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 000698 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR WHA/CEN, EB, AND H 
STATE PASS USAID FOR LAC/CAM 
 
E.O. 12958: N/A 
TAGS: OREP PREL PGOV ETRD ECON SNAR EAID KJUS HO
SUBJECT: Scenesetter for CoDel Kolbe April 14-16 Visit to 
Honduras 
 
REF: (A) State 58409 
     (B) State 51183 
     (C) State 49138 
     (D) State 47047 
     (E) State 43573 
 
¶1. (U) Summary: Post welcomes the visit of CoDel Kolbe to 
Honduras April 14-16.  Honduran President Ricardo Maduro, 
three years through his constitutionally-mandated single 
four-year term, faces a difficult task leading one of the 
poorest countries in Latin America.  However, there were 
several positive economic developments in 2004, 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, the signing of the U.S.-Central 
American Free Trade Agreement (CAFTA) with the United States 
in May, and Honduras' selection as one of sixteen countries 
eligible to apply for assistance under the $2.2 billion 
Millennium Challenge Account.  The Honduran Congress 
approved CAFTA on March 3, 2005.  Honduras also reached its 
Heavily Indebted Poor Countries (HIPC) completion point in 
late March 2005. 
 
¶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 in April 2004.  End Summary. 
 
----------------- 
Economic Overview 
----------------- 
 
¶3. (U) Honduras, with a per capita income of $950, is the 
third poorest country in the Western Hemisphere, ahead of 
only Nicaragua and Haiti.  The economy grew by 3.2 percent 
in 2003, and by an estimated 4.5 percent in 2004.  However, 
over the past decade, the rate of economic growth has been 
only slightly faster than the rate of population growth, 
which is 2.7 percent per year.  Social indicators are 
gradually improving, but nearly two-thirds of all Hondurans 
still live in poverty, and average education levels are very 
low (estimated at five years, based on semi-annual household 
surveys conducted by the National Statistics Institute). 
 
¶4. (U) Historically, the Honduran economy was long dependent 
on exports of coffee and bananas.  In the past fifteen 
years, however, the economy has diversified, with the 
development of non-traditional exports such as shrimp and 
melons, an increase in tourism, and the establishment of a 
strong "maquila" (light assembly) industry (primarily 
textiles and assembly of apparel for re-export).  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 
continue to be a large subsistence farmer population with 
few economic 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 a wide range of investment climate and competitiveness 
problems, including public insecurity, weak judicial 
protections of investor rights, and corruption. 
 
¶6. (U) Family remittances from Hondurans living abroad, 
particularly the U.S., grew by 19 percent to USD 1,135 
million in 2004, and, at an estimated 1.4 billion in 2005, 
will soon pass the maquila sector as the country's largest 
source of foreign exchange.  The U.S. is Honduras' largest 
trading partner, and the roughly 150 U.S. companies that do 
business in Honduras constitute the largest block of foreign 
direct investors. 
 
----------------------- 
The Importance of CAFTA 
----------------------- 
 
¶7. (SBU) On March 3, 2005, the Honduran Congress approved 
the U.S.-Central American Free Trade Agreement (CAFTA) by an 
overwhelming margin.  The agreement was negotiated in 2003 
and 2004 among the United States, Honduras, Guatemala, El 
Salvador, Nicaragua, Costa Rica, and the Dominican Republic, 
and has also been approved by El Salvador and Guatemala. 
The agreement will not enter into force until it is also 
ratified by the U.S. 
 
¶8. (SBU) In Honduras, CAFTA is strongly supported by most of 
the private sector, especially the textile and apparel 
industry.  While the agreement was approved by voice-vote 
only and an exact count is therefore not available, 
witnesses reported that, of the 128-member Congress, there 
were more than a hundred votes in favor, and only four 
against.  CAFTA therefore was supported by not only the 
ruling National Party, but also by the opposition Liberal 
Party and two of the smaller parties in Congress as well; 
only one small leftist political party voted against the 
agreement.  The agreement has also been opposed by some 
NGOs, labor unions, and campesino groups, who are concerned 
that small-scale Honduran farmers will be unable to compete 
with subsidized U.S. agricultural products. 
 
¶9. (SBU) Maduro's team hopes that CAFTA, once in effect, 
will lead to faster economic growth and serve as a catalyst 
for regional economic cooperation and integration.  The 
agreement is considered to be absolutely vital to the 
survival of the textile and apparel sector in Honduras now 
that worldwide quotas have been eliminated.  It is estimated 
that in 2004 Honduras received at least $200 million in new 
foreign investment, most of it from the United States, as a 
result of the anticipated benefits of CAFTA.  The 
agreement's 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. 
 
------------------------------------- 
Millennium Challenge Account Proposal 
------------------------------------- 
 
¶10. (SBU) In 2004, Honduras was chosen as one of sixteen 
countries eligible (out of 75 considered) to apply for 
assistance under the $2.2 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 August 2004, after consulting with members of 
civil society and the private sector, the GOH presented to 
the Millennium Challenge Corporation (MCC) a proposal for 
$257.5 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 have made numerous visits to 
Honduras since June 2004, have been impressed with the 
Honduran efforts so far, and are optimistic that Honduras 
might be one of the first countries to receive MCA 
assistance. 
 
----------------------------- 
IMF Agreement and Debt Relief 
----------------------------- 
 
¶11. (U) In February 2004, 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).  In April 2004, Honduras reached 
agreement with Paris Club creditors on the immediate 
cancellation of $147 million in debt payments and the 
restructuring of over $200 million more.  Honduras has 
committed to devote resources freed by this treatment to 
priority areas outlined in the country's poverty reduction 
strategy.  The first review of the PRGF program was 
conducted in September 2004, and the IMF found that 
Honduras' performance was strong.  IMF announced in late 
March 2005 that (subject to World Bank consent) the GOH 
reached its Heavily Indebted Poor Countries (HIPC) 
completion point due to good PRGF implementation.     Having 
obtained Completion Point, Honduras is now eligible to 
approach the Paris Club (international group of bilateral 
and multilateral creditors) seeking forgiveness or 
restructuring of an estimated USD 1.2 billion. 
 
------------------------- 
Political/Military Issues 
------------------------- 
 
¶12. (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 two UN and OAS counter-terrorism 
conventions and protocols (the GOH has completed all 
domestic requirements to become a party to an International 
Maritime Organization convention and protocol, and Honduras 
should soon become a party to these as well) and has also 
been aggressive in upgrading port security.  Honduras was 
also the first country in the Western Hemisphere to sign and 
ratify an International Criminal Court (ICC) Article 98 
Agreement with the United States. 
 
¶13. (U) Honduras has a civilian Minister of Defense and a 
Chief of the Joint Staff who heads the Honduran Armed Forces 
(HOAF).  In January 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, drug trafficking, 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. 
 
------------------------ 
Election Season Underway 
------------------------ 
 
¶14. (U) Honduras' open primary election for national and 
local races took place February 20, with general elections 
set for November 27.  Under a new Electoral law reform 
passed early in 2004, Honduran voters select candidates for 
the National Congress based not only on their names but also 
on their photographs, a process without precedent in 
Honduras.  This new method for the direct election of 
congressional members contrasts with the old system whereby 
candidates were elected on party rank-ordered congressional 
lists.  Only the National and Liberal Parties participated 
in the primary election - the other three small parties will 
just participate in the general election.  USAID and other 
international donors will support the elections with about 
USD four million.  A Supreme Electoral Tribunal, managed by 
political party appointees, has national authority to run 
the elections. 
 
¶15. (SBU) In the race for presidential nomination on the 
Nationalist's side, President of Congress Porfirio "Pepe" 
Lobo defeated Tegucigalpa Mayor Miguel Pastor.  On the 
Liberal side, politician Mel Zelaya won a majority over a 
crowded eight-candidate pack.  Lobo, for all intents and 
purposes, was the current administration's candidate 
(although the GOH did not say so publicly or in private), 
and had the support of the traditional National Party 
machine.  Both Lobo and Zelaya support CAFTA and have made 
clear that the U.S. is the key partner for Honduras. 
 
--------------------------------------------- -- 
Iraq, Haiti, and Other Key Foreign Policy Goals 
--------------------------------------------- -- 
 
¶16. (SBU) The GOH is very supportive of U.S. foreign policy 
goals, including the reconstruction of Iraq.  In support of 
Operation Iraqi Freedom (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 in April 
2004, Honduras did likewise, although Honduras' withdrawal 
was not linked to the Spanish decision.  Previously, 
Secretary Powell, CJCS GEN Myers, and Secretary Rumsfeld all 
 
SIPDIS 
visited Honduras in 2003 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 in 
April 2004. 
 
------------------------------------------- 
Soto Cano Air Base - Joint Task Force Bravo 
------------------------------------------- 
 
¶17. (SBU) Five hundred and forty-nine 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 
---------------- 
 
¶18. (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 seized approximately 3,869 kilos of cocaine.  Thus 
far in 2005 the GOH has seized 109 kilos of cocaine and 
$230,620 in drug money. 
 
¶19. (SBU) Corruption within the police, Public Ministry 
(prosecutors), and the judiciary remains a primary 
impediment to successful law enforcement cooperation.  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 
---------------- 
 
¶20. (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 area. 
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. 
 
¶21. (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 suspended negotiations with Honduras over a 
maritime boundary agreement near completion due to the GOH's 
introduction of the UNCHR resolution on Cuba in 2004. 
 
------------- 
Port Security 
------------- 
 
¶22. (U) The GOH has taken a very pro-active stance in 
addressing port security issues, and met 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). 
 
¶23. (U) The GOH hosted a successful visit (the first in the 
Western Hemisphere) of a U.S. Coast Guard (USCG) port 
security program team June 2004.  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 
U.S. Department of Homeland Security announced in February 
2005 that Puerto Cortes is under consideration for inclusion 
in the Container Security Initiative (CSI).  In preparation 
for CSI, Honduras has contracted for gamma-ray scanning of 
all containerized traffic through the port. 
 
-------------------------------- 
Public Security and Human Rights 
-------------------------------- 
 
¶24. (SBU) Upon taking office in January 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.  On 
December 23, 2004, gunmen killed 28 people and wounded an 
equal number on a bus in Chamelecon (near San Pedro Sula in 
northern Honduras).  Police believe that the Mara 
Salvatrucha (MS-13) gang was responsible for the massacre. 
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 prosecutorial 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 and 
young adults since 1998, have been a source of serious 
concern, and only since 2002 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. 
In April 2003, 68 persons, 61 of them Mara 18 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.  In May 
2004, the Public Ministry filed criminal charges against 51 
people for alleged involvement in the deaths.  The Deputy 
Warden, who was in charge at the time of the incident, was 
convicted in December 2004 of murder and attempted murder 
sentenced in February 2005 to 19 years in prison.  In a 
separate incident in May 2004, a fire at the Granja Penal 
prison in San Pedro Sula claimed the lives of 107 MS-13 gang 
members.  Although it appears GOH authorities were not 
complicit in this event, timely assistance to inmates that 
could have prevented many deaths was withheld due to 
security concerns. 
¶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 and 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 114 out of 
146 countries surveyed by Transparency International, an NGO 
that tracks international corruption issues.  Only Bolivia, 
Guatemala, 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 few.  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. 
Until recently, immunity from prosecution for government 
officials precluded action again senior officials.  Given 
the scope of the problem, any public discussion about the 
country's pervasive corruption is a positive development. 
 
-------------- 
USAID Programs 
-------------- 
 
¶28. (SBU) The USAID 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 goals of the Millennium Challenge 
Corporation (MCC).  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) An estimated 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 about 7 million.)  Approximately 82,000 of these 
Hondurans currently enjoy Temporary Protected Status (TPS), 
which was granted to certain Hondurans who were in the 
United States illegally at the time of Hurricane Mitch in 
¶1998.  In October 2004, the Department of Homeland Security 
extended TPS for these Hondurans until July 2006, a move 
that the GOH deeply appreciated.  The GOH is also very 
interested in any possible U.S. Congressional action on 
immigration reform. 
 
¶30. (SBU) 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.  Since 1995, 
42 American citizens have been murdered in Honduras.  There 
was not much progress on most of these cases until 2003, but 
there have now been 26 convictions in thirteen cases, and 
six cases have been closed.  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 119 U.S. citizens and 281 Hondurans among 20 USG 
agencies.  The Peace Corps program, with 203 volunteers (and 
33 trainees), is one of the world's largest, and the USAID 
mission has a FY05 budget of $40.6 million.  The Mission 
maintains a Consular Agent in Honduras' second city and 
industrial center, San Pedro Sula. 
 
Palmer