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C O N F I D E N T I A L SECTION 01 OF 07 TEGUCIGALPA 000526

SIPDIS

SIPDIS

STATE FOR S, D, P, E, AND R
STATE FOR WHA, WHA/PPC, WHA/EPSC, AND WHA/CEN
STATE FOR EB, INL/LP, PM, PRM, DRL, CA, AND DS
STATE PASS AID FOR LAC/CAM
NSC FOR DAN FISK
TREASURY FOR DDOUGLASS

E.O. 12958: DECL: 03/16/2036
TAGS: PGOV PREL ECON ETRD MOPS SMIG PINR KCRM HO
SUBJECT: ZELAYA ADMINISTRATION'S FIRST 45 DAYS - PRO-U.S.
ZELAYA OFTEN TORN IN DIFFERENT DIRECTIONS BY ADVISORS

REF: A. TEGUCIGALPA 521 (FUEL)
¶B. TEGUCIGALPA 505 (FUEL)
¶C. TEGUCIGALPA 482 (FUEL)
¶D. TEGUCIGALPA 355 (PRC/TAIWAN)
¶E. TEGUCIGALPA 344 (AGRICULTURE)
¶F. TEGUCIGALPA 214 (PRC/TAIWAN)
¶G. 092106Z MAR 06 USDAO TEGUCIGALPA HO (MOD)
¶H. TEGUCIGALPA 433 (CRIME)
¶I. TEGUCIGALPA 193(ZELAYA/GONZALES BILAT)
¶J. TEGUCIGALPA 161 (ZELAYA BRIEFINGS)
¶K. TEGUCIGALPA 100 (ZELAYA/FORD BILAT)
¶L. 05 TEGUCIGALPA 2492 (POL ASSESSMENT)

TEGUCIGALP 00000526 001.2 OF 007

¶M. 05 TEGUCIGALPA 2420 (ECON ASSESSMENT)
¶N. 05 TEGUCIGALPA 2419 (ECON ASSESSMENT)
¶O. 05 TEGUCIGALPA 2418 (ECON ASSESSMENT)

Classified By: Ambassador Charles A. Ford;
Reasons 1.4 (b) and (d).

¶1. (C) Summary: Honduran President Jose Manuel "Mel" Zelaya
and his Administration have now been in office
approximately 45 days. While Zelaya is clearly a friend of
the USG, as Post predicted his personality, administration,
and policy decisions are making working with him a
challenge. On the plus side, Zelaya has moved with resolve
to conclude CAFTA for an April 1 implementation, supports
USG efforts on counter-narcotics, has cooperated on
deportation issues, and has accepted U.S. DOD assistance in
drafting a Honduran National Security Strategy, with a
workshop for his Administration planned for May 5-7.
However, there have been delays in reforming
Immigration, crime appears to have worsened, and economic
policy is a mixed bag, with fuel being a particularly
controversial issue. Post is also concerned by the
attention being paid to the more ideological voices within
the Zelaya administration. Some in the Zelaya
Administration may be showing their true colors -- some
populist or radical, other merely concerned with protecting
their business interests. Zelaya strikes us as a pro-U.S.
political pragmatist, but one somewhat beholden to the
competing forces within his party. Ambassador and Zelaya
had a lengthy discussion March 14 (hosted by Former
President Carlos Flores) to try to clear the air and
improve bilateral communication. While communication will
hopefully improve, Zelaya must take a more active
leadership role if he seeks to establish rational
policymaking in his Administration. End Summary.

Pressure From Different Camps in Liberal Party
--------------------------------------------- -

¶2. (C) The Ambassador and the Country Team have established
a close working relationship with President Zelaya and his
cabinet. As President-elect, Zelaya and three of his
advisors met on January 20 with the Country Team at the
Embassy for a one-hour country briefing followed by a
half-hour session dedicated specifically to CAFTA (ref J).
This meeting came after a January 11 Country Team briefing
of several of Zelaya's designated ministers, and a January
13 luncheon meeting between the Ambassador, DCM, and the
President-elect and his private secretary, Raul Valladares
(ref K). President Zelaya has also held meetings with the
Ambassador several times at the Ambassador's residence,
both before and after his inauguration. From day one,
Zelaya has relished the idea of meeting President Bush (a

TEGUCIGALP 00000526 002.2 OF 007


meeting is tentatively set for June) and he literally made
the Central American presidents and Mexican President
Vicente Fox wait outside while he made Attorney General
Gonzales the first official meeting of his presidency (ref
I). Even before that, with one day's notice he brought his
most senior leadership to San Pedro Sula to see R U/S
Hughes and WHA Assistant Secretary Shannon, and he changed
his Foreign Minister-designee at the Ambassador's request.
There has been a consistent thread in Zelaya
Administration, whether from Zelaya himself, his VP, or his
ministers, and it has been pro-U.S.

¶3. (C) What appears to be causing some confusion in
Zelaya's policies are competing camps in the Liberal Party
seeking to influence Zelaya's decisions. Liberal Party
President Patricia Rodas and two prominent cabinet
ministers, Minister of Government and Justice Jorge Arturo
Reina and Minister of Foreign Affairs Milton Jimenez, have
a strong left-leaning backgrounds. (However it is critical
to note that these same advisors go out of their way to
make clear they value the bilateral relationship with the
U.S.) In a possible indication of more ideological
influence from these advisors, and in a possible
contradiction to then-head of transition and now Minister
of Finance Hugo Noe Pino's December 2005 statements to
PolChief that a Zelaya government projects no change in
relation with Taiwan or China, Honduras appears to be
toying with closer relations to the Peoples Republic of
China (PRC) at the potential expense of Taiwan. This is
despite the fact that Zelaya plans to visit Taiwan soon.
While the GOH may just be seeking an expanded commercial
relationship with the PRC, an understandable goal, and not
want to break relations with Taiwan, its repeated
discussion of the issue leads Post to wonder what the GOH's
intentions are. (See refs D and F for details.) On Cuba,
as Noe Pino told PolChief prior to the inauguration and FM
Jimenez has reiterated publicly, Zelaya intends to send an
Ambassador to Cuba, probably in 2007. Bilateral relations
were reestablished by the Flores Administration and
maintained by the Maduro Administration. There has been a
Charge d'Affaires but not yet an Ambassador.

¶4. (C) The different camps in the Liberal Party, led by
Rodas/Jimenez, Reina, San Pedro Sula business tycoon Jaime
Rosenthal (father of Minister of the Presidency Yani
Rosenthal), former President Carlos Flores (who appears to
be seeking to bolster Vice President Elvin Santos'
standing), and others, leaves a Zelaya Administration torn
in different directions. While some of this may be
healthy, in that he is receiving competing views, much of
it is counterproductive as different factions fight for
power and influence. Contacts in the National Party have
voiced their interest in this intra-party fight. Zelaya
has chosen to appoint six of his seven easily vanquished
presidential primary opponents to cabinet-level positions,
and appointed the seventh's son (Yani Rosenthal) also to
the cabinet. This despite the fact that congressmen who
ran on Zelaya's ticket in the primaries constitute 46 of
the 63 Liberal Party congressmen, including President of
Congress Roberto Micheletti - seen as a Flores ally, giving
Zelaya what should be fairly strong loyalty from 74 percent
of Liberal Party congressmen.

¶5. (C) It appears to Post that when Zelaya does choose a
policy direction, such as on fuel (reftels A-C), the

TEGUCIGALP 00000526 003.2 OF 007


President may have different goals than that of his
advisors/ministers. Santos has clashed with Rodas ever
since he was chosen as Zelaya's running mate, and in
February Santos told the Ambassador he was considering
resigning, but during Zelaya's recent trip to Panama and
Chile Santos appears to have hit his stride. He is acting
like a confident VP not worried about threats to his
influence from within the party. Post would like to see
Zelaya do the same and take the lead on what is best for
Honduras, with the USG being a countervailing power to help
Zelaya turn aside self-interested/corrupt groups within his
party (and Honduran society) and conduct responsible
political and economic reform. However it often seems that
the fight is between an entrenched establishment, those
seeking more radical change, and the great mass of
Hondurans who need to feel tangible benefits to regain
faith and democracy and free markets, with Zelaya's
policies not yet showing a consistent thread.

¶6. (C) Former President Flores hosted a meeting the evening
of March 14 between the Ambassador and President Zelaya,
with Flores and FM Jimenez participating in most of the
meeting, in an attempt to help enhance bilateral relations
and clarify any recent communication problems, such as
during the ongoing fuel issue (reftels A-C). Before the
meeting began Flores told the Ambassador privately that
Zelaya does not seem to understand the consequences of his
public statements. Zelaya, after telling the Ambassador
that he makes some key decisions (such as fuel) on his own,
told the Ambassador to stay in close contact with FM
Jimenez, despite the fact that it was clear to the
Ambassador that on crucial issues it will be necessary to
go straight to Zelaya. Flores emphasized to Zelaya that
aside from political considerations in his party, the only
people a Honduran President needed to consult with were
Roman Catholic Cardinal Oscar Rodriguez and the American
Ambassador.

Regional Security a Highlight
-----------------------------

¶7. (C) Zelaya strongly supports USG efforts on
counter-narcotics, and has accepted U.S. DOD assistance in
drafting a Honduran National Security Strategy, with a
workshop for his Administration planned for May 5-7.
Combined training events are proceeding as planned, and a
SOUTHCOM 15-person team recently visited to assess the
operational capabilities of the Honduran military.
Minister of Defense Aristedes Mejia's decision to keep
intact the military leadership (with some changes recently)
has strengthened a strong relationship built during his
tenure as President of the Supreme Electoral Tribunal when
the military was one of the few nonpartisan institutions
that actually worked in the contested election. The
Honduran military has also been at the forefront of the
Zelaya Administration's nascent efforts to protect natural
resources, specifically to try to prevent illegal logging.
The Embassy has found the Ministry of Defense to be a
bright spot in the infant Zelaya Administration, helped by
the fact that MOD Mejia is close to President Zelaya (see
ref G).

Immigration Reform Stalled
--------------------------


TEGUCIGALP 00000526 004.6 OF 007


¶8. (SBU) The Zelaya Administration has continued GOH
cooperation on deportation issues, including being the first
Central American country to conduct video interviews of
Hondurans awaiting deportation, with planes coming in
daily, including permission for Saturday flights. In
addition, GOH approval for use of San Pedro Sula for
deportation flights continues, although the lack of
promised resources from the USG means that San Pedro Sula
has not yet been prepped for the intake of thousands of
deportees.

¶9. (SBU) The GOH has not yet made discernible progress in
reforming Honduran Immigration. Despite President Zelaya
telling the Ambassador that he would move the immigration
function from the Ministry of Government and Justice to the
Foreign Ministry, it has not been moved. Indeed, the
Director of Immigration told ConGen on March 7 that he had
resigned after the Presidential Palace pressed his office
to violate procedures to issue the President's children
diplomatic passports. (This resignation is not yet public
as it will be accepted by the MinGov March 16.) A scandal
broke, also in early March, when citizens of Albania,
Lebanon, and Bosnia were admitted in apparent violation of
Honduran immigration law. The scandal has the hallmarks of
all Honduran scandals, i.e. several days of outraged
newspaper articles, with intimations of private interests
at stake, followed by grandstanding by law enforcement
officials and, finally, no meaningful action or change.
The Ambassador raised this scandal with President Zelaya
during their March 14 discussions, in an attempt to break
away from the dysfunctional status quo on Immigration.
President Zelaya told the Ambassador in that discussion
that German Espinal, former executive director of the
National Anti-Corruption Commission, would be named to lead
Immigration out of the Ministry of Government and Justice,
but left it unclear if Immigration would be an independent
entity. Ambassador and EmbOffs met with MinGov Reina March
16 and he announced he would form a commission to identify
procedures for finding a new Director of Immigration to
begin the reform process. MinGov Reina left open the
possibility that immigration would remain in his Ministry or
be moved elsewhere. Ambassador told Reina that the Mission
looked forward to working with and supporting his reform
efforts. Further details of this conversation will be
reported septel.

Ministry of Public Security Adding Cops but Slow to Reform
--------------------------------------------- -------------

¶10. (SBU) There is a widespread perception that street
crime has increased significantly since Zelaya took over.
While the statistics are not authoritative, there is
certainly more crime reported in the press. There is no
doubt that more Mission members have been crime victims in
recent weeks than before. These crimes have involved the
use of firearms and have taken place in upscale residential
neighborhoods. (See ref H for more details.)

¶11. (C) There are a disturbing number of indications that
police personnel are involved in some crimes, though such
allegations, and evidence, are not unique to this
government. While both Zelaya and Minister of Public
Security Alvaro Romero have stated support for the
rehabilitation of criminals, especially past gang members,
preferring a multi-disciplinary approach that utilizes

TEGUCIGALP 00000526 005.4 OF 007


governmental programs as well as NGOs with rehabilitation
projects, the message sent has been criticized by many. In
fact, one hypothesis is that weak leadership in the
Ministry of Public Security has allowed bad elements in the
police to act with greater impunity than before. Romero,
despite his bold statements about police being part of the
problem, has yet to take any measures to shake up the
corrupt ranks of the police. On a positive note and
fulfilling a campaign promise, Zelaya has begun to increase
the police force by incorporating hundreds of military
policemen who have recently completed their military
service into the police force. He has also kept the Maduro
Administration's policy of boosting police patrols with
military forces under "Honduras Segura."

Economic Policy a Mixed Bag: Trade Good, Fuel Bad
--------------------------------------------- ----

¶12. (C) Trade: The GOH has worked diligently to vet all
proposed CAFTA-required legislation and regulations with
the USG, and submitted those proposals to the Honduran
Congress, which passed them March 15. Minister of Trade
and Industry Elizabeth Azcona said she believes the needed
approvals will be enacted in time for an entry into force
of CAFTA on April 1. Post finds it particularly
significant that the Zelaya Administration, following
directly from Zelaya's pro-free trade position, has
accepted all key USG demands, and gotten congressional
approval quickly over changes that will have significant
impact on some key domestic interest groups.

¶13. (C) Energy: As discussed in refs A-C, the GOH has
announced the nationalization of all fuel imports, and has
threatened to also build its own storage facilities if
existing facility owners do not agree to store the imported
fuel at rates the GOH finds acceptable. If implemented,
this action could constitute expropriation of a U.S.
investment.

¶14. (C) Macroeconomic policy: The GOH continues to
outperform International Monetary Fund targets. However,
the GOH has privately asked the IMF to loosen certain
targets, notably including public sector wages and overall
fiscal deficit ceilings. There would be room in the
program to do so and still attain minimum targets, but the
IMF is concerned that the apparent flagging political will
this early in the administration to make the difficult
decisions bodes poorly for later years.

¶15. (C) Mining: In a February 10 meeting, Minister of
Environment and Natural Resources (SERNA) Mayra Mejia told
Ambassador that she understood the need to balance
environmental protections and investor protections. She
said she undertook to improve efficiency and transparency
in her ministry. The following week, Mejia renewed the
two-year old moratorium on new mining projects for another
year, effectively blocking any new investment or
significant expansion of existing investment. U.S. firm
Mayan Gold, meanwhile, continues to suffer at the hands of
illegal artesanal miners squatting on their gold-mining
concession. To date, the company reports, neither SERNA
nor the Public Ministry has taken any action to correct
this illegal action. The mining legislation, pending since
last summer, appears to be finally back on table for
discussion.

TEGUCIGALP 00000526 006.3 OF 007



¶16. (C) Agriculture: Based on the proposed sectoral budget
for agriculture, the GOH appears to plan to shift
significant resources (perhaps 60 percent of the overall
sector budget) into supporting basic grains production (ref
E). If enacted, this strikes Post as a significant step
backwards, into an era of state-supported production of
non-competitive commodities. It is also a rejection of the
recent successes of projects demonstrating the economic
benefits of producing non-traditional crops for export.

¶17. (C) Telecommunications: The GOH has thus far failed to
pass pending telecommunications reform legislation, and
reports indicate that efforts are underway in some quarters
to gut the legislation, provide additional state support
for failing parastatal Hondutel, and significantly weaken
state telecommunications regulator Conatel. Post is
cautiously optimistic that most of these negative changes
will be reversed during the mark-up process, but laments
the lack of GOH leadership seen thus far on the issue.

¶18. (C) Millennium Challenge Account (MCA): The Zelaya
Administration has been willing to dedicate substantial
efforts to launching the MCA program and as a result has
received the first disbursement under the program.
However, MCC staff are concerned that some selection of
personnel has been based on personal relationships with the
President and that competitive processes have been used to
produce pre-determined results. In one case, this has
resulted in MCC objecting to the appointment of the
Director for FONADERS (a project implementation unit in the
Ministry of Agriculture - see para. 20). MCC and other
donors are also being lobbied by GOH officials to use
concrete rather than asphalt in improvements to the major
highway. While there may be legitimate reasons to use
concrete, including problems with asphalt on stretches of
the same road, Post is concerned that this may be motivated
by Jaime Rosenthal, who owns a substantial portion of the
production capacity for concrete in Honduras.

¶19. (C) Transparency: While the Zelaya Administration has
announced that the private business interests of GOH
ministers involved in the MCA process will not be able to
bid on any MCA contracts, Post is increasingly concerned at
the persistent GOH failure to grasp the essence of
transparency in decision-making. The GOH has repeatedly
shown that it considers inviting a wide group of
participants to a meeting where the decision is presented
as a fait accompli to be "transparent" - such as in the
fuel issue. Another example is that FONADERS recently ran
an open and competitive hiring process for its new
director. President Zelaya overruled the review panel's
choice and instead insisted on installing a person he
thought highly of from his days in the Flores
Administration but with no agricultural background in the
position.

Early Enough to Change Direction
--------------------------------

¶20. (C) Comment: It is early enough in Zelaya's presidency
to make some key course corrections (especially on fuel),
sideline some of his questionable advisors, and act
decisively. He must both resist the temptation to act
rashly to seek change for change's sake, but also realize

TEGUCIGALP 00000526 007.3 OF 007


that his honeymoon will end and if he is unwilling to take
tough decisions he will soon find himself in the situation
that President Ricardo Maduro did after six months. Maduro
established that he was successful on fiscal policy, seen
as trying to be successful on crime, and was not really
serious about implementing any other fundamental changes.
This impression, and his low popularity, stuck with him the
remainder of his presidency, aside from a few hills and
valleys (notably his clashes with teachers unions). Post
is hopeful that Zelaya can adapt and set a bolder course
that will help reform Honduras without breaking it.

¶21. (C) Comment Continued. To do this Zelaya must rely on
his sincere pro-U.S. attitude and get past his apparent
resentment of Honduran dependency on the U.S., with some of
his advisors grating at the obvious nature of U.S.
political and economic power. As Flores advised Zelaya, he
must realize he cannot "fool the Americans," and recognize
his own inexperience and need for counsel. Post is
guardedly optimistic that this early heart-to-heart between
the Ambassador and President Zelaya will help prevent
future disconnects and help Zelaya realize that his
statements and actions will often have greater impact that
his privately shared intentions. End Comment.

Ford