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 002289 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR WHA/CEN, PRM/PRP, WHA/EPSC, DRL/IL, AND EB 
STATE PASS USAID FOR LAC/CAM (LLIBANATI) 
TREASURY FOR DDOUGLASS 
LABOR FOR ILAB 
GUATEMALA FOR COMMATT MLARSEN AND AGATT 
 
E.O. 12958: N/A 
TAGS: SMIG PREL ECON EAID HO
SUBJECT: POST SUPPORTS EXTENDING TPS FOR HONDURAS 
 
REF: A. A) ZIFF/WILLIARD E-MAIL 10/21/05 
     ¶B. B) STATE 99578 
 
¶1. (U) Summary:  While much post-Mitch reconstruction efforts 
have been completed, some physical infrastructure, 
particularly housing stocks, remains inadequate.  The 
stagnant Honduran economy and continued weak job creation 
make it unlikely the country could provide the jobs, health 
care, housing, and schooling for the approximately 87,000 
people that might return if Temporary Protected Status (TPS) 
in the U.S. is not renewed.  Failing to renew TPS could 
undermine the economic performance of CAFTA, MCC, and HIPC 
just as they are being launched, leading to a loss of faith 
by the Honduran poor in the ability of democratic governance 
to deliver a better quality of life.  This erosion of public 
support for democratic governance -- already seen spreading 
throughout the region -- makes future economic reform much 
harder to impose, increases incentives for emigration and 
criminality, and plays into the hands of populists (and 
worse) who seek to undermine USG interests in the region.  To 
give both the U.S. and Honduras the best chance for avoiding 
this nightmarish future, TPS should be extended until 
Honduras can greet its returning citizens with open arms, not 
empty pockets.  End Summary. 
 
--------------------------------------------- ----- 
Reconstruction ) Infrastructure Would be Strained 
--------------------------------------------- ----- 
 
¶2. (U) With the help of the international donor community (of 
which USAID is the largest bilateral contributor), Honduras 
has largely recovered from the physical devastation of 
Hurricane Mitch.  However, USAID has recently programmed an 
additional USD 2 million in recovery program funds primarily 
focused on water and sanitation activities.  These programs 
are particularly targeted at rural areas, precisely the areas 
from which many of the emigrants covered by TPS protections 
come.  A massive inflow of returning emigrants to these rural 
areas could place significant strain on the already overtaxed 
resources.  An extension of the TPS program would allow USAID 
programs additional time to achieve results, further 
strengthening and repairing these rural facilities and 
thereby improving rural municipalities' capacity to absorb 
returning emigrants in the future. 
 
¶3. (SBU) An area of particularly acute shortfall is housing. 
Post estimates that 33,000 homes were destroyed and another 
50,000 homes damaged during Hurricane Mitch, with additional 
homes destroyed by recent violent weather including flooding 
caused by Hurricanes Stan, Wilma, and Beta in 2005.  Not all 
have been rebuilt, and rapid uncontrolled urbanization has 
exacerbated this problem by creating housing shortages in 
some regions.  Many families and workers have been left to 
make do with temporary solutions.  USAID, the largest single 
donor in this area, financed the delivery of 6,100 permanent 
housing units.  Many homes remain damaged, and damage by 
hurricanes to economic sectors (particularly agricultural 
production) put additional pressure on populations to move to 
Honduras' already bursting cities or to emigrate to the U.S. 
USAID and other assistance programs aim to help the 
agricultural sector to fully recover, and to create rural 
employment by diversifying and strengthening agricultural 
production.  This is crucial to rural recovery in Honduras, 
but for this strategy to be effective in attracting 
expatriate or urban Hondurans back to their hometowns, 
sufficient additional time must be granted under TPS to 
ensure that housing stocks are also replenished to meet the 
needs of these returnees. 
 
--------------------------------------------- ------------- 
Economic Conditions ) Benefits Not Reaching the Street Yet 
--------------------------------------------- ------------- 
 
¶4. (SBU) In contrast to infrastructure reconstruction, the 
Honduran economy has never regained sufficient growth to 
generate much-needed employment and financial resources for 
adequate public services.  Economic growth of 4.5 percent in 
2004 was the first sign of economic recovery following 
depressed economic growth of about 2.5 percent per year over 
the 2001-2003 period.  Even with this recent sign of the 
start of a recovery, economic growth rates have not kept up 
with annual population growth of 3.0 to 3.5 percent.  As a 
result, job creation continues to be weak, with even educated 
job seekers often unemployed or under-employed.  The GOH 
estimates true unemployment at approximately 34 percent, 
though those statistics are likely conservative.  Commodity 
prices, including coffee, are starting to rise, and the light 
assembly sector (especially textiles) is starting to recover, 
but job growth in 2005 has not been sufficient to accommodate 
anticipated population growth, much less the potential 87,000 
TPS returnees. 
 
¶5. (SBU) Worse, wages remain weak, so even those with gainful 
employment find it increasingly difficult to improve the 
quality of life for themselves and their children. 
Disillusionment and lack of prospects for a better life only 
serve to increase pressure to emigrate to the U.S. or to join 
one of the ultra-violent maras (gangs) that have come to 
plague both the region and certain U.S. cities.  Not renewing 
TPS, if it resulted in a significant flow of returnees to 
Honduras, would increase unemployment, put further downward 
pressure on wages, and spur further illegal immigration and 
criminality.  Such a situation threatens both Honduran and 
U.S. security interests, and the networks these gangs forge 
could potentially be exploited by drugs and arms smugglers, 
or terrorists. 
 
¶5. (SBU) Poverty is still widespread, with about 64 percent 
of the households living on USD 2 a day or less, and an 
estimated 45 percent living in extreme poverty (USD 1 a day 
or less).  Because of the continued weak economic growth, 
remittances from Hondurans living overseas continue to grow 
rapidly, reaching USD 1.1 billion in 2004 and becoming the 
country's largest source of foreign exchange.  Remittances 
account for the equivalent of 15 percent of Honduran GDP, and 
make tangible and urgent contributions to improving the 
quality of life of the poorest of Hondurans, especially in 
small towns.  Extension of TPS would help ensure that this 
vital flow of remittances continue without reduction, 
providing much needed liquidity and purchasing power in the 
countryside to stimulate both consumption and investment and 
lay the foundations for sustainable growth. 
 
--------------------------------------------- --------- 
GOH Has Planted the Seeds; Needs Time to Let Them Grow 
--------------------------------------------- --------- 
 
¶6. (SBU) President Ricardo Maduro, upon assuming office in 
January 2002, inherited seriously deteriorated government 
finances and has spent most of his administration trying to 
remedy the structurally-caused imbalances.  Honduras 
continued to run budget deficits of 5.5 percent of GDP in 
2002 and 2003, totally unsustainable for a deeply indebted 
country with no recourse to international capital markets. 
The austerity measures put in place in 2002 and 2003 in order 
to regain macroeconomic balance and reach an agreement with 
the IMF meant that the government was hard pressed to expand 
health care, housing, schooling, and other social services 
just to accommodate the current population.  In 2005, these 
austerity policies resulted in Honduras reaching the Heavily 
Indebted Poor Countries (HIPC) Completion Point and earning 
significant debt restructuring and forgiveness.  However, the 
benefits of this restructuring will not be felt for several 
years, and the hope that this recent debt forgiveness has 
inspired masks a fragile and largely stagnant employment 
market. 
 
¶7. (SBU) The GOH therefore does not yet have in hand the 
funds it needs to expand health and educational opportunities 
for Honduras' current population, much less for an additional 
87,000 people.  Extending TPS would give Honduras the extra 
time it both needs and deserves to put these debt service 
savings to work.  Failing to extend TPS threatens to choke 
this newborn in its crib, by both cutting remittances and 
increasing the number of Hondurans seeking state services. 
The GOH worked hard to regain its economic footing.  Any 
precipitous action now by the U.S. could undo much of what 
has been accomplished.  By failing to give these reforms 
needed time to bear fruit, such action could also destroy 
popular confidence in economic reform, prudent fiscal 
policies, and could lead to a loss of faith in the ability of 
democracy to deliver a better quality of life to the working 
person.  In the face of populist messages such as those 
emanating from Venezuela, the U.S. cannot afford to undermine 
public support for democratic reform.  Unnecessarily 
curtailing TPS, if it undercuts delivery of the economic 
benefits the last three years of austerity were to have 
delivered, threatens to do just that. 
 
¶8. (SBU) Similarly, the USG has invested much over the last 
two years to promote sustainable economic growth in Honduras. 
 Free trade and responsible investment are two of the 
keystones of U.S. foreign economic policy in the region. 
Both the recent passage of the Central America Free Trade 
Accord (CAFTA) and granting Honduras funding under the 
Millennium Challenge Corporation will both make important 
contributions to finally getting Honduras back on its feet. 
But it must be borne in mind that CAFTA has not entered into 
force yet, and MCC has yet to disburse any funds.  Both of 
these initiatives, crucial though they are, will not generate 
their greatest benefits for the common Honduran for two years 
or more.  TPS must be extended to give these initiatives the 
time they need to realize their full potential.  If failing 
to renew TPS reduces the impact of the benefits of these 
programs, that result not only harms Honduras and reduces its 
growth prospects, it also robs the U.S. of credibility as it 
tries to encourage the acceptance of free trade and 
investment policies elsewhere.  If the U.S., by failing to 
extend TPS, does not give CAFTA and MCC time to deliver 
results, their weakened performance will be used as an 
argument against us by those who prefer protectionism, 
statism, and populism over free markets and entrepreneurial 
spirit.  So close to our goal of putting Honduras on a sure 
footing, we cannot permit a misjudgment on TPS renewal to 
turn our hard-won victory to defeat. 
 
¶9. (SBU) In addition to the powerful humanitarian and 
economic motives for TPS extension outlined above, it should 
be noted that Honduras has been a steadfast ally of the U.S. 
throughout this period.  Honduras' support for the Global War 
on Terrorism is steadfast and Honduras 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 is very 
supportive at the UN, sharing our views on resolutions 
covering such key issues as human rights, human cloning, and 
the Middle East, as well as at the OAS and during the Summit 
of the Americas process.  On October 20, Honduras was one of 
only four countries to abstain on the vote for the UNESCO 
Cultural Diversity Convention that the U.S. opposed. 
Honduras introduced a UN Commission on Human Rights (UNCHR) 
resolution on Cuba, which passed in April 2004, and voted for 
the U.S.-drafted UNCHR resolution on Cuba, which passed in 
April 2005.  In January 2005, Honduras accepted the 
resettlement of 20 Cubans from Guantanamo. 
 
¶10. (SBU) Honduras has also been extremely cooperative on 
recent changes in the USG,s deportation policy from &catch 
and release8 to &catch and deport.8  Honduras was the 
first country to agree to use video teleconferencing (VTC) in 
its U.S. consulates with DHS/ICE to expedite and reduce the 
costs of processing Hondurans who had illegally entered the 
U.S. for deportation back to Honduras.  Honduras is accepting 
a significant increase in deportees to reduce the 
1,300)person backlog that existed, in addition to new 
illegal Hondurans being caught and deported, making the 
overall deportee numbers significantly higher.  The GOH says 
it needs DHS assistance for the Centers for Returned Migrants 
to process this upswing in deportees.  Part of the reason the 
GOH has been so proactive is a desire for (a) Hondurans to be 
included in any future Temporary Worker Program (TWP), and 
(b) TPS to be extended until such a TWP comes into effect. 
 
¶11. (SBU) Comment:  Honduras has only just turned the corner 
following the devastation of Hurricane Mitch.  This country 
is not yet in a position to absorb either the loss in 
remittances or the surge in returnees that would come from a 
failure to renew TPS.  Worse than the economic impacts, 
however, would be the political consequences of such a 
decision.  Because Honduras could not absorb such losses, 
growth would weaken, wages could fall, and the long-suffering 
Honduran poor would yet again fail to receive the benefits 
promised.  This erosion of public support for democratic 
governance -- already seen spreading throughout the region -- 
makes future economic reform much harder to impose, increases 
incentives for emigration and criminality, and plays into the 
hands of populists (and worse) who seek to undermine USG 
interests in the region.  To give both the U.S. and Honduras 
the best chance for avoiding this nightmarish future, TPS 
should be extended until Honduras can greet its returning 
citizens with open arms, not empty pockets. 
 
Ford