Honduran Economic Highlights: April-June 2004

UNCLAS SECTION 01 OF 04 TEGUCIGALPA 001526

SIPDIS

STATE FOR EB, DRL/IL, WHA/EPSC, AND WHA/CEN
GUATEMALA FOR AGATT SHUETE
SAN SALVADOR FOR COMMATT DTHOMPSON
DOL FOR ILAB
STATE PLEASE PASS TO USAID, OPIC, EXIM, USTR
STATE PLEASE PASS TO USED IDB, USED WB, USED IMF

E.O. 12958: N/A
TAGS: ECON EFIN EINV ELAB ETRD EWWT KJUS PGOV HO
SUBJECT: Honduran Economic Highlights: April-June 2004

REF: PARIS 03044

Contents
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Macroeconomics:
- Paris Club and USG Provide Debt Relief
- Agreement Reached on Minimum Wage Increase
- High Gas Prices Continue to Pinch

Port Security:
- Coast Guard Pleased With Honduran Ports

Law Enforcement:
- Major Money Laundering Conviction
- Banhcreser Fugitive Captured in Florida

Business:
- Governors Bush, Perdue Vie for FTAA Support

Agriculture:
- GOH Lifts Restrictions on U.S. Beef

-------------- -
Paris Club and USG Provide Interim Debt Relief
-------------- -


1. On April 14, Paris Club creditors and the GOH agreed to
a restructuring of Honduras' public external debt, leading
to the cancellation of approximately $147 million of
Honduran debt, and the rescheduling of $214 million more
(see reftel). Under the agreement reached between Paris
Club participating creditors and a Honduran delegation led
by the Minister of Finance Arturo Alvarado, total Honduran
debt service due to Paris Club creditors between January 1,
2004, and June 30, 2005, was reduced from $405 million to
approximately $49 million. As a participant in the HIPC
(Heavily Indebted Poor Countries) initiative, Honduras was
granted "Cologne terms": 90 percent cancellation of pre-1990
debt.


2. Following the collective agreement with its Paris Club
creditors in April, the GOH has begun to negotiate bilateral
agreements with these creditors individually. The first of
these bilateral agreements to be negotiated and signed was
with the USG. On June 1, Charge d'Affaires Roger Pierce and
Minister Alvarado signed an agreement which forgives over
$55 million in official debt service payments owed by the
GOH to the USG. The U.S. agencies included in the agreement
are USAID, DOD, USDA, and the Ex-Im Bank. The USG went
beyond the required Cologne terms by offering 100 percent
cancellation of pre-1999 debt. Acting President Vicente
Williams presided over the signing ceremony and reaffirmed
in strong terms the GOH's full commitment to use these funds
for poverty reduction, as envisioned in the HIPC initiative.


3. The agreement was delivered to the U.S. Congress on June

8. After a 30-day notification period, the agreement
entered into force on July 8, ahead of a DOD payment due
July 15 that, if not paid, would have triggered Brooke
sanctions. The GOH is currently negotiating bilateral
agreements with Spain and France, and must conclude
negotiations with all of its bilateral creditors by October.

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Minimum Wage Increase
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4. After months of negotiations, the government, the
private sector, and labor unions finally reached an
agreement on April 19 on a new minimum wage. The increase
varies between nine and twelve percent, depending on the
activity and the number of employees of a given company.
The new average minimum salary will be 2,212 Lempiras per
month (approximately $122 per month),up 7.3 percent from
the 2003 level of 2,050 Lempiras per month ($113). The
increase is retroactive only to April 1 of this year, not to
January 1 as unions had requested.


5. During the negotiations, the parties agreed in principle
to include in a new Minimum Salary Law clear mechanisms to
determine future revisions to the minimum wage, starting in

2005. These mechanisms would be based on production
parameters of each sector, the inflation and devaluation
rates, and the economic growth of the country. The law
would have to be approved by Congress by September 30 of
this year in order to be in place for next year's
negotiations.

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High Gas Prices Continue to Pinch
--------------


6. High gas prices, the result of an increase in the tariff
on fuel imposed at the end of 2003 as well as the high world
price of oil, continue to cause discontent among Hondurans
and a political headache for the GOH, even as world prices
eased somewhat in June. Honduras continues to have the
highest oil prices in Central America: at the end of May, a
gallon of super gasoline in Honduras cost $3.08, while in
Costa Rica the price was $2.29, in Nicaragua $2.27, in El
Salvador the price was $2.06, and in Guatemala $2.05. The
much-ballyhooed Presidential Commission on fuel prices,
established in March by President Maduro with representation
from the government, private sector, and civil society, has
had little effect.


7. In reaction to the high prices, the Honduran government
ordered a 10 percent reduction in fuel consumption by its
branches, and restricted the circulation of government
vehicles. Among the new regulations is an order that
government vehicles with license plates ending in an even
number may only be used Monday, Wednesday, and Friday, while
those with plates ending in an odd number may be used
Tuesday and Thursday - though this regulation has not been
enforced.


8. In late May, the increasing price of jet fuel was blamed
for an increase in the prices of airline tickets. According
to Armando Funez, president of the Honduran Airlines
Association, airline operation costs were increasing due
primarily to high fuel prices. However, some in the tourism
industry suggested that international airlines would raise
ticket prices in any case to take advantage of the high
season for tourism and international travel.

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


9. From June 14-18, a U.S. Coast Guard port security team
visited Honduras; this was the first such port security
assessment visit in the Western Hemisphere. The team came
to assess Honduras' implementation of the new, more
stringent port security standards under the International
Ship and Port Facility Security Code (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 national port security
authority, which was recently created to comply with the
ISPS. The USCG team reported that it had identified several
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.


10. On July 1, the official international deadline
established by the Maritime Transportation Security Act of
2002, the GOH reported to the IMO (International Maritime
Organization) that it has security assessments and plans in
place for all but one of its national ports, thereby
declaring these ports certified. The only exception was the
small port at La Ceiba, which is expected to be certified in
July.

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Money Laundering Convictions in Captain Ryan Case
-------------- --------------


11. Due in part to unprecedented regional law enforcement
cooperation, the government of Honduras won guilty verdicts
for money laundering against the four principal defendants
in the Captain Ryan case. This is only the second-ever
successful prosecution of a drug-related money laundering
seizure case in Honduras. The Captain Ryan maritime vessel
was seized by members of the INL-funded elite unit and the
Frontier Police in December 2002 as it was departing a
Honduran port. The defendants face a sentence of 16 to 20
years; they will be sentenced in mid-July. Furthermore, the
$467,000 found on board the ship, and other assets seized at
the time of arrest, including the ship itself, were ordered
forfeited by the tribunal. Three unwitting crewmen were
found innocent and released after having spent almost 7
months in jail. Several potential witnesses were murdered
in the run-up to the trial.


12. The verdict was aided by joint cooperation between INL
offices at Embassy Panama and Tegucigalpa. Embassy Panama
provided a timely assist in funding travel so that
Panamanian police and prosecutors could share critical
evidence with Honduran authorities and receive practical
training in a money laundering prosecution. In addition,
this case was one of the top priority cases being supported
by the anti-money laundering technical assistance project,
funded by INL and the U.S. Treasury Department.

-------------- -
Ex-Banhcreser Board Member Captured in Florida
-------------- -


13. Honduran police gained access to Florida territory in
order to facilitate the capture of Caupolican Zuniga
Maradiaga, one of the principal board members of the
Honduran Credit and Service Bank, Banhcreser, which failed
in 2001 amidst allegations of corruption and wrongdoing.
Zuniga was captured in Broward County, Florida on May 23.
The 56 year-old banker, who held the position of general
manager, was charged with the crime of continued fraud
against Banhcreser depositors. He is specifically accused
of having acted improperly by transferring $3.7 million
dollars in Banhcreser deposits to a U.S. bank account, then
establishing a line of credit for a shell company using
those deposits as collateral. The Honduran government is
working towards extraditing Zuniga to Honduras. The
Attorney General, Ovidio Navarro, has requested that the
embassy assist with the extradition process. Zuniga is a
U.S. resident.

--------------
Governors Bush, Perdue Vie for FTAA Support
--------------


14. Governor Jeb Bush of Florida and Governor Sonny Perdue
of Georgia visited Honduras in immediate succession during
the first week of June. The Governors were seeking
Honduras' support for the selection of Miami and Atlanta,
respectively, to be the headquarters of the FTAA.


15. Governor Bush visited first, making up for a visit that
had been planned for February, but that was cancelled when
poor weather conditions and malfunctioning navigational
equipment at Tegucigalpa's main airport prevented his plane
from landing. Governor Bush was accompanied by a delegation
of 19 Florida businessmen, as well as representatives of
"FTAA Florida", the organization pushing for Miami's
selection as the FTAA headquarters. President Maduro, who
was Bush's friend and college classmate at Stanford
University, received Governor Bush warmly and hosted a lunch
in his honor at the Presidential Palace. Other members of
the delegation met with a group of Honduran ministers and
discussed CAFTA, tourism, port security, and other issues.
At a press conference held on June 2, Maduro publicly
declared his support for Miami to be chosen as the FTAA
headquarters.


16. The day after Governor Bush's departure, Governor Sonny
Perdue of Georgia visited San Pedro Sula with a small group
of advisers. Governor Perdue met privately with Minister of
Industry and Trade Norman Garcia, and had breakfast with a
group of business leaders from northern Honduras. He also
met with President Maduro on the margins of a dinner event
on June 3. In each meeting, he acknowledged that Maduro had
already pledged his support to Miami, but continued to push
for Atlanta as the FTAA seat, and stressed the benefits of
Atlanta as a city from which to conduct business in the
United States.

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Restrictions Lifted on U.S. Beef
--------------


17. On May 31, the Ministry of Agriculture and Livestock
signed a decree lifting the restrictions on beef imported
from the United States. The restrictions were put in place
in December 2003 as a result of the case of mad cow disease
identified in Washington state. The process of lifting the
restrictions began when OIRSA (International Regional
Organization of Plant and Animal Health) gave a preliminary
recommendation to Central American governments that
restrictions be lifted. Following this recommendation, the
Honduran government reviewed the several USDA documents
citing U.S. advances in monitoring and surveillance and
other protective measures. After review and analysis of
the documents, Honduras agreed that the risk was minimal,
resulting in the complete lifting of the restrictions which
had been imposed.

Palmer