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TO RUEHC/SECSTATE WASHDC IMMEDIATE 1625
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UNCLAS TEGUCIGALPA 000121 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON PGOV PREL EINV ETRD ENRG SOCI HO
SUBJECT: NEW FINANCE MINISTER FACES BLEAK ECONOMIC REALITY 
 
REF: A. TEGUCIGALPA 00027 
     ¶B. 09 TEGUCIGALPA 1302 
 
¶1.  (SBU)  Summary:  In the new government's first public 
remarks on the economy following the January 27 inauguration 
of Porfirio "Pepe" Lobo as president of Honduras, the newly 
appointed Minister of Finance, William Chong Wong, presented 
a bleak picture of the economic situation, calling the nation 
"bankrupt."  He urged prompt international recognition of the 
new government and donor support for the fiscal emergency 
plan the administration will develop.  Encouragingly, Chong 
raised the need to trim the government payroll, an issue that 
is politically tricky but essential to economic reform.  End 
summary. 
 
¶2.  (U)  New Minister of Finance William Chong Wong wasted no 
time following the January 27 inauguration of President Lobo 
in announcing his assessment of the current financial state 
of the nation.  Chong said in a press conference on January 
28 that the country is bankrupt and that there is nothing 
promising in the current economic outlook.  He cited the 
policies and practices of the previous administration of 
Manuel Zelaya, the global economic recession, and the 
political crisis of the last year as the primary causes of 
these difficult circumstances.  He said that approximately 
3.5 billion Lempiras (185 million USD) spent by previous 
administration have been unaccounted for. 
 
¶3.  (U)  According to Chong, the current general treasury 
balance is $1 billion Lempiras (approximately 52.6 million 
USD).  The internal debt is calculated at 23 billion Lempiras 
(1.2 billion USD), while the external debt stands at 60.5 
billion Lempiras (3.2 billion USD), and floating debt (for 
unpaid contracts, salaries, and subsidies) amounts to 4.7 
billion Lempiras (249 million USD). 
 
¶4.  (U)  Both President Lobo, in his inauguration speech, and 
Finance Minster Chong have called for austerity measures and 
open, serious discussions on how to overcome this fiscal 
emergency.  While specific steps have not yet been outlined, 
re-engaging with the international community and restarting 
international support will be an urgent priority.  After the 
coup of June 28, 2009, the Interamerican Development Bank 
stopped payments on 64.3 million dollars out of planned 97.1 
million, while the World Bank withheld 42.5 million dollars 
out of planned 90 million.  Chong stated that negotiating a 
stand-by arrangement with the IMF is an urgent priority. 
 
¶5.  (U)  Minister Chong pointed out that the issue of 
government salaries will also need to be considered.  With 
more than 75 percent of government revenue going to salaries, 
he said, additional belt-tightening may be necessary.  Chong 
expressed hope that teachers, which make up the largest 
portion of public employees, will be able to take this into 
consideration and avoid strikes that hurt education.  He also 
indicated that the country cannot bail itself out by simply 
raising taxes, since this money is needed by the private 
sector for savings and investment that will help the economy. 
 However, he subsequently commented publicly that he will 
continue to study the fiscal plan developed by his immediate 
predecessor, de facto Finance Minister Gabriela Nunez, which 
includes provisions to re-evaluate tax exemptions and taxes 
on alcohol and tobacco.  He also sees hope for finding 
additional support through public-private partnerships. 
 
¶6.  (SBU) Comment:  The issue of government salaries is 
central to economic reform, since there will be little room 
for investment spending unless payroll expenditures are 
curbed significantly.  However, it is also politically 
sensitive, given the strength of the teachers' unions and 
their tendency to go on strike whenever they feel aggrieved. 
Past governments have failed to tackle the issue, expecting 
donors to fill the investment gap.  Minister Chong's 
willingness to raise this so early in the new administration 
is an encouraging sign.  End comment. 
LLORENS