failed on basic aspects like privatisation, the elimination of subsidies, inflation and the liberalisation of prices and fuels.

This outcome means the country possibly stands to loose some 200 million dollars in much needed aid this year, or, in the best of cases, will find the payment process far more complicated.

Officials from the economic cabinet tried to smooth over the failure of the negotiations with the multilateral organism, claiming the letter of intent had not been subscribed for electoral rather than economic reasons.

According to Finance Minister Juan Ferrera, the country’s preparations for general elections in November meant “signing the letter was not thought convenient because they did not want to leave the new administration too tied up.”

However, other qualified sources did not agree.

“It is clear the letter of intent was not signed because we simply had not fulfilled the conditions,” said government economic advisor Guillermo Bueso.

Ferrera said they had agreed to set up a monitoring programme to evaluate the fiscal and economic action of the government in 1997, in order to receive resources worth some 80 million dollars from the multilateral credit organisms.

However, the press reported the IMF technicians came down hard on the government’s failure to control inflation, which has stood at 26 percent over the last three years – double the permitted annual rate.

Similarly, the IMF mission was not happy with the decision to maintain subsidies on energy and water, the lack of privatisation of the telephone company and the reluctance to free fuel prices.

They also objected to inconsistencies in the monetary policy, which has been unable to control the devaluation of the lempira, the local currency.

The IMF mission clearly stated that if the government does not manage to keep annual inflation down to 15 percent this year, and carry out the planned tax and fiscal reforms, there will be no agreement made.

At the same time, negotiations to write of half the nation’s 1.25 billion dollar debt with the Paris Club have become more difficult.

“There was no third economic adjustment programme because while two percent of the non-financial public sector fiscal deficit was achieved, 3.4 percent was obtained for 1996 in relation to the Gross Domestic Product (GDP),” said Bueso.

Meanwhile, “the monetary policy was not as energetic as it should have been last year and even though we saw annual growth of 3.5 percent, fulfilment would have been greater if we had signed the letter of intent,” he added.

In 1990, Honduras started a programme of economic adjustments which devalued the local currency and increased taxes. The second phase was implemented in 1994.

According to the president of the Central Bank, Hugo Noe Pino, the IMF delegation said the achievements in the second phase of adjustments had been “satisfactory” but not “excellent.”

Popular sectors protested the conditions imposed by the IMF Monday rejecting new taxes and tax reforms which push up the cost of the Basic Consumer Basket.

The adjustment measures, according to official figures, have increased levels of poverty from 69 percent in 1989 to 74 percent in 1995.