VZCZCXYZ0000
PP RUEHWEB

DE RUEHSN #1394 3542210
ZNR UUUUU ZZH
P 192210Z DEC 08
FM AMEMBASSY SAN SALVADOR
TO RUEHC/SECSTATE WASHDC PRIORITY 0486
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEHNSC/NSC WASHINGTON DC

UNCLAS SAN SALVADOR 001394 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN PGOV ECON ES
SUBJECT: BANKS AGREE TO ROLLOVER GOES DEBT FOR ONE MORE 
MONTH 
 
REF: A. SAN SALVADOR 1332 
     ¶B. SAN SALVADOR 1364 
 
¶1. (SBU) SUMMARY.  Private banks, including Citibank and 
Banco Agricola, agreed to rollover the Government of El 
Salvador's (GOES) December short-term debt for one month, 
preventing a potential government default.  While the banks 
are unwilling to rollover debt past the January legislative 
elections, the GOES should be able to finance itself for 
January using the first tranche of its $500 million 
Inter-American Development Bank (IDB) loan.  How the GOES 
will finance over $200 million in short-term debt in February 
and March, however, will depend on how quickly and 
effectively it works with other international financial 
institutions.  END SUMMARY. 
 
¶2. (SBU) On December 12, Ministry of Finance Director for 
Fiscal and Public Credit Policy Manuel Rosales told Econoff 
that the GOES "was in big trouble" because it did not know 
how it was going to rollover $60 million in Letters of 
Treasury ("Letes") due December 15/16 (reftel A).  Their $500 
million Inter-American Development Bank (IDB) loan (reftel B) 
had been held up in the National Assembly while the 
(left-wing) FMLN "earmarked" $300 million in proposed social 
spending.  The three Gulf nations El Salvador had approached 
in early December were unlikely to invest until January or 
February (if at all).  Tax revenues were showing a "big, big, 
big" drop as the economy slowed "much faster than expected," 
so the GOES also needed to raise an additional $28 million to 
cover this shortfall.  Rosales said the Minister of Finance 
and Central Bank President were trying to develop options and 
had met with Citibank ($20 million) and Banco Agricola ($18 
million) to plead with them to do a rollover.  Rosales also 
requested USG pressure on Citibank to do the rollover. 
 
¶3. (SBU) Citibank Vice President for Corporate Finance 
Francisco Nunez (strictly protect) said on December 16 that 
Citibank had agreed to rollover its Letes "until just before 
the January 18 elections."  Nunez understood that the other 
banks had also "fallen into line."  After the GOES told 
Citibank that "the government had no money," Citibank agreed 
to the rollover, in part out of "fear of what the Saca 
government might do given their recent track record."   Nunez 
stressed that the GOES "bought three more weeks," since 
Citibank needed the funds to prepare for possible capital 
flight after the January and March elections. 
 
¶4. (SBU) Rosales confirmed on December 18 that the GOES had 
reached an accord with Citibank and Banco Agricola.  The GOES 
would "pay" their existing $38 million in Letes, and, in the 
same transaction, the banks would buy $15 million and $16.5 
million, respectively, in new 30-day Letes.  Rosales said 
that other Letes payments could be delayed until December 23, 
and, since the IDB loan was approved December 18 (septel), 
the GOES could use the $200 million first tranche to cover 
the remaining $56.5 million in December debt.  Rosales added 
that the GOES would try to persuade the banks to roll over 
their January Letes as well, but, if they did not, the GOES 
could use the rest of the IDB tranche.  According to Rosales, 
the Salvadoran private pension funds had refused to roll over 
their Letes. 
 
¶5. (SBU) COMMENT: The banks' reluctant willingness to assist 
the GOES staved off a potential default, but the GOES now 
needs to finance approximately $348.8 million in short-term 
debt before the March presidential election, not including 
new debt to cover tax revenue shortfalls.  Since the banking 
sector expects a minimum of 7% capital flight because of the 
2009 elections, they are unlikely to agree to additional 
rollovers until financial markets stabilize.  The IDB loan 
should enable the GOES to manage January's $125 million in 
existing debt.  To cover the $224 million due in February and 
March, however, the GOES will need to move quickly on an 
expected $450 million World Bank loan (reftel B) and/or 
commit to a provisional stand-by arrangement (SBA) it has 
started negotiating with the International Monetary Fund. 
END COMMENT. 
GLAZER