US embassy cable - 03TEGUCIGALPA546

UNCLAS SECTION 01 OF 02 TEGUCIGALPA 000546 
 
SIPDIS 
 
STATE FOR DRL/LEA/IL, WHA/EPSC, AND WHA/CEN 
USDOC FOR 3134/USFCD/IOI/WH/RD/DLUTTER 
USDOC FOR 4320/IEF/WH/OMCB 
USDOC FOR 4322/ITA/MAC/WH/OLAC/EJAFFEE 
GUATEMALA FOR COMMATT DTHOMPSON AND AGAH FCOOLIDGE 
 
STATE PLEASE PASS TO USAID, OPIC, EXIM, USTR 
STATE PLEASE PASS TO USED IDB, USED WB, USED IMF 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, ETRD, ENRG, EINV, EAIR, ELTN, PGOV, PREL, KPRV, KTDB, KPWR, HO 
SUBJECT: HONDURAN ECON HIGHLIGHTS: DECEMBER 2002-JANUARY 2003 
 
REFS: A) TEGUCIGALPA 225 
 
      B) TEGUCIGALPA 10 
      C) TEGUCIGALPA 494 
      D) 2002 TEGUCIGALPA 3491 
      E) 2002 TEGUCIGALPA 3416 
      F) 2002 TEGUCIGALPA 3479 
 
TOPICS: 
 
-Macroeconomic Results for 2002 
-2003 Budget 
-GOH Housing Program Will Construct 30,000 Homes 
-GOH Eliminates the Commission for Privatization 
-Growth in the Maquila Industry 
-Construction Sector Paralyzed Due to Higher Cost 
-Liquidation of Banco Capital 
-Sears Opens Store in Tegucigalpa 
-Competition Forces Taca to Cut Prices Up to 50 percent 
-Standard Fruit Company Announces New Investment for 2003 
-AES Contract Approved 
 
 
Macroeconomic Results for 2002 
------------------------------ 
 
1.   The GDP rose by 2 percent in 2002, which was lower than 
economic growth rates in previous years of 2.7 percent in 2001 
and 4.8 percent in 2000.  Per capita income fell by 0.6 percent 
during 2002, and the Consumer Price Index rose by 8 percent.  The 
international reserves totaled USD 1.5 billion, and the gross 
family remittances totaled USD 700 million.  The reference 
exchange rate was 16.92 lempiras per dollar, which showed a 
nominal depreciation of 6.3 percent for the year. Ref A contains 
preliminary economic statistics for 2002. 
 
2003 Budget 
----------- 
 
2.   The 2003 budget adopted by Honduras' National Congress in 
December amounted to 60 billion lempiras (USD 3.5 billion).  The 
Central Government was allocated 32 billion lempiras of the 
budget and divided in the following order: 50 percent for social 
expenditures, 13.6 percent for administration, 17.6 percent for 
public debt service, 12.7 percent for the economic agencies, and 
6.2 percent for security and defense.  Decentralized institutions 
will receive 27.9 billion lempiras.  Taxes and other sources of 
domestic income will fund 26.7 billion lempiras of the central 
government budget.  Foreign assistance will provide the remaining 
6.3 billion lempiras of the budget funding (4.8 billion lempiras 
in loans and 1.5 billion lempiras in grants).  The GOH is 
expected to submit amendments to the budget to Congress as part 
of its fiscal package (due by the end of February).  Refs B and C 
report on Honduran plans for new fiscal measures. 
 
GOH Housing Program Will Construct 30,000 Homes 
--------------------------------------------- -- 
 
3.   As part of its housing program, the GOH has set the goal to 
construct 30,000 houses, worth 150,000 lempiras in 2003.  The 
houses will go to low-income families and will be paid off over a 
20-year period. 
 
GOH Eliminates the Commission for Privatization and Concessions 
--------------------------------------------- ------------------ 
 
4.   The Commission for Privatization, which was created to 
assist the government in privatizing public enterprises, has been 
eliminated by the GOH.  The Vice-Minister of Finance explained 
that the only successful operation of the Commission was 
assisting in the concession to Interairports of international 
airport operation.  He reported that both the Commission for 
Privatization and the Commission for Modernization of the State 
had overlapping jurisdictions. The decision was made to eliminate 
the Commission for Privatization and allocate their task to the 
Commission for Modernization. 
 
Growth in the Maquila Industry 
------------------------------ 
 
5.   The Honduran Association of Assemblers for Export, an 
organization that represents maquiladores, has reported a 4.5 
percent growth for the sector over the last year.  President 
Maduro announced in January 2003, the maquila industry surpassed 
its expected growth, with the creation of 8,000 jobs.  The growth 
in jobs will come from new investment projects like cardboard, 
stockings, chemicals, and electrical cables, which total USD 100 
million.  In the second quarter of 2003, a Taiwanese firm is 
expected to construct a stockings factory. 
Construction Sector Paralyzed Due to Higher Cost 
--------------------------------------------- --- 
 
6.   The Honduran Chamber of Construction has reported that 80 
percent of the sector is paralyzed due to higher prices of 
materials and lack of funds to buy land.  The construction 
industry currently employs more than 120,000 individuals compared 
to the 600,000 it employed in the 1990's.  There is optimism 
amongst leaders of the industry that new road and bridge projects 
will induce growth, as well as GOH sponsored housing projects. 
 
Liquidation of Banco Capital 
---------------------------- 
 
7.   The National Banking and Insurance Commission (CNBS) 
liquidated Banco Capital and sold its deposit portfolio to Banco 
Ficohsa on December 20, 2002, at an auction conducted by the 
Deposit Insurance Fund.  The GOH is still working to sell off the 
troubled loan portfolio of Banco Capital.  The GOH approved a 
transfer of 517 million lempiras from Hondutel (the national 
telephone enterprise) to guarantee the Capital deposits (full 
report in Ref D). 
 
Sears Opens Store in Tegucigalpa 
-------------------------------- 
 
8.   Sears, Roebuck and Co. has invested close to USD 7 million 
for the construction of its new facilities in Tegucigalpa and the 
purchase of merchandise.  The company also intends to increase 
the size of its operation in San Pedro Sula. 
 
Competition Forces Taca to Cut Prices Up to 50 percent 
--------------------------------------------- --------- 
 
9.   Taca Airlines is now facing competition from Sol Air, a new 
startup airline that offers service to Miami, Dallas, Honduras 
and Nicaragua.  The loss of Taca Airline's monopoly on the 
Central American airline market has forced the company to cut 
prices up to 50 percent in order to stay competitive.  This has 
benefited travelers to and from Honduras, who once paid USD 700 
and USD 800 and now pay USD 327 to USD 495.  Sol Air intends to 
expand to other markets in Panama, Costa Rica, Guatemala, New 
Orleans, and the Caribbean. 
 
Standard Fruit Company Announces New Investment for 2003 
--------------------------------------------- ----------- 
 
10.  The GM of Standard Fruit Company in Honduras, Gerald 
Brunelle, announced planned new investment of USD 11.7 million. 
The money will be used in banana and pineapple production on the 
Honduran Atlantic Coast.  The project will be completed within 
two years, and Standard Fruit will hire an additional 1,100 
employees.  Total exports from this investment will be USD 17-18 
million for pineapples and bananas. 
 
AES Contract Approved 
--------------------- 
 
11.  On January 31, the National Congress approved a contract 
between the American-owned electrical company, AES of Honduras 
and Honduran state-owned ENEE. The contract will provide the 
incentive to build a USD 650 million power plant that would 
provide 200 megawatts of electricity to both Honduras and El 
Salvador.  AES expects to make a profit of USD 500 million over 
12 years with additional profits coming from energy sales in El 
Salvador.  The contract will become effective upon signature by 
President Maduro and publication in the Gazeta. (See Refs E and F 
for background on contract). 
 
PALMER