Honduras ruling party candidate Hernandez eyes IMF credit deal

TEGUCIGALPA Tue Nov 12, 2013 7:58pm EST

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TEGUCIGALPA Nov 12 (Reuters) - Honduras' ruling party presidential candidate Juan Hernandez said on Tuesday he hoped to strike a financing deal with the IMF within six months if he were to win this month's election and would also seek to refinance the country's heavy debt burden.

Hernandez, the National Party candidate who is vying to succeed outgoing President Porfirio Lobo, has risen in recent polls, overtaking Liberty and Refoundation candidate Xiomara Castro, the wife of ousted former leader Manuel Zelaya.

The tight race, however, is far from certain with few experts willing to call the result. Polls have the two contenders in a statistical tie.

The next president will face the tough task of trying to tame drug violence that has given Honduras the world's highest murder rate as well as controlling a mounting debt crisis.

"I don't see why we couldn't reach a deal with the (International Monetary) Fund in less than six months," Hernandez said on Tuesday in a meeting with reporters. He said there were some issues on which he disagreed with the IMF, but declined to elaborate.

Castro's team has signaled she will seek IMF assistance to help tackle a bloated fiscal deficit, which will likely end the year at 7 percent of gross domestic product (GDP). The International Monetary Fund expects public debt will reach nearly 40 percent of GDP by the end of 2013.

Roldan Duarte, head of the Honduran College of Economists, said the IMF would probably make the lowering of public salaries, a devalued currency, tax reform and privatization of loss-making state utilities conditions of any deal.

In 2010, the IMF agreed to provide some $200 million in financial support to the Central American country to help it strengthen its public finances and stabilize its economy.

The agreement expired in March 2012 and Lobo's government has failed to reach a new agreement with the IMF after falling short of consolidation targets.

"We are following developments closely and look forward to continuing our cooperation with the Honduran authorities after the November 24 general elections," the Washington-based IMF said in a statement.

The budgetary crisis has sparked strikes and protests by public sector officials like doctors, nurses and police in Honduras, one of the poorest countries in the Americas.

"We need to find a way to refinance our internal debt; there's no other way out," Hernandez said when asked how he sought to control debt levels. "We're not thinking of raising taxes - there are other ways we can improve the country's fiscal situation and not hurt the economy more."

He pointed to a proposed mining royalty scheme, a cutback on tax exemptions and a restructuring of the tax office as ways the deficit could be trimmed without raising taxes.

Aside from the economy, the election campaign has been dominated by debate over how to tackle the drug gang violence.

Hernandez advocates using a newly-formed militarized police force alongside the army to combat gangs, while Castro wants to create a community police force and limit the army to guarding Honduras' borders.

Mexican cartels have moved into Honduras, using it as a staging point for moving large quantities of South American cocaine to the United States.

Lobo is constitutionally barred from seeking re-election.

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