US embassy cable - 03TEGUCIGALPA288

C O N F I D E N T I A L SECTION 01 OF 06 TEGUCIGALPA 000288 
 
SIPDIS 
 
STATE FOR WHA DAS FISK, WHA/CEN, AND WHA/EPSC 
STATE FOR PM, INL, EB, AND CA 
 
E.O. 12958: DECL: 01/31/2013 
TAGS: OVIP, PREL, PGOV, SNAR, ETRD, ECON, MOPS, KJUS, HO 
SUBJECT: SCENESETTER FOR WHA/DAS FISK'S VISIT TO HONDURAS 
FEBRUARY 5-8 
 
REF: 02 TEGUCIGALPA 2829 
 
Classified By: Ambassador Larry Palmer; 
Reasons 1.5 (B) and (D). 
 
1.  (C) Summary.  Honduran President Ricardo Maduro, in 
office for one year, faces numerous challenges in one of the 
poorest and most corrupt countries in the Western Hemisphere. 
 His Administration has been stalled on its domestic agenda 
since June 2002 as it tries to reconcile its ambitious goals 
to its straitjacketed financial situation, but is trying to 
start the new year with structural reforms.  Bilateral 
relations between the U.S. and Honduras are excellent; 
Honduras was the first country in Central America (and the 
second in Latin America) to sign an ICC Article 98 Agreement 
with the U.S. and its support for the international 
counterterrorism effort is steadfast.  The United States and 
Honduras have maintained a long-standing close relationship 
framed by such events as the establishment of the banana 
plantations in the late 1800s, the Contra wars of the 1980s, 
and reconstruction efforts in the wake of the October 1998 
fury of Hurricane Mitch.  End Summary. 
 
------------------------------------ 
Key Issues in Bilateral Relationship 
------------------------------------ 
 
2.  (SBU) The central themes in our bilateral diplomatic 
efforts in Honduras are combating international crime by 
strengthening governance and attacking corruption, assisting 
American citizens, fostering economic development, promoting 
regional stability, promoting trade and investment, and 
combating terrorism.  However, the underlying difficulty to 
realizing USG objectives is improving the administration of 
justice and rule of law.  President Ricardo Maduro's 
government is fully engaged on all of these issues, supports 
judicial and political reform, and is seeking to transform 
Honduras so that law and order can be restored and economic 
growth ignited.  Maduro has spoken also out strongly on 
tackling corruption.  He faces formidable challenges from 
entrenched economic and political interests in moving his 
agenda forward. 
 
------------------------------- 
Status of the Maduro Government 
------------------------------- 
 
3.  (SBU) President Maduro is facing increasing criticism 
from the political opposition over his government's policies 
and continued dissatisfaction from his own party's Members of 
Congress because of his Administration's technocratic style. 
The Honduran Congress is a focal point of political 
opposition to his policies.  It is a corrupt institution 
riddled with avaricious politicians, and Maduro's National 
Party does not control a majority of the unicameral body. 
The ongoing problems within his own party are serious and 
threaten his broader political agenda, which will require 
legislation to advance.  Continuing political negotiations 
will be needed to manage this situation.  Maduro recently 
scored a victory in rallying congressional support for his 
energy program by securing approval of the direct purchase of 
electricity from two firms, including U.S. company AES. 
Maduro's personal life also intruded into the political 
sphere.  His October 2002 wedding to a Spaniard was 
criticized by many Hondurans who viewed the President as 
distracted by his personal life. 
 
4.  (SBU) The President's standing has remained stalled at a 
low point since June 2002.  Faced with slow progress in his 
efforts to promote regional economic integration, Maduro's 
team is pinning its hopes that a U.S.-Central American Free 
Trade Agreement (CAFTA) can serve as a catalyst to regional 
economic cooperation.  Maduro is also beginning to hear wider 
disillusionment among the Honduran public as violent crime 
levels are increasing once again despite his successful 
initial "zero tolerance" law and order campaign. 
Notwithstanding his crackdown on street crime, criminal 
investigations and case closure rates, in particular 
homicides, remain very low. 
 
---------------------------- 
Counterterrorism Cooperation 
---------------------------- 
 
5.  (SBU) Maduro is a good and reliable friend of the U.S. on 
counterterrorism.  His government hosted a major U.S. 
military counterterrorism exercise in March 2002 and has 
quickly responded with freeze orders to all U.S. requests 
regarding suspect terrorist bank accounts.  No terrorist 
assets have been found in Honduran financial institutions, to 
date.  The GOH still needs to take the following concrete 
steps: designate a national coordinator for counterterrorism, 
file its national report in accordance with United Nations 
Security Council (UNSC) Resolution 1373, and most of all, 
sign and/or ratify the five outstanding international 
conventions/protocols and two OAS conventions (1971 and 2002) 
against terrorism.  It is also of vital importance for 
Honduras to improve security at its maritime ports, 
particularly Puerto Cortes. 
 
---- 
Iraq 
---- 
 
6.  (C) The GOH is in general supportive of key USG foreign 
policy goals, and the Ministry of Foreign Affairs will 
support the USG position on Iraq.  Securing a UNSC Resolution 
on Iraq helped mollify MFA officials concerns about the need 
for multilateral support via the United Nations.  Lacking Rio 
Group consensus the GOH is not yet willing to make a public 
statement backing U.S. policy on Iraq. 
 
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Anticorruption 
-------------- 
 
7.  (C) U.S. policy against corruption struck a nerve in 
Honduras, especially any mention of our visa revocation 
authorities.  Politicians in Congress and certain business 
elements feel the U.S. is attacking them.  Maduro appears 
committed to addressing corruption, even if it will cost him 
political support within his party.  The Supreme Court 
President is also on board.  However, individual judges 
remain susceptible to offers of bribes and the Attorney 
General is unwilling to prosecute high-profile cases.  Given 
the scope of the problem, any public discussion about the 
country's pervasive corruption is a positive development. 
 
--------------------------------- 
Supreme Court and Judicial Reform 
--------------------------------- 
 
8.  (SBU) The Supreme Court is developing into an independent 
branch of power, unlike all of its predecessor courts since 
democracy was restored in 1982.  It is pro-reform in 
orientation and fighting for its prerogatives.  A key 
emerging issue is whether it can become a fully independent 
and co-equal branch of political power, consistent with the 
separation of powers provision in the Honduran Constitution. 
The established political order is fighting that prospect 
with all its might.  In fact, the Congress seized the 
political opportunity to introduce legislation that would 
amend the constitution to give itself the power to interpret 
the constitutionality of the laws it passes.  A ruling by the 
Supreme Court on the constitutionality of this proposed 
amendment is expected before the end of February.  The 
Supreme Court recently replaced some corrupt judges in San 
Pedro Sula and the entire court of appeals in Tegucigalpa. 
 
---------------------------- 
Public Security/Human Rights 
---------------------------- 
 
9.  (SBU) Upon taking office on January 27, 2002 President 
Maduro's first act was to fulfill his main campaign promise 
-- a zero tolerance campaign against the country's 
out-of-control crime situation.  He deployed more than 5,000 
soldiers to the streets to support the police.  The public 
responded enthusiastically.  However, despite the initial 
success of establishing a visible police presence, violent 
crime, particularly homicides and kidnappings, has only 
fallen marginally.  Public support is fading and the campaign 
needs some visible victories to restore confidence in the 
government's program.  The USG is helping the Maduro 
government establish an anti-kidnapping unit, increase 
intake/training of police recruits, create a model tourist 
police force, boost its counternarcotics efforts, and expand 
the frontier police.  The country's geographic position makes 
it an obvious strategic transit point for narcotics 
trafficking, alien smuggling operations and other organized 
crime activities. 
 
10.  (SBU) Extrajudicial killings, especially of 
children/young adults between 1998-2001, have been a source 
of serious concern and only recently has the GOH begun to 
take steps to investigate the hundreds of unsolved cases. 
There are serious problems with child labor in several 
industries, particularly melon, coffee, and sugar cane (but 
not the maquila) sectors, and trafficking in persons of 
women/children for prostitution in the U.S. and children for 
commercial sexual exploitation in Central America.  USAID and 
Peace Corps have both been involved in HIV/AIDS prevention. 
 
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Consular Issues 
--------------- 
 
11.  (SBU) Some 500,000 Hondurans, both legal and illegal, 
live in the U.S., a fact that places immigration issues high 
on the bilateral agenda.  (The population of Honduras is 6.5 
million.)  There is deep appreciation for the 
Administration's extension of Temporary Protected Status 
(TPS) in the U.S. and interest in possible congressional 
action on the pending Nicaraguan Adjustment and Central 
American Relief Act (NACARA), which would give immigration 
parity for Hondurans.  It is quite likely that you will be 
queried about the prospects for another renewal of TPS in 
July.  With 14,000 American citizens residing in Honduras and 
many thousands visiting Honduras annually for tourism and 
business, American Citizen Services are a key part of the 
Embassy's work.  Until recently, there was little progress in 
most of the now more than 30 American citizen murder cases; 
however, there have been four convictions in these cases in 
recent months.  In the last year the GOH has increased 
cooperation with the Embassy on these cases, including 
establishing two prosecutors.  However, little progress has 
been made on extradition cases involving American Citizens 
wanted for felonies in the U.S. 
 
-------------- 
Border Relations 
---------------- 
 
12.  (SBU) Honduras has border disputes with its three 
Central American land neighbors and its seven maritime 
neighbors.  Maduro is personally engaged with his 
Presidential counterparts to address these issues.  Its land 
and maritime disputes with El Salvador and Nicaragua are the 
most heated.  The Gulf of Fonseca on the Pacific coast is a 
particularly difficult point.  A 1992 International Court of 
Justice (ICJ) ruling laid out shared areas of control in the 
Gulf of Fonseca and established the land border between 
Honduras and El Salvador, although El Salvador has been slow 
to implement the ruling.  In September of this year El 
Salvador requested a revision of the 1992 ICJ ruling.  The 
Honduran response to El Salvador's request is due at the ICJ 
on April 1. 
 
13.  (SBU) On the Caribbean coast, Honduras and Nicaragua 
have a long-standing maritime border dispute over the 15th 
parallel.   Honduras provoked Nicaraguan retaliation when it 
signed a maritime treaty with Colombia recognizing the 15th 
parallel as its maritime border in 1999.  Nicaragua filed an 
ICJ case over the maritime border and more importantly in 
1999 slapped a punitive 35 per cent tariff on Honduran goods 
that remains in place despite a Central American Court of 
Justice ruling that it is illegal.  With former Nicaraguan 
President Arnoldo Aleman deposed as President of the National 
Assembly, GOH officials were expressing optimism that 
Nicaraguan President Enrique Bolanos would make good on 
private assurances to lift the tariff and thereby take an 
important step forward toward regional economic integration, 
especially given the fact that the ICJ recently ruled in 
favor of the GOH's petition against the tariff.  However, 
frustration has mounted recently in Honduras as Bolanos has 
still not scrapped the tariff.  The Congress may force 
Maduro's hand by passing a retaliatory tariff in the near 
future.  The border dispute with Nicaragua is also hampering 
joint narcotics interdiction efforts. 
 
--------------------------------------------- -------------- 
Troubled Economy Endangers IMF Program and HIPC Debt Relief 
--------------------------------------------- -------------- 
14.  (SBU) President Maduro inherited a stagnating economy 
and seriously deteriorated government finances from the 
previous government.  The GOH missed all key International 
Monetary Fund (IMF) targets in 2001.  Even after the Maduro 
economic team won passage of austerity and tax measures in 
May 2002, the government's budget deficit is still expected 
to be a high 5.6 percent of GDP.  It is important for the GOH 
to undertake the meaningful and long overdue reforms needed 
to work out a new IMF program. 
 
15.  (C) The GOH failed to reach agreement with the IMF 
mission in November 2002 on draft terms of a three-year 
Poverty Reduction and Growth Facility Program (PRGF) because 
of the GOH's limited efforts to address the budget deficit. 
On January 29, the macro team went to Washington to discuss 
with the IMF its planned measures (elimination of tax 
exemptions and loopholes, freezing of many government 
salaries, and a draft civil service reform law).  The GOH 
believes it can reduce the central government deficit to 
three percent in 2003.  If approved, the GOH will try to get 
the legislation through Congress in February, setting the 
stage for the signing of a letter of intent in March and IMF 
Board approval in April. 
 
16.  (SBU) International Financial Institution (IFI) and 
bilateral donor disbursements (USD 140 million) will be held 
up until the new IMF program is in place.  There could also 
be pressure on GOH Paris Club debt service payments (USD 100 
million per year).  In the meantime, the completion point for 
Highly Indebted Poor Countries (HIPC) debt reduction (worth 
USD 900 million) continues to slip back further.  If 
unaddressed, this fiscal situation could also impact 
Honduras' eligibility for Millennium Challenge Account grants. 
 
17.  (SBU) The Honduran economy is growing slowly (estimated 
real GDP growth of two percent in 2002).  Low world coffee 
prices continue to hurt the economy in rural areas. 
Inflation continues to decrease slowly, estimated at 8-9 
percent in 2002.  The currency is depreciating at a rate of 
about five percent per year.  The economy is dominated by 
agriculture - particularly the production of coffee, bananas 
and cultivated shrimp - although the in-bond apparel assembly 
industry has grown dramatically over the past decade and 
remittances, from Hondurans living overseas, continues to 
grow rapidly (up 38 percent in the first six months of 2002) 
and have become the most important source of foreign 
exchange.  The U.S. is Honduras' largest trading partner; 
roughly 150 U.S. companies do business here.  While many 
social indicators are improving, two-thirds of all Hondurans 
live in poverty and average educational levels are very low. 
 
--------------------------------------------- ---- 
U.S.-Central America Free Trade Agreement (CAFTA) 
--------------------------------------------- ---- 
 
18.  (SBU) Maduro has personally identified himself with 
CAFTA as his government's principal trade objective.  The 
Minister of Industry and Trade is reorganizing the Ministry 
(historically fairly weak) and adding staff in a belated 
effort to get ready for and keep up with the negotiations. 
The Maduro administration has also been more cooperative with 
the U.S. in the World Trade Organization (WTO) in Geneva. 
Honduras (along with other Central American countries) has 
been supportive in the FTAA ministerials but to date has not 
taken an active role in the negotiating groups. 
 
19.  (SBU) Latent protectionism exists in the private sector, 
especially agriculture, but the general attitude toward a 
free trade agreement in Honduras is guardedly positive.  The 
textile and apparel industry in particular believes an FTA is 
the only way that the Honduran apparel sector can survive the 
elimination of quotas in 2005 and compete with Asian 
manufacturers.  As such, it is the strongest supporter of 
CAFTA. 
 
------------------------------ 
U.S. Investment Faces Problems 
------------------------------ 
 
20.  (SBU) The Maduro government understands that Honduras 
needs foreign (and domestic) investment to spur economic 
growth but in 2002 placed emphasis on the more immediate 
problems of political and judicial reforms, the fiscal 
deficit, and needed improvements in security, education and 
health.  The government identified tourism, agribusiness, and 
forestry as important sectors that could create much-needed 
jobs.  While some efforts to promote tourism have paid off, 
little headway has been made in the other sectors. 
 
21.  (SBU) Much needs to be done to declare Honduras "open 
for business."  Maduro needs to find a way to get his cabinet 
(and the prickly legislative and judicial branches) to make 
meaningful changes that will resolve the key problems: poor 
and expensive infrastructure; weak legal system; personal 
security, education and health conditions; land tenure 
problems; and opposition to large foreign investments by 
well-connected vested interests. 
 
22.  (SBU) The Honduran government has stalled in its past 
efforts to liberalize and privatize the electricity and 
telecommunications markets.  After failure of the National 
Electric Energy Company's (ENEE's) 210 mega-watts electricity 
tender in late 2002, the GOH negotiated quick contracts with 
the top bidders Lufussa and U.S. company AES (which seeks to 
build a $600 million combined cycle plant in Puerto Cortes). 
Initial congressional ratification of the contracts 
(controversial in the case of AES) occurred January 30.  The 
GOH is studying ways to restructure and liberalize the energy 
sector.  The GOH telecom regulatory agency is also bidding 
out a second cellular phone license this year; one U.S. 
company has been pre-qualified.  In late January, Maduro 
announced that the GOH will issue tenders for supply of some 
basic telephony service by the private sector during 2003 (an 
acknowledgment of the lack of capability of the state-owned 
Hondutel to add new line). 
 
23.  (SBU) Land tenure problems (combined with a weak 
judicial system) are endemic in Honduras, and undermine 
efforts to develop the tourism, agriculture and forestry 
sectors.  They also deter new investments in a variety of 
other sectors.  The Embassy has files on 112 property dispute 
cases (generally squatter/land reform cases and title 
disputes), of which 15 are active.  There are an additional 
65 commercial disputes, of which eight are currently active. 
The GOH has adopted a law allowing some of the land cases to 
be submitted to arbitration within the next six months and is 
working on an improved property registry system.  In recent 
months, we have seen notable progress in handling by the 
judicial system of commercial and investment disputes 
involving U.S. citizens.  It would be very useful if, during 
your visit, you could raise the importance of continued 
progress, especially in the Moore case in Roatan. (reftel). 
 
---------------------------------- 
Money Laundering and Bank Failures 
---------------------------------- 
 
24.  (SBU) Strengthened money laundering legislation, with an 
anti-terrorist financing clause, was the first law to be 
adopted by the new Congress in late February 2002.  The GOH 
has followed up rapidly with creation of a Financial 
Information Unit (FIU).  Currently, 87 potential cases are 
under investigation.  The FIU has seized over USD 1.5 million 
in frozen accounts, with another 50 million lempiras (USD 
2.94 million) in cash and 40 million lempiras (USD 2.35 
million) in goods (vehicles, real estate, etc.) in money 
laundering investigations.  Weakness of the financial system 
remains a key concern.  The GOH took over the two most 
troubled banks in May 2002 (one has since been closed), 
arranged for the absorption of a third undercapitalized bank 
and is actively promoting mergers among the remaining 20 
private banks. 
 
----------------------------------- 
Bilateral Political/Military Issues 
----------------------------------- 
 
25.  (C) In January of 1999, the constitution was amended to 
abolish the position of military commander in chief of the 
Honduran Armed Forces (HOAF), thus codifying civilian 
authority over the military.  Honduras now has a civilian 
Minister of Defense (MOD) and a Chief of the Joint Staff who 
heads the HOAF.  Civilian control is well accepted by the 
HOAF, and the transition to civilian control has resulted in 
greater transparency and fiscal accountability.  The current 
MOD, Fred Breve, enjoys a good relationship with the HOAF 
military leadership, but the Office of the Minister of 
Defense still lacks a staff that could provide institutional 
memory and continuity between the change in political 
administrations. 
 
------------------- 
Cerro La Mole Radar 
------------------- 
 
26.  (C) In 1993, the U.S. entered into an agreement with the 
GOH regarding the maintenance of the radar located at Cerro 
La Mole, under which it agreed to pay 75 percent of 
maintenance costs up to $400,000 per year.  The U.S. has paid 
nothing under the agreement, and the issue affects relations 
between the U.S. and Honduran militaries.  Post has sought 
guidance from DOD and State on how to resolve our 
obligations, and recommended that the U.S. either replace the 
radar with a solid state version (TPS-78) or with another 
TPS-70 transferred from counterdrug programs.  Alternatively, 
the U.S. could repair the radar to operational status.  When 
operational, the radar provides a view of the 
Honduras-Nicaragua-El Salvador border areas and the Gulf of 
Fonseca on the Pacific Ocean.  If operational, the radar 
could be helpful in the fight against narcotrafficking. 
 
--------------- 
A Great Tragedy 
--------------- 
 
27.  (U) At approximately 8:55 p.m. on December 11, 2002, a 
U.S. Army Black Hawk helicopter from Joint Task Force Bravo 
crashed while engaged in a night training exercise -- killing 
five U.S. soldiers who belonged to the 1st Battalion, 228th 
Aviation Regiment.  The helicopter flew from Soto Cano Air 
Base to La Mesa international airport in San Pedro Sula to 
participate in a night landing exercise.  After refueling the 
helicopter headed back to Soto Cano, and 40 minutes later 
crashed into the mountains near Santa Cruz de Yojoa, which is 
85 miles north of Tegucigalpa.  A U.S. Army investigation 
into the cause of the crash is ongoing. 
 
------------------- 
Embassy Tegucigalpa 
------------------- 
 
28.  (SBU) Embassy Tegucigalpa is a medium-sized post, 
employing 140 U.S. citizens and 300 Hondurans among 20 USG 
agencies.  Our Peace Corps program, with more than 220 
volunteers, is one of the world's largest, and the USAID 
mission had a FY02 budget of USD 34.5 million.  The Mission 
maintains a Consular Agent in Honduras' second city and 
industrial center, San Pedro Sula.  Five-hundred and fifty 
U.S. service men and women are stationed at Honduras' Soto 
Cano Air Base under the auspices of SOUTHCOM as Joint Task 
Force Bravo.  In 1954, the USG and GOH signed a Bilateral 
Military Assistance Agreement that set forth their intention 
to work closely together to foster peace and security in the 
Western Hemisphere.  The ICC Article 98 Agreement with 
Honduras is therefore a particularly important 
accomplishment, and will enable our military forces to 
continue to work together in such areas as disaster recovery, 
joint training exercises, and counternarcotics missions. 
Palmer