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

UNCLAS SECTION 01 OF 07 TEGUCIGALPA 001411 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR H PASS TO CODEL SHELBY 
STATE FOR WHA/CEN, INL/LP, DRL/PHD, EB AND CA 
STATE PASS AID FOR LAC/CEN 
 
E.O. 12958: N/A 
TAGS: OREP ECON ETRD EFIN PREL PGOV PHUM HO
SUBJECT: SCENESETTER FOR CODEL SHELBY'S JUNE 28 - 30 VISIT 
TO HONDURAS 
 
REF: STATE 129789 
 
¶1. (U) Summary: Post welcomes the visit of CoDel Shelby to 
Honduras June 29-30.  Honduran President Ricardo Maduro, 
two-and-a-half years through his constitutionally-mandated 
single four-year term, faces a difficult task leading one of 
the poorest countries in Latin America.  However, there have 
been several positive economic developments in recent months, 
including the signing of an agreement with the IMF in 
February, the negotiation of $147 million of debt forgiveness 
from Paris Club creditors in April, and Honduras' selection 
as one of sixteen countries eligible for assistance under the 
USD 1 billion Millennium Challenge Account. 
 
¶2. (SBU) Bilateral relations between the U.S. and Honduras 
are excellent.  Honduras' support for the Global War on 
Terrorism is steadfast, and the Government of Honduras (GOH) 
is among the group of nations that sent troops to Iraq in 
support of Operation Iraqi Freedom, although these troops 
have since returned.  Honduras was the first country in the 
Western Hemisphere to sign and ratify an ICC Article 98 
Agreement with the United States.  Honduras also introduced a 
UN Commission on Human Rights (UNCHR) resolution on Cuba, 
which passed April 15.  End Summary. 
 
----------------- 
Economic Overview 
----------------- 
 
¶3. (U) Honduras, with a per capita income of USD 950, is the 
third poorest country in the Western Hemisphere, ahead of 
only Nicaragua and Haiti.  The economy is growing, at an 
estimated 3.2 percent in 2003, but only slightly faster than 
the rate of population growth.  Social indicators are 
improving, but two-thirds of all Hondurans live in poverty, 
and average education levels are very low. 
 
¶4. (U) Historically, industrial development in Honduras has 
been limited, and the economy has been dependent on exports 
of coffee and bananas.  In the past fifteen years, however, 
the economy has been diversified, with the development of 
non-traditional exports such as cultivated shrimp, melons, 
tourism, and the establishment of a booming maquila industry 
(primarily, assembly for re-export of textiles and apparel). 
Investment incentives aimed at attracting foreign capital in 
export industries have been introduced.  In recent years, the 
coffee industry has suffered from low world prices, and the 
banana industry was severely damaged by Hurricane Mitch in 
¶1998.  Banana production has yet to reach pre-Mitch levels, 
and coffee and bananas now account for less than 15 percent 
of Honduran export earnings. 
 
¶5. (SBU) Despite the recent economic diversification, there 
continues to be a large subsistence farmer population with 
few opportunities other than illegal immigration to the U.S. 
Furthermore, the Honduran government's desire to attract new 
types of foreign investment has been hindered by the stagnant 
economy and a wide range of investment climate and 
competitiveness problems. 
 
¶6. (U) Family remittances from Hondurans living abroad, 
particularly the U.S., grew by 19 percent to USD 860 million 
in 2003, and will soon pass the maquila sector as the 
country's largest source of foreign exchange.  The U.S. is 
Honduras, largest trading partner.  The roughly 150 U.S. 
companies that do business in Honduras constitute the largest 
block of foreign direct investors. 
 
----------------------------- 
IMF Agreement and Debt Relief 
----------------------------- 
 
¶7. (U) In February, after almost two years of negotiations, 
the Maduro Administration signed a Letter of Intent with the 
International Monetary Fund, which was later approved by the 
IMF's Executive Board, for a new three-year arrangement for 
Honduras under the Poverty Reduction and Growth Facility 
(PRGF).  The IMF expects the GOH to reach its Heavily 
Indebted Poor Countries (HIPC) completion point by 2005 with 
good PRGF implementation.  In April, Paris Club participating 
creditors and a Honduran delegation led by the Minister of 
Finance Arturo Alvarado reached agreement on a restructuring 
of approximately USD 360 million of Honduran debt.  The deal 
leads to the immediate cancellation by Paris Club creditors 
of USD 147 million in payments falling due from January 1, 
2004 to June 30, 2005 (the consolidation period), consistent 
with the implementation of the enhanced HIPC Initiative. 
This treatment is expected to reduce debt service owed to 
Paris Club creditors from USD 405 million to USD 49 million 
during the consolidation period, once additional payment 
deferrals are added to the cancellations.  Honduras has 
committed to devote resources freed by this treatment to 
priority areas outlined in the country's poverty reduction 
strategy. 
 
----------------------- 
The Importance of CAFTA 
----------------------- 
 
¶8. (SBU) The Honduran government, along with El Salvador, 
Guatemala, and Nicaragua, reached agreement on the terms of 
the U.S.-Central American Free Trade Agreement (CAFTA) in 
December 2003; Costa Rica closed its negotiations in January 
and the Dominican Republic negotiated its market access 
chapters in March.  The agreement was signed by trade 
ministers of the participating countries (Ambassador Zoellick 
of USTR signed for the U.S.) in Washington on May 28.  The 
agreement now awaits ratification by the Congresses of the 
participating countries.  The Honduran government and private 
sector are disappointed that the U.S. Congress will not 
ratify the agreement before the U.S. elections, and are 
nervous that a prolonged delay may follow the elections as 
well. 
 
¶9. (SBU) Maduro's team is hoping that CAFTA will lead to 
faster economic growth and serve as a catalyst to spur 
regional economic cooperation and integration.  The CAFTA 
agreement is strongly supported by the Honduran private 
sector, especially the textile and apparel industry, where 
CAFTA is perceived to be absolutely vital to the survival of 
the sector in Honduras after worldwide quotas are eliminated 
in 2005.  The CAFTA agricultural chapter will liberalize 
agricultural trade gradually while protecting Honduran 
farmers from sudden disruptions caused by subsidized imports. 
 The agreement also will spur modernization in government 
procurement and services, and will help lock in the GOH's 
structural reforms in areas such as telecommunications.  So 
far in 2004, Honduras has already received about USD 200 
million in new foreign investment as a result of CAFTA. 
While the agreement will require some politically sensitive 
changes to legislation and there is a small, but vocal, 
leftist opposition led by the Popular Block, which includes 
NGOs, unions, and a leftist political party, Honduran 
ratification is expected to be relatively easy. 
 
---------------------------------------- 
Millennium Challenge Account Eligibility 
---------------------------------------- 
 
¶10. (SBU) In May, Honduras was chosen as one of sixteen 
countries eligible (out of 75 considered) to receive 
assistance under the USD 1 billion Millennium Challenge 
Account (MCA).  Countries were selected based upon past and 
current policy performance in the areas of governing justly, 
investing in their own people and promoting economic freedom. 
 In early June, representatives from the Millennium Challenge 
Corporation (MCC) visited Honduras and met with top GOH 
officials, members of civil society, and the private sector. 
The GOH is already actively involved in the MCC process, 
having formed a top-level team and prepared a draft proposal 
for USD 200 million, focusing on highway infrastructure and 
integrated rural development.  President Maduro is fully 
engaged on this issue and has made it clear that negotiation 
of a compact with the MCC is a top priority in the months 
ahead.  MCC representatives were impressed with the Honduran 
efforts so far and are optimistic that Honduras may be one of 
the first countries to receive MCA assistance. 
 
---------------------------------------- 
Terrorist Financing and Money Laundering 
---------------------------------------- 
 
¶11. (SBU) Honduran cooperation on counter-terrorism finance 
is strong.  The Honduran Banking and Insurance Commission 
(CNBS) promptly sends freeze orders to the entire regulated 
financial sector each time the U.S. Executive Order lists are 
amended.  The financial sector, particularly the commercial 
banks, promptly undertake the requested searches for accounts 
by terrorist entities.  To date, no terrorist funds have been 
found in the Honduran financial system, and Post believes 
this is the sole reason that the Government of Honduras has 
not yet frozen any funds. 
 
¶12. (SBU) The GOH has made considerable progress in the fight 
against money laundering since the implementation of a 
much-improved law against money laundering, approved in early 
¶2002.  The GOH established a Financial Information Unit (FIU, 
similar to our FinCEN), soon after the law came into effect. 
A small U.S. Treasury Department project provides technical 
assistance to this unit and to the police units responsible 
for investigating and prosecuting financial crimes.  This 
work has already resulted in strengthened accountability by 
the banking sector in identifying and reporting suspicious 
transactions, and the first conviction and forfeiture under 
the new money laundering law, which took place in April. 
 
------------------------- 
Political/Military Issues 
------------------------- 
¶13. (U) Honduras has a civilian Minister of Defense (MOD) and 
a Chief of the Joint Staff who heads the Honduran Armed 
Forces (HOAF). In January of 1999, the constitution was 
amended to abolish the position of military 
commander-in-chief of HOAF, thus codifying civilian authority 
over the military.  Civilian control over the HOAF is 
complete and civil/military relations are good.  This 
transition has resulted in greater transparency and fiscal 
accountability. The HOAF has a new focus on trans-national 
threats, including counter-terrorism, narcotrafficking, and 
combating international criminal organizations.  The HOAF is 
interested in establishing an ability to further increase its 
participation in international peacekeeping operations. 
Honduras also stands ready to participate in a regional arms 
"rationalization" process, but has announced that it will not 
negotiate on a bilateral basis. 
 
¶14. (SBU) President Maduro is a solid supporter of the U.S. 
on the Global War on Terrorism.  The GOH has responded 
quickly to all USG requests regarding terrorist threats and 
financing, although to date, no terrorist assets have been 
found in Honduran financial institutions.  Honduras is a 
party to all but three UN and OAS counter-terrorism 
conventions (the remaining three are awaiting publication in 
the Honduran federal register) and has also been aggressive 
in upgrading port security.  Honduras was also the first 
country in the Western Hemisphere to sign and ratify an 
Article 98 Agreement with the United States. 
 
--------------------------------------------- -- 
Iraq, Haiti, and Other Key Foreign Policy Goals 
--------------------------------------------- -- 
 
¶15. (SBU) The GOH is very supportive of U.S. foreign policy 
goals, including the reconstruction of Iraq.  In support of 
OIF, the GOH deployed some 370 troops to the vicinity of An 
Najaf as part of the Spanish Brigade operating under the 
Polish Division.  However, following Spain's decision to 
withdraw its troops, Honduras did likewise.  The GOH has 
stated this decision was based on a U.S. request that 
Honduras consider expanding its troops' mandate in Iraq to 
participate in offensive combat operations.  Secretary 
Powell, CJCS GEN Myers, and Secretary Rumsfeld all visited 
Honduras last year to thank the GOH for its support of OIF. 
Their visits were well received and provided important 
political support for Maduro's Iraq policy.  As in most of 
the region, the general public overwhelmingly opposed the 
Honduran deployment.  While Honduras has left Iraq, the GOH 
is considering deploying troops to Haiti in support of UN 
peacekeeping operations there.  Honduras is also very 
supportive at the UN, sharing our views on resolutions 
covering such key issues as human rights, human cloning, and 
the Middle East.  Honduras also introduced a UN Commission on 
Human Rights (UNCHR) resolution on Cuba, which passed April 
¶15. 
 
------------------------------------------- 
Soto Cano Air Base - Joint Task Force Bravo 
------------------------------------------- 
 
¶16. (SBU) About six hundred U.S. service men and women and 
fourteen civilian DOD employees are currently stationed at 
Honduras' Soto Cano Air Base under the command of the 
Combatant Commander, U.S. Southern Command (SOUTHCOM) 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 enables our military forces to continue to 
work together in such areas as disaster relief, joint 
training exercises, and counternarcotics missions. 
 
---------------- 
Counternarcotics 
---------------- 
 
¶17. (U) Honduras' geography places it squarely in the middle 
of a major illegal drug trans-shipment zone, and the 
trans-shipment of cocaine through Honduras by air, land, and 
maritime routes continues.  However, this trade has now begun 
to face significant disruptions.  In 2003, overall seizures 
in Honduras of approximately 6,000 kilos were higher than the 
past five years combined, and in 2004 Honduras has already 
seized some 3,854 kilos of cocaine. 
 
¶18. (SBU) Corruption within the police, Public Ministry 
(prosecutors), and the judiciary remain a primary impediment 
to successful law enforcement cooperation.  However, the GOH 
has moved forward with the implementation of new units in 
support of the strengthened Money Laundering Law, which was 
passed in 2002.  The National Council for the Fight Against 
Drug Trafficking (CNCN) has renewed its commitment to lead 
the country's counternarcotics efforts.  Available funds to 
implement a government approved master counternarcotics plan, 
though, remain severely limited. 
 
---------------- 
Border Relations 
---------------- 
 
¶19. (SBU) Honduras has land border disputes with El Salvador 
and Nicaragua and some of its seven maritime neighbors. 
Maduro has been personally engaged with his Presidential 
counterparts to address these issues.  The Gulf of Fonseca on 
the Pacific coast has been a particularly difficult point.  A 
1992 International Court of Justice (ICJ) ruling laid out a 
shared area 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 
2002, El Salvador requested a revision of the 1992 ICJ 
ruling.  In December 2003, the ICJ ruled against the 
Salvadoran appeal, bringing an end to the case.  The 
Organization of American States (as a neutral third party) is 
providing both nations technical assistance to help them 
implement the non-disputed elements of the ICJ's ruling. 
 
¶20. (SBU) On the Caribbean coast, Honduras and Nicaragua have 
a long-standing maritime border dispute over the 15th 
parallel.  In the past, the dispute has threatened to derail 
trilateral counternarcotics operations.  In 1999, Honduras 
provoked Nicaraguan retaliation when it signed a maritime 
treaty with Colombia recognizing the 15th parallel as its 
maritime border.  Nicaragua subsequently filed an ICJ case 
over the maritime border and, more importantly, in 1999 
slapped a punitive 35 percent tariff on Honduran goods.  This 
tariff remained in place until April 2003 despite a Central 
American Court of Justice ruling that it was illegal.  Only 
after Honduras responded with a retaliatory tariff, 
threatening Nicaraguan exports, did Managua rescind the tax. 
Cuba also recently announced it would suspend negotiations 
with Honduras over a maritime boundary agreement near 
completion due to the GOH's introduction of the UNCHR 
resolution on Cuba. 
 
------------- 
Port Security 
------------- 
 
¶21. (U) The GOH has taken a very pro-active stance in 
addressing port security issues and is poised to meet the 
International Maritime Organization's (IMO) July 1, 2004, 
deadline to certify its ports as meeting the new, more 
stringent port security standards under the International 
Ship and Port Facility Security Code (ISPS) and Maritime 
Transportation Security Act of 2002.  Puerto Cortes is the 
largest port on the Caribbean side of the Central American 
isthmus and currently provides container service to the U.S. 
market, not just for Honduran exports, but also for goods 
from Guatemala, El Salvador, and Nicaragua.  The National 
Port Authority (ENP) has invested almost $10 million in port 
security enhancements (the bulk of the sum was in severance 
payments to its aged and unqualified union security 
workforce). 
 
¶22. (U) The GOH hosted a successful visit (the first in the 
Western Hemisphere) of a U.S. Coast Guard (USCG) port 
security program team in mid-June.  The team came to assess 
Honduras' implementation of the ISPS.  It reviewed security 
practices at five national ports, met with the national 
commission on port security, and discussed Honduran port 
security regulations with the newly created (per the ISPS) 
national port security authority.  The USCG team reported 
that it had identified several very innovative and efficient 
security practices that it would carry back to the port 
facilities in the U.S. as "best security practices".  The 
USCG team also lauded Honduras for being a port security 
leader for hosting the first USCG verification visit in the 
region. 
 
--------------------------------- 
Supreme Court and Judicial Reform 
--------------------------------- 
 
¶23. (SBU) In 2000, the GOH initiated substantial judicial 
reforms intended to allow the Supreme Court to develop into 
an independent branch of power, unlike any of its predecessor 
courts since democracy was restored in 1982.   While the new 
court is pro-reform in orientation and has fought for its 
prerogatives, its performance of late under the leadership of 
its President, Vilma Morales, has been a disappointment. 
There continues to be a high level of political manipulation 
in the court's proceedings and the issue remains open as to 
whether or not 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 
vigor.  In fact, the National Congress seized the political 
opportunity to introduce legislation that would amend the 
constitution to give itself the power to interpret the 
constitutionality of the laws it passes.  The Supreme Court 
ruled in May 2003 that the proposed amendment was 
unconstitutional, which sparked a tense confrontation between 
the Supreme Court and Congress.  The issue receded until 
recently when Congress passed a new amendment to the 
Constitution again granting Congress the right to interpret 
the constitutionality of laws it passes.  A legal challenge 
to this amendment is expected in the near future, although 
the amendment has yet to be printed in the federal register 
and therefore is not yet law.  Judicial corruption remains an 
ongoing problem and the President of the Court has not acted 
decisively to root out and punish bad judges. 
 
-------------------------------- 
Public Security and Human Rights 
-------------------------------- 
 
¶24. (SBU) Upon taking office on January 27, 2002, President 
Maduro's first act was to fulfill his main campaign promise 
-- a zero tolerance campaign against the country's 
intolerably high crime situation.  He deployed more than 
5,000 soldiers to the streets to support the police.  The 
public responded enthusiastically.  However, after initial 
success of establishing a visible police presence, violent 
crime, particularly homicides, continued at a high rate, 
although there is evidence that the murder rate has 
marginally fallen in the last six months.  The U.S. is 
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, expand the Frontier Police, and improve 
prosecutional and forensic capacities.  The country's 
geographic position makes it an obvious strategic transit 
point for narcotics trafficking, alien smuggling operations, 
trafficking in persons, and other organized crime activities. 
 
¶25. (SBU) Extrajudicial killings, especially of 
children/young adults since 1998, have been a source of 
serious concern and only recently has the GOH begun to take 
steps to investigate the hundreds of unsolved cases.  Human 
rights groups regularly accuse former security force 
officials and the business community of colluding to organize 
"death squads" to commit these summary and arbitrary 
executions.  On April 5, 2003, 68 persons, 61 of them gang 
members, were killed in a violent incident at El Porvenir 
prison near La Ceiba.  Reports produced by the Public 
Ministry, a Special Commission of the Honduran National 
Council for Internal Security (CONASIN), and the Human Rights 
Commissioner put the blame for the vast majority of deaths on 
government security forces (police and military under police 
command) and non-gang member inmate trusties.  On May 17, 
2004, a fire at the Granja Penal prison in San Pedro Sula 
claimed the lives of another 104 gang members.  Although it 
appears GOH authorities were not complicit in this event, 
timely assistance to inmates was withheld over security 
concerns that could have prevented many deaths. 
 
¶26. (SBU) While Honduran labor law is deficient in some areas 
with respect to International Labor Organization core 
conventions, the main issue for the protection of labor 
rights, including freedom of association and collective 
bargaining, is the effective enforcement of existing laws. 
There are serious problems with child labor in several 
industries, particularly melon, coffee, and sugar cane (but 
not in the maquila sector), as well as in the informal 
economy, and trafficking in persons of women/children for 
commercial sexual exploitation in the U.S., Central America, 
and Mexico.  USAID and Peace Corps have both been involved in 
HIV/AIDS prevention. 
 
--------------------------- 
Corruption and Rule of Law 
--------------------------- 
¶27. (SBU) Honduras remains one of the most corrupt countries 
in the Western Hemisphere and was recently ranked 106 out of 
133 countries surveyed by Transparency International, an NGO 
that tracks international corruption issues.  Only Ecuador, 
Haiti, and Paraguay scored lower in the Western Hemisphere. 
U.S. policy to combat endemic corruption has struck a nerve 
in Honduras, especially any mention of our visa revocation 
authorities.  Maduro has stated he is willing to address 
corruption, even if it will cost him political support within 
his party, but real achievements to date have been lacking. 
Of particular concern are individual judges and prosecutors 
who solicit and/or remain open to offers of bribes.  The 
Attorney General's office has been unwilling, or unable, to 
prosecute high-profile cases, with the notable exception of 
several sitting congressmen recently accused of drug 
trafficking and other offenses.  The selection of Ovidio 
Navarro as the new Attorney General was also a clear 
political move orchestrated by those with a direct interest 
in the status quo.  Given the scope of the problem, any 
public discussion about the country's pervasive corruption is 
a positive development. 
 
-------------- 
USAID Programs 
-------------- 
 
¶28. (SBU) The Central America and Mexico (CAM) Regional 
Strategy focuses bilateral and regional USAID investment on 
the three performance "arenas" of Ruling Justly, Economic 
Freedom, and Investing in People, and is closely aligned with 
the Millennium Challenge Account (MCA).  USAID supports the 
Ruling Justly objective by increasing the responsiveness and 
accountability of public institutions, while also building on 
successful municipal development programs to create better 
models for governance, justice reforms, and transparency and 
participation.  In the arena of Economic Freedom, there is a 
concerted focus on trade policy and preparations to ready 
Honduras' participation in the CAFTA and FTAA.  USAID strives 
to bridge agricultural production in rural areas with 
relatively higher value processing and marketing enterprises 
in urban centers.  The integrated natural resource management 
program emphasizes sustainable land and water-use, 
biodiversity, and reduced disaster vulnerability.  Also, to 
support the Investing in People objective, the health program 
aims toward improving reproductive health, family planning, 
child survival, prevention of HIV/AIDS and other infectious 
diseases, and household food security.  Seeking a 
better-educated Honduran work force through expanded access 
at the pre-school, middle school, and upper secondary levels 
(grades 10-11) is done using alternative delivery systems and 
implementing the Centers for Excellence in Teacher Training 
(CETT) Presidential Initiative.  USAID is also assisting GOH 
efforts to develop quality education standards, testing, and 
evaluation. 
 
--------------- 
Consular Issues 
--------------- 
 
¶29. (SBU) Approximately 800,000 Hondurans live in the U.S., 
both legally and illegally, a fact that places immigration 
issues high on the bilateral agenda.  (The population of 
Honduras is approximately 6.5 million.)  There is deep 
appreciation for the U.S.'s extension of Temporary Protected 
Status (TPS) in the U.S. and interest in possible 
congressional action on the proposed Nicaraguan Adjustment 
and Central American Relief Act (NACARA), which would give 
immigration parity for Hondurans.  With approximately 11,000 
American citizens residing in Honduras (this includes 
American citizens that also hold Honduran citizenship) and 
many thousands visiting Honduras annually for tourism and 
business, American Citizen Services are a key part of the 
Embassy's work. 
 
¶30. (SBU) Since 1995, 35 American Citizens have been murdered 
in Honduras.  There was not much progress on most of these 
cases until 2003, but there have now been 20 convictions in 
nine cases.  Some progress has been made on extradition cases 
involving American Citizens residing in Honduras who are 
wanted for felonies in the United States. 
 
------------------- 
Embassy Tegucigalpa 
------------------- 
 
¶31. (SBU) Embassy Tegucigalpa is a medium-sized post, 
employing 140 U.S. citizens and 300 Hondurans among 20 USG 
agencies.  The Peace Corps program, with more than 245 
volunteers, is one of the world's largest, and the USAID 
mission has a FY04 budget of USD 45 million.  The Mission 
maintains a Consular Agent in Honduras' second city and 
industrial center, San Pedro Sula. 
Palmer