US embassy cable - 05TEGUCIGALPA1718

UNCLAS SECTION 01 OF 02 TEGUCIGALPA 001718 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EB/IFD, WHA/EPSC, INR/IAA, DRL/IL, AND WHA/CEN 
TREASURY FOR DDOUGLASS 
STATE PASS AID FOR LAC/CAM 
DOL FOR ILAB 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, ELAB, PGOV, HO 
SUBJECT: HONDURAS: NEW IMF RESIDENT REPRESENTATIVE AWARE OF 
BUT NOT ALARMED BY CAMPAIGN RHETORIC 
 
 
1. (SBU) Summary:  U.S. citizen and ten-year IMF-veteran 
Hunter Monroe has just arrived as the new IMF Resident 
Representative for Honduras.  He previously served in several 
IMF positions, including ResRep to the former Soviet Republic 
of Georgia.  In comments to Post, Monroe noted a number 
disconcerting populist legislative proposals were "floating 
around," but said the fund is "not alarmed" at this time. 
Were one proposal -- the pension reform -- to pass, the Fund 
would be very concerned, but Monroe has been assured that 
proposal will be shelved by Congress.  Other issues he will 
track include the fiscal impacts of CAFTA and of 
privatization of the parastatal telephone monopoly, and the 
economic causes and impacts of sharply rising remittances to 
the region.  End Summary 
 
2. (SBU) On August 15 EconChief and AIDOff met with 
newly-arrived International Monetary Fund (IMF) Resident 
Representative to Honduras, Hunter Monroe.  Monroe confirmed 
that a Fund review mission will be arriving August 22 for a 
two-week inspection of GOH economic performance and 
compliance with its existing Poverty Reduction and Growth 
Strategy (PRGS).  The team will be led once again by Luis 
Breuer, who has directed several previous missions to 
Honduras. 
 
3. (SBU) The Fund, Monroe said, "Is not aware of anything 
wrong" with Honduran fiscal performance to date.  While 
"there are a lot of bad ideas floating around," he said, the 
Fund is "not alarmed" by most of the rhetoric.  Recent 
examples of such ideas -- largely populist campaigning in the 
run-up to the November 27 presidential elections -- include: 
a proposed second increase in the minimum wage; breaking the 
agreed cap on severance payments for workers; freezing 
prices; removing a fuel adjustment surcharge from household 
electricity bills (reported septel); and doubling the 
individual income tax exemption (from 70,000 lempiras plus 
20,000 lempiras for medical expenses to 150,000 lempiras plus 
50,000).  (Comment: Rhetoric aside, none appears likely to 
pass this year.  End Comment.) 
 
4. (SBU) The one proposal that is of concern to the Fund, 
Monroe said, is the reform of the pension system.  This bill 
"would be a serious concern (for the Fund) if it passed," he 
said.  Such a reform requires significant actuarial and 
fiscal impact analyses, but such analyses have not been done. 
 The bill is worrisome because its consequences are still 
largely unknown.  Monroe said he has been privately assured 
that the bill -- already submitted to Congress -- will not be 
taken up during the remainder of this session.  (Comment: 
Post finds this assurance credible.  Post has heard from GOH 
sources that the priorities for Congress in the few 
legislative days remaining to it before its September 15 
recess include the telecommunications bill, the forestry 
bill, the MCA authorizing legislation, civil code reform, and 
certain penal code modifications.  Pension reform is not high 
on the Congressional agenda, and private sector interlocutors 
have told Congress they believe that a rush-job of reform in 
the run-up to an election is a bad time to undertake such a 
weighty issue and would risk damaging the pension system and 
the economy.  In addition, labor unions are not on board for 
the proposed reforms.  End Comment.) 
 
5. (SBU) Other issues the Fund is interested in investigating 
include the fiscal impact of CAFTA (how the GOH will replace 
revenues lost as import duties are removed); the fiscal 
impact of the impending de-monopolization and possible 
privatization of state telecomms giant Hondutel; and a better 
understanding of the causes and impacts of the unprecedented 
growth in remittance flows to the region.  The Fund will also 
continue to encourage strengthening of the financial sector 
and a move towards more flexible exchange rate policy (in 
part to alleviate budgetary pressures generated by 
sterilization of over USD 1 billion in remittance inflows 
annually.) 
 
6.  (SBU) Biographical Information for Hunter Monroe:  Monroe 
is a U.S. Citizen, native of North Carolina.  Monroe has been 
with the IMF for ten years, most recently serving as the 
Senior Economist in the Central America Division, where he 
focused on Guatemala and on remittances (2003-2005).  Prior 
to that he worked on the Zambia and Bolivia portfolios 
(2001-2003), served as the Fund's Resident Representative to 
the former Soviet Republic of Georgia (1996-1999), and as an 
economist focusing on Slovakia and Georgia (1994-1996). 
Monroe has also been the CEO of a start-up technology company 
(1999-2001), a Research Associate at the Institute for 
International Economics (1990-1991), an economist on the 
Joint Economic Committee of the U.S. Congress (1987-1990), 
and an Adjunct Professor at Stanford University (1989-1991). 
Monroe has a D.Phil. in Economics from Oxford University and 
a B.S. in Mathematics from Davidson College.  He is married 
with two children, and speaks English, Spanish, French, and 
Russian. 
 
Williard 
Williard