HIGH EXPECTATIONS, DISAPPOINTING RESULTS:

1. (C) SUMMARY: After one year in office, Honduran President
Ricardo Maduro faces numerous challenges in one of the
poorest and most corrupt countries in the Western Hemisphere.
Maduro began his administration amid high expectations.
While he remains upbeat about his administration's ability to
increase security, reduce corruption, and deliver economic
growth, many factors, both external and internal, have
coalesced to make these tasks more difficult. Maduro has
been unable to move his agenda forward and public support for
the Administration has likewise dwindled. While Maduro often
says the right things, many are increasingly impatient with
his administration's lack of progress in key areas.
Moreover, with the economy growing very slowly, the
Administration's ambitious goals have yet to be fitted to the
state's financial straitjacket. Maduro has made some
headway, particularly in the areas of governance, judicial
reform, and support for the international campaign against
terrorism, but he faces formidable challenges from entrenched
economic and political interests in moving his agenda
forward. As he enters the second year of his single
four-year term in office, his administration needs concrete
results before presidential campaigning begins next year when
he will inevitably slide toward lame-duck status. END SUMMARY



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Status of the Maduro Government


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2. (SBU) President Maduro is facing increasing criticism from
both the political opposition, members of his own party in
Congress, and the public at large over his administration's
policies and his technocratic style of leadership. Although
Maduro promised to modernize government processes, there has
been little movement towards decentralization and
depoliticalization. Lack of planning and foresight continue
to plague the Administration, with Maduro reacting to events
rather than setting the agenda. While many feel the
President's heart is in the right place, the political
fortitude, necessary personnel, and resources are not there
to move the Administration's agenda forward. Maduro has
stated on several occasions that his personal popularity is
not important to him as long as he does the right thing for
the country. Rhetoric like this has coincided with polls
showing that a year after taking office, less than 20 percent
believe the country is in better shape since Maduro took
office.



3. (C) Many of Maduro's initiatives require congressional
approval but Maduro's National Party has only a plurality,
not a majority, within the unicameral body. Relations with
Congress remain tense and Maduro's efforts to use his
bully-pulpit to advance legislation have met with limited
success. He was, despite considerable opposition, able to
push through a direct energy purchase contract with the
American firm AES in January. However, despite a solid
working relationship with his party's President of Congress,
Pepe Lobo, Maduro's biggest obstacle to enacting his
reformist program has been a recalcitrant wing of his own
Nationalist Party, known as the "dark side." This wing of
the party is more interested in pursuing personal gain
through traditional political corruption rather than seeking
to advance a Nationalist party agenda or improve the overall
social and economic situation in Honduras for the betterment
of the Honduran People.



4. (C) Since November, fresh rumors have been circulating
that Maduro would make some cabinet changes in an effort to
recapture the political momentum (ref A). Many of Maduro's
ministers are not well known publicly and polling data
indicate that less than a third of those participating had
much confidence in the President's cabinet. This issue was
raised publicly during a press interview in January when
Maduro was questioned on the subject. At that time, he
stated he was in the process of evaluating his minister's
performances but had not made any decisions about possible
changes. Although many expected movement in this area, to
date no changes have been made. The ministers of education,
health, and social investment remain the main targets,
although Foreign Minister Perez-Cadalso may also be removed.



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



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Bilateral Relations and Counterterrorism Cooperation


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



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5. (C) Relations between the U.S. and Honduras have been
excellent, but disappointing results, particularly in public
security, narcotics control, and the slow pace of judicial
reform, are beginning to create stress within the bilateral
relationship. U.S. expectations were high when Maduro took
office that the new Administration would be able to tackle
some fundamental structural issues that were beyond the reach
of its predecessors. Some progress has been made, but
considering the substantial U.S. investment in good
governance programs, law enforcement, and development
assistance, current results are insufficient to meet U.S.
expectations.



6. (SBU) President Maduro has been a good and reliable
partner of the U.S. on counterterrorism. He recently issued
a statement on behalf of the GOH declaring that Honduras
supports the U.S. war on Iraq. Also, The first major piece
of legislation passed under Maduro was a tough
money-laundering bill, and his government hosted a major U.S.
military counterterrorism exercise in March 2002. The GOH
has quickly responded with freeze orders to all U.S. requests
regarding suspect terrorist bank accounts and to date no
terrorist assets have been found in Honduran financial
institutions. Honduras was also the first country in Central
America (and the second in Latin America) to sign an ICC
Article 98 Agreement with the United States. However, the
GOH has yet to submit the agreement to Congress for approval.
Other concrete steps the GOH still needs to take are:
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. Despite the right rhetoric, the
GOH has been slow to follow-through on necessary
counterterrorism actions.



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Anticorruption Efforts


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





7. (C) Fighting Honduras' endemic corruption was one of the
mainstays of Maduro's campaign to capture the presidency.
While the President's public resolve appears strong, it
remains to be seen if Maduro and his government, as well as
the judicial system and Congress, are prepared to press for
action against major economic and political figures involved
in, or with a history of, corrupt practices. Since Maduro
took office, there has not been one significant conviction,
or even arrest, on corruption charges. It is still taken for
granted that the rich and politically connected are above the
law, and it is still very difficult for the GOH to manage any
sizable government procurement efforts fairly and
transparently.



8. (SBU) Maduro's administration has successfully implemented
some key reforms in the following areas: the selection of an
independent Supreme Court; establishment of a task force to
capture white collar criminals, such as the fugitive bankers
involved in fraudulent banking practices; the first-ever
removal of congressional immunity from a deputy (in a rape
case); and adoption of the national budget by Congress in an
open and transparent process (ref B). Yet many average
Hondurans still feel that no real change has taken place.
They are particularly looking for more concrete results
against individuals involved in corrupt activities, something
that has not happened to date.



9. (C) In response to these criticisms Maduro has publicly
directed that his government take action against obvious
corruption. However, he has also laid the blame for the poor
performance in prosecuting corruption cases on the Attorney
General (AG). The AG is an independent appointee from the
Liberal Party with a seven-year term of office, which does
not expire until next year. Maduro has expressed that the AG
is not in sync with the rest of his government team (ref B).
While very possibly true, lack of action by the AG's office
has thwarted USG interests in a number of areas. However, a
possible move in the coming months by the Congress to remove
the AG before his term expires would set off a political
donnybrook and paralyze the nation's already weak
prosecutorial function.



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


Supreme Court and Judicial Reform


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





10. (SBU) Under Maduro's watch, the Supreme Court has been
developing into an independent branch of power, unlike any of
its predecessor courts since democracy was restored in 1982.
This has only been possible due to a new transparent
nominating procedures put in place to select the current
court and the imposition of seven-year term limits. Supreme
Court President Vilma Morales is pro-reform in orientation
and has been effectively fighting to increase the Court's
status as a separate branch of power within the federal
government. 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 any laws it passes. Maduro works
closely with Morales to support her efforts. However, he has
not risen forcefully to the Court's defense in public on this
issue (ref C).



11. (C) While the establishment of the Court as a separate
branch of federal power is important, the Court continues to
be under substantial pressure from entrenched political
interests. Of great concern has been the weight brought to
bear by the Nationalists in Congress over judicial
appointments. Nominations have been sent forward for
unqualified and/or corrupt judges that Nationalist members of
Congress know would do their bidding. If this process
continues, whatever political independence the Court has
established will be in jeopardy. Moreover, the credibility
of the Maduro administration, which has touted judicial
reform as a major accomplishment, is on the line.



12. (SBU) A positive step forward was the introduction in
2002 of a new Criminal Procedure Code (CPC), replacing a
version that was still partially based upon Spanish colonial
law. Under the old system, cases were resolved based on
written submissions rather than oral testimony. The process
was slow, cumbersome, not transparent, and open to
corruption. The new Code provides for oral trials, an
adversarial trial process, increased protections for
defendants, and overall changes intended to facilitate the
growth of a more transparent and effective system. President
Maduro has been a strong supporter of judicial reform and
increased efficiency. While passed under President Flores,
implementation of the CPC is something the Maduro
administration can point to as advancing this agenda (ref D).
Similar reforms are desperately needed on civil actions,
particularly in the commercial and labor sectors.



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


Public Security


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





13. (SBU) Public security remains a priority, if not the most
important, issue for the Maduro administration and the public
at large. 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, only fell
marginally.



14. (C) A year after taking office the campaign to reduce
violence appears to be faltering. According to government
statistics the number of homicides increased in 2002 despite
the military's augmentation of the police force. The
homicide closure rate in Honduras is only 1-2 percent. Thus,
even if the police are successful in apprehending a suspect,
the odds of a conviction are small. 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.



15. (SBU) Despite this assistance, drug seizures have
continued to fall since Maduro took office. Extrajudicial
killings, especially of children/young adults since 1998,
remain a source of serious concern. The number of child
homicides continues to grow and there have been no aggressive
measures by the GOH to solve them. Maduro's administration
blames increased gang activity, but allegations that rogue
police officials are responsible for some of the killings
have not been sufficiently addressed (ref E). Maduro will
have to do better or the public will lose what confidence it
has left in the Administration's ability to combat the
scourge of violence. The trafficking in persons of
women/children for prostitution in Central America, Mexico,
and the U.S. also continues.



16. (SBU) The unsolved murder cases of 30 American citizens
remains a thorny issue. The GOH has established a special
task force, including a special prosecutor, and four
convictions have occurred within the last six months. This
represents significant progress. While Maduro has addressed
these issues, the police have few resources to work with in
order to protect Americans and prevent crime. For example,
six police officers on bicycles and one pick-up are
responsible for the entire island of Roatan outside the main
tourist areas. Also of concern are the more than 150 land
and commercial dispute cases involving American citizens.
Though the GOH has worked to create a mechanism through which
some of the expropriation cases may be eligible for
arbitration, it remains unclear if the political will exists
to follow-though.



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Border Relations


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





17. (SBU) Honduras has border disputes with its three Central
American land neighbors and its seven maritime neighbors.
The disputes with El Salvador and Nicaragua are the most
heated. Maduro is personally engaged with his presidential
counterparts to address these issues but there does not
appear to have been any concrete progress. Foot-dragging by
El Salvador over the land border demarcated by the ICJ in
1992 has been particularly vexing. Maduro has tried to move
the process forward with little success.



18. (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 percent 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 hopeful that Nicaraguan
President Enrique Bolanos would make good on private
assurances to lift the tariff, especially given the fact that
the Central American Court of Justice ruled in favor of the
GOH's petition against the tariff. Frustrated by the lack of
progress on the issue, and under pressure from Congress to
react, Maduro recently announced plans for a retaliatory
tariff equal to that of Nicaragua plus increased fees for the
use of Puerto Cortes. This measure will be popular in
Honduras and could boost the President's lagging popularity
while at the same time providing the GOH leverage against the
Nicaraguan tariff (ref F).


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


Economic Problems


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





19. (SBU) President Maduro inherited a stagnating economy and
seriously deteriorated government finances from the previous
government. GDP rose by only two percent in 2002, which was
lower than economic growth rates in the previous years. Per
capita income fell by 0.6 percent during the first year of
Maduro's administration while the Consumer Price Index rose
by eight percent. Already one of the poorest countries in
the hemisphere, Honduras is falling further behind (ref G).



20. (C) The GOH missed all key International Monetary Fund
(IMF) targets in 2001, and a limited effort in 2002 to enact
austerity and tax measures sill resulted in a government
budget deficit of 5.6 percent of GDP. 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, GOH's economic
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 and take
measures to control the burgeoning wage bill, thereby paving
a way to an agreement with the IMF. However, it has yet to
enact any of these difficult changes.



21. (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 will also be
pressure for renewed GOH Paris Club debt service payments
(USD 100 million per year). For example, Embassy has just
received instructions to deliver a demarche on potential
Brooke amendment sanctions if DOD loan payments are not
resumed. 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, the
country's fiscal situation and the lack of a new IMF program
could also impact Honduras' eligibility for Millennium
Challenge Account grants.



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


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



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22. (SBU) Recognizing the benefits of increased trade and
economic integration between the U.S. and the Central
America, Maduro has promoted U.S.-CAFTA as the road to
economic growth. However, the GOH was slow to prepare for
the negotiations and the negotiating team remains weak and
understaffed. The GOH trade team has been leaning on the
more sophisticated Costa Rican team for advice and this
scenario seems likely to continue throughout the
negotiations. The main objectives for the GOH in the
negotiations are to maintain the U.S. market access they
already have now, protect sensitive agricultural products,
and hopefully provide an improved investment climate in which
the vital textile sector can compete with Asia after the
elimination of quotas in 2005. U.S.-CAFTA holds the
prospects of bringing much needed economic growth to Honduras
and the general attitude toward a free trade agreement is
positive. Getting the agreement smoothly though Congress
though, where protectionist instincts run high, could be
problematic.



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


Storm Clouds Gathering?


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





23. (C) COMMENT: The jury is still out on whether or not
Maduro will be successful in moving his agenda forward; the
challenges ahead are imposing. The government's ability to
fund new programs is extremely limited and little prospect
exists to raise government revenues in the short-term. While
Maduro remains optimistic, progress on his administration's
key goals are stalled: no major convictions in the
government's crusade against corruption; crime (particularly
homicide rates) at historic levels, although there has been a
reduction in areas such as bank robberies, kidnappings, and
car thefts; and the economy is performing poorly. The areas
where the Administration has made progress, such as reform of
the Supreme Court and the new CPC, will not bear political
fruit for some time.



24. (C) In order to assuage his lagging popularity, Maduro
needs to show demonstrable progress soon on topics of major
concern to the voters. If not, any mandate the president may
have had will be squandered and his desire to transform
Honduras thwarted. President Maduro faces a very difficult
political challenge which requires his sustained engagement.
One major short-coming of his first year has been his
inconsistent engagement on critical issues and lack of
decisive leadership at crucial moments. Just as the
underachieving talented student, he does respond and produce
the necessary effort to keep his government from failing.
But thus far, his efforts fall far short of receiving top
marks, despite his loquacious policy rhetoric.



25. (C) Next month's possible visit to meet President Bush
will provide Maduro a much needed political lift, but will
also present the U.S. with an important opportunity to press
him for more concrete actions rather than just "nice words."
A strong exhortation from the highest levels of the U.S.
government could help him realize his administration's full
potential. END COMMENT


Palmer