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02TEGUCIGALPA2746 2002-09-30 17:59:00 CONFIDENTIAL Embassy Tegucigalpa
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					  C O N F I D E N T I A L SECTION 01 OF 05 TEGUCIGALPA 002746 



E.O. 12958: DECL: 09/30/2012

ND (D).

1. (C) Summary. Honduran President Ricardo Maduro, only in
office since January, faces numerous challenges in one of the
poorest and most corrupt countries in the Western Hemisphere.
His Administration has been stalled on its domestic agenda
since June as it tries to reconcile its ambitious goals to
its straitjacketed financial situation. Bilateral relations
between the U.S. and Honduras are excellent; Honduras was the
first country in Central America (and the second in Latin
America) to sign an ICC Article 98 Agreement with the U.S.
and its support for the international counterterrorism effort
is steadfast. The United States and Honduras have maintained
a longstanding close relationship framed by such events as
the establishment of the banana plantations in the late
1800s, the Contra wars of the 1980s, and reconstruction
efforts in the wake of the October 1998 fury of Hurricane
Mitch. End Summary.

Key Issues in Bilateral Relationship


2. (SBU) The central themes in our bilateral diplomatic
efforts in Honduras are combating international crime by
strengthening governance and attacking corruption, assisting
American citizens, fostering economic development, promoting
regional stability, promoting trade and investment, and
combating terrorism. However, the underlying difficulty to
realizing USG objectives is improving the administration of
justice and rule of law. President Ricardo Maduro,s
government is fully engaged on all of these issues, supports
judicial and political reform, and is seeking to transform
Honduras so that law and order can be restored and economic
growth ignited. He faces formidable challenges from
entrenched economic and political interests in moving his
agenda forward.

Status of the Maduro Government


3. (SBU) President Maduro is facing increasing criticism from
the political opposition over his government,s policies and
continued dissatisfaction from his own party,s Members of
Congress because of his Administration,s technocratic style.
The Honduran Congress is a focal point of political
opposition to his policies. It is a corrupt institution
riddled with avaricious politicians, and Maduro's National
Party does not control a majority of the unicameral body.
The ongoing problems within his own party are serious and
threaten his broader political agenda, which will require
legislation to advance. Continuing political negotiations
will be needed to manage this situation. Maduro,s personal
life is also intruding into the political sphere. His
imminent wedding to a Spaniard has been criticized by many
Hondurans who view the President as distracted by his
personal life.

4. (SBU) Your meeting with President Maduro is well-timed to
give his Presidency a needed lift. The President,s standing
has remained stalled at a low point since June. Faced with
slow progress in his efforts to promote regional economic
integration, Maduro,s team is pinning its hopes that a
U.S.-Central American Free Trade Agreement (CAFTA) can serve
as a catalyst to regional economic cooperation. Maduro is
also beginning to hear wider disillusionment among the
Honduran public as violent crime levels are increasing once
again despite his successful initial "zero tolerance" law and
order campaign. Notwithstanding his crackdown on street
crime, actual ongoing criminal investigations, in particular
homicides, remain stalled.

Counterterrorism Cooperation


5. (SBU) Maduro is a good and reliable friend of the U.S. on
counterterrorism. His government hosted a major U.S.
military counterterrorism exercise in March and has quickly
responded with freeze orders to all U.S. requests regarding
suspect terrorist bank accounts. No terrorist assets have
been found in Honduran financial institutions, to date. The
GOH still needs to take the following concrete steps:
designate a national coordinator for counterterrorism, file
its national report in accordance with United Nations
Security Council (UNSC) Resolution 1373, and most of all,
sign and/or ratify the seven outstanding international
conventions/protocols and two OAS conventions (1971 and 2002)
against terrorism.



6. (C) While the GOH is in general supportive of key USG
foreign policy goals, the Ministry of Foreign Relations
appears hesitant to be out front supporting the USG position
on Iraq. MFA officials have privately voiced concern that
they believe that the USG needs to work harder on gaining
multilateral support at the United Nations. Without UNSC or
Rio Group consensus the GOH is not yet willing to make a
public statement backing U.S. policy on Iraq. However the
U.S. should be able to count on Honduras' support when a
final decision is taken.



7. (SBU) The new U.S. policy against corruption struck a
nerve in Honduras, especially any mention of our new visa
revocation authorities. Politicians in Congress and certain
business elements feel the U.S. is attacking them. Maduro is
committed to addressing corruption, even if it will cost him
political support within his party. The Supreme Court
President is also on board. Given the scope of the problem,
any public discussion about the country,s pervasive
corruption is a positive development.

Supreme Court and Judicial Reform


8. (SBU) The Supreme Court is developing into an independent
branch of power, unlike all of its predecessor courts since
democracy was restored in 1982. It is pro-reform in
orientation and fighting for its prerogatives. In some
respects, the development of the court in Honduras, restored
democracy is approaching its "Marbury v. Madison" moment.
The emerging issue is whether it can become a fully
independent and co-equal branch of political power,
consistent with the separation of powers provision in the
Honduran Constitution. The established political order is
fighting that prospect with all its might. In fact, the
Congress recently seized the political opportunity to
introduce legislation that would give itself the power to
interpret the constitutionality of the laws its passes.

Public Security/Human Rights


9. (SBU) Upon taking office on January 27 President Maduro,s
first act was to fulfill his main campaign promise - a zero
tolerance campaign against the country,s out-of-control
crime situation. He deployed more than 5,000 soldiers to the
streets to support the police. The public responded
enthusiastically. However, despite the initial success of
establishing a visible police presence, violent crime,
particularly kidnappings, has only fallen marginally. Public
support is fading and the campaign needs some visible
victories to restore confidence in the government,s program.
We are helping the Maduro government establish an
anti-kidnapping unit, increase intake/training of police
recruits, create a model tourist police force, boost its
counternarcotics efforts, and expand the frontier police.
The country's geographic position makes it an obvious
strategic transit point for narcotics trafficking, alien
smuggling operations and other organized crime activities.

10. (SBU) Extradjudicial killings, especially of
children/young adults between 1998-2001, have been a source
of serious concern and only recently has the GOH begun to
take steps to investigate the hundreds of unsolved cases.
There has been some discussion of the establishment of a
Truth Commission to look into unresolved alleged human rights
abuses from the 1980s. There are serious problems with child
labor in several industries, particularly melon, coffee, and
shrimp (but not the maquila) sectors, and trafficking in
persons of women/children for prostitution in the U.S. and
children for commercial sexual exploitation in Central
America. USAID and Peace Corps have both been involved in
HIV/AIDS prevention.

Consular Issues


11. (SBU) Some 500,000 Hondurans, both legal and illegal,
live in the U.S., a fact that places immigration issues high
on the bilateral agenda. There is deep appreciation for the
Administration's extension of Temporary Protected Status
(TPS) in the U.S. and interest in possible congressional
action on the pending Nicaraguan Adjustment and Central
American Relief Act (NACARA), which would give immigration
parity for Hondurans. With fourteen thousand American
citizens residing in Honduras and many thousands visiting
Honduras annually for tourism and business American Citizen
Services are a key part of the Embassy's work. There is
little progress in any of the now more than 30 American
citizen murder cases. In the last year the GOH has increased
cooperation with the Embassy on these cases, including
establishing two prosecutors. However, little progress has
been made on extradition cases involving American Citizens
wanted for felonies in the U.S.

Border Relations


12. (SBU) Honduras has border disputes with its three Central
American land neighbors and its seven maritime neighbors.
Maduro is personally engaged with his Presidential
counterparts to address these issues. Its land and maritime
disputes with El Salvador and Nicaragua are the most heated.
The Gulf of Fonseca on the Pacific coast is a particularly
difficult point. A 1992 International Court of Justice (ICJ)
ruling laid out shared areas of control in the Gulf of
Fonseca and established the land border between Honduras and
El Salvador, although El Salvador has been slow to implement
the ruling. In September of this year El Salvador raised
issues related to the 1992 ruling to the ICJ for

13. (SBU) On the Caribbean coast, Honduras and Nicaragua have
a long-standing maritime border dispute over the 15th
parallel. Honduras provoked Nicaraguan retaliation when it
signed a maritime treaty with Colombia recognizing the 15th
parallel as its maritime border in 1999. Nicaragua filed an
ICJ case over the maritime border and more importantly in
1999 slapped a punitive 35 per cent tariff on Honduran goods
that remains in place despite a Central American Court of
Justice ruling that it is illegal. With former Nicaraguan
President Arnoldo Aleman deposed as President of the National
Assembly, GOH officials have expressed renewed optimism that
Nicaraguan President Enrique Bolanos will make good on
private assurances to lift the tariff and thereby take an
important step forward toward regional economic integration.
You may wish to compliment Maduro on the GOH,s restraint and
note that the regional integration benefits of a CAFTA with
the U.S. (as well as other integration efforts) will be
undermined by a trade war.

Troubled Economy Endangers IMF Program and HIPC Debt Relief



14. (SBU) President Maduro may ask you for assistance in
convincing Paris Club creditors to be patient, IMF officials
to be lenient, and donors to agree to changes in the Highly
Indebted Poor Countries (HIPC) rules on accounting for
poverty reduction programs. President Maduro inherited a
stagnating economy and seriously deteriorated government
finances from the previous government. The GOH missed all
key International Monetary Fund (IMF) targets in 2001. Even
after the Maduro economic team won passage of austerity and
tax measures in May of this year, the government,s budget
deficit is still expected to be a high 5.9 percent of GDP.
The IMF is skeptical that the GOH will undertake the
meaningful and long overdue reforms needed to work out a new
three-year program. An IMF team arrives in October.

15. (SBU) International Financial Institution (IFI) and
bilateral donor disbursements will be held up until the new
IMF program is in place. There could also be pressure on GOH
Paris Club debt service payments (USD 100 million per year).
In the meantime, the completion point for HIPC debt reduction
(worth USD 900 million) continues to slip back further.
Ultimately, this fiscal situation could impact Honduras,
eligibility for Millennium Fund grants.

16. (SBU) The Honduran economy is growing slowly (estimated
real GDP growth of 1.8 percent this year). Low world coffee
prices continue to hurt the economy in rural areas.
Inflation continues to decrease slowly, estimated at 8-9
percent in 2002. The currency is depreciating at a rate of
about five percent per year. The economy is dominated by
agriculture - particularly the production of coffee, bananas
and cultivated shrimp - although the in-bond apparel assembly
industry has grown dramatically over the past decade and
remittances, from Hondurans living overseas, continues to
grow rapidly (up 38 percent in the first six months of this
year) and have become the most important source of foreign
exchange. The U.S. is Honduras' largest trading partner;
roughly 150 U.S. companies do business here. While many
social indicators are improving, two-thirds of all Hondurans
live in poverty and average educational levels are very low.

17. (SBU) Maduro will probably express gratitude for a
Treasury Department technical assistance project on tax
collection and enforcement, partially supported by USAID.
While modest in scope, the GOH is excited about its potential
to strengthen its tax service and help deter tax evasion.

U.S.-Central America Free Trade Agreement (CAFTA) Critical



18. (SBU) Maduro has personally identified himself with a
CAFTA as his government's principal trade objective. The
Minister of Industry and Trade is reorganizing the Ministry
(historically fairly weak) and adding staff in a belated
effort to get ready for the negotiations. The Maduro
administration has also been more cooperative with the U.S.
in the World Trade Organization (WTO) in Geneva. Honduras
(along with other Central American countries) has been
supportive in the FTAA ministerials but to date has not taken
an active role in the negotiating groups.

19. (SBU) Latent protectionism exists in the private sector,
but the general attitude toward a free trade agreement in
Honduras is positive. The textile and apparel industry in
particular believes an FTA is the only way that the Honduran
apparel sector can survive the elimination of quotas in 2005
and compete with Asian manufacturers.

U.S. Investment Faces Problems


20. (SBU) The Maduro government understands that Honduras
needs foreign (and domestic) investment to spur economic
growth but has placed emphasis on the more immediate problems
of political and judicial reforms, the fiscal deficit, and
needed improvements in security, education and health.
Maduro will tout a new law on simplification of
administrative procedures and formation of a national
competitiveness council, headed by Vice President Vicente
Williams, to enhance the investment climate at all levels of
society. The government has identified tourism,
agrobusiness, forestry, and mining as important sectors that
could create much-needed jobs.

21. (SBU) Much more needs to be done to declare Honduras
"open for business." Maduro needs to find a way to get his
cabinet (and the prickly legislative and executive branches)
to make meaningful changes that will resolve the key
problems: poor and expensive infrastructure; weak legal
system; personal security, education and health conditions;
land tenure problems; and opposition to large foreign
investments by well-connected vested interests.

22. (SBU) The Honduran government has stalled in its past
efforts to liberalize and privatize the electricity and
telecommunications markets. We are closely following the
pending tender by the National Electric Energy Company (ENEE)
to purchase 210 mega-watts of electricity starting 2004. If
U.S. company AES is successful in this bid and its efforts to
build a combined cycle plant in Puerto Cortes, we expect a
big spur to regional integration and investment in light
manufacturing and assembly in Honduras. The GOH,s telecom
regulatory agency is also bidding out a second cellular phone
license this year; two U.S. companies have applied during the
pre-qualification stage. The GOH has requested USG policy
support for liberalization of the telecom (through the Trade
and Development Agency) and power (through USAID) sectors.
However, in order to make these long overdue structural
reforms a reality, the Maduro government must follow through
on its commitments.

23. (SBU) Land tenure problems (combined with a weak judicial
system) are endemic in Honduras, and undermine efforts to
develop the tourism, agriculture and forestry sectors. They
also deter new investments in a variety of other sectors.
The Embassy has files on 112 property dispute cases
(generally squatter/land reform cases and title disputes), of
which 32 are active. There are an additional 68 commercial
disputes, of which 14 are currently active. The GOH plans to
introduce a law allowing some of the land cases to be
submitted to arbitration and is working on an improved
property registry system.

24. (SBU) These will be important steps, but much more is
needed. The GOH and Supreme Court need to ensure that the
judicial system provides effective responses to commercial
and investment disputes and violations of property rights.

Money Laundering and Bank Failures


25. (SBU) Strengthened money laundering legislation, with an
antiterrorist financing clause, was the first law to be
adopted by the new Congress in late February of this year.
The fragility of the financial system remains a key concern.
The GOH took over the two most troubled banks in May 2002,
arranged for the absorption of a third undercapitalized bank
and is actively promoting mergers among the remaining 20
private banks. Although the Maduro government has managed
the financial sector issue well, massive challenges remain.
A World Bank/IMF review of the financial sector is underway.

Embassy Tegucigalpa


26. (SBU) Embassy Tegucigalpa is a medium-sized post,
employing 140 U.S. citizens and 300 Hondurans among 20 USG
agencies. Our Peace Corps program, with more than 220
volunteers, is one of the world's largest, and the USAID
mission had a FY02 budget of USD 34.5 million. The Mission
maintains a Consular Agent in Honduras' second city and
industrial center, San Pedro Sula. Five-hundred and fifty
U.S. service men and women are stationed at Honduras' Soto
Cano Airbase under the auspices of U.S. Southern Command as
Joint Task Force Bravo. In 1954, the USG and GOH signed a
Bilateral Military Assistance Agreement that set forth their
intention to work closely together to foster peace and
security in the Western Hemisphere. The ICC Article 98
Agreement with Honduras is therefore a particularly important
accomplishment, and will enable our military forces to
continue to work together in such areas as disaster recovery,
joint training exercises, and counternarcotics missions.