SCENESETTER FOR WHA/DAS FISK'S VISIT TO HONDURAS

C O N F I D E N T I A L SECTION 01 OF 06 TEGUCIGALPA 000288

SIPDIS

STATE FOR WHA DAS FISK, WHA/CEN, AND WHA/EPSC
STATE FOR PM, INL, EB, AND CA

E.O. 12958: DECL: 01/31/2013
TAGS: OVIP PREL PGOV SNAR ETRD ECON MOPS KJUS HO
SUBJECT: SCENESETTER FOR WHA/DAS FISK'S VISIT TO HONDURAS
FEBRUARY 5-8

REF: 02 TEGUCIGALPA 2829

Classified By: Ambassador Larry Palmer;
Reasons 1.5 (B) and (D).


1. (C) Summary. Honduran President Ricardo Maduro, in
office for one year, 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 2002 as it tries to reconcile its ambitious goals
to its straitjacketed financial situation, but is trying to
start the new year with structural reforms. 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 long-standing 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.

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Key Issues in Bilateral Relationship
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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. Maduro has spoken also out strongly on
tackling corruption. He faces formidable challenges from
entrenched economic and political interests in moving his
agenda forward.

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Status of the Maduro Government
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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 recently
scored a victory in rallying congressional support for his
energy program by securing approval of the direct purchase of
electricity from two firms, including U.S. company AES.
Maduro's personal life also intruded into the political
sphere. His October 2002 wedding to a Spaniard was
criticized by many Hondurans who viewed the President as
distracted by his personal life.


4. (SBU) The President's standing has remained stalled at a
low point since June 2002. 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, criminal
investigations and case closure rates, in particular
homicides, remain very low.

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Counterterrorism Cooperation
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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 2002 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 five outstanding international
conventions/protocols and two OAS conventions (1971 and 2002)
against terrorism. It is also of vital importance for
Honduras to improve security at its maritime ports,
particularly Puerto Cortes.

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Iraq
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6. (C) The GOH is in general supportive of key USG foreign
policy goals, and the Ministry of Foreign Affairs will
support the USG position on Iraq. Securing a UNSC Resolution
on Iraq helped mollify MFA officials concerns about the need
for multilateral support via the United Nations. Lacking Rio
Group consensus the GOH is not yet willing to make a public
statement backing U.S. policy on Iraq.

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Anticorruption
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7. (C) U.S. policy against corruption struck a nerve in
Honduras, especially any mention of our visa revocation
authorities. Politicians in Congress and certain business
elements feel the U.S. is attacking them. Maduro appears
committed to addressing corruption, even if it will cost him
political support within his party. The Supreme Court
President is also on board. However, individual judges
remain susceptible to offers of bribes and the Attorney
General is unwilling to prosecute high-profile cases. Given
the scope of the problem, any public discussion about the
country's pervasive corruption is a positive development.

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Supreme Court and Judicial Reform
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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. A key
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 seized the
political opportunity to introduce legislation that would
amend the constitution to give itself the power to interpret
the constitutionality of the laws it passes. A ruling by the
Supreme Court on the constitutionality of this proposed
amendment is expected before the end of February. The
Supreme Court recently replaced some corrupt judges in San
Pedro Sula and the entire court of appeals in Tegucigalpa.

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Public Security/Human Rights
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9. (SBU) Upon taking office on January 27, 2002 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 homicides and kidnappings, has only
fallen marginally. Public support is fading and the campaign
needs some visible victories to restore confidence in the
government's program. The USG is 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) Extrajudicial 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 are serious problems with child labor in several
industries, particularly melon, coffee, and sugar cane (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.

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Consular Issues
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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. (The population of Honduras is 6.5
million.) 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. It is quite likely that you will be
queried about the prospects for another renewal of TPS in
July. With 14,000 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. Until recently, there was little progress in
most of the now more than 30 American citizen murder cases;
however, there have been four convictions in these cases in
recent months. 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.

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Border Relations
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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 requested a revision of the 1992 ICJ ruling. The
Honduran response to El Salvador's request is due at the ICJ
on April 1.


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 were expressing optimism that
Nicaraguan President Enrique Bolanos would make good on
private assurances to lift the tariff and thereby take an
important step forward toward regional economic integration,
especially given the fact that the ICJ recently ruled in
favor of the GOH's petition against the tariff. However,
frustration has mounted recently in Honduras as Bolanos has
still not scrapped the tariff. The Congress may force
Maduro's hand by passing a retaliatory tariff in the near
future. The border dispute with Nicaragua is also hampering
joint narcotics interdiction efforts.

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Troubled Economy Endangers IMF Program and HIPC Debt Relief
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14. (SBU) 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 2002, the government's budget deficit is still expected
to be a high 5.6 percent of GDP. It is important for the GOH
to undertake the meaningful and long overdue reforms needed
to work out a new IMF program.


15. (C) The GOH failed to reach agreement with the IMF
mission in November 2002 on draft terms of a three-year
Poverty Reduction and Growth Facility Program (PRGF) because
of the GOH's limited efforts to address the budget deficit.
On January 29, the macro team went to Washington to discuss
with the IMF its planned measures (elimination of tax
exemptions and loopholes, freezing of many government
salaries, and a draft civil service reform law). The GOH
believes it can reduce the central government deficit to
three percent in 2003. If approved, the GOH will try to get
the legislation through Congress in February, setting the
stage for the signing of a letter of intent in March and IMF
Board approval in April.


16. (SBU) International Financial Institution (IFI) and
bilateral donor disbursements (USD 140 million) 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
Highly Indebted Poor Countries (HIPC) debt reduction (worth
USD 900 million) continues to slip back further. If
unaddressed, this fiscal situation could also impact
Honduras' eligibility for Millennium Challenge Account grants.


17. (SBU) The Honduran economy is growing slowly (estimated
real GDP growth of two percent in 2002). 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 2002)
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.

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U.S.-Central America Free Trade Agreement (CAFTA)
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18. (SBU) Maduro has personally identified himself with
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 and keep up with 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,
especially agriculture, but the general attitude toward a
free trade agreement in Honduras is guardedly 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. As such, it is the strongest supporter of
CAFTA.

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U.S. Investment Faces Problems
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20. (SBU) The Maduro government understands that Honduras
needs foreign (and domestic) investment to spur economic
growth but in 2002 placed emphasis on the more immediate
problems of political and judicial reforms, the fiscal
deficit, and needed improvements in security, education and
health. The government identified tourism, agribusiness, and
forestry as important sectors that could create much-needed
jobs. While some efforts to promote tourism have paid off,
little headway has been made in the other sectors.


21. (SBU) Much 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 judicial 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. After failure of the National
Electric Energy Company's (ENEE's) 210 mega-watts electricity
tender in late 2002, the GOH negotiated quick contracts with
the top bidders Lufussa and U.S. company AES (which seeks to
build a $600 million combined cycle plant in Puerto Cortes).
Initial congressional ratification of the contracts
(controversial in the case of AES) occurred January 30. The
GOH is studying ways to restructure and liberalize the energy
sector. The GOH telecom regulatory agency is also bidding
out a second cellular phone license this year; one U.S.
company has been pre-qualified. In late January, Maduro
announced that the GOH will issue tenders for supply of some
basic telephony service by the private sector during 2003 (an
acknowledgment of the lack of capability of the state-owned
Hondutel to add new line).


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 15 are active. There are an additional
65 commercial disputes, of which eight are currently active.
The GOH has adopted a law allowing some of the land cases to
be submitted to arbitration within the next six months and is
working on an improved property registry system. In recent
months, we have seen notable progress in handling by the
judicial system of commercial and investment disputes
involving U.S. citizens. It would be very useful if, during
your visit, you could raise the importance of continued
progress, especially in the Moore case in Roatan. (reftel).

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Money Laundering and Bank Failures
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24. (SBU) Strengthened money laundering legislation, with an
anti-terrorist financing clause, was the first law to be
adopted by the new Congress in late February 2002. The GOH
has followed up rapidly with creation of a Financial
Information Unit (FIU). Currently, 87 potential cases are
under investigation. The FIU has seized over USD 1.5 million
in frozen accounts, with another 50 million lempiras (USD
2.94 million) in cash and 40 million lempiras (USD 2.35
million) in goods (vehicles, real estate, etc.) in money
laundering investigations. Weakness of the financial system
remains a key concern. The GOH took over the two most
troubled banks in May 2002 (one has since been closed),
arranged for the absorption of a third undercapitalized bank
and is actively promoting mergers among the remaining 20
private banks.

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Bilateral Political/Military Issues
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25. (C) In January of 1999, the constitution was amended to
abolish the position of military commander in chief of the
Honduran Armed Forces (HOAF),thus codifying civilian
authority over the military. Honduras now has a civilian
Minister of Defense (MOD) and a Chief of the Joint Staff who
heads the HOAF. Civilian control is well accepted by the
HOAF, and the transition to civilian control has resulted in
greater transparency and fiscal accountability. The current
MOD, Fred Breve, enjoys a good relationship with the HOAF
military leadership, but the Office of the Minister of
Defense still lacks a staff that could provide institutional
memory and continuity between the change in political
administrations.

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Cerro La Mole Radar
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26. (C) In 1993, the U.S. entered into an agreement with the
GOH regarding the maintenance of the radar located at Cerro
La Mole, under which it agreed to pay 75 percent of
maintenance costs up to $400,000 per year. The U.S. has paid
nothing under the agreement, and the issue affects relations
between the U.S. and Honduran militaries. Post has sought
guidance from DOD and State on how to resolve our
obligations, and recommended that the U.S. either replace the
radar with a solid state version (TPS-78) or with another
TPS-70 transferred from counterdrug programs. Alternatively,
the U.S. could repair the radar to operational status. When
operational, the radar provides a view of the
Honduras-Nicaragua-El Salvador border areas and the Gulf of
Fonseca on the Pacific Ocean. If operational, the radar
could be helpful in the fight against narcotrafficking.

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A Great Tragedy
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27. (U) At approximately 8:55 p.m. on December 11, 2002, a
U.S. Army Black Hawk helicopter from Joint Task Force Bravo
crashed while engaged in a night training exercise -- killing
five U.S. soldiers who belonged to the 1st Battalion, 228th
Aviation Regiment. The helicopter flew from Soto Cano Air
Base to La Mesa international airport in San Pedro Sula to
participate in a night landing exercise. After refueling the
helicopter headed back to Soto Cano, and 40 minutes later
crashed into the mountains near Santa Cruz de Yojoa, which is
85 miles north of Tegucigalpa. A U.S. Army investigation
into the cause of the crash is ongoing.

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Embassy Tegucigalpa
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28. (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 Air Base under the auspices of SOUTHCOM 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.
Palmer