Identifier
Created
Classification
Origin
04TEGUCIGALPA1411
2004-06-22 22:33:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Tegucigalpa
Cable title:  

SCENESETTER FOR CODEL SHELBY'S JUNE 28 - 30 VISIT

Tags:  OREP ECON ETRD EFIN PREL PGOV PHUM HO 
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UNCLAS SECTION 01 OF 07 TEGUCIGALPA 001411 

SIPDIS

SENSITIVE

STATE FOR H PASS TO CODEL SHELBY
STATE FOR WHA/CEN, INL/LP, DRL/PHD, EB AND CA
STATE PASS AID FOR LAC/CEN

E.O. 12958: N/A
TAGS: OREP ECON ETRD EFIN PREL PGOV PHUM HO
SUBJECT: SCENESETTER FOR CODEL SHELBY'S JUNE 28 - 30 VISIT
TO HONDURAS

REF: STATE 129789

UNCLAS SECTION 01 OF 07 TEGUCIGALPA 001411

SIPDIS

SENSITIVE

STATE FOR H PASS TO CODEL SHELBY
STATE FOR WHA/CEN, INL/LP, DRL/PHD, EB AND CA
STATE PASS AID FOR LAC/CEN

E.O. 12958: N/A
TAGS: OREP ECON ETRD EFIN PREL PGOV PHUM HO
SUBJECT: SCENESETTER FOR CODEL SHELBY'S JUNE 28 - 30 VISIT
TO HONDURAS

REF: STATE 129789


1. (U) Summary: Post welcomes the visit of CoDel Shelby to
Honduras June 29-30. Honduran President Ricardo Maduro,
two-and-a-half years through his constitutionally-mandated
single four-year term, faces a difficult task leading one of
the poorest countries in Latin America. However, there have
been several positive economic developments in recent months,
including the signing of an agreement with the IMF in
February, the negotiation of $147 million of debt forgiveness
from Paris Club creditors in April, and Honduras' selection
as one of sixteen countries eligible for assistance under the
USD 1 billion Millennium Challenge Account.


2. (SBU) Bilateral relations between the U.S. and Honduras
are excellent. Honduras' support for the Global War on
Terrorism is steadfast, and the Government of Honduras (GOH)
is among the group of nations that sent troops to Iraq in
support of Operation Iraqi Freedom, although these troops
have since returned. Honduras was the first country in the
Western Hemisphere to sign and ratify an ICC Article 98
Agreement with the United States. Honduras also introduced a
UN Commission on Human Rights (UNCHR) resolution on Cuba,
which passed April 15. End Summary.

--------------
Economic Overview
--------------


3. (U) Honduras, with a per capita income of USD 950, is the
third poorest country in the Western Hemisphere, ahead of
only Nicaragua and Haiti. The economy is growing, at an
estimated 3.2 percent in 2003, but only slightly faster than
the rate of population growth. Social indicators are
improving, but two-thirds of all Hondurans live in poverty,
and average education levels are very low.


4. (U) Historically, industrial development in Honduras has
been limited, and the economy has been dependent on exports
of coffee and bananas. In the past fifteen years, however,
the economy has been diversified, with the development of

non-traditional exports such as cultivated shrimp, melons,
tourism, and the establishment of a booming maquila industry
(primarily, assembly for re-export of textiles and apparel).
Investment incentives aimed at attracting foreign capital in
export industries have been introduced. In recent years, the
coffee industry has suffered from low world prices, and the
banana industry was severely damaged by Hurricane Mitch in

1998. Banana production has yet to reach pre-Mitch levels,
and coffee and bananas now account for less than 15 percent
of Honduran export earnings.


5. (SBU) Despite the recent economic diversification, there
continues to be a large subsistence farmer population with
few opportunities other than illegal immigration to the U.S.
Furthermore, the Honduran government's desire to attract new
types of foreign investment has been hindered by the stagnant
economy and a wide range of investment climate and
competitiveness problems.


6. (U) Family remittances from Hondurans living abroad,
particularly the U.S., grew by 19 percent to USD 860 million
in 2003, and will soon pass the maquila sector as the
country's largest source of foreign exchange. The U.S. is
Honduras, largest trading partner. The roughly 150 U.S.
companies that do business in Honduras constitute the largest
block of foreign direct investors.

--------------
IMF Agreement and Debt Relief
--------------


7. (U) In February, after almost two years of negotiations,
the Maduro Administration signed a Letter of Intent with the
International Monetary Fund, which was later approved by the
IMF's Executive Board, for a new three-year arrangement for
Honduras under the Poverty Reduction and Growth Facility
(PRGF). The IMF expects the GOH to reach its Heavily
Indebted Poor Countries (HIPC) completion point by 2005 with
good PRGF implementation. In April, Paris Club participating
creditors and a Honduran delegation led by the Minister of
Finance Arturo Alvarado reached agreement on a restructuring
of approximately USD 360 million of Honduran debt. The deal
leads to the immediate cancellation by Paris Club creditors
of USD 147 million in payments falling due from January 1,
2004 to June 30, 2005 (the consolidation period),consistent
with the implementation of the enhanced HIPC Initiative.
This treatment is expected to reduce debt service owed to
Paris Club creditors from USD 405 million to USD 49 million
during the consolidation period, once additional payment
deferrals are added to the cancellations. Honduras has
committed to devote resources freed by this treatment to
priority areas outlined in the country's poverty reduction
strategy.

--------------
The Importance of CAFTA
--------------


8. (SBU) The Honduran government, along with El Salvador,
Guatemala, and Nicaragua, reached agreement on the terms of
the U.S.-Central American Free Trade Agreement (CAFTA) in
December 2003; Costa Rica closed its negotiations in January
and the Dominican Republic negotiated its market access
chapters in March. The agreement was signed by trade
ministers of the participating countries (Ambassador Zoellick
of USTR signed for the U.S.) in Washington on May 28. The
agreement now awaits ratification by the Congresses of the
participating countries. The Honduran government and private
sector are disappointed that the U.S. Congress will not
ratify the agreement before the U.S. elections, and are
nervous that a prolonged delay may follow the elections as
well.


9. (SBU) Maduro's team is hoping that CAFTA will lead to
faster economic growth and serve as a catalyst to spur
regional economic cooperation and integration. The CAFTA
agreement is strongly supported by the Honduran private
sector, especially the textile and apparel industry, where
CAFTA is perceived to be absolutely vital to the survival of
the sector in Honduras after worldwide quotas are eliminated
in 2005. The CAFTA agricultural chapter will liberalize
agricultural trade gradually while protecting Honduran
farmers from sudden disruptions caused by subsidized imports.
The agreement also will spur modernization in government
procurement and services, and will help lock in the GOH's
structural reforms in areas such as telecommunications. So
far in 2004, Honduras has already received about USD 200
million in new foreign investment as a result of CAFTA.
While the agreement will require some politically sensitive
changes to legislation and there is a small, but vocal,
leftist opposition led by the Popular Block, which includes
NGOs, unions, and a leftist political party, Honduran
ratification is expected to be relatively easy.

--------------
Millennium Challenge Account Eligibility
--------------


10. (SBU) In May, Honduras was chosen as one of sixteen
countries eligible (out of 75 considered) to receive
assistance under the USD 1 billion Millennium Challenge
Account (MCA). Countries were selected based upon past and
current policy performance in the areas of governing justly,
investing in their own people and promoting economic freedom.
In early June, representatives from the Millennium Challenge
Corporation (MCC) visited Honduras and met with top GOH
officials, members of civil society, and the private sector.
The GOH is already actively involved in the MCC process,
having formed a top-level team and prepared a draft proposal
for USD 200 million, focusing on highway infrastructure and
integrated rural development. President Maduro is fully
engaged on this issue and has made it clear that negotiation
of a compact with the MCC is a top priority in the months
ahead. MCC representatives were impressed with the Honduran
efforts so far and are optimistic that Honduras may be one of
the first countries to receive MCA assistance.

--------------
Terrorist Financing and Money Laundering
--------------


11. (SBU) Honduran cooperation on counter-terrorism finance
is strong. The Honduran Banking and Insurance Commission
(CNBS) promptly sends freeze orders to the entire regulated
financial sector each time the U.S. Executive Order lists are
amended. The financial sector, particularly the commercial
banks, promptly undertake the requested searches for accounts
by terrorist entities. To date, no terrorist funds have been
found in the Honduran financial system, and Post believes
this is the sole reason that the Government of Honduras has
not yet frozen any funds.


12. (SBU) The GOH has made considerable progress in the fight
against money laundering since the implementation of a
much-improved law against money laundering, approved in early

2002. The GOH established a Financial Information Unit (FIU,
similar to our FinCEN),soon after the law came into effect.
A small U.S. Treasury Department project provides technical
assistance to this unit and to the police units responsible
for investigating and prosecuting financial crimes. This
work has already resulted in strengthened accountability by
the banking sector in identifying and reporting suspicious
transactions, and the first conviction and forfeiture under
the new money laundering law, which took place in April.

--------------
Political/Military Issues
--------------

13. (U) Honduras has a civilian Minister of Defense (MOD) and
a Chief of the Joint Staff who heads the Honduran Armed
Forces (HOAF). In January of 1999, the constitution was
amended to abolish the position of military
commander-in-chief of HOAF, thus codifying civilian authority
over the military. Civilian control over the HOAF is
complete and civil/military relations are good. This
transition has resulted in greater transparency and fiscal
accountability. The HOAF has a new focus on trans-national
threats, including counter-terrorism, narcotrafficking, and
combating international criminal organizations. The HOAF is
interested in establishing an ability to further increase its
participation in international peacekeeping operations.
Honduras also stands ready to participate in a regional arms
"rationalization" process, but has announced that it will not
negotiate on a bilateral basis.


14. (SBU) President Maduro is a solid supporter of the U.S.
on the Global War on Terrorism. The GOH has responded
quickly to all USG requests regarding terrorist threats and
financing, although to date, no terrorist assets have been
found in Honduran financial institutions. Honduras is a
party to all but three UN and OAS counter-terrorism
conventions (the remaining three are awaiting publication in
the Honduran federal register) and has also been aggressive
in upgrading port security. Honduras was also the first
country in the Western Hemisphere to sign and ratify an
Article 98 Agreement with the United States.

-------------- --
Iraq, Haiti, and Other Key Foreign Policy Goals
-------------- --


15. (SBU) The GOH is very supportive of U.S. foreign policy
goals, including the reconstruction of Iraq. In support of
OIF, the GOH deployed some 370 troops to the vicinity of An
Najaf as part of the Spanish Brigade operating under the
Polish Division. However, following Spain's decision to
withdraw its troops, Honduras did likewise. The GOH has
stated this decision was based on a U.S. request that
Honduras consider expanding its troops' mandate in Iraq to
participate in offensive combat operations. Secretary
Powell, CJCS GEN Myers, and Secretary Rumsfeld all visited
Honduras last year to thank the GOH for its support of OIF.
Their visits were well received and provided important
political support for Maduro's Iraq policy. As in most of
the region, the general public overwhelmingly opposed the
Honduran deployment. While Honduras has left Iraq, the GOH
is considering deploying troops to Haiti in support of UN
peacekeeping operations there. Honduras is also very
supportive at the UN, sharing our views on resolutions
covering such key issues as human rights, human cloning, and
the Middle East. Honduras also introduced a UN Commission on
Human Rights (UNCHR) resolution on Cuba, which passed April

15.

--------------
Soto Cano Air Base - Joint Task Force Bravo
--------------


16. (SBU) About six hundred U.S. service men and women and
fourteen civilian DOD employees are currently stationed at
Honduras' Soto Cano Air Base under the command of the
Combatant Commander, U.S. Southern Command (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 enables our military forces to continue to
work together in such areas as disaster relief, joint
training exercises, and counternarcotics missions.

--------------
Counternarcotics
--------------


17. (U) Honduras' geography places it squarely in the middle
of a major illegal drug trans-shipment zone, and the
trans-shipment of cocaine through Honduras by air, land, and
maritime routes continues. However, this trade has now begun
to face significant disruptions. In 2003, overall seizures
in Honduras of approximately 6,000 kilos were higher than the
past five years combined, and in 2004 Honduras has already
seized some 3,854 kilos of cocaine.


18. (SBU) Corruption within the police, Public Ministry
(prosecutors),and the judiciary remain a primary impediment
to successful law enforcement cooperation. However, the GOH
has moved forward with the implementation of new units in
support of the strengthened Money Laundering Law, which was
passed in 2002. The National Council for the Fight Against
Drug Trafficking (CNCN) has renewed its commitment to lead
the country's counternarcotics efforts. Available funds to
implement a government approved master counternarcotics plan,
though, remain severely limited.

--------------
Border Relations
--------------


19. (SBU) Honduras has land border disputes with El Salvador
and Nicaragua and some of its seven maritime neighbors.
Maduro has been personally engaged with his Presidential
counterparts to address these issues. The Gulf of Fonseca on
the Pacific coast has been a particularly difficult point. A
1992 International Court of Justice (ICJ) ruling laid out a
shared area 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
2002, El Salvador requested a revision of the 1992 ICJ
ruling. In December 2003, the ICJ ruled against the
Salvadoran appeal, bringing an end to the case. The
Organization of American States (as a neutral third party) is
providing both nations technical assistance to help them
implement the non-disputed elements of the ICJ's ruling.


20. (SBU) On the Caribbean coast, Honduras and Nicaragua have
a long-standing maritime border dispute over the 15th
parallel. In the past, the dispute has threatened to derail
trilateral counternarcotics operations. In 1999, Honduras
provoked Nicaraguan retaliation when it signed a maritime
treaty with Colombia recognizing the 15th parallel as its
maritime border. Nicaragua subsequently filed an ICJ case
over the maritime border and, more importantly, in 1999
slapped a punitive 35 percent tariff on Honduran goods. This
tariff remained in place until April 2003 despite a Central
American Court of Justice ruling that it was illegal. Only
after Honduras responded with a retaliatory tariff,
threatening Nicaraguan exports, did Managua rescind the tax.
Cuba also recently announced it would suspend negotiations
with Honduras over a maritime boundary agreement near
completion due to the GOH's introduction of the UNCHR
resolution on Cuba.

--------------
Port Security
--------------


21. (U) The GOH has taken a very pro-active stance in
addressing port security issues and is poised to meet the
International Maritime Organization's (IMO) July 1, 2004,
deadline to certify its ports as meeting the new, more
stringent port security standards under the International
Ship and Port Facility Security Code (ISPS) and Maritime
Transportation Security Act of 2002. Puerto Cortes is the
largest port on the Caribbean side of the Central American
isthmus and currently provides container service to the U.S.
market, not just for Honduran exports, but also for goods
from Guatemala, El Salvador, and Nicaragua. The National
Port Authority (ENP) has invested almost $10 million in port
security enhancements (the bulk of the sum was in severance
payments to its aged and unqualified union security
workforce).


22. (U) The GOH hosted a successful visit (the first in the
Western Hemisphere) of a U.S. Coast Guard (USCG) port
security program team in mid-June. The team came to assess
Honduras' implementation of the ISPS. It reviewed security
practices at five national ports, met with the national
commission on port security, and discussed Honduran port
security regulations with the newly created (per the ISPS)
national port security authority. The USCG team reported
that it had identified several very innovative and efficient
security practices that it would carry back to the port
facilities in the U.S. as "best security practices". The
USCG team also lauded Honduras for being a port security
leader for hosting the first USCG verification visit in the
region.

--------------
Supreme Court and Judicial Reform
--------------


23. (SBU) In 2000, the GOH initiated substantial judicial
reforms intended to allow the Supreme Court to develop into
an independent branch of power, unlike any of its predecessor
courts since democracy was restored in 1982. While the new
court is pro-reform in orientation and has fought for its
prerogatives, its performance of late under the leadership of
its President, Vilma Morales, has been a disappointment.
There continues to be a high level of political manipulation
in the court's proceedings and the issue remains open as to
whether or not 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
vigor. In fact, the National 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. The Supreme Court
ruled in May 2003 that the proposed amendment was
unconstitutional, which sparked a tense confrontation between
the Supreme Court and Congress. The issue receded until
recently when Congress passed a new amendment to the
Constitution again granting Congress the right to interpret
the constitutionality of laws it passes. A legal challenge
to this amendment is expected in the near future, although
the amendment has yet to be printed in the federal register
and therefore is not yet law. Judicial corruption remains an
ongoing problem and the President of the Court has not acted
decisively to root out and punish bad judges.

--------------
Public Security and Human Rights
--------------


24. (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
intolerably high crime situation. He deployed more than
5,000 soldiers to the streets to support the police. The
public responded enthusiastically. However, after initial
success of establishing a visible police presence, violent
crime, particularly homicides, continued at a high rate,
although there is evidence that the murder rate has
marginally fallen in the last six months. The U.S. 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, expand the Frontier Police, and improve
prosecutional and forensic capacities. The country's
geographic position makes it an obvious strategic transit
point for narcotics trafficking, alien smuggling operations,
trafficking in persons, and other organized crime activities.


25. (SBU) Extrajudicial killings, especially of
children/young adults since 1998, have been a source of
serious concern and only recently has the GOH begun to take
steps to investigate the hundreds of unsolved cases. Human
rights groups regularly accuse former security force
officials and the business community of colluding to organize
"death squads" to commit these summary and arbitrary
executions. On April 5, 2003, 68 persons, 61 of them gang
members, were killed in a violent incident at El Porvenir
prison near La Ceiba. Reports produced by the Public
Ministry, a Special Commission of the Honduran National
Council for Internal Security (CONASIN),and the Human Rights
Commissioner put the blame for the vast majority of deaths on
government security forces (police and military under police
command) and non-gang member inmate trusties. On May 17,
2004, a fire at the Granja Penal prison in San Pedro Sula
claimed the lives of another 104 gang members. Although it
appears GOH authorities were not complicit in this event,
timely assistance to inmates was withheld over security
concerns that could have prevented many deaths.


26. (SBU) While Honduran labor law is deficient in some areas
with respect to International Labor Organization core
conventions, the main issue for the protection of labor
rights, including freedom of association and collective
bargaining, is the effective enforcement of existing laws.
There are serious problems with child labor in several
industries, particularly melon, coffee, and sugar cane (but
not in the maquila sector),as well as in the informal
economy, and trafficking in persons of women/children for
commercial sexual exploitation in the U.S., Central America,
and Mexico. USAID and Peace Corps have both been involved in
HIV/AIDS prevention.

--------------
Corruption and Rule of Law
--------------

27. (SBU) Honduras remains one of the most corrupt countries
in the Western Hemisphere and was recently ranked 106 out of
133 countries surveyed by Transparency International, an NGO
that tracks international corruption issues. Only Ecuador,
Haiti, and Paraguay scored lower in the Western Hemisphere.
U.S. policy to combat endemic corruption has struck a nerve
in Honduras, especially any mention of our visa revocation
authorities. Maduro has stated he is willing to address
corruption, even if it will cost him political support within
his party, but real achievements to date have been lacking.
Of particular concern are individual judges and prosecutors
who solicit and/or remain open to offers of bribes. The
Attorney General's office has been unwilling, or unable, to
prosecute high-profile cases, with the notable exception of
several sitting congressmen recently accused of drug
trafficking and other offenses. The selection of Ovidio
Navarro as the new Attorney General was also a clear
political move orchestrated by those with a direct interest
in the status quo. Given the scope of the problem, any
public discussion about the country's pervasive corruption is
a positive development.

--------------
USAID Programs
--------------


28. (SBU) The Central America and Mexico (CAM) Regional
Strategy focuses bilateral and regional USAID investment on
the three performance "arenas" of Ruling Justly, Economic
Freedom, and Investing in People, and is closely aligned with
the Millennium Challenge Account (MCA). USAID supports the
Ruling Justly objective by increasing the responsiveness and
accountability of public institutions, while also building on
successful municipal development programs to create better
models for governance, justice reforms, and transparency and
participation. In the arena of Economic Freedom, there is a
concerted focus on trade policy and preparations to ready
Honduras' participation in the CAFTA and FTAA. USAID strives
to bridge agricultural production in rural areas with
relatively higher value processing and marketing enterprises
in urban centers. The integrated natural resource management
program emphasizes sustainable land and water-use,
biodiversity, and reduced disaster vulnerability. Also, to
support the Investing in People objective, the health program
aims toward improving reproductive health, family planning,
child survival, prevention of HIV/AIDS and other infectious
diseases, and household food security. Seeking a
better-educated Honduran work force through expanded access
at the pre-school, middle school, and upper secondary levels
(grades 10-11) is done using alternative delivery systems and
implementing the Centers for Excellence in Teacher Training
(CETT) Presidential Initiative. USAID is also assisting GOH
efforts to develop quality education standards, testing, and
evaluation.

--------------
Consular Issues
--------------


29. (SBU) Approximately 800,000 Hondurans live in the U.S.,
both legally and illegally, a fact that places immigration
issues high on the bilateral agenda. (The population of
Honduras is approximately 6.5 million.) There is deep
appreciation for the U.S.'s extension of Temporary Protected
Status (TPS) in the U.S. and interest in possible
congressional action on the proposed Nicaraguan Adjustment
and Central American Relief Act (NACARA),which would give
immigration parity for Hondurans. With approximately 11,000
American citizens residing in Honduras (this includes
American citizens that also hold Honduran citizenship) and
many thousands visiting Honduras annually for tourism and
business, American Citizen Services are a key part of the
Embassy's work.


30. (SBU) Since 1995, 35 American Citizens have been murdered
in Honduras. There was not much progress on most of these
cases until 2003, but there have now been 20 convictions in
nine cases. Some progress has been made on extradition cases
involving American Citizens residing in Honduras who are
wanted for felonies in the United States.

--------------
Embassy Tegucigalpa
--------------


31. (SBU) Embassy Tegucigalpa is a medium-sized post,
employing 140 U.S. citizens and 300 Hondurans among 20 USG
agencies. The Peace Corps program, with more than 245
volunteers, is one of the world's largest, and the USAID
mission has a FY04 budget of USD 45 million. The Mission
maintains a Consular Agent in Honduras' second city and
industrial center, San Pedro Sula.
Palmer