Scenesetter for CoDel Kolbe April 14-16 Visit to

UNCLAS SECTION 01 OF 07 TEGUCIGALPA 000698

SIPDIS

SENSITIVE

STATE FOR WHA/CEN, EB, AND H
STATE PASS USAID FOR LAC/CAM

E.O. 12958: N/A
TAGS: OREP PREL PGOV ETRD ECON SNAR EAID KJUS HO
SUBJECT: Scenesetter for CoDel Kolbe April 14-16 Visit to
Honduras

REF: (A) State 58409
(B) State 51183
(C) State 49138
(D) State 47047
(E) State 43573


1. (U) Summary: Post welcomes the visit of CoDel Kolbe to
Honduras April 14-16. Honduran President Ricardo Maduro,
three years through his constitutionally-mandated single
four-year term, faces a difficult task leading one of the
poorest countries in Latin America. However, there were
several positive economic developments in 2004, including
the signing of an agreement with the IMF in February, the
negotiation of $147 million of debt forgiveness from Paris
Club creditors in April, the signing of the U.S.-Central
American Free Trade Agreement (CAFTA) with the United States
in May, and Honduras' selection as one of sixteen countries
eligible to apply for assistance under the $2.2 billion
Millennium Challenge Account. The Honduran Congress
approved CAFTA on March 3, 2005. Honduras also reached its
Heavily Indebted Poor Countries (HIPC) completion point in
late March 2005.


2. (SBU) Bilateral relations between the U.S. and Honduras
are excellent. Honduras' support for the Global War on
Terrorism is steadfast, and the Government of Honduras (GOH)
is among the group of nations that sent troops to Iraq in
support of Operation Iraqi Freedom, although these troops
have since returned. Honduras was the first country in the
Western Hemisphere to sign and ratify an ICC Article 98
Agreement with the United States. Honduras also introduced
a UN Commission on Human Rights (UNCHR) resolution on Cuba,
which passed in April 2004. End Summary.

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Economic Overview
--------------


3. (U) Honduras, with a per capita income of $950, is the
third poorest country in the Western Hemisphere, ahead of
only Nicaragua and Haiti. The economy grew by 3.2 percent
in 2003, and by an estimated 4.5 percent in 2004. However,
over the past decade, the rate of economic growth has been
only slightly faster than the rate of population growth,
which is 2.7 percent per year. Social indicators are
gradually improving, but nearly two-thirds of all Hondurans
still live in poverty, and average education levels are very
low (estimated at five years, based on semi-annual household
surveys conducted by the National Statistics Institute).


4. (U) Historically, the Honduran economy was long dependent
on exports of coffee and bananas. In the past fifteen
years, however, the economy has diversified, with the
development of non-traditional exports such as shrimp and
melons, an increase in tourism, and the establishment of a
strong "maquila" (light assembly) industry (primarily
textiles and assembly of apparel for re-export). Investment
incentives aimed at attracting foreign capital in export
industries have been introduced. In recent years, the
coffee industry has suffered from low world prices, and the
banana industry was severely damaged by Hurricane Mitch in

1998. Banana production has yet to reach pre-Mitch levels,
and coffee and bananas now account for less than 15 percent
of Honduran export earnings.


5. (SBU) Despite the recent economic diversification, there
continue to be a large subsistence farmer population with
few economic opportunities (other than illegal immigration
to the U.S.). Furthermore, the Honduran government's desire
to attract new types of foreign investment has been hindered
by a wide range of investment climate and competitiveness
problems, including public insecurity, weak judicial
protections of investor rights, and corruption.


6. (U) Family remittances from Hondurans living abroad,
particularly the U.S., grew by 19 percent to USD 1,135
million in 2004, and, at an estimated 1.4 billion in 2005,
will soon pass the maquila sector as the country's largest
source of foreign exchange. The U.S. is Honduras' largest
trading partner, and the roughly 150 U.S. companies that do
business in Honduras constitute the largest block of foreign
direct investors.

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The Importance of CAFTA
--------------


7. (SBU) On March 3, 2005, the Honduran Congress approved
the U.S.-Central American Free Trade Agreement (CAFTA) by an
overwhelming margin. The agreement was negotiated in 2003
and 2004 among the United States, Honduras, Guatemala, El
Salvador, Nicaragua, Costa Rica, and the Dominican Republic,
and has also been approved by El Salvador and Guatemala.
The agreement will not enter into force until it is also
ratified by the U.S.


8. (SBU) In Honduras, CAFTA is strongly supported by most of
the private sector, especially the textile and apparel
industry. While the agreement was approved by voice-vote
only and an exact count is therefore not available,
witnesses reported that, of the 128-member Congress, there
were more than a hundred votes in favor, and only four
against. CAFTA therefore was supported by not only the
ruling National Party, but also by the opposition Liberal
Party and two of the smaller parties in Congress as well;
only one small leftist political party voted against the
agreement. The agreement has also been opposed by some
NGOs, labor unions, and campesino groups, who are concerned
that small-scale Honduran farmers will be unable to compete
with subsidized U.S. agricultural products.


9. (SBU) Maduro's team hopes that CAFTA, once in effect,
will lead to faster economic growth and serve as a catalyst
for regional economic cooperation and integration. The
agreement is considered to be absolutely vital to the
survival of the textile and apparel sector in Honduras now
that worldwide quotas have been eliminated. It is estimated
that in 2004 Honduras received at least $200 million in new
foreign investment, most of it from the United States, as a
result of the anticipated benefits of CAFTA. The
agreement's agricultural chapter will liberalize
agricultural trade gradually while protecting Honduran
farmers from sudden disruptions caused by subsidized
imports. The agreement also will spur modernization in
government procurement and services and will help lock in
the GOH's structural reforms in areas such as
telecommunications.

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Millennium Challenge Account Proposal
--------------


10. (SBU) In 2004, Honduras was chosen as one of sixteen
countries eligible (out of 75 considered) to apply for
assistance under the $2.2 billion Millennium Challenge
Account (MCA). Countries were selected based upon past and
current policy performance in the areas of governing justly,
investing in their own people, and promoting economic
freedom. In August 2004, after consulting with members of
civil society and the private sector, the GOH presented to
the Millennium Challenge Corporation (MCC) a proposal for
$257.5 million, focusing on highway infrastructure and
integrated rural development. President Maduro is fully
engaged on this issue and has made it clear that negotiation
of a compact with the MCC is a top priority in the months
ahead. MCC representatives have made numerous visits to
Honduras since June 2004, have been impressed with the
Honduran efforts so far, and are optimistic that Honduras
might be one of the first countries to receive MCA
assistance.

--------------
IMF Agreement and Debt Relief
--------------


11. (U) In February 2004, after almost two years of
negotiations, the Maduro Administration signed a Letter of
Intent with the International Monetary Fund, which was later
approved by the IMF's Executive Board, for a new three-year
arrangement for Honduras under the Poverty Reduction and
Growth Facility (PRGF). In April 2004, Honduras reached
agreement with Paris Club creditors on the immediate
cancellation of $147 million in debt payments and the
restructuring of over $200 million more. Honduras has
committed to devote resources freed by this treatment to
priority areas outlined in the country's poverty reduction
strategy. The first review of the PRGF program was
conducted in September 2004, and the IMF found that
Honduras' performance was strong. IMF announced in late
March 2005 that (subject to World Bank consent) the GOH
reached its Heavily Indebted Poor Countries (HIPC)
completion point due to good PRGF implementation. Having
obtained Completion Point, Honduras is now eligible to
approach the Paris Club (international group of bilateral
and multilateral creditors) seeking forgiveness or
restructuring of an estimated USD 1.2 billion.

--------------
Political/Military Issues
--------------


12. (SBU) President Maduro is a solid supporter of the U.S.
on the Global War on Terrorism. The GOH has responded
quickly to all USG requests regarding terrorist threats and
financing, although to date, no terrorist assets have been
found in Honduran financial institutions. Honduras is a
party to all but two UN and OAS counter-terrorism
conventions and protocols (the GOH has completed all
domestic requirements to become a party to an International
Maritime Organization convention and protocol, and Honduras
should soon become a party to these as well) and has also
been aggressive in upgrading port security. Honduras was
also the first country in the Western Hemisphere to sign and
ratify an International Criminal Court (ICC) Article 98
Agreement with the United States.


13. (U) Honduras has a civilian Minister of Defense and a
Chief of the Joint Staff who heads the Honduran Armed Forces
(HOAF). In January 1999, the constitution was amended to
abolish the position of military commander-in-chief of HOAF,
thus codifying civilian authority over the military.
Civilian control over the HOAF is complete, and
civil/military relations are good. This transition has
resulted in greater transparency and fiscal accountability.
The HOAF has a new focus on trans-national threats,
including counter-terrorism, drug trafficking, and combating
international criminal organizations. The HOAF is
interested in establishing an ability to further increase
its participation in international peacekeeping operations.
Honduras also stands ready to participate in a regional arms
"rationalization" process but has announced that it will not
negotiate on a bilateral basis.

--------------
Election Season Underway
--------------


14. (U) Honduras' open primary election for national and
local races took place February 20, with general elections
set for November 27. Under a new Electoral law reform
passed early in 2004, Honduran voters select candidates for
the National Congress based not only on their names but also
on their photographs, a process without precedent in
Honduras. This new method for the direct election of
congressional members contrasts with the old system whereby
candidates were elected on party rank-ordered congressional
lists. Only the National and Liberal Parties participated
in the primary election - the other three small parties will
just participate in the general election. USAID and other
international donors will support the elections with about
USD four million. A Supreme Electoral Tribunal, managed by
political party appointees, has national authority to run
the elections.


15. (SBU) In the race for presidential nomination on the
Nationalist's side, President of Congress Porfirio "Pepe"
Lobo defeated Tegucigalpa Mayor Miguel Pastor. On the
Liberal side, politician Mel Zelaya won a majority over a
crowded eight-candidate pack. Lobo, for all intents and
purposes, was the current administration's candidate
(although the GOH did not say so publicly or in private),
and had the support of the traditional National Party
machine. Both Lobo and Zelaya support CAFTA and have made
clear that the U.S. is the key partner for Honduras.

-------------- --
Iraq, Haiti, and Other Key Foreign Policy Goals
-------------- --


16. (SBU) The GOH is very supportive of U.S. foreign policy
goals, including the reconstruction of Iraq. In support of
Operation Iraqi Freedom (OIF),the GOH deployed some 370
troops to the vicinity of An Najaf as part of the Spanish
Brigade operating under the Polish Division. However,
following Spain's decision to withdraw its troops in April
2004, Honduras did likewise, although Honduras' withdrawal
was not linked to the Spanish decision. Previously,
Secretary Powell, CJCS GEN Myers, and Secretary Rumsfeld all

SIPDIS
visited Honduras in 2003 to thank the GOH for its support of
OIF. Their visits were well received and provided important
political support for Maduro's Iraq policy. As in most of
the region, the general public overwhelmingly opposed the
Honduran deployment. While Honduras has left Iraq, the GOH
is considering deploying troops to Haiti in support of UN
peacekeeping operations there. Honduras is also very
supportive at the UN, sharing our views on resolutions
covering such key issues as human rights, human cloning, and
the Middle East. Honduras also introduced a UN Commission
on Human Rights (UNCHR) resolution on Cuba, which passed in
April 2004.

--------------
Soto Cano Air Base - Joint Task Force Bravo
--------------


17. (SBU) Five hundred and forty-nine U.S. service men and
women and fourteen civilian DOD employees are currently
stationed at Honduras' Soto Cano Air Base under the command
of the Combatant Commander, U.S. Southern Command
(SOUTHCOM),as Joint Task Force Bravo. In 1954, the USG and
GOH signed a Bilateral Military Assistance Agreement that
set forth their intention to work closely together to foster
peace and security in the western hemisphere. The ICC
Article 98 Agreement with Honduras is therefore a
particularly important accomplishment and enables our
military forces to continue to work together in such areas
as disaster relief, joint training exercises, and
counternarcotics missions.

--------------
Counternarcotics
--------------


18. (U) Honduras' geography places it squarely in the middle
of a major illegal drug trans-shipment zone, and the trans-
shipment of cocaine through Honduras by air, land, and
maritime routes continues. However, this trade has now
begun to face significant disruptions. In 2003, overall
seizures in Honduras of approximately 6,000 kilos were
higher than the past five years combined, and in 2004,
Honduras seized approximately 3,869 kilos of cocaine. Thus
far in 2005 the GOH has seized 109 kilos of cocaine and
$230,620 in drug money.


19. (SBU) Corruption within the police, Public Ministry
(prosecutors),and the judiciary remains a primary
impediment to successful law enforcement cooperation. The
National Council for the Fight Against Drug Trafficking
(CNCN) has renewed its commitment to lead the country's
counternarcotics efforts. Available funds to implement a
government approved master counternarcotics plan, though,
remain severely limited.

--------------
Border Relations
--------------


20. (SBU) Honduras has land border disputes with El Salvador
and Nicaragua and some of its seven maritime neighbors.
Maduro has been personally engaged with his Presidential
counterparts to address these issues. The Gulf of Fonseca
on the Pacific coast has been a particularly difficult area.
A 1992 International Court of Justice (ICJ) ruling laid out
a shared area of control in the Gulf of Fonseca and
established the land border between Honduras and El
Salvador, although El Salvador has been slow to implement
the ruling. In September 2002, El Salvador requested a
revision of the 1992 ICJ ruling. In December 2003, the ICJ
ruled against the Salvadoran appeal, bringing an end to the
case. The Organization of American States (as a neutral
third party) is providing both nations technical assistance
to help them implement the non-disputed elements of the
ICJ's ruling.


21. (SBU) On the Caribbean coast, Honduras and Nicaragua
have a long-standing maritime border dispute over the 15th
parallel. In the past, the dispute has threatened to derail
trilateral counternarcotics operations. In 1999, Honduras
provoked Nicaraguan retaliation when it signed a maritime
treaty with Colombia recognizing the 15th parallel as its
maritime border. Nicaragua subsequently filed an ICJ case
over the maritime border and, more importantly, in 1999
slapped a punitive 35 percent tariff on Honduran goods.
This tariff remained in place until April 2003 despite a
Central American Court of Justice ruling that it was
illegal. Only after Honduras responded with a retaliatory
tariff, threatening Nicaraguan exports, did Managua rescind
the tax. Cuba suspended negotiations with Honduras over a
maritime boundary agreement near completion due to the GOH's
introduction of the UNCHR resolution on Cuba in 2004.

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


22. (U) The GOH has taken a very pro-active stance in
addressing port security issues, and met the International
Maritime Organization's (IMO) July 1, 2004 deadline to
certify its ports as meeting the new, more stringent port
security standards under the International Ship and Port
Facility Security Code (ISPS) and Maritime Transportation
Security Act of 2002. Puerto Cortes is the largest port on
the Caribbean side of the Central American isthmus and
currently provides container service to the U.S. market, not
just for Honduran exports, but also for goods from
Guatemala, El Salvador, and Nicaragua. The National Port
Authority (ENP) has invested almost $10 million in port
security enhancements (the bulk of the sum was in severance
payments to its aged and unqualified union security
workforce).


23. (U) The GOH hosted a successful visit (the first in the
Western Hemisphere) of a U.S. Coast Guard (USCG) port
security program team June 2004. The team came to assess
Honduras' implementation of the 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 newly created (per the ISPS)
national port security authority. The USCG team reported
that it had identified several very innovative and efficient
security practices that it would carry back to the port
facilities in the U.S. as "best security practices". The
U.S. Department of Homeland Security announced in February
2005 that Puerto Cortes is under consideration for inclusion
in the Container Security Initiative (CSI). In preparation
for CSI, Honduras has contracted for gamma-ray scanning of
all containerized traffic through the port.

--------------
Public Security and Human Rights
--------------


24. (SBU) Upon taking office in January 2002, President
Maduro's first act was to fulfill his main campaign promise
-- a zero tolerance campaign against the country's
intolerably high crime situation. He deployed more than
5,000 soldiers to the streets to support the police. The
public responded enthusiastically. However, after initial
success of establishing a visible police presence, violent
crime, particularly homicides, continued at a high rate. On
December 23, 2004, gunmen killed 28 people and wounded an
equal number on a bus in Chamelecon (near San Pedro Sula in
northern Honduras). Police believe that the Mara
Salvatrucha (MS-13) gang was responsible for the massacre.
The U.S. is helping the Maduro government establish an anti-
kidnapping unit, increase intake/training of police
recruits, create a model tourist police force, boost its
counternarcotics efforts, expand the Frontier Police, and
improve prosecutorial and forensic capacities. The
country's geographic position makes it an obvious strategic
transit point for narcotics trafficking, alien smuggling
operations, trafficking in persons, and other organized
crime activities.


25. (SBU) Extrajudicial killings, especially of children and
young adults since 1998, have been a source of serious
concern, and only since 2002 has the GOH begun to take steps
to investigate the hundreds of unsolved cases. Human rights
groups regularly accuse former security force officials and
the business community of colluding to organize "death
squads" to commit these summary and arbitrary executions.
In April 2003, 68 persons, 61 of them Mara 18 gang members,
were killed in a violent incident at El Porvenir prison near
La Ceiba. Reports produced by the Public Ministry, a
Special Commission of the Honduran National Council for
Internal Security (CONASIN),and the Human Rights
Commissioner put the blame for the vast majority of deaths
on government security forces (police and military under
police command) and non-gang member inmate trusties. In May
2004, the Public Ministry filed criminal charges against 51
people for alleged involvement in the deaths. The Deputy
Warden, who was in charge at the time of the incident, was
convicted in December 2004 of murder and attempted murder
sentenced in February 2005 to 19 years in prison. In a
separate incident in May 2004, a fire at the Granja Penal
prison in San Pedro Sula claimed the lives of 107 MS-13 gang
members. Although it appears GOH authorities were not
complicit in this event, timely assistance to inmates that
could have prevented many deaths was withheld due to
security concerns.

26. (SBU) While Honduran labor law is deficient in some
areas with respect to International Labor Organization core
conventions, the main issue for the protection of labor
rights, including freedom of association and collective
bargaining, is the effective enforcement of existing laws.
There are serious problems with child labor in several
industries, particularly melon, coffee, and sugar cane (but
not in the maquila sector),as well as in the informal
economy, and trafficking in persons of women and children
for commercial sexual exploitation in the U.S., Central
America, and Mexico. USAID and Peace Corps have both been
involved in HIV/AIDS prevention.

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Corruption and Rule of Law
--------------


27. (SBU) Honduras remains one of the most corrupt countries
in the Western Hemisphere and was recently ranked 114 out of
146 countries surveyed by Transparency International, an NGO
that tracks international corruption issues. Only Bolivia,
Guatemala, Haiti, and Paraguay scored lower in the Western
Hemisphere. U.S. policy to combat endemic corruption has
struck a nerve in Honduras, especially any mention of our
visa revocation authorities. Maduro has stated he is
willing to address corruption, even if it will cost him
political support within his party, but real achievements to
date have been few. Of particular concern are individual
judges and prosecutors who solicit and/or remain open to
offers of bribes. The Attorney General's office has been
unwilling, or unable, to prosecute high-profile cases, with
the notable exception of several sitting congressmen
recently accused of drug trafficking and other offenses.
Until recently, immunity from prosecution for government
officials precluded action again senior officials. Given
the scope of the problem, any public discussion about the
country's pervasive corruption is a positive development.

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USAID Programs
--------------


28. (SBU) The USAID Central America and Mexico (CAM)
Regional Strategy focuses bilateral and regional USAID
investment on the three performance arenas of Ruling Justly,
Economic Freedom, and Investing in People and is closely
aligned with the goals of the Millennium Challenge
Corporation (MCC). USAID supports the Ruling Justly
objective by increasing the responsiveness and
accountability of public institutions, while also building
on successful municipal development programs to create
better models for governance, justice reforms, and
transparency and participation. In the arena of Economic
Freedom, there is a concerted focus on trade policy and
preparations to ready Honduras' participation in the CAFTA
and FTAA. USAID strives to bridge agricultural production
in rural areas with relatively higher value processing and
marketing enterprises in urban centers. The integrated
natural resource management program emphasizes sustainable
land and water-use, biodiversity, and reduced disaster
vulnerability. Also, to support the Investing in People
objective, the health program aims toward improving
reproductive health, family planning, child survival,
prevention of HIV/AIDS and other infectious diseases, and
household food security. Seeking a better-educated Honduran
work force through expanded access at the pre-school, middle
school, and upper secondary levels (grades 10-11) is done
using alternative delivery systems and implementing the
Centers for Excellence in Teacher Training (CETT)
Presidential Initiative. USAID is also assisting GOH
efforts to develop quality education standards, testing, and
evaluation.

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Consular Issues
--------------


29. (SBU) An estimated 800,000 Hondurans live in the U.S.,
both legally and illegally, a fact that places immigration
issues high on the bilateral agenda. (The population of
Honduras is about 7 million.) Approximately 82,000 of these
Hondurans currently enjoy Temporary Protected Status (TPS),
which was granted to certain Hondurans who were in the
United States illegally at the time of Hurricane Mitch in

1998. In October 2004, the Department of Homeland Security
extended TPS for these Hondurans until July 2006, a move
that the GOH deeply appreciated. The GOH is also very
interested in any possible U.S. Congressional action on
immigration reform.


30. (SBU) With approximately 11,000 American citizens
residing in Honduras (this includes American citizens that
also hold Honduran citizenship) and many thousands visiting
Honduras annually for tourism and business, American Citizen
Services are a key part of the Embassy's work. Since 1995,
42 American citizens have been murdered in Honduras. There
was not much progress on most of these cases until 2003, but
there have now been 26 convictions in thirteen cases, and
six cases have been closed. Some progress has been made on
extradition cases involving American citizens residing in
Honduras who are wanted for felonies in the United States.

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Embassy Tegucigalpa
--------------


31. (SBU) Embassy Tegucigalpa is a medium-sized post,
employing 119 U.S. citizens and 281 Hondurans among 20 USG
agencies. The Peace Corps program, with 203 volunteers (and
33 trainees),is one of the world's largest, and the USAID
mission has a FY05 budget of $40.6 million. The Mission
maintains a Consular Agent in Honduras' second city and
industrial center, San Pedro Sula.

Palmer