TPS FOR HONDURAS - UPDATE ON ECONOMY AND

UNCLAS TEGUCIGALPA 000293

SIPDIS

SENSITIVE

STATE FOR WHA, WHA/CEN, AND PRM/PRP

E.O. 12958: N/A
TAGS: PHUM PREF PREL SMIG HO
SUBJECT: TPS FOR HONDURAS - UPDATE ON ECONOMY AND
RECONSTRUCTION EFFORTS

REF: A. STATE 19332


B. 03 TEGUCIGALPA 442 AND PREVIOUS


1. (U) Summary: While most USG-funded post-Mitch
reconstruction efforts are complete, and much physical
infrastructure has been rebuilt, the stagnant Honduran
economy and the continued crisis situation in Honduran
government finances make it unlikely the country could
provide the jobs, health care, housing, and schooling for the
approximately 87,000 people that might return if Temporary
Protected Status (TPS) is ended. End Summary.

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Hurricane Reconstruction - Infrastructure Rebuilding Largely
Complete
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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 USD 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 reconstruction of damaged urban water and sanitation
systems is scheduled to be fully completed by the end of
FY04.


3. (SBU) The one area of shortfall is housing. Post
estimates that 33,000 homes were destroyed and another 50,000
homes damaged during the hurricane. An estimated 25,000 have
been rebuilt, leaving many families to make do with temporary
solutions. USAID financed the delivery of 6,100 permanent
units, making it the largest single donor in this area.

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Economic Conditions - Recovery Still Elusive
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4. (SBU) In contrast to infrastructure reconstruction, the
Honduran economy has never regained sufficient growth to
generate much needed employment and sufficient financial
resources for adequate public services. Depressed economic
growth of about 2.5 percent per year, over the 2001-2003
period, has not kept up with the annual population growth of
3 percent. The GOH estimates that true unemployment is
hovering around 34 percent. Commodity prices, including
coffee, are starting to rise, and the light assembly sector
(especially textiles) is starting to recover, but job growth
in 2004 will not be sufficient to accommodate anticipated
population growth, much less the potential 87,000 TPS
returnees.


5. (SBU) Poverty is still widespread, with about 64 percent
of the households living on $2 a day or less. Because of the
continued economic decline, remittances from Hondurans living
overseas continue to grow rapidly, reaching USD 800 million
in 2003 and becoming the country's largest source of foreign
exchange.

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And Government Ability to Provide Needed Services Is Also
Weak
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6. (SBU) President Ricardo Maduro, upon assuming office in
January 2002, inherited seriously deteriorated government
finances and has spent the first two years of his
administration trying to remedy the structurally-caused
imbalances. Honduras continued to run budget deficits of 5.5
percent of GDP in 2002 and 2003, totally unsustainable for a
deeply indebted country with no recourse to international
capital markets. The austerity measures put in place in 2002
and 2003 in order to regain macroeconomic balance and reach
an agreement with the IMF mean that the government is
hard-pressed to expand health care, housing, schooling and
other social services just to accommodate the current
population, much less an additional 87,000 people. Most
ministries have seen their 2004 budgets cut, in real terms,
by ten percent; some key ministries doing work in the rural
areas are receiving cuts of almost 50 percent. The Honduran
government continues to struggle to find the funds to hire
additional teachers, doctors, and police to meet current
needs; significant funds are still needed to repair and
expand existing roads, water and sanitation systems,
electricity distribution systems, schools and health clinics,
especially in the rural areas.
PALMER