US embassy cable - 04TEGUCIGALPA1674

UNCLAS SECTION 01 OF 03 TEGUCIGALPA 001674 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR PRM/PMP, WHA/CEN, WHA/PPC, AND WHA/EPSC 
STATE PASS AID FOR LAC/CEN 
DOL FOR ILAB 
TREASURY FOR EILZETZKI 
 
E.O. 12958: N/A 
TAGS: SMIG, PHUM, PREF, PREL, ELAB, ECON, HO 
SUBJECT: TPS for Honduras - Update on Economy and 
Reconstruction Efforts 
 
REF: A. State 157889 
     B. 03 Tegucigalpa 442 
 
1. (SBU) SUMMARY:  Honduras has largely recovered from the 
devastation of the 1998 Hurricane Mitch.  Most USG-funded 
reconstruction efforts were completed in 2001, and will be 
entirely completed in 2005.  However, Honduras remains a 
poor country with insufficient housing and job opportunities 
to offer a decent standard of living for the majority of its 
people.  Furthermore, the economy is increasingly dependent 
upon remittances from Hondurans living abroad, especially 
the estimated 650,000 who live, legally and illegally, in 
the United States.  These remittances now represent roughly 
15 percent of GDP, according to Central Bank figures, and 
are the country's largest source of foreign exchange.  The 
return of the 87,000 Hondurans who currently enjoy TPS would 
therefore pose economic difficulties for Honduras.  Post 
strongly recommends that Department seek another extension 
of TPS for Honduras.  END SUMMARY. 
 
-------------------------------------------- 
Hurricane Reconstruction Largely Complete... 
-------------------------------------------- 
 
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 $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 only element of USAID's reconstruction program which is 
still ongoing, the reconstruction of damaged urban water and 
sanitation systems, was expected to be completed by the end 
of FY04, but was recently extended and will be fully 
completed by the end of FY05. 
 
3. (U) While the GOH is still engaged in activities such as 
construction of housing, its main economic focus is no 
longer on the task of post-hurricane reconstruction per se. 
Instead, the GOH's efforts to combat poverty are based on 
the October 2001 Poverty Reduction Strategy Paper (PRSP). 
While this document mentions the impact of the hurricane in 
passing, its focus is not on reconstruction but rather on 
the broader goals of reducing urban and rural poverty, and 
investing in human capital.  At the same time, the GOH is 
pursuing measures to improve Honduras' long-term prospects 
for economic growth and development, including 
infrastructure development, increasing openness to trade and 
investment, and integrated rural development to increase the 
competitiveness of farmers and link the agricultural sector 
to market opportunities.  By now, nearly six years after the 
hurricane, President Maduro and other GOH officials rarely, 
if ever, mention Hurricane Mitch in discussions of the 
country's challenges or the government's plans. 
 
--------------------------------------- 
... And The Economy is Picking Up Speed 
--------------------------------------- 
 
4. (U) After shrinking in 1999, just after Hurricane Mitch, 
and rebounding strongly in 2000, the Honduran economy grew 
at 2.5 and 2.6 percent per year in 2001 and 2002, barely 
enough to keep pace with population growth.  However, this 
sluggish growth rate was largely attributable to the U.S. 
economic slowdown, rather than to the process of post- 
hurricane reconstruction.  As the U.S. economy has picked up 
speed so has the Honduran economy, growing by 3.2 percent in 
2003 and, based on Ministry of Finance data from January to 
May 2004, an annualized rate of 3.5 to 4 percent in 2004. 
Coffee prices, while still low by historical standards, have 
increased 23 percent this year and 50 percent over their mid- 
2002 low point, providing much needed relief to the Honduran 
agricultural sector.  GOH officials and private sector 
contacts also report that Honduran exports are up strongly 
so far in 2004.  The government is benefiting from debt 
relief negotiated with its Paris Club creditors (including 
the U.S.) in April, and is currently on track to meet all of 
the growth, fiscal and monetary targets set in its February 
2004 IMF agreement. 
 
Real GDP Growth Rate 
-------------------- 
          (Percent) 
1998         2.9 
1999        -1.9 
2000         5.2 
2001         2.6 
2002         2.5 
2003         3.2 
2004(est.)   3.5 to 4.0 
 
---------------------------- 
But Honduras Remains Poor... 
---------------------------- 
 
5. (SBU) Despite recent positive economic developments, 
however, Honduras remains a country where the majority live 
in poverty, without adequate housing, education, or health 
care.  The Honduran economy, even when growing at a rate 
which is healthy by historical terms, cannot provide 
sufficient job growth for its people.  As a result, a 
considerable segment of the Honduran population continues to 
regard immigration to the United States as one of the few 
real economic opportunities available. 
 
6. (U) According to World Bank figures and definitions, 63 
percent of the Honduran population currently live below the 
poverty line, and 45 percent are "extremely poor" - an 
improvement over the post-Mitch 1999 figures of 66 percent 
and 49 percent, respectively, but still among the highest in 
the Western Hemisphere.  The GOH is unable to provide basic 
necessities such as adequate housing, health care, or 
education for the 170,000 people added to the population 
each year through population growth.  If the 87,000 
Hondurans with TPS were to be added to the population as 
well, the burden would be even greater. 
 
--------------------------------------------- ----------- 
... And More Dependent Upon Remittances Than Ever Before 
--------------------------------------------- ----------- 
 
7. (U) Remittances sent from Hondurans living abroad 
continue to grow rapidly, both in real terms and as a share 
of GDP, and Honduras is more reliant upon these remittances 
now than ever before in its history.  From 1999 to 2003, 
remittances from Hondurans living abroad (predominantly in 
the U.S.) have increased at an average rate of 28 percent 
per year.  In 2003, according to Central Bank figures, these 
remittances totaled 860 million dollars (12.8 percent of 
GDP), which is roughly equal to the value added from the 
entire maquila sector (assembly manufacturing for export), 
Honduras' largest industry.  These remittances close what 
would otherwise be a significant balance-of-payments 
deficit. 
 
            Remittances       As percent 
Year       in US$ million       of GDP 
----       --------------     ---------- 
1999            319              5.9 
2000            409              6.9 
2001            533              8.5 
2002            711             11.1 
2003            860             12.8 
2004 (est.)    1075             15.5 
 
Source: Central Bank of Honduras.  2004 estimates are based 
upon figures through May 2004: 3.75 percent annual rate of 
GDP growth and 25 percent growth in remittances. 
 
8. (SBU) The Honduran Embassy in Washington has estimated 
that there are some 650,000 Hondurans living in the United 
States, both legally and illegally, which includes the 
87,000 who have registered for TPS.  According to the 
Embassy's Department of Homeland Security office, in 2003 
Honduras received 5,953 deportees via the INS/JPATS 
deportation program and on commercial flights.  (For reasons 
that are not clear, this figure is sharply down from the 
2002 estimate of 10,400 deportees cited in reftel B.)  Post 
suspects that many of those deported attempt to return to 
the U.S. again illegally, and thus a considerably smaller 
number actually remain in Honduras.  It is clear, however, 
that only a small percentage of those Hondurans who live 
illegally in the U.S. are being returned to Honduras at the 
present time, and that the return of 87,000 Hondurans would 
be a drastic increase. 
 
------- 
Comment 
------- 
 
9. (SBU) COMMENT: While Honduras lacks adequate housing, 
education, health care, and employment opportunities for the 
63 percent of its people that live below the poverty line, 
this was the case prior to Hurricane Mitch in 1998, and can 
no longer reasonably be attributed in large part to the 
hurricane itself.  In many ways, Honduras has returned to 
its pre-Mitch economic status, with the one significant 
difference that remittances have soared and their economic 
importance continues to grow.  While the 87,000 Hondurans 
under TPS make up only a relatively small part of the total 
Honduran population living in the United States without 
permanent legal status, their return to Honduras would 
represent a 14-fold increase over the number of 2003 
deportees, and would place a considerable economic burden 
upon the country.  Post therefore strongly recommends that 
Department seek another extension of TPS for Honduras.  END 
COMMENT. 
 
Pierce