This record is a partial extract of the original cable. The full text of the original cable is not available.

C O N F I D E N T I A L SECTION 01 OF 05 TEGUCIGALPA 002746 
 
SIPDIS 
 
STATE FOR S, D, P, WHA, EB, CA, INL, DRL, PM, AND WHA/CEN 
NSC FOR AMB MAISTO 
STATE PASS AID FOR LAC/CEN 
 
E.O. 12958: DECL: 09/30/2012 
TAGS: OVIP PREL PGOV ETRD PTER SNAR PHUM ELAB HO
SUBJECT: SCENESETTER FOR SECRETARY POWELL'S VISIT TO 
HONDURAS OCTOBER 10-11 
 
 
Classified By: CHARGE D'AFFAIRES, A.I., ROGER PIERCE; REASONS 1.5 (B) A 
ND (D). 
 
¶1. (C) Summary.  Honduran President Ricardo Maduro, only in 
office since January, faces numerous challenges in one of the 
poorest and most corrupt countries in the Western Hemisphere. 
 His Administration has been stalled on its domestic agenda 
since June as it tries to reconcile its ambitious goals to 
its straitjacketed financial situation.  Bilateral relations 
between the U.S. and Honduras are excellent; Honduras was the 
first country in Central America (and the second in Latin 
America) to sign an ICC Article 98 Agreement with the U.S. 
and its support for the international counterterrorism effort 
is steadfast.  The United States and Honduras have maintained 
a longstanding close relationship framed by such events as 
the establishment of the banana plantations in the late 
1800s, the Contra wars of the 1980s, and reconstruction 
efforts in the wake of the October 1998 fury of Hurricane 
Mitch.  End Summary. 
 
Key Issues in Bilateral Relationship 
------------------------------------ 
 
¶2. (SBU) The central themes in our bilateral diplomatic 
efforts in Honduras are combating international crime by 
strengthening governance and attacking corruption, assisting 
American citizens, fostering economic development, promoting 
regional stability, promoting trade and investment, and 
combating terrorism.  However, the underlying difficulty to 
realizing USG objectives is improving the administration of 
justice and rule of law.  President Ricardo Maduro,s 
government is fully engaged on all of these issues, supports 
judicial and political reform, and is seeking to transform 
Honduras so that law and order can be restored and economic 
growth ignited.  He faces formidable challenges from 
entrenched economic and political interests in moving his 
agenda forward. 
 
Status of the Maduro Government 
------------------------------- 
 
¶3. (SBU) President Maduro is facing increasing criticism from 
the political opposition over his government,s policies and 
continued dissatisfaction from his own party,s Members of 
Congress because of his Administration,s technocratic style. 
 The Honduran Congress is a focal point of political 
opposition to his policies.  It is a corrupt institution 
riddled with avaricious politicians, and Maduro's National 
Party does not control a majority of the unicameral body. 
The ongoing problems within his own party are serious and 
threaten his broader political agenda, which will require 
legislation to advance.  Continuing political negotiations 
will be needed to manage this situation.  Maduro,s personal 
life is also intruding into the political sphere.  His 
imminent wedding to a Spaniard has been criticized by many 
Hondurans who view the President as distracted by his 
personal life. 
 
¶4. (SBU) Your meeting with President Maduro is well-timed to 
give his Presidency a needed lift.  The President,s standing 
has remained stalled at a low point since June.  Faced with 
slow progress in his efforts to promote regional economic 
integration, Maduro,s team is pinning its hopes that a 
U.S.-Central American Free Trade Agreement (CAFTA) can serve 
as a catalyst to regional economic cooperation.  Maduro is 
also beginning to hear wider disillusionment among the 
Honduran public as violent crime levels are increasing once 
again despite his successful initial "zero tolerance" law and 
order campaign.  Notwithstanding his crackdown on street 
crime, actual ongoing criminal investigations, in particular 
homicides, remain stalled. 
 
Counterterrorism Cooperation 
---------------------------- 
 
¶5. (SBU) Maduro is a good and reliable friend of the U.S. on 
counterterrorism.  His government hosted a major U.S. 
military counterterrorism exercise in March and has quickly 
responded with freeze orders to all U.S. requests regarding 
suspect terrorist bank accounts.  No terrorist assets have 
been found in Honduran financial institutions, to date.  The 
GOH still needs to take the following concrete steps: 
designate a national coordinator for counterterrorism, file 
its national report in accordance with United Nations 
Security Council (UNSC) Resolution 1373, and most of all, 
sign and/or ratify the seven outstanding international 
conventions/protocols and two OAS conventions (1971 and 2002) 
against terrorism. 
 
Iraq 
---- 
 
¶6. (C) While the GOH is in general supportive of key USG 
foreign policy goals, the Ministry of Foreign Relations 
appears hesitant to be out front supporting the USG position 
on Iraq.  MFA officials have privately voiced concern that 
they believe that the USG needs to work harder on gaining 
multilateral support at the United Nations.  Without UNSC or 
Rio Group consensus the GOH is not yet willing to make a 
public statement backing U.S. policy on Iraq.  However the 
U.S. should be able to count on Honduras' support when a 
final decision is taken. 
 
Anti-corruption 
--------------- 
 
¶7. (SBU) The new U.S. policy against corruption struck a 
nerve in Honduras, especially any mention of our new visa 
revocation authorities.  Politicians in Congress and certain 
business elements feel the U.S. is attacking them.  Maduro is 
committed to addressing corruption, even if it will cost him 
political support within his party.  The Supreme Court 
President is also on board.  Given the scope of the problem, 
any public discussion about the country,s pervasive 
corruption is a positive development. 
 
Supreme Court and Judicial Reform 
--------------------------------- 
 
¶8. (SBU) The Supreme Court is developing into an independent 
branch of power, unlike all of its predecessor courts since 
democracy was restored in 1982.  It is pro-reform in 
orientation and fighting for its prerogatives.  In some 
respects, the development of the court in Honduras, restored 
democracy is approaching its "Marbury v. Madison" moment. 
The emerging issue is whether it can become a fully 
independent and co-equal branch of political power, 
consistent with the separation of powers provision in the 
Honduran Constitution.  The established political order is 
fighting that prospect with all its might.  In fact, the 
Congress recently seized the political opportunity to 
introduce legislation that would give itself the power to 
interpret the constitutionality of the laws its passes. 
 
Public Security/Human Rights 
---------------------------- 
 
¶9. (SBU) Upon taking office on January 27 President Maduro,s 
first act was to fulfill his main campaign promise - a zero 
tolerance campaign against the country,s out-of-control 
crime situation.  He deployed more than 5,000 soldiers to the 
streets to support the police.  The public responded 
enthusiastically.  However, despite the initial success of 
establishing a visible police presence, violent crime, 
particularly kidnappings, has only fallen marginally.  Public 
support is fading and the campaign needs some visible 
victories to restore confidence in the government,s program. 
 We are helping the Maduro government establish an 
anti-kidnapping unit, increase intake/training of police 
recruits, create a model tourist police force, boost its 
counternarcotics efforts, and expand the frontier police. 
The country's geographic position makes it an obvious 
strategic transit point for narcotics trafficking, alien 
smuggling operations and other organized crime activities. 
 
¶10. (SBU) Extradjudicial killings, especially of 
children/young adults between 1998-2001, have been a source 
of serious concern and only recently has the GOH begun to 
take steps to investigate the hundreds of unsolved cases. 
There has been some discussion of the establishment of a 
Truth Commission to look into unresolved alleged human rights 
abuses from the 1980s.  There are serious problems with child 
labor in several industries, particularly melon, coffee, and 
shrimp (but not the maquila) sectors, and trafficking in 
persons of women/children for prostitution in the U.S. and 
children for commercial sexual exploitation in Central 
America.  USAID and Peace Corps have both been involved in 
HIV/AIDS prevention. 
 
Consular Issues 
--------------- 
 
¶11. (SBU) Some 500,000 Hondurans, both legal and illegal, 
live in the U.S., a fact that places immigration issues high 
on the bilateral agenda.  There is deep appreciation for the 
Administration's extension of Temporary Protected Status 
(TPS) in the U.S. and interest in possible congressional 
action on the pending Nicaraguan Adjustment and Central 
American Relief Act (NACARA), which would give immigration 
parity for Hondurans.  With fourteen thousand American 
citizens residing in Honduras and many thousands visiting 
Honduras annually for tourism and business American Citizen 
Services are a key part of the Embassy's work.  There is 
little progress in any of the now more than 30 American 
citizen murder cases.  In the last year the GOH has increased 
cooperation with the Embassy on these cases, including 
establishing two prosecutors.  However, little progress has 
been made on extradition cases involving American Citizens 
wanted for felonies in the U.S. 
 
Border Relations 
---------------- 
 
¶12. (SBU) Honduras has border disputes with its three Central 
American land neighbors and its seven maritime neighbors. 
Maduro is personally engaged with his Presidential 
counterparts to address these issues.  Its land and maritime 
disputes with El Salvador and Nicaragua are the most heated. 
The Gulf of Fonseca on the Pacific coast is a particularly 
difficult point.  A 1992 International Court of Justice (ICJ) 
ruling laid out shared areas of control in the Gulf of 
Fonseca and established the land border between Honduras and 
El Salvador, although El Salvador has been slow to implement 
the ruling.  In September of this year El Salvador raised 
issues related to the 1992 ruling to the ICJ for 
clarification. 
 
¶13. (SBU) On the Caribbean coast, Honduras and Nicaragua have 
a long-standing maritime border dispute over the 15th 
parallel.   Honduras provoked Nicaraguan retaliation when it 
signed a maritime treaty with Colombia recognizing the 15th 
parallel as its maritime border in 1999.  Nicaragua filed an 
ICJ case over the maritime border and more importantly in 
1999 slapped a punitive 35 per cent tariff on Honduran goods 
that remains in place despite a Central American Court of 
Justice ruling that it is illegal.  With former Nicaraguan 
President Arnoldo Aleman deposed as President of the National 
Assembly, GOH officials have expressed renewed optimism that 
Nicaraguan President Enrique Bolanos will make good on 
private assurances to lift the tariff and thereby take an 
important step forward toward regional economic integration. 
You may wish to compliment Maduro on the GOH,s restraint and 
note that the regional integration benefits of a CAFTA with 
the U.S. (as well as other integration efforts) will be 
undermined by a trade war. 
 
Troubled Economy Endangers IMF Program and HIPC Debt Relief 
--------------------------------------------- -------------- 
 
¶14. (SBU) President Maduro may ask you for assistance in 
convincing Paris Club creditors to be patient, IMF officials 
to be lenient, and donors to agree to changes in the Highly 
Indebted Poor Countries (HIPC) rules on accounting for 
poverty reduction programs.  President Maduro inherited a 
stagnating economy and seriously deteriorated government 
finances from the previous government.  The GOH missed all 
key International Monetary Fund (IMF) targets in 2001.  Even 
after the Maduro economic team won passage of austerity and 
tax measures in May of this year, the government,s budget 
deficit is still expected to be a high 5.9 percent of GDP. 
The IMF is skeptical that the GOH will undertake the 
meaningful and long overdue reforms needed to work out a new 
three-year program.  An IMF team arrives in October. 
 
¶15. (SBU) International Financial Institution (IFI) and 
bilateral donor disbursements will be held up until the new 
IMF program is in place.  There could also be pressure on GOH 
Paris Club debt service payments (USD 100 million per year). 
In the meantime, the completion point for HIPC debt reduction 
(worth USD 900 million) continues to slip back further. 
Ultimately, this fiscal situation could impact Honduras, 
eligibility for Millennium Fund grants. 
 
¶16. (SBU) The Honduran economy is growing slowly (estimated 
real GDP growth of 1.8 percent this year).  Low world coffee 
prices continue to hurt the economy in rural areas. 
Inflation continues to decrease slowly, estimated at 8-9 
percent in 2002.  The currency is depreciating at a rate of 
about five percent per year.  The economy is dominated by 
agriculture - particularly the production of coffee, bananas 
and cultivated shrimp - although the in-bond apparel assembly 
industry has grown dramatically over the past decade and 
remittances, from Hondurans living overseas, continues to 
grow rapidly (up 38 percent in the first six months of this 
year) and have become the most important source of foreign 
exchange.  The U.S. is Honduras' largest trading partner; 
roughly 150 U.S. companies do business here.  While many 
social indicators are improving, two-thirds of all Hondurans 
live in poverty and average educational levels are very low. 
 
¶17. (SBU) Maduro will probably express gratitude for a 
Treasury Department technical assistance project on tax 
collection and enforcement, partially supported by USAID. 
While modest in scope, the GOH is excited about its potential 
to strengthen its tax service and help deter tax evasion. 
 
U.S.-Central America Free Trade Agreement (CAFTA) Critical 
--------------------------------------------- ------------- 
 
¶18. (SBU) Maduro has personally identified himself with a 
CAFTA as his government's principal trade objective.  The 
Minister of Industry and Trade is reorganizing the Ministry 
(historically fairly weak) and adding staff in a belated 
effort to get ready for the negotiations.  The Maduro 
administration has also been more cooperative with the U.S. 
in the World Trade Organization (WTO) in Geneva.  Honduras 
(along with other Central American countries) has been 
supportive in the FTAA ministerials but to date has not taken 
an active role in the negotiating groups. 
 
¶19. (SBU) Latent protectionism exists in the private sector, 
but the general attitude toward a free trade agreement in 
Honduras is positive.  The textile and apparel industry in 
particular believes an FTA is the only way that the Honduran 
apparel sector can survive the elimination of quotas in 2005 
and compete with Asian manufacturers. 
 
U.S. Investment Faces Problems 
------------------------------ 
 
¶20. (SBU) The Maduro government understands that Honduras 
needs foreign (and domestic) investment to spur economic 
growth but has placed emphasis on the more immediate problems 
of political and judicial reforms, the fiscal deficit, and 
needed improvements in security, education and health. 
Maduro will tout a new law on simplification of 
administrative procedures and formation of a national 
competitiveness council, headed by Vice President Vicente 
Williams, to enhance the investment climate at all levels of 
society.  The government has identified tourism, 
agrobusiness, forestry, and mining as important sectors that 
could create much-needed jobs. 
 
¶21. (SBU) Much more needs to be done to declare Honduras 
"open for business."  Maduro needs to find a way to get his 
cabinet (and the prickly legislative and executive branches) 
to make meaningful changes that will resolve the key 
problems: poor and expensive infrastructure; weak legal 
system; personal security, education and health conditions; 
land tenure problems; and opposition to large foreign 
investments by well-connected vested interests. 
 
¶22. (SBU) The Honduran government has stalled in its past 
efforts to liberalize and privatize the electricity and 
telecommunications markets.  We are closely following the 
pending tender by the National Electric Energy Company (ENEE) 
to purchase 210 mega-watts of electricity starting 2004.  If 
U.S. company AES is successful in this bid and its efforts to 
build a combined cycle plant in Puerto Cortes, we expect a 
big spur to regional integration and investment in light 
manufacturing and assembly in Honduras.  The GOH,s telecom 
regulatory agency is also bidding out a second cellular phone 
license this year; two U.S. companies have applied during the 
pre-qualification stage.  The GOH has requested USG policy 
support for liberalization of the telecom (through the Trade 
and Development Agency) and power (through USAID) sectors. 
However, in order to make these long overdue structural 
reforms a reality, the Maduro government must follow through 
on its commitments. 
 
¶23. (SBU) Land tenure problems (combined with a weak judicial 
system) are endemic in Honduras, and undermine efforts to 
develop the tourism, agriculture and forestry sectors.  They 
also deter new investments in a variety of other sectors. 
The Embassy has files on 112 property dispute cases 
(generally squatter/land reform cases and title disputes), of 
which 32 are active.  There are an additional 68 commercial 
disputes, of which 14 are currently active.  The GOH plans to 
introduce a law allowing some of the land cases to be 
submitted to arbitration and is working on an improved 
property registry system. 
 
¶24. (SBU) These will be important steps, but much more is 
needed.  The GOH and Supreme Court need to ensure that the 
judicial system provides effective responses to commercial 
and investment disputes and violations of property rights. 
 
Money Laundering and Bank Failures 
---------------------------------- 
 
¶25. (SBU) Strengthened money laundering legislation, with an 
antiterrorist financing clause, was the first law to be 
adopted by the new Congress in late February of this year. 
The fragility of the financial system remains a key concern. 
The GOH took over the two most troubled banks in May 2002, 
arranged for the absorption of a third undercapitalized bank 
and is actively promoting mergers among the remaining 20 
private banks.  Although the Maduro government has managed 
the financial sector issue well, massive challenges remain. 
A World Bank/IMF review of the financial sector is underway. 
 
Embassy Tegucigalpa 
------------------- 
 
¶26. (SBU) Embassy Tegucigalpa is a medium-sized post, 
employing 140 U.S. citizens and 300 Hondurans among 20 USG 
agencies.  Our Peace Corps program, with more than 220 
volunteers, is one of the world's largest, and the USAID 
mission had a FY02 budget of USD 34.5 million.  The Mission 
maintains a Consular Agent in Honduras' second city and 
industrial center, San Pedro Sula.  Five-hundred and fifty 
U.S. service men and women are stationed at Honduras' Soto 
Cano Airbase under the auspices of U.S. Southern Command as 
Joint Task Force Bravo.  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.  The ICC Article 98 
Agreement with Honduras is therefore a particularly important 
accomplishment, and will enable our military forces to 
continue to work together in such areas as disaster recovery, 
joint training exercises, and counternarcotics missions. 
PIERCE