US embassy cable - 05TEGUCIGALPA2182

UNCLAS TEGUCIGALPA 002182 
 
SIPDIS 
 
STATE FOR WHA/CEN, WHA/EPSC, EB/IFD 
 
E.O. 12958: N/A 
TAGS: EFIN, KTIA, ECON, HO 
SUBJECT:  HONDURAS: $125 MILLION DEBT TO U.S. CANCELLED 
 
REF:  Tegucigalpa 174978 
 
1. SUMMARY: On October 7, the U.S. and Honduras signed a 
debt reduction agreement cancelling 100 percent ($125m) in 
loans owed to USG organizations as of March 1, 2005.  This 
effectively eliminated the U.S. share of $1.47 billion owed 
by the GOH to the Paris Club.  Similar bi-lateral agreements 
need to be negotiated by the GOH with the other Paris Club 
members.  Debt forgiveness agreement discussions are on- 
going with the World Bank, IMF, and the International 
Development Bank (IDB).  END OF SUMMARY. 
 
2. Per reftel, Honduras and the U.S. signed a debt reduction 
agreement on October 7 that cancels approximately $125 
million in debt owed by Honduras to four USG organizations 
(USDA, EXIM, DOD, and USAID).  Honduran Finance Minister 
William Chong Wong and Charge were the official signatories, 
while President Ricardo Maduro and Central Bank President 
Maria Elena Mondragon signed as witnesses of honor. 
 
3. The deal absolves all debt owed before March 1, 2005, to 
the following U.S. institutions: Department of Defense 
($48.0 million), USAID ($65.7 million), Department of 
Agriculture ($9.7 million), and the Export - Import Bank 
($1.2 million).  This represents the fifth time the USG has 
forgiven debt owed by Honduras, totaling $689 million since 
1991. Private debt owed to non-public interests in the U.S. 
was unaffected. 
 
4. The debt forgiveness was based on a recommendation from 
the Paris Club, an informal group of industrialized 
countries with extensive loans to third world countries. The 
Club members (Canada, Denmark, France, Germany, Italy, 
Japan, the Netherlands, Spain, Switzerland and the U.S.) 
jointly agreed on May 1, 2005 to reduce the debt once 
Honduras had reached a significant milestone (Completion 
Point) in the World Bank and IMF sponsored Highly Indebted 
Poor Countries (HIPC) Initiative.  The milestone 
demonstrated that Honduras had achieved strong structural 
reforms and had a strategy to use these reforms to generate 
economic growth and reduce poverty.  As of March 1, 2005, 
$1.47 billion was owed to Paris Club members by Honduras. 
The U.S. accord is the third bilateral debt forgiveness 
agreement concluded under this Paris Club agreement; accords 
with Spain (USD $138 million) and Canada (USD $9.5 million) 
were signed in April of this year. Like the U.S. accord, a 
bi-lateral deal must be negotiated with each remaining Club 
member to cancel their respective debts. 
 
5. Achieving the HIPC Completion Point has also allowed 
Honduras to move forward on negotiating debt forgiveness on 
debts owed to the World Bank, the International Monetary 
Fund (IMF), and the International Development Bank (IDB). 
The World Bank cancelled $67 million in commercial debt owed 
to its International Development Association (IDA) group in 
May, and will consider reducing or cancelling all of IDA's 
credits to Honduras, approximately $1.2 billion, in 2006. 
The IMF has committed to eliminating USD $30.3 million of 
Honduran debt, leaving approximately $110 million for future 
negotiation.  Finally, the International Development Bank 
cancelled $192 million in loans in April, but discussions 
continue on whether action can be taken on the balance of 
$1.2 billion. Publicly and privately the GOH has called for 
such forgiveness or rescheduling, and has been quick to 
point out that the African Development Bank, IDB's 
equivalent in Africa, has rescheduled or cancelled debt owed 
by African countries that have reached the HIPC Completion 
Point. 
 
Williard