VZCZCXRO4674
OO RUEHLMC
DE RUEHTG #0697/01 2162153
ZNR UUUUU ZZH
O 042153Z AUG 09
FM AMEMBASSY TEGUCIGALPA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0319
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE IMMEDIATE
RUEAIIA/CIA WASHDC IMMEDIATE
RUCPDOC/DEPT OF COMMERCE WASHDC IMMEDIATE
RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC IMMEDIATE 1154
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC IMMEDIATE
RUMIAAA/USSOUTHCOM MIAMI FL IMMEDIATE

UNCLAS SECTION 01 OF 03 TEGUCIGALPA 000697 
 
SIPDIS 
 
STATE FOR EXIM/MICHELE WILKINS 
 
E.O. 12958: N/A 
TAGS: BBSR EAID ECON EFIN HO
SUBJECT: TFH01: DE FACTO REGIME PREPARES 2009 HONDURAS 
BUDGET 
 
¶1.  (SBU) Summary: The 2009 Honduran Budget was introduced 
and approved by the de facto regime July 2009.  The Honduran 
fiscal year is from January to December, and the exiled 
government had yet to submit its 2009 budget (which was due 
to Congress on September 15, 2008).  Central government 
revenues include taxes of Lps. 40 billion (USD 2.1 billion), 
non-taxes of Lps. 2 billion (USD 107 million), internal 
capital transfers of Lps. 1 billion (USD 57 million), 
external capital transfers, donations and loans of Lps. 10.5 
billion (USD 555.5 million), public debt of Lps. 10 billion 
(USD 541 million) and other revenue sources.  Central 
government expenditures increased only 4.9 percent in nominal 
terms over the approved 2008 budget (Lps. 64 billion from 
Lps. 61 billion).  The budget prepared by the de facto regime 
show a USD 1.1 billion deficit that must be covered by a 
combination of internal and external financing.  The 2009 
budget contemplates external financing of USD 555.5 million 
that could be impacted by the cut-off of foreign assistance 
resulting from the political crisis.  The de facto regime is 
anticipating financing USD 544.3 million of the fiscal 
deficit through domestic sources, however much of this 
financing is already in place.  Although the de facto regime 
will face an enormous challenge in closing the fiscal gap, 
this challenge is not insurmountable.  The 2009 budget as 
presented by the de facto administration includes a number of 
initiatives and projects developed with technical assistance 
(currently suspended) from OTA over the last three years. 
End Summary. 
 
--------------------- 
Approved 2009 Budget 
--------------------- 
 
¶2.  (U) The 2009 Honduran Budget was introduced and approved 
by the de facto regime July 2009.  The Honduran fiscal year 
is from January to December, and the exiled government had 
yet to submit its 2009 budget (which was due to Congress on 
September 15, 2008).  The approved budget is Lps. 112.9 
billion (USD 6 billion), which is Lps. 64 billion (USD 3.4 
Billion) for the central government and Lps. 61 billion (USD 
2.6 billion) for the decentralized government organizations 
less offsetting flows. 
 
----- 2009 Budget Revenues 
 
¶3.  (U) Central government revenues include taxes of Lps. 40 
billion (USD 2.1 billion), non-taxes of Lps. 2 billion (USD 
107 million), internal capital transfers of Lps. 1 billion 
(USD 57 million), external capital transfers, donations and 
loans of Lps. 10.5 billion (USD 555.5 million), public debt 
of Lps. 10 billion (USD 541 million) and other revenue 
sources.  The de facto Minister of Finance Nunez stated that 
this budget assumed promised international assistance because 
she had not been notified of any cancellations. 
 
----- 2009 Budget Execution 
 
¶4.  (U) Central government expenditures increased only 4.9 
percent in nominal terms over the approved 2008 budget (Lps. 
64 billion from Lps. 61 billion).  Major expenditure 
increases include Education - increase of 12 percent (Lps. 20 
billion from Lps. 18 billion), Health - increase of 22.8 
percent (Lps. 9 billion from Lps. 7.4 billion), Ministry of 
Finance - increase of 18.6 percent (Lps. 3 from 2.5 billion) 
and the Road Fund - increase of 43.6 percent (1.4 billion 
from Lps. 959 million in part to provide maintenance as 
required in the MCC compact).  Expenditure decreases include 
a reduction in Central Administration Financial Services of 
74 percent (Lps. 5.5 billion to Lps. 1.4 billion) for 
reductions in travel allowances, tickets, advertising, 
gasoline, electricity, cell phones, and non-essential 
material; 39 percent in Natural Resources and the Environment 
(Lps. 489 million from Lps. 806), and 32 percent in Science 
and Technology (Lps. 547 million from Lps. 804 million), 
 
----------------------------- 
Financing the Fiscal Deficit 
----------------------------- 
 
¶5.  (U) The budget prepared by the de facto regime show a USD 
1.1 billion deficit that must be covered by a combination of 
internal and external financing. 
 
 
TEGUCIGALP 00000697  002 OF 003 
 
 
 
                                    Lempiras          USD 
                              (Millions)  (Millions) 
Transfers and Donations 
      Multilateral                  683.0       36.1 
      Bilateral                     292.1       15.5 
      MCC                           1,077.6           57.0 
      Debt Relief             3,987.4           211.0 
      Budget Support                574.0       30.4 
      SUBTOTAL                      6,614.0           349.9 
 
Foreign Loans                       3,886.1           205.6 
      SUB EXTERNAL FINANCE    10,500.1          555.5 
 
GOH Bonds                           6,518.0           344.9 
Loan Banco Central            3,768.0           199.4 
   SUB INTERNAL FINANCE       10,286.0          544.3 
 
TOTAL FINANCING REQUIREMENT   20,786            1,099.8 
 
 
----- External Finance 
 
¶6.  (U) The 2009 budget contemplates external financing of 
USD 555.5 million that could be impacted by the cut-off of 
foreign assistance resulting from the political crisis; 
however this reduction in finance due to the cut-off would be 
modified by a number of factors such as how much has already 
been disbursed and how much is already committed and will be 
disbursed in the future.  For example, almost all of the MCC 
funds are already committed and will be disbursed in 2009 
(approximately USD 11 million of 2010 funds are at risk).  At 
a recent meeting of the international donor community (G-16) 
most participants stated that ongoing projects would continue 
but that new projects are being paused.  The Treasury 
Department's Office of Technical Assistance (OTA) Resident 
Advisors will be interviewing the major donors to try and 
quantify the cuts affecting the 2009 budget. 
 
¶7.  (U) Although the status of debt relief is unknown, this 
will not have much impact on the budget because this amount 
would be applied to the related debt service which the 
government is already not paying (this item appears to be a 
holdover from the 2008 budget pending final resolution of the 
debt relief).  The only amount that will definitely be cut is 
budget support.  The reductions will be modified by how much 
has already been disbursed.  (Much of this support was 
already being curtailed because of the lack of agreement 
between the exiled government and the IMF, as well as the 
lack of a 2009 budget law). 
 
----- Internal Finance 
 
¶8.  (U) The de facto regime is anticipating financing USD 
544.3 million of the fiscal deficit through domestic sources 
however much of this financing is already in place.  The 
Central Bank loan of USD 199.4 million was mostly disbursed 
in the first half with the balance disbursed in July.  The de 
facto administration is in the process of converting this 
short term loan into a 10 year maturity.  Further, the 
government placed USD 158.7 million of bonds in the first 
half of the year leaving USD 186.2 million to raise in the 
second half which they are doing through a series of actions 
including new issues, rollovers and swaps. 
 
----- Conclusion for Financing the Fiscal Deficit 
 
¶9.  (SBU) Although the de facto regime will face an enormous 
challenge in closing the fiscal gap, this challenge is not 
insurmountable.  Most of the domestic finance is already in 
place and the Office of Public Credit, working with the 
Central Bank, is using the techniques and procedures 
developed in coordination with the OTA Debt Advisor to raise 
the necessary finance.  More investigation is necessary to 
determine the full impact of the aid cut-off.  An early 
appraisal indicates that the impact will be much less than it 
would appear based on the enormous amount of external finance 
indicated in the budget. 
 
------------------------------------------- 
OTA Initiative in the 2009 Approved Budget 
------------------------------------------- 
 
 
TEGUCIGALP 00000697  003 OF 003 
 
 
¶10.  (U) The 2009 budget as presented by the de facto 
administration includes a number of initiatives and projects 
developed with technical assistance (currently suspended) 
from OTA over the last three years. 
 
¶11.  (U) The human resources project of the OTA Tax Team that 
had been ignored by the Zelaya administration and in danger 
of falling apart was included in the 2009 budget of the de 
facto regime.  We have been advised that the Tax 
Administration (DEI) is in the process of implementing the HR 
project as well as other OTA initiatives (the Executive 
Committee for Reform, the Performance Committee System, 
mid-year review and funding for the Large Taxpayer 
Organization).  The contract for the funding of OTA's work on 
the HR project by the World Bank (WB-FIDE) is due to expire 
in November 2009.  Although OTA has already proposed an 
extension to complete the remaining critical components of 
the project and to provide a transition for the new 
government, this funding is likely to be negatively impacted 
by the aid cut-off resulting in unknown negative consequences. 
 
¶12.  (U) The 2009 budget includes language referencing the 
debt limits contained in the Public Indebtedness Policy 
2009-2013 document which the OTA Debt Advisor helped to 
develop.  In addition, the approved budget law includes new 
language permitting the Office of Public Credit to use swap 
programs to modify the profile of public debt and notes that 
swaps do not affect the total debt outstanding.  The Office 
of Public Credit has on its own initiative begun working with 
the Central Bank to develop the procedures for the swap 
program as well as returning to the procedures developed over 
the last several years regarding debt issuance and management 
that had been discarded by the Zelaya administration. 
 
------------------------------------ 
More detailed information to follow 
------------------------------------ 
 
¶13.  (U) This is a preliminary review.  We plan to get 
additional information from international counterparts and 
non-government officials in order to provide more details. 
Due to the US no contact policy, we will not be meeting with 
regime counterparts. 
LLORENS