Identifier
Created
Classification
Origin
07TEGUCIGALPA1484
2007-08-30 21:19:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Tegucigalpa
Cable title:
HONDURAS SCENESETTER FOR USDA SECRETARY JOHANNS
VZCZCXRO4947 OO RUEHLMC DE RUEHTG #1484/01 2422119 ZNR UUUUU ZZH O 302119Z AUG 07 FM AMEMBASSY TEGUCIGALPA TO RUEHC/SECSTATE WASHDC IMMEDIATE 6736 INFO RUEHRC/DEPT OF AGRICULTURE USD WASHDC IMMEDIATE RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE PRIORITY RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC PRIORITY 0695
UNCLAS SECTION 01 OF 05 TEGUCIGALPA 001484
SIPDIS
SENSITIVE
SIPDIS
USDA FOR SECRETARY JOHANNS
STATE FOR WHA, WHA/CEN, WHA/PPC, H, AND EB
E.O. 12958: N/A
TAGS: BEXP EAGR EAID ECON EFIS ETRD OVIP PGOV PREL
HO
SUBJECT: HONDURAS SCENESETTER FOR USDA SECRETARY JOHANNS
UNCLAS SECTION 01 OF 05 TEGUCIGALPA 001484
SIPDIS
SENSITIVE
SIPDIS
USDA FOR SECRETARY JOHANNS
STATE FOR WHA, WHA/CEN, WHA/PPC, H, AND EB
E.O. 12958: N/A
TAGS: BEXP EAGR EAID ECON EFIS ETRD OVIP PGOV PREL
HO
SUBJECT: HONDURAS SCENESETTER FOR USDA SECRETARY JOHANNS
1. (SBU) Summary: As you prepare to visit Tegucigalpa,
relations between the United States and Honduras are
generally good. President Zelaya considers himself a friend
of the United States, and Honduras generally supports U.S.
positions on major international issues, including the War on
Terrorism. But Zelaya's administration has expressed open
irritation and defensiveness about the USG's increasing focus
on corruption in Honduras, which may soon affect Honduras
continued eligibility for Milennium Challenge Account
funding. Your interlocutors may also raise concerns about
possible safeguards on Honduran socks, a proposed U.S. tax
increase on domestic and international tobacco products,
which would affect exports of Honduran cigars, and
deportations of Hondurans living illegally in the United
States. CAFTA entered into force for Honduras in April 2006,
but Honduras has been slow to implement its CAFTA
obligations, and exports to the United States were actually
down slightly in the first year. Meeting U.S. sanitary and
phytosanitary requirements for agricultural exports and
improving the Honduran investment climate are major obstacles
to reaping the benefits of CAFTA. An apparently off-the-cuff
proposal by the Agriculture Minister earlier this year to ban
genetically modified crops looks to be dead for the time
being. A recent visit by Brazilian President Lula has
sparked interest in developing biofuels in Honduras.
President Bush discussed biofuels with Zelaya during their
last meeting in August 2006. End Summary.
--------------
Political Backdrop
--------------
2. (U) Honduras faces many challenges, including corruption,
unemployment, high levels of violent crime, a highly skewed
distribution of income, and a weak judicial system. With a
per capita income of approximately USD 1000, Honduras is the
third poorest country in the Western Hemisphere. Two-thirds
of Hondurans live in poverty, and average education levels
are very low. Honduras has the highest rate of HIV/AIDS in
Central America. The GOH estimates that approximately one
million Hondurans out of a total population of 7 million live
in the United States, about 600,000 of whom are undocumented.
Immigration issues thus rank high on the bilateral agenda.
3. (SBU) Honduras is a transit country for shipments of
cocaine flowing north from South America, predominantly by
sea. U.S. and Honduran counternarcotics police and military
units actively monitor the transshipment of drugs though the
country via air, land and sea routes. The GOH cooperates with
the USG in investigating and interdicting narcotics
trafficking but faces significant obstacles in funding, a
weak and corrupt judicial system with heavy caseloads, lack
of coordination, and inadequate leadership.
--------------
Corruption
--------------
4. (SBU) Honduras is one of the most corrupt countries in the
Western Hemisphere and was recently ranked 121 out of 163
countries surveyed by Transparency International. Only
Ecuador, Haiti, and Venezuela scored lower in the Western
Hemisphere. U.S. policy and statements against corruption
have struck a nerve here. The GOH recently passed two
important laws that should aid in the fight against
corruption: the Transparency Law will give public access to
more of the government,s dealings and allow the public to
obtain information about ministries and agencies; and the new
Civil Procedure Code will speed up the judicial process and
allow for public oral arguments in civil courts, which have
historically been nontransparent. Nonetheless, Honduras's
score on the corruption indicators used to determine
eligibility for Milennium Challenge Account funding have
recently worsened, putting in jeopardy more than USD 200
million in MCA funding. Corruption is particularly rife in
the state-owned telecommunications and electricity industries.
--------------
Crime
--------------
5. (U) Personal security is a serious concern for all
Hondurans and foreigners residing in Honduras. Violent
crime, particularly homicides and various gang-related
crimes, is extremely high. According to official Honduran
figures, the country has a murder rate of 23.1 per 100,000
TEGUCIGALP 00001484 002 OF 005
inhabitants (compared to the average murder-rate worldwide of
8.8). The police estimate that over half the murders can be
attributed to youth gangs that claim over 36,000 members in
Honduras. Public support for forceful government actions
remains strong. Although the Zelaya administration can claim
some credit for a small reduction in the number of violent
deaths in Honduras, the country remains one of the most
dangerous places in the Western Hemisphere.
--------------
President Zelaya
--------------
6. (SBU) After more than a year and a half in office, the
record of accomplishments of President Manuel (Mel) Zelaya,
with whom you will meet September 6, is mixed. Zelaya was
elected on a platform of "Citizen Power" and the plan of
achieving a smaller central government with more power at the
local level. But his first year in office has seen a
consolidation of power in his hands and those of several
close advisors. He claims to favor government transparency,
and signed into law in 2006 a transparency bill to promote
public access to information. But corruption in Honduras
remains rampant. While Zelaya considers himself a friend of
the USG, his personality, administration, and populist
policies -- as reflected by his proposal to effectively
nationalize the distribution of petroleum products -- have
made working with him a challenge.
7. (SBU) Zelaya sees the integration of Central America as
the only viable means Honduras has to meet the challenge of
globalization. In addition to ratifying CAFTA and increasing
cooperation with neighboring countries, Zelaya intends to
develop and strengthen relationships with other countries in
the Western Hemisphere, as well as in Asia and Europe.
Honduras, together with its Central American partners, is
currently negotiating a free trade agreement with the
European Union. As a consequence, Honduras, a major banana
producer, has opted not to join the United States and other
Western Hemisphere countries in a World Trade Organization
dispute with the EU over the EU's banana import policies.
8. (SBU) Over the past month, Zelaya has become embroiled in
a power play with the President of the Honduran Congress,
Roberto Micheletti, who like Zelaya is from the Liberal
Party. The dispute centers on competing proposals to reform
the Honduran telecommunications market and to regulate the
rates on incoming international calls charged by the state
telecom company Hondutel. Hondutel has become a major source
of graft and corruption in Honduras. Reforming the telecom
sector is a CAFTA requirement, but corruption and power
politics are standing in the way.
--------------
Economic Overview
--------------
9. (U) After lagging for most of the 1980s and '90s, the
Honduran economy has shown steady growth of 4-5 percent over
the last five years, thanks in large part to roughly USD 3
billion in external debt forgiveness and huge inflows of
remittances from Hondurans residing -- legally and illegally
-- in the United States, which amount to about one-fifth of
GDP. Inflation has remained moderate at around 6 percent,
and the exchange rate has been stable. However, creeping
budgetary pressures in the form of subsidies for fuel and
electricity and public sector salary demands, in particular
from teachers, are causing concern about fiscal
sustainability over the medium term. The GOH has committed
to applying the resources it has acquired through debt relief
to poverty alleviation, but execution has been well below
expectations.
10. (U) In April 2006, the International Monetary Fund (IMF)
was unable to certify GOH compliance with its Poverty
Reduction and Growth Facility (PRGF),based largely on
concerns about new fiscal policies that loosened fiscal
discipline and significantly augmented public sector wages.
The PRGF agreement stalled and eventually expired in February
2007. At present Honduras has no formal agreement in place
with the IMF.
11. (U) The United States is Honduras' largest trading
partner, with two-way trade in goods of USD 7 billion in
2006, and the largest source of foreign direct investment.
One of the major magnets for foreign investment is the
TEGUCIGALP 00001484 003 OF 005
apparel assembly (maquila) sector, which grew dramatically in
the 1990s and now employs more than 130,000 people. However,
weak policies and physical and juridical insecurity deter
many potential investors. FDI in the maquila sector actually
dropped 10 percent in 2006, despite CAFTA.
--------------
The Importance of CAFTA
--------------
12. (U) On March 3, 2005, the Honduran Congress approved
CAFTA by an overwhelming margin. The agreement entered into
force for Honduras on April 1, 2006. In the 12 months
following entry into force, Honduran exports to the United
States actually fell slightly compared with the 12 months
before the agreement went into effect -- to USD 3.71 billion
from USD 3.76 billion. Although 12 months is too short a
time on which to judge, many analysts here see this
lackluster performance in the first year as evidence that
Honduras needs to undertake serious microeconomic reforms and
improve its investment climate before it will be able to take
advantage of the opportunities offered by CAFTA.
13. (SBU) Zelaya's team worked hard to bring CAFTA into
force, but has done little since then to take advantage of
the opportunities offered by the agreement. Key reforms in
energy, telecommunications, and other sectors remain stalled,
and policies favoring price controls and state intervention
have weakened the investment climate. 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. The agreement's agricultural
chapter liberalizes agricultural trade gradually while
protecting Honduran farmers from sudden disruptions caused by
subsidized imports.
14. (SBU) The recent announcement by the U.S. Committee on
Implementation of Textile Agreements (CITA) that it was
initiating proceedings to determine whether to impose
safeguards in response to a recent surge in imports of socks
from Honduras has caused a press stir here and may come up in
your conversations with Honduran officials. Business groups
claim imposition of a safeguard would cost Honduras thousands
of jobs and cause investment in the textile and apparel
sectors to dry up. CITA will be collecting public comments
on the issue until September 20, after which it will have 60
days to decide whether a safeguard is warranted. Under
CAFTA, Honduras has the right to demand consultations and to
receive compensation in the form of trade concessions on
other apparel products. But at this point the GOH is
challenging the basis for the safeguard and complaining to us
privately that imposing one would be interpreted in Honduras
as a betrayal of CAFTA.
--------------
Honduran Agriculture
--------------
15. (U) Agriculture accounts for about 12 percent of Honduran
GDP and employs about 35 percent of the workforce. For much
of the 20th century, bananas accounted for the vast majority
of exports and the bulk of government revenue. But they now
amount to just 13 percent of exports. Although there has
been some diversification of agricultural production in
recent years into more lucrative cash crops (melons,
cultivated shrimp, palm oil, oriental vegetables),there
remains a large population of subsistence farmers with few
economic opportunities other than illegal immigration to the
U.S. This is exacerbated by a shift in agricultural policy
under the Zelaya Administration to one of subsidizing
non-competitive basic grains production.
16. (SBU) Earlier this year, apparently without coordination
within the GOH, Agriculuture Minister Hernandez announced his
intention to ban genetically modified seeds from Honduras.
This provoked a popular backlash, which forced Hernandez to
withdraw the proposal. But Hernandez is reportedly a true
believer in the evils of GMO crops.
17. (U) More recently, Honduran trade and agriculture
interests have sounded an alarm over a proposal in the U.S.
Congress to raise the tax on tobacco products -- including
Honduran "puro" cigars -- to finance an expansion of
children's health insurance. The bill is currently in
conference. The Senate version would set the tax on cigars
at USD 3; the House version at USD 1. The President opposes
TEGUCIGALP 00001484 004 OF 005
both versions in their current form. An earlier Senate
version would have raised the tax to USD 10, and Honduran
press are erroneously reporting that as the current proposal.
--------------
U.S. Assistance Programs
--------------
18. (U) In June 2005 Honduras signed a 5-year, USD 215
million Millennium Challenge Compact. It was one of the
first countries to sign such a compact. The Compact aims to
reduce poverty and promote growth by increasing the
productivity and business skills of farmers who operate small
and medium-sized farms and by reducing transportation costs
between production centers and national, regional and global
markets. The goal of the Compact is to increase Honduras'
annual income by an estimated USD 69 million by 2010.
Hundreds of small/medium farmers have begun receiving
intensive technical assistance in the production and
commercialization of high-value agricultural crops. An
international project manager is reviewing final designs for
upgrades to the country's main highway and working with
MCA-Honduras to evaluate proposed improvements to secondary
and tertiary roads. Construction is expected to begin in
late 2007-early 2008. However, Honduras's recent worsening
score on MCC's corruption indicators may result in an imposed
remediation plan for Honduras to continue receiving
Millennium Challenge Account funding.
19. (U) USAID operates a USD 38.8 million program closely
aligned with the goals of the MCC. Projects seek to increase
the responsiveness and accountability of public institutions
and create better models for governance, justice reforms,
transparency and participation. There is also a concerted
focus on trade policy and support to Honduras in complying
with the requirements of CAFTA. USAID strives to bridge
agricultural production in rural areas with relatively higher
value processing and marketing enterprises in urban centers.
An integrated natural resource management program emphasizes
sustainable land and water-use, biodiversity, and reduced
disaster vulnerability. The health program aims to improve
reproductive health, family planning, child survival,
prevention of HIV/AIDS, and household food security. USAID
is also working to improve the Honduran education system,
including through a Centers for Excellence in Teacher
Training Presidential Initiative and by assisting GOH efforts
to develop quality education standards, testing, and
evaluation.
--------------
Relations With Neighboring Countries
--------------
20. (U) The economic relationship between Honduras and El
Salvador is growing despite the territorial disputes. The two
countries are working together to construct a controversial
hydroelectric dam that will provide power to both countries,
and with the help of funds from MCC, they are constructing a
modern road that will allow El Salvador to send its goods to
the Honduran ports on the Caribbean.
21. (SBU) The election of Daniel Ortega in Nicaragua was not
cause for alarm but only caution on the part of the GOH.
Ortega,s claims that he has changed from the 1980s and that
he will fully support CAFTA and free trade in the area were
well-received by the GOH. However, second thoughts are
arising as Ortega welcomes aid from Cuba, Venezuela, and
Iran. The GOH is neither embracing nor shunning the Ortega
administration, but Zelaya was the only Central American
president to personally participate in the recent anniversary
of the Sandinista revolution.
22. (SBU) Honduras restored relations with Cuba in 2002 after
a 40-year break but only recently actively engaged the Cuban
government. The Honduran Foreign Minister visited Cuba in
October 2006 to sign agreements of friendship and to commence
negotiations regarding a maritime boundary. The Cuban Foreign
Minister returned the favor and visited Honduras in early
March when he promised more medical and education assistance.
The first Honduran Ambassador to Cuba in over forty years
was named in June 2007. Cuba sent doctors to help Honduras
recover from the devastation of Hurricane Mitch in 1998.
Since then, Cuba has maintained a brigade of 300 doctors who
provide medical assistance to the poor. Cuba also donates
medical supplies and offers scholarships for Honduran medical
students.
TEGUCIGALP 00001484 005 OF 005
--------------
Political/Military Relations
--------------
23. (SBU) 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 generally supports
the United States at the UN, including on such issues as
human rights, human cloning, Cuba and the Middle East.
Honduras has taken the lead in a number of regional
initiatives to enhance cooperative security against emerging
transnational threats. Honduras hosted and participated in a
joint disaster relief training operation with U.S. military
forces last year and a series of joint US/Honduran exercises
(Horizons 06). During New Horizons, the two militaries worked
together to construct clinics and schools to serve the
Honduran poor.
24. (U) Approximately 575 U.S. service men and women, 12
civilian DOD employees, and 62 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, humanitarian
assistance, search and rescue operations, joint and combined
training exercises, and counternarcotics operations 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.
--------------
Embassy Tegucigalpa
--------------
25. (U) Embassy Tegucigalpa is a medium-sized post, employing
approximately 119 U.S. citizens and 320 Locally Employed
Staff (mostly Hondurans) among 14 USG agencies. The Peace
Corps program, with approximately 192 volunteers, is one of
the world's largest. The Mission maintains a Consular Agent
in Honduras' second largest city and industrial center, San
Pedro Sula.
FORD
SIPDIS
SENSITIVE
SIPDIS
USDA FOR SECRETARY JOHANNS
STATE FOR WHA, WHA/CEN, WHA/PPC, H, AND EB
E.O. 12958: N/A
TAGS: BEXP EAGR EAID ECON EFIS ETRD OVIP PGOV PREL
HO
SUBJECT: HONDURAS SCENESETTER FOR USDA SECRETARY JOHANNS
1. (SBU) Summary: As you prepare to visit Tegucigalpa,
relations between the United States and Honduras are
generally good. President Zelaya considers himself a friend
of the United States, and Honduras generally supports U.S.
positions on major international issues, including the War on
Terrorism. But Zelaya's administration has expressed open
irritation and defensiveness about the USG's increasing focus
on corruption in Honduras, which may soon affect Honduras
continued eligibility for Milennium Challenge Account
funding. Your interlocutors may also raise concerns about
possible safeguards on Honduran socks, a proposed U.S. tax
increase on domestic and international tobacco products,
which would affect exports of Honduran cigars, and
deportations of Hondurans living illegally in the United
States. CAFTA entered into force for Honduras in April 2006,
but Honduras has been slow to implement its CAFTA
obligations, and exports to the United States were actually
down slightly in the first year. Meeting U.S. sanitary and
phytosanitary requirements for agricultural exports and
improving the Honduran investment climate are major obstacles
to reaping the benefits of CAFTA. An apparently off-the-cuff
proposal by the Agriculture Minister earlier this year to ban
genetically modified crops looks to be dead for the time
being. A recent visit by Brazilian President Lula has
sparked interest in developing biofuels in Honduras.
President Bush discussed biofuels with Zelaya during their
last meeting in August 2006. End Summary.
--------------
Political Backdrop
--------------
2. (U) Honduras faces many challenges, including corruption,
unemployment, high levels of violent crime, a highly skewed
distribution of income, and a weak judicial system. With a
per capita income of approximately USD 1000, Honduras is the
third poorest country in the Western Hemisphere. Two-thirds
of Hondurans live in poverty, and average education levels
are very low. Honduras has the highest rate of HIV/AIDS in
Central America. The GOH estimates that approximately one
million Hondurans out of a total population of 7 million live
in the United States, about 600,000 of whom are undocumented.
Immigration issues thus rank high on the bilateral agenda.
3. (SBU) Honduras is a transit country for shipments of
cocaine flowing north from South America, predominantly by
sea. U.S. and Honduran counternarcotics police and military
units actively monitor the transshipment of drugs though the
country via air, land and sea routes. The GOH cooperates with
the USG in investigating and interdicting narcotics
trafficking but faces significant obstacles in funding, a
weak and corrupt judicial system with heavy caseloads, lack
of coordination, and inadequate leadership.
--------------
Corruption
--------------
4. (SBU) Honduras is one of the most corrupt countries in the
Western Hemisphere and was recently ranked 121 out of 163
countries surveyed by Transparency International. Only
Ecuador, Haiti, and Venezuela scored lower in the Western
Hemisphere. U.S. policy and statements against corruption
have struck a nerve here. The GOH recently passed two
important laws that should aid in the fight against
corruption: the Transparency Law will give public access to
more of the government,s dealings and allow the public to
obtain information about ministries and agencies; and the new
Civil Procedure Code will speed up the judicial process and
allow for public oral arguments in civil courts, which have
historically been nontransparent. Nonetheless, Honduras's
score on the corruption indicators used to determine
eligibility for Milennium Challenge Account funding have
recently worsened, putting in jeopardy more than USD 200
million in MCA funding. Corruption is particularly rife in
the state-owned telecommunications and electricity industries.
--------------
Crime
--------------
5. (U) Personal security is a serious concern for all
Hondurans and foreigners residing in Honduras. Violent
crime, particularly homicides and various gang-related
crimes, is extremely high. According to official Honduran
figures, the country has a murder rate of 23.1 per 100,000
TEGUCIGALP 00001484 002 OF 005
inhabitants (compared to the average murder-rate worldwide of
8.8). The police estimate that over half the murders can be
attributed to youth gangs that claim over 36,000 members in
Honduras. Public support for forceful government actions
remains strong. Although the Zelaya administration can claim
some credit for a small reduction in the number of violent
deaths in Honduras, the country remains one of the most
dangerous places in the Western Hemisphere.
--------------
President Zelaya
--------------
6. (SBU) After more than a year and a half in office, the
record of accomplishments of President Manuel (Mel) Zelaya,
with whom you will meet September 6, is mixed. Zelaya was
elected on a platform of "Citizen Power" and the plan of
achieving a smaller central government with more power at the
local level. But his first year in office has seen a
consolidation of power in his hands and those of several
close advisors. He claims to favor government transparency,
and signed into law in 2006 a transparency bill to promote
public access to information. But corruption in Honduras
remains rampant. While Zelaya considers himself a friend of
the USG, his personality, administration, and populist
policies -- as reflected by his proposal to effectively
nationalize the distribution of petroleum products -- have
made working with him a challenge.
7. (SBU) Zelaya sees the integration of Central America as
the only viable means Honduras has to meet the challenge of
globalization. In addition to ratifying CAFTA and increasing
cooperation with neighboring countries, Zelaya intends to
develop and strengthen relationships with other countries in
the Western Hemisphere, as well as in Asia and Europe.
Honduras, together with its Central American partners, is
currently negotiating a free trade agreement with the
European Union. As a consequence, Honduras, a major banana
producer, has opted not to join the United States and other
Western Hemisphere countries in a World Trade Organization
dispute with the EU over the EU's banana import policies.
8. (SBU) Over the past month, Zelaya has become embroiled in
a power play with the President of the Honduran Congress,
Roberto Micheletti, who like Zelaya is from the Liberal
Party. The dispute centers on competing proposals to reform
the Honduran telecommunications market and to regulate the
rates on incoming international calls charged by the state
telecom company Hondutel. Hondutel has become a major source
of graft and corruption in Honduras. Reforming the telecom
sector is a CAFTA requirement, but corruption and power
politics are standing in the way.
--------------
Economic Overview
--------------
9. (U) After lagging for most of the 1980s and '90s, the
Honduran economy has shown steady growth of 4-5 percent over
the last five years, thanks in large part to roughly USD 3
billion in external debt forgiveness and huge inflows of
remittances from Hondurans residing -- legally and illegally
-- in the United States, which amount to about one-fifth of
GDP. Inflation has remained moderate at around 6 percent,
and the exchange rate has been stable. However, creeping
budgetary pressures in the form of subsidies for fuel and
electricity and public sector salary demands, in particular
from teachers, are causing concern about fiscal
sustainability over the medium term. The GOH has committed
to applying the resources it has acquired through debt relief
to poverty alleviation, but execution has been well below
expectations.
10. (U) In April 2006, the International Monetary Fund (IMF)
was unable to certify GOH compliance with its Poverty
Reduction and Growth Facility (PRGF),based largely on
concerns about new fiscal policies that loosened fiscal
discipline and significantly augmented public sector wages.
The PRGF agreement stalled and eventually expired in February
2007. At present Honduras has no formal agreement in place
with the IMF.
11. (U) The United States is Honduras' largest trading
partner, with two-way trade in goods of USD 7 billion in
2006, and the largest source of foreign direct investment.
One of the major magnets for foreign investment is the
TEGUCIGALP 00001484 003 OF 005
apparel assembly (maquila) sector, which grew dramatically in
the 1990s and now employs more than 130,000 people. However,
weak policies and physical and juridical insecurity deter
many potential investors. FDI in the maquila sector actually
dropped 10 percent in 2006, despite CAFTA.
--------------
The Importance of CAFTA
--------------
12. (U) On March 3, 2005, the Honduran Congress approved
CAFTA by an overwhelming margin. The agreement entered into
force for Honduras on April 1, 2006. In the 12 months
following entry into force, Honduran exports to the United
States actually fell slightly compared with the 12 months
before the agreement went into effect -- to USD 3.71 billion
from USD 3.76 billion. Although 12 months is too short a
time on which to judge, many analysts here see this
lackluster performance in the first year as evidence that
Honduras needs to undertake serious microeconomic reforms and
improve its investment climate before it will be able to take
advantage of the opportunities offered by CAFTA.
13. (SBU) Zelaya's team worked hard to bring CAFTA into
force, but has done little since then to take advantage of
the opportunities offered by the agreement. Key reforms in
energy, telecommunications, and other sectors remain stalled,
and policies favoring price controls and state intervention
have weakened the investment climate. 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. The agreement's agricultural
chapter liberalizes agricultural trade gradually while
protecting Honduran farmers from sudden disruptions caused by
subsidized imports.
14. (SBU) The recent announcement by the U.S. Committee on
Implementation of Textile Agreements (CITA) that it was
initiating proceedings to determine whether to impose
safeguards in response to a recent surge in imports of socks
from Honduras has caused a press stir here and may come up in
your conversations with Honduran officials. Business groups
claim imposition of a safeguard would cost Honduras thousands
of jobs and cause investment in the textile and apparel
sectors to dry up. CITA will be collecting public comments
on the issue until September 20, after which it will have 60
days to decide whether a safeguard is warranted. Under
CAFTA, Honduras has the right to demand consultations and to
receive compensation in the form of trade concessions on
other apparel products. But at this point the GOH is
challenging the basis for the safeguard and complaining to us
privately that imposing one would be interpreted in Honduras
as a betrayal of CAFTA.
--------------
Honduran Agriculture
--------------
15. (U) Agriculture accounts for about 12 percent of Honduran
GDP and employs about 35 percent of the workforce. For much
of the 20th century, bananas accounted for the vast majority
of exports and the bulk of government revenue. But they now
amount to just 13 percent of exports. Although there has
been some diversification of agricultural production in
recent years into more lucrative cash crops (melons,
cultivated shrimp, palm oil, oriental vegetables),there
remains a large population of subsistence farmers with few
economic opportunities other than illegal immigration to the
U.S. This is exacerbated by a shift in agricultural policy
under the Zelaya Administration to one of subsidizing
non-competitive basic grains production.
16. (SBU) Earlier this year, apparently without coordination
within the GOH, Agriculuture Minister Hernandez announced his
intention to ban genetically modified seeds from Honduras.
This provoked a popular backlash, which forced Hernandez to
withdraw the proposal. But Hernandez is reportedly a true
believer in the evils of GMO crops.
17. (U) More recently, Honduran trade and agriculture
interests have sounded an alarm over a proposal in the U.S.
Congress to raise the tax on tobacco products -- including
Honduran "puro" cigars -- to finance an expansion of
children's health insurance. The bill is currently in
conference. The Senate version would set the tax on cigars
at USD 3; the House version at USD 1. The President opposes
TEGUCIGALP 00001484 004 OF 005
both versions in their current form. An earlier Senate
version would have raised the tax to USD 10, and Honduran
press are erroneously reporting that as the current proposal.
--------------
U.S. Assistance Programs
--------------
18. (U) In June 2005 Honduras signed a 5-year, USD 215
million Millennium Challenge Compact. It was one of the
first countries to sign such a compact. The Compact aims to
reduce poverty and promote growth by increasing the
productivity and business skills of farmers who operate small
and medium-sized farms and by reducing transportation costs
between production centers and national, regional and global
markets. The goal of the Compact is to increase Honduras'
annual income by an estimated USD 69 million by 2010.
Hundreds of small/medium farmers have begun receiving
intensive technical assistance in the production and
commercialization of high-value agricultural crops. An
international project manager is reviewing final designs for
upgrades to the country's main highway and working with
MCA-Honduras to evaluate proposed improvements to secondary
and tertiary roads. Construction is expected to begin in
late 2007-early 2008. However, Honduras's recent worsening
score on MCC's corruption indicators may result in an imposed
remediation plan for Honduras to continue receiving
Millennium Challenge Account funding.
19. (U) USAID operates a USD 38.8 million program closely
aligned with the goals of the MCC. Projects seek to increase
the responsiveness and accountability of public institutions
and create better models for governance, justice reforms,
transparency and participation. There is also a concerted
focus on trade policy and support to Honduras in complying
with the requirements of CAFTA. USAID strives to bridge
agricultural production in rural areas with relatively higher
value processing and marketing enterprises in urban centers.
An integrated natural resource management program emphasizes
sustainable land and water-use, biodiversity, and reduced
disaster vulnerability. The health program aims to improve
reproductive health, family planning, child survival,
prevention of HIV/AIDS, and household food security. USAID
is also working to improve the Honduran education system,
including through a Centers for Excellence in Teacher
Training Presidential Initiative and by assisting GOH efforts
to develop quality education standards, testing, and
evaluation.
--------------
Relations With Neighboring Countries
--------------
20. (U) The economic relationship between Honduras and El
Salvador is growing despite the territorial disputes. The two
countries are working together to construct a controversial
hydroelectric dam that will provide power to both countries,
and with the help of funds from MCC, they are constructing a
modern road that will allow El Salvador to send its goods to
the Honduran ports on the Caribbean.
21. (SBU) The election of Daniel Ortega in Nicaragua was not
cause for alarm but only caution on the part of the GOH.
Ortega,s claims that he has changed from the 1980s and that
he will fully support CAFTA and free trade in the area were
well-received by the GOH. However, second thoughts are
arising as Ortega welcomes aid from Cuba, Venezuela, and
Iran. The GOH is neither embracing nor shunning the Ortega
administration, but Zelaya was the only Central American
president to personally participate in the recent anniversary
of the Sandinista revolution.
22. (SBU) Honduras restored relations with Cuba in 2002 after
a 40-year break but only recently actively engaged the Cuban
government. The Honduran Foreign Minister visited Cuba in
October 2006 to sign agreements of friendship and to commence
negotiations regarding a maritime boundary. The Cuban Foreign
Minister returned the favor and visited Honduras in early
March when he promised more medical and education assistance.
The first Honduran Ambassador to Cuba in over forty years
was named in June 2007. Cuba sent doctors to help Honduras
recover from the devastation of Hurricane Mitch in 1998.
Since then, Cuba has maintained a brigade of 300 doctors who
provide medical assistance to the poor. Cuba also donates
medical supplies and offers scholarships for Honduran medical
students.
TEGUCIGALP 00001484 005 OF 005
--------------
Political/Military Relations
--------------
23. (SBU) 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 generally supports
the United States at the UN, including on such issues as
human rights, human cloning, Cuba and the Middle East.
Honduras has taken the lead in a number of regional
initiatives to enhance cooperative security against emerging
transnational threats. Honduras hosted and participated in a
joint disaster relief training operation with U.S. military
forces last year and a series of joint US/Honduran exercises
(Horizons 06). During New Horizons, the two militaries worked
together to construct clinics and schools to serve the
Honduran poor.
24. (U) Approximately 575 U.S. service men and women, 12
civilian DOD employees, and 62 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, humanitarian
assistance, search and rescue operations, joint and combined
training exercises, and counternarcotics operations 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.
--------------
Embassy Tegucigalpa
--------------
25. (U) Embassy Tegucigalpa is a medium-sized post, employing
approximately 119 U.S. citizens and 320 Locally Employed
Staff (mostly Hondurans) among 14 USG agencies. The Peace
Corps program, with approximately 192 volunteers, is one of
the world's largest. The Mission maintains a Consular Agent
in Honduras' second largest city and industrial center, San
Pedro Sula.
FORD