VZCZCXRO0947
OO RUEHLMC
DE RUEHTG #0743/01 1111719
ZNR UUUUU ZZH
O 211719Z APR 06
FM AMEMBASSY TEGUCIGALPA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 1810
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE PRIORITY
RUMIAAA/CDR USSOUTHCOM MIAMI FL PRIORITY
RUEKJCS/JOINT STAFF WASHDC PRIORITY
RUEKJCS/SECDEF WASHDC PRIORITY
RHEFDIA/DIA WASHINGTON DC PRIORITY
RUEABND/DEA HQS WASHDC PRIORITY
RHEHOND/DIR ONDCP WASHDC PRIORITY
RUEAHND/CDRJTFB SOTO CANO HO PRIORITY
RHMFIUU/DIRJIATF SOUTH  PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEAHLC/HOMELAND SECURITY CENTER WASHDC PRIORITY
RUEAUSA/DEPT OF HHS WASHDC PRIORITY
RUEHLMC/MILLENNIUM CHALLENGE CORP PRIORITY

UNCLAS SECTION 01 OF 10 TEGUCIGALPA 000743 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DOS FOR DEPUTY ASSISTANT SECRETARY KIRSTEN MADISON 
STATE FOR WHA, WHA/CEN, WHA/PPC, PM, INL, AND EB 
 
E.O. 12958: N/A 
TAGS: OVIP PREL PGOV ECON ECIN MOPS SNAR PTER KJUS
HO 
SUBJECT: HONDURAS SCENESETTER FOR DAS WHA MADISON, VISIT TO 
HONDURAS FROM APRIL 26-28 
 
 
¶1. (U) Summary:  New Honduran President, Jose Manuel "Mel" 
Zelaya Rosales, will face a difficult task leading one of the 
poorest countries in Latin America.  On November 27, 2005, 
there were national elections for a new President, the 
unicameral Congress, and all 298 municipalities; a new (and 
overwhelmingly freshman) Congress was inaugurated on January 
25, followed by the Presidential inauguration on January 27. 
Bilateral relations between the U.S. and Honduras are 
excellent.  Honduras was the first country in the Western 
Hemisphere to sign and ratify an ICC Article 98 Agreement 
with the United States.  Honduras' support for the Global War 
on Terrorism is steadfast and the Government of Honduras 
(GOH) was among the group of nations that sent troops to Iraq 
in support of Operation Iraqi Freedom (OIF), although these 
troops have since returned.  Honduras was the first country 
in the region to be certified for the Container Security 
Initiative.  Honduras also voted for the U.S.-drafted UN 
Commission on Human Rights (UNCHR) resolution on Cuba, which 
passed in April 2005. 
 
¶2. (SBU) Honduras faces many challenges, including 
corruption, unemployment, high levels of violent crime, a 
highly skewed distribution of income, and a weak judicial 
system.  Despite these challenges, there were several 
positive economic developments in 2004 and 2005, including: 
continued fiscal restraint under an agreement with the IMF, 
reaching the Heavily Indebted Poor Countries (HIPC) 
completion point in late March 2005, the negotiation of up to 
USD 2.8 billion of debt forgiveness from Paris Club and G-8 
creditors, and the signing, ratification, and initial 
implementation of the U.S.-Central American Free Trade 
Agreement (CAFTA) with the United States.  In June 2005, the 
Millennium Challenge Corporation (MCC) approved USD 215 
million in funding over five years for a Honduran-drafted 
proposal focusing on highway infrastructure and integrated 
rural development.  Honduras was one of the first countries 
in the world to sign an MCC Compact, and first disbursement 
took place in March 2006.  Despite historically high energy 
prices in 2005, Honduras also maintained single-digit 
inflation rates and an estimated 4.5 percent growth in GDP in 
2004 and early 2005.  End Summary. 
 
--------------------------------------------- - 
Key Strategic Themes in Bilateral Relationship 
--------------------------------------------- - 
 
¶3. (SBU) The key strategic themes in our bilateral diplomatic 
efforts in Honduras are: the rule of law (including 
democratic institutions), regional security (including 
transnational crime), economic development to reduce poverty 
(through trade and investment, and investment in human 
resources), and assistance to American citizens and 
businesses.  Overarching these goals is an emphasis on good 
governance and attacking corruption, a focus that Zelaya says 
he shares, as fraud/waste/abuse and the ineffective 
administration of justice hampers progress in all these 
areas.  The USG goals coincide with Zelaya's emphasis on 
public security/rule of law, economic development, and 
natural resources/environment (including the prevention of 
natural disasters). 
 
--------------------------------------------- ------ 
What does a Zelaya Administration Mean for the USG? 
--------------------------------------------- ------ 
 
¶4. (SBU) While Zelaya is a friend of the USG, his 
personality, administration, and policy decisions are making 
working with him a challenge.  The Zelaya administration 
provides many opportunities for forward progress and will not 
likely result in any changes that would have a significant 
negative impact on U.S. interests.  One thing is certain: his 
victory has meant a complete upheaval of the GOH with Liberal 
Party political appointees replacing National Party political 
appointees at senior, mid-level, and even lower level 
 
TEGUCIGALP 00000743  002 OF 010 
 
 
positions.  Zelaya is specifically interested in "Citizen 
Power."  Campaign rhetoric emphasized achieving a smaller 
central government with more power at the local level, but 
early indications favor increased, rather than decreased, 
centralization.  Zelaya is outspoken in favor of government 
transparency, but several recent non-transparent decisions 
have raised concerns about the depth of understanding of and 
dedication to transparency by his government. 
 
¶5. (SBU) Zelaya's long term international strategy is based 
on the theme of economic and political integration with the 
surrounding countries.  Zelaya sees the integration of 
Central America as the only viable means Honduras has to meet 
the increasing demands of globalization.  The unification of 
Central America is not a new idea, dating back to Honduras' 
independence from Spain.  However, it has resurfaced as an 
issue of increasing importance with CAFTA.  Zelaya has made 
clear that integration is an issue of prominence to him, 
suggesting not only economic, but also political cooperation 
in other areas.  Short of integration and increased 
cooperation with the countries directly surrounding Honduras, 
Zelaya has specific intentions to develop and strengthen 
relationships with countries both in the Western Hemisphere 
and overseas seen by Zelaya as important to Honduras' 
national interests. 
 
¶6. (SBU) While Zelaya has not declared what specific public 
security measures he will set in place, he has made clear 
that he holds an entirely different approach to the gang 
problem than did the Maduro Administration before him. 
Instead of focusing on increasing punishments and penalties 
for crimes, the Liberal Party's Government Plan provides 
three areas where the administration will focus their 
efforts: prevention, enforcement, and rehabilitation. 
Anecdotal reports indicate that violent criminal elements 
have taken advantage of this perceived "softer" approach by 
increasing the tempo and severity of criminal activities. 
 
 
-------- 
Election 
-------- 
 
¶7. (U) Honduras' general elections were held November 27, 
2005, and were judged to be generally democratic, peaceful, 
and fair.  USAID and other international donors provided 
approximately $5.5 million to support the primary elections, 
and about $3.4 million for the general elections. 
 
¶8. (U) Honduras has two main parties, the Liberal Party and 
the National Party, and three minority parties, the Christian 
Democrat (CD), Innovation and National Unity (PINU), and 
Democratic Unification (UD).  President of the Congress 
Porfirio "Pepe" Lobo was the National Party presidential 
candidate, and agro-businessman and former Congressman Zelaya 
ran on the Liberal Party ticket.  Zelaya won the election 
with 49.9 percent of the vote.  Lobo received 46.17 percent, 
UD received 1.51 percent, CD received 1.04 percent, and PINU 
received 1.02 percent of the votes.  While exit polls, a 
Supreme Electoral Tribunal quick count, and an OAS Quick 
Count immediately projected that Zelaya had won, Lobo did not 
officially concede the election until December 7, 2005, 
choosing to wait until the official vote count had been 
tabulated. 
 
¶9. (U) In the new Congress, the Liberals have 62 of the 128 
seats, the Nationals 55 seats, UD 5 seats, CD 4 seats, and 
PINU 2 seats.  The new President of Congress is Liberal Party 
Congressmen Roberto Micheletti. 
 
¶10. (U) Of the 298 municipalities in Honduras, 165 mayoral 
seats went to the Liberal Party, 130 to the National Party, 
two to DC, and one to PINU.  Within these municipalities, at 
least 20 major cities were won by the Liberal Party. 
 
TEGUCIGALP 00000743  003 OF 010 
 
 
 
--------------------------------------------- -- 
Iraq, Haiti, and Other Key Foreign Policy Goals 
--------------------------------------------- -- 
 
¶11. (SBU) In recent years, the GOH has been very supportive 
of U.S. foreign policy goals, including the reconstruction of 
Iraq.  In support of OIF, the GOH deployed 370 troops to the 
vicinity of An Najaf as part of the Spanish Brigade operating 
under the Polish Division.  Secretary Powell, CJCS GEN Myers, 
and Secretary Rumsfeld all visited Honduras in 2003 to thank 
the GOH for its support of OIF.  As in most of the region, 
however, the Honduran general public overwhelmingly opposed 
the Honduran deployment and in late April 2004, Honduras 
withdrew its troops.  The GOH stated this decision was based 
on a change in the rules of engagement following the 
withdrawal of Spanish troops from Iraq, in which the U.S. 
reportedly requested that Honduras consider expanding its 
troops' mandate in Iraq to participate in offensive combat 
operations.  The GOH believed that the National Congress 
would not have authorized such a change in the rules of 
engagement.  The GOH committed itself to deploying some 
troops to Haiti in support of the UN peacekeeping operations 
there, possibly via the Conference on Central American Armed 
Forces (CFAC), but has yet to do so.  Honduras is very 
supportive of the United States at the UN, sharing our views 
on resolutions covering such key issues as human rights, 
human cloning, and the Middle East.  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. 
 
----------------------------------- 
Bilateral Political/Military Issues 
----------------------------------- 
 
¶12. (SBU) Honduras was the first country in the Western 
Hemisphere to sign and ratify an ICC Article 98 Agreement 
with the United States.  Honduras has a civilian Minister of 
Defense and a Chief of the Joint Staff who heads the Honduran 
Armed Forces (HOAF).  MOD Mejia and CHOD Vasquez Velasquez 
have a continuously good working relationship, especially 
since Mejia, during his tenure as President of the Supreme 
Electoral Tribunal prior to the MOD position, built a strong 
and stable working relationship with the military, one of the 
few nonpartisan institutions that effectively worked in the 
contested election.  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 transnational threats, including 
counterterrorism, arms and drug trafficking, and combating 
international criminal organizations.  With the Zelaya 
Administration, the military is partaking in more 
non-traditional roles such as protection of natural 
resources, specifically prevention of illegal logging.  The 
HOAF is interested in establishing an ability to increase 
further its participation in international peacekeeping 
operations and the HOAF has been participating in numerous 
joint exercises with U.S. forces.  In April 2006, GOH signed 
a bilateral agreement, Article 505, regarding global 
peacekeeping operations initiative.  Honduras has taken the 
lead in a number of regional initiatives to enhance 
cooperative security against emerging transnational threats. 
Within the past year, Honduras has hosted a "round-up" of 
regional maritime forces to conduct combined training and 
operations; the Honduran Air Force hosted a Central American 
air security conference that resulted in agreements for 
improving cross-border/regional communications and 
coordination in addressing illegal flights; during a recent 
Central American summit, the presidents unanimously agreed to 
the Honduran call for the establishment of a regional rapid 
 
TEGUCIGALP 00000743  004 OF 010 
 
 
reaction force to deal with the rise of narco-terrorism in 
Central America.  Honduras hosted and participated in two 
combined U.S. Joint Chiefs of Staff level special operation 
exercises in 2005: Gallant Journey and Bold Warrior. 
Honduras also stands ready to participate in a regional arms 
"rationalization" process, but has said it will not negotiate 
on a bilateral basis. 
 
---------------------------- 
Counterterrorism Cooperation 
---------------------------- 
 
¶13. (SBU) 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 UN and OAS 
counterterrorism conventions and protocols and has also been 
aggressive in upgrading port security. 
 
----------------------- 
Counternarcotics Issues 
----------------------- 
 
¶14. (SBU) GOH has cooperated with USG counternarcotics 
efforts by facilitating USG use of La Ceiba by U.S. Customs 
CHET aircraft to stage regional counternarcotics detection 
and monitoring aircraft.  However, the CHET aircraft does not 
address maritime transit zone trafficking that most threatens 
our interests.  Expanding the site to include staging 
maritime detection and monitoring aircraft should be our goal. 
 
¶15. (SBU) Honduras' geography places it squarely in the 
middle of a major illegal drug transshipment zone.  Cocaine, 
heroin, and marijuana transit Honduras, its airspace, and its 
maritime waters.  Due to increased efforts by Honduran, U.S., 
and regional counternarcotics forces, this trade has 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.  The total slipped in 
2005 to 261 kilos of cocaine.  Additionally, there were five 
Honduran-flagged vessels seized by the U.S. Coast Guard in 
international waters carrying approximately 11,250 kilos of 
cocaine and 53 kilos of heroin, as well as one 
Honduran-flagged vessel seized by the Nicaraguan Navy 
carrying 871 kilos of cocaine.  Close USG-GOH cooperation, 
thanks to a Bilateral Maritime Agreement, has allowed these 
narcotraffickers and the drugs to be brought to the U.S. for 
prosecution.  During the recent April 2006 regional Operation 
All Inclusive, the Honduran Navy under the direction and 
support of DEA strategically placed maritime assets at the 
15th parallel resulting in seizure of 3,000 kilos of cocaine 
and U.S. prosecution of the principal participants.  The GOH 
continues to cooperate in initiating electronic telephone 
intercepts with the help of DEA and NAS which has thus far 
resulted in dismantling a drug transportation organization 
operating throughout Central America and Mexico.  This 
investigation led to the arrest of six individuals and the 
seizure of 2 million dollars in assets. 
 
--------------- 
Anti-corruption 
--------------- 
 
¶16. (SBU) Honduras remains one of the most corrupt countries 
in the Western Hemisphere and was recently ranked 107 (tied 
with Nicaragua) out of 158 countries surveyed by Transparency 
International (an NGO that tracks international corruption 
issues,) with 158 being the most corrupt.  Only Bolivia, 
Ecuador, Guatemala, Guayana, Haiti, Paraguay, and Venezuela 
scored lower in the Western Hemisphere.  U.S. policy against 
corruption has struck a nerve here, especially any mention of 
our 212f visa revocation authority.  Despite the mid-2005 
arrest of the then-director of the immigration service, the 
 
TEGUCIGALP 00000743  005 OF 010 
 
 
problem within immigration and the control over Honduran 
identity documents is still a major concern, and the GOH has 
not taken proper action to address the pervasive corruption. 
The Maduro Administration commissioned a study of problems in 
the service and proposals to solve those problems, a study to 
which the Embassy contributed.  Neither the Maduro nor the 
Zelaya Administration had taken any substantive action to 
resolve immigration problems beyond lip service recognition. 
Procedural problems at the Public Ministry (Attorney General 
and all prosecutors) and lack of resources contribute to the 
GOH's limited ability to take significant action against 
high-level corrupt individuals.  Given the scope of the 
problem and the apparent inability of the GOH to prosecute 
those with influence and money, most public discussion about 
the country's pervasive corruption is perceived as, 
essentially, background noise by a cynical population. 
 
------------- 
Port Security 
------------- 
 
¶17.  (U) Puerto Cortes is the 37th largest trading port with 
the U.S. by volume, according to U.S. Customs and Border 
Patrol (CBP).  Approximately 41 percent of all Honduran 
exports are destined for the U.S. (75 percent of which 
transit Puerto Cortes), and significant import-for-re-export 
containerized traffic also occurs, largely to feed the 
booming Honduran maquila sector.  The GOH has taken a very 
pro-active stance in addressing port security issues, and met 
the International Maritime Organization's 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. 
 
¶18.  (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 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". 
 
¶19.  (U) Puerto Cortes' volume of trade with the U.S. earned 
it a place as the 45th port in the world to become part of 
the DHS Container Security Initiative (CSI).  It was GOH 
unilateral efforts to improve the port - notably including 
completing a successful U.S. Coast Guard review in June 2004 
and the December 2005 GOH decision to install gamma-ray 
scanning devices at the port - that convinced DHS/CBP to move 
forward with CSI at Cortes.  CSI offices were opened in early 
March 2006 and formally inaugurated on March 25 by President 
Zelaya and the Ambassador.  The Honduran business community 
is optimistic that the US-certification of containers will 
decrease shipping times by 24 hours for Honduran exports 
destined for the United States. 
 
---------------------------- 
Public Security/Human Rights 
---------------------------- 
 
¶20. (SBU) Violent crime, particularly homicides and various 
gang-related crimes, continues at a high rate.  Public 
support for forceful government actions remains strong, 
although the military's enthusiasm for joint police/military 
patrols has begun to erode, claiming the joint operations 
 
TEGUCIGALP 00000743  006 OF 010 
 
 
have negatively affected military readiness.   The U.S. has 
assisted the establishment of an anti-kidnapping unit which 
tremendously and effectively reduced the kidnapping rate. 
The U.S. is also helping to increase intake/training of 
police recruits, boost its counternarcotics efforts, assist 
the Frontier Police, and improve prosecutorial and forensic 
capacities.  At the request of President Zelaya, DEA has 
prepared and submitted a plan of action for the 
reorganization of the Honduran police.  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. 
 
¶21. (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.  There have been multiple large scale deaths in 
the national penitentiaries in the last several years.  While 
many have been due to fires or other inmates, the GOH has 
prosecuted some of its prison personnel and has been found 
negligent in its responses and preventative measures. 
 
¶22. (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, as Honduras has the highest rate of 
HIV/AIDS in Central America. 
 
------------------------------------------- 
Soto Cano Air Base - Joint Task Force Bravo 
------------------------------------------- 
 
¶23. (SBU)  Approximately 570 U.S. service men and women, 14 
civilian DOD employees, and 63 Locally Employed Staff 
(Hondurans) are currently stationed at Honduras' Soto Cano 
Air Base under the command of the Combatant Commander, U.S. 
Southern Command, as Joint Task Force Bravo (JTF-B).  JTF-B 
has responsibility for interagency operations and supporting 
contingency operations such as disaster relief, search and 
rescue operations, joint and combined training exercises, and 
counternarcotics missions in the assigned geographical area. 
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 planned relocation of the Coronet Oak C-130 
program from Puerto Rico to Soto Cano would increase the U.S. 
footprint. 
 
---------------- 
Border Relations 
---------------- 
 
¶24. (SBU) Honduras has land border disputes with Nicaragua 
and some of its seven maritime neighbors.  Honduras and El 
Salvador has had long standing border disputes over the 
shared area of control in the Gulf of Fonseca and the 
International Court of Justice (ICJ) ruling establishing the 
land border between Honduras and El Salvador.  The 
Organization of American States (as a neutral third party) 
has provided both nations technical assistance to help them 
implement the non-disputed elements of the ICJ's ruling. 
Just recently, on April 18, 2006, presidents of Honduras and 
 
TEGUCIGALP 00000743  007 OF 010 
 
 
El Salvador presided over the long-awaited conclusion of the 
demarcation of the Honduran-Salvadoran border.  This new 
bilateral border agreement between the two countries has 
formally ended a boundary dispute that dated to a conflict 
between the two Central American nations in 1969. 
 
¶25. (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. 
Nicaraguan naval forces recently seized eight Honduran 
fishing boats in disputed waters.  Tensions flared recently 
over possible oil exploration in the disputed area.  An ICJ 
decision on the case is expected sometime in 2006.  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.  The agreement has yet 
to be finalized. 
 
----------------- 
Economic Overview 
----------------- 
 
¶26. (SBU) 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 grew at a rate of 4.5 
percent in 2004, but over the past several decades has grown 
at an average rate only slightly higher than population 
growth.  Social indicators are improving, but two-thirds of 
all Hondurans live in poverty, and average education levels 
are very low.  In the past few years, low world coffee prices 
have hit rural areas particularly hard (although they are now 
rising somewhat), forcing major cutbacks in planting, 
fertilizing, harvesting, and investment.  While there has 
been some agricultural diversification (melons, cultivated 
shrimp, palm oil) there continues to be a large subsistence 
farmer population with few economic opportunities (other than 
illegal immigration to the U.S.).  Remittances from Hondurans 
living abroad, mostly in the United States, grew by 19 
percent to USD 1.14 billion in 2004, and, at an estimated USD 
1.4 billion in 2005, which is the equivalent of nearly 15 
percent of Honduras' foreign exchange, will soon pass the 
maquila sector as the country's largest source of foreign 
exchange. 
 
¶27. (SBU) The U.S. is Honduras' largest trading partner, with 
two-way trade in goods of $6.99 billion dollars in 2005.  The 
roughly 150 U.S. companies that do business in Honduras 
constitute the largest block of foreign direct investors. 
One of the major magnets for foreign investment is the 
apparel assembly (maquila) sector, which grew dramatically in 
the 1990s, reaching then-peak employment in 2000 of about 
120,000 people.  Activity slowed due to increased competition 
from Asia and also in response to the 2001-2002 U.S. economic 
slowdown.  The sector has been rebounding since 2003 and has 
now exceeded pre-downturn levels, with employment now at 
130,000 jobs. 
 
----------------------- 
The Importance of CAFTA 
----------------------- 
 
¶28. (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 
 
TEGUCIGALP 00000743  008 OF 010 
 
 
and 2004 among the United States, Honduras, Guatemala, El 
Salvador, Nicaragua, Costa Rica, and the Dominican Republic. 
All countries except for Costa Rica have now ratified the 
agreement.  The agreement was ratified by the United States 
on July 27, 2005, and entered into force on April 1, 2006. 
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 outgoing then-ruling 
National Party, but also by the incoming then-opposition 
Liberal Party and two of the smaller parties in Congress 
(PINU and CD) as well.  Only one small leftist political 
party (UD) voted against the agreement.  The agreement has 
also been opposed by some NGOs, labor unions, and peasant 
(campesino) groups, who are concerned that small-scale 
Honduran farmers will be unable to compete with subsidized 
U.S. agricultural products. 
 
¶29. (SBU) Zelaya's team hopes that CAFTA will lead to faster 
economic growth and serve as a catalyst for regional economic 
cooperation and integration.  The agreement is 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 USD 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 Program 
------------------------------------- 
 
¶30. (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.  MCC's mission is to reduce poverty via economic 
growth and it puts the responsibility for program design and 
implementation on the country.  MCC's assesses the quality of 
the proposal and its fiduciary risk control mechanisms before 
signing a Compact. During implementation MCC maintains 
approvals of quarterly disbursements and key implementation 
decisions to ensure that the Program is implemented in manner 
consistent with the Compact.  In June 2005, the Millennium 
Challenge Corporation (MCC) approved $215 million in funding 
over five years for a Transportation Project and Rural 
Development Project.  The Compact Entered into Force on 
September 29, 2005 and the first disbursement of $1.6 was 
made in February 2006.  MCA-Honduras is the government entity 
responsible for implementing the Program.  MCA-Honduras has 
hired 7 staff members and is in the process of recruiting two 
more staff members. Three major procurements are currently in 
process: Farmer Training and Development, Procurement 
Supervisor, and the Transportation Project Manager. The 
contract for the Farmer Training and Development is expected 
to be awarded in late summer and will be the first activity 
to show tangible results. 
 
----------------------------- 
IMF Agreement and Debt Relief 
----------------------------- 
 
¶31. (U) In 2005, Honduras reached Completion Point for the 
Heavily Indebted Poor Countries (HIPC) Initiative, allowing 
 
TEGUCIGALP 00000743  009 OF 010 
 
 
the GOH to approach the Paris Club (international group of 
bilateral and multilateral creditors) and the Group of Eight 
industrialized countries, seeking forgiveness or 
restructuring of an its external debt.  In July 2005, 
Honduras announced it had received a combined total of $2.8 
billion in pledged debt relief from bilateral and 
multi-lateral donors, most of which had been completed by 
December 2005.  The GOH estimates this will eliminate debt 
service payments of $212 million per year.  The GOH has 
committed to applying these funds to poverty alleviation, as 
laid out in the existing Poverty Reduction Strategy.  Post is 
watchful for any signs that these funds could be used to pay 
for unsustainable growth in public sector teacher and doctor 
salaries (which the GOH has committed to reining in by 2007). 
 Progress under the Poverty Reduction and Growth Facility 
signed with the International Monetary Fund (IMF) in February 
2004 remains strong.  The next semi-annual review of GOH 
compliance under that agreement will take place in May 2006, 
having been delayed pending GOH ratification of its new 
budget. 
 
-------------- 
USAID Programs 
-------------- 
 
¶32. (SBU) USAID's FY06 budget for Honduras is USD 44.9 
million.  The USAID Central America and Mexico 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 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 
Presidential Initiative.  USAID is also assisting GOH efforts 
to develop quality education standards, testing, and 
evaluation. 
 
¶33. (U) USAID's Integrated Food Security program addresses 
the multiple causes and effects of food shortages and 
nutritional deficiencies in some of the poorest communities 
in Honduras.  It provides community-based maternal and child 
health care, improved agricultural productivity and 
marketing, construction of rural roads and water systems, 
improved natural resource management, and increased 
transparency and efficiency of municipal governments. 
 
--------------- 
Consular Issues 
--------------- 
 
¶34. (U) The GOH estimates more than 800,000 Hondurans live in 
the U.S., a fact that places immigration issues high on the 
bilateral agenda.  (The population of Honduras is 
approximately seven million.)  Combating alien smuggling and 
TIP are top priorities.  Approximately 82,000 of these 
Hondurans currently enjoy Temporary Protected Status (TPS), 
 
TEGUCIGALP 00000743  010 OF 010 
 
 
which was granted to certain Hondurans who were in the United 
States illegally at the time of Hurricane Mitch in 1998. 
Another 250,000 are estimated to be in the United States 
illegally.  In March 2006, the Department of Homeland 
Security extended TPS for these Hondurans until July 2007, a 
move that the GOH deeply appreciated.  The GOH is also very 
interested in any possible U.S. Congressional action on 
immigration reform, particularly temporary work permit 
proposals.  The GOH is currently working closely with the USG 
to expedite the issuance of travel documents to facilitate 
the deportations of Hondurans who have illegally entered the 
U.S.  As part of this cooperation, the GOH has indicated a 
willingness to expand permission for Justice Prisoner and 
Alien Transport System (JPATS) deportation flights to land in 
San Pedro Sula in addition to Tegucigalpa, provided the USG 
provides funding for a Center for Returned Migrants. 
 
¶35. (U) With approximately 15,000 American citizens residing 
in Honduras (including American citizens who also hold 
Honduran citizenship) and many thousands visiting Honduras 
annually for tourism, missionary work, and business, American 
Citizen Services are a key part of the Embassy's work.  Since 
1995, there have been 51 American Citizen victims of 
homicide; 16 of these have occurred in the last 18 months. 
There was not much progress on most of these cases until 
2003, but there have now been 24 convictions in 15 cases, and 
ten cases have been closed.  Better coordination among the 
investigative police, prosecutors, and the Embassy has 
revived investigations into several previously cold cases. 
Some progress has been made on extradition cases involving 
American citizens residing in Honduras who are wanted for 
felonies in the United States.  In September 2005, the USG 
extradited a Honduran wanted for major financial fraud in 
Honduras.  (The Honduran constitution bars the extradition of 
Honduran nationals.)  Law enforcement cooperation with 
Honduras would be enhanced if Honduras were to sign on to the 
OAS Mutual Legal Assistance Convention. 
 
------------------- 
Embassy Tegucigalpa 
------------------- 
 
¶36. (SBU) Embassy Tegucigalpa is a medium-sized post, 
employing approximately 119 U.S. citizens and 344 Locally 
Employed Staff (mostly Hondurans) among 14 USG agencies.  The 
Peace Corps program, with approximately 192 volunteers, is 
one of the world's largest, and the USAID mission has a FY06 
budget of $44.9 million.  The Mission maintains a Consular 
Agent in Honduras' second largest city and industrial center, 
San Pedro Sula. 
Ford