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ACTION ARA-10
INFO OCT-01 ISO-00 SP-02 USIA-15 AID-05 EB-07 NSC-05
CIEP-02 TRSE-00 SS-15 STR-04 OMB-01 CEA-01 CIAE-00
COME-00 FRB-01 INR-07 NSAE-00 XMB-04 OPIC-06 LAB-04
SIL-01 AGR-10 /101 W
--------------------- 098809
R 211455Z JUL 76
FM AMEMBASSY TEGUCIGALPA
TO SECSTATE WASHDC 4000
INFO AMEMBASSY GUATEMALA
AMEMBASSY MANAGUA
AMEMBASSY SAN JOSE
AMEMBASSY SAN SALVADOR
UNCLAS TEGUCIGALPA 3518
GUATEMALA FOR ROCAP
E.O. 11652: N/A
TAGS: EFIN, HO
SUBJ: BALANCE OF PAYMENTS: HONDURAS
REF: STATE 0119
1. BASED UPON FIRST QUARTER EXPERIENCE THE CENTRAL BANK HAS MODI-
FIED SEVERAL CY 76 TRADE AND NATIONAL ACCOUNT PROJECTIONS. ALL
FIGURES ARE IN MILLIONS OF U.S. DOLLARS.
2. EXPORTS OF GOODS AND SERVICES HAVE BEEN MODIFIED UPWARD DUE TO
STRONG COFFEE AND BANANA PRICES, AND INCREASED VOLUME OF BANANA
EXPORTS AND GENERAL STRONG INTERNATIONAL PRICES FOR HONDURAN AGRI-
CULTURAL AND FORESTRY EXPORTS. THE PROJECTION FOR GOODS AND
SERVICES EXPORTS IS $378.6, UP 17.2 PERCENT OVER 1975.
3. ONLY MINOR CHANGES ARE EXPECTED IN TRANSFERS, OFFICIAL CAPI-
TAL AND PRIVATE CAPITAL, BUT THESE ARE POSITIVE CHANGES IN THE
UNCLASSIFIED
PAGE 02 TEGUCI 03518 220441Z
AMOUNT OF ABOUT $9 OVER THE TOTAL REPORTED REFTEL.
4. THE GDP IN CURRENT DOLLARS INDICATES A 12.5 PERCENT INCREASE
OVER 1975. IN CONSTANT TERMS, THE INCREASE IS PRESENTLY CALCULATED
AT 4.9 PERCENT, BUT IS SUBJECT TO UPWARD MODIFICATION. THIS ESTI-
MATE OF GROWTH APPEARS TO BE CONSERVATIVE BECAUSE THE CONSTANT
GROWTH IS DETERMINED FROM GDP DEFLATOR UTILIZED IN 1975, WHEN
PRICES WERE CALCULATED TO HAVE INCREASED AT A RATE OF 8.8 PERCENT.
THE PRESENT ESTIMATE OF PRICE INFLATION IS NEARER 6.5 PERCENT. AL-
THOUGH A FY 76 GDP DEFLATOR HAS NOT BEEN CALCULATED BASED UPON THE
FIRST QUARTER FIGURES, IT WOULD APPEAR THAT A REAL RATE OF GROWTH
ON THE ORDER OF NEAR 6 PERCENT IS PROBABLE.
5. A RATE OF GROWTH BETWEEN 5 AND 6 PERCENT IS SUGGESTED BY THE
CENTRAL BANK IN PRIVATE DISCUSSIONS AND IS CONSISTENT WITH A
RECOVERY OF THE ECONOMY FROM HURRICAN AND OTHER PROBLEMS IN 1974-75.
THE CENTRAL BANK, ALWAYS CONSERVATIVE, VIEWS THE FIRST QUARTER
RESULTS AND A NEAR BALANCE ON TRADE AS SEASONAL AND REFLECTING
STRONG EXPORT PERFORMANCE OF COFFEE WHICH NOW AT THE END OF THE
FIRST HALF FINISHED ITS EXPORT SEASON. IN FURTHER CORRECTION FOR
FY 76, IT IS EXPECTED BY THE BANK THAT IMPORTS WILL EXPAND SHARPLY
IN THE SECOND HALF DUE TO INVENTORY REPAIR AND EXPENDITURE OF HIGH
FIRST HALF EXPORTS RECEIPTS BY THE ECONOMY.
6. ON CREDIT POLICY, THE CENTRAL BANK IS MONITORING LIQUIDITY
IN THE PRIVATE SECTOR IN ORDER TO CONTRL STOCK BUILDING AND
CONSUMPTION WHILE AT THE SAME TIME KEEPING FUNDS AVAILABLE FOR
MEDIUM TERM INVESTMENT. THE FINANCIAL INSTITUTIONS, HOWEVER, STATE
THAT DEMAND FOR INVESTMENTS AND FINANCIAL INSTITUTION CAPACITY TO
RESPOND IS SNAGGED BY A COMBINATION OF GOVERNMENT LAWS AND REGU-
LATIONS WHICH MAKE PROVISION OF CREDIT TO THE AGRICULTURAL
(LARGEST) SECTOR EITHER HIGH RISK OR ILLEGAL. THERE IS COMMUNI-
CATION BETWEEN THE PRIVATE SECTOR AND THE GOVERNMENT ON THE ISSUE,
BUT ACCOMMODATION HAS NOT BEEN REACHED.
7. ON THE FISCAL SIDE, GENERAL RECEIPTS ARE CLOSE TO EXPECTATION.
EXPENDITURES LIKEWISE. THE LAG IN PROJECT EXPENDITURES WHICH
FORCED SHORT TERM BORROWING IN 1975 IS BEING GRADUALLY REDUCED.
8. ON BALANCE OF PAYMENTS CAPITAL FLOW, MOVEMENT IS DOMINATED BY
INTERNATIONAL FINANCIAL INSTITUTION MEDIUM AND LONG TERM CREDITS.
UNCLASSIFIED
PAGE 03 TEGUCI 03518 220441Z
THE DEBT SERVICE RATION IS QUITE LOW, SO THERE IS LITTLE HINDERANCE
TO BORROWING.
9. THE NET BALANCE OF PAYMENTS PICTURE INDICATES A $5 MILLION LOSS
IN RESERVES IN FY 76, ALTHOUGH THE STRONG FIRST HALF PAYMENTS
CONDITIONS HAVE RAISED THESE RESERVES TO A HISTORIC HIGH OF NEAR
$100 MILLION. THE SECOND HALF SHOULD PULL THIS DOWN, BUT THE
LEMPIRA WILL NOT BE PRESSURED.
10. THE OVERALL OUTLOOK IS FOR A STRONG PERFORMANCE DURING 1976.
TO A MAJOR DEGREE, GROWTH IS BEING FINANCED BY INTERNATIONAL
FINANCIAL INSTITUTIONS. HONDURAS HAS A TRADITIONALLY LOW FOREIGN
DEBT/EXPORTS RATION, ABOUT 3.9 PERCENT. BECAUSE THE CREDITS
BEING OBTAINED ARE MEDIUM AND LONG TERM, THE HIGH RATE OF GROWTH
APPEARS TO BE SUSTAINABLE AS LONG AS THESE INSTITUTIONS LOOK WITH
FAVOR ON HONDURAS. THE MEDIUM TERM PROBLEM FOR THE GOH IS TO
OBTAIN HIGH RATE OF RETURN IN PRODUCTIVITY FROM THESE READILY
OBTAINABLE CREDITS. THE PRESENT HIGH RATE OF GROWTH, COUPLED
WITH A STRONG LOCAL CURRENCY AND LACK OF ANY EXCHANGE CONTROLS
WOULD NORMALLY LEAD TO STRONGER LOCAL AND FOREIGN PRIVATE INVEST-
MENT ACTIVITY. THE MAJOR IMPEDIMENT IS INCOHERENCE OF GOVERNMENT
AGENCY ACTIONS AND CONFUSED EXPECTATIONS ON THE PART OF POTENTIAL
INVESTORS.
BARTCH
UNCLASSIFIED
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