US embassy cable - 03TEGUCIGALPA2765

UNCLAS TEGUCIGALPA 002765 
 
SIPDIS 
 
STATE FOR WHA/CEN, WHA/EPSC, EB 
DOL FOR ILAB 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, EAID, ELAB, EIND, PGOV, SOCI, HO 
SUBJECT: THE NATIONAL DIALOGUE: SETTING OBJECTIVES FOR A 
BETTER HONDURAS 
 
1.  Summary.  On October 27, President Ricardo Maduro 
received the results of the National Dialogue which, by means 
of consensus, attempts to prioritize national objectives in 
order to benefit the most vulnerable groups of society. 
Following the idea that the National Dialogue should be 
participatory in nature, representatives from 298 
municipalities throughout Honduras participated in nine 
different workshops. The result was a voluminous document 
that presented ideas for both the short and long term. Among 
the themes covered in the National Dialogue were:  political 
and institutional development; justice and security of 
democracy; human capital and social development; and creating 
sustainable economic growth that benefits all classes.  End 
Summary. 
 
2.  Perhaps the most notable development is that of a fiscal 
pact which seeks to increase much-needed government revenues. 
The proposed pact advocates for and is aligned with many of 
the recommendations made by the IMF and includes methods to 
facilitate the collecting and paying of taxes, as well as 
eliminating many unnecessary tax exemptions. Other issues 
addressed in the pact include the reigning in of public 
expenditures and an increased level of fiscal transparency. 
 
3.  A law currently being drafted on the fiscal pact as a 
result of the National Dialogue addresses the aforementioned 
areas of concern. Article 3 of this draft law attempts to 
tackle the problems concerning the intake or lackthereof of 
government revenues.  (Note: Due to the fact that the GOH can 
not support financially its own spending and relies heavily 
on foreign aid, large strides made in this area could benefit 
Honduras greatly. End Note).  Items proposed under Article 3 
include: introducing a simplified system to tax the informal 
sector; a gradual end to unnecessary tax exemptions, which 
includes limiting future exemptions for emergency purposes 
only; a general widening of the tax base; and applying 
control measures in order to combat and reduce tax evasion. 
President of Congress, Pepe Lobo, has recently come out 
publically stating that Congress would not support any 
measures relating to tax increases or reforms, mostly due to 
political pressure relating to IMF requirements. 
 
4.  Article 4 of the draft law addresses the issue of better 
controlling government expenditures. Under this law 
government expenditure would be limited to 18 percent of the 
country's GDP, and could only be exceeded if deemed necessary 
for the strict use of covering basic social services such as 
health, education, and security. Other proposed reforms under 
this article include: reducing the amount of subsidies 
offered to businesses, only keeping those necessary to 
support low-income households; gradually reducing public debt 
as a percentage of GDP; transferring control of human, 
economic, and natural resources in an effort to decentralize 
in order to create efficiencies in administration. 
 
5.  The principal objective of the National Dialogue relating 
to the fiscal pact was to identify problems within the 
current system.  The draft law addresses these issues and 
attempts to increase revenues, decrease spending, and create 
efficiencies in administration, without raising the tax rate. 
The fiscal pact is an ambitious plan that if accomplished, 
would widen the tax base, eliminate unnecessary subsidies and 
exemptions, and create a more modern GOH that would benefit 
the country as a whole. 
 
6.  Comment:  The likelihood of such a law passing would 
require a broad coalition in order to push the bill through 
Congress. As such, the lack of political will among members 
of Congress will unequivocally dilute the effectiveness of 
rosy, rhetorical dialogue producing an end result that falls 
well short of its initial goal.  End Comment. 
 
Palmer