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DE RUEHTG #0978/01 2690033
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O 260033Z SEP 09
FM AMEMBASSY TEGUCIGALPA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0761
INFO RUEHWH/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS IMMEDIATE
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UNCLAS SECTION 01 OF 02 TEGUCIGALPA 000978 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EXIM/MICHELE WILKINS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EAID ETRD KDEM BBSR HO
SUBJECT: TFHO1: HONDURAS STILL HAS MONEY IN THE BANK 
 
REF: A. TEGUCIGALPA 883 
     ¶B. TEGUCIGALPA 771 
 
TEGUCIGALP 00000978  001.2 OF 002 
 
 
¶1.  (SBU) SUMMARY: In the post-coup period, some worried if 
Honduras had sufficient foreign exchange (FX) reserves to 
finance trade while maintaining its fixed exchange rate.  The 
two major contributors to Honduran FX reserves are Foreign 
Direct Investment (FDI) and remittances.  Although during the 
first quarter of 2009, FDI was down 17 percent relative to 
the same period in 2008, the Balance of Payments cash flow 
statement shows a different picture.  For the week ending 
September 3, the year-to-date accumulated total was up 0.4% 
over 2008.  For the same period, the Banco Central de 
Honduras (BCH) reports that remittances are down 13.1%.  As 
of August 27, Honduras had USD 2109.6 million of Net 
International Reserves (NIR), down 14.2% from December 2008. 
The BCH estimates that it has sufficient NIRs to cover 3.6 
months of imports.  The data indicates that the de facto 
regime will likely have sufficient FX reserves to meet their 
FX requirements, including financing trade, until mid-January 
despite maintaining a fixed exchange rate policy.  END 
SUMMARY. 
 
---------- 
Background 
---------- 
 
¶2.  (U) For several years, the Honduran government has fixed 
the exchange rate at 18.8951 Lempiras per USD 1. 
Prior to the June 28 coup, there was already much talk about 
whether the balance of payments imbalances made the fixed 
exchange rate regime sustainable.  In the post-coup period, 
some worried that the political crisis would acerbate the 
impacts of the global financial crisis and if Honduras had 
sufficient foreign exchange (FX) reserves to finance trade 
while maintaining its fixed exchange rate.   Although imports 
are not the only FX outflow, it constitutes by far the 
largest.  The two major sources of Honduran FX are Foreign 
Direct Investment (FDI) and remittances. 
 
----------------------- 
FDI Trends for Honduras 
----------------------- 
 
¶3.  (U) During the first quarter of 2009, FDI was down 17 
percent relative to the same period in 2008.  At the end of 
March 2009, Honduras had received a total of USD 144.9 
million in FDI.  More recent figures for the overall FDI 
levels are unavailable as the BCH has not yet published a 
Balance of Payments report for the second quarter.  Data for 
the post-coup period will be included in the third quarter 
report. 
 
¶4.  (U) The United States is the largest principal investor 
with almost 60% of total FDI originating from the U.S. 
Canada is the second largest, contributing about 20%, 
followed by the United Kingdom and Germany who provided a 
combined total of about 13%. 
 
¶5.  (U) FDI is broken up between the following sectors: 
maquilas (35.3%), telecommunications (31.8%), manufacturing 
(12.6%), services (10.3%), and other (10%). 
 
---------- 
Cash Flows 
---------- 
 
¶6.  (U) FDI, as represented on the Balance of Payments 
schedule, includes not only cash flows, but also equity 
securities, reinvested earnings, and other capital.  When 
looking at the cash flow statement, which directly impacts FX 
levels, a different picture emerges. 
 
¶7.  (U) FDI cash flows for 2009 closely resemble 2008.  For 
the week ending September 3, the year-to-date accumulated 
total was USD 344.6 million, up 0.4% over 2008. 
 
 
TEGUCIGALP 00000978  002.2 OF 002 
 
 
------------ 
Remittances 
------------ 
 
¶8.  (U) Remittance inflows from Honduras living abroad are 
consistently trending lower for 2009 over 2008.  For the week 
ending September 3, the BCH reports that remittances are down 
USD 240.0 million for the year.  This represents a 13.1% 
decrease. 
 
----------- 
FX Position 
----------- 
 
¶9.  (U) For the week ending September 3, the BCH reports that 
it has USD 2,237.7 million of Net International 
Reserves (NIR).  This represents a 9.1% decrease since 
December 2008.  However, this figure includes the August 28 
allocation of additional Special Drawing Rights (SDRs) by the 
IMF (ref A).  As of August 27, Honduras had USD 2109.6 
million of NIR, down 14.2% from December 2008. 
 
¶10.  (U) For the week ending September 3, preliminary data 
provided to the BCH from exchange agents show that currency 
trading is down about 16.2%.  There are no indications that 
people are circumventing exchange agents and exchanging money 
on the black market.  According to the BCH, the average 
differences between the bank controlled and the non-official 
buy and sell prices are -0.3% and 0.11% respectively. 
 
¶11.  (U) Using the formula established by the International 
Monetary Fund (IMF), the BCH estimates that it has 
sufficient NIRs to cover 3.6 months of imports.  The 
Executive Secretariat of the Central American Monetary 
Council (SECMCA) places Honduras in the middle of the Central 
American pack.  Meanwhile, the level of goods 
imported has also decreased.  Therefore the current levels of 
FX will cover more months of imports than previously. 
 
-------- 
Comment 
-------- 
 
¶12.  (SBU) Although FDI and remittances are significantly 
down in 2009, the fact that FDI cash flows have remained 
stable and are similar to 2008 levels, despite the global 
economic and the political crises, indicate that the de facto 
regime will likely have sufficient FX reserves to meet their 
FX requirements, including financing trade, until mid-January 
despite maintaining a fixed exchange rate policy. 
LLORENS