HONDURAS: HURRICANE KATRINA IMPACT ON REMITTANCE

UNCLAS TEGUCIGALPA 001969

SIPDIS

STATE FOR EB/IFD, WHA/EPSC, INR/IAA, AND WHA/CEN
TREASURY FOR DDOUGLASS, KKLINGENSMITH
COMMERCE FOR MSIEGELMAN
STATE PASS AID FOR LAC/CAM

E.O. 12958: N/A
TAGS: EFIN ECON PGOV ELAB HO
SUBJECT: HONDURAS: HURRICANE KATRINA IMPACT ON REMITTANCE
MIGHT BE LESS THAN FEARED

REF: A) TEGUCIGALPA 1845


1. According to two experts on remittance flows, the
reduction in remittances from the U.S. to Honduras as a
result of Hurricane Katrina could be much less severe than
early estimates suggested. Ref A reported that there is a
significant Honduran expatriate population in the New Orleans
area -- variously estimated at up to 150,000 -- that was hard
hit by Hurricane Katrina. Some initially estimated that the
impact of the hurricane could reduce remittance inflows this
year by USD 100 million or more. This reflected a very crude
calculation that assumed: (1) the maximum number of Hondurans
potentially resident in the affected region as 150,000, a
figure that remains unconfirmed and could be significantly
overestimated; (2) approximately one million Hondurans
resident in the U.S, another figure that is unconfirmed and
could be an overestimate; (3) projected remittances for 2005
of USD 1.5 billion, based on Central Bank of Honduras
estimates; and (4) a resulting average remittance of USD
1,500 per Honduran expatriate per annum. In the worst case
scenario -- a total halt in all remittances from all 150,000
expatriate Hondurans for the remainder of 2005 -- that would
result in a remittance reduction of approximately USD 94
million.


2. EconChief spoke on September 9 with Juan Carlos Potasi,
former President of the Central Bank of Uruguay and author of
a soon-to-be-released study on capital flows and remittances
in Honduras, and Hugo Castillo, former GOH Vice Minister of
Finance and also an expert on financial flows. Potasi said
that in his opinion the impact of Hurricane Katrina on
remittance flows to Honduras will be minimal, since New
Orleans does not appear to be a center of remittance
transmission. Castillo agreed, citing the history of the
Honduran expatriate population in New Orleans. According to
Castillo, that community had its roots in a generational
migration from the North Coast of Honduras, started at the
turn of the twentieth century and originally linked to the
banana trade. Many of the families now living in the New
Orleans area have been established there for 50 years or
more, he said, and recent emigration to that area has been
driven by family reunification and not by job-seeking.
Consequently, in his view, many of those families have broken
their ties to Honduras, and are not likely sending
remittances back to Honduras.


3. Neither Potasi nor Castillo offered an estimate of the
likely drop in remittances. However, if we accept their
analysis and conservatively assume only half of the community
is sending remittances, and further use a more moderate
figure for the size of the Honduran expatriate population in
the affected area, we arrive at a much lower estimated
reduction in remittances of perhaps USD 20 to 30 million
dollars for the remainder of 2005, as contrasted with the 100
million reduction originally forecast. Compared to CY 2004
remittance flows of USD 1.12 billion, and projected CY 2005
remittance flows of USD 1.5 billion, this reduction is
expected to have no noticeable impact on the Honduran
economy.

Williard
Williard