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

UNCLAS SECTION 01 OF 04 TEGUCIGALPA 000560 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EB, DRL/IL, WHA/EPSC, AND WHA/CEN 
GUATEMALA FOR AGATT SHUETE 
SAN SALVADOR FOR COMMATT DTHOMPSON 
DOL FOR ILAB 
STATE PLEASE PASS TO USAID, OPIC, EXIM, USTR 
STATE PLEASE PASS TO USED IDB, USED WB, USED IMF 
 
E.O. 12958: N/A 
TAGS: ECON EAIR EFIN EINV ELAB ETRD PGOV TSPA HO IMF
SUBJECT: Honduran Econ Highlights: February 2004 
 
REF: A) 04 Tegucigalpa 232 
 
     B) 04 Tegucigalpa 543 
     C) 03 Tegucigalpa 2432 
 
Contents 
-------- 
Macroeconomics: 
 - Finally, An IMF Agreement 
 - But Rising Fuel Costs Could Spark Discontent 
 - Minimum Wage Negotiations Underway 
 
Aviation: 
 - A New National Safety and Security Plan 
 - Runway Extension at Toncontin 
 - Work Stalled on Roatan Fence 
 - Governor Bush Unable to Land in Tegucigalpa 
 
Business: 
 - IDB Recommends Fewer Tax Exemptions 
 - DOC Under-Secretary Aldonas Visits San Pedro Sula 
 
Science: 
 - NASA Administrator O'Keefe Returns Moon Rock to Honduras 
 
------------------------- 
Finally, an IMF Agreement 
------------------------- 
 
¶1. (U) On February 2, the GOH signed a Letter of Intent for 
a three-year Poverty Reduction and Growth Facility (PRGF), 
which was then approved by the IMF Board in Washington on 
February 18.  This marks the end of two long years of 
negotiations between the IMF and the Maduro government, but 
the result is a macroeconomic plan that establishes some 
control over public sector salaries and places the GOH on a 
more secure financial footing. 
 
¶2. (U) The program was premised on GOH completion of four 
"prior actions": the adoption of a law to control public 
sector salaries, a package of expenditure cuts and revenue 
enhancements, a 2004 budget consistent with expenditure 
targets, and an adjustment to the Poverty Reduction 
Strategy.  All four moves were completed by early January 
2004 (see Ref A for a complete account of these measures). 
 
¶3. (U) After one year of compliance with the program and 
commitments in the GOH's Poverty Reduction Strategy, 
Honduras will be eligible for reaching the completion point 
under the HIPC initiative.  This will provide debt relief of 
approximately $960 million over a period of fifteen years. 
This savings from debt forgiveness will be used for 
improvements in education, health care, and other aspects of 
the Poverty Reduction program. 
 
¶4. (U) Following the signing of the Letter of Intent, 
several multilateral and bilateral assistance packages were 
announced which will be worth $110 million over the next 
several years.  On February 10, the government of Sweden 
announced $31 million of assistance to be given to the GOH 
this year, for support of the Poverty Reduction Strategy. 
On February 11, the Inter-American Development Bank (IDB) 
announced approval of $55 million in soft loans: $30 million 
to support Honduras' Poverty Reduction Strategy, and $25 
million for a program to support the stability of Honduras' 
banking sector.  The loans are for a 40-year period, with a 
10-year grace period, and an annual interest rate of 1 
percent for the first decade and 2 percent thereafter.  In 
addition, on February 26, the World Bank approved a $25 
million credit for a Land Administration Program to help 
expand access to formal land titling and registration.  The 
credit is repayable over 40 years, with a 10-year grace 
period, at zero interest. 
 
-------------------------------------------- 
But Rising Fuel Costs Could Spark Discontent 
-------------------------------------------- 
 
¶5. (SBU) On February 29, fuel prices in Honduras rose for 
the third time this year, by more than three lempiras (16.7 
cents) a gallon.  As of the end of the month, the price of 
gasoline had increased by 19 percent, and that of diesel 
fuel by 17.6 percent, from December 31 of last year.  The 
price increases are largely due to the increase in the 
tariff on fuel, which the GOH applied at the end of 2003 to 
raise revenue and reach agreement with the IMF.  At the same 
time, the rising world price of oil, which was at a one-year 
high by the end of February, has put further pressure on 
gasoline prices, much to the dismay of Honduran officials 
who had hoped for falling prices to cushion the blow.  Taxi, 
bus, and truck drivers have all been clamoring for relief, 
and the private sector is urging the legislature to cap fuel 
prices.  So far, the government has remained firm in its 
intention to abide by the terms of the IMF program targets 
and avoid further price controls.  (See Ref B for a full 
account of this issue.) 
 
---------------------------------- 
Minimum Wage Negotiations Underway 
---------------------------------- 
 
¶6. (U) The Tripartite Commission on the minimum wage (with 
representatives of labor, business and the government) met 
twice during February to discuss the annual increase to the 
minimum wage.  Negotiations began with the two sides far 
apart, each accusing the other of making unreasonable 
offers.  The private sector organization COHEP (Honduran 
Private Enterprise Council) offered an increase of 7 percent 
(keeping up with inflation).  Israel Salinas, secretary 
general of the United Confederation of Honduran Workers 
(CUTH), called for an increase of 30 percent, and said that 
there seems to be no general agreement between labor and the 
private sector on the issue.  In 2003, the government 
approved a 12 percent increase in the minimum wage after 
business/labor negotiations stalled. 
 
--------------------------------------------- ---- 
Aviation Security and Safety: A New National Plan 
--------------------------------------------- ---- 
 
¶7. (U) The Honduran Civil Aviation authorities (DGAC) have 
produced a new National Plan for Aviation Safety and 
Security, which entered into force by means of a 
Presidential decree published on February 20.  The existing 
plan was badly out of date and in many ways obsolete, for 
example, tasking "the airport police" with certain airport 
security functions, when in fact no such group has existed 
since the police forces were re-organized in 1999.  The new 
plan was written by an IDB-funded consultant and should 
bring Honduras into compliance with ICAO standards on safety 
and security. 
 
--------------------------------------------- 
Work Begins to Make Room for Runway Extension 
--------------------------------------------- 
 
¶8. (U) Also in February, the first stage of construction 
began on what will eventually be an extension to the runway 
at Toncontin International Airport in Tegucigalpa. 
Construction began to divert a major road which runs along 
the southern edge of the airport grounds.  Shifting the road 
will allow the airport to extend its runway to the south by 
an additional 300 meters, bringing the total length of the 
runway to 2,162 meters.  The road construction is being 
handled and paid for by the Ministry of Transportation and 
is expected to be completed by the end of March.  Once the 
road has been rerouted, InterAirports, the international 
consortium that manages Honduras' four international 
airports, can begin work on the runway extension. 
 
----------------------------------- 
But Progress Stalls on Roatan Fence 
----------------------------------- 
 
¶9. (U) At the airport on the island of Roatan, however, the 
construction of an internal fence to protect the runway area 
came to an abrupt halt when an angry resident began 
threatening the workers with a gun.  As explained in Ref C, 
the fence is necessary due to the presence of fourteen 
families who actually live on the airport grounds and are 
currently prevented from walking onto the runway only by the 
presence of 24-hour guards, not by any physical structure. 
These families believe that they are owed compensation by 
the GOH and had long opposed the construction of the 
internal fence.  However, officials from InterAirports, the 
DGAC, and the local government secured written permission 
from the majority of the families in December 2003 and 
construction began.  Unfortunately, one resident who did not 
sign remains violently opposed to the fence, and has 
successfully brought its construction to a standstill with 
only 180 meters left to build.  Aviation officials are again 
planning to go to Roatan to work with local authorities to 
resolve the matter. 
 
------------------------------- 
Governor Bush's Visit Postponed 
------------------------------- 
 
¶10. (SBU) Florida Governor Jeb Bush was forced to call off a 
planned visit to Honduras on February 19 when bad weather 
and malfunctioning equipment at the airport in Tegucigalpa 
threatened his landing.  Governor Bush was leading a 
delegation of Florida business leaders on a week-long visit 
through Central America, to promote regional trade and to 
generate support for Miami's bid to host the FTAA 
Secretariat.  However, bad weather and poor visibility at 
 
SIPDIS 
Toncontin Airport, coupled with the fact that the distance- 
measuring equipment (DME) transponder at the airport was 
temporarily out of order, forced the group to postpone the 
visit.  The Governor's office hopes to reschedule the visit 
for sometime in March. 
 
-------------------------------------------- 
IDB Recommends Elimination of Tax Exemptions 
-------------------------------------------- 
 
¶11. (U) On February 10, two tax specialists from the IDB 
presented the results of a study they had conducted on the 
Honduran tax system.  The study emphasized the need to 
establish a more equitable tax system, since under the 
current system, according to the specialists, "the people 
who earn the most are paying the least."  The study 
advocates neither higher tax rates nor the creation of new 
taxes, but rather the broadening of the tax base through the 
elimination of tax exemptions in industrial "free zones," as 
well as more effective tax collection.  An improved tax 
system is especially important at this time, according to 
the authors, because of the expectation of lost tariff 
revenue which will result from the implementation of CAFTA 
and the FTAA. 
 
¶12. (SBU) Not surprisingly, the private sector responded 
negatively to the suggestion that the rules governing free 
zones should be changed, claiming that a revision of the 
benefits currently offered to industries operating in these 
zones would undermine the growth of the maquila sector, the 
strongest source of employment growth in the Honduran 
economy in recent years.  The Vice Minister of Finance, 
William Chong Wong, gave his assurance that tax exemptions 
currently enjoyed by the maquila industry will not be 
touched during the present government, as these benefits 
were granted in accordance with the law.  However, he did 
acknowledge that such exemptions might be eliminated "in the 
long term." 
 
--------------------------------------------- ------------ 
Under-Secretary of Commerce Aldonas Visits San Pedro Sula 
--------------------------------------------- ------------ 
 
¶13. (U) On February 4 - 5, Commerce Under-Secretary Grant 
Aldonas visited the northern city of San Pedro Sula with 
other Commerce Department officials.  The visit focused on 
the maquila industry, its relation to the textile and 
apparel industry in the United States, and the prospects for 
approval of CAFTA by the U.S. Congress.  Under-Secretary 
Aldonas also visited the MHOTIVO foundation, a school for 
poor children which was founded and is financed by Honduran 
businesses, particularly in the maquila sector. 
----------------------------- 
Moon Rock Returns to Honduras 
----------------------------- 
 
¶14. (U) The Administrator of NASA, Sean O'Keefe, visited 
Honduras and attended a ceremony at which a moon rock stolen 
from Honduras during the 1990s was officially returned to 
Honduras.  The rock, collected in 1972 by the crew of Apollo 
17, was originally given to the Honduran people by President 
Richard Nixon, but a Honduran official later sold the rock 
to a U.S. citizen.  It was recovered by U.S. federal agents 
in a sting operation in 1998, but a legal dispute delayed 
its return to Honduran officials until late 2003. 
 
¶15. (U) During the visit, NASA representatives also visited 
the NASA-supported astronomy department and observatory of 
the National University (UNAH), where O'Keefe spoke about 
the history and the future of the U.S. space program.  The 
moon rock will remain on display in the Chiminike 
Interactive Center, a recently-inaugurated children's museum 
in Tegucigalpa. 
 
Palmer