Honduras' Castro to seek new debt deal with IMF, opposes tax hikes

FILE PHOTO: FILE PHOTO: Campaign rally of Xiomara Castro, presidential candidate for the opposition party of Libre Party, in Tegucigalpa

By Gustavo Palencia

TEGUCIGALPA (Reuters) - Honduran opposition presidential candidate Xiomara Castro will seek to negotiate a new debt deal with the International Monetary Fund, but opposes raising taxes or creating new ones, according to a senior adviser.

Castro, nearly 20 points ahead of her nearest rival in a preliminary vote count of Sunday's election, aims to lower debt service payments, said Hugo Noe on Tuesday, head of her campaign's policy platform.

An existing IMF deal with Honduras runs through January, when Castro will be sworn in as the country's first woman president if her advantage in the vote count holds up.

"A dialogue with the International Monetary Fund has begun," Noe told Reuters. He did not offer a specific timeline.

Castro's team met with IMF officials prior to the election, in which the international lender evaluated compliances with its existing agreement with the government.

"Obviously, (a new deal) will depend on its conditions, if it has some degree of flexibility that aligns with the policies of Libre" - Castro's leftist party - "there is the possibility of a deal," he said.

Noe, a former Honduran finance minister and central bank chief, stressed that a Castro-led government would not "increase or create new taxes."

The adviser said the IMF talks will also cover reforms to the state-run electricity company ENEE, which runs a large budget deficit that weighs heavily on government finances. He said the current government's proposal to possibly divide ENEE into three new companies, each focused on either power generation, transmission or distribution, is still on the table.

But all will remain public companies under a Castro government, he said.

The Honduran economy shrank 9% last year, slammed by the pandemic plus two devastating hurricanes that hobbled the country's northern industrial heartland.

Noe said Castro will seek to lower debt service payments by reworking the country's total debt load, including foreign debt, totaling nearly $15.2 billion, or about 57% of GDP.

Payments have consumed more than 30% of the government's budget, leaving less to spend on education and healthcare, among other pressing needs.

"We're going to seek a repositioning of the debt," he said, noting that local banks could take part in a renegotiation in which cheaper credits will be sought to pay down higher-interest debt.

Honduras ran a 5.5% budget deficit last year, but this year its seen between 4.9%-5.0%, according to finance ministry data, as the economy begins to regain momentum.

(Reporting by Gustavo Palencia; Editing by David Alire Garcia and David Gregorio)