Identifier
Created
Classification
Origin
04TEGUCIGALPA1674
2004-07-30 19:25:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Tegucigalpa
Cable title:  

TPS for Honduras - Update on Economy and

Tags:  SMIG PHUM PREF PREL ELAB ECON HO 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
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

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