HONDURAS SCENESETTER FOR CODEL THOMPSON

UNCLAS SECTION 01 OF 10 TEGUCIGALPA 000585

SIPDIS

SENSITIVE
SIPDIS

SOUTHCOM FOR ADMIRAL STAVRIDIS
STATE FOR WHA, WHA/CEN,WHA/PPC, H, PM, INL, AND EB

E.O. 12958: N/A
TAGS: OVIP PREL PGOV ECON MOPS SNAR PTER SOCI HO
SUBJECT: HONDURAS SCENESETTER FOR CODEL THOMPSON


1. (SBU) Summary: After 15 months in office, the Honduran
President, Jose Manuel "Mel" Zelaya Rosales, faces the
difficult task of leading one of the poorest countries in
Latin America. 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 also volunteered
to be the first country to host a U.S. Coast Guard port
security evaluation. Honduras' support for the Global War on
Terrorism is steadfast. 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 developments in the Honduran economy in 2006,
including: receipt of over USD 3 billion in debt relief under
the Heavily Indebted Poor Countries (HIPC) program, and entry
into force of the U.S.-Central American Free Trade Agreement
(CAFTA) with the United States on April 1, 2006. 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 the first disbursement
took place in CY 2006. Despite historically high energy
prices in 2006, Honduras also maintained single-digit
inflation rates and an estimated 5.5 percent growth in GDP in

2006.


3. (SBU) President Zelaya,s record of accomplishments after
one year in office is mixed. Zelaya is actively seeking
development and international investment. However, security
is the primary concern of a majority of Hondurans as the
murder rate is consistently one of the highest in the Western
Hemisphere. The Honduran Minister of Security is slowly
reforming the nation,s law enforcement units and creating
programs to confront organized crime, drug trafficking, and
gangs. The high rate of violence will continue to bedevil the
Zelaya administration for the rest of its term. Zelaya still
has to confront the major challenges: the high rate of
poverty, high disparity in income distribution, lack of
employment opportunities, poor education system, an
ineffective and corrupt judicial system, and the continual
threat of transnational crime, including the smuggling of
drugs, arms and people. Despite those challenges, Zelaya
remains popular with the electorate with an approval rating
in the high 60s. End Summary.

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Key Strategic Themes in Bilateral Relationship
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4. (SBU) Key strategic themes in our bilateral diplomatic
efforts in Honduras are: the rule of law and governance
(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 hamper progress in all these areas.
The USG goals coincide with Zelaya's emphasis on public
security, rule of law, economic development, environment and
natural resources (including the prevention of natural
disasters).

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What Does the Zelaya Administration Mean for the USG?
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5. (SBU) While Zelaya is a friend of the USG, his
personality, administration, and populist policies have made
working with him a challenge. The Zelaya administration has
provided some opportunities for forward progress, and few
changes that could have a significant negative impact on U.S.
interests. His victory resulted in a complete upheaval of
the GOH as Liberal Party political appointees replaced

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National Party political appointees at senior, mid-level, and
even lower-level positions. Zelaya won 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.


6. (SBU) Zelaya's long-term international strategy is based
on the theme of economic and political integration with
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, with consideration of the
CAFTA proposal, it has recently resurfaced as an issue of
increasing importance. Zelaya has emphasized that
integration is an issue of prominence to him, suggesting not
only economic, but also political cooperation in other areas.
In addition to integrating and increasing cooperation with
neighboring countries, Zelaya intends to develop and
strengthen relationships with other countries in the Western
Hemisphere and overseas that are important to Honduras'
national interests.


7. (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 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.

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Deployment of Honduran Armed Forces (HOAF) in Support of USG
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8. (SBU) In recent years, the GOH has supported U.S. foreign
policy goals, including the reconstruction of Iraq. In
support of Operation Iraqi Freedom (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 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 U.S. request 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 supports 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.

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Bilateral Political/Military Issues
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9. (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). In January of 1999, the constitution was
amended to abolish the position of a 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

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international criminal organizations. The HOAF is interested
in increasing its ability to participate in international
peacekeeping operations, and the HOAF has been participating
in numerous joint exercises with U.S. forces. 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.

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Counterterrorism Cooperation
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10. (SBU) The GOH has responded quickly to all USG requests
regarding terrorist threats and financing, although no
terrorist assets have been found in Honduran financial
institutions to date. Honduras is a party to all UN and OAS
counterterrorism conventions and protocols and has also been
aggressive in upgrading port security.

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Counternarcotics Issues
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11. (SBU) Honduras is a transit country for shipments of
cocaine flowing north from South America, predominantly by
sea. USG 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. Honduras was a major participant in Operation
All Inclusive, a USG interagency counternarcotics operation.
The operation was a regional counternarcotics initiative
directed at major trafficking organizations exploiting the
countries of Mexico and Central America. With the
participation of the Honduran Navy under the Bilateral
Maritime Agreement, U.S. Coast Guard assets searched Honduran
flagged vessels and seized over 6,636 kg of cocaine at sea in

2006. The traffickers were then sent to the U.S. for
prosecution. In other actions, counternarcotics forces seized
736 kg of cocaine, 807 kg of marijuana, and arrested 403
people. The GOH continues to cooperate in initiating
electronic telephone intercepts with the help of DEA, which
resulted in the dismantling of drug transportation
organizations operating throughout Central America and
Mexico.


12. (SBU) The GOH cooperates with the U.S. in investigating
and interdicting narcotrafficking but faces significant
obstacles in funding, a weak judicial system with heavy
caseloads, lack of coordination, and inadequate leadership.
President Zelaya continues to attack corruption, and measures
have been implemented to polygraph special investigative
units. Honduras is a party to the 1988 UN Drug Convention.


13. (SBU) President Zelaya and his new administration took
office in January 2006 vowing to take stronger measures
against crime and drugs, promising stronger international
cooperation, and an increase in the number of national
police. President Zelaya requested USG assistance with a
plan of action to reorganize the National Police and the
Honduran law enforcement counter narcotics efforts. The DEA
prepared and presented a plan of action to the President. The
Honduran Congress hopes to consider this plan, which also
includes reforms to the Police Organic Law, before the end of
the year.


14. (SBU) The Drug Enforcement Administration continues to
work closely with the International Narcotics and Law
Enforcement (INL) supported counternarcotic Special Vetted
Unit to gather sensitive narcotics intelligence that is then
passed on to other Honduran law enforcement agencies. The
unit also develops and provides investigative leads that are
disseminated to US law Enforcement entities in the US. These
leads have resulted in US criminal indictments of Honduran
Nationals responsible for transporting cocaine destined for
the US. The unit enforcement efforts target the Drug
Trafficking Organizations (DTO,s) that are exploiting

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Honduras in furtherance of their criminal enterprises. The
Special Vetted Unit has been the GOH,s instrumental force in
the dismantling and disruption of the DTO,s in Honduras. In
2006, the unit developed and implemented a biometric data
base of gang members who were repatriated back to Honduras
from the United States, as well as all gang members currently
incarcerated in the Honduran prison system.


15. (SBU) The number of drug-related arrests at Honduras'
borders continues to rise as a result of road interdiction
operations by the Frontier Police and the Policia Preventiva.
A criminal database to organize information is under
development and has already produced positive results.
Prosecution is less successful. Judicial corruption and
inefficiency, coupled with overwhelming case loads, is a
serious problem. In addition, funding constraints hamper the
Public Ministry's ability to investigate and prosecute drug
cases.


16. (SBU) Intelligence indicates that the flow of drugs
through Honduras has increased. Remote areas, such as the
Department of Gracias a Dios, are a natural safe haven for
the traffickers, offering an isolated area to refuel maritime
assets, effect boat-to-boat transfers, or off-load onto land
for continued ground transportation.


17. (SBU) GOH maritime drug interdictions have been
successful in apprehensions and arrests of persons, as well
as the seizure of maritime vessels involved in the
transportation of drugs. Several vessels have been seized and
forfeited to the GOH because of USG assistance. GOH law
enforcement agencies have intercepted shipments of weapons,
which they suspect are intended to be exchanged for drugs
with Colombian drug dealers.


18. (SBU) South American cocaine destined for the United
States flows through Honduras by land air and sea. Suspect
aircraft tracks have decreased since the surge reported in

2003. DEA suspects that heroin is being transported through
Honduras to the United States.

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Anti-Corruption
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19. (SBU) Honduras remains one of the most corrupt countries
in the Western Hemisphere and was recently ranked 121 (ten
places below Nicaragua) out of 163 countries surveyed by
Transparency International (an NGO that tracks international
corruption issues). Only Ecuador, Haiti, and Venezuela
scored lower in the Western Hemisphere. U.S. policy against
corruption has struck a nerve here, especially any mention of
our 212(f) visa revocation authority. The Director of
Immigration, Ramon Romero, was arrested on May 1, 2005 for
his alleged role in a corruption/fraud scandal involving the
illegal sale of valid Honduran passports, visas, and
residency documents to third country nationals. On May 2,
2005, the Minister of Government and Justice fired 71
Immigration employees and transferred another 37. However,
the problem within Immigration and the control over Honduran
identity documents is still a major concern, and GOH actions
have not been sufficient to address the pervasive corruption.
This is most evident in the ongoing judicial proceeding
regarding ex-director Romero, which continues to proceed at
an agonizingly slow pace. Procedural problems at the Public
Ministry (Attorney General and 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, any public discussion about
the country's pervasive corruption is a positive development.


20. (U) The GOH passed two important laws that 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.

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Port Security

TEGUCIGALP 00000585 005 OF 010


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21. (U) Puerto Cortes is one of only a handful of Container
Security Initiative (CSI) and Megaports facilities in the
Western Hemisphere. It 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 met the
International Maritime Organization's July 1, 2004 deadline
to certify its ports under the new, more stringent port
security standards of 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.


22. (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 and 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". CBP office space at
Cortes was completed, and the CSI offices opened in mid-2006.

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Public Security/Human Rights
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23. (U) The security situation in Honduras requires a high
degree of caution. Street crime is a principal concern, with
thefts, including purse-snatching, pick-pocketing, and armed
robberies occurring in urban and rural areas. There have
also been incidents of armed carjackings and kidnappings.
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 amidst speculation that the joint
operations have negatively affected military readiness. The
Regional Security Office (RSO) works closely with local
authorities on various law enforcement issues and assists
U.S. law enforcement with leads in Honduras.


24. (SBU) While 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. According to official
Honduran figures, the country has a murder rate of 23.1 per
100,000 inhabitants (compared to the average murder-rate
worldwide of 8.8). Eight Hondurans are murdered on average
every day out of a population of only 7 million. The police
estimate that over half the murders can be attributed to the
youth gangs that claim over 36,000 members in Honduras. To
combat the waves of violence that sweep the country, Zelaya
ordered the HOAF to assist the national police in patrolling
the worst crime areas and manning checkpoints throughout the
country in search of criminals and illegal arms. These joint
patrols have been effective in reducing the crime rate but
have negatively affected military readiness. The USG is
assisting the HOAF to train special military police units to
aid law enforcement. The USG is also helping to improve the
training of the police, increase counternarcotics efforts,
create a nationwide communication system for the sharing of
criminal information, assist the Frontier Police, and improve
prosecutorial and forensic capabilities. Nevertheless, public
opinion surveys reveal that most Hondurans fear the police
and believe the police themselves are involved in crime. A
new Police Organic Law currently under review by the Honduran
Congress will substantially reform the organization of the
national police and give the Minister of Security sufficient
authority to purge the police of its corrupt elements.


25. (SBU) Extrajudicial killings, especially of children and
young adults since 1998, have been a source of serious
concern. Only recently has the GOH begun to take steps to

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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.


26. (SBU) While Honduran labor law is deficient in some areas
with respect to International Labor Organization core
conventions, effective enforcement of existing laws remains
the main issue for the protection of labor rights, including
freedom of association and collective bargaining. 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.
Trafficking of women and children for commercial sexual
exploitation in the U.S., Central America, and Mexico
continues. USAID and Peace Corps have both been involved in
HIV/AIDS prevention, as Honduras has the highest rate of
HIV/AIDS in Central America.

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Soto Cano Air Base - JTF Bravo
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27. (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.

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Relations With Neighboring Countries
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28. (U) Honduras is resolving its long-standing land border
dispute with El Salvador, but the two countries are engaged
in a diplomatic dispute over the possession of Isla Conejo
(Rabbit Island),a very small island in the Gulf of Fonseca.
Arguments over the exact location of the Honduras-El Salvador
border have simmered for years resulting in the short-lived
"Soccer War" of 1969. In 1992, the International Court of
Justice (ICJ) issued a ruling that demarcated the land
border. With technical assistance provided by the USG and
other countries, Honduras and El Salvador have worked
together to delineate the border, and the work is expected to
finish in 2008. However, El Salvador used the ICJ ruling to
claim Isla Conejo, a 4-hectare rock located only 600 meters
from the Honduran coast. Both countries claimed their
national sovereignty was at stake, but the matter eventually
cooled, and diplomats from both countries are working to
resolve the dispute.


29. (U) The economic relationship between Honduras and El
Salvador is growing despite the territorial disputes. The two
countries are working together to construct a 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.


30. (U) On the other side of the country, Honduras and
Nicaragua have a long-standing dispute over their respective
maritime boundaries. Honduras claims the 15th parallel as the
dividing line, and that their maritime border extends due
east from the mouth of the Rio Coco that separates the two
countries. Nicaragua claims its territory extends at an angle
from the mouth of the Rio Coco up to the 17th parallel, thus
giving Nicaragua claims on a number of small islands and
control over a suspected resource-rich region. The matter was

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referred to the ICJ and final oral arguments were presented
in March. A ruling is not expected for several years.


31. (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.


32. (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.
Cuba has a good reputation in Honduras, which began in 1998
when the Government of Cuba sent doctors to help Honduras
recover from the devastation of Hurricane Mitch. Since then,
Cuba has maintained a brigade of 300 doctors that provide
medical assistance to the poor. Cuba continues to donate
medical supplies and offer scholarships for Honduran medical
students. The Cuban Foreign Minister,s visit prompted Zelaya
to name Honduras, first ambassador to Cuba in over 40 years.

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Economic Overview
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33. (SBU) Honduras, with a per capita income of approximately
USD 1000, is the fifth poorest country in the Western
Hemisphere. The economy grew at a rate of 5.5 percent in
2006, 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. While in the past 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.). This is exacerbated by the Zelaya
administration's shift in agricultural policy from one of
diversification for value-added export to one of subsidizing
non-competitive basic grains production. Remittances from
Hondurans living abroad, mostly in the United States, grew
explosively from USD 1.14 billion in 2004, to USD 1.5 billion
in 2005, to an estimated USD 2.3 billion in 2006, which is
the equivalent of nearly 30 percent of Honduras' gross
domestic product. Remittances have far surpassed the maquila
sector and all other exports as the country's largest source
of foreign exchange earnings.


34. (SBU) The U.S. is Honduras' largest trading partner, with
two-way trade in goods of $7 billion dollars in 2006. 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 rebounded from 2003 through 2005 and
exceeded pre-downturn levels, with employment now at 130,000
jobs. However, weak policies and physical and juridical
insecurity have frightened some investors, resulting in a 10
percent drop in foreign direct investment in the maquila
sector in 2006, despite CAFTA.

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The Importance of CAFTA
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35. (SBU) On March 3, 2005, the Honduran Congress approved
the U.S.-Central American Free Trade Agreement (CAFTA) by an
overwhelming margin. The agreement was negotiated in 2003
and 2004 among the United States, Honduras, Guatemala, El
Salvador, Nicaragua, Costa Rica, and the Dominican Republic.
All countries except for Costa Rica have now ratified the

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agreement. The agreement entered into force with Honduras on
April 1, 2006. CAFTA 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. The agreement has 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.


36. (SBU) Zelaya's team worked hard to bring CAFTA into
force, but has done little since then to take advantage of
the opportunities for economic growth 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. It is
estimated that in 2006 Honduras received only USD 175 million
in new foreign investment, most of it from the United States,
down from USD 195 million in 2005. The agreement's
agricultural chapter liberalizes agricultural trade gradually
while protecting Honduran farmers from sudden disruptions
caused by subsidized imports. The agreement also hopes to
spur modernization in government procurement and services and
encourage GOH structural reforms in areas such as
telecommunications.

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Millennium Challenge Account (MCA) Program
--------------


37. (U) Following a consultative proposal evaluation process,
in June 2005 Honduras signed a 5-year, USD 215 million
Millennium Challenge Compact with the Millennium Challenge
Corporation (MCC). 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. To
accomplish these two objectives, the Compact is investing in
a Rural Development Project and a Transportation Project.
The goal of the Compact is to increase Honduras' annual
income by an estimated USD 69 million by the end of the
Compact term in 2010. Under the Rural Development Project,
hundreds of small/medium farmers have begun receiving
intensive technical assistance in the production and
commercialization of high-value agricultural crops. In the
Transportation Project, a specialized international project
manager is reviewing final designs for upgrades to the
country's main highway and is working with MCA-Honduras to
evaluate proposed improvements to secondary and tertiary
roads. Construction in the Transportation Project is
expected to begin in late 2007-early 2008. The Honduran
entity responsible for the implementation of the program
(MCA-Honduras) has been established and is managing the
ongoing activities in each project. The MCC resident mission
is working with MCA-Honduras to successfully execute the
program.

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IMF Agreement and Debt Relief
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38. (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. Owing largely to strong macroeconomic
performance in previous years, in late 2006, Honduras
received an additional USD 1.3 billion in debt relief from
the InterAmerican Development Bank, adding to the USD 2.8
billion in pledged debt relief from bilateral and
multi-lateral donors received in July 2005. The GOH estimates
this will eliminate debt service payments of USD 212 million
per year. The GOH has committed to applying these funds to
poverty alleviation, as laid out in the existing Poverty

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Reduction Strategy, but execution of these programs has been
well below expectations, even while current spending on
subsidies and other non-productive programs has increased
significantly.

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USAID Programs
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39. (SBU) USAID's FY 2007 budget for Honduras is USD 38.8
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 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. 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 to
improve reproductive health, family planning, child survival,
prevention of HIV/AIDS, and household food security.
Alternative delivery systems, support for the multi-donor
Education for All/Fast Track Initiatives, and implementation
of the Centers for Excellence in Teacher Training
Presidential Initiative develop a better-educated Honduran
work force through expanded access and improved quality at
the pre-school, middle school, and upper secondary levels
(grades 10-11). USAID is also assisting GOH efforts to
develop quality education standards, testing, and evaluation.


40. (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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41. (U) The population of Honduras is approximately seven
million. The GOH estimates that approximately one million
Hondurans, about 600,000 of whom are undocumented, live in
the U.S., a fact that places immigration issues high on the
bilateral agenda. Combating alien smuggling and trafficking
in persons are top priorities. Approximately 78,000 of these
Hondurans currently enjoy Temporary Protected Status (TPS),
which was granted to some Hondurans who were in the United
States illegally at the time of Hurricane Mitch in 1998. In
mid 2006, the Department of Homeland Security extended TPS
for these Hondurans until July 2007, a move that the GOH
deeply appreciated. Further renewal of TPS is a key foreign
policy objective of the Zelaya Administration and the
National Congress. Most Honduran interlocutors can be
expected to press Secretary Chertoff and the Members of
Congress for renewal. The GOH is also very interested in any
possible U.S. Congressional action on immigration reform,
particularly temporary work permit proposals.


42. (SBU) The GOH has worked closely with the USG to expedite
the issuance of travel documents to facilitate the removal of
Hondurans who have illegally entered the U.S. Recently,
however, some Honduran political figures, including members
of the Congress, have been urging the USG to stop all
deportations. The GOH has been planning to expand permission
for Justice Prisoner and Alien Transport System (JPATS)
deportation flights to land in San Pedro Sula in addition to
Tegucigalpa. Implementation of this plan depends upon
opening a reception and reintegration center in San Pedro,

TEGUCIGALP 00000585 010 OF 010


but intermittent talks between the GOH and DHS over the past
year have been fruitless.


43. (U) With approximately 15,000 American citizens residing
in Honduras (including American citizens that 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 56 American Citizen victims of
homicide; six of these have occurred in the past year. There
was not much progress on most of these cases until 2003, but
there have now been 28 convictions in 16 cases, and six 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.)

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Embassy Tegucigalpa
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44. (SBU) 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