US embassy cable - 04TEGUCIGALPA2426

C O N F I D E N T I A L SECTION 01 OF 02 TEGUCIGALPA 002426 
 
SIPDIS 
 
STATE FOR EB/IFD, WHA/EPSC, AND WHA/CEN 
TREASURY FOR DDOUGLASS, RWARFIELD 
STATE PASS AID FOR LAC/CAM 
 
E.O. 12958: DECL: 10/28/2014 
TAGS: EFIN, ECON, EINV, ETRD, PGOV, PINR, KMCA, HO 
SUBJECT: CORRECTED COPY:  HONDURAS CASHIERS ITS TAX MAN; 
FINANCE MINISTER,S COMMENTS ON THE REVENUE SERVICE SHAKE-UP 
AND REORGANIZATION 
 
REF: A. (A) TEGUCIGALPA 2289 
 
     B. (B) TEGUCIGALPA 1741 
 
Classified By: Classified By: Economic Chief Patrick Dunn for reasons 1 
.4 (b) and (d). 
 
1. (C) Summary:  On October 15, it was reported that Mario 
Duarte, head of the Executive Revenue Directorate (DEI, the 
GOH equivalent of the USG,s Internal Revenue Service) will 
be moved out of his position effective November 1.  Duarte 
will become the new Director of the National Ports Company. 
Duarte will be replaced by Jose Manuel Carcamo, previously a 
former DEI tax lawyer and a partner with Minister Chong in an 
accounting consultancy.  In an October 19 meeting, Minister 
of Finance Chong explained his reasons for the sweeping 
changes -- improved efficiency and personnel reform chief 
among them.  Chong expressed continued support for the 
Treasury technical assistance program to the DEI and 
encouraged Post to work closely with the new Director. 
Carcamo is thus far an unknown quantity, but Post is 
encouraged by Chong,s strong professed support for 
anti-corruption, institutional reform, and especially for 
continuing Treasury,s technical assistance efforts.  End 
Summary. 
 
2. (C) On October 15, it was reported that Mario Duarte, 
former head of the Executive Revenue Directorate (DEI, the 
GOH equivalent of the USG,s Internal Revenue Service), will 
be moved out of his position and will instead become the new 
Director of the National Ports Company.  This follows the 
September 30 announcement (ref A) that the DEI would be moved 
back into the Ministry of Finance (MOF).  Post reported at 
that time that previous tensions between new Minister of 
Finance William Chong Wong and Duarte made his continued 
tenure at MOF uncertain.  (Note:  Chong assumed office on 
September 1, ref B.)  Current Ports Director Fernando Alvarez 
told Post that he was surprised Duarte received the posting, 
since there are powerful political and business interests 
active in the port that dislike him. 
 
3. (C) The National Ports Directorship is a relatively 
high-profile position, and Puerto Cortes has become 
increasingly important following its security certification 
by the U.S. Coast Guard (one of the first in the world to be 
certified) and its role as the anchor of the proposed 
logistical corridor infrastructure project -- the largest 
component of Honduras' USD 257 million proposal to the 
Millennium Challenge Account.  Duarte, in his public remarks, 
indicated that a key focus of his tenure would be full 
consideration of both the pros and cons of port 
privatization.  In our October 19 meeting, Minister of 
Finance Chong scoffed at Duarte,s remarks, noting that the 
issue of port privatization will be decided by Minister of 
the Presidency Luis Cosenza, Minister for Social Policy Mauro 
Membreno, and the President, not by Duarte.  While the move 
to Ports could be viewed as plum for Duarte, it appears 
designed to move Duarte aside as the new Minister 
consolidates his hold, particularly over the revenue 
functions within MOF.  Of more concern, outgoing Ports 
Director Alvarez told Post that one reason he chose to resign 
was increasing pressure from the National Party to squeeze 
additional funds out of the port to fill party coffers 
heading into the February 2005 primaries and November 2005 
national elections.  In our view, Duarte is no more likely to 
succeed at rebuffing these pressures. 
 
4. (C) Duarte will be replaced as of November 1 at MOF by 
Jose Manuel Carcamo, previously a former DEI tax lawyer and a 
partner with Minister Chong in an accounting consultancy. 
Minister for Investment Camilo Atala told Post that most 
recently Carcamo established a private practice and has been 
practicing financial law as an advisor to several major 
banks.  EconChief and Treasury representative met with Chong 
on October 19 to ask about the motives for and likely impacts 
of the DEI reorganization and leadership change.  Chong told 
us that Carcamo is a legal expert with experience in both the 
DEI and the private sector (Ernst and Young), but admitted 
that his lack of administrative experience could be &a 
handicap.8  Nevertheless, he said, it is easier, in his 
opinion, to find a tax expert and teach him to manage than to 
find a manager and teach him tax law.  In contrast, he said, 
former DEI Director Duarte spent the first year of his tenure 
getting up to speed on the substance of his portfolio. 
 
5. (C) Asked about the impetus for such a sweeping 
reorganization effort, Chong pointed to the October 13 
Congressional decree incorporating DEI into the MOF and 
giving DEI four months to restructure and improve its 
efficiency.  Chong said the DEI had become inefficient and 
poorly organized and in need of re-engineering.  In 
particular, he pointed to the need to reform the auditing arm 
of DEI, which investigates as few as one case per 
investigator, can take as long as ten months to complete an 
audit that a private firm could do in just one month, and too 
frequently generates no revenues (implying that the auditors 
are paid-off to close the case.)  Anyone involved in 
corruption, Chong emphasized, will be fired.  To motivate 
those merely underperforming, Chong has proposed performance 
bonuses in lieu of some portion of formerly guaranteed 
raises. Chong expressed continued support for the Treasury 
technical assistance program to the DEI and encouraged Post 
to work closely with the new Director. 
 
6. (C) Chong also said the need to bring the DEI workforce 
into the Civil Service system was a key factor in the 
restructuring.  Under the CS law, Chong seeks to define 
career ladders, position descriptions, and salary scales for 
DEI employees, to replace the current ad-hoc system.  The 
DEI, he said, is overstaffed and full of political 
appointees.  EconChief noted that other ministries were 
seeking ways to remove their employees from the civil service 
system to improve hiring and retention and better protect 
them from political pressures.  (Note:  Minister of Trade and 
Industry Norman Garcia, for example, recently raised this 
issue with us.  He is seeking to follow the Central Bank,s 
personnel model, which is not under the CS system, in order 
to create a core group of technical experts in trade that can 
remain in place beyond the next elections to implement CAFTA. 
 End Note.)  Chong replied that it was &a first class lie8 
to say that CS positions are more politicized than those in 
the autonomous agencies.  He strongly defended the DEI move 
into Finance as a step to depoliticizing the service. 
 
7. (C) It was also announced that the second Vice Minister 
position, vacant since Chong left it on September 1 to become 
Minister, was filled on October 19 by German Donald Dubon 
Trochez, seconded to MOF from the Honduran Central Bank 
(BCH). Dubon, an accountant with a master,s degree in 
business financial administration, was formerly the Chief of 
the Accounting and Controls Division at the BCH.  Vice 
Minister Ralph Oberholzer will remain in his current position 
as the other Vice Minister, responsible for debt and finance 
issues. 
 
8. (C) Comment:  Carcamo is thus far an unknown quantity, but 
his previous association with Chong has led some to allege 
implication in helping tax offenders evade justice.  Post has 
no evidence that this is the case, but will keep a close eye 
on this as it develops.  Post is encouraged by Chong,s 
strong professed support for anti-corruption, institutional 
reform, and specifically for continuing Treasury,s technical 
assistance efforts to improve collections practices at the 
DEI.  Post will discuss the Treasury program with 
Director-designate Carcamo at the earliest opportunity, and 
will continue to monitor any impacts the shake-up could have 
on that program.  End Comment. 
 
Palmer 
Palmer