The new finance minister has announced plans to restructure Honduras’ public debt of about $5.8 billion, almost all of it in short-term format, with high interest rates.
Honduras is facing a severe debt problem which could become a disaster for their public finances.
Public debt, external and internal, had reached $5.772 billion up to December 31st, 2011 .
Fitch Ratings has analyzed patterns of economic growth in Central America, and its relationship to sovereign debt ratings.
According to Fitch Ratings, two patterns have emerged in the evolution of economic growth and public finances in Central America. The quality of sovereign credit in Central America is largely reflected by these two patterns, and this is expected to remain the case for the foreseeable future.
Lobo's government has increased the country's domestic debt to $2.4 billion, half of which was incurred between January 2010 and January 2011.
Between January 2010 and November 2011, the government of President Porfirio Lobo added $1.6 billion to the internal debt, more than half the current total of $2.4 billion.
The government’s average daily expenditure is about 400 million lempiras ($21 million) and it collects about 130 million lempiras ($6.8 million), making a deficit of 270 million lempiras ($14.1 million), reports ElHeraldo.hn.
At current exchange rates, external debt could increase by $800 million.
The current exchange rate will mean that more money will have to be paid for imported products, which will increase inflation and living costs, and increase debt by $800 million , says economist Martin Barahona.
"Devaluation means, for example, that we import inflation. As the exchange rate continues to rise, the domestic price of fuel or imported products in Honduras, regardless of international prices, which are already on the rise, will rise simply due to devaluation", said Barahona, according to LaPrensa.hn.
The U.S. could be facing a possible reduction in their risk rating, due to levels of national debt and government deficit.
Democrats and Republicans have been debating in the United States Congress trying to reach an agreement that will raise the debt ceiling and secure public finances for the future, avoiding a potential cessation of payments or a reduction in the country’s risk rating.
Central American countries alleviated much of the effects of the global crisis by issuing public debt; they now face the challenge of keeping it at reasonable levels.
Capitales.com analyzed the relation between debt and GDP for each country in Central America. They noted that although Costa Rica, Guatemala and Honduras are within acceptable levels, they are dangerously close to surpassing them.
Congress authorized the Finance Secretary to sell additional bonds in the securities market.
These resources will be used to fund an enlarged budget (6.300 million lempiras, $333 million).
“The decree was passed on Wednesday night, under the premise that the government must comply with all its unpaid obligations from the 2009 exercise”, explained Laprensa.hn.
Fitch Ratings warned that although Central American sovereigns have resisted the global crisis pretty well so far, they now require fiscal consolidation in order to maintain their credit ratings.
Summary
Fitch‐rated Central American sovereigns have thus far withstood the destabilizing effects of the global economic and financial crisis, despite monetary and exchange rate policy challenges.
The Honduran Treasury has outstanding debt for $300 million, but has only $8 million available.
In light of this situation, Finance Minister Gabriela Núñes warned that the upcoming administration, headed by Porfirio Lobo, must enforce "deep fiscal austerity" and restore relations with the international community, in order to resume external aid.
According to the article in Proceso.hn, this crisis has two main causes: a $158 million drop in tax collection, plus a $211 million increase in salaries.
Fitch downgraded Mexico's Issuer Default Rating (IDR) from 'BBB+' to 'BBB' in foreign currency and from 'A-' to 'BBB+' in domestic currency.
Both ratings have a 'Stable' outlook. Additionally, the country's ceiling was reduced to 'A-' from 'A'.
Fitch downgraded Mexico's ratings because the country's fiscal situation has gotten worse with the financial crisis and a reduction in Mexican oil production.
Fitch Ratings reported that the risks to regional banks during the current crisis are growing and represent a major challenge for 2009.
The combination of reduced credit expansion, fund restrictions and increasing loan provisions have limited the profits of most banks and it is expected for these factors to continue to pressure the results in the coming months.
Fitch Ratings reported that the risks to regional banks during the current crisis are growing and represent a major challenge for 2009.
The combination of reduced credit expansion, fund restrictions and increasing loan provisions have limited the profits of most banks and it is expected for these factors to continue to pressure the results in the coming months.
Fitch expects that Latin America’s real GDP will contract by 0.9% in 2009, with Brazil’s economy stagnating at best and Mexico contracting by over 2%.
Latin American economies have recoupled with the crisis in the developed economies. Since September 2008, Latin American countries have been buffeted by stronger external headwinds, as evident from the fall in regional currencies and stock markets and from widening bond spreads.
Since yesterday the National Federation of Honduran Palm Farmers and the National Agriculture Development Bank are negotiating an agreement that will keep them from going into default.
According to elheraldo.hn, "the situation is starting to suffocate some 4,500 to 5,000 independent producers along the Caribbean coast.
Mario Ramon Lopez, manager of Banadesa, said that they are looking for a way to be able to make gradual .payments
This special report examines the channels through which Fitch-rated sovereigns in this sub-region could be impacted by external shocks, the robustness of their
various policy frameworks and the implications for creditworthiness of
increasingly challenging international conditions.
The US financial crisis has spread across the international financial system.