US embassy cable - 05TEGUCIGALPA1969

UNCLAS TEGUCIGALPA 001969 
 
SIPDIS 
 
STATE FOR EB/IFD, WHA/EPSC, INR/IAA, AND WHA/CEN 
TREASURY FOR DDOUGLASS, KKLINGENSMITH 
COMMERCE FOR MSIEGELMAN 
STATE PASS AID FOR LAC/CAM 
 
E.O. 12958: N/A 
TAGS: EFIN, ECON, PGOV, ELAB, HO 
SUBJECT: HONDURAS: HURRICANE KATRINA IMPACT ON REMITTANCE 
MIGHT BE LESS THAN FEARED 
 
REF: A) TEGUCIGALPA 1845 
 
 1. According to two experts on remittance flows, the 
reduction in remittances from the U.S. to Honduras as a 
result of Hurricane Katrina could be much less severe than 
early estimates suggested.  Ref A reported that there is a 
significant Honduran expatriate population in the New Orleans 
area -- variously estimated at up to 150,000 -- that was hard 
hit by Hurricane Katrina. Some initially estimated that the 
impact of the hurricane could reduce remittance inflows this 
year by USD 100 million or more.  This reflected a very crude 
calculation that assumed: (1) the maximum number of Hondurans 
potentially resident in the affected region as 150,000, a 
figure that remains unconfirmed and could be significantly 
overestimated; (2) approximately one million Hondurans 
resident in the U.S, another figure that is unconfirmed and 
could be an overestimate; (3) projected remittances for 2005 
of USD 1.5 billion, based on Central Bank of Honduras 
estimates; and (4) a resulting average remittance of USD 
1,500 per Honduran expatriate per annum.  In the worst case 
scenario -- a total halt in all remittances from all 150,000 
expatriate Hondurans for the remainder of 2005 -- that would 
result in a remittance reduction of approximately USD 94 
million. 
 
2.  EconChief spoke on September 9 with Juan Carlos Potasi, 
former President of the Central Bank of Uruguay and author of 
a soon-to-be-released study on capital flows and remittances 
in Honduras, and Hugo Castillo, former GOH Vice Minister of 
Finance and also an expert on financial flows.  Potasi said 
that in his opinion the impact of Hurricane Katrina on 
remittance flows to Honduras will be minimal, since New 
Orleans does not appear to be a center of remittance 
transmission.  Castillo agreed, citing the history of the 
Honduran expatriate population in New Orleans.  According to 
Castillo, that community had its roots in a generational 
migration from the North Coast of Honduras, started at the 
turn of the twentieth century and originally linked to the 
banana trade.  Many of the families now living in the New 
Orleans area have been established there for 50 years or 
more, he said, and recent emigration to that area has been 
driven by family reunification and not by job-seeking. 
Consequently, in his view, many of those families have broken 
their ties to Honduras, and are not likely sending 
remittances back to Honduras. 
 
3.  Neither Potasi nor Castillo offered an estimate of the 
likely drop in remittances.  However, if we accept their 
analysis and conservatively assume only half of the community 
is sending remittances, and further use a more moderate 
figure for the size of the Honduran expatriate population in 
the affected area, we arrive at a much lower estimated 
reduction in remittances of perhaps USD 20 to 30 million 
dollars for the remainder of 2005, as contrasted with the 100 
million reduction originally forecast.  Compared to CY 2004 
remittance flows of USD 1.12 billion, and projected CY 2005 
remittance flows of USD 1.5 billion, this reduction is 
expected to have no noticeable impact on the Honduran 
economy. 
 
Williard 
Williard