wikileaks ico  Home papers ico  Cables mirror and Afghan War Diary privacy policy  Privacy
IdentifierCreatedClassificationOrigin
03TEGUCIGALPA1912 2003-08-13 21:14:00 UNCLASSIFIED Embassy Tegucigalpa
Cable title:  

HONDURAN ECON HIGHLIGHTS: AUGUST 2003

Tags:   ECON EFIN ETRD EINV EAIR ELTN PGOV PREL KPRV KTDB KPWR HO ENGR 
pdf how-to read a cable
This record is a partial extract of the original cable. The full text of the original cable is not available.
					  UNCLAS SECTION 01 OF 03 TEGUCIGALPA 001912 

SIPDIS

EL SALVADOR FOR COMMATT DTHOMPSON AND AGAH SHUETE

STATE PASS TO USAID, OPIC, EXIM, USTR
STATE PASS TO USED IDB, USED WB, USED IMF

E.O. 12958: N/A
TAGS: ECON EFIN ETRD EINV EAIR ELTN PGOV PREL KPRV KTDB KPWR HO ENGR
SUBJECT: HONDURAN ECON HIGHLIGHTS: AUGUST 2003

Topics:

-Macro Economic Goals
-IMF/Brooke Sanctions
-Wood Industry: exportation
-Tourism Growth
-Standard Fruit Company: increased investment
-Remittances up in 2003
-Maquila Industry: Increased Growth
-USD Bank Deposits on the Rise
-Megatel and Celtel: collusion or duopoly
-Banana Sector: Independent Producers in Trouble
-Airport Carriers: More US Bound Flights

--------------------
Macro Economic Goals
--------------------



1. The GOH is running out of time to attain their
goal of 3.2 percent economic growth for 2003, over
2002's growth of 2.5 percent. Goals proved
difficult after unexpected high levels of bank
liquidity and stagnant international prices of
agricultural goods like coffee and bananas
hindered the economy. High bank liquidity
translates into low levels of investment, fewer
purchased products and services, and reduced
transactions, which, results in sluggish economic
growth. Even though the 4 billion lempira (USD
231 million) excess in bank liquidity has caused
interest rates to drop from an average of 29 to 22
percent, low demand for loans have kept liquidity
high. The only positive offsets have been the
increased USD 70 million investment in the Maquila
industry and the rise in remittances.



--------------------------


IMF/Brooke Sanctions


--------------------------





2. The GOH continues to struggle to improve its
fiscal situation, as required to reach an
agreement with the IMF. GOH spending has
increased from 2001 to 2002 by over 14 percent,
reaching 18.557 billion lempira (USD 1.07
billion). To restrain uncontrollable government
wages, a Civil Service Reform Law, which would
change the salary of governmentally paid medical
workers and teachers, is currently being
considered. Controversial and disliked by
government employees, the law will face added
difficulty in passing since the working party lost
the majority in the National Congress in July. If
approved, the Civil Service Law would cut salaries
by 700 million lempira (USD 40.46 million), just
over 10 percent of total government wages.



3. Deferral of Paris Club debt service has turned
to active status with the failure to reach an IMF
agreement. Although a debt of USD 12,000 was
repaid to the Department of Defense on July 15 ,
USD 1.73 million of overdue principal debt is
still owed by September 3. Brooke Amendment
Sanctions will be enacted against Honduras, ending
DOD, DOS and USAID programs if the GOH fails to
repay the 1.7 million by then. Cutting the USAID
programs alone would yield losses of USD 13
million in FY03 and USD 45 million in FY04.



--------------------------


Wood Industry: Falling Exports


--------------------------





4. According to the Timber Association of
Honduras, primary and secondary wood exports to
the U.S. will be drastically diminished in 2003.
Total annual raw wood exportation in past years
has garnered USD 75 to 80 million for the wood
industry, while this year exports will only reach
USD 40 million. Similarly, furniture exports, are
expected to fall from their normal USD 40 million
to a USD 25 to 30 million in 2003.



--------------------------


Tourism Growth


--------------------------




5. In July, the tourism sector recorded generating 24
percent more foreign currency than last year. According to
the Secretary of Tourism, significant increases in business-
oriented tourism have been seen in Tegucigalpa and San Pedro
Sula. Recovering confidence in travel post 9/11 has also
aided Honduras' tourism industry. Port calls at Roatan's new
pier are up to visits 7 days a week by several major cruise
lines as well.



--------------------------


Standard Fruit Company: Increased Investment


--------------------------





6. Standard Fruit Company, a subsidiary of Dole Food
Company, will increase investment in banana and pineapple
production by USD 14 million, intending to boost export
revenue of these two products from USD 75 million in 2002 to
USD 90 million in 2003. Standard Fruit currently directly
employs 9,000 direct Honduran workers.



--------------------------


Remittances up in 2003


--------------------------





7. Central Bank data concludes that remittances
from January to June 2003 have reached USD 348.2
million, up 15.5 percent from same period in 2002.
The approximately 600 thousand Honduras who send
remittances, are suspected to send a total of USD
700-800 million in 2003. According to a report
from the Economic Commission for Latin America and
the Caribbean, remittances are used to invest in
small businesses, buy land, and improve homes.



--------------------------


Textile (Maquila) Industry: Increased Growth


--------------------------





8. The accelerated growth and success of the Maquila
industry has drawn the attention of investors from both U.S.
and Taiwan as profits of USD 730 million in 2002 are
expected to rise to USD 800 million in 2003. Optimistic
predictions continue for 2004 with goals of USD 880 million.
In June, the Industry started hiring what it hopes will
eventually be an additional 20,000 employees. Honduras was
ranked 3rd in total amount of textile exportation to the
United States, superceded by only Mexico and China.
Honduras exported 268 square meters of textiles in the first
quarter of 2003 up 21.3 percent from 2002's first quarter's
220 square meters. Although the textile industry is hopeful
about the upcoming export advantages from CAFTA, it is
doubtful Honduras will match China's growth rate of 94.2
percent.



--------------------------


USD Bank Deposits on the Rise


--------------------------





9. According to data collected by the Central Bank
of Honduras, bank deposits in USD are on the rise
with 33% of total Honduran bank deposits in 2002
up from 28% in 1999. Experts believe this may have
a role in the economic stability of the lempira as
inflation has dropped from 10.1 percent in 2000 to
8.1 percent in 2002. Bank officials are not
surprised by heightened popularity of the dollar,
when interest rates average 10 percent for lempira
bank accounts, which, after accounting for
inflation, leaves little real monetary growth.
However, with USD 500 million in Honduran bank
accounts, dollar interest rates are also on the
decline.


--------------------------


Megatel and Celtel: Duopoly


--------------------------





10. In June 2003 Megatel received a licensing
contract, at a cost of over USD 7 million, to
become a cellular Band A service provider. Since
then, Celtel and Megatel have joined as a duopoly
to take advantage of Hondutel's 400 thousand
unanswered requests for ground lines. Celtel, the
previous cellular service provider backed by
American and Honduran investors, issued 326,000
cellular contracts and per minute telephone costs
have not dropped below .25 USD, the most expensive
service in the region. Megatel, a U.S. company
with Honduran and Swedish investment, plans on
investing USD 50 million on labor, construction,
installation, and personal contracts supplying an
additional 200 jobs to the country.



--------------------------

--
Banana Sector: Independent Producers in Trouble


--------------------------

--



11. Independent banana produces are asking the
Honduran government for financial help after poor
climate conditions have caused 40 percent losses
on fruit harvests. Accrued debt of 300 million
lempira (USD 17.3 million), primarily loaned after
hurricane Mitch, remains unpaid after independent
banana farmers failed to reach their goal of
exporting 10 million crates of bananas to the U.S.
The new agriculture law, "Ley de Fortalecimiento
Financiero del Sector Agriculture," passed in June
2003, grants 50 percent debt relief to
agricultural producers, however this law does not
pertain to the independent banana producers who
currently employ 42,000 workers in Honduras.



--------------------------


Airport Carriers: More US Bound Flights


--------------------------





12. After finally receiving authorization to
provide carrier service to El Salvador, Sol Air in
June 2003 began flying its new route from
Tegucigalpa to San Salvador to Miami and back at a
fare of USD 198, round trip. El Salvador's
granted permission to Sol Air expires March 30,


2004.



13. In June, TACA added 28 U.S. bound flights
weekly, becoming the only flight carrier to
provide service 3 times a day to Miami. To
provide these additional flights 32 new planes
were purchased from the European company, Airbus."
The additional flights are only for the temporal
season including June, July and part of August.

# PIERCE