Burn Rate Redux

The Center for Economic and Policy Research reported yesterday that the IMF may withhold drawing rights on the $164 million in aid Honduras was allocated recently. The CEPR asked IMF spokesperson Bill Murray about the statement by Rebeca Santos, the Finance Minister for Zelaya, who recently told CEPR that she had received assurances from the IMF that the de facto government would not be allowed to actually draw the money, as I reported in a comment to Burn Rate. When asked to confirm this yesterday, Murray said he could not officially do so, but said "you should go with what you were told" by the Finance Minister.

This is important. The IMF action in allocating the funds to Honduras, was a routine action, as the IMF indicated in their own press release on this topic. All 186 member countries received an allocation. The IMF has not, however, to date, recognized the de facto governement of Honduras as legitimate or transferred funds to them. The de facto government was the only government to issue a press release about this routine action. In Honduran newspapers this was used to "prove" the legitimacy of the de facto government in the eyes of the IMF. Former Finance Minister Arturo Alvarado said in a La Tribuna article that it would lead the way to the World Bank and InterAmerican Development Bank opening their purse strings to the Micheletti administration. It also reassured the Honduran business community, as Luis Larach, head of the Chamber of Commerce and Industry of Cortes (CCIC in Spanish) noted Thursday, "Honduras receives it with happiness". The director of the Social Forum on the External Debt and Development in Honduras (FOSDEH in Spanish), Mauricio Díaz Burdett, said that this created an expectation that the Micheletti government could renegotiate the existing debt and seek a further $700 million in funding from the IMF. As you can tell from the variety of newspaper articles and their topics, this was important to the de facto government.

The same day that the Banco Central of Honduras issued its press release, Edwin Araque, Director of the Banco Central under Zelaya, told the press that he had contacted the IMF and had been assured that he was still Honduras's governor to the IMF, with Rebeca Santos as the sub-governor. He still had signature authority with the IMF. I indicated then that I thought this probably meant that the de facto government would not be allowed to draw on this allocation. This seems to confirm it.

Why is this important? If the de facto government could draw on these funds, it would lend them legitimacy, it would help with their foreign currency reserves, which are down over $300 million since the coup, and it would completely counteract any effect of the US State Department announcement this week.

The draw date for these funds is September 9.