YOUR TRIP TO SAN PEDRO SULA, HONDURAS, FOR THE OAS

C O N F I D E N T I A L SECTION 01 OF 06 TEGUCIGALPA 000379

SIPDIS

FOR THE SECRETARY FROM AMBASSADOR LLORENS

E.O. 12958: DECL: 05/12/2019
TAGS: PGOV PREL SNAR ECON EAID KCRM KCOR HO
SUBJECT: YOUR TRIP TO SAN PEDRO SULA, HONDURAS, FOR THE OAS
GENERAL ASSEMBLY

Classified By: Ambassador Hugo Llorens, reason, 1.4 (B & D)


1. (C) Summary: We warmly welcome you to San Pedro Sula,
Honduras. San Pedro is the business capital of the country,
but not the seat of government, so both the Government of
Honduras and the U.S. Embassy will be working out of
temporary facilities there. Your visit provides an excellent
opportunity to hold substantive discussions with President
Zelaya and senior GOH officials, and participate in the OAS
General Assembly. Honduras has long been one of our most
trusted allies in the region; since its return to democracy
29 years ago, it has been a relative island of stability in
the midst of conflict. However, as we move forward towards
next November's general election, the political situation is
increasingly tense and frayed, caused primarily by President
Manuel "Mel" Zelaya's push to hold an election day referendum
(the Fourth Urn) to consider convening a constituent assembly
to reform the Honduran constitution. Although Zelaya has
insisted in public statements and in private meetings with us
that he will leave power at the end of his term on January
27, 2010, his strident campaign to hold the Fourth Urn and
his increasingly radical statements in favor of Chavez and
Correa style constitutional reforms have unnerved many
moderates and cultivated concerns that Zelaya may be seeking
to undermine Honduran democracy. The global economic crisis
is beginning to have an impact in the way of tighter credit,
slower growth, and higher unemployment. Zelaya has so far
resisted an IMF program but has proposed a number of measures
to give direct credit to productive sectors to try to restart
the slowing economy. The security and crime situation,
exacerbated by the large presence of gangs and narcotics
trafficking groups, continues to deteriorate and there have
been several recent kidnappings and murders of U.S. citizens.
Nevertheless, the GOH is fully committed to working with us
on the Merida Initiative. We maintain a robust and
multi-agency development assistance presence with annual
disbursements of $150 million. Our USAID and MCC teams
continue to implement excellent programs and we have
conceived and adopted innovative Mission strategies to
strengthen cooperation on renewable energy and
public-private-partnerships. On the management side, we have
implemented a cost containment plan to assure sufficient
funding for FY-2009 and to use savings to augment FSN
salaries, which have fallen far behind inflation. End
summary.

WHY HONDURAS MATTERS
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2. (C) Honduras, only a two-hour flight from the U.S., is a
close ally and fellow democracy, celebrating its 29th year of
democratic and constitutional rule. Even during the most
difficult period in the 1980s, Honduras remained a relatively
stable island in a conflictive region, avoiding much of the
violence and worse human rights excesses of its neighbors.
Since that period we have had access to a military base in
the country, Soto Cano, which today remains a valued platform
for our humanitarian and counter-narcotics activities. Over
1.5 million Hondurans live in the U.S., some illegally, but
many are legal residents and citizens. Our people-to-people
ties are very strong and Hondurans generally are
pro-American. Currently, thousands of American volunteer
their time in Honduras each year, building homes, providing
free medical care, and working with Honduran communities.
The U.S. remains by far Honduras's largest trading and
investment partner, a relationship further strengthened by
CAFTA. Honduran democracy, however, is fragile and is
threatened by corruption, violent crime, and poverty. We are
committed to working with our Honduran friends to counter
these threats and strengthen their democracy.

POLITICAL DEVELOPMENTS:

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3. (C) Concerns about President Manuel "Mel" Zelaya's motives
have created an increasingly unstable political situation.
The rising tension and conflict that pits Zelaya and his
supporters against the mainstream political and media
establishments, the business class, and the Catholic and
Evangelical churches is significant and widens with each
passing day. Zelaya remains popular with a large swathe of
the working class and rural workers having successfully
pushed for a 60 percent rise in the minimum wage and
implemented other populist measures. He has continued to
drive his domestic and foreign policy in an increasingly
leftwing direction, and his erratic and inflammatory
statements are cause for worry. Last August, Zelaya made the
decision to join Hugo Chavez' Bolivian Alternative for the
Americas (ALBA). In January, his private threats to rule by
decree during the Supreme Court election process further
unsettled the political scene. The February appointment of
Patricia Rodas as foreign minister signaled a further shift
towards Honduras's ALBA friends. Rodas subsequently invited
Iranian officials to visit Honduras (at our request Zelaya
forced her to rescind the invitation and instead meet the
Iranians in Mexico),and she has urged Zelaya to become a
more vocal in support of Cuba's interests in the OAS debate.


4. (C) Honduras remains distracted and in semi-paralysis by
the political turmoil generated by President Zelaya's
proposal to add a Fourth Urn for the General Elections to be
held on November 27. (The legally mandated three urns are
the Presidential, Congressional and Mayoral ballots.)
President Zelaya's Fourth Urn would ask voters to approve by
referendum the convening of a constituent assembly to reform
the Honduran constitution. In numerous public statements in
recent weeks, Zelaya has argued on the need to radically
reform the Honduran constitution and spoken approvingly of
President Correa's constitutional reforms in Ecuador as a
possible recipe and potential model for Honduras. Zelaya's
increasingly strident support for the Fourth Urn has
generated tension and uncertainty. A growing number of
people across the political spectrum believe it is a blatant
attempt to generate a political crisis and subvert the
constitutional order.


5. (C) Zelaya insists his outreach to Chavez, and membership
in Petrocaribe and ALBA, is only an effort to secure more
financial and development resources for his country. In
private and public statements, Zelaya insists that the United
States remains his strategic partner and that he would do
nothing to undermine that relationship. In fact, we continue
to have excellent access to Zelaya on most security, law
enforcement, intelligence, trade, investment, and energy
issues. For our part, we are committed to implementing a
competitive diplomatic strategy in Honduras. We have stayed
close to Zelaya and engaged him in a very positive agenda.
We have also avoided overreacting to his dealings with
Venezuela and Cuba and on his populist rhetoric. We have
encouraged Zelaya and other political actors, including the
business community, to patch up their differences and focus
on priority national issues. In several instances when
Zelaya has threatened our interests, such as postponing the
primary elections, threatening to rule by decree, or inviting
Iranian diplomats to visit, we have successfully approached
him in a direct and discreet way and articulated our core
interests. We have also repeatedly stressed that our top
priority is safeguarding democracy, supporting the upcoming
elections, and ensuring a peaceful transfer of power on
January 27, 2010 to the newly-elected President. In these
past instances he has not crossed our red lines. We have
also worked with other Honduran leaders to seek common
ground. Above all, we have avoided taking our disagreements
public, a tactic which when used in the past has proven to

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only make Zelaya more difficult and intransigent.


6. (C) General Elections are scheduled for November 29 of
this year. Most recent polls give Liberal Party candidate
Elvin Santos a substantial lead over the National Party
contender Porfirio "Pepe" Lobo. Santos is generally seen as
more telegenic and charismatic, is a more compelling public
speaker, and his wife is a former beauty queen. Although he
has little political experience, or perhaps because of this,
he is generally seen as more likely to curb corruption.
Lobo, on the other hand, is seen as more experienced, more
able to deal with the security crisis, and has the advantage
that his party is in opposition. Lobo has already put
together an impressive team for his campaign. In recent
crises, such as the primary postponement and Supreme Court
election, he has outmaneuvered his rivals (including Santos).
Time will tell if he has also done so with Zelaya's push for
a referendum. While most other political leaders have come
out against the referendum, Lobo supports it, explaining that
he plans to craft it so that any constituent assembly would
take place after Zelaya's departure and would be controlled
by the Congress. Both Santos and Lobo are pro-American, and
we can rely on both to seek close and harmonious working ties
with the U.S.

THE ECONOMY:
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7. (U) Honduras, with a GDP per capita of about USD 1,700 in
2008 at market exchange rates, is one of the poorest
countries in the Western Hemisphere. GDP grew more than 6
percent a year in 2004-2007 but slowed to about 4 percent in

2008. A further deceleration, or decline, is expected in

2009. The exchange rate has been fixed since October 2005,
despite a more than 30 percent increase in consumer prices
through March 2009. Social indicators in Honduras improved
somewhat in recent years, but 59 percent of Honduran
households still live in poverty, according to the latest
household survey, 36 percent were unemployed or underemployed
in May 2008 and the average adult Honduran has only a
sixth-grade education. The United States is by far
Honduras's largest financial, trading and investment partner.
In 2008, the U.S. market accounted for 70 percent of
Honduran exports and U.S. firms represent 75 percent of
foreign direct investment. Honduras became a member of
Central American Free Trade Agreement in 2005, which gives
Honduras privileged access to the U.S. market. Family
remittances from Hondurans primarily living in the U.S.,
account for 22 percent of GDP.


8. (SBU) Honduras is beginning to feel the effects of the
global recession, which has sharply impacted on Honduran
exports of apparel and key agricultural commodities. The
results have been lower and possibly negative growth,
investment and rising unemployment and poverty levels. Bank
balance sheets remain healthy, but banks are being extremely
conservative about lending, so businesses are
credit-constrained. An IMF Stand-By Agreement concluded in
April 2008 expired at the end of March, and discussions on a
follow-on agreement have essentially collapsed over
differences on management of exchange rate policy.

Development Assistance:
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9. (U) USAID has been in Honduras since 1961 and during that
time has provided more than USD 3 billion in economic
assistance to Honduras. After the closing of the highly
successful Hurricane Mitch Reconstruction Program, which
operated from 1999 to 2002, USAID/Honduras's focus shifted to
critical transformation activities crucial to the development
of Honduras such as the Increase of Economic Growth in order

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to Reduce Poverty. The Millennium Challenge Corporation
(MCC) approved USD 215 million in 2005 for a compact aimed at
reducing poverty by addressing key constraints to sustained
economic growth in Honduras. The five-year program is
focused on improving critical transportation infrastructure
and improving rural agricultural productivity through a USD
127 million Transportation and a USD 72 million Rural
Development Project. The Department of Agriculture has a
food for peace program, which provides nutrition for the poor
as well as development assistance to small farmers and the
Department of the Treasury provides technical assistance to
the Honduran tax service. The Department of Defense also has
an active development program in health and education.

NEW INITIATIVES:
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10. (U) The Embassy has made cooperation on renewable energy
a priority issue in the bilateral relationship and developed
and is implementing a Mission-wide strategy. In February,
President Zelaya traveled to Washington and met with
Secretary of Energy Chu and discussed ways the two countries
can strengthen cooperation on renewable energy. The
Washington visit was followed-up by a visit to the National
Renewable Energy Laboratory in Colorado to see the potential
of cutting-edge U.S. technologies and determined ways to
improve cooperation on climate change and energy security.
The Costa Rican firm Mesoamerica plans to install the largest
wind farm in Central America in Honduras (of 100 megawatts),
using U.S. built General Electric turbines. We plan to
organize a forum and exhibition and reverse trade mission
later this year to further promote renewable energy here.
Honduras is also eligible for assistance under the
U.S.-Brazil Biofuels Initiative. The Embassy has also
developed a strategy for encouraging public-private
partnerships involving U.S. firms and U.S. citizen groups
operating in Honduras. We prepared an inventory of existing
partnerships, which will be continuously updated, and we
encourage corporate social responsibility through both our
public diplomacy efforts and private engagement with the
business sector.

Military to Military Relations:
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11. (C) The U.S. and Honduran militaries have an excellent
working relationship based on many years of working together.
We continue to support the Honduran military with equipment,
training, exercises and joint operations. The Honduran
military is under-resourced and undermanned for its myriad of
duties, but has made great advances in relation to respect
for human rights and civilian rule since the 1980s. Our key
focus is continuing the transformation of the Honduran
military to deal effectively with 21st Century security
environment of the region. The training has been vital in
preparing the Honduran military for peacekeeping activities;
51 Honduran soldiers will join Spanish peacekeeping forces in
Lebanon later this year. Joint Task Force-Bravo, located at
Enrique Soto Cano Air Base, Comayagua, Honduras, is comprised
of approximately 1,200 assigned personnel, of which about 575
are military while the remainder includes both LES and
civilian contractors who provide base support, communications
services and helicopter maintenance. JTF-Bravo forces
maintain and operate an all-weather C-5 capable airfield and
provide the U.S with an agile response capability in Central
America. Recent Humanitarian Assistance/Disaster Relief
Operations include flooding relief in Honduras, Costa Rica
and Panama in November 2008, earthquake relief in Costa Rica
in January 2009, and search and rescue operations for
American citizens missing off the coast of Honduras.

Merida and the Fight Against International Crime:

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12. (C) Violent crime rates have risen in Honduras for years,
and the trend continued in 2008. Security continues to be
the top public concern. The Zelaya administration presented
a limited National Security Plan in 2005. Although work
initially proceeded at a slow pace, the administration
stepped up efforts in 2008 and now places a strong emphasis
on security cooperation. The Merida Initiative is emerging
as a strategic tool for the U.S., Honduras, and the region to
cooperate in the fight against international crime, illicit
drugs, and gangs. President Zelaya presided over the second
U.S. Honduran bilateral Merida Coordination Task Force
meeting, at which he laid out his security priorities. The
GOH has limited resources to tackle the growing threat from
well-funded drug trafficking organizations and criminal
gangs. The Honduran National Police (HNP) remains
under-trained and held in low regard by the general public,
though the GOH has doubled the police force since 2005. Drug
traffickers have been able to operate with virtual impunity
in the remote Atlantic coast region of La Mosquitia.
Coordination between the USG and GOH on an interagency level
has begun to net results, however. Narcotics interdictions
for the first quarter of 2009 have already exceeded totals
for all of CY 2008, in large part due to improved
information-sharing and GOH participation in the U.S. Coast
Guard shiprider program. The GOH presented phase one of its
first government-wide national security plan in May, laying
out overall objectives, programs to meet those objectives,
and implementing agencies. Phase two, to be presented by the
implementing agencies, will establish resource needs, list
partner organizations and set performance measures.

CONSULAR OPERATIONS:
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13. (U) There are an estimated 22,000 American citizens
resident in Honduras and over 100,000 Americans who visit as
tourists and missionaries each year. The Non-Immigrant Visa
Unit processes around 45,000 visas per year, issuing about 65
percent; the Immigrant Visa Unit issues about 4,000 visas per
year. The critical crime situation in Honduras has had a
direct impact on American citizens here, including seventy
six murders since 1995 (only 23 resolved),and an upsurge in
kidnappings (five in 2009). The Embassy works closely with
Honduran police and prosecutors on these cases, and has
called on FBI technical support to resolve recent kidnappings
involving Americans. Honduras continues to be the second
largest recipient country for deportees from the U.S., behind
Mexico, with nearly 30,000 Hondurans deported from the U.S.
in 2008. President Zelaya has expressed consternation
publicly and privately at the continued pace of deportations
of Hondurans. He is also interested in gaining some
permanent status for Hondurans in the U.S. under Temporary
Protected Status (TPS),established after Hurricane Mitch.
The Honduran business community is working to put together an
ambitious program to send several thousand agricultural
workers to Fresno County, California under the H2A visa
program.

MANAGEMENT ISSUES:
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14. (U) Embassy staff includes 98 direct-hire Americans, 273
locally engaged staff (LES) and 94 American Dependents. The
Management Section has a staff of 12 direct-hire Americans,
seven eligible family members, and 112 locally engaged staff.
Funding has been flat for the past three years. We have
been unable to fund FSN salary increases suggested by the
Department to allow us to remain competitive in the local
employment market, though this year we have managed a small
improvement. We have instituted a drastic cost containment

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plan to assure sufficient funding for FY-2009 and to use some
of the savings to augment FSN salaries at the end of the
Fiscal Year.
LLORENS