Country Report Honduras June 2008

Outlook for 2008-09

• With less than two years left in power, the president, Manuel Zelaya of the Partido Liberal (PL), is rapidly losing public support in the face of his government's lack of success in tackling crime, corruption and rising inflation.
• Political parties' preoccupation with internal primaries due in November 2008 to select their candidates for the presidential and congressional elections due in late 2009 will further impair legislative co-operation.
• The government agreed a new arrangement with the IMF to replace the poverty reduction and growth facility (PRGF), which expired in February 2007.
• Although the government will commit under the programme to reducing the fiscal deficit from 2.3% in 2007 to 1.5% in 2008 the Economist Intelligence Unit considers this an over-optimistic target given the 2009 elections.
• We expect the fiscal position to deteriorate further in 2008-09 as spending on wages and salaries rises further ahead of the 2009 elections.
• The Banco Central de Honduras (BCH, the Central Bank) will tighten policy further in its attempt to bring inflation back to target.

Monthly review

• The hunger strike of the public prosecutors ended in mid-May after Congress appointed a commission to investigate their demands to probe corruption in the prosecutor's office.
• Mr Zelaya has clashed again with the Supreme Court over its suspension of the Hoy no circula initiative, which prohibits each vehicle from circulating one day per week.
• An illegal transmigration scandal has triggered several high-level resignations, including the director of the Department of Migration and the secretary of the minister of foreign affairs.
• The IMF has expressed concern over the rising burden of energy subsidies on the public sector accounts during the visit of a mission in May.
• The public sector surplus deteriorated in January owing to higher spending and slower revenue growth.
• The Central Bank's monthly economic activity index showed a sharp slowdown in March, possibly heralding the start of an economic slowdown.
• Despite a robust rise in export earnings, the trade deficit rocketed in the first quarter owing to higher import spending, particularly on fuels and capital goods.