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DE RUEHTG #0308/01 1211744
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O 011744Z MAY 09
FM AMEMBASSY TEGUCIGALPA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 9624
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE IMMEDIATE
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC IMMEDIATE 0940
RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE
RUCPDOC/DEPT OF COMMERCE WASHDC IMMEDIATE
RUMIAAA/USSOUTHCOM MIAMI FL IMMEDIATE

UNCLAS SECTION 01 OF 03 TEGUCIGALPA 000308 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/CEN, WHA/EPSC AND EEB/OMA 
 
E.O. 12958: N/A 
TAGS: EFIN HO
SUBJECT: GOH RELEASES ANTI-CRISIS PLAN 
 
REF: A. TEGUCIGALPA 205 
     ¶B. TEGUCIGALPA 78 
 
¶1. (U) Summary: With little fanfare, the GOH last week 
released its plan for countering the local effects of the 
global economic and financial crisis.  The plan largely 
recapitulates previously announced measures to direct credit 
on preferential terms to productive sectors, with emphasis on 
small and micro enterprises.  The plan has attracted little 
press attention, and private sector groups are refraining 
from comment until they determine whether any of it is likely 
to come to fruition.  Meanwhile, the GOH has still not 
submitted a budget to Congress for 2009.  On a positive note, 
Finance Minister appears to have convinced President Zelaya 
to return to the negotiating table with the IMF.  A Fund 
program, combined with enactment of a 2009 fiscal budget are 
crucial elements to maintain macroeconomic stability in a 
difficult and crisis-ridden year.  End Summary. 
 
-------------------- 
The Anti-Crisis Plan 
-------------------- 
¶2. (U) The plan is largely a repackaging of previously 
proposed schemes, most of which are struggling to get off the 
ground, to direct credit to activities that are expected to 
create jobs and alleviate poverty, including those to be 
financed with Venezuelan money under ALBA and Petrocaribe. 
It includes the previously announced idea for the Central 
Bank to create a 10 billion lempira (USD 529 million) trust 
fund at the Honduran Bank for Production and Housing 
(BANHPROVI).  The trust fund would be used to support loans 
to the private sector under concessional terms -- 10 percent 
for seven years for large companies and 7 percent for seven 
years for small and micro enterprises.  The plan also 
includes a somewhat vague proposal to induce private banks to 
put their excess reserves, which the GOH estimates total 22 
billion lempiras (USD 1.16 billion) at the disposition of the 
productive sectors, with the GOH providing some loan 
guarantees for a portion of these funds. 
 
¶3. (U) Other key elements of the anti-crisis plan include: 
 
-- 3 billion lempiras (USD 159 million) for "social" 
investments, including 2 billion (USD 106 million) for 
low-income housing and 600 million (USD 32 million) for 
agricultural small and micro enterprises; these amounts 
closely track the Venzuelan ALBA commitments to provide USD 
100 million for BANHPROVI and USD 30 million for the 
Agricultural Development Bank (BANADESA); 
 
-- 800 million lempiras (USD 42 million) in bonds to 
compensate landowners for properties to be confiscated and 
given to squatters; 
 
-- Streamlining of environmental permits for investment 
projects; 
 
-- Strengthening guarantees for depositors; 
-- A 900 million lempira (USD 48 million) line of credit for 
paying public contractors and suppliers in the areas of 
health and micro-enterprise development; 
 
-- Continue the current fuel-pricing policy, including the 
import price formula implemented in January 2007 over 
protests of the oil companies, to keep energy costs low; and 
 
-- 14.1 billion lempiras (USD 746 million) for public 
investments; this includes the USD 80 million the Millennium 
Challenge Corp plans to disburse this year on road 
construction and improvements. 
 
--------------------------- 
Reaction from Private Banks 
--------------------------- 
 
¶4. (SBU) The Executive Director of the Honduran Banking 
Association (AHIBA) told EconCouns April 23 that these 
financial proposals had not been consulted with the private 
banks.  She therefore had no details on the proposal to 
mobilize excess reserves, which she said were actually 14 
billion lempiras (USD 741 million), not 22 billion.  She said 
AHIBA was not commenting publicly on the plan, because the 
association doubts its proposals will move forward, at least 
until Congress comes up with its own plan. 
 
¶5. (SBU) The AHIBA Executive Director added that the USD 50 
 
TEGUCIGALP 00000308  002 OF 003 
 
 
million out of a promised USD 100 million in bond proceeds 
received from Venezuela to date as part of Honduras's 
accession agreement to the Venezuelan-led Bolivarian 
Alternative for the Americas (ALBA) had not been channeled 
into low-income housing construction through BANHPROVI as 
stated in the agreement but had instead been distributed to 
various local projects through the "Red Solidaria" network, 
directed by President Zelaya's wife Xiomara Castro.  She 
expected the same would be done with the second USD 50 
million tranche.  However, a source with access to the 
Finance Ministry told us all of the USD 50 million received 
to date from Venezuela for BANHPROVI, as well as the USD 30 
million for BANADESA, was still sitting in accounts at the 
Central Bank. 
 
------------------------------ 
Where Will the Money Come From? 
------------------------------- 
 
¶6. (SBU) Confusion reigns about how these various credit 
schemes will operate.  Trust funds for the ALBA and 
Petrocaribe cash are yet to be established, so the funds are 
sitting idle at the Central Bank.  Although significant 
portions of the plan will rely on donor financing, including 
from the World Bank, IDB, MCC and Venezuela, the bulk will 
need to be financed out of domestic resources.  The Central 
Bank may simply print money to create the 10 billion lempira 
BANHPROVI fund.  Most of the proposed public investment would 
come from tax revenues and domestic borrowing.  However, 
nearly five months into the current fiscal year, which began 
January 1, the GOH is yet to present a budget to Congress. 
Press reporting and Embassy sources indicate tax collections 
have slowed significantly compared with 2008, the GOH is 
having trouble placing bonds domestically and is raiding 
public employee pension funds to finance current expenditure. 
 In addition, it appears that Central Bank President Edwin 
Araque is gaining increased influence over GOH economic 
policy making over the more orthodox Finance Minister Rebecca 
Santos.  Araque is insisting that bonds have maturities of no 
more than 12 months with coupon rates consistent with his 
low-interest-rate policies.  As a result, a significant 
amount of public debt will need to be rolled over in early 
February 2010, a week after the next President assumes office. 
 
-------------------------------------------- 
Honduras May Seek Negotiations with the Fund 
-------------------------------------------- 
 
¶7.  (SBU) Finance Minister Rebecca Santos has been locked in 
a struggle with the populist rival Central Bank President 
Edwin Araque for control of GOH policymaking and for dealing 
with the crisis.  Araque has so far been successful in 
blocking efforts to renew the Precautionary Stand By 
Arrangement that Honduras had and that expired on March 31. 
Araque has argued against program requirements on both 
monetary and exchange rate policy and in public has been 
harshly critical of the IMF.  Nevertheless, Santo appears to 
have been successful in convincing influential bankers and 
industrialists that the most potent anti-crisis medicine 
would be to reach a successful deal with the IMF, 
particularly if it results in securing budget support. 
Santos has been engaged in a round of talks with U.S. 
Treasury and Fund officials in Washington and has lobbied 
President Zelaya on this issue.  Santos told the Ambassador 
on April 29 that he had gotten Zelaya,s approval to attempt 
to seek an IMF agreement, and has sent a letter to IMF 
Director for Central America Ramon Guzman requesting formal 
negotiations. 
 
------- 
Comment 
------- 
 
¶8. (SBU) The Anti-Crisis plan is so far not generating much 
attention or debate because of a plethora of other issues 
competing for public attention, including the N1H1 flu 
epidemic, the corruption scandal at the state telecom company 
and President Zelaya's controversial proposal to hold a 
referendum on rewriting the constitution.  There also appears 
to be some doubt in the private sector that the plan will go 
anywhere, given current tensions between the President and 
the Congress and Zelaya's lame-duck status -- he has just 
nine months left in his term.  Nonetheless, for the more 
orthodox thinkers in the GOH, being able to secure approval 
of a sound fiscal budget for 2009, hopefully to be presented 
to Congress in May, as well as the launch of serious 
 
TEGUCIGALP 00000308  003 OF 003 
 
 
negotiations with IMF are two important steps on the road to 
establishing a serious macroeconomic framework to deal with 
the global crisis.  These initiative could help to counter 
the more populist instincts of the Zelaya Administration, 
which seeks to leave most of the heavy economic policy heavy 
lifting to the new economic team that will take over  in 
¶2010.  End Comment. 
LLORENS