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

UNCLAS SECTION 01 OF 10 TEGUCIGALPA 002042 
 
SIPDIS 
 
STATE FOR WHA/CEN, WHA/EPSC, AND EB 
LABOR FOR ILAB, ROBERT WHOLEY 
STATE PASS TO USAID, USTR, EXIM, AND OPIC, 
STATE PASS TO USED IDB, USED WB, USED IMF 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EINV ETRD ELAB EAID PGOV HO
SUBJECT: Honduras: 2002 Preliminary Macroeconomic Update 
 
 
-------- 
CONTENTS 
-------- 
 
1-7. MACROECONOMIC OVERVIEW 
 
¶8. ECONOMIC ACTIVITY 
 
¶9. PRICES AND WAGES 
 
10-12. EMPLOYMENT 
 
13-15. BALANCE OF PAYMENTS 
 
¶16. EXPORTS (PRINCIPAL EXPORTS INCLUDING MAQUILA) 
 
¶17. IMPORTS 
 
¶18. FOREIGN DIRECT INVESTMENT 
 
19-21. INTEREST RATES 
 
¶22. NET DOMESTIC CREDIT 
 
¶23. MONEY SUPPLY 
 
¶24. EXCHANGE RATE 
 
25-28. PUBLIC SECTOR FINANCES 
 
29-30. EXTERNAL DEBT 
 
¶31. TOURISM 
 
---------------------- 
MACROECONOMIC OVERVIEW 
---------------------- 
 
¶1. The Honduran economy grew at a rate of 2.5 percent in 
2002, similar to its 2.6 percent growth rate in 2001. Since 
the population growth rate is approximately 2.6 percent, 
Honduras has enjoyed essentially zero real per capita 
economic growth over the last two years.  Major factors 
influencing the Honduran economic performance were the slow 
international (especially the U.S.) economy, the continuing 
coffee crisis, and low international prices for other export 
products. 
 
¶2. According to the Consumer Price Index, the inflation rate 
in 2002 was 8.1 percent, similar to the inflation rate for 
the last two years and compatible with the GOH's goal of 
maintaining the inflation rate at a stable and acceptable 
level.  The Central Bank continued to depreciate the nominal 
exchange rate of the lempira by 6 percent against the dollar 
in 2002, in order to maintain purchasing power parity with 
the United States.  Interest rates fell by a percentage 
point during the year.  The minimum wage increased by 12 
percent for workers in small agriculture, but approximately 
nine percent for most other workers, more than compensating 
for the rate of inflation. 
 
¶3. Net international reserves reached USD 130.5 at the end 
of 2002, USD 10 million higher than expected. This level was 
equivalent to 3.8 months of imports. 
 
¶4. Monetary policy was oriented to maintenance of a stable 
exchange rate and to maintain a normal functioning of the 
payment system.  Open market operations were the principal 
instruments used.  The Central Bank uses an auction system 
to regulate the allocation of foreign exchange. 
 
¶5. There was a positive flow of net transfers during the 
year, due to an increase in family remittances, but the 
current account showed a deficit of USD 243 million.  The 
commercial deficit in 2002 reached USD 1.4 billion.  There 
was also a decrease in direct investment and net long-term 
loans to the official sector that decreased the balance of 
the capital account as well. 
 
¶6. During 2002, the balance of the public external debt was 
USD 4.4 billion, 5.7 percent higher than the amount owed at 
the end of 2001.  The GOH continues its policy of taking on 
only foreign concessional loans for projects of high 
priority. 
 
¶7. After adopting a series of austerity and tax measures, 
the GOH closed 2002 with a central government fiscal deficit 
of Lps. 5.7 billion (USD 345 million) which represents 5.2 
percent of the GDP, down from the six percent registered in 
¶2001.  The financing of this deficit came mostly from 
foreign loans. 
 
Source: Technical Unit, Ministry of the Presidency, and BCH, 
data published July 2003. 
----------------- 
ECONOMIC ACTIVITY 
----------------- 
¶8. According to GOH data, economic growth in 2002 was 2.5 
percent, slightly less than the rate of 2.6 percent observed 
in 2001.  Honduras' growth was the highest of the Central 
American countries, except for Costa Rica.  The increase in 
agricultural activity was 4.8 percent due to an increase in 
corn production (22 percent), rice (21.2 percent), and beans 
(43.8 percent).  The production of banana and sugar cane 
declined due to labor conflicts in one of the most important 
banana producing companies and bad weather conditions that 
affected sugar production in the south-central part of the 
country. 
 
GDP REAL GROWTH RATE 
-------------------- 
          (Percent) 
 
1997         5.1 
1998         2.9 
1999        -1.9 
2000         5.2 
2001         2.6 
2002         2.5 
 
GDP BY ECONOMIC ACTIVITY: 
PERCENTAGE INCREASE OVER PREVIOUS YEAR 
--------------------------------------- 
 
ACTIVITY 
                         2000            2001     2002 
 
Agriculture              11.7           -0.5       4.8 
Mining                    1.7           -0.8       5.0 
Manufacturing Industry    5.5            5.2       2.8 
Construction              1.5           -5.2     -14.6 
Electric,Water,Gas       10.6           -1.8       5.6 
Transp.,Storage,Commun.   5.0            5.3       3.2 
Trade,Restaurants,Hotels  3.7            3.0       2.8 
Financial Institutions    2.3            3.1       2.2 
Housing                   3.1            3.9       3.9 
Public Admin. Defense    19.8            8.7       7.2 
Community Services        5.1           12.6       7.2 
 
Source: BCH, July 18, 2003. 
 
---------------- 
PRICES AND WAGES 
---------------- 
 
¶9. The end of period Consumer Price Index (CPI) rose by 8.1 
percent growth during 2002, slightly lower than the 8.8 
percent growth registered in 2001, continuing the declining 
trend of the past four years.  This result was in part 
obtained by the stability of the real exchange rate, the 
application of prudent monetary policy, an increased 
domestic supplies of basic grains due to increases in 
national production, helping to moderate food prices.  There 
were also informal price controls for part of the year. 
Increases in gasoline prices and public transportation 
offset the favorable effect of the food index. 
 
MONTHLY CPI FOR 2001 AND 2002 
----------------------------- 
 
     END OF      PCT CHANGE         END OF    PCT CHANGE 
2001 PERIOD      SAME MONTH   2002  PERIOD    SAME MONTH 
                 YEAR EARLIER                 YEAR EARLIER 
 
JAN  111.1       10.5        JAN   120.2           8.2 
FEB  112.5       10.3        FEB   121.5           8.0 
MAR  113.5       10.2        MAR   122.2           7.7 
APR  114.2        9.5        APR   123.1           7.8 
MAY  115.6        9.8        MAY   123.7           7.0 
JUN  116.3        9.4        JUN   125.1           7.6 
JUL  116.9        9.3        JUL   126.1           7.9 
AUG  117.7        9.5        AUG   126.9           7.8 
SEP  118.6       10.1        SEP   127.1           7.2 
OCT  118.8        9.7        OCT   127.8           7.6 
NOV  119.4        9.0        NOV   128.6           7.7 
DEC  119.8        8.8        DEC   129.5           8.1 
 
Source: BCH, data published July, 2003. 
 
CONSUMER PRICE INDEX  (CPI) 
--------------------------- 
(December 1999=100) 
 
                    PCT 
        AVERAGE     CHANGE 
1997      77.9      20.2 
1998      90.1      13.7 
1999     100.0      11.6 
2000     110.1      11.1 
2001     119.8       9.6 
2002     129.8       7.7 
2003*    132.8       8.3 
 
*Figures for 2003 are annualized to June 
Source: BCH, data published July, 2003. 
 
---------- 
EMPLOYMENT 
---------- 
 
¶10. Employment data is collected once per year by the 
National Institute of Statistics (INE) through a survey 
conducted each September.  The labor market was closely 
linked with the economic activity of the country, which can 
be observed in the stagnant behavior of the labor market. 
Employment rose by only 2.3 percent, mostly representing new 
labor joining the informal side of the market.  There was 
also a 2.7 percent increase in the economically active 
population in September 2002 with respect to the same month 
in 2001.  Even though there was a decrease observed in open 
unemployment, the increase of almost 3 percentage points of 
underemployment is significant.  It demonstrates that the 
majority of the emerging labor force is entering the 
informal part of the economy. 
 
¶11. The employment level in the textile industry showed a 
decrease for the second straight year.  According to the 
Maquila Association, in 2002 this industry had a total of 
107,398 direct jobs, which means that 2,685 jobs were lost 
with respect to 2001 (2.4 percent) as a result of the 
closing of 13 companies. 
 
EMPLOYENT INDICATORS 
-------------------- 
 
                    September 2001         September 2002 
                    Urb. Rural  Total      Urb. Rural Total 
 
Economically Active Population (Millions) 
                    1.1   1.2    2.3       1.2   1.2   2.4 
 
Working Pop. (Millions) 
                    1.1   1.2    2.3       1.1   1.2   2.3 
 
Open Unemployment (%) 
                    5.5   2.4    3.9       5.9   1.8   3.8 
 
Visible Sub-employment (%) 
                    4.1   6.8    5.5       5.0   4.7   4.8 
 
Invisible Sub-employment (%) 
                   14.6  33.0   24.0      13.3  37.1  26.6 
 
Economic Active Population with employment problems 
                   24.2  42.2   33.4      24.2  43.6  35.2 
 
UNEMPLOYMENT  (PERCENT OF LABOR FORCE) 
-------------------------------------- 
 
YEAR           PERCENT 
 
1997 Sep.      4.3 
1998 Sep.      3.0 
1999 Sep.      3.3 
2000           N/A 
2001 Sep.      3.9 
2002 Sep.      3.8 
 
Source: National Institute of Statistics, September 2002 
Survey. 
 
¶12. The latest revision of the minimum wage (an increase of 
12 percent for workers in small agriculture and 
approximately nine percent for most other workers) was 
implemented in spring 2003.  New negotiations will start in 
November of this year for the 2004 increase. 
 
------------------- 
BALANCE OF PAYMENTS 
------------------- 
 
¶13. Net international reserves increased by USD 214.0 
million in 2002 to reach USD 1.85 billion, as a result of 
the positive balance in the long-term capital account of the 
private sector and also due to large transfers, especially 
in net family remittances, which increased 32.1 percent 
compared to 2001. 
¶14. The balance of the capital account was USD 187.8 million 
that represents a reduction of 18.6 percent from 2001 caused 
mainly by a reduction in direct investment and also long- 
term loans to the official sector. 
 
¶15. The current account deficit in 2002 was USD 243.0 
million, equivalent to 3.7 percent of GDP.  The current 
account balance was a result of various factors: a reduction 
of 0.6 percent in imports, and the increase of 3.0 percent 
in overseas net transfers product of a bigger flow in family 
remittances that rose from USD 533.0 in 2001 to USD 704.3 
million in 2002. 
 
CONDENSED BALANCE OF PAYMENTS (USD MILLIONS) 
-------------------------------------------- 
 
                         2000         2001           2002 
 
TRADE BALANCE          -992.5      -1,222.6       -1,200.0 
TRANSFERS               746.9         929.2          957.0 
CURRENT ACCOUNT        -245.6        -293.4         -243.0 
CAPITAL ACCOUNT          68.4         230.7          187.8 
ERRORS AND OMISSIONS    123.5          62.4          118.7 
GLOBAL BALANCE          -53.7          -0.3           63.5 
INTERNATIONAL RESERVES 
(DECREASE +,INCREASE -)-118.8        -147.3         -214.0 
 
Source: BCH.  Data published July 2003. 
 
------- 
EXPORTS 
------- 
 
¶16. Honduras' export value in 2002 was USD 1.37 billion, 
down by 1.5 percent from 2001.  This decrease was due mainly 
to lower exports of banana, shrimp, soaps and detergents 
because of big price declines.  In 2002, Honduras exported 
USD 665.2 million to the U.S., an amount equivalent to 48.5 
percent of total exports. 
 
EXPORTS (FOB, IN USD MILLIONS) 
--------------------------------- 
 
                         TO             PCT OF 
           TOTAL         U.S.           TOTAL 
 
1995      1,220.2        608.2          49.8 
1996      1,316.0        612.4          46.5 
1997      1,445.7        666.2          46.0 
1998      1,549.9        686.0          44.2 
1999      1,164.4        572.4          49.1 
2000      1,436.0        604.2          45.4 
2001      1,391.0        607.6          45.3 
2002      1,370.7        665.2          48.5 
 
Source: BCH.  Data published  July 2003. 
Note: Figures do not include exports of apparel and other 
manufactures in the maquila sector. 
 
BANANA EXPORTS 
-------------- 
 
YEAR       REVENUE          VOLUME          AVG. UNIT PRICE 
          (USD MILLIONS)    40 LBS BOX     (USD) 
 
1998      219.6             28,234                7.78 
1999       38.1              6,750                5.64 
2000      124.2             20,686                6.01 
2001      204.2             25,487                8.01 
2002      172.4             23,453                7.35 
COFFEE EXPORTS 
-------------- 
 
YEAR REVENUE   VOLUME     PRICE    VOLUME        PRICE 
    (USD MILL) 60KG BAGS  (USD)    46KG BAGS     (USD) 
1998 429.8     2,330     184.49    3,039         141.44 
1999 256.1     1,986     128.92    2,591          98.84 
2000 339.4     2,903     116.90    3,787          89.63 
2001 160.7     2,391      67.20    3,119          51.52 
2002 182.5     2,711      67.32    3,536          51.61 
OTHER IMPORTANT EXPORTS 
----------------------- 
 
WOOD 
---- 
YEAR      REVENUE   VOLUME         PRICE 
         (USD MILL)  (FT)          (USD) 
 
1998      17.1      25,540         0.67 
1999      27.5      38,168         0.72 
2000      33.5      44,179         0.76 
2001      33.9      44,026         0.77 
2002      33.7      43,205         0.78 
 
GOLD 
---- 
 
YEAR      REVENUE   VOLUME     PRICE 
         (USD MILL) (OZ.T)     (USD) 
 
1998      0.0       0.0        0.0 
1999      0.0       0.0        0.0 
2000      6.3       24       260.32 
2001     63.8       244      261.68 
2002     80.5       265      303.89 
 
SILVER 
------- 
 
YEAR      REVENUE   VOLUME    PRICE 
         (USD MILL) (OZ. T)   (USD) 
 
1998      7.8       1,525     5.14 
1999      5.4       1,085     4.94 
2000      8.3       1,733     4.77 
2001      7.9       1,846     4.26 
2002      5.1       1,165     4.39 
 
ZINC 
---- 
 
YEAR    REVENUE     VOLUME    PRICE 
       (USD MILL)   (LBS)     (USD) 
 
1998      36.3      85,659    0.42 
1999      50.2      94,786    0.53 
2000      54.5      97,396    0.56 
2001      38.5     101,334    0.38 
2002      29.0      93,556    0.31 
 
SUGAR 
----- 
 
YEAR      REVENUE   VOLUME    PRICE 
         (USD MILL) (KILOS)   (USD) 
 
1998      10.2      21,033    0.48 
1999       5.3      10,509    0.50 
2000       7.8      25,499    0.31 
 
2001      30.4     160,083    0.19 
2002      17.5      97,066    0.18 
 
Source: BCH.  Data published July 2003. 
 
MAQUILA EXPORTS (USD MILLIONS) 
------------------------------ 
 
           VALUE         PERC. 
                         GROWTH 
 
1999      2,158.30         - 
2000      2,361.80       9.43 
2001      2,343.60      -0.77 
2002      2,439.40       4.09 
2003*       994.60      10.73 
* (Figures for 2003 are up to May) 
Source: Honduran Maquila Association 
 
-------- 
IMPORTS 
-------- 
 
¶17. In 2002 the value of imports FOB totaled USD 2.8 
billion, a decrease of 0.1 percent over 2001.  In 2002, 
Honduras imported USD 1.2 billion from the U.S. equivalent 
to 40.7 percent of total imports. 
IMPORTS (CIF, in USD MILLIONS) 
------------------------------ 
 
                         FROM      PCT OF 
      TOTAL              U.S       TOTAL 
 
1995  1,642.7            705.2      42.9 
1996  1,840.0            857.6      46.6 
1997  2,148.6          1,033.0      48.0 
1998  2,534.8          1,177.3      46.4 
1999  2,676.1          1,182.7      44.1 
2000  2,854.6          1,220.2      42.7 
2001  2,983.9          1,281.7      42.9 
2002  2,976.3          1,213.1      40.7 
 
Note: Figures do not include imported goods for the maquila 
sector. 
 
------------------------- 
FOREIGN DIRECT INVESTMENT 
------------------------- 
 
¶18.  According to Central Bank data, FDI flows in Honduras 
in 2002 totaled USD 143 million.  The U.S. continues to be 
the dominant source of FDI in Honduras with investment in 
2002 reaching an estimated USD 54,500.0 million, or 38.1 
percent of total FDI in Honduras.  These totals do not 
include the accumulated investments in the maquila industry, 
which is considerable. 
 
FOREIGN DIRECT INVESTMENT BY COUNTRY OF ORIGEN 
--------------------------------------------- -- 
(US THOUSANDS) 
 
                1999        2000       2001        2002 
 
United States 113,855.1   64,240.6   52,600.0    54,500.0 
El Salvador    13,907.7    7,878.8    9,240.0    11,798.0 
Guatemala       3,354.5   11,084.8   10,847.0     6,046.0 
Costa Rica      6,442.5   21,186.6   24,106.6     9,831.5 
Panama         19,474.8   15,099.7   18,088.0     8,795.0 
Mexico          4,612.9     -138.8      207.0       223.0 
Spain           5,884.3    7,784.5    9,784.5     5,390.0 
United Kingdom  2,567.4   14,956.7    4,289.0     4,790.0 
Switzerland     6,948.1   -4,050.9   -1,250.0       543.0 
Italy          -3,606.0   13,624.8    7,624.0     6,175.0 
Germany           156.7      218.6      188.6       219.0 
Japan             124.0        0.0    1,150.6     1,188.2 
Canada         55,099.6   36,057.9   15,057.0    18,115.0 
Other Countries 8,515.6   94,056.3   43,068.9    15,246.9 
 
Total         237,337.2  281,999.6  195,001.2   142,860.6 
 
ACCUMULATED INVESTMENT IN TEXTILE INDUSTRY 2001 
--------------------------------------------- -- 
(Information for 2002 is not available yet) 
 
                    AMOUNT         PCT OF 
                   (USD MILLIONS)  TOTAL 
 
Honduras            670.1          47.1 
U.S                 370.2          26.0 
Korea               145.5          10.2 
Hong Kong            43.8           3.1 
Taiwn               55.2           3.9 
China                33.8           2.5 
Singapore            18.8           1.3 
Canada               49.2           3.5 
Colombia              2.0            .1 
Barbados               .1           0.0 
Co-investment        32.9           2.3 
-------------       ------       ------                Total 
1,421.6         100.0 
 
Source: BCH.  Data published July 2003. 
 
-------------- 
INTEREST RATES 
-------------- 
 
¶19. In 2002, nominal interest rates declined slightly, due 
in part to the Central Bank's monetary policy, which 
included the elimination of the obligatory investment 
requirement to the financial system, providing more 
liquidity and resources for the productive sector. 
 
¶20. In December 2002, the average nominal interest rate in 
local currency for new loans was 20.9 percent and for long 
term deposits was 12 percent, which represents a reduction 
of 1.3 and 2.1 percentage points respectively compared to 
the end of 2001 averages. 
 
¶21. The average nominal interest rates on new operations in 
foreign currency  - loans and deposits at the end of 2002  - 
- were 9.4 percent and 2.6 percent respectively which means 
a reduction of 2.5 and 2.1 percentage points compared to the 
end of 2001 averages.  This decrease is directly related to 
the continued reduction of interest rates internationally. 
 
ANNUAL INTEREST RATES -FINANCIAL SYSTEM 
--------------------------------------- 
(Weighted averages, local currency) 
 
YEAR          LENDING        DEPOSIT 
 
1998           30.80          16.00 
1999           29.53          15.04 
2000           24.67          12.23 
2001           23.23          11.76 
 
2002 
JAN            23.20          11.44 
FEB            23.16          11.36 
MAR            23.18          11.35 
APR            23.18          11.13 
MAY            23.02          11.13 
JUN            23.05          11.03 
JUL            22.90          10.52 
AUG            22.74          10.15 
SEP            22.54          10.02 
OCT            22.21           9.86 
NOV            22.22           9.78 
DEC            22.11           9.57 
 
Source: BCH.  Data Published July 2003. 
 
------------------- 
NET DOMESTIC CREDIT 
------------------- 
 
¶22. Domestic credit flows of the financial system (private 
and public sectors), increased by seven percent with respect 
to 2001, closing at Lps. 31.4 billion (USD 1.85 billion). 
Credit to the public sector declined by 10 percent, while 
loans for the private sector grew by eight percent. In 2002, 
the majority of loans from banks to the private sector were 
for real estate investments (23 percent), followed by 
manufacturing industry (15 percent), domestic trade and 
consumption (13 percent), and agriculture and services (10 
percent). 
 
NET INTERNAL CREDIT (MILLIONS OF LEMPIRAS) 
----------------------------------------- 
 
              2000        2001      2002    PERC.    PERC. 
                                            CHANGE   CHANGE 
                                           2001  2002 
INT.CREDIT    25,025.9   29,412.2  31,422.6  18.0   7.0 
PUBLIC SEC.   11,358.4  -11,395.3 -12,499.8   0.0 -10.0 
PRIVATE SEC.  36,384.3   40,807.4  43,922.4  12.0   8.0 
 
------------ 
MONEY SUPPLY 
------------ 
 
¶23. Money supply growth in 2002 was 11.3 percent, 1.6 
percent less than December of 2001.  Local currency 
deposits, foreign currency deposits and circulating 
currency, increased by 11.9 percent, 11.3 percent and 7.2 
percent respectively. 
 
MONETARY AND CREDIT INDICATORS 
--------------------------------------- 
(PERCENTAGE GROWTH, DEC. OF EACH YEAR) 
 
                         2000           2001          2002 
 
DOMESTIC CREDIT          21.8           15.8           5.1 
    PRIVATE SECTOR       12.2           10.7           6.1 
     LOCAL CURRENCY      14.7           13.4           6.8 
     FOREIGN CURRENCY     5.4            2.9           4.0 
    PUBLIC SECTOR         4.6            0.6          -8.8 
     CENTRAL GOVERNMENT  20.6           35.6           5.7 
     REST OF PUBLIC SEC.-21.3          -36.7         -16.1 
 
MONEY SUPPLY             17.1           12.9          11.3 
    IN LOCAL CURRENCY    16.6            8.3          11.3 
       CURRENCY           0.4            9.3           7.2 
       DEPOSITS          19.7            8.1          11.9 
    IN FOREIGN CURRENCY  18.6           26.3          11.3 
 
 MONETARY INDICATORS 
----------------------------------------- 
(MILLIONS OF LEMPIRAS, DEC. OF EACH YEAR) 
 
                                           PCT CHG  PCT CHG 
               2000      2001      2002      2001     2002 
 
MONEY (M1)   10,942.9   11,514.8  13,191.6    5.0     15.0 
MONEY (M2)   33,482.0   36,314.1  40,444.9    8.0     11.0 
MONEY (M3)   43,924.5   50,115.3  56,733.0   14.0     13.0 
 
-------------- 
EXCHANGE RATE 
-------------- 
 
¶24. The annual depreciation of the Lempira with respect to 
the dollar in 2002 was 6.3 percent, changing from Lps. 
15.9197 to the dollar at the end of 2001 to Lps. 16.9233 to 
the dollar at the end of 2002. 
 
ANNUAL AND MONTHLY EXCHANGE RATES 
(BANK SELL RATE, LEMPIRAS/USD) 
---------------------------------- 
 
               END OF    YEAR           ANNUAL 
               PERIOD    AVERAGE        DEVALUATION 
                                       (PERCENT) 
 
1998           13.92     13.54          5.4 
1999           14.66     14.35          5.0 
2000           15.31     15.01          4.39 
2001           16.05     15.65          5.14 
2002           16.92     16.47          6.30 
 
---------------------- 
PUBLIC SECTOR FINANCES 
---------------------- 
 
¶25. The Central Government fiscal deficit at the end of 2002 
was Lps. 5.849 billion (USD 345.7 million), equivalent to 
5.4 percent of GDP, lower than the 6 percent observed in 
¶2001. 
 
¶26. The 2002 central government deficit was mainly financed 
through domestic financing (66.2 percent of total) compared 
to foreign financing  (33.8 percent).  Regarding domestic 
financing, it is important to point out that most of the 
resources were obtained through transfers from Hondutel (the 
State-owned telephone company) of Lps. 2.485 billion (USD 
146.8 million) equivalent to almost 60 percent of the 
required resources.  This source of funds is now basically 
exhausted. 
 
¶27. During 2002, tax collection increased to Lps. 17.3 
billion (USD 1.021 billion) equivalent to 16.0 percent of 
GDP, slightly lower than the 16.2 percent reached in 2001. 
Tax income increased by 7.4 percent (in nominal terms) with 
respect to 2001, compared to a 10.0 percent increase in 
¶2000.  The decrease in tax income occurred primarily in the 
first semester of 2002 and was largely counterbalanced in 
the second semester as a result of the administrative 
measurements adopted by the application of the new law of 
Financial Equilibrium approved by Congress in May 2002. Part 
of the declines in the first semester were attributed to 
falling income from oil taxes due to oil prices and part 
from scheduled declines in some import duties as a result of 
trade and regional integration agreements. 
¶28. Total expenditures of the Central Government were Lps. 
26.773 billion (USD 1.6 billion) which were 4 percent higher 
than to 2001, due to the increase of 10.7 percent in current 
expenditures and a reduction of 12.6 percent in capital 
expenditures.  The increase in current expenditures was due 
to a 16.7 percent increase in salaries (primarily teachers). 
There was a decrease of 4.7 percent in goods and services 
expenditures as a result of the measures taken by the 
government to control public sector expenditures, and a law 
approved by Congress in May 2002 to control expenditures. 
 
CENTRAL GOVERNMENT FINANCIAL ACCOUNT 
------------------------------------ 
(MILLIONS OF LEMPIRAS) 
 
                    2000           2001            2002* 
 
TOTAL INCOME        16,753.0       19,752.0       20,924.1 
  CURRENT INCOME    15,861.5       17,981.6       19,785.8 
   TAX INCOME       14,620.3       16,083.1       17,278.2 
 
CURRENT EXPENDIT.   15,559.0       18,390.4       20,355.7 
   EXPENDITURES     12,687.3       14,830.3       16,282.4 
   SALARIES          7,943.0        9,966.0       11,628.1 
   NET INTERESTS     2,306.4        2,128.9        2,046.9 
 
SAVINGS                302.5         -408.8         -569.9 
 
NET TOTAL EXPENDIT. 21,769.2       25,734.8       26,773.6 
 
SAVINGS (+), DEFICIT (-) 
                    -5,016.2       -5,982.8       -5,849.5 
 
FINANCING            5,016.2        5,982.8        5,849.5 
  NET FOREIGN FINANCE 
                     2,296.9        3,394.5        1,978.6 
  NET DOMESTIC FINANCE 
                     2,719.3        2,588.3        3,870.9 
 
(*Preliminary figures) 
Source: Ministry of Finance 
Exchange rate Dec. 2002 Lps. 16.92 to USD 1.00 
 
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FOREIGN DEBT 
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¶29. Honduras's foreign debt, which is held by the official 
sector, Central Bank and private sector (financial and non- 
financial) in the year 2002, was USD 4.963 billion, up 3.2 
percent (USD 155.7 million) from 2001; mainly due to the 
U.S. dollar devaluation with respect to other currencies 
that are the components of the baskets of the international 
lending institutions, since net flows (reimbursements minus 
capital payments) increased only by USD 10.2 million.  The 
relation of the total debt to the GDP in 2002 was 75.6 
percent, very similar to 75.1 percent in 2001. 
 
¶30. Foreign debt service in 2002 was USD 583.5 million, USD 
466.0 million of capital and USD 117.5 million in interest. 
In 2002, under the HIPC initiative, Honduras was scheduled 
to receive total debt relief of USD 48.8 million.  Of this 
relief, USD 35.5 million are resources to be used for the 
financing of the Poverty Reduction Strategy. Honduras has 
not yet reached the HIPC completion point. 
 
HONDURAN FOREIGN DEBT (IN USD MILLIONS) 
---------------------------------------- 
 
TYPE OF CREDITOR    PERC.     2000        2001      2002 
 
MULTILATERAL        63.7     3,069.4     3,118.3   3,162.2 
 
 
BILATERAL           30.0     1,357.1     1,414.6   1,487.5 
 
COMERCIAL            6.3       279.5       275.1     314.0 
 
TOTAL              100.0     4,706.0     4,808.0   4,963.7 
 
TOURISM 
¶31. Tourism is one of the priority sectors for the GOH, 
which hopes it will generate a substantial number of jobs 
and economic growth.  The three project goals are the 
Caribbean Creation, a Mayan Route and Nature Adventure. 
Each of these projects contain several smaller clusters of 
projects.  The Caribbean Creation involves encouraging 
tourism development in the Bay Islands and the northern 
coast of Honduras, focusing on beaches and reefs.  The goal 
is to increase to one million tourists and USD 500 million 
income in foreign exchange.  The second project is a 
complete Mayan Route from Copan to other archeological sites 
and will involve visitors from cruise ships flying to Copan. 
The third project is marketing and developing eco-tourism on 
the north shore, national parks and in the Copan Ruins area. 
 
           TOTAL VISITORS     FOREIGN        FOREIGN 
          (THOUSANDS)         EXCHANGE       EXCHANGE 
                              INCOME         OUTFLOW 
                             (USD MILLION)  (USD MILLION) 
 
1999      428.1               195.0               94.0 
2000      688.4               259.8              106.7 
2001      672.0               274.6              156.6 
2002      788.1               341.5               N/A 
 
Source: Ministry of Tourism. 
 
PALMER