LatinFinance - January/February 2015 - 29

Honduras
An IMF program
brings a sorely-needed
sign of change

INVESTOR
REPORT
CENTRAL
AMERICA

PAGE 30

Power
Funding for
electricity projects,
especially renewables, is
getting easier
PAGE 32

Lighting up
Central America has a tough time attracting the investment it needs in infrastructure. The
case of Honduras shows how management of government finances is pivotal
Honduras has had a tough few years.
Although the sovereign has managed to
tap international bond markets, rating
downgrades over the past year and a half
- partly a result of spending around the
last presidential election - have made it
tough for local companies to do the same.
These downgrades and wider lack
of confidence in the country have
also limited the options for financing
infrastructure projects, developments
which are vital for building up longer-term
economic growth potential.
Under an IMF program signed in
December, the government will cut
spending, which will inevitably take a toll
on economic growth. Yet the program
is likely to hold longer-term benefits for
the country: particularly from reforming
state-owned companies including the
state electricity company, and from
reforming the tax system.
Most immediately, the IMF program

greatly increases the sovereign's
credibility in the international bond
markets, raising the likelihood that the
country - and perhaps even local private
sector companies - will be able to tap into
global pools of capital over the coming
months and years.
The Honduran government has already
started to make its fiscal position more
sustainable by cutting its public wage
bill. Steps to reform other areas of the
economy, including reducing electricity
subsidies, will help further.
Such measures could allow local
companies to get additional private-sector
funding for infrastructure projects, and
help begin the benign cycle of economic
growth and investment that Central
American countries like Honduras so
desperately need.
Across the region, multilateral lenders
are helping to bring in more private
sector funds for infrastructure projects,

enticing cash from local and international
banks, and local and even international
institutional investors. Development
banks are particularly keen to lend to
renewable projects, to reduce Central
America's exposure to volatile and
unpredictable costs for importing fossil
fuels.
As in the Caribbean, with the potential
demise of Venezuelan support for
some countries' oil imports through
the PetroCaribe program, building up
renewable energy capacity is crucial -
despite the recent falls in international oil
prices.
Costa Rica's Reventazón
hydroelectricity project successfully
issued a 20-year bond last year through a
trust that Fitch rated above the sovereign,
partly thanks to backing from the IDB. But
accessing such long-term bond funding in
this way, despite a low sovereign rating, is
rare. LF

January/February - 2015 L ATINFINA NCE.COM 29

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LatinFinance - January/February 2015

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