US embassy cable - 04TEGUCIGALPA293

UNCLAS TEGUCIGALPA 000293 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR WHA, WHA/CEN, AND PRM/PRP 
 
E.O. 12958: N/A 
TAGS: PHUM, PREF, PREL, SMIG, HO 
SUBJECT: TPS FOR HONDURAS - UPDATE ON ECONOMY AND 
RECONSTRUCTION EFFORTS 
 
REF: A. STATE 19332 
 
     B. 03 TEGUCIGALPA 442 AND PREVIOUS 
 
 1. (U) Summary:  While most USG-funded post-Mitch 
reconstruction efforts are complete, and much physical 
infrastructure has been rebuilt, the stagnant Honduran 
economy and the continued crisis situation in Honduran 
government finances make it unlikely the country could 
provide the jobs, health care, housing, and schooling for the 
approximately 87,000 people that might return if Temporary 
Protected Status (TPS) is ended.  End Summary. 
 
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Hurricane Reconstruction - Infrastructure Rebuilding Largely 
Complete 
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2. (U) With the help of the international donor community (of 
which USAID is the largest bilateral contributor), Honduras 
has largely recovered from the physical devastation of 
Hurricane Mitch.  USAID's USD 300 million recovery program 
focused on a wide variety of reconstruction interventions in 
the areas of education, housing, water and sanitation, rural 
roads and bridges, disaster mitigation, health, agriculture 
reactivation, credit, accountability, and transparency.  The 
majority of this program was completed by the end of 2001. 
The reconstruction of damaged urban water and sanitation 
systems is scheduled to be fully completed by the end of 
FY04. 
 
3. (SBU) The one area of shortfall is housing.  Post 
estimates that 33,000 homes were destroyed and another 50,000 
homes damaged during the hurricane.  An estimated 25,000 have 
been rebuilt, leaving many families to make do with temporary 
solutions.  USAID financed the delivery of 6,100 permanent 
units, making it the largest single donor in this area. 
 
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Economic Conditions - Recovery Still Elusive 
-------------------------------------------- 
 
4. (SBU) In contrast to infrastructure reconstruction, the 
Honduran economy has never regained sufficient growth to 
generate much needed employment and sufficient financial 
resources for adequate public services.  Depressed economic 
growth of about 2.5 percent per year, over the 2001-2003 
period, has not kept up with the annual population growth of 
3 percent.  The GOH estimates that true unemployment is 
hovering around 34 percent.   Commodity prices, including 
coffee, are starting to rise, and the light assembly sector 
(especially textiles) is starting to recover, but job growth 
in 2004 will not be sufficient to accommodate anticipated 
population growth, much less the potential 87,000 TPS 
returnees. 
 
5. (SBU) Poverty is still widespread, with about 64 percent 
of the households living on $2 a day or less.  Because of the 
continued economic decline, remittances from Hondurans living 
overseas continue to grow rapidly, reaching USD 800 million 
in 2003 and becoming the country's largest source of foreign 
exchange. 
 
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And Government Ability to Provide Needed Services Is Also 
Weak 
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6. (SBU) President Ricardo Maduro, upon assuming office in 
January 2002, inherited seriously deteriorated government 
finances and has spent the first two years of his 
administration trying to remedy the structurally-caused 
imbalances.  Honduras continued to run budget deficits of 5.5 
percent of GDP in 2002 and 2003, totally unsustainable for a 
deeply indebted country with no recourse to international 
capital markets.  The austerity measures put in place in 2002 
and 2003 in order to regain macroeconomic balance and reach 
an agreement with the IMF mean that the government is 
hard-pressed to expand health care, housing, schooling and 
other social services just to accommodate the current 
population, much less an additional 87,000 people.  Most 
ministries have seen their 2004 budgets cut, in real terms, 
by ten percent; some key ministries doing work in the rural 
areas are receiving cuts of almost 50 percent.  The Honduran 
government continues to struggle to find the funds to hire 
additional teachers, doctors, and police to meet current 
needs; significant funds are still needed to repair and 
expand existing roads, water and sanitation systems, 
electricity distribution systems, schools and health clinics, 
especially in the rural areas. 
PALMER