US embassy cable - 04TEGUCIGALPA1526

UNCLAS SECTION 01 OF 04 TEGUCIGALPA 001526 
 
SIPDIS 
 
STATE FOR EB, DRL/IL, WHA/EPSC, AND WHA/CEN 
GUATEMALA FOR AGATT SHUETE 
SAN SALVADOR FOR COMMATT DTHOMPSON 
DOL FOR ILAB 
STATE PLEASE PASS TO USAID, OPIC, EXIM, USTR 
STATE PLEASE PASS TO USED IDB, USED WB, USED IMF 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, EINV, ELAB, ETRD, EWWT, KJUS, PGOV, HO 
SUBJECT: Honduran Economic Highlights: April-June 2004 
 
REF: PARIS 03044 
 
Contents 
-------- 
Macroeconomics: 
 - Paris Club and USG Provide Debt Relief 
 - Agreement Reached on Minimum Wage Increase 
 - High Gas Prices Continue to Pinch 
 
Port Security: 
 - Coast Guard Pleased With Honduran Ports 
 
Law Enforcement: 
 - Major Money Laundering Conviction 
 - Banhcreser Fugitive Captured in Florida 
 
Business: 
 - Governors Bush, Perdue Vie for FTAA Support 
 
Agriculture: 
 - GOH Lifts Restrictions on U.S. Beef 
 
--------------------------------------------- - 
Paris Club and USG Provide Interim Debt Relief 
--------------------------------------------- - 
 
1.  On April 14, Paris Club creditors and the GOH agreed to 
a restructuring of Honduras' public external debt, leading 
to the cancellation of approximately $147 million of 
Honduran debt, and the rescheduling of $214 million more 
(see reftel).  Under the agreement reached between Paris 
Club participating creditors and a Honduran delegation led 
by the Minister of Finance Arturo Alvarado, total Honduran 
debt service due to Paris Club creditors between January 1, 
2004, and June 30, 2005, was reduced from $405 million to 
approximately $49 million.  As a participant in the HIPC 
(Heavily Indebted Poor Countries) initiative, Honduras was 
granted "Cologne terms": 90 percent cancellation of pre-1990 
debt. 
 
2.  Following the collective agreement with its Paris Club 
creditors in April, the GOH has begun to negotiate bilateral 
agreements with these creditors individually.  The first of 
these bilateral agreements to be negotiated and signed was 
with the USG.  On June 1, Charge d'Affaires Roger Pierce and 
Minister Alvarado signed an agreement which forgives over 
$55 million in official debt service payments owed by the 
GOH to the USG.  The U.S. agencies included in the agreement 
are USAID, DOD, USDA, and the Ex-Im Bank.  The USG went 
beyond the required Cologne terms by offering 100 percent 
cancellation of pre-1999 debt.  Acting President Vicente 
Williams presided over the signing ceremony and reaffirmed 
in strong terms the GOH's full commitment to use these funds 
for poverty reduction, as envisioned in the HIPC initiative. 
 
3.  The agreement was delivered to the U.S. Congress on June 
8.  After a 30-day notification period, the agreement 
entered into force on July 8, ahead of a DOD payment due 
July 15 that, if not paid, would have triggered Brooke 
sanctions.  The GOH is currently negotiating bilateral 
agreements with Spain and France, and must conclude 
negotiations with all of its bilateral creditors by October. 
 
--------------------- 
Minimum Wage Increase 
--------------------- 
 
4.  After months of negotiations, the government, the 
private sector, and labor unions finally reached an 
agreement on April 19 on a new minimum wage.  The increase 
varies between nine and twelve percent, depending on the 
activity and the number of employees of a given company. 
The new average minimum salary will be 2,212 Lempiras per 
month (approximately $122 per month), up 7.3 percent from 
the 2003 level of 2,050 Lempiras per month ($113).  The 
increase is retroactive only to April 1 of this year, not to 
January 1 as unions had requested. 
 
5.  During the negotiations, the parties agreed in principle 
to include in a new Minimum Salary Law clear mechanisms to 
determine future revisions to the minimum wage, starting in 
2005.  These mechanisms would be based on production 
parameters of each sector, the inflation and devaluation 
rates, and the economic growth of the country.  The law 
would have to be approved by Congress by September 30 of 
this year in order to be in place for next year's 
negotiations. 
 
--------------------------------- 
High Gas Prices Continue to Pinch 
--------------------------------- 
 
6.  High gas prices, the result of an increase in the tariff 
on fuel imposed at the end of 2003 as well as the high world 
price of oil, continue to cause discontent among Hondurans 
and a political headache for the GOH, even as world prices 
eased somewhat in June.  Honduras continues to have the 
highest oil prices in Central America: at the end of May, a 
gallon of super gasoline in Honduras cost $3.08, while in 
Costa Rica the price was $2.29, in Nicaragua $2.27, in El 
Salvador the price was $2.06, and in Guatemala $2.05.  The 
much-ballyhooed Presidential Commission on fuel prices, 
established in March by President Maduro with representation 
from the government, private sector, and civil society, has 
had little effect. 
 
7.  In reaction to the high prices, the Honduran government 
ordered a 10 percent reduction in fuel consumption by its 
branches, and restricted the circulation of government 
vehicles.  Among the new regulations is an order that 
government vehicles with license plates ending in an even 
number may only be used Monday, Wednesday, and Friday, while 
those with plates ending in an odd number may be used 
Tuesday and Thursday - though this regulation has not been 
enforced. 
 
8.  In late May, the increasing price of jet fuel was blamed 
for an increase in the prices of airline tickets.  According 
to Armando Funez, president of the Honduran Airlines 
Association, airline operation costs were increasing due 
primarily to high fuel prices.  However, some in the tourism 
industry suggested that international airlines would raise 
ticket prices in any case to take advantage of the high 
season for tourism and international travel. 
 
------------- 
Port Security 
------------- 
 
9.  From June 14-18, a U.S. Coast Guard port security team 
visited Honduras; this was the first such port security 
assessment visit in the Western Hemisphere.  The team came 
to assess Honduras' implementation of the new, more 
stringent port security standards under the International 
Ship and Port Facility Security Code (ISPS).  It reviewed 
security practices at five national ports, met with the 
national commission on port security, and discussed Honduran 
port security regulations with the national port security 
authority, which was recently created to comply with the 
ISPS.  The USCG team reported that it had identified several 
innovative and efficient security practices that it would 
carry back to the port facilities in the U.S. as "best 
security practices".  The USCG team also lauded Honduras for 
being a port security leader for hosting the first USCG 
verification visit in the region. 
 
10.  On July 1, the official international deadline 
established by the Maritime Transportation Security Act of 
2002, the GOH reported to the IMO (International Maritime 
Organization) that it has security assessments and plans in 
place for all but one of its national ports, thereby 
declaring these ports certified.  The only exception was the 
small port at La Ceiba, which is expected to be certified in 
July. 
 
--------------------------------------------- ---- 
Money Laundering Convictions in Captain Ryan Case 
--------------------------------------------- ---- 
 
11.  Due in part to unprecedented regional law enforcement 
cooperation, the government of Honduras won guilty verdicts 
for money laundering against the four principal defendants 
in the Captain Ryan case.  This is only the second-ever 
successful prosecution of a drug-related money laundering 
seizure case in Honduras.  The Captain Ryan maritime vessel 
was seized by members of the INL-funded elite unit and the 
Frontier Police in December 2002 as it was departing a 
Honduran port.  The defendants face a sentence of 16 to 20 
years; they will be sentenced in mid-July.  Furthermore, the 
$467,000 found on board the ship, and other assets seized at 
the time of arrest, including the ship itself, were ordered 
forfeited by the tribunal.  Three unwitting crewmen were 
found innocent and released after having spent almost 7 
months in jail.  Several potential witnesses were murdered 
in the run-up to the trial. 
 
12.  The verdict was aided by joint cooperation between INL 
offices at Embassy Panama and Tegucigalpa.  Embassy Panama 
provided a timely assist in funding travel so that 
Panamanian police and prosecutors could share critical 
evidence with Honduran authorities and receive practical 
training in a money laundering prosecution.  In addition, 
this case was one of the top priority cases being supported 
by the anti-money laundering technical assistance project, 
funded by INL and the U.S. Treasury Department. 
 
--------------------------------------------- - 
Ex-Banhcreser Board Member Captured in Florida 
--------------------------------------------- - 
 
13.  Honduran police gained access to Florida territory in 
order to facilitate the capture of Caupolican Zuniga 
Maradiaga, one of the principal board members of the 
Honduran Credit and Service Bank, Banhcreser, which failed 
in 2001 amidst allegations of corruption and wrongdoing. 
Zuniga was captured in Broward County, Florida on May 23. 
The 56 year-old banker, who held the position of general 
manager, was charged with the crime of continued fraud 
against Banhcreser depositors.  He is specifically accused 
of having acted improperly by transferring $3.7 million 
dollars in Banhcreser deposits to a U.S. bank account, then 
establishing a line of credit for a shell company using 
those deposits as collateral.  The Honduran government is 
working towards extraditing Zuniga to Honduras.  The 
Attorney General, Ovidio Navarro, has requested that the 
embassy assist with the extradition process.  Zuniga is a 
U.S. resident. 
 
------------------------------------------- 
Governors Bush, Perdue Vie for FTAA Support 
------------------------------------------- 
 
14.  Governor Jeb Bush of Florida and Governor Sonny Perdue 
of Georgia visited Honduras in immediate succession during 
the first week of June.  The Governors were seeking 
Honduras' support for the selection of Miami and Atlanta, 
respectively, to be the headquarters of the FTAA. 
 
15.  Governor Bush visited first, making up for a visit that 
had been planned for February, but that was cancelled when 
poor weather conditions and malfunctioning navigational 
equipment at Tegucigalpa's main airport prevented his plane 
from landing.  Governor Bush was accompanied by a delegation 
of 19 Florida businessmen, as well as representatives of 
"FTAA Florida", the organization pushing for Miami's 
selection as the FTAA headquarters.  President Maduro, who 
was Bush's friend and college classmate at Stanford 
University, received Governor Bush warmly and hosted a lunch 
in his honor at the Presidential Palace.  Other members of 
the delegation met with a group of Honduran ministers and 
discussed CAFTA, tourism, port security, and other issues. 
At a press conference held on June 2, Maduro publicly 
declared his support for Miami to be chosen as the FTAA 
headquarters. 
 
16.  The day after Governor Bush's departure, Governor Sonny 
Perdue of Georgia visited San Pedro Sula with a small group 
of advisers.  Governor Perdue met privately with Minister of 
Industry and Trade Norman Garcia, and had breakfast with a 
group of business leaders from northern Honduras.  He also 
met with President Maduro on the margins of a dinner event 
on June 3.  In each meeting, he acknowledged that Maduro had 
already pledged his support to Miami, but continued to push 
for Atlanta as the FTAA seat, and stressed the benefits of 
Atlanta as a city from which to conduct business in the 
United States. 
 
-------------------------------- 
Restrictions Lifted on U.S. Beef 
-------------------------------- 
 
17.  On May 31, the Ministry of Agriculture and Livestock 
signed a decree lifting the restrictions on beef imported 
from the United States.  The restrictions were put in place 
in December 2003 as a result of the case of mad cow disease 
identified in Washington state.  The process of lifting the 
restrictions began when OIRSA (International Regional 
Organization of Plant and Animal Health) gave a preliminary 
recommendation to Central American governments that 
restrictions be lifted.  Following this recommendation, the 
Honduran government reviewed the several USDA documents 
citing U.S. advances in monitoring and surveillance and 
other protective measures.  After review and analysis of 
the documents, Honduras agreed that the risk was minimal, 
resulting in the complete lifting of the restrictions which 
had been imposed. 
 
Palmer