Honduras Bond-Default Threat Was Not Just Some Innocent Mistake

When Honduran President Xiomara Castro sent the bond market into a tailspin just minutes after taking office last month, it all seemed like some big misunderstanding, Bloomberg News reported. That same day, Pedro Barquero, Castro’s economy minister, rushed to clarify that she had meant to say in her inaugural address that the government should “refinance” its debts, not “restructure” them. This was plausible enough. Politicians not steeped in the intricacies of high finance have been mixing those two words up for decades. (The former is a common, straight-forward transaction; the latter is effectively a default.) Barquero’s explanation calmed jittery investors, and prices on Honduran bonds stabilized after plunging on Jan. 27, the day of her inauguration. Its benchmark dollar bonds due 2030 now yield 6.2%, still broadly in line with the regional average. But in the days that followed, this clean storyline -- president misspeaks, top aide corrects the record -- started to fall apart. For one, Castro gave another speech days later in which she emphatically expressed once again her concern that the country’s debt was unsustainable. “Thunderous and suffocating,” she called it. Then her finance minister -- Honduras has both an economy minister and a finance minister -- Rixi Moncada, said the state had been “pushed into bankruptcy” by the previous administration which had “practically ransacked” its coffers. Read more.