US embassy cable - 05TEGUCIGALPA1694

UNCLAS SECTION 01 OF 02 TEGUCIGALPA 001694 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR WHA/CEN, WHA/EPSC, DRL/IL, OES, AND EB 
STATE PASS USAID FOR LAC/CAM (LLIBANATI) 
STATE PASS USTR FOR AMALITO 
TREASURY FOR DDOUGLASS 
LABOR FOR ILAB 
GUATEMALA FOR COMMATT MLARSEN AND AGATT 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, EINV, ELAB, ETRD, PGOV, SENV, KCRM, HO 
SUBJECT: Honduran National Party Presidential Candidate Pepe 
Lobo Rolls Out Economic Platform; Thin on the Details 
 
 
1. (SBU) Summary:  Addressing the AmCham, Nationalist Party 
Presidential candidate Pepe Lobo offered few innovative or 
exciting nostrums for economic growth, but neither did he 
abandon the free-market, fiscally responsible path blazed by 
the incumbent administration.  Clearly uncomfortable with 
economic topics, Lobo kept his remarks largely confined to 
undefined initiatives or hortatory comments, and at several 
critical junctures deferred to his running mate to handle 
questions from the private-sector audience.  Lobo supported 
tourism, trade, and agriculture as sources of future growth, 
said all the right things about CAFTA, and recognized the 
urgent need to confront corruption and political cronyism. 
Neither wowed nor horrified, Post will continue its economic 
policy dialogue with the Lobo (and other) campaigns as the 
elections approach.  End Summary. 
 
2. (U) Nationalist Party candidate for President Porfirio 
"Pepe" Lobo delivered a luncheon address on July 26 to the 
American-Honduran Chamber of Commerce (AmCham) outlining his 
economic platform.  He opened by emphasizing his slogan of 
"work, security, and education" and his belief that the 
three are inextricably linked.  To reduce poverty, he said, 
the GOH must focus on education, job creation in both the 
maquila sector and in small and medium enterprises, and a 
renewed emphasis on the agriculture and forestry sectors. 
He also called for increased use of Honduras' abundant 
hydroelectric potential, which would have the added benefits 
of providing irrigation, flood control, drinking water, and 
sites for tourism. 
 
3. (U) Turning to specific areas of opportunity, Lobo first 
mentioned tourism, including geo-tourism, eco-tourism, 
Honduras' colonial cities, and the much-touted but still not 
started Tela Bay tourist complex on the Caribbean coast. 
Lobo gave no indication of how he would promote these 
activities; he listed them but then quickly moved on to an 
equally brief endorsement of the maquila (light assembly) 
sector.  Lobo then called for reform of the dysfunctional 
land-title system, to free up "dead capital" and access to 
credit.  He derided not being able to easily purchase real 
property in Honduras as "a ridiculous problem."  In 
conjunction with title reform, he also called for 
streamlining the process of opening a business, noting that 
90 percent of all Honduran jobs are in small businesses 
(with seven employees each, on average). 
 
4. (U) Lobo strongly endorsed CAFTA, noting that it provides 
opportunities for both the maquila and agricultural sectors. 
A farmer by background, Lobo made several very effective 
points on how CAFTA will help Honduran farmers.  He said 
that farmers must have access to better markets if they are 
to escape poverty.  They must diversify into crops where 
they can effectively compete, and should take advantage of 
technical assistance such as USAID's highly successful 
FinTrac program.  The GOH and farmers should use a soil map 
to determine what crops are best suited to each region, and 
should focus on non-traditional crops, where the payoff is 
much higher.  Small producers should band together to create 
economies of scale, such as bulk purchases of inputs. 
Finally, he said, credit to the countryside must be 
expanded. 
 
5. (U) Turning to forestry, Lobo said that forests exist 
"not just for beauty but for sustainable exploitation." 
Forestry could generate both jobs and income, and would 
create an incentive for the community to care for its own 
resources.  The new draft forestry law should ensure that 
the local communities receive some benefit from these 
activities, while also providing a welcoming climate for 
foreign investment.  "A law which does not have both is 
worthless," he said.  (Note:  A report on the new draft 
Forestry Law is forthcoming, septel. End note.) 
 
6. (U) At this point Lobo abandoned economics and retreated 
to his oft-tread ground of security.  Without security, he 
said, there is no tourism, and no guarantee of employment or 
wealth creation.  He called for better pay and improved 
pensions for police, and a renewed focus on anti-corruption. 
Interestingly, he blamed corruption in large part on job 
insecurity resulting from turnover tied to political 
patronage.  Part of the cure, he suggested, is giving out 
jobs based on skills and performance rather than political 
affiliation.  Another is to decentralize power more, 
returning decision making to local municipalities and 
providing them the training and assistance to manage their 
programs well. 
 
7. (U) Following additional remarks from Lobo on security, 
education, and pension reform, the AmCham used the question 
and answer period to re-focus the discussion on economic 
themes.  Asked about juridical security, Lobo admitted that 
it is an "enormous limitation" and a "fundamental" concern, 
but he pledged little more than to "work hard on this 
issue."  Asked about his energy policy, Lobo said he could 
not guarantee fuel prices would decrease, but that he would 
look at the pricing structure and seek alternatives, such as 
perhaps regionalizing fuel purchases to decrease costs.  He 
also highlighted becoming more energy efficient as an 
important measure in reducing energy costs.  Asked about 
taxes, Lobo said he thought tax policy should be aimed at 
stimulating re-investment, and that he felt no new taxes 
would be needed thanks to the recent debt forgiveness. 
(Note:  The savings on debt service payments due to recent 
debt forgiveness should add an estimated $212 million per 
year to GOH social spending, according to the GOH.  End 
note.) 
 
8. (U) Asked to outline a plan for attracting investment, 
Lobo deferred to his vice presidential running mate, 
businessman and former Ambassador to the U.S. Mario 
Canahuati.  Canahuati immediately cited establishing a 
climate of juridical security, combating corruption, 
improving port service and electricity, and making the most 
of the time-to-market advantage provided by becoming a 
Container Security Initiative port.  Turning to the question 
of how to compete with China, Canahuati said, "Even with 
CAFTA, our success depends on us."  He noted the geographic 
advantage of proximity, but exhorted the audience to "get 
creative" by looking at moving towards vertical integration 
and offering U.S. buyers a "one-stop-shopping" experience. 
Those who do not plan ahead, he said, are in trouble. 
 
9. (SBU) Comment:  Too often Lobo's comments sounded like 
bullet points rather than policy proposals, and he seemed 
far less comfortable dealing with economic issues than 
public security.  Yet, on those issues where he did speak 
with conviction, such as CAFTA, forestry, and agriculture, 
his remarks sounded many of the right notes.  However, Post 
notes that the draft new forestry law is controversial given 
high rates of illegal logging, and as an agrobusinessman 
from the Department of Olancho (like his main Liberal Party 
rival Mel Zelaya), he is not a disinterested party on 
forestry issues. 
 
10. (SBU) The Maduro administration has put into place solid 
macroeconomic policies (creating stable prices, stable if 
somewhat high interest rates, and a stable currency).  It 
would have been welcome to hear Lobo endorse these policies 
publicly as he has done privately.  However, Lobo is clearly 
loath to do so as he tries, with limited success, to 
distance himself from the unpopular administration of which 
he is a part.  In summary, we heard little to excite and 
nothing to terrify us in his few, but relatively moderate, 
economic proposals.  End Comment. 
 
Williard