TFHO1: RURAL REGION SUFFERING FROM MULTIPLE

UNCLAS SECTION 01 OF 02 TEGUCIGALPA 000930 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ECON EAGR EAID ETRD HO KDEM PGOV PREL NU SUBJECT: TFHO1: RURAL REGION SUFFERING FROM MULTIPLE ECONOMIC BLOWS REF: A. TEGUCIGALPA 890 ¶B. TEGUCIGALPA 889 ¶C. TEGUCIGALPA 818 ¶D. TEGUCIGALPA 776 ¶1. (U) Summary: During a September 2 visit to two towns in the southeastern province of El Paraiso, embassy officers found that political tension, police actions, and consumer uncertainty following the June 28 coup have caused short-term damage to the local economy. El Paraiso is a primarily agricultural region and the center of Honduras's cigar industry. Politically, most of the population supports President Zelaya's Liberal Party. President Zelaya's symbolic return to Honduras from the Nicaraguan border, which took place in this area, caused significant disruption. In the longer term, El Paraiso's agricultural sector has been largely unaffected by the worldwide economic downturn, with the exception of the cigar industry, which has experienced a significant decline. End summary. ¶2. (U) The department of El Paraiso is located to the south of Tegucigalpa and borders Nicaragua. Agriculture, consisting primarily of cattle, tobacco, coffee, corn, and melons, is the mainstay of the economy in this region of rolling hills and mountain valleys. The Honduran cigar industry is centered in Danli, with the U.S. as its primary export destination. The region is also an important transportation corridor, with goods and passengers transiting the Nicaraguan border at Las Manos and through the towns of El Paraiso and Danli to and from the rest of Honduras and the Port of Cortes. As with many rural regions of Honduras, the Liberal party is dominant in the province, with many backers of President Zelaya. ¶3. (U) On September 2, PolOff and EconOff traveled to the towns of Danli and El Paraiso to meet with local residents, including civic leaders and business owners. In addition to discussing the political situation (refs A and B),they asked residents about the current state of the economy in the two small cities. ¶4. (U) Local residents noted that business was bad in the first half of the year because of the global recession. The implementation of a steep hike in the minimum wage in January also hit businesses hard, causing some to lay off workers in order to pay the higher wage to those remaining. The situation was made somewhat worse by the coup, with sporadic roadblocks and general uncertainty, but in the weeks after the coup things seemed to be getting back to normal slowly. Some parts of the economy even improved slightly, such as dairy sales, as residents bought more local product during closure of the border with Nicaragua. ¶5. (U) The situation took another turn for the worse when President Zelaya made a symbolic return to Honduras by going to the Nicaragua border crossing of Las Manos on July 24. In anticipation of this crossing, thousands of his supporters attempted to go to the area from locations around Honduras. However, most were blocked by some 14 military and police roadblocks between Tegucigalpa and the border. In addition, the government established curfews in the border region and up to the city of Danli that were much longer than curfews in the rest of the country, sometimes lasting nearly 24 hours. The curfews in this region were repeated more frequently than in the rest of the country. The combination of roadblocks, curfews, and general chaos brought commerce to a near standstill. Of special concern was that food and fuel were not able to get in or out of the region during the tense week after July 24. During the curfews, consumers had only enough time to quickly buy the bare necessities, precluding other shopping. Many workers were unable to travel to their jobs, and so went without pay and likely without food for those days. Some perishable products went to waste. ¶6. (U) As in other parts of the country, the tourism sector has been hardest hit, down approximately 80% in the last few months. Most of the usual foreign visitors are missionaries and NGO representatives, who stay in local hotels and often buy supplies locally for their projects. Hardly any such visitors have come since the coup, residents say. ¶7. (SBU) Danli is especially famous for its cigars, with TEGUCIGALP 00000930 002 OF 002 several prominent companies run by Cuban immigrants. The global economic downturn and a new tax on cigars in the U.S. have created an uncertain climate for cigar exporters. Since last year, five of the smaller companies have closed their doors. Whereas local cigar and livestock producers indicated that their businesses were not greatly affected in the immediate aftermath of the June 28 coup, the demonstrations surrounding Zelaya's July 24 visit to the border were much more disruptive. With the curfews and unrest, many employees were unable or unwilling to go to work, bringing production to a halt. Several production associations got together and offered to provide bus transportation to the resistance groups so they would more quickly leave the region. Leaders of local livestock production associations expressed the hope that the resistance groups would never use their region this way again. ¶8. (SBU) There was anecdotal evidence of economic backlash against those who supported Zelaya. A local pro-Zelaya lawyer noted that he has lost clients because of his political stance. He also pointed to how thin the liberal newspaper El Tiempo was getting as pro-coup businesses stopped advertising in it. ¶9. (SBU) Comment: Business owners, workers, and mayors alike recognize that the ongoing political conflict will continue to hurt the economy, as consumers and investors feel discouraged about the current situation and anxious about the future. How to resolve the political situation and get the economy back on track -- bringing back Zelaya or just moving on to elections -- is the essence of the political division. LLORENS