TFHO1: PORTS RECOVERING FROM DISRUPTION FOLLOWING

UNCLAS TEGUCIGALPA 001012 SENSITIVE SIPDIS STATE FOR WHA/CEN DEPARTMENT PASS TO USTR E.O. 12958: N/A TAGS: ECON ELTN ETRD EWWT PGOV PINS KDEM HO SUBJECT: TFHO1: PORTS RECOVERING FROM DISRUPTION FOLLOWING ZELAYA'S RETURN REF: A. TEGUCIGALPA 975 ¶B. TEGUCIGALPA 989 ¶C. SAN SALVADOR 905 ¶1. (U) Summary: Though the abrupt return of deposed President Manuel Zelaya briefly complicated the import, export and distribution of goods, business conditions have stabilized. The 48-hour curfew that began on September 21 severely disrupted operations, but one U.S. cargo company reported that it had cleared its backlog after obtaining a special permit to operate during curfew hours. By September 25, port operations had returned to normal. Containers are passing freely through the ports and land shipments do not have to contend with curfews or border closures. Following complaints from the business community, the government appears to be making efforts to minimize the impact of the political situation on commercial activity. However, the events of the week of September 21 may have reinforced doubts among already skittish investors about Honduras's business climate. End Summary. ¶2. (U) Honduran business has recovered rapidly from the chaos that followed the unexpected return of President Zelaya to Honduras on September 21. As noted ref A, a brief break in the two-day curfew that followed Zelaya's return led to long lines, mass chaos and empty supermarket shelves. Contacts have reported that, though political conditions complicated the import, export and distribution of goods, business conditions have stabilized and the movement of goods is expected to continue to operate as usual, barring further political irregularities. ¶3. (SBU) EconOff called Claudia Kattan-Jordan, General Manager overseeing Honduras and Nicaragua for Crowley Line Services, a U.S. company, to ask how the curfews and turbulence surrounding Zelaya's return had affected her company. Kattan-Jordan said that, as news of Honduras's temporary standstill spread, she received a number of calls from U.S. companies requesting that their shipments receive top priority in the queue. When she explained the situation, companies were sympathetic and displayed patience. Kattan-Jordan said that the company had been on the verge of canceling one shipment but managed to complete it during a brief lifting of the curfew on September 23. ¶4. (SBU) Kattan-Jordan told EconOff that, once the daytime curfews had ended, her company had sought and received a permit to allow it to operate during nighttime hours, when a curfew was still in effect. She said that government officials had inquired with local import-export companies about Crowley's bona fides and asked whether there was a genuine risk of spoilage of perishable items. When the import-export companies replied affirmatively, the government issued the permit. As a result, the company, which operates four cargo ships per week, was able to clear a significant backlog and fulfill all obligations on time. By September 25, land and port operations had returned to normal. ¶5. (SBU) Kattan-Jordan noted that disruptions in Honduras have an impact beyond the country's borders, since the country is a key player in import and export of goods to Central America, most notably to Nicaragua, El Salvador, and Guatemala. She commented that paralysis of port operations on September 21 and 22 had caused significant disruption to the already fragile economies of these countries. ¶6. (SBU) According to U.S. Customs and Border Patrol officers operating the US SFI program in Puerto Cortes, the port remained open every day following President Zelaya's return. On September 21, the day of Zelaya,s return, 400 containers were scanned. The following day only 38 containers were registered. But by September 24, 811 containers had been recorded for the day. Shipping volume has decreased in the past few months; total containers scanned for July, August and September are 21,104; 18,306 and 13,988 respectively. ¶7. (U) In its September 26 emergency decree (ref B), restricting civil liberties, the de facto government appeared to have made an effort to limit the impact on business. For example, cargo transport employees were among the few categories of persons who were exempted from prohibitions against transit during curfew hours. (Others included medical personnel and ambulances.) ¶8. (SBU) Comment: The implementation of the decree restricting civil liberties created a number of unintended consequences. Import/export business struggled, albeit temporarily, to meet demand and fulfill commitments on schedule. While operations have returned to normal, Honduras,s credibility as a stable hub for transporting goods in the Central American region declines each day the political crisis goes unresolved. By granting cargo transport an exemption in the latest decree, de facto regime officials are clearly demonstrating their determination to attempt to maintain a stable business climate. That notwithstanding, short term measures to iron out economic wrinkles may prove insufficient. Significant damage has already been done and another paralyzing curfew could further damage investor confidence. Given the worldwide economic downturn, Honduras is not in a position to weather further strains on an already fragile economic system. LLORENS