US embassy cable - 03TEGUCIGALPA2662

C O N F I D E N T I A L SECTION 01 OF 02 TEGUCIGALPA 002662 
 
SIPDIS 
 
TREASURY FOR U/S TAYLOR 
TREASURY ALSO FOR RAMIN TOLOUI 
- 
STATE FOR WHA/CEN, WHA/EPSC, EB/IFD/OMA 
STATE PASS AID FOR LAC/CEN 
 
E.O. 12958: DECL: 11/12/2013 
TAGS: EFIN, ECON, PGOV, EAID, ETRD, EINV, HO 
SUBJECT: IMF IN HONDURAS: PROSPECTS FOR AND OUTCOMES OF AN 
AGREEMENT 
 
REF: MATTHEWMAN-ILZEKTKI NOVEMBER 10 E-MAIL 
 
Classified By: Political Counselor Francisco Palmieri for 
reasons 1.5 (b) and (d) 
 
1. (C) Summary: If the Maduro government comes to an 
agreement with the IMF, the National Congress is likely to 
approve the necessary measures.  Of those measures, an 
increase in the fuel tax could potentially be the most 
difficult, and runs the risk of adding a new constituency, 
the transportation sector, to those who are angrily opposed 
to reform.  Given Honduran history, the government should be 
able to withstand the ensuing popular protests against an IMF 
package.  End Summary. 
 
2. (C) The President of the National Congress Porfirio Lobo 
told the Ambassador in September that he can get the measures 
needed for an IMF agreement through a recalcitrant Congress, 
if and only if, he can present them as a final completed 
package.  We believe that this assurance continues to be in 
place and that Lobo, who has been steadfast in his political 
support for President Maduro, would be able to deliver on 
this commitment. 
 
3. (C) This assessment is not ironclad.  At the time Lobo 
made his statement there had not been any talk, or even a 
hint, that a fuel tax would be part of a final package. 
Since that time, Lobo's presidential political campaign has 
begun to take a greater and more public form.  He may find 
himself in a more delicate and difficult political position. 
He could almost certainly claim that the fuel tax is one 
measure too far.  It is not clear how much of the proposed 
deal with the IMF the government has revealed to the 
congressional leadership.  At a November 4th G-15 donors 
meeting with Porfirio Lobo, he claimed that Maduro had not 
provided to Congress any draft legislation for implementing 
an IMF agreement. 
 
4. (C) It is well accepted that there will have to be a 
reform of the teacher's compensation package.  For political 
reasons, Maduro does not have as much to lose as one would 
think in following through on this reform, as they have 
already paid a political cost for it.  (Some members of the 
Nationalist Party believe the true cost will be paid in the 
next presidential election when teachers will work hard to 
elect a Liberal Party president.)  There will also be 
elements in the Congress who will vigorously oppose ceding to 
the executive branch authority over public sector wage 
setting.  This component should not be a deal breaker, but it 
will be a tough issue that will require the government to 
find other ways to pay off Nationalist legislators for their 
support.  Note: Controlling the wage bill by phasing out the 
compensation part of the teacher and doctor 'estatutos' has 
long been an issue that the administration believed it could 
not get through Congress.  Now, however, the administration 
is betting that people are desperate enough for an IMF 
agreement that they can finally risk it.  End note. 
 
--------------------------- 
Fuel tax the most difficult 
--------------------------- 
 
5. (C) As a means to raise revenue, Maduro apparently 
believes that a fuel tax is the best move in a bad hand, as 
it would affect less people than the alternatives (such as an 
increase in the sales tax or a tax on residential 
electricity).  However, Maduro and his team are likely to 
face determined opposition over a fuel tax from within their 
own party and from the political opposition, which will use a 
fuel tax to stoke populist embers to raise the heat on 
Maduro. 
 
6. (C) The transportation sector, which is large and 
organized, will strongly and vocally oppose such a measure. 
It is a certainty that the size, tenor and strength of recent 
street protests will increase once the prospect of a fuel tax 
is announced, and there will be larger street protests 
if/when the Congress enacts it.  A fuel tax, which would be 
felt immediately by all segments of the Honduran population, 
could serve to rally middle-class sectors to join the 
protesters.  To date these other sectors have been ambivalent 
and withholding their judgment on the Maduro government's 
reform program, praying it will deliver economic growth. 
 
7. (C) The anti-globalization forces will call for more 
vigorous protests, which could potentially turn violent. 
While these protests are likely to result in destruction of 
private and government property, the police thus far have 
been very measured in their response to the protests.  The 
current Security Minister is likely to avoid confrontations 
with the protesters.  Under the current atmosphere, all sides 
have avoided actions that would cause the loss of life. 
 
8. (C) Comment: Given Honduran history, we would not assess 
an IMF package as outlined in reftel to result in a 
destabilizing situation.  There will be protests, but the 
government should be able to withstand the challenge.  One 
unknowable variable is how the general population would react 
to the loss of any life during a street protest.  Such an 
event could serve as a catalyst for broader protests or a 
reason for somber reflection by all parties.  End comment. 
Palmer