(S) HONDURAS: USG SHOULD KEEP ZELAYA NERVOUS ABOUT

S E C R E T SECTION 01 OF 03 TEGUCIGALPA 000985

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E.O. 12958: DECL: 05/31/2016
TAGS: EPET ENRG PGOV PREL PINR VE HO
SUBJECT: (S) HONDURAS: USG SHOULD KEEP ZELAYA NERVOUS ABOUT
CHAVEZ, DESPITE IMPENDING GOH-GOV OIL DEAL

REF: TEGUCIGALPA 972 AND PREVIOUS

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


1. (U) This is an action request. Please see para 6.


2. (S) Summary: In preparation for his June 5 meeting with
POTUS, President Jose Manuel Zelaya Rosales is explicitly
seeking USG reassurance that we will not object to a GOH deal
with Venezuela for oil. Zelaya has on several recent
occasions signaled that such a deal is imminent. Pressure
groups insist that Zelaya fulfill his campaign pledge to
lower gas pump prices. Post assesses that Honduras will
likely conclude the deal and that further public U.S.
objections would be counter-productive. Instead, Post
suggests that the POTUS-Zelaya meeting be used to express the
USG's extreme displeasure, but without forcing Zelaya's hand,
thus insulating the USG from possible future allegations that
it is to blame for any future Zelaya Administration failings.
At the same time, such an approach could generate important
leverage for advancing other vital USG interests in Honduras.
Post assesses that Zelaya's zeal for a deal with Venezuela
stems from political and fiscal expediency and not from a
shared ideology with Chavez. That said, certain senior GOH
officials could use such a deal to forge closer ties with
Chavez. A suggested POTUS warning to Zelaya that does not
challenge his option for making a deal, but leaves him
anxious about USG reactions to closer ties to Chavez, could
prove a crucial bulwark against the spread of Chavez's
influence in the region. End Summary.

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Zelaya Seeks USG Blessing for Deal with Venezuela
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3. (S) In a May 30 meeting with Ambassador, Honduran
President Jose Manuel Zelaya Rosales specifically requested
Post seek Washington's views on any deal with the Government
of Venezuela for oil. Zelaya is seeking reassurance prior to
his meeting with POTUS that Washington will not object if he
moves forward with such an arrangement.


4. (S) Post has discussed this issue widely with both public
and private sector actors (reftels). Post assesses that
despite Post questioning of the economic and possible
political consequences of such an agreement, a GOH-GOV deal
is imminent - though the GOH might seek a way to cloak such a
deal in more respectable "commercial" terms. Vocal public
cautioning by Post about such a deal is rapidly becoming
counterproductive. Zelaya has already hinted that possible
USG opposition to the deal could "destabilize" his
presidency. Thus, if we succeed in de-railing the deal at
this point, the GOH could use that effort to decry U.S.
meddling in internal affairs, and could then attempt to blame
any number of future Zelaya Administration policy failures on
the USG. On the other hand, if we fail to reverse the deal
we potentially hand a political victory to Chavez and to
those in the Zelaya Administration who might be inclined to
support his views.

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Why We Should Withhold Our Blessing
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5. (S) As reported reftels, Zelaya is now signaling that a
PetroCaribe deal, or something very similar, is very likely.
In our view, since the deal cannot likely be stopped, we
should use it to extract maximum advantage in other areas of
bilateral importance. Zelaya is already quite supportive of
USG policies regarding immigration, counter-narcotics,
military transformation, and a host of multilateral issues.
His administration is lagging, however, in telecommunications
reform, civil procedures reform, anticorruption and
competition policy reform, and other vital socioeconomic
development matters.


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6. (S) Action Request: Post suggests that during Zelaya's
June 5 meeting, POTUS emphasize USG displeasure at the GOH
decision to make such an arrangement with the GOV. A
carefully modulated message that does not demand walking away
from such a deal, but nevertheless pressures Zelaya, could be
effective in encouraging his support for other important USG
interests in Honduras. Such a message should also strongly
reinforce our continuing requirement for transparency in the
process, and fair treatment for U.S. investors (including
Texaco and Esso) already operating in Honduras. The USG
could also use its privately expressed displeasure at a
PetroCaribe deal to encourage Zelaya to take prompt action
towards his professed goal of liberalizing the gasoline
market in Honduras. Post welcomes any Washington suggestions
on how best to assist the GOH in laying the groundwork for
such a shift, so that when the current import deal expires
(regardless of who wins it),Honduras will be ready to move
on to a more transparent and competitive approach.

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Why Zelaya Wants PetroCaribe So Badly...
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7. (C) Honduras continues to suffer economically under the
recent high prices in refined petroleum products, especially
gasoline. Upward pressure on prices has not yet manifested
as inflation, but there are continuing calls for wage hikes,
and public discontent over high fuel prices. In a series of
ill-considered political moves, the GOH has in some ways
worsened the situation in which it finds itself. Recent
rhetoric has left the majority of the public with the
perception, as evidenced in a May 26 private poll shared with
EmbOffs May 31, that the Zelaya administration can lower fuel
prices. In addition, a blanket endorsement of the "Notables
Commission" left some of the more radical elements leading
the debate on energy policy, and a campaign promise to lower
pump prices by 10 lempiras (just over USD 0.50) per gallon
continues to haunt Zelaya (reftels).


8. (C) Fiscal pressures also remain a concern for Zelaya, who
has promised subsidies to taxi drivers, offered tax credits
in exchange for price freezes on fuels, called for thousands
of new police officers, guaranteed free school enrollment for
all students, raised government salaries by over three
percent, and allocated up to USD 40 million for a price
hedging scheme on fuel imports. Worse, the GOH urgently
needs funds to recapitalize state telephone monopoly
Hondutel, and to pay over USD 100 million in debts to
electricity generators. Other, even more burdensome fiscal
obligations, loom just over the horizon: a bailout and
restructuring of electricity parastatal ENEE, construction of
new electricity generation and transmission assets, and the
ever-present demand for significant pay raises for teachers.
A recent IMF review of the GOH program failed to reach a
conclusion in part due to concerns over a possible oil
finance deal with Venezuela.


9. (C) The above combination of factors makes a PetroCaribe
deal extremely attractive as a political and economic
expedient. By financing 40 percent of the cost of fuel
imports, Zelaya could free up an estimated USD 300 - 400
million per year. These "savings" could be used to lower
fuel prices at the pump, and/or to finance a number of the
outlays cited above. Thus, in Post view, there is both a
push (energy needs) and a pull (soft financing terms) driving
the apparent GOH move towards PetroCaribe. Where PetroCaribe
may have originally been seen as a technical fix to fuel
price problems, it has now morphed into a perceived solution
for the much broader political (read, financial) problems
dogging the new administration. It is Post's view that it
will be difficult to counter or reverse this dynamic.

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... and No, It's Not Chavez
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10. (C) In Post's opinion, Zelaya is a leader in the old

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"caudillo" (Latin strongman) mold, who prides himself on
individualism, decisiveness, and control. He is genuinely
interested in producing solutions, but lacks the patience and
intellectual curiosity required to analyze policy options
first. Thus, his decisiveness can be precipitous, and is
often based on his instinctual assessments of short-term
political needs. While he is generally credited as a savvy
interpersonal politician, Zelaya, after 100 days in office,
does not yet appear to us to have adopted the longer-term,
broader focus required of a President. This leaves him
disconcertingly susceptible to policy advice from his closest
advisors, some of whom have markedly left-leaning tendencies.
Zelaya routinely consults with these advisors jointly, in
closed-door session, long into the night.


11. (C) Consequently, Post assesses that Zelaya's populist
tendencies as a retail politician, coupled with his urgent
need to find quick fixes to complex problems and his reliance
on certain left-leaning advisors, largely explain any
perceived GOH drift towards Venezuela's President Hugo
Chavez. Expediency is driving him towards PetroCaribe, while
some of his advisors likely find satisfaction in the
concurrent warming of relations with Chavez himself. This
new closeness, particularly if it allows Chavez a base from
which to launch oil-diplomacy into Central America in a bid
to influence regional elections, clearly fits neatly into
Chavez's own political agenda. Zelaya is no Chavez, but if
left unchanged, circumstances could make him complicit in
advancing Chavez's influence in the region.

Ford

Ford