SCENESETTER FOR TRIP OF DEPUTY SECRETARY TO

C O N F I D E N T I A L SECTION 01 OF 07 TEGUCIGALPA 000469 SIPDIS C O R R E C T E D COPY TO CHANGE CLASSIFICATION MARKING PARA 9 E.O. 12958: DECL: 05/18/2018 TAGS: PGOV PREL KDEM EFIN ETRD ECON MARR MOPS SNAR SOCI, SMIG, KCRM, HO SUBJECT: SCENESETTER FOR TRIP OF DEPUTY SECRETARY TO HONDURAS, JUNE 4, 2008 Classified By: Ambassador Charles Ford, reasons 1.4 (b & d) ¶1. (C) Summary: As you prepare to visit Tegucigalpa, relations between the United States Government (USG) and the current administration of Honduran President Jose Manuel "Mel" Zelaya are strained, however, cooperation and relations on the working level remain good. Honduras faces many challenges, including corruption, unemployment, poverty, high levels of violent crime, a highly skewed distribution of income, and a weak judicial system. Honduras was among the first countries to sign an International Criminal Court (ICC) Article 98 Agreement with the U.S. and the Honduran port of Puerto Cortes is part of the U.S. Container Security Initiative (CSI). At the same time, the Honduran voting record at international bodies in the terms of consideration with US positions is at the lowest point in decades (13.8 per cent),and the current administration has flirted with joining the leftist Castro-Chavez-Ortega block on numerous issues. Recent political developments demonstrate a desire on the part of President Zelaya to weaken political institutions and the country has been taken to the brink of constitutional crises several times. CAFTA entered into force for Honduras in April 2006, but Honduras has been slow to implement its CAFTA obligations, and growth of exports has been disappointing. Reforming key sectors of the economy, 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. 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 USD1,600, Honduras is one of the poorest countries in the Western Hemisphere. According to official measures, 60 percent of Hondurans are poor (unable to afford basic necessities),and 36 percent are "extremely" poor (unable to meet minimum nutritional needs). 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 7.4 million live in the United States, about 600,000 of whom are undocumented. Immigration issues, and the renewal of Temporary Protected Status (TPS) for 72,000 Hondurans, thus rank high on the bilateral agenda. ¶3. (C) 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 through 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. We have conducted several joint operations lately, which have resulted in important narcotraffickers being arrested and sent to the United States. These busts could not have happened without the good working relationship we have with Attorney General Leonidas Rosas Bautista. ¶4. (SBU) Jose Manuel "Mel" Zelaya Rosales of the Liberal Party won the November 27, 2005 presidential elections with less than a four percent margin of victory, the smallest margin ever in Honduran electoral history. Zelaya,s campaign theme was "Citizen Power," (a phrase stolen from Daniel Ortega and the Sandinistas) and post-election, he has instituted an extensive series of meetings of "Citizen Power" groups and kept the country in virtual "campaign mode." His administration has been plagued by infighting between the Executive and Legislative branches and clashes with the Judiciary. -------------- TEGUCIGALP 00000469 002 OF 007 Corruption -------------- ¶5. (C) Honduras is one of the most corrupt countries in the Western Hemisphere and was ranked 131 out of 180 countries surveyed by Transparency International in 2007. Only Ecuador, Haiti, Paraguay and Venezuela scored lower in the Western Hemisphere. U.S. policy and statements against corruption have struck a nerve here. Zelaya,s administration has expressed open irritation and defensiveness regarding the USG,s increasing focus on corruption. At the same time, corruption is becoming a hot topic among the press, civil society, and to a lesser to degree, within some sectors of the government whereas, a few years ago, it was completely taboo. The Honduran Congress recently passed two important laws designed to aid in the fight against corruption, but enforcement is already proving a challenge. The Transparency Law, implemented in 2006, aims to give public access to more of the government,s activities and allow the public to obtain information about ministries and agencies. However, it has instead been used for political purposes to make the state budget confidential and to obscure financial information about spending on a new state-run newspaper. The new Civil Procedure Code aims to speed up the judicial process and allow for public oral arguments in civil courts, which have historically been nontransparent. -------------- Crime -------------- ¶6. (C) In recent polls, personal security is always ranked as the first or second concern for all residents in Honduras. Violent crime, particularly homicides and various gang-related crimes, has been on a steady increase over the years. According to official Honduran figures, the country had a murder rate of 52.8 per 100,000 inhabitants in 2007 (compared to the average murder-rate worldwide of 8.8). Total murders for 2007 were 3,855, an increase of 800 from ¶2006. Less than ten percent of murders are solved. The most violent region of Honduras is the north coast, which is also the main drug transit corridor. Youth gangs claim over 30,000 members in Honduras. Leader of the AFL-CIO-affiliated Confederation of Workers of Honduras (CTH) Rosa Altagracia Fuentes and her tow companions, were brutally gunned down in an apparent assassination in April 2008. Honduran authorities are investigating, but are saying publicly that they suspect this was a planned hit. Public support for forceful government actions against crime is getting stronger. In response, the Zelaya Administration conducts periodic "lightning-bolt" operations, consisting of an increase in police checkpoints in certain areas of the country, with the participation of the military for back-up support, to show a population fed up with the violence that something is being done. The result is always that the criminals lay low for a while and then resume their activities once the operation has ended. Honduras is lacking a long-term solution, which would require the authorities to develop a long-term plan. Law enforcement and justice institutions in Honduras are extremely weak and the authorities are at a loss on how to address crime. ¶7. (C) The prison system in Honduras is a "time bomb." Organized crime is directed from within the prisons and the GOH has little control over what happens inside. Prisoners in Honduras have easy access to weapons, which are usually brought in by visitors, or in the case of San Pedro Sula prison, just thrown over the wall from the outside. With INL funding and projects, Post is starting to assist the Ministry of Security to improve safety and security in the prisons. INL Senior Corrections Advisor Donald Stolworthy assessed San Pedro Sula and Tamara prisons in February and developed a comprehensive plan for assistance. Since then, the Prison Director at Tamara was replaced in March, as were the Director of Prisons and Prison Inspector. Post is working with the new officers assigned to these key positions, but the frequent rotations highlight the difficulty of following *********************** * Missing Section 003 * *********************** TEGUCIGALP 00000469 004 OF 007 End comment.) In addition, Zelaya is concerned with his influence and personal immunity after he leaves office. -------------- Economic Review -------------- ¶13. (U) After lagging for most of the 1980,s and 90,s, Honduran economic growth has averaged more than 6 percent the last two years, thanks in large part to roughly USD 4 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 accelerated in the past two years, due largely to increased prices for imported food and fuel but also to loose monetary policy. Consumer prices rose nearly 10 percent in 2007 and lately have been increasing at more than a 12-percent annual rate. 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. In April 2008 the GOH signed a Precautionary Standby Agreement with the IMF, calling for tighter budgetary and monetary discipline and more flexibility on the exchange rate, which had been pegged since 2005. The GOH appears to already be out of compliance. The GOH has committed to applying the resources it has acquired through debt relief to poverty alleviation, but execution has been well below expectations. ¶15. (U) The United States is Honduras, largest trading partner, with two-way trade in goods of USD 8.4 billion in 2007, and the largest source of foreign direct investment. One of the major magnets of foreign investment is the apparel assembly (maquila) sector, which grew dramatically in the 1990s and now employs more than 130,000 people. Weak policies and physical and juridical insecurity deter many potential investors, but Central Bank data indicate the inflow of foreign direct investment grew from $600 million in 2005 to $815 million in 2007. ¶16. (U) In March 2008, the Honduran Congress approved a contract to import petroleum products from Venezuela on concessional terms through Petrocaribe. A commission to administer the profits was formed and the 2008 budget includes line items funded by these profits. No boats have yet arrived, but there is speculation the first one may be in Honduras as soon as the first week of June. -------------- The Importance of CAFTA -------------- ¶17. (U) The Honduran Congress approved CAFTA by an overwhelming margin in 2005, and 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. Exports have since registered modest growth on a year-on-year basis, but imports from the U.S. have grown much faster, causing some Honduran commentators to criticize the pact as disadvantageous to Honduras. In fact, much of the growth in the dollar-value of imports from the United States is attributable to the increase in fuel prices - Honduras gets much of its fuel from refineries on the U.S. Gulf Coast. Imports of machinery and inputs for the apparel industry have also grown rapidly. On the export side, apparel exports, which make up the bulk of exports to the United States, have grown very slowly. But exports of many non-traditional agricultural products, and some manufactures, have grown rapidly from a small base. ¶19. (U) Last August the U.S. Committee on Implementation of Textile Agreements (CITA) initiated proceedings to determine whether to impose safeguards in response to a recent surge in imports of socks from Honduras. The announcement caused a press stir here and led some to question U.S. good faith in terms of implementing CAFTA. Many alleged the action was TEGUCIGALP 00000469 005.2 OF 007 retribution for Zelaya's diplomatic overtures to regional leftists. In April 2008, following consultations with the GOH, CITA announced it would impose a 5 percent safeguard duty on Honduran cotton socks for a period of six months, beginning in July 2008. Under CAFTA, CITA could have imposed a duty as high as 13.5 percent for as long as three years. GOH officials and Honduran industry have expressed satisfaction with the outcome, and the issue has largely faded from the public mind. ¶20. (U) In March 2008, the U.S. Food and Drug Administration issued an import alert concerning cantaloupes from a Honduran firm that were linked to an outbreak of food poisoning in 16 U.S. states. This led to further questioning of the benefits of CAFTA and suspicions that the measure was a disguised retribution for signing the Petrocaribe deal. -------------- U.S. Assistance Programs -------------- ¶23. (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. Hundred of small/medium farmers are 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 this year. MCC funding was placed at risk after Honduras failed the required corruption indicator in 2007, the GOH drafted its own corruption remediation plan. The MCC board is watching key portions of the plan in order to determine Honduran commitment to improving the multiple corruption issues here. ¶24. (U) USAID operates a USD 40 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 (many focused on decentralization),justice reforms, and 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. ¶25. (SBU) To continue to assist in improving the capability of the National Police, new International Narcotics and Law Enforcement (INL) funding will be aimed at drug interdiction, hiring of a police academy advisor, provision of communications equipment, implementation of a ballistics system, anti-gang initiatives, gang and drug prevention, police training, and other law enforcement support. The much needed funding from the Merida Initiative, if passed by Congress, would contribute to an improved police force in the areas of counternarcotics and border security, public security and law enforcement, and institution building and rule of law. -------------- -- TEGUCIGALP 00000469 006 OF 007 Relations with Neighboring Countries -------------- -- ¶26. (U) The economic relationship between Honduras and El Salvador is growing despite continued 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. They continue to squabble over the Gulf of Fonseca, Conejo Island, and access to the Pacific Ocean, despite an International Court of Justice decision, but have met regularly with Nicaraguan representatives to negotiate a tripartite solution. ¶27. (C) In the past two years, Zelaya has continued to draw closer to the Ortega administration in Nicaragua. Ortega has visited Honduras numerous times, and President Zelaya has made both announced and unannounced visits to Nicaragua. In addition, Zelaya has begun to flirt with Hugo Chavez in Venezuela, although he explains it to Embassy officials as purely an attempt to get economic benefits. Days after Chavez visited Honduras, Zelaya sent then-FM Milton Jimenez as an observer to the ALBA summit in Caracas and instructed the Vice FM to declare that Honduras did not consider the Revolutionary Armed Forces of Colombia (FARC) a terrorist group. After the GOH took both these actions, Chavez signed a Petrocaribe agreement with Honduras. ¶28. (C) 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 March 2007 when he promised more medical and education assistance. CUBA began sending doctors to Honduras after Hurricane Mitch in 1998, and since then 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. The President and the FM traveled to CUBA in October 2007 to sign an agreement on the maritime boundary, but the negotiations broke down during the visit and nothing was signed. Zelaya was widely criticized for this failed trip and the Government of CUBA came out looking strong by having maneuvered the visit of another Latin head of state without giving up anything. -------------- Political-Military Relations -------------- ¶29. (SBU) The GOH committed itself to deploying peacekeeping troops to Haiti in support of the UN operations there, possibly via the Conference on Central American Armed Forces (CFAC),but has yet to do so. 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 in 2007 and a series of joint U.S.-Honduran exercises. Under the Beyond the Horizon initiative in 2008, the two militaries are working together to construct clinics and schools to serve the Honduran poor. ¶30. (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. ¶31. (C) In late 2007, U.S. and Honduran delegations met to discuss possible future commercial use of the air strip at TEGUCIGALP 00000469 007 OF 007 Soto Cano airbase. The discussions were cordial and productive. The USG recognized the sovereign right of the GOH to use the strip for commercial purposes, both parties underscored their mutual interests in maintaining a U.S. military presence at Soto Cano, and security and protection requirements plus required costs associated with commercializing the strip we also discussed. The parties agreed that the only way to commercialize the strip would be to divide the base down the middle of the runway and create separate military and civilian sides. The Hondurans stated that there is no need for further discussions until they can conclude cost feasibility studies. -------------- Embassy Tegucigalpa -------------- ¶32. (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 and runs a Virtual Presence Post (VPP) in Honduras, second largest city and industrial center, San Pedro Sula. Ford