Identifier
Created
Classification
Origin
06TEGUCIGALPA743
2006-04-21 17:19:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Tegucigalpa
Cable title:  

HONDURAS SCENESETTER FOR DAS WHA MADISON, VISIT TO

Tags:  OVIP PREL PGOV ECON ECIN MOPS SNAR PTER KJUS 
pdf how-to read a cable
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UNCLAS SECTION 01 OF 10 TEGUCIGALPA 000743 

SIPDIS

SENSITIVE
SIPDIS

DOS FOR DEPUTY ASSISTANT SECRETARY KIRSTEN MADISON
STATE FOR WHA, WHA/CEN, WHA/PPC, PM, INL, AND EB

E.O. 12958: N/A
TAGS: OVIP PREL PGOV ECON ECIN MOPS SNAR PTER KJUS
HO
SUBJECT: HONDURAS SCENESETTER FOR DAS WHA MADISON, VISIT TO
HONDURAS FROM APRIL 26-28


UNCLAS SECTION 01 OF 10 TEGUCIGALPA 000743

SIPDIS

SENSITIVE
SIPDIS

DOS FOR DEPUTY ASSISTANT SECRETARY KIRSTEN MADISON
STATE FOR WHA, WHA/CEN, WHA/PPC, PM, INL, AND EB

E.O. 12958: N/A
TAGS: OVIP PREL PGOV ECON ECIN MOPS SNAR PTER KJUS
HO
SUBJECT: HONDURAS SCENESETTER FOR DAS WHA MADISON, VISIT TO
HONDURAS FROM APRIL 26-28



1. (U) Summary: New Honduran President, Jose Manuel "Mel"
Zelaya Rosales, will face a difficult task leading one of the
poorest countries in Latin America. On November 27, 2005,
there were national elections for a new President, the
unicameral Congress, and all 298 municipalities; a new (and
overwhelmingly freshman) Congress was inaugurated on January
25, followed by the Presidential inauguration on January 27.
Bilateral relations between the U.S. and Honduras are
excellent. Honduras was the first country in the Western
Hemisphere to sign and ratify an ICC Article 98 Agreement
with the United States. Honduras' support for the Global War
on Terrorism is steadfast and the Government of Honduras
(GOH) was among the group of nations that sent troops to Iraq
in support of Operation Iraqi Freedom (OIF),although these
troops have since returned. Honduras was the first country
in the region to be certified for the Container Security
Initiative. Honduras also voted for the U.S.-drafted UN
Commission on Human Rights (UNCHR) resolution on Cuba, which
passed in April 2005.


2. (SBU) Honduras faces many challenges, including
corruption, unemployment, high levels of violent crime, a
highly skewed distribution of income, and a weak judicial
system. Despite these challenges, there were several
positive economic developments in 2004 and 2005, including:
continued fiscal restraint under an agreement with the IMF,
reaching the Heavily Indebted Poor Countries (HIPC)
completion point in late March 2005, the negotiation of up to
USD 2.8 billion of debt forgiveness from Paris Club and G-8
creditors, and the signing, ratification, and initial
implementation of the U.S.-Central American Free Trade

Agreement (CAFTA) with the United States. In June 2005, the
Millennium Challenge Corporation (MCC) approved USD 215
million in funding over five years for a Honduran-drafted
proposal focusing on highway infrastructure and integrated
rural development. Honduras was one of the first countries
in the world to sign an MCC Compact, and first disbursement
took place in March 2006. Despite historically high energy
prices in 2005, Honduras also maintained single-digit
inflation rates and an estimated 4.5 percent growth in GDP in
2004 and early 2005. End Summary.

-------------- -
Key Strategic Themes in Bilateral Relationship
-------------- -


3. (SBU) The key strategic themes in our bilateral diplomatic
efforts in Honduras are: the rule of law (including
democratic institutions),regional security (including
transnational crime),economic development to reduce poverty
(through trade and investment, and investment in human
resources),and assistance to American citizens and
businesses. Overarching these goals is an emphasis on good
governance and attacking corruption, a focus that Zelaya says
he shares, as fraud/waste/abuse and the ineffective
administration of justice hampers progress in all these
areas. The USG goals coincide with Zelaya's emphasis on
public security/rule of law, economic development, and
natural resources/environment (including the prevention of
natural disasters).

-------------- --------------
What does a Zelaya Administration Mean for the USG?
-------------- --------------


4. (SBU) While Zelaya is a friend of the USG, his
personality, administration, and policy decisions are making
working with him a challenge. The Zelaya administration
provides many opportunities for forward progress and will not
likely result in any changes that would have a significant
negative impact on U.S. interests. One thing is certain: his
victory has meant a complete upheaval of the GOH with Liberal
Party political appointees replacing National Party political
appointees at senior, mid-level, and even lower level

TEGUCIGALP 00000743 002 OF 010


positions. Zelaya is specifically interested in "Citizen
Power." Campaign rhetoric emphasized achieving a smaller
central government with more power at the local level, but
early indications favor increased, rather than decreased,
centralization. Zelaya is outspoken in favor of government
transparency, but several recent non-transparent decisions
have raised concerns about the depth of understanding of and
dedication to transparency by his government.


5. (SBU) Zelaya's long term international strategy is based
on the theme of economic and political integration with the
surrounding countries. Zelaya sees the integration of
Central America as the only viable means Honduras has to meet
the increasing demands of globalization. The unification of
Central America is not a new idea, dating back to Honduras'
independence from Spain. However, it has resurfaced as an
issue of increasing importance with CAFTA. Zelaya has made
clear that integration is an issue of prominence to him,
suggesting not only economic, but also political cooperation
in other areas. Short of integration and increased
cooperation with the countries directly surrounding Honduras,
Zelaya has specific intentions to develop and strengthen
relationships with countries both in the Western Hemisphere
and overseas seen by Zelaya as important to Honduras'
national interests.


6. (SBU) While Zelaya has not declared what specific public
security measures he will set in place, he has made clear
that he holds an entirely different approach to the gang
problem than did the Maduro Administration before him.
Instead of focusing on increasing punishments and penalties
for crimes, the Liberal Party's Government Plan provides
three areas where the administration will focus their
efforts: prevention, enforcement, and rehabilitation.
Anecdotal reports indicate that violent criminal elements
have taken advantage of this perceived "softer" approach by
increasing the tempo and severity of criminal activities.


--------------
Election
--------------


7. (U) Honduras' general elections were held November 27,
2005, and were judged to be generally democratic, peaceful,
and fair. USAID and other international donors provided
approximately $5.5 million to support the primary elections,
and about $3.4 million for the general elections.


8. (U) Honduras has two main parties, the Liberal Party and
the National Party, and three minority parties, the Christian
Democrat (CD),Innovation and National Unity (PINU),and
Democratic Unification (UD). President of the Congress
Porfirio "Pepe" Lobo was the National Party presidential
candidate, and agro-businessman and former Congressman Zelaya
ran on the Liberal Party ticket. Zelaya won the election
with 49.9 percent of the vote. Lobo received 46.17 percent,
UD received 1.51 percent, CD received 1.04 percent, and PINU
received 1.02 percent of the votes. While exit polls, a
Supreme Electoral Tribunal quick count, and an OAS Quick
Count immediately projected that Zelaya had won, Lobo did not
officially concede the election until December 7, 2005,
choosing to wait until the official vote count had been
tabulated.


9. (U) In the new Congress, the Liberals have 62 of the 128
seats, the Nationals 55 seats, UD 5 seats, CD 4 seats, and
PINU 2 seats. The new President of Congress is Liberal Party
Congressmen Roberto Micheletti.


10. (U) Of the 298 municipalities in Honduras, 165 mayoral
seats went to the Liberal Party, 130 to the National Party,
two to DC, and one to PINU. Within these municipalities, at
least 20 major cities were won by the Liberal Party.

TEGUCIGALP 00000743 003 OF 010



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


11. (SBU) In recent years, the GOH has been very supportive
of U.S. foreign policy goals, including the reconstruction of
Iraq. In support of OIF, the GOH deployed 370 troops to the
vicinity of An Najaf as part of the Spanish Brigade operating
under the Polish Division. Secretary Powell, CJCS GEN Myers,
and Secretary Rumsfeld all visited Honduras in 2003 to thank
the GOH for its support of OIF. As in most of the region,
however, the Honduran general public overwhelmingly opposed
the Honduran deployment and in late April 2004, Honduras
withdrew its troops. The GOH stated this decision was based
on a change in the rules of engagement following the
withdrawal of Spanish troops from Iraq, in which the U.S.
reportedly requested that Honduras consider expanding its
troops' mandate in Iraq to participate in offensive combat
operations. The GOH believed that the National Congress
would not have authorized such a change in the rules of
engagement. The GOH committed itself to deploying some
troops to Haiti in support of the UN peacekeeping operations
there, possibly via the Conference on Central American Armed
Forces (CFAC),but has yet to do so. Honduras is very
supportive of the United States at the UN, sharing our views
on resolutions covering such key issues as human rights,
human cloning, and the Middle East. Honduras introduced a UN
Commission on Human Rights (UNCHR) resolution on Cuba, which
passed in April 2004, and voted for the U.S.-drafted UNCHR
resolution on Cuba, which passed in April 2005.

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


12. (SBU) Honduras was the first country in the Western
Hemisphere to sign and ratify an ICC Article 98 Agreement
with the United States. Honduras has a civilian Minister of
Defense and a Chief of the Joint Staff who heads the Honduran
Armed Forces (HOAF). MOD Mejia and CHOD Vasquez Velasquez
have a continuously good working relationship, especially
since Mejia, during his tenure as President of the Supreme
Electoral Tribunal prior to the MOD position, built a strong
and stable working relationship with the military, one of the
few nonpartisan institutions that effectively worked in the
contested election. In January of 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 transnational threats, including
counterterrorism, arms and drug trafficking, and combating
international criminal organizations. With the Zelaya
Administration, the military is partaking in more
non-traditional roles such as protection of natural
resources, specifically prevention of illegal logging. The
HOAF is interested in establishing an ability to increase
further its participation in international peacekeeping
operations and the HOAF has been participating in numerous
joint exercises with U.S. forces. In April 2006, GOH signed
a bilateral agreement, Article 505, regarding global
peacekeeping operations initiative. Honduras has taken the
lead in a number of regional initiatives to enhance
cooperative security against emerging transnational threats.
Within the past year, Honduras has hosted a "round-up" of
regional maritime forces to conduct combined training and
operations; the Honduran Air Force hosted a Central American
air security conference that resulted in agreements for
improving cross-border/regional communications and
coordination in addressing illegal flights; during a recent
Central American summit, the presidents unanimously agreed to
the Honduran call for the establishment of a regional rapid

TEGUCIGALP 00000743 004 OF 010


reaction force to deal with the rise of narco-terrorism in
Central America. Honduras hosted and participated in two
combined U.S. Joint Chiefs of Staff level special operation
exercises in 2005: Gallant Journey and Bold Warrior.
Honduras also stands ready to participate in a regional arms
"rationalization" process, but has said it will not negotiate
on a bilateral basis.

--------------
Counterterrorism Cooperation
--------------


13. (SBU) 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 UN and OAS
counterterrorism conventions and protocols and has also been
aggressive in upgrading port security.

--------------
Counternarcotics Issues
--------------


14. (SBU) GOH has cooperated with USG counternarcotics
efforts by facilitating USG use of La Ceiba by U.S. Customs
CHET aircraft to stage regional counternarcotics detection
and monitoring aircraft. However, the CHET aircraft does not
address maritime transit zone trafficking that most threatens
our interests. Expanding the site to include staging
maritime detection and monitoring aircraft should be our goal.


15. (SBU) Honduras' geography places it squarely in the
middle of a major illegal drug transshipment zone. Cocaine,
heroin, and marijuana transit Honduras, its airspace, and its
maritime waters. Due to increased efforts by Honduran, U.S.,
and regional counternarcotics forces, this trade has 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. The total slipped in
2005 to 261 kilos of cocaine. Additionally, there were five
Honduran-flagged vessels seized by the U.S. Coast Guard in
international waters carrying approximately 11,250 kilos of
cocaine and 53 kilos of heroin, as well as one
Honduran-flagged vessel seized by the Nicaraguan Navy
carrying 871 kilos of cocaine. Close USG-GOH cooperation,
thanks to a Bilateral Maritime Agreement, has allowed these
narcotraffickers and the drugs to be brought to the U.S. for
prosecution. During the recent April 2006 regional Operation
All Inclusive, the Honduran Navy under the direction and
support of DEA strategically placed maritime assets at the
15th parallel resulting in seizure of 3,000 kilos of cocaine
and U.S. prosecution of the principal participants. The GOH
continues to cooperate in initiating electronic telephone
intercepts with the help of DEA and NAS which has thus far
resulted in dismantling a drug transportation organization
operating throughout Central America and Mexico. This
investigation led to the arrest of six individuals and the
seizure of 2 million dollars in assets.

--------------
Anti-corruption
--------------


16. (SBU) Honduras remains one of the most corrupt countries
in the Western Hemisphere and was recently ranked 107 (tied
with Nicaragua) out of 158 countries surveyed by Transparency
International (an NGO that tracks international corruption
issues,) with 158 being the most corrupt. Only Bolivia,
Ecuador, Guatemala, Guayana, Haiti, Paraguay, and Venezuela
scored lower in the Western Hemisphere. U.S. policy against
corruption has struck a nerve here, especially any mention of
our 212f visa revocation authority. Despite the mid-2005
arrest of the then-director of the immigration service, the

TEGUCIGALP 00000743 005 OF 010


problem within immigration and the control over Honduran
identity documents is still a major concern, and the GOH has
not taken proper action to address the pervasive corruption.
The Maduro Administration commissioned a study of problems in
the service and proposals to solve those problems, a study to
which the Embassy contributed. Neither the Maduro nor the
Zelaya Administration had taken any substantive action to
resolve immigration problems beyond lip service recognition.
Procedural problems at the Public Ministry (Attorney General
and all prosecutors) and lack of resources contribute to the
GOH's limited ability to take significant action against
high-level corrupt individuals. Given the scope of the
problem and the apparent inability of the GOH to prosecute
those with influence and money, most public discussion about
the country's pervasive corruption is perceived as,
essentially, background noise by a cynical population.

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


17. (U) Puerto Cortes is the 37th largest trading port with
the U.S. by volume, according to U.S. Customs and Border
Patrol (CBP). Approximately 41 percent of all Honduran
exports are destined for the U.S. (75 percent of which
transit Puerto Cortes),and significant import-for-re-export
containerized traffic also occurs, largely to feed the
booming Honduran maquila sector. The GOH has taken a very
pro-active stance in addressing port security issues, and met
the International Maritime Organization's 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.


18. (U) The GOH hosted a successful visit (the first in the
Western Hemisphere) of a U.S. Coast Guard (USCG) port
security program team in 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".


19. (U) Puerto Cortes' volume of trade with the U.S. earned
it a place as the 45th port in the world to become part of
the DHS Container Security Initiative (CSI). It was GOH
unilateral efforts to improve the port - notably including
completing a successful U.S. Coast Guard review in June 2004
and the December 2005 GOH decision to install gamma-ray
scanning devices at the port - that convinced DHS/CBP to move
forward with CSI at Cortes. CSI offices were opened in early
March 2006 and formally inaugurated on March 25 by President
Zelaya and the Ambassador. The Honduran business community
is optimistic that the US-certification of containers will
decrease shipping times by 24 hours for Honduran exports
destined for the United States.

--------------
Public Security/Human Rights
--------------


20. (SBU) Violent crime, particularly homicides and various
gang-related crimes, continues at a high rate. Public
support for forceful government actions remains strong,
although the military's enthusiasm for joint police/military
patrols has begun to erode, claiming the joint operations

TEGUCIGALP 00000743 006 OF 010


have negatively affected military readiness. The U.S. has
assisted the establishment of an anti-kidnapping unit which
tremendously and effectively reduced the kidnapping rate.
The U.S. is also helping to increase intake/training of
police recruits, boost its counternarcotics efforts, assist
the Frontier Police, and improve prosecutorial and forensic
capacities. At the request of President Zelaya, DEA has
prepared and submitted a plan of action for the
reorganization of the Honduran police. 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.


21. (SBU) Extrajudicial killings, especially of
children/young adults since 1998, have been a source of
serious concern and only recently 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. There have been multiple large scale deaths in
the national penitentiaries in the last several years. While
many have been due to fires or other inmates, the GOH has
prosecuted some of its prison personnel and has been found
negligent in its responses and preventative measures.


22. (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/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, as Honduras has the highest rate of
HIV/AIDS in Central America.

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


23. (SBU) Approximately 570 U.S. service men and women, 14
civilian DOD employees, and 63 Locally Employed Staff
(Hondurans) are currently stationed at Honduras' Soto Cano
Air Base under the command of the Combatant Commander, U.S.
Southern Command, as Joint Task Force Bravo (JTF-B). JTF-B
has responsibility for interagency operations and supporting
contingency operations such as disaster relief, search and
rescue operations, joint and combined training exercises, and
counternarcotics missions in the assigned geographical area.
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 planned relocation of the Coronet Oak C-130
program from Puerto Rico to Soto Cano would increase the U.S.
footprint.

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


24. (SBU) Honduras has land border disputes with Nicaragua
and some of its seven maritime neighbors. Honduras and El
Salvador has had long standing border disputes over the
shared area of control in the Gulf of Fonseca and the
International Court of Justice (ICJ) ruling establishing the
land border between Honduras and El Salvador. The
Organization of American States (as a neutral third party)
has provided both nations technical assistance to help them
implement the non-disputed elements of the ICJ's ruling.
Just recently, on April 18, 2006, presidents of Honduras and

TEGUCIGALP 00000743 007 OF 010


El Salvador presided over the long-awaited conclusion of the
demarcation of the Honduran-Salvadoran border. This new
bilateral border agreement between the two countries has
formally ended a boundary dispute that dated to a conflict
between the two Central American nations in 1969.


25. (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.
Nicaraguan naval forces recently seized eight Honduran
fishing boats in disputed waters. Tensions flared recently
over possible oil exploration in the disputed area. An ICJ
decision on the case is expected sometime in 2006. 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. The agreement has yet
to be finalized.

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


26. (SBU) Honduras, with a per capita income of USD 950, is
the third poorest country in the Western Hemisphere, ahead of
only Nicaragua and Haiti. The economy grew at a rate of 4.5
percent in 2004, but over the past several decades has grown
at an average rate only slightly higher than population
growth. Social indicators are improving, but two-thirds of
all Hondurans live in poverty, and average education levels
are very low. In the past few years, low world coffee prices
have hit rural areas particularly hard (although they are now
rising somewhat),forcing major cutbacks in planting,
fertilizing, harvesting, and investment. While there has
been some agricultural diversification (melons, cultivated
shrimp, palm oil) there continues to be a large subsistence
farmer population with few economic opportunities (other than
illegal immigration to the U.S.). Remittances from Hondurans
living abroad, mostly in the United States, grew by 19
percent to USD 1.14 billion in 2004, and, at an estimated USD
1.4 billion in 2005, which is the equivalent of nearly 15
percent of Honduras' foreign exchange, will soon pass the
maquila sector as the country's largest source of foreign
exchange.


27. (SBU) The U.S. is Honduras' largest trading partner, with
two-way trade in goods of $6.99 billion dollars in 2005. The
roughly 150 U.S. companies that do business in Honduras
constitute the largest block of foreign direct investors.
One of the major magnets for foreign investment is the
apparel assembly (maquila) sector, which grew dramatically in
the 1990s, reaching then-peak employment in 2000 of about
120,000 people. Activity slowed due to increased competition
from Asia and also in response to the 2001-2002 U.S. economic
slowdown. The sector has been rebounding since 2003 and has
now exceeded pre-downturn levels, with employment now at
130,000 jobs.

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


28. (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

TEGUCIGALP 00000743 008 OF 010


and 2004 among the United States, Honduras, Guatemala, El
Salvador, Nicaragua, Costa Rica, and the Dominican Republic.
All countries except for Costa Rica have now ratified the
agreement. The agreement was ratified by the United States
on July 27, 2005, and entered into force on April 1, 2006.
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 outgoing then-ruling
National Party, but also by the incoming then-opposition
Liberal Party and two of the smaller parties in Congress
(PINU and CD) as well. Only one small leftist political
party (UD) voted against the agreement. The agreement has
also been opposed by some NGOs, labor unions, and peasant
(campesino) groups, who are concerned that small-scale
Honduran farmers will be unable to compete with subsidized
U.S. agricultural products.


29. (SBU) Zelaya's team hopes that CAFTA will lead to faster
economic growth and serve as a catalyst for regional economic
cooperation and integration. The agreement is 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 USD 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.

--------------
Millennium Challenge Account Program
--------------


30. (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. MCC's mission is to reduce poverty via economic
growth and it puts the responsibility for program design and
implementation on the country. MCC's assesses the quality of
the proposal and its fiduciary risk control mechanisms before
signing a Compact. During implementation MCC maintains
approvals of quarterly disbursements and key implementation
decisions to ensure that the Program is implemented in manner
consistent with the Compact. In June 2005, the Millennium
Challenge Corporation (MCC) approved $215 million in funding
over five years for a Transportation Project and Rural
Development Project. The Compact Entered into Force on
September 29, 2005 and the first disbursement of $1.6 was
made in February 2006. MCA-Honduras is the government entity
responsible for implementing the Program. MCA-Honduras has
hired 7 staff members and is in the process of recruiting two
more staff members. Three major procurements are currently in
process: Farmer Training and Development, Procurement
Supervisor, and the Transportation Project Manager. The
contract for the Farmer Training and Development is expected
to be awarded in late summer and will be the first activity
to show tangible results.

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


31. (U) In 2005, Honduras reached Completion Point for the
Heavily Indebted Poor Countries (HIPC) Initiative, allowing

TEGUCIGALP 00000743 009 OF 010


the GOH to approach the Paris Club (international group of
bilateral and multilateral creditors) and the Group of Eight
industrialized countries, seeking forgiveness or
restructuring of an its external debt. In July 2005,
Honduras announced it had received a combined total of $2.8
billion in pledged debt relief from bilateral and
multi-lateral donors, most of which had been completed by
December 2005. The GOH estimates this will eliminate debt
service payments of $212 million per year. The GOH has
committed to applying these funds to poverty alleviation, as
laid out in the existing Poverty Reduction Strategy. Post is
watchful for any signs that these funds could be used to pay
for unsustainable growth in public sector teacher and doctor
salaries (which the GOH has committed to reining in by 2007).
Progress under the Poverty Reduction and Growth Facility
signed with the International Monetary Fund (IMF) in February
2004 remains strong. The next semi-annual review of GOH
compliance under that agreement will take place in May 2006,
having been delayed pending GOH ratification of its new
budget.

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USAID Programs
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32. (SBU) USAID's FY06 budget for Honduras is USD 44.9
million. The USAID Central America and Mexico 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 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
Presidential Initiative. USAID is also assisting GOH efforts
to develop quality education standards, testing, and
evaluation.


33. (U) USAID's Integrated Food Security program addresses
the multiple causes and effects of food shortages and
nutritional deficiencies in some of the poorest communities
in Honduras. It provides community-based maternal and child
health care, improved agricultural productivity and
marketing, construction of rural roads and water systems,
improved natural resource management, and increased
transparency and efficiency of municipal governments.

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Consular Issues
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34. (U) The GOH estimates more than 800,000 Hondurans live in
the U.S., a fact that places immigration issues high on the
bilateral agenda. (The population of Honduras is
approximately seven million.) Combating alien smuggling and
TIP are top priorities. Approximately 82,000 of these
Hondurans currently enjoy Temporary Protected Status (TPS),

TEGUCIGALP 00000743 010 OF 010


which was granted to certain Hondurans who were in the United
States illegally at the time of Hurricane Mitch in 1998.
Another 250,000 are estimated to be in the United States
illegally. In March 2006, the Department of Homeland
Security extended TPS for these Hondurans until July 2007, a
move that the GOH deeply appreciated. The GOH is also very
interested in any possible U.S. Congressional action on
immigration reform, particularly temporary work permit
proposals. The GOH is currently working closely with the USG
to expedite the issuance of travel documents to facilitate
the deportations of Hondurans who have illegally entered the
U.S. As part of this cooperation, the GOH has indicated a
willingness to expand permission for Justice Prisoner and
Alien Transport System (JPATS) deportation flights to land in
San Pedro Sula in addition to Tegucigalpa, provided the USG
provides funding for a Center for Returned Migrants.


35. (U) With approximately 15,000 American citizens residing
in Honduras (including American citizens who also hold
Honduran citizenship) and many thousands visiting Honduras
annually for tourism, missionary work, and business, American
Citizen Services are a key part of the Embassy's work. Since
1995, there have been 51 American Citizen victims of
homicide; 16 of these have occurred in the last 18 months.
There was not much progress on most of these cases until
2003, but there have now been 24 convictions in 15 cases, and
ten cases have been closed. Better coordination among the
investigative police, prosecutors, and the Embassy has
revived investigations into several previously cold cases.
Some progress has been made on extradition cases involving
American citizens residing in Honduras who are wanted for
felonies in the United States. In September 2005, the USG
extradited a Honduran wanted for major financial fraud in
Honduras. (The Honduran constitution bars the extradition of
Honduran nationals.) Law enforcement cooperation with
Honduras would be enhanced if Honduras were to sign on to the
OAS Mutual Legal Assistance Convention.

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Embassy Tegucigalpa
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36. (SBU) Embassy Tegucigalpa is a medium-sized post,
employing approximately 119 U.S. citizens and 344 Locally
Employed Staff (mostly Hondurans) among 14 USG agencies. The
Peace Corps program, with approximately 192 volunteers, is
one of the world's largest, and the USAID mission has a FY06
budget of $44.9 million. The Mission maintains a Consular
Agent in Honduras' second largest city and industrial center,
San Pedro Sula.
Ford