For more information, see Honduras and the IMF

The following item is a Supplementary Letter of Intent of the government of Honduras, which describes the policies that Honduras intends to implement in the context of its request for financial support from the IMF. The document, which is the property of Honduras, is being made available on the IMF website by agreement with the member as a service to users of the IMF website.

Tegucigalpa M.D.C
May 31, 2000

Hon. Mr. Horst Köhler
Managing Director
International Monetary Fund (IMF)
Headquarters

Dear Mr. Köhler

I have the pleasure to inform you that the Government of the Republic of Honduras has satisfactorily met four of the five prior actions required for the IMF Executive Board review of our Second Year Economic Program under the Poverty Reduction and Growth Facility (PRGF). The actions met include the approval of an action plan to reform the Honduran Social Security Institute, which required a great deal of efforts on our part. However it was not possible to achieve the approval of the Framework Law on the Electricity Sector, although it was at the third and final debate in the National Congress, which will recess during June 2000.

Due to the deep-seated nature of the reforms formulated in this legislation, the Framework Law on the Electricity Sector has itself generated a heated debate among all sectors of Honduran society, which has taken time; but we believe that it has the advantage of leading to legislation reached through consensus which will ensure the success of its implementation. We consider the delay in the approval of this law to be the appropriate part and parcel of the democratic process in the country, and we have been informed that the debate between the National Congress and the different sectors involved will reopen next July 1, following the recess of the legislative chamber. It is important to point out that the Government of Honduras will continue to commit all its efforts to achieve the approval of this law no later than September 30 of this year, and that we agree that approval would be a condition for the completion of the third review under Honduras' program.

Likewise, since the criterion for the implementation of the contract with the International Finance Corporation (IFC) is linked to the approval of the law in question, we request that the performance criterion requiring that said contract be approved also be postponed to end- December 2000.

To this end, we attach a modified Table 7 of the Letter of Intent, which incorporates the changes we are requesting.

Sincerely,

  /s/
Hugo Castillo
Acting Minister of Finance		   /s/
Victoria Asfura de Diaz
President of the Central
Bank of Honduras

Attachment

Table 7. Honduras: Prior Actions, Structural Performance Criteria,
and Structural Benchmarks for the Second Program Year
  Program Timing
A. Prior Actions for Second Review
   
1. Approve by IHSS Board an action plan to separate (operationally and on an  
accounting basis) the IHSS pension fund from the health fund and to restructure  
the IHSS based on recommendations of World Bank experts.  
2. Implement tariff increases of electricity rates based on marginal cost pricing.  
3. Conclude bidding of airport concessions.  
4. Prepare draft criteria for wage-setting in central government for the civil service law.  
   
B. Prior Actions for Third Review  
   
1. Approve the Framework Electricity Law September 2000
   
C. Structural Performance Criteria  
   
1. Approve legislation on permanent, limited deposit insurance. December 2000
2. Conclude bidding of Hondutel. June 2000
3. Submit to congress a law to simplify procedures on company establishment. June 2000
4. Approve legislation on Civil Service Reform Law that includes criteria for October 2000
wage-setting in central government.
5. Approve by congress contract with IFC for the privatization of el.distribution. December 2000
6. Approve legislation on the Statistics Institute. June 2000
   
D. Structural Benchmarks  
   
1. Improve targeting of electricity subsidy by gradually reducing effective subsidy rate June 2000
as consumption increases.  
2. Review subsidies to public transport in Tegucigalpa to improve tageting. December 2000
3. Establish working group to analyze options for pension reform. June 2000
4. Remove export taxes on bananas and minerals. June 2000
5. Submit draft law to congress to regulate private pension funds. December 2000
6. Submit a plan to congress to restructure the coffee sector. June 2000
7. Increase the CAR ratio to 10 percent. December 2000
8. Establish and publish a comprehensive good governance strategy. June 2000
9. Approve legislation to simplify licencing of cargo transport. December 2000
10. Define rules for the establishment of a electronic clearing of checks. June 2000
11. Make the above system operational. December 2000