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TO RUEHC/SECSTATE WASHDC IMMEDIATE 5449
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE PRIORITY
RUMIAAA/CDR USSOUTHCOM MIAMI FL PRIORITY
RUEAHND/CDRJTFB SOTO CANO HO PRIORITY
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RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC PRIORITY 0633

UNCLAS SECTION 01 OF 10 TEGUCIGALPA 000585 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
SOUTHCOM FOR ADMIRAL STAVRIDIS 
STATE FOR WHA, WHA/CEN,WHA/PPC, H, PM, INL, AND EB 
 
E.O. 12958: N/A 
TAGS: OVIP PREL PGOV ECON MOPS SNAR PTER SOCI HO
SUBJECT: HONDURAS SCENESETTER FOR CODEL THOMPSON 
 
¶1. (SBU) Summary: After 15 months in office, the Honduran 
President, Jose Manuel "Mel" Zelaya Rosales, faces the 
difficult task of leading one of the poorest countries in 
Latin America.  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 also volunteered 
to be the first country to host a U.S. Coast Guard port 
security evaluation.  Honduras' support for the Global War on 
Terrorism is steadfast.  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 developments in the Honduran economy in 2006, 
including: receipt of over USD 3 billion in debt relief under 
the Heavily Indebted Poor Countries (HIPC) program, and entry 
into force of the U.S.-Central American Free Trade Agreement 
(CAFTA) with the United States on April 1, 2006.  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 the first disbursement 
took place in CY 2006.  Despite historically high energy 
prices in 2006, Honduras also maintained single-digit 
inflation rates and an estimated 5.5 percent growth in GDP in 
¶2006. 
 
¶3. (SBU) President Zelaya,s record of accomplishments after 
one year in office is mixed. Zelaya is actively seeking 
development and international investment. However, security 
is the primary concern of a majority of Hondurans as the 
murder rate is consistently one of the highest in the Western 
Hemisphere. The Honduran Minister of Security is slowly 
reforming the nation,s law enforcement units and creating 
programs to confront organized crime, drug trafficking, and 
gangs. The high rate of violence will continue to bedevil the 
Zelaya administration for the rest of its term. Zelaya still 
has to confront the major challenges: the high rate of 
poverty, high disparity in income distribution, lack of 
employment opportunities, poor education system, an 
ineffective and corrupt judicial system, and the continual 
threat of transnational crime, including the smuggling of 
drugs, arms and people. Despite those challenges, Zelaya 
remains popular with the electorate with an approval rating 
in the high 60s. End Summary. 
 
--------------------------------------------- - 
Key Strategic Themes in Bilateral Relationship 
--------------------------------------------- - 
 
¶4. (SBU) Key strategic themes in our bilateral diplomatic 
efforts in Honduras are: the rule of law and governance 
(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 hamper progress in all these areas. 
 The USG goals coincide with Zelaya's emphasis on public 
security, rule of law, economic development, environment and 
natural resources (including the prevention of natural 
disasters). 
 
--------------------------------------------- ------- 
What Does the Zelaya Administration Mean for the USG? 
--------------------------------------------- ------- 
 
¶5. (SBU) While Zelaya is a friend of the USG, his 
personality, administration, and populist policies have made 
working with him a challenge.  The Zelaya administration has 
provided some opportunities for forward progress, and few 
changes that could have a significant negative impact on U.S. 
interests.  His victory resulted in a complete upheaval of 
the GOH as Liberal Party political appointees replaced 
 
TEGUCIGALP 00000585  002 OF 010 
 
 
National Party political appointees at senior, mid-level, and 
even lower-level positions.  Zelaya won on a platform of 
"Citizen Power" and the plan of achieving a smaller central 
government with more power at the local level, but his first 
year in office has seen a consolidation of power in his hands 
and those of several close advisors.  He claims to favor 
government transparency, and signed into law in 2006 a 
transparency bill to promote public access to information. 
 
¶6. (SBU) Zelaya's long-term international strategy is based 
on the theme of economic and political integration with 
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, with consideration of the 
CAFTA proposal, it has recently resurfaced as an issue of 
increasing importance.  Zelaya has emphasized that 
integration is an issue of prominence to him, suggesting not 
only economic, but also political cooperation in other areas. 
 In addition to integrating and increasing cooperation with 
neighboring countries, Zelaya intends to develop and 
strengthen relationships with other countries in the Western 
Hemisphere and overseas that are important to Honduras' 
national interests. 
 
¶7. (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 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. 
 
--------------------------------------------- --------------- 
Deployment of Honduran Armed Forces (HOAF) in Support of USG 
--------------------------------------------- --------------- 
 
¶8. (SBU) In recent years, the GOH has supported U.S. foreign 
policy goals, including the reconstruction of Iraq.  In 
support of Operation Iraqi Freedom (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 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 U.S. request 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 supports 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 
----------------------------------- 
 
¶9. (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). In January of 1999, the constitution was 
amended to abolish the position of a 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 
 
TEGUCIGALP 00000585  003 OF 010 
 
 
international criminal organizations.  The HOAF is interested 
in increasing its ability to participate in international 
peacekeeping operations, and the HOAF has been participating 
in numerous joint exercises with U.S. forces.  Honduras has 
taken the lead in a number of regional initiatives to enhance 
cooperative security against emerging transnational threats. 
Honduras hosted and participated in a joint disaster relief 
training operation with U.S. military forces last year and a 
series of joint US/Honduran exercises (Horizons 06). During 
New Horizons, the two militaries worked together to construct 
clinics and schools to serve the Honduran poor. 
 
---------------------------- 
Counterterrorism Cooperation 
---------------------------- 
 
¶10. (SBU) The GOH has responded quickly to all USG requests 
regarding terrorist threats and financing, although no 
terrorist assets have been found in Honduran financial 
institutions to date.  Honduras is a party to all UN and OAS 
counterterrorism conventions and protocols and has also been 
aggressive in upgrading port security. 
 
----------------------- 
Counternarcotics Issues 
----------------------- 
 
¶11. (SBU) Honduras is a transit country for shipments of 
cocaine flowing north from South America, predominantly by 
sea. USG and Honduran counternarcotics police and military 
units actively monitor the transshipment of drugs though the 
country via air, land and sea routes. The GOH cooperates with 
the USG in investigating and interdicting narcotics 
trafficking. Honduras was a major participant in Operation 
All Inclusive, a USG interagency counternarcotics operation. 
The operation was a regional counternarcotics initiative 
directed at major trafficking organizations exploiting the 
countries of Mexico and Central America. With the 
participation of the Honduran Navy under the Bilateral 
Maritime Agreement, U.S. Coast Guard assets searched Honduran 
flagged vessels and seized over 6,636 kg of cocaine at sea in 
¶2006. The traffickers were then sent to the U.S. for 
prosecution. In other actions, counternarcotics forces seized 
736 kg of cocaine, 807 kg of marijuana, and arrested 403 
people. The GOH continues to cooperate in initiating 
electronic telephone intercepts with the help of DEA, which 
resulted in the dismantling of drug transportation 
organizations operating throughout Central America and 
Mexico. 
 
¶12. (SBU) The GOH cooperates with the U.S. in investigating 
and interdicting narcotrafficking but faces significant 
obstacles in funding, a weak judicial system with heavy 
caseloads, lack of coordination, and inadequate leadership. 
President Zelaya continues to attack corruption, and measures 
have been implemented to polygraph special investigative 
units.  Honduras is a party to the 1988 UN Drug Convention. 
 
¶13. (SBU) President Zelaya and his new administration took 
office in January 2006 vowing to take stronger measures 
against crime and drugs, promising stronger international 
cooperation, and an increase in the number of national 
police.  President Zelaya requested USG assistance with a 
plan of action to reorganize the National Police and the 
Honduran law enforcement counter narcotics efforts. The DEA 
prepared and presented a plan of action to the President. The 
Honduran Congress hopes to consider this plan, which also 
includes reforms to the Police Organic Law, before the end of 
the year. 
 
¶14. (SBU) The Drug Enforcement Administration continues to 
work closely with the International Narcotics and Law 
Enforcement (INL) supported  counternarcotic Special Vetted 
Unit to gather sensitive narcotics intelligence that is then 
passed on to other Honduran law enforcement agencies. The 
unit also develops and provides investigative leads that are 
disseminated to US law Enforcement entities in the US.  These 
leads have resulted in US criminal indictments of Honduran 
Nationals responsible for transporting cocaine destined for 
the US.  The unit enforcement efforts target the Drug 
Trafficking Organizations (DTO,s) that are exploiting 
 
TEGUCIGALP 00000585  004 OF 010 
 
 
Honduras in furtherance of their criminal enterprises.  The 
Special Vetted Unit has been the GOH,s instrumental force in 
the dismantling and disruption of the DTO,s in Honduras.  In 
2006, the unit developed and implemented a biometric data 
base of gang members who were repatriated back to Honduras 
from the United States, as well as all gang members currently 
incarcerated in the Honduran prison system. 
 
¶15. (SBU) The number of drug-related arrests at Honduras' 
borders continues to rise as a result of road interdiction 
operations by the Frontier Police and the Policia Preventiva. 
A criminal database to organize information is under 
development and has already produced positive results. 
Prosecution is less successful.  Judicial corruption and 
inefficiency, coupled with overwhelming case loads, is a 
serious problem.  In addition, funding constraints hamper the 
Public Ministry's ability to investigate and prosecute drug 
cases. 
 
¶16. (SBU) Intelligence indicates that the flow of drugs 
through Honduras has increased.  Remote areas, such as the 
Department of Gracias a Dios, are a natural safe haven for 
the traffickers, offering an isolated area to refuel maritime 
assets, effect boat-to-boat transfers, or off-load onto land 
for continued ground transportation. 
 
¶17. (SBU) GOH maritime drug interdictions have been 
successful in apprehensions and arrests of persons, as well 
as the seizure of maritime vessels involved in the 
transportation of drugs. Several vessels have been seized and 
forfeited to the GOH because of USG assistance. GOH law 
enforcement agencies have intercepted shipments of weapons, 
which they suspect are intended to be exchanged for drugs 
with Colombian drug dealers. 
 
¶18. (SBU) South American cocaine destined for the United 
States flows through Honduras by land air and sea.  Suspect 
aircraft tracks have decreased since the surge reported in 
¶2003.  DEA suspects that heroin is being transported through 
Honduras to the United States. 
 
--------------- 
Anti-Corruption 
--------------- 
 
¶19. (SBU) Honduras remains one of the most corrupt countries 
in the Western Hemisphere and was recently ranked 121 (ten 
places below Nicaragua) out of 163 countries surveyed by 
Transparency International (an NGO that tracks international 
corruption issues).  Only Ecuador, Haiti, and Venezuela 
scored lower in the Western Hemisphere.  U.S. policy against 
corruption has struck a nerve here, especially any mention of 
our 212(f) visa revocation authority.  The Director of 
Immigration, Ramon Romero, was arrested on May 1, 2005 for 
his alleged role in a corruption/fraud scandal involving the 
illegal sale of valid Honduran passports, visas, and 
residency documents to third country nationals.  On May 2, 
2005, the Minister of Government and Justice fired 71 
Immigration employees and transferred another 37.  However, 
the problem within Immigration and the control over Honduran 
identity documents is still a major concern, and GOH actions 
have not been sufficient to address the pervasive corruption. 
This is most evident in the ongoing judicial proceeding 
regarding ex-director Romero, which continues to proceed at 
an agonizingly slow pace.  Procedural problems at the Public 
Ministry (Attorney General and 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, any public discussion about 
the country's pervasive corruption is a positive development. 
 
¶20. (U) The GOH passed two important laws that aid in the 
fight against corruption: the Transparency Law will give 
public access to more of the government,s dealings and allow 
the public to obtain information about ministries and 
agencies; and the new Civil Procedure Code will speed up the 
judicial process and allow for public oral arguments in civil 
courts, which have historically been nontransparent. 
 
------------- 
Port Security 
 
TEGUCIGALP 00000585  005 OF 010 
 
 
------------- 
 
¶21. (U) Puerto Cortes is one of only a handful of Container 
Security Initiative (CSI) and Megaports facilities in the 
Western Hemisphere.  It 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 met the 
International Maritime Organization's July 1, 2004 deadline 
to certify its ports under the new, more stringent port 
security standards of 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. 
 
¶22. (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 and 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". CBP office space at 
Cortes was completed, and the CSI offices opened in mid-2006. 
 
---------------------------- 
Public Security/Human Rights 
---------------------------- 
 
¶23. (U) The security situation in Honduras requires a high 
degree of caution.  Street crime is a principal concern, with 
thefts, including purse-snatching, pick-pocketing, and armed 
robberies occurring in urban and rural areas.  There have 
also been incidents of armed carjackings and kidnappings. 
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 amidst speculation that the joint 
operations have negatively affected military readiness. The 
Regional Security Office (RSO) works closely with local 
authorities on various law enforcement issues and assists 
U.S. law enforcement with leads in Honduras. 
 
¶24. (SBU) While the Zelaya administration can claim some 
credit for a small reduction in the number of violent deaths 
in Honduras, the country remains one of the most dangerous 
places in the Western Hemisphere. According to official 
Honduran figures, the country has a murder rate of 23.1 per 
100,000 inhabitants (compared to the average murder-rate 
worldwide of 8.8). Eight Hondurans are murdered on average 
every day out of a population of only 7 million. The police 
estimate that over half the murders can be attributed to the 
youth gangs that claim over 36,000 members in Honduras. To 
combat the waves of violence that sweep the country, Zelaya 
ordered the HOAF to assist the national police in patrolling 
the worst crime areas and manning checkpoints throughout the 
country in search of criminals and illegal arms. These joint 
patrols have been effective in reducing the crime rate but 
have negatively affected military readiness. The USG is 
assisting the HOAF to train special military police units to 
aid law enforcement. The USG is also helping to improve the 
training of the police, increase counternarcotics efforts, 
create a nationwide communication system for the sharing of 
criminal information, assist the Frontier Police, and improve 
prosecutorial and forensic capabilities. Nevertheless, public 
opinion surveys reveal that most Hondurans fear the police 
and believe the police themselves are involved in crime. A 
new Police Organic Law currently under review by the Honduran 
Congress will substantially reform the organization of the 
national police and give the Minister of Security sufficient 
authority to purge the police of its corrupt elements. 
 
¶25. (SBU) Extrajudicial killings, especially of children and 
young adults since 1998, have been a source of serious 
concern. Only recently has the GOH begun to take steps to 
 
TEGUCIGALP 00000585  006 OF 010 
 
 
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. 
 
¶26. (SBU) While Honduran labor law is deficient in some areas 
with respect to International Labor Organization core 
conventions, effective enforcement of existing laws remains 
the main issue for the protection of labor rights, including 
freedom of association and collective bargaining. 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. 
Trafficking of women and children for commercial sexual 
exploitation in the U.S., Central America, and Mexico 
continues.  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 - JTF Bravo 
------------------------------ 
 
¶27. (U) Approximately 575 U.S. service men and women, 12 
civilian DOD employees, and 62 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, humanitarian 
assistance, search and rescue operations, joint and combined 
training exercises, and counternarcotics operations 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. 
 
------------------------------------ 
Relations With Neighboring Countries 
------------------------------------ 
 
¶28. (U) Honduras is resolving its long-standing land border 
dispute with El Salvador, but the two countries are engaged 
in a diplomatic dispute over the possession of Isla Conejo 
(Rabbit Island), a very small island in the Gulf of Fonseca. 
Arguments over the exact location of the Honduras-El Salvador 
border have simmered for years resulting in the short-lived 
"Soccer War" of 1969. In 1992, the International Court of 
Justice (ICJ) issued a ruling that demarcated the land 
border. With technical assistance provided by the USG and 
other countries, Honduras and El Salvador have worked 
together to delineate the border, and the work is expected to 
finish in 2008. However, El Salvador used the ICJ ruling to 
claim Isla Conejo, a 4-hectare rock located only 600 meters 
from the Honduran coast. Both countries claimed their 
national sovereignty was at stake, but the matter eventually 
cooled, and diplomats from both countries are working to 
resolve the dispute. 
 
¶29. (U) The economic relationship between Honduras and El 
Salvador is growing despite the territorial disputes. The two 
countries are working together to construct a hydroelectric 
dam that will provide power to both countries, and with the 
help of funds from MCC, they are constructing a modern road 
that will allow El Salvador to send its goods to the Honduran 
ports on the Caribbean. 
 
¶30. (U) On the other side of the country, Honduras and 
Nicaragua have a long-standing dispute over their respective 
maritime boundaries. Honduras claims the 15th parallel as the 
dividing line, and that their maritime border extends due 
east from the mouth of the Rio Coco that separates the two 
countries. Nicaragua claims its territory extends at an angle 
from the mouth of the Rio Coco up to the 17th parallel, thus 
giving Nicaragua claims on a number of small islands and 
control over a suspected resource-rich region. The matter was 
 
TEGUCIGALP 00000585  007 OF 010 
 
 
referred to the ICJ and final oral arguments were presented 
in March. A ruling is not expected for several years. 
 
¶31. (SBU) The election of Daniel Ortega in Nicaragua was not 
cause for alarm but only caution on the part of the GOH. 
Ortega,s claims that he has changed from the 1980s and that 
he will fully support CAFTA and free trade in the area were 
well-received by the GOH. However, second thoughts are 
arising as Ortega welcomes aid from Cuba, Venezuela, and 
Iran. The GOH is neither embracing nor shunning the Ortega 
administration. 
 
¶32. (SBU) Honduras restored relations with Cuba in 2002 after 
a 40-year break but only recently actively engaged the Cuban 
government. The Honduran Foreign Minister visited Cuba in 
October 2006 to sign agreements of friendship and to commence 
negotiations regarding a maritime boundary. The Cuban Foreign 
Minister returned the favor and visited Honduras in early 
March when he promised more medical and education assistance. 
Cuba has a good reputation in Honduras, which began in 1998 
when the Government of Cuba sent doctors to help Honduras 
recover from the devastation of Hurricane Mitch. Since then, 
Cuba has maintained a brigade of 300 doctors that provide 
medical assistance to the poor. Cuba continues to donate 
medical supplies and offer scholarships for Honduran medical 
students. The Cuban Foreign Minister,s visit prompted Zelaya 
to name Honduras, first ambassador to Cuba in over 40 years. 
 
----------------- 
Economic Overview 
----------------- 
 
¶33. (SBU) Honduras, with a per capita income of approximately 
USD 1000, is the fifth poorest country in the Western 
Hemisphere.  The economy grew at a rate of 5.5 percent in 
2006, 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.  While in the past 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.).  This is exacerbated by the Zelaya 
administration's shift in agricultural policy from one of 
diversification for value-added export to one of subsidizing 
non-competitive basic grains production.  Remittances from 
Hondurans living abroad, mostly in the United States, grew 
explosively from USD 1.14 billion in 2004, to USD 1.5 billion 
in 2005, to an estimated USD 2.3 billion in 2006, which is 
the equivalent of nearly 30 percent of Honduras' gross 
domestic product.  Remittances have far surpassed the maquila 
sector and all other exports as the country's largest source 
of foreign exchange earnings. 
 
¶34. (SBU) The U.S. is Honduras' largest trading partner, with 
two-way trade in goods of $7 billion dollars in 2006.  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 rebounded from 2003 through 2005 and 
exceeded pre-downturn levels, with employment now at 130,000 
jobs.  However, weak policies and physical and juridical 
insecurity have frightened some investors, resulting in a 10 
percent drop in foreign direct investment in the maquila 
sector in 2006, despite CAFTA. 
 
----------------------- 
The Importance of CAFTA 
----------------------- 
 
¶35. (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. 
All countries except for Costa Rica have now ratified the 
 
TEGUCIGALP 00000585  008 OF 010 
 
 
agreement.  The agreement entered into force with Honduras on 
April 1, 2006.  CAFTA 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. The agreement has 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. 
 
¶36. (SBU) Zelaya's team worked hard to bring CAFTA into 
force, but has done little since then to take advantage of 
the opportunities for economic growth offered by the 
agreement.  Key reforms in energy, telecommunications, and 
other sectors remain stalled, and policies favoring price 
controls and state intervention have weakened the investment 
climate.  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 2006 Honduras received only USD 175 million 
in new foreign investment, most of it from the United States, 
down from USD 195 million in 2005.  The agreement's 
agricultural chapter liberalizes agricultural trade gradually 
while protecting Honduran farmers from sudden disruptions 
caused by subsidized imports.  The agreement also hopes to 
spur modernization in government procurement and services and 
encourage GOH structural reforms in areas such as 
telecommunications. 
 
------------------------------------------ 
Millennium Challenge Account (MCA) Program 
------------------------------------------ 
 
¶37. (U) Following a consultative proposal evaluation process, 
in June 2005 Honduras signed a 5-year, USD 215 million 
Millennium Challenge Compact with the Millennium Challenge 
Corporation (MCC).  The Compact aims to reduce poverty and 
promote growth by increasing the productivity and business 
skills of farmers who operate small and medium-sized farms 
and by reducing transportation costs between production 
centers and national, regional and global markets. To 
accomplish these two objectives, the Compact is investing in 
a Rural Development Project and a Transportation Project. 
The goal of the Compact is to increase Honduras' annual 
income by an estimated USD 69 million by the end of the 
Compact term in 2010.  Under the Rural Development Project, 
hundreds of small/medium farmers have begun receiving 
intensive technical assistance in the production and 
commercialization of high-value agricultural crops.  In the 
Transportation Project, a specialized international project 
manager is reviewing final designs for upgrades to the 
country's main highway and is working with MCA-Honduras to 
evaluate proposed improvements to secondary and tertiary 
roads.  Construction in the Transportation Project is 
expected to begin in late 2007-early 2008.  The Honduran 
entity responsible for the implementation of the program 
(MCA-Honduras) has been established and is managing the 
ongoing activities in each project.  The MCC resident mission 
is working with MCA-Honduras to successfully execute the 
program. 
 
----------------------------- 
IMF Agreement and Debt Relief 
----------------------------- 
 
¶38. (U) In April 2006, the International Monetary Fund (IMF) 
was unable to certify GOH compliance with its Poverty 
Reduction and Growth Facility (PRGF), based largely on 
concerns about new fiscal policies that loosened fiscal 
discipline and significantly augmented public sector wages. 
The PRGF agreement stalled and eventually expired in February 
¶2007.  At present Honduras has no formal agreement in place 
with the IMF.  Owing largely to strong macroeconomic 
performance in previous years, in late 2006, Honduras 
received an additional USD 1.3 billion in debt relief from 
the InterAmerican Development Bank, adding to the USD 2.8 
billion in pledged debt relief from bilateral and 
multi-lateral donors received in July 2005. The GOH estimates 
this will eliminate debt service payments of USD 212 million 
per year.  The GOH has committed to applying these funds to 
poverty alleviation, as laid out in the existing Poverty 
 
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Reduction Strategy, but execution of these programs has been 
well below expectations, even while current spending on 
subsidies and other non-productive programs has increased 
significantly. 
 
-------------- 
USAID Programs 
-------------- 
 
¶39. (SBU) USAID's FY 2007 budget for Honduras is USD 38.8 
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 support to Honduras in 
complying with the requirements of CAFTA.  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 to 
improve reproductive health, family planning, child survival, 
prevention of HIV/AIDS, and household food security. 
Alternative delivery systems, support for the multi-donor 
Education for All/Fast Track Initiatives, and implementation 
of the Centers for Excellence in Teacher Training 
Presidential Initiative develop a better-educated Honduran 
work force through expanded access and improved quality at 
the pre-school, middle school, and upper secondary levels 
(grades 10-11). USAID is also assisting GOH efforts to 
develop quality education standards, testing, and evaluation. 
 
¶40. (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 
--------------- 
 
¶41. (U) The population of Honduras is approximately seven 
million. The GOH estimates that approximately one million 
Hondurans, about 600,000 of whom are undocumented, live in 
the U.S., a fact that places immigration issues high on the 
bilateral agenda. Combating alien smuggling and trafficking 
in persons are top priorities.  Approximately 78,000 of these 
Hondurans currently enjoy Temporary Protected Status (TPS), 
which was granted to some Hondurans who were in the United 
States illegally at the time of Hurricane Mitch in 1998.  In 
mid 2006, the Department of Homeland Security extended TPS 
for these Hondurans until July 2007, a move that the GOH 
deeply appreciated.  Further renewal of TPS is a key foreign 
policy objective of the Zelaya Administration and the 
National Congress.  Most Honduran interlocutors can be 
expected to press Secretary Chertoff and the Members of 
Congress for renewal. The GOH is also very interested in any 
possible U.S. Congressional action on immigration reform, 
particularly temporary work permit proposals. 
 
¶42. (SBU) The GOH has worked closely with the USG to expedite 
the issuance of travel documents to facilitate the removal of 
Hondurans who have illegally entered the U.S.  Recently, 
however, some Honduran political figures, including members 
of the Congress, have been urging the USG to stop all 
deportations.  The GOH has been planning to expand permission 
for Justice Prisoner and Alien Transport System (JPATS) 
deportation flights to land in San Pedro Sula in addition to 
Tegucigalpa.  Implementation of this plan depends upon 
opening a reception and reintegration center in San Pedro, 
 
TEGUCIGALP 00000585  010 OF 010 
 
 
but intermittent talks between the GOH and DHS over the past 
year have been fruitless. 
 
¶43. (U) With approximately 15,000 American citizens residing 
in Honduras (including American citizens that 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 56 American Citizen victims of 
homicide; six of these have occurred in the past year.  There 
was not much progress on most of these cases until 2003, but 
there have now been 28 convictions in 16 cases, and six 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.) 
 
------------------- 
Embassy Tegucigalpa 
------------------- 
 
¶44. (SBU) Embassy Tegucigalpa is a medium-sized post, 
employing approximately 119 U.S. citizens and 320 Locally 
Employed Staff (mostly Hondurans) among 14 USG agencies.  The 
Peace Corps program, with approximately 192 volunteers, is 
one of the world's largest.  The Mission maintains a Consular 
Agent in Honduras' second largest city and industrial center, 
San Pedro Sula. 
FORD