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 001599 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR WHA/CEN, WHA/EPSC, EB, DRL/IL, AND INR 
STATE PASS AID FOR LAC/CEN 
DOL FOR ILAB 
TREASURY FOR EIlzetzki 
 
E.O. 12958: N/A 
TAGS: PGOV ECON EAID ELAB SOCI PINR HO
SUBJECT: Maduro Reaches $33 Million Deal with Teachers; 
School Finally Resumes 
 
REF: A. Tegucigalpa 1434 
 
     ¶B. Tegucigalpa 232 
 
¶1. (SBU) SUMMARY:  On July 10, President Ricardo Maduro and 
representatives of teachers' unions signed an agreement 
reinstating certain salary benefits which had been cut in 
December, thus bringing an end to the 33-day teachers' 
strike.  The GOH did not offer an across-the-board salary 
increase, but did agree to pay 600 million Lempiras ($33 
million) to the teachers over the next two and a half years, 
in the form of benefits keyed to qualifications and years of 
service.  The GOH will raise this money by drawing upon 
savings, eliminating two minor ministries, and taking other 
unspecified actions.  While the GOH structured its 
concessions in such a way that they do not break the terms 
of the IMF deal negotiated in February, the agreement 
nonetheless represents a step away from fiscal 
sustainability.  Worse, while teachers are declaring 
victory, many observers fear that the rank and file do not 
fully appreciate the limits to the deal that their leaders 
have signed, and that, as a result, even this deal will not 
fully satisfy the teachers' grievances.  END SUMMARY. 
 
¶2. (U) Late at night on July 8, as a strike by teachers 
entered its second month and amidst continuing protests (ref 
A), the GOH acceded to many of the teachers' demands, and 
agreed to a deal to bring an end to the strike.   President 
Maduro had appointed a three-man commission to negotiate a 
deal, comprised of Presidential Advisor Ricardo Alvarez, 
former President Rafael Callejas, and leader of the 
Christian Democratic party Arturo Corrales.  News of the 
agreement was made public on July 9, sending teachers into 
the streets in celebration, and the deal itself was signed 
by President Maduro and representatives of all of the 
teachers' unions on July 10. 
 
------------------ 
What's in the Deal 
------------------ 
 
¶3. (U) The agreement reinstates the automatic five-year and 
three-year salary increases at their previous levels. 
(Under this scheme, a teacher receives an automatic salary 
increase every five years for his/her first fifteen years of 
service, and every three years thereafter.)  It also 
restores the arrangement under which salaries rise with 
educational qualifications: a 69 percent salary increase for 
all teachers achieving a tertiary degree, and a 50 percent 
increase upon completion of the technical education degree. 
Other smaller benefits, including the "work zone" payment to 
encourage teachers to take positions in remote areas of the 
country, were also restored.  All of these provisions from 
the teachers' law were effectively cut by Congress in 
December 2003. 
 
¶4. (SBU) However, the GOH will pay these benefits only up to 
certain ceilings prescribed in the agreement: 120 million 
Lempiras ($6.6 million) for the rest of 2004, and 240 
million Lempiras ($13.2 million) per year for 2005 and 2006. 
There are differing views as to whether these ceilings will 
be adequate to cover all benefits during these periods. 
Former President Callejas mentioned to the Ambassador that, 
in his opinion, the ceilings are higher than necessary, and 
that in fact the benefits that the GOH must pay out will 
only amount to 80 million Lempiras this year and 200 million 
in the years 2005 and 2006, for a total bill of 480 million 
Lempiras.  Most observers, however, believe that the 
opposite is true, and fear an angry reaction from teachers 
if the 120 million Lempiras for 2004 run out before the end 
of the year. 
 
¶5. (SBU) Though their jubilant public reaction suggests 
otherwise, the teachers also made several concessions to 
reach the July 10 deal.  In addition to the caps on benefits 
described above, they agreed to forfeit the amounts that 
they would have been paid for five-year and three-year 
raises between January and June of this year, and agreed to 
base future salary increases on the base salary of December 
2003, thus slightly reducing the amount that they will 
receive.  They also committed to revise the school calendar 
for the rest of 2004 so as to recover the class time lost by 
the strike.  Recovering these days will require canceling 
September and October school holidays, holding classes on 
Saturdays, and extending the school year into mid-December 
(instead of early November).  Note: Given that teacher 
absenteeism is already a chronic problem in Honduras, many 
doubt that the teachers will stick to the plan of Saturday 
classes for the entire year.  End note. 
 
¶6. (SBU) The agreement establishes two further projects not 
directly tied to teacher remuneration.  First, the teachers 
agreed to a national salary audit to verify the national 
payroll.  This is an urgently needed measure, as anecdotal 
evidence suggests that there are many "ghost teachers" on 
the rolls, and that some teachers draw two or three 
salaries.  However no details have yet been provided as to 
who will carry out this audit, or how. 
 
¶7. (SBU) Second, the agreement calls for the establishment 
of a commission which will work for improvements in the 
quality of education, and lists specific measures such as 
improved teacher training, further definition of the new 
national curriculum, improvements in educational materials 
and infrastructure, and greater involvement of parents.  All 
of these measures are badly needed, and many are already 
addressed in the national Poverty Reduction Strategy. 
However, no details have yet been given as to how this 
commission will accomplish its goals, and it seems unlikely 
that a commission born out of such a contentious political 
conflict will have much success in addressing the difficult 
issues of improving educational quality. 
 
----------------------- 
What's Not in the Deal? 
----------------------- 
 
¶8. (SBU) Despite the reinstatement of many of the teachers' 
collateral benefits, the deal does not increase teachers' 
base salary, and does not repeal the December 2003 salary 
law (see ref B).  This is important as it allows the Maduro 
administration to claim that it is still in compliance with 
at least the letter (if not the spirit) of the February IMF 
agreement.  The deal also falls far short of fully 
satisfying the teachers' more extreme demands, which at one 
point were are as high as 2.9 billion Lempiras ($159 
million) in salaries and benefits, and the creation of an 
additional 20,000 teaching positions.  Perhaps more 
important than the contents of the agreement that has been 
made publicly available, however, are alleged side 
agreements that, according to several embassy contacts, are 
being made behind the scenes. 
 
--------------------------------------------- ------ 
Teachers' Unions Happy, if GOH Fulfills Commitments 
--------------------------------------------- ------ 
 
¶9. (U) Nelson Calix, President of the College of Secondary 
School Teachers of Honduras (COPEMH) and a key leader for 
the teachers' unions, told LabAtt July 16 that the deal was 
"favorable" for teachers.  He said that, if the GOH had 
respected the teachers' law to begin with, the whole 
confrontation could have been avoided.  Calix said that he 
did not foresee future problems with the Maduro 
Administration, if the GOH complied with all the terms of 
the deal. 
 
¶10. (SBU) Arturo Corrales, leader of the Christian 
Democratic party, who along with former President Callejas 
and Presidential Adviser Ricardo Alvarez negotiated the 
settlement on behalf of the GOH, told LabAtt July 13 that 
things were being blown out of proportion prior to the 
establishment of the GOH's three-man commission to negotiate 
an agreement.  He said that the commission would meet with 
the teachers' unions again in August to check on the status 
of the agreement.  Follow-up and trust building will be key, 
he said, noting that the changes passed by Congress last 
December had set the stage for this dispute. 
 
------------------- 
The Cost to the GOH 
------------------- 
 
¶11. (U) The total cost of the deal as made public is 600 
million Lempiras (about $33 million), spread out over the 
next two-and-a-half years as explained above.  The 120 
million Lempiras to cover the costs of 2004 will be paid out 
of savings that GOH has accrued between January and May of 
2004 - in other words, it will contribute directly to a 
greater budget deficit than would otherwise have been 
achieved.  In 2005 and 2006, the GOH has publicly announced 
only that the money will be raised as follows: 90 million 
Lempiras from EU funds for decentralization, 87 million 
Lempiras from the closing of two ministries, and 63 million 
Lempiras from "the sacrifice of other projects".  The two 
ministries to be closed are said to be the Ministry of 
Culture, Arts and Sports, and the Secretariat for Technical 
Cooperation or SETCO, which together had 2004 budget 
allocations totaling 110 million Lempiras.  Maduro stressed 
that taxes will not be increased to pay for the deal. 
 
¶12. (SBU) In a July 16 conversation with EconOff, Vice 
Minister of Finance William Chong Wong stressed that in fact 
the GOH's economic position so far in 2004 is quite good, 
and that, owing to stronger than expected economic growth, 
the GOH is on track to meet its IMF-prescribed fiscal 
targets even after taking into account the extra money for 
the teachers.  Chong Wong conceded that the deal was not 
ideal from a fiscal standpoint, but called it a political 
necessity which, fortunately, the budget will be able to 
handle. 
 
------------------- 
Reaction of the IMF 
------------------- 
 
¶13. (SBU) In a conversation with EconOff, the IMF country 
representative for Honduras confirmed that the deal with the 
teachers does not break the terms of the February IMF 
agreement, as it does not technically change the GOH's 
overall wage bill.  The salary caps that the GOH and the IMF 
agreed to are still in place.  While the use of 120 million 
Lempiras to pay teachers' benefits this year will increase 
the budget deficit, it should not prevent the GOH from 
meeting its target for the year.  (120 million Lempiras are 
equal to about 0.1 percent of GDP; the central government 
deficit target for 2004 is 3.5 percent of GDP.)  The savings 
from the closing of the ministries is money that was already 
identified by the IMF at the time of the agreement, and 
considered a "cushion".  If that money goes to the teachers, 
says the IMF representative, "we've lost the cushion", but 
not the entire deal. 
 
¶14. (SBU) However, while the GOH is still technically on 
track with the IMF, the IMF is concerned that the deal will 
not satisfy teachers' demands beyond the very short term. 
Based upon the text that has been made publicly available, 
the teachers received only a partial victory, and when the 
teachers realize that they didn't gain everything that they 
were fighting for, the IMF representative fears that 
teachers may return to the streets, a fear President Maduro 
shares.  Moreover, the deal only addresses the next two-and- 
a-half years, and, by emboldening teachers, has made the 
task of designing a new teacher compensation package for 
2007 even more difficult. 
 
¶15. (SBU) The IMF has issued no public statement about the 
deal, and plans none.  IMF Managing Director Rodrigo de Rato 
was in fact in Honduras the day the deal was announced, 
attending an unrelated event.  Rato praised Central American 
governments in general terms for "strong macroeconomic 
policies and reforms" of recent years, but avoided any 
comment on the specifics of the teachers' deal, saying that 
the IMF needed time to evaluate the terms of the agreement. 
However, President Maduro told the Ambassador and DCM that, 
in his meeting with Rato, Rato confirmed that the agreement 
did not jeopardize the GOH agreement with the IMF. 
 
-------------------------------------- 
Sustainable Fiscally, But Politically? 
-------------------------------------- 
 
¶16. (SBU) Comment:  If the December salary law represented 
two steps forward in the GOH's fight to establish fiscal 
control and rein in the public sector wage bill, this 
agreement is one step backward.  Fortunately, thanks to a 
favorable macro-economic situation and higher than expected 
GDP growth, the GOH can afford to make these concessions and 
still stay on track with the IMF.  Politically, however, 
this agreement probably marks only a pause, and not a 
permanent resolution, in the ongoing struggle to control 
teachers' salaries.  Still, though far from perfect, the 
deal does at least have one positive result: after five 
weeks with no teachers, the nation's 1.6 million public 
school students have returned to the classrooms.  End 
comment. 
 
Palmer