US embassy cable - 05TEGUCIGALPA1993

C O N F I D E N T I A L SECTION 01 OF 03 TEGUCIGALPA 001993 
 
SIPDIS 
 
STATE FOR EB/IFD, WHA/EPSC, INR/IAA, DRL/IL, AND WHA/CEN 
TREASURY FOR DDOUGLASS 
COMMERCE FOR MSIEGELMAN 
DOL FOR ILAB 
STATE PASS AID FOR LAC/CAM 
 
E.O. 12958: DECL: 09/26/2015 
TAGS: ECON, EFIN, PGOV, ELAB, SOCI, HO 
SUBJECT: HONDURAS: IMF WATCHFUL AFTER LIBERAL PARTY 
PRESIDENTIAL CANDIDATE'S COMMENTS REGARDING TEACHERS' WAGES 
 
REF: A. A) TEGUCIGALPA 284 
 
     B. B) TEGUCIGALPA 610 
     C. C) 03 TEGUCIGALPA 2915 
 
Classified By: Economic Chief Patrick Dunn for reasons 1.4 (b) and (d). 
 
1. (C) Summary:  Liberal Party presidential candidate Manuel 
"Mel" Zelaya Rosales recently met with a number of teachers' 
unions, at which time he pledged his support for the Teachers 
Wage and Benefits Law (the "estatutos").  This law has led to 
an unsustainable explosion in public sector wages over the 
last several years, and has been targeted by the IMF as a 
necessary reform under Honduras' agreement with the Fund. 
Liberal Party officials explained to Post that they are well 
aware of the concern about fiscal impacts and have no 
intention of breaking faith with the Fund.  Nevertheless, 
they see room to negotiate with teachers and to clean up 
waste, fraud, and mismanagement within the educational 
sector.  Liberal Party leaders said these actions should free 
up resources to improve education and pay adequate wages, all 
while lessening the fiscal burden.  The IMF is watching 
developments closely and is prepared to open a dialogue with 
the Liberal Party campaign on this issue.  In the meantime, 
it remains in everyone's interest to keep the teachers wage 
issue -- and the rest of the Poverty Reduction and Growth 
Facility (PRGF)-- out of the campaign spotlight, since 
politicizing the agreement with the Fund would make its 
continuing implementation more difficult for whichever party 
wins in November.  End Summary. 
 
2. (U) On September 22, Liberal Party presidential candidate 
Manuel "Mel" Zelaya Rosales conducted an extensive dialogue 
with several prominent teachers' unions to discuss the 
politically and economically sensitive topic of wages and 
benefits.  Zelaya was quoted in the press as pledging to 
"strengthen the Teachers Wage and Benefits Law and to make it 
more effective for the Honduran public and its youth."  This 
law, known as the &Estatuto de Docentes,8 has been the 
source of much controversy, as it established in 1997 under 
the Reina Administration (Liberal Party) benefits outside the 
normal civil service wage scale that increase at multiples of 
the established increases in minimum wage.  The resulting 
exponential growth in wages has wreaked fiscal havoc, raising 
total public sector wages from approximately six percent of 
GDP a few years ago to nearly eleven percent in 2005.  One 
unsustainable consequence is that according to the GOH an 
estimated 96 percent of the entire Ministry of Education 
budget is spent on teachers, wages, leaving just 2 percent 
for the national university (UNAH) and 2 percent for 
everything else, including books and facilities. 
 
3. (C) As part of its agreement with the International 
Monetary Fund, the GOH agreed to formulate a plan by 2005 for 
incorporating these benefits into the normal wage scale, and 
for implementing that plan by 2007 (ref A).  The Poverty 
Reduction and Growth Facility (PRGF) Performance Criterion on 
teachers' wages -- requiring the issuance of regulations by 
December 2004 with compliance by 2007 -- was not met, but 
there is no fiscal consequence of this for 2005, since no 
action is required until 2007.  Per a 2003 civil service 
salary law and a 2004 agreement with teachers, the 
wage-related benefits for teachers (such as additional 
payments for seniority) should be folded in to their wage 
scale by 2007.  The Fund approved a waiver of this 
Performance Criterion, but only because they saw the 2005 
program in Honduras as "fully financed8; the Fund recognized 
the extreme political difficulty in passing such regulations 
in an election year, as well as the significant progress the 
GOH has made on more pressing fiscal and monetary reforms. 
That said, the Fund required and obtained a "clear agreement" 
with the GOH that the regulations will be implemented on time. 
 
4. (C) Previous attempts to control teachers' wages have 
resulted in prolonged strikes and large protest marches by 
teachers (see ref C for background).  Given the political 
sensitivity of this issue, as well as its centrality to the 
fiscal discipline required under the PRGF, IMF Resident 
Representative Hunter Monroe has expressed concerns to 
EconChief about Zelaya's remarks. 
 
5. (C) On September 22, Charge, EconChief, and PolChief met 
with three leading officials of the Zelaya campaign to 
discuss the teachers wage issue as well as a variety of 
political and economic campaign themes (reported septel). 
Present at the meeting were Party Policy Coordinator Edmundo 
Orellana, Party Economic Coordinator Edwin Araque, and 
Campaign Director Hugo Noe Pino.  While not denying Zelaya's 
campaign rhetoric to the teachers, the officials sought to 
distinguish support for teachers from support for 
uncontrolled wage increases. 
 
6. (C) According to the officials, the root cause of the 
political tension between the GOH and teachers has been a 
combative stance by the Maduro administration and an 
unwillingness to really listen to the teachers' complaints. 
For example, Noe said, the teachers complained to Zelaya that 
there has been no program of continuing education or training 
of teachers in the last five years.  Teachers would welcome 
training, for example, on how to incorporate computers into 
the classroom, Noe said.  Moreover, Noe said, teachers will 
be more apt to negotiate with a Liberal government "since it 
will be more representative of the Honduran people, and not 
just the economic elites and special interests."  He said 
that the Maduro administration, in contrast, "has spent four 
years fighting with the teachers without success." 
 
7. (C) Noe -- a former President of the Central Bank of 
Honduras -- explicitly recognized the fiscal realities. 
"Continuing the current (wage) situation is not viable," he 
said.  Spending more than 10 percent of GDP on public sector 
wages is not sustainable.  However, he said, the GOH must 
"respect the estatuto (since) it is the law.  It is not 
viable to eliminate the estatutos."  Orellana -- a former 
judge and Attorney General -- added that because the 
estatutos are called for in the Constitution, changing them 
would require a two-thirds vote in one session of Congress 
and then a ratification of the change in the following 
session.  "It's not so easy as it might appear," he said. 
 
8. (C) Trying to walk a fine line, however, Noe went on to 
suggest that there is room to negotiate how wages are 
structured with a view to reducing the fiscal impacts.  "The 
teachers need to be convinced," Noe said, though without 
elaborating how that could be accomplished. 
 
9. (C) EconChief pointed out that beyond the fiscal impacts, 
there is also concern that high teachers' wages are crowding 
other education spending out of the budget.  How would the 
Liberal Party propose to not only control wages, but also to 
improve delivery of education to the students?  Noe said that 
there is currently a lack of transparency in teachers' wages. 
 It is unclear how many positions are encumbered, by which 
teachers, and what their total compensation is.  There are 
allegations of fraud, such as ghost workers or workers that 
work only part time in a number of different jobs.  Reforming 
this system would improve transparency.  When coupled with 
strengthened supervision and control, the result should be a 
significant increase in available funds to spend on other 
segments of the education sector, such as infrastructure and 
books. 
 
10. (C) EconChief discussed this matter and the officials' 
views with IMF ResRep Monroe.  Monroe was somewhat reassured 
by the explanations offered by the Liberal Party, though he 
still wishes to see more specificity on how the wage issue 
will be addressed and its fiscal impacts.  Monroe also 
observed that the primary focus of the performance criterion 
in the PRGF is not wages per se, but rather the explosive 
growth in benefits outside of the wage system.  It is 
possible, he said, that the Liberal Party is unaware of this 
technical distinction, since the most recent IMF Letter of 
Intent has not been published yet.  He suggested that a 
protracted and contentious battle over wages might not be 
necessary if the real culprit is benefits, and is considering 
engaging with the Liberal Party in a discussion of this 
matter. 
 
11. (C) Comment:  At the Fund's request, the major parties 
and international donors have kept the teachers' wage issue 
-- and the entire PRGF -- largely out of the campaign (Ref 
B).  It was the Fund's concern that politicizing the PRGF, or 
any performance criterion in it, would make it that much 
harder for whichever party wins to implement the necessary 
reforms. By and large the parties have respected this 
agreement.  Zelaya's remarks can be viewed as campaign 
pandering to the influential teachers' unions (whose new 
leadership will be chosen in October-November in the case of 
three key unions), and his National Party opponent, Porfirio 
&Pepe8 Lobo, has not been a profile in courage on this 
issue either.  However, Zelaya,s comments do not appear to 
have inflamed passions over this traditionally volatile 
issue, and it is clear from his advisors that they understand 
the delicacy of the line they are trying to walk.  Similar to 
the Fund, Post will watch this issue with interest, but will 
refrain from any comments that would further raise the 
profile of this issue.  End Comment. 
 
Williard 
Williard