Honduras is Broke

Eighteen days after Porfirio Lobo Sosa takes office, the country of Honduras will run out of cash and be unable to pay its debts without the help of international aid, says Gabriela Nuñez. The only way the country has survived the last six months is by living off its cash income and paying its debts off in a prioritized fashion, or rather, not paying some of them. "The most important thing is to comply with the priorities," she said, "even if there are pending payments that remain....its a work from week to week."

De Facto Government Can't Make Payroll for January

The Finance Minister for the de facto government, Gabriela Nuñez announced today that she does not currently have access to sufficient funds to pay government employees for January. It all boils down to cash flow. She said she has access to about 400 million lempiras, and needs a total of about 1,500 million lempiras. In addition, she noted that the government has run up large debts with suppliers, including 450 million lempiras for medical supplies, and a further 700 million lempiras owed to road construction and paving contractors. She noted that the priority of the de facto government is to pay employees, and creditors will just have to wait. Nuñez expects that when the sales tax payments are received in mid-January, there might be enough for the government to pay its employees. Micheletti previously had assured us that they had sufficient funds to last through March.

Thanks For The Coup

In a private ceremony the command of the armed forces of Honduras gave awards to a handful of government officials. These officials "could not be thanked during the Armed Forces Day celebration," said Colonel Ramiro Archaga, spokesperson for the Armed Forces. "Besides, the Joint Chiefs of Staff, the Defense Minister, and the President wanted to thank them personally," Archaga continued.

"These are people who have contributed to the institution [Armed Forces] and the country, and what better moment than a reunion of the high command to recognize their merits in supporting defense of democracy."

The ceremony was closed to the press, and the public, because this is the meeting of the high command in which they discuss security strategy for Christmas.

So who are these "defenders of democracy" who could not be decorated in the public celebration of armed forces day, but rather, had to wait for a closed meeting of the high command?

Tomas Arita Valle, justice of the Supreme Court
Marcia Facussé, Liberal Party Congress person
Rafael Pineda Ponce, Chief of Staff to Micheletti
Gabriela Nuñez, Finance Minister
Roberto Zuniga, Budget director in Finance Ministry
Arturo Corrales, Negotiator on San Jose Accord team of Micheletti
Enrique Ortez Colindres, Foreign Minister for a few days at the beginning of the coup
Miguel Antonio Andino, administrative head of Defense Ministry

Anyone else think this is totally inappropriate?

Bad Economy Getting Worse

There's a lot of financial news today. First comes the news that the de facto government has sold $1,000 million lempiras in bonds, payable in 709 days at 8.1% interest, primarily to Honduran banks (private capital), and pension funds. Congress, has in recent months, authorized it to sell up to $10,000 million lempiras in bonds. By its own estimates, the de facto government, by staging a coup, caused a loss of about $6,600 million lempiras in in income from production, in addition to almost all international funding. As it stands, the de facto government has a bond sale every Tuesday.

At the same time, the bonds that were used to finance the 2006 and 2008 budget, totaling $2,000 million lempiras came due without the de facto government having any means to pay them. They got Congress to pull their chesnuts out of the fire and extend the term of those bonds for another 2-3 years, or about the same time as this year's bonds come due. This will be during the administration of the next president, severely constraining him financially.

Several newspapers are reporting about an attempt to reprice gasoline in the country. When Manuel Zelaya assumed the Presidency, one of his accomplishments was to redo the way the retail price of gasoline was determined. This brought down the price of gasoline around 6 lempiras per gallon (around $0.32) in part by changing the source and consequently reducing the transport costs. US supplier monopolies were broken up (Chevron) in favor of Petrocaribe. Ever since the coup, the Micheletti regime has said that its suppliers (surprise, its Chevron again) are prepared to guarantee the necessary supply to the de facto government. Now we learn the price; return to the old pricing method which increases profits for the gas station owners.

Finally, Gabriela Nuñez, the de facto government's Finance Minister, the one who has lied multiple times about the FMI drawing rights and having been invited by Gordon Brown to London, says the government has money to actually pay its employees for October. It seems employees aren't being paid on schedule. Every month the de facto government has been late with payments. "This government has guaranteed the pay of all public employees until the last day that it corresponds to president Roberto Micheletti to direct the destiny of this country," she asserted. However, it seems there's a cash flow problem (see debt sales above) such that they can only pay some workers in any given week. They've instituted a committee to see what the income is for any given week, and who they can pay that week. So it might be a while before everyone receives their October paycheck. She places the October obligation at around $1,500 million lempiras.

But don't worry government employees, even if your pay is late, Gabriela, who never lies, says your pay is assured, and your pension fund has invested in bonds issued by this illegitimate government to pay you now, bonds the next legitimate government may choose to ignore. An illegitimate government after all, cannot make contracts binding on the next government. Buyers of the bonds assume all the associated risk.

Unclear on the Concept

Gabriela Nuñez, the de facto government's Finance Minister, has again claimed an IMF grant of $15.1 million in Special Drawing Rights from the IMF as part of the de facto government's International Reserves, despite the fact that the de facto government is not recognized as that representing Honduras by the IMF, and therefore the SDR is not negotiable for them. The grant came as a further result of a promised G-20 $1 trillion in aid to world economies. Nuñez indicated that Honduras could expect a further $13.8 million in Special Drawing Rights later this year. The Banco Central de Honduras immediately applied this amount to its listed International Reserves in an act of fiction. More than $165 million of the amount listed is not negotiable by this government.

This is good news for Honduras, though not for the de facto government.