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

UNCLAS SECTION 01 OF 03 TEGUCIGALPA 001912 
 
SIPDIS 
 
EL SALVADOR FOR COMMATT DTHOMPSON AND AGAH SHUETE 
 
STATE PASS TO USAID, OPIC, EXIM, USTR 
STATE PASS TO USED IDB, USED WB, USED IMF 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD EINV EAIR ELTN PGOV PREL KPRV KTDB KPWR HO ENGR
SUBJECT: HONDURAN ECON HIGHLIGHTS: AUGUST 2003 
 
Topics: 
 
-Macro Economic Goals 
-IMF/Brooke Sanctions 
-Wood Industry: exportation 
-Tourism Growth 
-Standard Fruit Company: increased investment 
-Remittances up in 2003 
-Maquila Industry: Increased Growth 
-USD Bank Deposits on the Rise 
-Megatel and Celtel: collusion or duopoly 
-Banana Sector: Independent Producers in Trouble 
-Airport Carriers: More US Bound Flights 
 
-------------------- 
Macro Economic Goals 
-------------------- 
 
¶1. The GOH is running out of time to attain their 
goal of 3.2 percent economic growth for 2003, over 
2002's growth of 2.5 percent.  Goals proved 
difficult after unexpected high levels of bank 
liquidity and stagnant international prices of 
agricultural goods like coffee and bananas 
hindered the economy.  High bank liquidity 
translates into low levels of investment, fewer 
purchased products and services, and reduced 
transactions, which, results in sluggish economic 
growth.  Even though the 4 billion lempira (USD 
231 million) excess in bank liquidity has caused 
interest rates to drop from an average of 29 to 22 
percent, low demand for loans have kept liquidity 
high.  The only positive offsets have been the 
increased USD 70 million investment in the Maquila 
industry and the rise in remittances. 
 
-------------------- 
IMF/Brooke Sanctions 
-------------------- 
 
¶2. The GOH continues to struggle to improve its 
fiscal situation, as required to reach an 
agreement with the IMF.  GOH spending has 
increased from 2001 to 2002 by over 14 percent, 
reaching 18.557 billion lempira (USD 1.07 
billion).  To restrain uncontrollable government 
wages, a Civil Service Reform Law, which would 
change the salary of governmentally paid medical 
workers and teachers, is currently being 
considered.  Controversial and disliked by 
government employees, the law will face added 
difficulty in passing since the working party lost 
the majority in the National Congress in July.  If 
approved, the Civil Service Law would cut salaries 
by 700 million lempira (USD 40.46 million), just 
over 10 percent of total government wages. 
 
¶3. Deferral of Paris Club debt service has turned 
to active status with the failure to reach an IMF 
agreement.  Although a debt of USD 12,000 was 
repaid to the Department of Defense on July 15 , 
USD 1.73 million of overdue principal debt is 
still owed by September 3. Brooke Amendment 
Sanctions will be enacted against Honduras, ending 
DOD, DOS and USAID programs if the GOH fails to 
repay the 1.7 million by then.  Cutting the USAID 
programs alone would yield losses of USD 13 
million in FY03 and USD 45 million in FY04. 
 
------------------------------ 
Wood Industry: Falling Exports 
------------------------------ 
 
¶4. According to the Timber Association of 
Honduras, primary and secondary wood exports to 
the U.S. will be drastically diminished in 2003. 
Total annual raw wood exportation in past years 
has garnered USD 75 to 80 million for the wood 
industry, while this year exports will only reach 
USD 40 million.  Similarly, furniture exports, are 
expected to fall from their normal USD 40 million 
to a USD 25 to 30 million in 2003. 
 
-------------- 
Tourism Growth 
-------------- 
¶5. In July, the tourism sector recorded generating 24 
percent more foreign currency than last year.  According to 
the Secretary of Tourism, significant increases in business- 
oriented tourism have been seen in Tegucigalpa and San Pedro 
Sula. Recovering confidence in travel post 9/11 has also 
aided Honduras' tourism industry. Port calls at Roatan's new 
pier are up to visits 7 days a week by several major cruise 
lines as well. 
 
-------------------------------------------- 
Standard Fruit Company: Increased Investment 
-------------------------------------------- 
 
¶6. Standard Fruit Company, a subsidiary of Dole Food 
Company, will increase investment in banana and pineapple 
production by USD 14 million, intending to boost export 
revenue of these two products from USD 75 million in 2002 to 
USD 90 million in 2003.  Standard Fruit currently directly 
employs 9,000 direct Honduran workers. 
 
---------------------- 
Remittances up in 2003 
---------------------- 
 
¶7. Central Bank data concludes that remittances 
from January to June 2003 have reached USD 348.2 
million, up 15.5 percent from same period in 2002. 
The approximately 600 thousand Honduras who send 
remittances, are suspected to send a total of USD 
700-800 million in 2003. According to a report 
from the Economic Commission for Latin America and 
the Caribbean, remittances are used to invest in 
small businesses, buy land, and improve homes. 
 
-------------------------------------------- 
Textile (Maquila) Industry: Increased Growth 
-------------------------------------------- 
 
¶8. The accelerated growth and success of the Maquila 
industry has drawn the attention of investors from both U.S. 
and Taiwan as profits of USD 730 million in 2002 are 
expected to rise to USD 800 million in 2003.  Optimistic 
predictions continue for 2004 with goals of USD 880 million. 
In June, the Industry started hiring what it hopes will 
eventually be an additional 20,000 employees. Honduras was 
ranked 3rd in total amount of textile exportation to the 
United States, superceded by only Mexico and China. 
Honduras exported 268 square meters of textiles in the first 
quarter of 2003 up 21.3 percent from 2002's first quarter's 
220 square meters.  Although the textile industry is hopeful 
about the upcoming export advantages from CAFTA, it is 
doubtful Honduras will match China's growth rate of 94.2 
percent. 
 
----------------------------- 
USD Bank Deposits on the Rise 
----------------------------- 
 
¶9. According to data collected by the Central Bank 
of Honduras, bank deposits in USD are on the rise 
with 33% of total Honduran bank deposits in 2002 
up from 28% in 1999. Experts believe this may have 
a role in the economic stability of the lempira as 
inflation has dropped from 10.1 percent in 2000 to 
8.1 percent in 2002.  Bank officials are not 
surprised by heightened popularity of the dollar, 
when interest rates average 10 percent for lempira 
bank accounts, which, after accounting for 
inflation, leaves little real monetary growth. 
However, with USD 500 million in Honduran bank 
accounts, dollar interest rates are also on the 
decline. 
--------------------------- 
Megatel and Celtel: Duopoly 
--------------------------- 
 
¶10. In June 2003 Megatel received a licensing 
contract, at a cost of over USD 7 million, to 
become a cellular Band A service provider.  Since 
then, Celtel and Megatel have joined as a duopoly 
to take advantage of Hondutel's 400 thousand 
unanswered requests for ground lines.  Celtel, the 
previous cellular service provider backed by 
American and Honduran investors, issued 326,000 
cellular contracts and per minute telephone costs 
have not dropped below .25 USD, the most expensive 
service in the region.  Megatel, a U.S. company 
with Honduran and Swedish investment, plans on 
investing USD 50 million on labor, construction, 
installation, and personal contracts supplying an 
additional 200 jobs to the country. 
 
--------------------------------------------- -- 
Banana Sector: Independent Producers in Trouble 
--------------------------------------------- -- 
 
¶11. Independent banana produces are asking the 
Honduran government for financial help after poor 
climate conditions have caused 40 percent losses 
on fruit harvests.  Accrued debt of 300 million 
lempira (USD 17.3 million), primarily loaned after 
hurricane Mitch, remains unpaid after independent 
banana farmers failed to reach their goal of 
exporting 10 million crates of bananas to the U.S. 
The new agriculture law, "Ley de Fortalecimiento 
Financiero del Sector Agriculture," passed in June 
2003, grants 50 percent debt relief to 
agricultural producers, however this law does not 
pertain to the independent banana producers who 
currently employ 42,000 workers in Honduras. 
 
--------------------------------------- 
Airport Carriers: More US Bound Flights 
--------------------------------------- 
 
¶12. After finally receiving authorization to 
provide carrier service to El Salvador, Sol Air in 
June 2003 began flying its new route from 
Tegucigalpa to San Salvador to Miami and back at a 
fare of USD 198, round trip.  El Salvador's 
granted permission to Sol Air expires March 30, 
¶2004. 
 
¶13. In June, TACA added 28 U.S. bound flights 
weekly, becoming the only flight carrier to 
provide service 3 times a day to Miami.  To 
provide these additional flights 32 new planes 
were purchased from the European company, Airbus." 
The additional flights are only for the temporal 
season including June, July and part of August. 
 
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