US embassy cable - 05TEGUCIGALPA1596

UNCLAS TEGUCIGALPA 001596 
 
SIPDIS 
 
STATE FOR WHA/CEN, WHA/EPSC, WHA/EX, WHA/PPC, EB/TPP 
TREASURY FOR DDOUGLASS 
STATE PASS AID (LAC/CAM) 
STATE PASS USTR: ANDREA MALITO 
GUATEMALA FOR COMMAT:MLARSEN 
 
E.O. 12958: N/A 
TAGS: ETRD, ECON, PGOV, HO 
SUBJECT: U.S. RATIFICATION OF CAFTA PLEASES HONDURAS 
 
 
1.  A jubilant President Ricardo Maduro addressed the nation 
live the evening of Wednesday, July 27, immediately following 
the U.S. House of Representatives ratification of the Central 
America Free Trade Agreement (CAFTA).  Maduro, flanked by 
Minister of Trade and Commerce Irving Guerrero, emphasized 
the numerous advantages CAFTA offers Honduras, including 
increased trade, economic growth, investment, and job 
creation.  Maduro announced that he expected entry into force 
in just 90 days (though that must be approved by all four 
ratifying parties first).  The Ministry of Trade and Commerce 
has also launched a series of nine outreach events over the 
next month to explain CAFTA to industrialists, small 
businesses, farmers, journalists, and politicians. 
 
2.  Press coverage (reported septels) in the first few days 
after the U.S. ratification has been largely positive, 
echoing Maduro's optimistic assessment of the likely impacts 
of CAFTA.  Business associations and leading business figures 
quickly acclaimed the ratification and heralded the agreement 
as an exceptional opportunity to expand the economy and 
create jobs.  However, sectors that feel vulnerable to the 
increased competition CAFTA will bring have also been vocal 
over recent days.  Carlos H. Reyes, President of the Popular 
Block and perennial leftist gadfly, rejects CAFTA, saying it 
will only lead to job losses and that neither it nor the $2.8 
billion in recent debt forgiveness will help Honduras 
develop.  A spokesperson for the campesino NGO COCOCH called 
CAFTA a "terrible treaty" that would only benefit the light 
industrial sector while destroying the small farmer.  (Note: 
COCOCH also rejected MCC's plan for agricultural 
diversification to assist small farmers to adapt to new 
market opportunities, deriding the proposed $30 million in 
technical assistance to farmers as "wasted on consultants" 
and demanding instead that the money simply be given to the 
farmers directly as subsidized credit.)  Mass protests by 
teachers and telecommunications workers over the weekend, 
while not directly related to CAFTA, further highlighted 
widespread concerns that increased competition and fiscal 
discipline will lead to mass layoffs and slower pay raises. 
 
3.  The timing of CAFTA ratification, following closely on 
the heels of significant G-8 debt forgiveness and the signing 
of a $215 million Millennium Challenge Corporation (MCC) 
grant, has significantly raised expectations, but also 
trepidation that the funds could be stolen or squandered.  A 
drumbeat of warning has reverberated through the op-ed pages 
for the last couple of weeks that if Honduras is to benefit 
from these historic agreements it must rein in corruption and 
avoid election-year pork-barrel politics. 
 
4. Both CDA and EconChief were interviewed extensively in the 
days following ratification, and both emphasized the economic 
growth that CAFTA could provide as a sustainable strategy for 
poverty alleviation.  However, both cited judicial insecurity 
and corruption as issues that must be confronted meaningfully 
if foreign direct investment is to flow into Honduras. 
Uncertain land tenure, poor transparency and technical 
proficiency in the civil court system, and threats to the 
physical safety of foreigners and Hondurans alike each 
discourage long-term investment and, unless remedied, will 
inhibit the economic growth Honduras needs.  Post continues 
to work with the GOH on these issues, promoting reform of the 
civil code and civil court procedures, and encouraging a much 
tougher GOH stance on both violent crime and corruption. 
 
Tuebner 
Tuebner