TPS for Honduras - Update on Economy and

UNCLAS SECTION 01 OF 03 TEGUCIGALPA 001674 SIPDIS SENSITIVE STATE FOR PRM/PMP, WHA/CEN, WHA/PPC, AND WHA/EPSC STATE PASS AID FOR LAC/CEN DOL FOR ILAB TREASURY FOR EILZETZKI E.O. 12958: N/A TAGS: SMIG PHUM PREF PREL ELAB ECON HO SUBJECT: TPS for Honduras - Update on Economy and Reconstruction Efforts REF: A. State 157889 ¶B. 03 Tegucigalpa 442 ¶1. (SBU) SUMMARY: Honduras has largely recovered from the devastation of the 1998 Hurricane Mitch. Most USG-funded reconstruction efforts were completed in 2001, and will be entirely completed in 2005. However, Honduras remains a poor country with insufficient housing and job opportunities to offer a decent standard of living for the majority of its people. Furthermore, the economy is increasingly dependent upon remittances from Hondurans living abroad, especially the estimated 650,000 who live, legally and illegally, in the United States. These remittances now represent roughly 15 percent of GDP, according to Central Bank figures, and are the country's largest source of foreign exchange. The return of the 87,000 Hondurans who currently enjoy TPS would therefore pose economic difficulties for Honduras. Post strongly recommends that Department seek another extension of TPS for Honduras. END SUMMARY. -------------- Hurricane Reconstruction Largely Complete... -------------- ¶2. (U) With the help of the international donor community (of which USAID is the largest bilateral contributor), Honduras has largely recovered from the physical devastation of Hurricane Mitch. USAID's $300 million recovery program focused on a wide variety of reconstruction interventions in the areas of education, housing, water and sanitation, rural roads and bridges, disaster mitigation, health, agriculture reactivation, credit, accountability, and transparency. The majority of this program was completed by the end of 2001. The only element of USAID's reconstruction program which is still ongoing, the reconstruction of damaged urban water and sanitation systems, was expected to be completed by the end of FY04, but was recently extended and will be fully completed by the end of FY05. ¶3. (U) While the GOH is still engaged in activities such as construction of housing, its main economic focus is no longer on the task of post-hurricane reconstruction per se. Instead, the GOH's efforts to combat poverty are based on the October 2001 Poverty Reduction Strategy Paper (PRSP). While this document mentions the impact of the hurricane in passing, its focus is not on reconstruction but rather on the broader goals of reducing urban and rural poverty, and investing in human capital. At the same time, the GOH is pursuing measures to improve Honduras' long-term prospects for economic growth and development, including infrastructure development, increasing openness to trade and investment, and integrated rural development to increase the competitiveness of farmers and link the agricultural sector to market opportunities. By now, nearly six years after the hurricane, President Maduro and other GOH officials rarely, if ever, mention Hurricane Mitch in discussions of the country's challenges or the government's plans. -------------- ... And The Economy is Picking Up Speed -------------- ¶4. (U) After shrinking in 1999, just after Hurricane Mitch, and rebounding strongly in 2000, the Honduran economy grew at 2.5 and 2.6 percent per year in 2001 and 2002, barely enough to keep pace with population growth. However, this sluggish growth rate was largely attributable to the U.S. economic slowdown, rather than to the process of post- hurricane reconstruction. As the U.S. economy has picked up speed so has the Honduran economy, growing by 3.2 percent in 2003 and, based on Ministry of Finance data from January to May 2004, an annualized rate of 3.5 to 4 percent in 2004. Coffee prices, while still low by historical standards, have increased 23 percent this year and 50 percent over their mid- 2002 low point, providing much needed relief to the Honduran agricultural sector. GOH officials and private sector contacts also report that Honduran exports are up strongly so far in 2004. The government is benefiting from debt relief negotiated with its Paris Club creditors (including the U.S.) in April, and is currently on track to meet all of the growth, fiscal and monetary targets set in its February 2004 IMF agreement. Real GDP Growth Rate -------------- (Percent) 1998 2.9 1999 -1.9 2000 5.2 2001 2.6 2002 2.5 2003 3.2 2004(est.) 3.5 to 4.0 -------------- But Honduras Remains Poor... -------------- ¶5. (SBU) Despite recent positive economic developments, however, Honduras remains a country where the majority live in poverty, without adequate housing, education, or health care. The Honduran economy, even when growing at a rate which is healthy by historical terms, cannot provide sufficient job growth for its people. As a result, a considerable segment of the Honduran population continues to regard immigration to the United States as one of the few real economic opportunities available. ¶6. (U) According to World Bank figures and definitions, 63 percent of the Honduran population currently live below the poverty line, and 45 percent are "extremely poor" - an improvement over the post-Mitch 1999 figures of 66 percent and 49 percent, respectively, but still among the highest in the Western Hemisphere. The GOH is unable to provide basic necessities such as adequate housing, health care, or education for the 170,000 people added to the population each year through population growth. If the 87,000 Hondurans with TPS were to be added to the population as well, the burden would be even greater. -------------- -------------- ... And More Dependent Upon Remittances Than Ever Before -------------- -------------- ¶7. (U) Remittances sent from Hondurans living abroad continue to grow rapidly, both in real terms and as a share of GDP, and Honduras is more reliant upon these remittances now than ever before in its history. From 1999 to 2003, remittances from Hondurans living abroad (predominantly in the U.S.) have increased at an average rate of 28 percent per year. In 2003, according to Central Bank figures, these remittances totaled 860 million dollars (12.8 percent of GDP),which is roughly equal to the value added from the entire maquila sector (assembly manufacturing for export), Honduras' largest industry. These remittances close what would otherwise be a significant balance-of-payments deficit. Remittances As percent Year in US$ million of GDP -------------- -------------- -------------- 1999 319 5.9 2000 409 6.9 2001 533 8.5 2002 711 11.1 2003 860 12.8 2004 (est.) 1075 15.5 Source: Central Bank of Honduras. 2004 estimates are based upon figures through May 2004: 3.75 percent annual rate of GDP growth and 25 percent growth in remittances. ¶8. (SBU) The Honduran Embassy in Washington has estimated that there are some 650,000 Hondurans living in the United States, both legally and illegally, which includes the 87,000 who have registered for TPS. According to the Embassy's Department of Homeland Security office, in 2003 Honduras received 5,953 deportees via the INS/JPATS deportation program and on commercial flights. (For reasons that are not clear, this figure is sharply down from the 2002 estimate of 10,400 deportees cited in reftel B.) Post suspects that many of those deported attempt to return to the U.S. again illegally, and thus a considerably smaller number actually remain in Honduras. It is clear, however, that only a small percentage of those Hondurans who live illegally in the U.S. are being returned to Honduras at the present time, and that the return of 87,000 Hondurans would be a drastic increase. -------------- Comment -------------- ¶9. (SBU) COMMENT: While Honduras lacks adequate housing, education, health care, and employment opportunities for the 63 percent of its people that live below the poverty line, this was the case prior to Hurricane Mitch in 1998, and can no longer reasonably be attributed in large part to the hurricane itself. In many ways, Honduras has returned to its pre-Mitch economic status, with the one significant difference that remittances have soared and their economic importance continues to grow. While the 87,000 Hondurans under TPS make up only a relatively small part of the total Honduran population living in the United States without permanent legal status, their return to Honduras would represent a 14-fold increase over the number of 2003 deportees, and would place a considerable economic burden upon the country. Post therefore strongly recommends that Department seek another extension of TPS for Honduras. END COMMENT. Pierce