HONDURAN VP SAYS PRESIDENT SEEKS CLIMATE OF

S E C R E T SECTION 01 OF 03 TEGUCIGALPA 001469

SIPDIS

SIPDIS
NOFORN

STATE FOR EB/ESC, WHA/EPSC, WHA/PPC, AND WHA/CEN
STATE FOR D, E, P, AND WHA
TREASURY FOR JHOEK
STATE PASS AID FOR LAC/CAM
NSC FOR DAN FISK

E.O. 12958: DECL: 08/14/2031
TAGS: PGOV PINR EPET HO VE
SUBJECT: HONDURAN VP SAYS PRESIDENT SEEKS CLIMATE OF
"PERPETUAL CRISIS"

REF: A. A. TEGUC 1430


B. B. TEGUC 1393 AND PREVIOUS

Classified By: AMB Charles Ford for reasons 1.4 (b) and (d)


1. (S) Summary: Vice President Elvin Santos, an outsider
within his own government, continues to work to moderate the
influence of President Jose Manuel "Mel" Zelaya Rosales'
leftist advisors. At Zelaya's request, Santos recently again
publicly pledged loyalty, but remains true to his free-market
principles. Santos is deeply troubled by the influence these
advisors wield over Zelaya's thinking, and the centralization
of all decision-making into their hands. Santos is most
concerned by what he sees as Zelaya's preference for crises,
which he says allows Zelaya to portray himself to the public
as a "savior". In the case of the recent teachers' strike,
Santos alleged, Zelaya actively encouraged teachers (through
back channels) to demand ever more, as a means of prolonging
the confrontation. Santos fears that Zelaya did so in a bid
to further raise his own stature and make himself appear all
the greater for resolving it. End Summary.


2. (S) In his characteristically polite and respectful way,
Vice President Elvin Santos was highly critical of President
Jose Manuel "Mel" Zelaya Rosales during an August 11 private
talk with Ambassador and EconChief. Santos, a political
novice, called the meeting to convey his concerns about
recent developments, and to explain his apparently on-again,
off-again relationship with Zelaya. He openly sought
continued Embassy support in pushing back against the harmful
influence of Zelaya's leftist-oriented inner circle of
advisors.


3. (S) Prior to his late-July vacation in the United States,
Santos had given an interview to right-of-center daily El
Heraldo in which he was critical of the fuel solicitation
process and dismissive of Venezuela as a possible solution to
Honduras' energy challenges. Instead, he said, Honduras must
develop a comprehensive energy strategy and diversify its
energy supply. Despite its reasoned message of
self-reliance, hard work, and respect for private investment,
the interview was quickly portrayed by Santos' opponents on
the left as "disloyal" to the President. When Santos
returned, he found himself at the center of a political
firestorm, and under pressure from the President to publicly
join ranks (ref A). Santos, having already made his point
with his interview, agreed to do so.


4. (S) This careful balancing act -- remaining true to his
own free-market principles while supporting the President
enough to retain at least some access and influence -- has
been a halmark of Santos' first six months in office. Santos
is not a member of the President's inner circle, and indeed
conducts his business from a home office rather than an
office in the Presidential palace. Santos confirmed what
Post has heard from several others: that the President and
his inner circle meet privately, late into the early morning,
to set policy. Zelaya, he lamented, reads whatever script
his advisors give him, goes to the events they designate, and
dutifully repeats the points he's been given.


5. (S) According to Santos, Zelaya is more comfortable with
the leftist ideology of his advisors than with that of the
U.S. Zelaya is drawn to the romantic image of the left, a
trait his advisors exploit. "They are masters of disguise...
They are incredibly good at telling you whatever you want to
hear." While this tendency, and the influence wielded by
Zelaya's advisors clearly troubled Santos, there have been
small victories. Santos continues to struggle quietly
(backed by other, more moderate Liberal Party voices such as
former President Carlos Flores) to contain the leftist and
populist influences. "Things are much better than they were
in February" when Zelaya first took office, Santos told

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Ambassador. "Back then, he (the President) was talking about
creating state-run companies for every sector."


6. (S) To understand the policy muddle in which the Zelaya
administration now finds itself, Santos said, one must
remember three things: First, he said, the oil controversy
has little to do with geopolitics or energy, and everything
to do with acquiring soft financing for Liberal Party social
spending. "He wants to be seen as everyone's savior." This
policy of handouts and subsidies would also create a legacy
for the Liberal Party, setting it up for future electoral
victories. Second, he said, the political strategists and
advisors around Zelaya have failed to vet their plans for
legality. The fuel solicitation, for example, appears to
private sector observers to violate a host of national and
international laws and treaties, to be non-transparent, and
subject to conflicts of interest. The President was
reportedly meeting late into the night on August 10 with his
advisors on this topic, and the consultant behind the scheme
is now calling for a delay in implementation to review and
possibly re-draft the Terms of Reference. Third, and of most
concern, Santos said, both Zelaya and his advisors prefer a
situation of "perpetual crisis" from which to govern.


7. (S) As evidence that the Zelaya team prefers crises,
Santos cited the particularly disturbing example of the
recent teachers' strikes. As reported previously, Honduras
has seen weeks of labor unrest by teachers demanding massive
pay raises -- increases that would almost certainly shatter
the GOH agreement with the International Monetary Fund.
Strikes and marches followed, culminating in street brawls
involving tear gas and, in at least one incident, gunfire.
Over the preceding several weeks the GOH had named a series
of three different commissions to negotiate with the
teachers. On August 3, labor leader Daniel Dubon (a member
of the second commission) told Ambassador that the issue was
essentially resolved, and that a deal would be signed by
August 5. Santos confirmed Dubon's comment, but then
explained what happened next: President Zelaya opened
informal channels to other labor leaders, and encouraged them
to press for more. The Saturday deal fell apart and protests
resumed, concluding only on August 10, when the GOH
reportedly capitulated to the teachers' full demands. Zelaya
perpetuated and exacerbated the crisis, Santos said, so that
he could then arrive as the hero who resolved it.


8. (S) In a recent meeting with several visiting U.S.
flag-rank military officers, former President Carlos Flores
openly criticized this lack of leadership, and blamed it for
Honduras' enduring poverty and underdevelopment. Lack of
vision and lack of will to confront and resolve politically
difficult structural problems continue to hold back social
and economic development in Honduras, he said. It appears to
Post that Zelaya, however, has taken this to a new level, not
just abiding but actually encouraging crises, rather than
expend the political capital to resolve these situations
before they become crises.


9. (S) Comment: A preference for crises would certainly
help explain the observed improvisational style exhibited by
the Zelaya team. While Zelaya apparently views this style as
decisive leadership, observers see only a government lacking
vision, lurching from one crisis to the next. The private
sector has repeatedly warned that this lack of predictability
will frighten away potential investors. Given his advisors'
distrust for markets and investors and reported affinity for
state controls on the economy, we fear that this warning
might serve less as a dissuasion and more as an incentive.
(For example, the GOH has in just the last few months
proposed nationalizing all fuel imports, having the
government set credit card interest rates, and banning all
open-pit mining, and President Zelaya has expressed his wish
for the GOH itself to purchase leading gasoline retailer

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DIPPSA.)


10. (S) Comment continued: Worse, the recent fiscally
unsustainable decision on teachers' wages could set the
administration on a collision course with the IMF and
international donors, a confrontation that, given his
personality, Zelaya might relish as a chance to be seen as
standing up to outside forces. As with his other populist
tactics (denouncing international companies in fiery
speeches, disbursing broad subsidies, and centralizing all
decision-making authority to himself and a few insiders),
such a confrontation would raise his stature even while it
erodes the bases of his economy. Santos and others recognize
that the long-term consequences of such an approach could be
disastrous for Honduras. Santos requested that the Embassy
continue to support him in his efforts to curb Zelaya's
excesses, and in return pledged his best efforts to assist
Post to do the same. Post assesses that Santos is genuine in
his request, and will continue to work closely with him. End
Comment.

Ford
FORD