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UNCLAS SECTION 01 OF 07 TEGUCIGALPA 000181 
 
SENSITIVE 
 
FOR ASSISTANT SECRETARY SHANNON FROM AMBASSADOR LLORENS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PREL ECON SOCI OVIP HO
SUBJECT: Scenesetter for Assistant Secretary Shannon's Visit to 
Tegucigalpa 
 
¶1. (SBU) Summary: We warmly welcome you to Tegucigalpa.  Your visit 
provides an excellent opportunity to hold substantive discussions 
with President Zelaya, senior GOH officials, as well as with the two 
leading presidential candidates.  The political situation continues 
to be stable as we move forward towards next November's general 
election, but there remains a fair amount of suspicion by many 
opponents of President Manuel "Mel" Zelaya.  In recent months, 
concerns that Zelaya might be looking for a way to stay beyond his 
term have been eased in the wake of the successful primaries and 
election of a new Supreme Court.  The global economic crisis is 
beginning to have an impact in the way of tighter credit, slower 
growth and higher unemployment.  Zelaya has so far resisted 
extending the IMF Stand-By Agreement and the GOH is slowly 
developing an anti-crisis plan.  The security and crime situation 
continues to deteriorate and there have been several kidnappings of 
U.S. citizens.  Nevertheless, the GOH is fully committed to working 
with us on the Merida Initiative.  Our USAID and MCC teams continue 
to implement robust programs and we have conceived and implemented 
innovative Mission strategies to strengthen cooperation on renewable 
energy and public-private-partnerships.  FSN salaries have fallen 
far behind inflation and our lowest ranks are having a difficult 
time supporting their families.  We have instituted a strong cost 
containment plan to assure sufficient funding for FY-2009 and to use 
some of the savings to augment FSN salaries at the end of the Fiscal 
Year.  End summary. 
 
¶2. (SBU) Your visit comes at an opportune time to emphasize our 
support for the democratic process, review the impact of the global 
economic crisis and determine ways we can help, engage the 
government on the Summit of Americas, and discuss the upcoming OAS 
ministerial to be hosted by the Hondurans in San Pedro Sula. 
 
POLITICAL DEVELOPMENTS: 
---------------------- 
 
¶3. (SBU) Although there are concerns in some circles about President 
Manuel "Mel" Zelaya's motives, the political situation is currently 
stable.  The split between Zelaya and the business elite and much of 
the political establishment remains significant, and many here 
remain bitter about Zelaya's decision to join ALBA and raise the 
minimum wage by 60 percent(for some categories of workers).  Indeed, 
Zelaya's cultivation of ties with Chavez and fellow ALBA members has 
engendered fears by many of the business elite and urban middle 
class that he wants to stay in office.  His private threats to rule 
by decree during the Supreme Court election process further 
unsettled the political scene.  The February appointment of leftist 
Paty Rodas as foreign minister and her subsequent invitation to 
Iranian officials to visit Honduras (Zelaya forced her to rescind 
the invitation) also heightened uncertainty. 
 
¶4. (SBU) Zelaya insists his outreach to Chavez, and membership in 
Petro Caribe and ALBA, is an effort to secure more financial and 
development resources for his country.  In private and public 
statements, Zelaya insists that the U.S. remains his strategic 
partner and that he would do nothing do undermine that relationship. 
 In fact, we continue to have excellent access to Zelaya and on most 
security, law enforcement, intelligence, trade, investment, and 
energy issues the relationship is extremely close and positive.  The 
selection of two candidates from each of the major parties to run in 
next November's general election, Porfirio "Pepe" Lobo from the 
Nationalists and Elvin Santos from the Liberals, has helped ease 
concerns and focus the  political class and citizenry on the 
upcoming general elections scheduled for November of this year.  A 
key player in the political arena is Congress President Roberto 
Micheletti.  Following a bitter Liberal Party primary loss to Vice 
President Elvin Santos, Micheletti and Santos have made peace and 
the former is expected to be named President of the Liberal Party. 
Micheletti is committed to the democratic process and is an 
effective counterweight to any attempts by Zelaya to move off the 
democratic path.  He resisted Zelaya's attempts to postpone the 
primaries and, working with Lobo and Santos, outmaneuvered Zelaya on 
the Supreme Court election issue. 
 
TEGUCIGALP 00000181  002 OF 007 
 
 
 
A COMPETITIVE DIPLOMATIC APPROACH: 
--------------------------------- 
 
¶5. (SBU) We are committed to implementing a competitive diplomatic 
strategy in Honduras.  We have stayed close to Zelaya and engaged 
him in a very positive agenda of issues and initiatives.  We have 
also avoided overreacting to his dealings with Venezuela and Cuba or 
to his populist rhetoric.  We have encouraged Zelaya and other 
political actors, including the business community, to patch up 
their differences and focus on priority national issues.  In several 
instances when Zelaya has threatened our interests, such as 
postponing the primary elections, threatening to rule by decree, or 
inviting Iranian diplomats to visit, we have approached him in a 
direct and discreet way and articulated our core interests.  In 
these instances he has not crossed our red lines.  We have also 
worked with Lobo, Santos, and Micheletti to seek common ground. 
Above all, we have avoided taking our disagreements public, which 
only makes Zelaya more difficult. 
 
THE ELECTION OUTLOOK: 
-------------------- 
 
¶6. (SBU) Looking to the upcoming elections, Elvin Santos is slightly 
ahead in the polls.  He is generally seen as more telegenic and 
charismatic and his wife is a former beauty queen.  While having 
little political experience, or perhaps because he has had little 
experience, he is generally seen as more likely to curb corruption. 
Lobo, on the other hand, is seen as more experienced, more able to 
deal with the security crisis, and has the advantage that his party 
is in opposition.  Lobo has already put together an impressive team 
for his campaign.  In recent crises, such as the primary 
postponement and Supreme Court election, he has outmaneuvered his 
rivals (including Santos). 
 
THE ECONOMY: 
----------- 
 
¶7. (U) Honduras, with a GDP per capita of $1,635 in 2007, is one of 
the poorest countries in the Western Hemisphere.  GDP grew more than 
6 percent a year 2004-2007 but slowed to about 4 percent in 2008.  A 
further deceleration, or decline, is expected in 2009. The exchange 
rate has been fixed since October 2005, despite a substantial 
increase in consumer prices of 28 percent through January 2009. 
Inflation surpassed 10 percent in 2008 but began slowing late in the 
year with the fall in oil and commodity prices.  Social indicators 
in Honduras improved somewhat in recent years, but 59 percent of 
Honduran households still live in poverty, according to the latest 
household survey, 36 percent were unemployed or underemployed in May 
2008 and the average adult Honduran has only a sixth-grade 
education. 
 
¶8. (SBU) Honduras is beginning to feel the effects of the global 
recession, especially in the export-oriented maquila sector, where 
about 30,000 have been laid off since last August out of a 
pre-crisis workforce of about 145,000.  Bank balance sheets remain 
healthy, but banks are being extremely conservative about lending, 
so businesses are credit-constrained.  An IMF Stand-By Agreement 
concluded last April expires at the end of this month, and there are 
no active discussions ongoing on an extension.  The IMF has been 
insisting on greater exchange-rate flexibility, which President 
Zelaya and Central Bank President Edwin Araque have publicly ruled 
out.  Finance Minister Rebeca Santos is traveling to Washington this 
week to finalize an IDB port-modernization loan and may have 
informal discussions with the IMF.  The USG and international 
financial community may be able to help soften the blow of the 
crisis on Honduras by strengthening the social safety net, providing 
credit guarantees for small-business loans, financing 
labor-intensive infrastructure projects and providing a contingency 
line of credit to support the Lempira in the event of a speculative 
attack if the GOH loosens the exchange-rate peg. Temporarily 
loosening some of the CAFTA textile rules of origin could also help 
 
TEGUCIGALP 00000181  003 OF 007 
 
 
reactivate manufacturing here. 
 
¶9. (U) CAFTA entered into force for Honduras April 1, 2006.  The 
inflow of foreign direct investment into Honduras increased from 
$600 million in 2005 - the last year before CAFTA entered into force 
- to $877 million in 2008.  Two-way trade with Honduras in 2008 was 
$8.9 billion, up 6 percent from $8.4 billion in 2007.  Honduran 
imports from the U.S. have grown much faster under CAFTA than 
Honduran exports to the U.S., giving rise to criticism here that the 
agreement was one-sided.  (Note:  Half of the increase in imports 
was due to the impact of rising fuel prices - Honduras gets most of 
its fuel from U.S. refineries.) 
 
¶10. (U) Family remittances from Hondurans living abroad, 
particularly the U.S., account for 20 percent of GDP.  Remittances 
surged 31 percent in 2006, but growth slowed to 10 percent in 2007 
and 8 percent in 2008.  Remittances declined 5 percent year-on-year 
in January 2009 and may continue to decline during the year due to 
the U.S. economic crisis, but at $2.7 billion in 2008, they remain 
the largest single source of foreign exchange.  By comparison, 
apparel exports to the United States in 2008 were $2.7 billion. 
 
¶11. (U) Since 2005 Honduras has benefited from $4 billion in debt 
relief from bilateral and multilateral donors.  The donor community 
estimated this would reduce debt service payments by up to $160 
million in 2007.  The GOH has committed to applying these funds to 
poverty alleviation, as laid out in the Poverty Reduction Strategy. 
 
RENEWABLE ENERGY AGENDA: 
----------------------- 
 
¶12. (U) The Embassy has made cooperation on renewable energy a 
priority issue in the bilateral relationship and developed and is 
implementing a Mission-wide strategy.  In February, President Zelaya 
traveled to Washington and met with Secretary of Energy Chu and 
discussed ways the two countries can strengthen cooperation on 
renewable energy.  The Washington visit was followed-up by a visit 
to the National Renewable Energy Laboratory in Colorado to see the 
potential of cutting-edge U.S. technologies to improve Honduras's 
environment and energy security.  The Costa Rican firm Mesoamerica 
plans to install the largest wind farm in Central America in 
Honduras (of 100 megawatts), using GE turbines.  We plan to organize 
a forum and exhibition and reverse trade mission later this year to 
further promote renewable energy here.  Honduras is also eligible 
for assistance under the U.S.-Brazil Biofuels Initiative. 
 
PUBLIC-PRIVATE-PARTNERSHIPS: 
--------------------------- 
 
¶13. (U) The Embassy has also developed a strategy for encouraging 
public-private partnerships involving U.S. firms operating in 
Honduras.  We prepared an inventory of existing partnerships, which 
will be continuously updated, and we encourage corporate social 
responsibility through both our public diplomacy efforts and private 
engagement with the business sector. 
 
USAID: 
----- 
 
¶14. (U) USAID has been in Honduras since 1961. During the past 47 
years, USAID has provided more than $2 billion in economic 
assistance to Honduras. After the closing of the highly successful 
Hurricane Mitch Reconstruction Program from 1999 to 2002, 
USAID/Honduras's focus shifted to critical transformation activities 
crucial to the development of Honduras such as the Increase of 
Economic Growth in order to Reduce Poverty.  USAID/Honduras is 
focused on three areas: Democracy and Governance, Economic Growth, 
and Investing in People.  From 1961 to 2004, USAID invested $2.9 
billion in Honduras.  The FY08 budget was $38.7 million; FY09 
proposed is $49.1 million.  The increases are due to additional 
funds requested for food security and democracy programs. 
 
 
TEGUCIGALP 00000181  004 OF 007 
 
 
Millennium Challenge Corporation: 
-------------------------------- 
 
¶15. (U) The Millennium Challenge Corporation (MCC) approved $215 
million in 2005 for a compact aimed at reducing poverty by 
addressing key constraints to sustained economic growth in Honduras. 
 The 5-year program is focused on improving critical transportation 
infrastructure and improving rural agricultural productivity through 
a $127 million Transportation and a $72 million Rural Development 
Project.  Despite a challenging period during the transition to a 
new administration, both projects are progressing well, with 
tangible results evident in increased income generation for small 
farmers and the start of all major road construction activities. 
Honduras failed the Control of Corruption indicator used by MCC in 
FY 2008 but passed the same indicator in FY 2009.  Despite the 
latest score improvement, MCC continues to monitor the progress on 
implementation of the "remediation plan" presented by the Government 
of Honduras in response to the failing score in FY 2008. 
 
¶16. (U) The current compact will conclude under a new administration 
and the program is already engaging the technical teams from each of 
the major parties.  Their engagement will be necessary in order to 
achieve an effective culmination of the current compact activities. 
In addition, MCC and the Embassy will soon be preparing for 
discussions regarding the possibility of a second compact.  This 
preparation is likely to involve the identification of the adequate 
interlocutors given the upcoming transition, as well as the 
determination of the ability to present an adequate proposal in time 
to minimize the hiatus between the current and potential follow-on 
compact. 
 
Mil-Mil Relations: 
----------------- 
 
¶17.  (SBU) The U.S. military has an excellent and open relationship 
with the Honduran military based on many years of working together. 
We continue to support the Honduran military with equipment, 
training, exercises and joint operations.  The Honduran military is 
under-resourced and undermanned for its myriad of duties.  It has 
made great advances in relation to human rights and civil rule since 
the 1980s.  In various recent polls, the military is viewed as one 
of the most respected public institutions in Honduras, second 
overall only to the church.  Their structure is patterned after the 
U.S. military with civilian leadership through a civilian Minister 
of Defense with the President as Commander in Chief.  Chief of 
Defense Forces (CHOD) Major General Romeo Vasquez Velasquez has 
stated numerous times that his main job is to protect and defend the 
Constitution of Honduras.  The military has also made advancements 
in strategic development, with our assistance.  While not unaffected 
by corruption, they appear to be less affected than other areas of 
government, especially the police. 
 
¶18.  (U) The U.S. Military Group's key focus is continuing the 
transformation of the Honduran military to deal effectively with 21 
Century security environment of the region.  Specifically, the 
MilGrp works to build Honduran capabilities of counter-terrorism, 
counter illicit-trafficking, border/port/airport security, 
multi-national operations for regional stability, humanitarian 
assistance and disaster response.  The training has been vital in 
preparing the Honduran military for peacekeeping activities; 51 
Honduran soldiers will join Spanish peacekeeping forces in Lebanon 
later this year. 
 
JTF/BRAVO: 
--------- 
 
¶19. (U) Joint Task Force-Bravo, located at Enrique Soto Cano Air 
Base, Comayagua, Honduras, is comprised of approximately 1,200 
assigned personnel of which about 575 are military while the 
remainder includes both LES and civilian contractors who provide 
base support, communications services and helicopter maintenance. 
JTF-Bravo forces maintain and operate an all-weather C-5 capable 
 
TEGUCIGALP 00000181  005 OF 007 
 
 
airfield and provide the U.S with an agile response capability in 
Central America.  Recent Humanitarian Assistance/Disaster Relief 
Operations include flooding relief in Honduras, Costa Rica and 
Panama in November 2008 and earthquake relief in Costa Rica in 
January 2009. 
 
¶20. (SBU) Little progress has been made by the GOH in pushing for 
establishing a civilian airport at Soto Cano.  Current plans call 
for the construction of a very small terminal that would not 
interfere with our operations.  There is no sign that construction 
is imminent. 
 
Security and the Merida Initiative: 
---------------------------------- 
 
¶21. (SBU) Violent crime rates have risen in Honduras for years, and 
the trend continued in 2008.  Security continues to be the number 
one issue of public concern in Honduras.  Gang membership is the 
highest in Central America, prisons are overcrowded havens for 
criminal organizations, and the Honduran National Police (HNP) 
remains under-trained and held in low regard by the general public. 
The Zelaya administration presented a National Security Plan in 
¶2005.  Although work initially proceeded at a slow pace, the 
administration stepped up efforts in 2008.  The GOH has exceeded its 
goal to double the size of the police force, and since 2006 the HNP 
has convened over 13,000 Citizen Security Roundtables to allow 
neighborhood leaders to address their security concerns directly 
with local police.  In December 2008, President Zelaya authorized 
USD 1 million to complete construction of a high-security 
administrative segregation wing at Tamara prison, one of Security 
Minister Colonel Jorge Rodas' top priorities.   The Security 
Ministry received a USD 32 million security funding increase by the 
Congress for 2009, and is in the process of implementing the changes 
authorized by the Police Organic Law of 2008, including 
establishment of an Internal Affairs Directorate which answers 
directly to the Minister. 
 
¶22. (SBU) The Zelaya Administration is very supportive of the Merida 
Initiative.  In fact, Honduras was the first Central American 
country to sign a Merida LOA, on January 9, which Zelaya attended. 
We have created an Embassy Merida Working Group and have encouraged 
the Hondurans to do the same (which they have).  We also have 
conceived a two-country, multi-agency approach to working Merida, 
establishing a U.S.-Honduras Merida Taskforce that deals with both 
the law enforcement and prevention sides of the effort.  Our 
approach is to use Merida as catalytic tool for the Hondurans to 
deal with the issue of combating crime and illicit drugs in a more 
strategic way and in close cooperation with regional partners.  In 
addition to the increased resources provided by Merida and by the 
European Union, President Zelaya has also committed substantial 
resources to double the size of the National Police, bolstered 
Police Precincts in key crime-ridden areas, successfully pushed for 
legislative reform of the law enforcement community, and created 
citizen security committees nationwide to improve police and citizen 
coordination. 
 
¶23. (SBU) The vast, undeveloped Atlantic coastal region of La 
Mosquitia continues to be a transit point for drug traffickers, 
where air and sea shipments can arrive with little scrutiny or 
resistance from security forces.  We are developing a strategy that 
will focus some of our Merida resources towards the region. 
Already, with USG military support and guidance, the Honduran armed 
forces have broken ground on two permanent naval bases along the 
coast that will be dedicated to the counter-drug effort.  The GOH 
has built new schools and health clinics with joint DOD, State and 
USAID assistance.  Since his arrival in September 2008, the 
Ambassador has led two trips to the region, traveling with senior 
GOH officials, Embassy officers, and Honduran press. 
 
¶24. (SBU) Minister of Security Jorge Rodas is an ally in 
strengthening cooperation on security and law enforcement matters. 
We are working together on police academy and prisons reform, border 
 
TEGUCIGALP 00000181  006 OF 007 
 
 
protection improvements, and a community policing/anti gang program. 
The Embassy also coordinates its security efforts with other donor 
missions through the G16 donors group.  The EU is a major donor in 
Honduras, including on security issues. 
 
COUNTERDRUG OPERATIONS: 
---------------------- 
 
¶25. (SBU) Honduras, because of its location at the 15th parallel, 
along with its lengthy history as a paradise for smugglers, has 
become a logistic and strategic location for the transshipments of 
cocaine headed for the United States via Mexico or the Caribbean. 
Maritime and Air Drug Trafficking Organizations (DTO) must either 
off-load at sea, refuel, or head inland and use land routes to 
transport their contraband northward.  The successes of the DTO's 
are due in part to a weak government that is lacking in resources as 
well as governmental corruption.  We have had some success with 
interdictions; so far this calendar year we have interdicted the 
same amount of cocaine interdicted in all of CY08.  DEA works with 
an INL-supported Honduran vetted unit.  DEA is conducting joint 
maritime counter narcotic operations comprised of elements from the 
Honduran police and military, which includes the ship-rider program. 
(The ship-rider program allows partner nation officers to ride on US 
military vessels to assist in interceptions and seizures in 
international and partner nations waters.)  DEA and JTF/B jointly 
work air interdictions from Sato Cano which aim to place Honduran 
police forces at landing zones within 10 minutes of the landing of 
smugglers.  On March 10, a drug smuggling plane crashed and burned 
due to pilot error while attempting a landing on a road in Yoro 
province.  At least one pilot and probably two were killed.  JTF/B 
helicopters were following the plane and placed Honduran police 
forces and a DEA agent on the ground eight minutes after the crash. 
On-line press claims that "DEA" helicopters had shot the plane down 
were quickly corrected by the Minister of Security and did not 
develop further. 
 
CONSULAR OPERATIONS: 
------------------- 
 
¶26. (U) There are an estimated 22,000 American citizens resident in 
Honduras and over 100,000 Americans who visit as tourists and 
missionaries each year.  The Non-Immigrant Visa Unit processes 
around 45,000 visas per year, issuing about 35%; the Immigrant Visa 
Unit issues about 4,000 visas per year. 
 
¶27. (U) The critical crime situation in Honduras has had a direct 
impact on American citizens here.  Sixty-nine U.S. citizens have 
been murdered in Honduras since 1995; only twenty-three cases have 
been resolved.  Many cases have not progressed through the courts, 
with police and prosecutors citing lack of resources and 
capabilities to address complex murder cases.  In response, the 
Embassy proposed and supported the formation of a joint 
prosecutor/police task force dedicated to investigating and 
prosecuting these crimes.  The task force has had some success in 
closing cases, but is hampered by lack of attention and, again, 
resources, and requires some care and feeding by the ACS section. 
 
¶28. (SBU) Increased crime has led to increased kidnappings, which 
have also affected U.S. citizens.  Four U.S. citizens were kidnapped 
in January and February 2009 - three escaped, have been rescued, or 
have been released. All were also Honduran citizens and all 
information suggests that their kidnappers did not know of their 
American citizenship.  In response to these incidents, as well as to 
support Honduran police efforts against a dramatic nationwide 
increase in kidnappings, we currently have an FBI technical team in 
country.  The rescue of a six-year old American citizen and her 
12-year old brother on March 13 was directly attributable to the FBI 
team's work. 
 
¶29. (U) Immigration Issues - Honduras continues to be the second 
largest recipient country for deportees from the U.S., behind 
Mexico.  There were nearly 30,000 Hondurans deported from the U.S. 
 
TEGUCIGALP 00000181  007 OF 007 
 
 
in 2008.  President Zelaya has expressed consternation at the 
continued pace of deportations of Hondurans, and recently raised the 
issue with DHS Secretary Napolitano.  He is also interested in 
gaining some permanent status for Hondurans in the U.S. under 
Temporary Protected Status (TPS).  The Honduran business community 
is working to put together an ambitious program to send several 
thousand agricultural workers to Fresno County, California under the 
H2A visa program. 
 
MANAGEMENT ISSUES: 
----------------- 
 
¶30. (U) Embassy staff includes 98 direct-hire Americans, 273 locally 
engaged staff (LES) and 94 American Dependents.  The Management 
Section has a staff of 12 direct-hire Americans, seven eligible 
family members, and 112 locally engaged staff.  Our key management 
issues include: 
--Program and ICASS Funding has been flat for the past three years 
and FY-2009 appears to offer no improvement. 
--We have been unable to fund the salary increases suggested by the 
Department to allow us to remain competitive in the local employment 
market. A recent study by our LES association showed that employees 
in our three lowest grades need, on average an additional $1,500 per 
year just to maintain the basics of life.  Currently six FSNs make 
less than the newly proposed minimum wage of Lps. 5,500 
($290/month). 
--We have instituted a drastic cost containment plan to assure 
sufficient funding for FY-2009 and to use some of the savings to 
augment FSN salaries at the end of the Fiscal Year. 
--Four approved ICASS funded LES positions are unfilled due to 
insufficient funding and there is a clear need for three additional 
ICASS funded LES positions but with no expectation of even creating 
them in the next five years. 
 
Llorens