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S E C R E T SECTION 01 OF 03 TEGUCIGALPA 000985 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EB/ESC, WHA/EPSC, WHA/PPC, AND WHA/CEN 
STATE FOR D, E, P, AND WHA 
TREASURY FOR JHOEK 
STATE PASS AID FOR LAC/CAM 
NSC FOR DAN FISK 
 
E.O. 12958: DECL: 05/31/2016 
TAGS: EPET ENRG PGOV PREL PINR VE HO
SUBJECT: (S) HONDURAS: USG SHOULD KEEP ZELAYA NERVOUS ABOUT 
CHAVEZ, DESPITE IMPENDING GOH-GOV OIL DEAL 
 
REF: TEGUCIGALPA 972 AND PREVIOUS 
 
Classified By: Classified By: AMB Charles Ford for reasons 1.4 (b) and 
(d). 
 
¶1. (U) This is an action request.  Please see para 6. 
 
¶2. (S) Summary:  In preparation for his June 5 meeting with 
POTUS, President Jose Manuel Zelaya Rosales is explicitly 
seeking USG reassurance that we will not object to a GOH deal 
with Venezuela for oil.  Zelaya has on several recent 
occasions signaled that such a deal is imminent.  Pressure 
groups insist that Zelaya fulfill his campaign pledge to 
lower gas pump prices.  Post assesses that Honduras will 
likely conclude the deal and that further public U.S. 
objections would be counter-productive.  Instead, Post 
suggests that the POTUS-Zelaya meeting be used to express the 
USG's extreme displeasure, but without forcing Zelaya's hand, 
thus insulating the USG from possible future allegations that 
it is to blame for any future Zelaya Administration failings. 
 At the same time, such an approach could generate important 
leverage for advancing other vital USG interests in Honduras. 
 Post assesses that Zelaya's zeal for a deal with Venezuela 
stems from political and fiscal expediency and not from a 
shared ideology with Chavez.  That said, certain senior GOH 
officials could use such a deal to forge closer ties with 
Chavez.  A suggested POTUS warning to Zelaya that does not 
challenge his option for making a deal, but leaves him 
anxious about USG reactions to closer ties to Chavez, could 
prove a crucial bulwark against the spread of Chavez's 
influence in the region.  End Summary. 
 
--------------------------------------------- ---- 
Zelaya Seeks USG Blessing for Deal with Venezuela 
--------------------------------------------- ---- 
 
¶3. (S) In a May 30 meeting with Ambassador, Honduran 
President Jose Manuel Zelaya Rosales specifically requested 
Post seek Washington's views on any deal with the Government 
of Venezuela for oil.  Zelaya is seeking reassurance prior to 
his meeting with POTUS that Washington will not object if he 
moves forward with such an arrangement. 
 
¶4. (S) Post has discussed this issue widely with both public 
and private sector actors (reftels).  Post assesses that 
despite Post questioning of the economic and possible 
political consequences of such an agreement, a GOH-GOV deal 
is imminent - though the GOH might seek a way to cloak such a 
deal in more respectable "commercial" terms.  Vocal public 
cautioning by Post about such a deal is rapidly becoming 
counterproductive.  Zelaya has already hinted that possible 
USG opposition to the deal could "destabilize" his 
presidency.  Thus, if we succeed in de-railing the deal at 
this point, the GOH could use that effort to decry U.S. 
meddling in internal affairs, and could then attempt to blame 
any number of future Zelaya Administration policy failures on 
the USG.  On the other hand, if we fail to reverse the deal 
we potentially hand a political victory to Chavez and to 
those in the Zelaya Administration who might be inclined to 
support his views. 
 
----------------------------------- 
Why We Should Withhold Our Blessing 
----------------------------------- 
 
¶5. (S) As reported reftels, Zelaya is now signaling that a 
PetroCaribe deal, or something very similar, is very likely. 
In our view, since the deal cannot likely be stopped, we 
should use it to extract maximum advantage in other areas of 
bilateral importance.  Zelaya is already quite supportive of 
USG policies regarding immigration, counter-narcotics, 
military transformation, and a host of multilateral issues. 
His administration is lagging, however, in telecommunications 
reform, civil procedures reform, anticorruption and 
competition policy reform, and other vital socioeconomic 
development matters. 
 
 
TEGUCIGALP 00000985  002 OF 003 
 
 
¶6. (S) Action Request:  Post suggests that during Zelaya's 
June 5 meeting, POTUS emphasize USG displeasure at the GOH 
decision to make such an arrangement with the GOV.  A 
carefully modulated message that does not demand walking away 
from such a deal, but nevertheless pressures Zelaya, could be 
effective in encouraging his support for other important USG 
interests in Honduras.  Such a message should also strongly 
reinforce our continuing requirement for transparency in the 
process, and fair treatment for U.S. investors (including 
Texaco and Esso) already operating in Honduras.  The USG 
could also use its privately expressed displeasure at a 
PetroCaribe deal to encourage Zelaya to take prompt action 
towards his professed goal of liberalizing the gasoline 
market in Honduras.  Post welcomes any Washington suggestions 
on how best to assist the GOH in laying the groundwork for 
such a shift, so that when the current import deal expires 
(regardless of who wins it), Honduras will be ready to move 
on to a more transparent and competitive approach. 
 
---------------------------------------- 
Why Zelaya Wants PetroCaribe So Badly... 
---------------------------------------- 
 
¶7. (C) Honduras continues to suffer economically under the 
recent high prices in refined petroleum products, especially 
gasoline.  Upward pressure on prices has not yet manifested 
as inflation, but there are continuing calls for wage hikes, 
and public discontent over high fuel prices.  In a series of 
ill-considered political moves, the GOH has in some ways 
worsened the situation in which it finds itself.  Recent 
rhetoric has left the majority of the public with the 
perception, as evidenced in a May 26 private poll shared with 
EmbOffs May 31, that the Zelaya administration can lower fuel 
prices.  In addition, a blanket endorsement of the "Notables 
Commission" left some of the more radical elements leading 
the debate on energy policy, and a campaign promise to lower 
pump prices by 10 lempiras (just over USD 0.50) per gallon 
continues to haunt Zelaya (reftels). 
 
¶8. (C) Fiscal pressures also remain a concern for Zelaya, who 
has promised subsidies to taxi drivers, offered tax credits 
in exchange for price freezes on fuels, called for thousands 
of new police officers, guaranteed free school enrollment for 
all students, raised government salaries by over three 
percent, and allocated up to USD 40 million for a price 
hedging scheme on fuel imports.  Worse, the GOH urgently 
needs funds to recapitalize state telephone monopoly 
Hondutel, and to pay over USD 100 million in debts to 
electricity generators.  Other, even more burdensome fiscal 
obligations, loom just over the horizon:  a bailout and 
restructuring of electricity parastatal ENEE, construction of 
new electricity generation and transmission assets, and the 
ever-present demand for significant pay raises for teachers. 
A recent IMF review of the GOH program failed to reach a 
conclusion in part due to concerns over a possible oil 
finance deal with Venezuela. 
 
¶9. (C) The above combination of factors makes a PetroCaribe 
deal extremely attractive as a political and economic 
expedient.  By financing 40 percent of the cost of fuel 
imports, Zelaya could free up an estimated USD 300 - 400 
million per year.  These "savings" could be used to lower 
fuel prices at the pump, and/or to finance a number of the 
outlays cited above.  Thus, in Post view, there is both a 
push (energy needs) and a pull (soft financing terms) driving 
the apparent GOH move towards PetroCaribe.  Where PetroCaribe 
may have originally been seen as a technical fix to fuel 
price problems, it has now morphed into a perceived solution 
for the much broader political (read, financial) problems 
dogging the new administration.  It is Post's view that it 
will be difficult to counter or reverse this dynamic. 
 
--------------------------- 
... and No, It's Not Chavez 
--------------------------- 
 
¶10. (C) In Post's opinion, Zelaya is a leader in the old 
 
TEGUCIGALP 00000985  003 OF 003 
 
 
"caudillo" (Latin strongman) mold, who prides himself on 
individualism, decisiveness, and control.  He is genuinely 
interested in producing solutions, but lacks the patience and 
intellectual curiosity required to analyze policy options 
first.  Thus, his decisiveness can be precipitous, and is 
often based on his instinctual assessments of short-term 
political needs.  While he is generally credited as a savvy 
interpersonal politician, Zelaya, after 100 days in office, 
does not yet appear to us to have adopted the longer-term, 
broader focus required of a President.  This leaves him 
disconcertingly susceptible to policy advice from his closest 
advisors, some of whom have markedly left-leaning tendencies. 
Zelaya routinely consults with these advisors jointly, in 
closed-door session, long into the night. 
 
¶11. (C) Consequently, Post assesses that Zelaya's populist 
tendencies as a retail politician, coupled with his urgent 
need to find quick fixes to complex problems and his reliance 
on certain left-leaning advisors, largely explain any 
perceived GOH drift towards Venezuela's President Hugo 
Chavez.  Expediency is driving him towards PetroCaribe, while 
some of his advisors likely find satisfaction in the 
concurrent warming of relations with Chavez himself.  This 
new closeness, particularly if it allows Chavez a base from 
which to launch oil-diplomacy into Central America in a bid 
to influence regional elections, clearly fits neatly into 
Chavez's own political agenda.  Zelaya is no Chavez, but if 
left unchanged, circumstances could make him complicit in 
advancing Chavez's influence in the region. 
 
Ford 
 
Ford