Poverty Reduction Strategy Paper Progress Report

This report highlights progress made in implementing the Honduran Poverty Reduction Strategy (PRS) from the time of its approval by the Government of Honduras in August 2001 to the present. The report monitors the economic and social programs that were defined in the original document and which were revised following consultation with civil society in the First Progress Report and Update of the PRSP. The report discusses that Honduras has thus far achieved approximately 18 percent of the improvement on the PRSP indicators that will be needed to reach to the goals set for 2015.


This report highlights progress made in implementing the Honduran Poverty Reduction Strategy (PRS) from the time of its approval by the Government of Honduras in August 2001 to the present. The report monitors the economic and social programs that were defined in the original document and which were revised following consultation with civil society in the First Progress Report and Update of the PRSP. The report discusses that Honduras has thus far achieved approximately 18 percent of the improvement on the PRSP indicators that will be needed to reach to the goals set for 2015.


1. This report describes progress made to date in implementing the Poverty Reduction Strategy (PRSP), since its approval by the Government of Honduras in August 2001. The PRSP, whose primordial goal is reducing the levels of poverty and indigence in a sustainable manner through economic growth with equitable distribution of resources, through the year 2015, is strengthened and further accentuated by the commitment of Honduran authorities to achieve the Millennium Development Goals. This commitment was concretized by Honduras and 188 other nations in 2000. A complete description of the PRSP goals, its global indicators, and the policies and programs designed to achieve these was published in the governmental document, “Poverty Reduction Strategy,”1 which was approved by the Directorates of the International Monetary Fund (IMF) and the World Bank (WB) in October 2001.

2. In late 2003, the process of updating the PRSP was concluded. This process consisted of recalibrating its goals and indicators, and redefining poverty spending to make the Strategy more coherent with defined objectives. This process took place in the framework of the first progress report, which summarized the achievements and outstanding challenges facing program implementation and the impact on indicators during the 2002–2003 period. This report monitors the recalibrated goals, in light of the new poverty spending definition and institutional structure changes that arose in 2004.

3. The report is also reinforced by the Poverty Reduction and Growth Facility (PRGF) agreement that the Government of Honduras signed with the IMF, by the World Bank’s Poverty Reduction Support Credits (PRSC), and by agreements made in the framework of the Fourth Meeting of the Consultative Group held in Tegucigalpa in June 2004. It is hoped that the same will serve as the basis for achieving the Floating Culmination Point in the framework of the Heavily Indebted Poor Countries initiative, to facilitate the achievement of PRSP goals through external debt service relief and its conversion into higher levels of spending for the most unprotected members of society.

4. Since the PRSP was developed, important events have occurred that have altered the nation’s medium-term economic outlook. The negative effect of the US economy’s deceleration after September 11th, 2001, the continued worsening of the terms of exchange, added to a two year delay signing the PRGF with the IMF have attenuated Government efforts to achieve PRSP goals. However, a more exhaustive review of the impact of policy measures under implementation, and of the increased spending on poverty reduction programs, reveal important progress in terms of achieving significant improvements in the well being of the most vulnerable members of Honduran society.

5. The report will be subjected to a consultative process through the PRSP Consultative Council (CCERP), whose structure was expanded to include a greater number of civil society representatives. The results of this process improved Honduran society’s understanding of PRSP implementation to date, and more precisely defined the outstanding challenges to be faced in the future. A detailed description of the consultation process along with its results has been included in Chapter II.

6. Chapter III outlines the nation’s macroeconomic situation and its influence on PRSP implementation. Reference is made to the economic deceleration and fiscal crisis underway since 2001, as well as the measures taken to correct this situation. The PRGF agreement signed in March 2004 with the IMF, combined with access to World Bank Poverty Reduction Support Credits (PRSC) and the achievements made in the Consultative Group reaffirm the centrality of poverty reduction to the nation’s development strategy. This is also reflected in later reviews of these agreements and the positive projections for compliance with the monetary program approved by authorities at the beginning of the year, despite obstacles generated by external shocks mostly associated with the world energy crisis.

7. Chapter IV summarizes the state of poverty and the performance of the main economic and social indicators for poverty reduction, between September 2001 and September 2004. The results of the Standard of Living Survey (ENCOVI) are still not available; these will shed light on important themes related to poverty in the country. This section also contains some fundamental innovations in relation to previous reports. The evolution of poverty is extensively reviewed, considering not only its incidence but also the severity and scope of disparities. In addition, income redistribution is considered using more stylized indicators than the Gini coefficient, such as the Atkinson and Theil indices. Well-being is also briefly evaluated using the Unsatisfied Basic Needs method.

8. In Chapter V, implementation of the PRSP’s financial resources during the 2001–2004 period is analyzed. The first part of the analysis provides a global overview of budgetary implementation, detailing the use of financing following the redefinition of poverty spending in 2003. Later, the acquisition and use of interim debt relief resources between 2001 and September 2004 is explained in detail. It is important to stress the manner in which HIPC resources have allowed greater insertion and focalization of public resources earmarked for the fight against poverty. The consolidation of national efforts is sought under the principle of HIPC relief additionality, achieving adequate budget implementation by social sectors, avoiding the fungibility and displacement of financial resources, and assuring the use of an increasingly larger portion of the budget to achieve the PRSP goals.

9. Chapter VI details the PRSP’s programmatic implementation and progress made in implementing legal and political reforms in each of the six programmatic areas contained in the document. It also includes an examination of advances in the decentralized implementation of the PRSP, especially with respect to municipal strategic planning and building local capacities. Finally, the development of the PRSP’s operational-institutional framework is assessed, justifying changes in the CCERP’s structure and in the institutional participatory planning model generated by the Sector Roundtables.

10. Efficient implementation of the PRSP should be proposed in a framework of a strategic planning process that is consistent with the requirements for achieving the PRSP goals. For this, the Government and the G-17 Donor Group began a process in 2003 of harmonizing international cooperation and aligning it to the priorities defined in the framework of PRSP goals. The progress of this process is described in Chapter VII, where the design and implementation of SWAPs Programs—a fundamental long-term planning instrument—are also evaluated.

11. Monitoring and evaluating the impact of both PRSP policies and programs and projects are a priority, to facilitate decision-making. Chapter VIII analyzes the performance of the PRSP Information System (SIERP), including progress in monitoring impact and process indicators, as well as studies carried out to measure the impact of policies and programs (the so-called Poverty and Social Impact Analysis, or PSIA). The chapter also describes the medium term outlook for these instruments.

12. Finally, Chapter IX describes obstacles encountered during PRSP implementation, as well as the main challenges that need to be confronted in the medium and long term. The purpose here is to pinpoint the main aspects to be considered in future work, in light of institutional changes and shifts in policy cycles, as well as the influence of medium-term world economic trends.


13. As has been done on previous occasions, a draft of the PRSP Progress Report through 2004 was submitted for consultation to Civil Society and the International Cooperation Community through the CCERP. The fundamental goal of this task was to learn the viewpoint of the citizenry represented in the different sectors regarding relevant aspects in implementing the Strategy and stimulating them to become more aware of the process, as well as to obtain inputs to enrich the document and improve its quality.

A. Organization and Participating Sectors

14. On this occasion, the consultation took place through six regional workshops in order to ensure broad participation by Civil Society at the national level. The consulted regions were: i) Central Region, which covers the provinces of Francisco Morazán, Comayagua, La Paz and Olancho; ii) South Region, for the provinces of Valle and Choluteca; iii) Western Region, for the provinces of Copán, Ocotepeque, Lempira and Intibucá; iv) North Region, provinces of Cortés and Santa Bárbara; v) Seaboard Region, provinces of Atlántida, Islas de la Bahía and Yoro; and vi) Bajo Aguan Region, provinces of Colón and Gracias a Dios. Approximately 800 people participated in the consultation, among the 12 sectors of Civil Society and representatives of the G-17.

15. A methodology was designed to facilitate the analysis and reflection on the topics addressed in the report, as well as the later inclusion of the participants’ contributions in the final version. This methodology, as well as the definition of the participants was done together with the members of the recently installed CCERP.2

16. The first draft of the report was turned in ahead of time to the CCERP members so that they could share it with their base organizations before the workshops. The working sessions began with a presentation by the Government regarding the content of the document, followed by work in groups, in which the participants offered their contributions and comments regarding their vision of the process.

17. The results of the workshops were systematized in matrixes, which served for drafting a summary of the observations and proposals by Civil Society that were then included in the document. Annex A contains a summary chart of the contributions from Civil Society, noting the topic and origin of each one.

18. The International Cooperation Community grouped in the G-17 offered valuable contributions to the report. A document with general and specific comments on the draft was submitted to the Government. It included numerous ideas for improving the internal coherency of the report. In addition, one or more representatives of the donors participated as observers in all the consultation workshops.

B. Results of the Consultation

a. General aspects

19. The impression of the majority of participants is that document pulls together a valuable amount of information about the main actions carried out by the Government regarding implementation of the PRSP. Nonetheless, they expressed concern about the lack of impact of these actions on the global goals. The majority agreed that this is principally because the current efforts will crystallize in the long term. The impression also persists that the delay in reaching the Culmination Point of the HIPC initiative has stagnated the process.

20. Another recurring aspect in the discussions was the need for Honduran society to appropriate the PRSP. Concern was expressed regarding the sustainability of the process in the fact of changes of government, especially in a political year, and the implementation of a broad outreach program to publicize the Strategy was proposed, to make it known by both civil society and the authorities.

21. There was insistence on the need to adequately prioritize the programs and projects to strengthen the link between actions to be undertaken and the goals of the Strategy. In this context, the need was expressed to link all Government actions to the PRSP through sector-wide inter-institutional coordination.

22. In this framework, the proposal was made in the majority of the meetings to increase civil society’s participation in determining the programs to be financed with Strategy resources. To this end, it was proposed, among other things, to strengthen decentralization in their implementation, especially through the Strategic Municipal Development Plans and promotion of the Regional Strategies.

23. Greater participation by society was also urged in determining strategic aspects of the PRSP, such as the definition of macroeconomic policies, the country’s strategy regarding processes such as CAFTA, and the formulation of an appropriate strategy for combating corruption. As part of this effort, it was stated that the national consultation processes must be more ongoing and genuinely affect the orientation and implementation of the Strategy

24. The importance of having access to information about all the programs and projects was remarked upon, including disaggregating at the level of implementing institution, geographic reach and expected impact. Greater information was also requested regarding fulfillment of the program’s physical and financial targets and the degree of progress in that regard. There was also insistence on the need for disaggregated information at the municipal level. The same type of information must be available for the programs and projects suggested for incorporation into the PRSP in the medium and short term.

25. General enthusiasm was perceived in all the workshops regarding the participation and opening that the Government has generated around the PRSP. Unlike previous processes, Civil Society expressed positive expectations regarding the future implementation of the programs. Nonetheless, criticisms were evident regarding the slowness of the majority of public institutions, as well as the lack of commitment on the part of authorities to push the programs and projects. Greater accompaniment by public officials at the future participatory processes was requested.

b. Specific Comments

26. With respect to the macroeconomic chapter, it was expressed that although the GDP growth, inflation and the interest rates show stability, this behavior is not becoming tangible in the situation of employment and well-being of the majority of population sectors. It is necessary that the measures taken by the Government be joined by policies capable of developing production with the participation of all sectors. As on other occasions, there were diverse opinions regarding how to configure the macrofiscal framework in concrete terms.

27. On the topic of Economic Growth, the private sector representatives and the social sector of the economy criticized the fiscal measures for increasing taxes on the formal sector. Others said that it is not observable how the corruption-fighting measures have been a source of financing for the PRSP. The impression persists that the government is excessively large and they consider it important to make public spending on salaries consistent with the country’s macroeconomic possibilities. They also criticized the persisting tax exemptions.

28. The discussions also centered on the need to strengthen the National Competitiveness Program, the development of micro and small businesses, and the importance of the negotiation of the trade opening taking into consideration its linkage to poverty. Some of those consulted did not agree with the trade liberalization in the CAFTA framework, for fear of a negative impact on some sectors such as agro, while others see it as an essential factor for strengthening Honduras’ competitiveness.

29. There was insistence in the majority of workshops on the need to order public interventions toward the poorest sectors. Institutional disorder continues to be observed in the implementation of programs and projects. In addition, the NGOs and Cooperation were criticized in that they often duplicate efforts, leading to a waste of much-needed funds to reduce poverty.

30. On the issue of Rural Poverty, the participants agreed on the need for an effective land access policy to be designed together with an efficient land use scheme that permits the land to be used well. There was a demand by the peasant organizations that a land redistribution be carried out fin the framework of a broad agrarian reform, assigning the needed budget resources to that end. Others emphasized the importance of improving the irrigation systems and access to basic infrastructure services such as water and sanitation, electricity, telecommunications and a rural road system to facilitate the recovery of productive activities.

31. The discussions regarding urban poverty demanded the development of social and economic infrastructure in the marginal neighborhoods of the development polls. Several of those consulted stressed the importance of improving the existing informal housing in marginal neighborhoods. A greater disaggregating of the indicators of access to basic services was requested, as was greater participation by residents and councils in the policy decisions regarding the PRSP. Some questioned whether the People’s Housing program could attend the truly poor. Skepticism was expressed about the reported figures of urban water coverage, with the comment that many who are connected to a system receive bad service. It was requested that greater importance be given to this issue.

32. Those consulted on education and health centered their comments on the development of a better scheme for following up on attainment of the goals, better linkage of public policies with local actors, a more transparent usage of resources and that the quality of the services be taken into account. Concern was expressed about the failure to meet several of the goals in this area, including net coverage in primary and secondary education.

33. With respect to attention to specific groups, those consulted want a comprehensive vision of ongoing poverty reduction of those groups, and not through social compensation programs and temporary poverty alleviation (which were characterized as charity or paternalistic projects). It was requested that the issues of third age and people with disabilities be made more visible, as they are absent from the program. There was also a request for better treatment of the issue of at-risk children and youth.

34. With respect to the sustainability of the strategy, it was requested that actions regarding public security, democratic participation and governmental transparency be implemented. Regarding environmental protection and risk management, concerns were expressed about the apparently reduced importance given these themes in recent years and the need was expressed for establishing a clear state environmental and risk-management policy. It was requested that the follow-up systems to the PRSP and civic participation in them both be strengthened

C. Incorporation of the Results into the Report

35. This PRSP Progress Report incorporates many of the comments and suggestions received. The majority of them have been incorporated into the document considering their pertinence to specific chapters and sections of the document. Parallel to the document, a minute of the process is being drafted, detailing evidence of the incorporation of the suggestions. In addition, matrix A details the contributions by city and Report section.

36. The strengthening of the sections of statistics and indicators of PRSP results and impacts are among the most important changes to the Report. Moreover, greater emphasis has been given to the PRSP work program by strengthening the participatory and decentralized implementation processes of the Strategy and the creation of transparent follow-up mechanisms for the PRSP. Work has begun to align the PRSP interventions and goals within the framework of sector-wide programs in education, health, water and sanitation, agroforestry and public security.


A. International Panorama

37. The world economy showed strong signs of recovery in 2003 and 2004, following economic deceleration and uncertainty at the start of the century. Preliminary data reveal that the global GDP grew around 4% last year, pulled upward by the acceleration of the US and Chinese economies. Japan’s recovery injected a new demand factor into the international scene. Its 2.7% growth rate in 2003 and 2004 easily surpassed the 0.2% rate of growth in 2002. Other factors affecting this behavior were the end of the war in Iraq, the rise in world hydrocarbon prices, and better access to financing in developing countries.

38. Propelled by world trends, the economies of Latin America and the Caribbean as a whole had encouraging growth in 2004, registering a 5.5% increase in the GDP.

39. The USA’s 4% growth rate facilitated an increase in Latin American and Caribbean imports to that country. Moreover, the expansion of Asian economies, headed by China’s 9.8% growth rate, triggered price and volume increases for basic products exported by the region, including copper, tin, iron and soy. In addition, the recovery of intra-regional trade flows in Latin America favored this increased economic activity.


Latin America: Growth of the GDP, Inflation and Unemployment

Citation: IMF Staff Country Reports 2005, 082; 10.5089/9781451817096.002.A001

40. Central America also produced good economic results, despite some adverse external factors. Macroeconomic stability was maintained throughout the period, expressed in inflation rates below 10% in most of the region. Other positive factors included maintaining stable exchange rates, increased exports and increasing international reserves. However, the balance of payments current account deficit deteriorated in most of the countries in the region, reflecting growing import demand as GDP growth increased, and some countries reported slippage on the fiscal deficit

41. Besides these generally positive macroeconomic results, the Central American Free Trade Agreement (CAFTA, or “TLC” in Spanish) was negotiated with the United States, generating positive expectations for medium-term trade and investment flows. In addition, state modernization processes and structural reforms continued in most countries of the region.

B. National Economy

a. Macroeconomic overview

42. Honduras registered very positive results for the first full year implementation of the PRGF agreement with the IMF (see Table III.1). Based on provisional data (subject to review by the IMF Mission programmed for the first week of February, 2005), real GDP growth is estimated to have reached 4.6% (against the forecast of 3.75%)

Table III.1

Honduras: Principal Macroeconomic Indicators

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43. The level of Net International Reserves surpassed program goals comfortably and the monetary targets were met. In spite of these achievements, the inflation rate (consumer price index, CPI, point-to-point) reached 9.2%, above the revised PRGF objective of 8.0%, due mainly to the pressure of increased fuel prices. However, the GDP deflator rose only 7.7%, which indicates that domestic inflationary pressure was contained broadly in line with the program goals. The long-term trend in inflation is clearly downwards (see graph) and it is expected that this will continue in the second year of the PRGF program, as international fuel markets move back towards normality. It is also noteworthy that the relative increase in the Honduran CPI in 2004 was the lowest in the Central American region.


Honduras: Inter—Annual Variation of the IPC, 2000 – 2004

(through September of each year)

Citation: IMF Staff Country Reports 2005, 082; 10.5089/9781451817096.002.A001

44. Most important of all, the fiscal goals of the PRGF program were met. The deficit of the Central Government was 3.5% of GDP (down from 5.4% in 2003) and the combined deficit of the non-financial public sector was 3.0% (compared with 4.9% in 2003). This adjustment was achieved without sacrificing poverty reduction spending, which (on the new definition outlined in the previous Progress Report) rose from 7.8% of GDP in 2003 to 8.4% in 2004. In the following paragraphs, the main aspects of the government’s successful macroeconomic program are outlined. Chapter V presents further details on the trends of poverty spending.

b. Growth, investment and competitiveness

45. GDP growth for 2004 is estimated at 4.6%, higher than the 3.75% revised projection of the PRGF agreement. The continued recovery of GDP growth was propelled by government efforts to maintain a stable macroeconomic framework complemented by implementation of the National Competitiveness Program, the generation of an improved business climate and increased public investments to support production. The main factors contributing to growth on the demand side were a sharp rise in investment (from 23.4% of GDP in 2003 to 26% in 2004) and strong growth of export of goods (not including maquila) (up from 20.3% of GDP in 2003 to 21.1% in 2004). The continuing strong inflow of family remittances helped to offset the shock of increased oil prices.

46. Private investment grew strongly in 2004, rising to 19.8% of GDP, compared with 17.9% in 2003. To stimulate private investment, the Government has promoted accelerated liberalization of the telephone sector through the “Phones for All” program; has awarded a second cell phone concession (leading to significant reductions in rates and a very rapid increase in the number of phones), and has contracted 400 Mw of electricity generation capacity on very favorable terms from private generators. Public investment also rose, from 5.4% to 6.2% of GDP. Much of the public investment program is oriented towards economic recovery and improving the competitiveness of the economy, including major infrastructure investments in the roads sector, irrigation projects in the agriculture sector, and an ambitious housing program for low-income families.

47. The external sector has been strengthened by export growth and the increase in remittances, which are expected to reach close to 15.6% of the GDP in 2004. The growth of exports of goods in 2004 is mainly due to: bananas, coffee, shrimp, gold, silver, lead, sugar, pineapples, soap and detergent, wood, tilapia, and plants and vegetables. Although the international prices for some of these products dropped, export volumes were strong.3 The apparel maquila sector also remains strong, recovering well from the 2001–2002 down-turn. These factors have offset the impact of oil price increases, and international reserves of the central bank reached 2004, comfortably surpassing the US$1.623 billion in December PRGF goal of maintaining 4 months of import cover.

c. Fiscal Performance

48. The weak fiscal situation in Honduras was the principal problem addressed under the first year of the PRGF program. All the PRGF program fiscal goals were met.

49. On the revenue side, the measures implemented under the program have reversed the decline in tax revenues observed between 2000 and 2002, when they fell to 15.9% of GDP. A combination of tax reforms implemented by the current administration and improved tax administration led to a sharp recovery in tax revenues, which reached 16.3% of GDP in 2003 and 17.3% in 2004, and are expected to rise by a further 0.2% of GDP in 2005. Total revenues (including donations) rose from 19.4% of GDP in 2002 to 19.8% in 2003 and 20.6% in 2004. Coupled with the reduction of total spending from 25.0% of GDP in 2003 to 24.1% in 2004 (whose causes are detailed below), this translated into sharply increased public sector savings (up from 1.4% of GDP in 2003 to 4.0% in 2004).

50. The tax reform program was applied in three stages. The first reform included measures to expand the Sales Tax (ISV) base, unification of corporate income tax rates and increased fines and license fees. It also included some measures that implied a loss of revenues, since it eliminated excise taxes and reduced taxes on vehicles, clothing and other goods to 15%. The second phase included measures to improve tax equity, to expand the tax base, to reduce fiscal fraud and to improve tax administration. The third reform—approved in December 2003—applied sales tax to public enterprises, increased the sales tax base by eliminating unjustified exemptions, established a temporary 5% income tax surcharge on corporate profits above L.1 million and modified taxes on petroleum and its derivatives.

51. The Government’s strategy to control current spending has centered on controlling unjustifiable increases in public sector wages and rationalizing the executive branch. The rapid growth of salary costs began following reforms to the economic clauses of the laws governing teachers and doctors remuneration in the mid 1990s, and pushed the previous PRGF off-track in 2001. By 2002 the Central Government wage bill had reached 10.8% of GDP, close to double the level recorded 5 years earlier. Wage growth was contained following negotiations with the unions in 2002, when the government faced-down a teachers’ strike that sought further immediate increases of nearly 50%. To establish a permanent solution to the problem, the government reformed the public sector remuneration system to reassert executive control over salary policies and restore equity between different groups of employees. The implementing legislation was approved by the National Congress in December 2003. Central government wage spending fell to 10.5% of GDP in 2003 and 10.2% in 2004, and is projected to continue falling gradually in the coming two years.

52. State restructuring is another strategic component of the expenditure rationalization program. The Government has initiated a “re-engineering” process to eliminate excess costs and more efficiently restructure governmental departments. Legislation on this issue has been remitted to the Congress and is expected to be finalized during 2005.

53. A World Bank study of the distributive impact of the fiscal adjustment program (conducted as a Poverty and Social Impact Appraisal, PSIA, under the aegis of the PRSP) confirmed that the tax measures undertaken by the Government have been slightly progressive (i.e. have shifted the tax burden somewhat towards better-off families). It also found that the combined distributional impact of the tax measures and spending reforms to date under the PRGF program has been strongly progressive, because. The fiscal adjustment program was carefully designed not to prejudice poverty reduction efforts and to protect spending programs benefiting poorer households. Poverty related spending (under revised definitions established in the First PRSP Progress Report) increased from 7.8% in 2003 to 8.4% in 2004. Under PRGF program goals, it is expected to reach 8.7% in 2005 and 9.4% in 2006. The trend of poverty spending is discussed in more detail in Chapter V.

54. As a result of the factors outlined above, as already mentioned in paragraph 44, the Central Government’s fiscal deficit was sharply reduced, to 3.5% of GDP in 2004. The deficit is expected to continue falling gradually, to 3.0% in 2005 and 2.7% in 2006. Similarly, the combined public sector deficit was reduced to 3.0% in 2004, and will continue falling to 2.5% in 2005 and then 1.7% of the GDP in 2006. These projected levels of the overall deficit are congruent with Honduras’ ability to raise concessionary financing from the international community and - therefore - with the maintenance of a sustainable debt load after the HIPC Completion Point is reached in 2005.

d. Monetary and Credit Policy

55. The Central Bank’s monetary and foreign exchange policies are geared to achieving internal price and foreign exchange stability through the implementation of a stringent monetary program The main instruments of monetary policy are Open-Market Operations (OMO)


Evolution of Interest Rates for Loans/Deposits in National Currency

Citation: IMF Staff Country Reports 2005, 082; 10.5089/9781451817096.002.A001

56. During 2004, the increase in Net International Reserves was greater than the forecast in the PRGF, due principally to the increase in family remittances from Hondurans living abroad. This was mainly offset by increased banking system investments in monetary absorption certificates issued by the BCH and higher deposits in the BCH. However, to avoid the risk that excess liquidity might trigger an increase in dollarization, the BCH also required temporary obligatory investments to the financial institutions. This allowed the BCH to sterilize the growth of currency issue caused by foreign exchange inflows, without pushing up interest rates on CAMS. The latter are an important reference point for system lending rates and also produce considerable quasi-fiscal costs. To reduce the excessive rate of growth of dollar lending, the BCH also tightened the prudential limits for the financial system’s external indebtedness.

57. Since 2001, interest rates for national currency operations in the banking system have declined steadily, as inflation has come under control and the 2001 financial sector crisis has been resolved. The weighted average of the financial system’s nominal lending rate fell from 23.2% in 2001 to 19.5% in 2004, while deposit rates have been reduced from 11.76% in 2001 to 8.0% in 2004. The margin of financial intermediation has remained stable, allowing banks to strengthen their balance sheets and capital positions.

58. Throughout the same period, exchange rate management policy sought to maintain currency stability while avoiding further real exchange rate appreciation. Honduras operates a crawling peg system based on an auction of all foreign exchange, administered by the Central Bank. To prevent instability, the outcome of the auction is limited within a band around a reference price set by the BCH. The monetary authorities have continued to adjust the reference price based on the differential between inflation in Honduras and that of its main trading partners. This strategy aims to shore up competitiveness and prevent real exchange rate appreciation, in spite of the strong inflows of foreign exchange linked to private transfers, investment flows and official capital flows, noted above.

e. Financial System

59. Following the 2001 financial crisis, the Government has implemented a successful sector stabilization program. In 2003, the National Banking and Insurance Commission (CNBS) began implementing a Financial Sector Adjustment Program (FSAP) with support from international organizations. Key actions under this program were included among the structural conditions of the PRGF. The Congress passed a new Financial System Law, whose objective is to strengthen the CNBS’s supervisory capacity and establish a legal basis for the consolidated supervision of financial groups. Reforms were also made to the CNBS Law, the Central Bank Law, and the Deposit Insurance Fund (FOSEDE). The penal code was reformed to criminalize financial offenses (previously they were civil offenses). The BCH accounts were published together with the auditor’s opinion; commercial banks were required to publish their accounts quarterly; and the government continued the process of liquidating the assets of the failed banks.

60. In this context, the system has been stabilized and strengthened. The consolidation process resulted in four bank mergers and the reduction of commercial banks from 21 to 16 between 2001 and 2004. The capital adequacy of commercial banks averaged 13.01% for 2003 and 14.16% at December 2004, which is comfortably above the minimum of 10% required by the National Bank and Insurance Commission (CNBS). These ratios have been maintained in spite of the application of stricter provisioning requirements. A fiscal contingency of close to 0.5% of GDP for dealing with financial sector problems remained unused, and was re-assigned to poverty-related investments.

f. Debt Sustainability

61. In the aftermath of Hurricane Mitch (1998), the Government sought to mobilize international resources for reconstruction and poverty reduction, and at the same time, to achieve a definitive solution to the debt crisis which had dogged macroeconomic management for close to two decades. The strategy aimed at achieving a sustainable foreign debt and freeing fiscal resources to promote economic and social development, in the framework of the Poverty Reduction Strategy (PRSP). Honduras reached Decision Point on the HIPC initiative under the fiscal window in 2000. However, as noted above, unfortunately, the PRGF program with the IMF went off track in 2001, due to fiscal indiscipline, and as a result the HIPC Completion Point was delayed and Honduras started to accumulate technical arrears with bilateral creditors.

62. The signing of the new PRGF in 2004 made it possible to re-open negotiations with the Paris Club and move towards HIPC Decision Point, which is now expected for the first quarter of 2005. On April 14, 2004, the fifth Minute was signed with the Paris Club Creditor Nations. The eligible debt (including previously restructured and deferred debts) was reduced by 90% of its present net value, on Cologne terms (see text box). After the Minute was signed, the Government continued seeking a negotiated cancellation of 100% of debts falling due through June 2005, and has achieved debt write-offs with the United States, Germany and Italy.

Negotiation with the Paris Club

On April 14, 2004, Honduras successfully re-negotiated the debt service in arrears through December 2003 and capital and interest payments due between January 2004 and June 2005 with the Paris Club. The amount negotiated was US$360 million, of which US$214 million was in arrears. Of the negotiated sum, around US$147 million will be forgiven, and the rest will be restructured on Cologne terms, which are only awarded to HIPC countries. Of approximately US$405 million that was to have been paid as external debt service between January 2004 and June 2005, only US$49 million will be paid. The relief will be implemented through bilateral agreements that are being formalized with individual creditor nations.

63. At the same time, the international community has continued to provide strong support to Honduras’ reconstruction and poverty reduction efforts, and the Government has maintained its policy of accepting fresh debt only on concessionary terms. The total of foreign assistance credits received from June 2002–June 2004 was US$509.8 million, the majority of which came from multilateral organizations (US$377.4 million or 74.0%), with the Inter-American Development Bank (IDB) supplying US$181.4 million (35.6%) and the International Development Association (IDA) contributing US$121.0 million (23.7%). The remaining 26% came from bilateral agencies. The accumulated foreign debt as of June 2004 was US$4.362 billion.

g. Medium-term Implementation of the PRGF

64. The medium-term macroeconomic projections indicate that the macro-fiscal stability and growth dynamics established in the framework of the PRGF agreement should allow Honduras to meet the goals of the PRSP in the coming years. Real GDP growth is projected to hold steady at an average of 4.5% annually. Once the international fuel markets have normalized, inflation will tend to drop gradually, settling at 2.5%. The external sector will continue to be strengthened by increased non traditional exports and flows of family remittances, allowing a sharp reduction in the current account deficit, and ensuring balance of payments viability. With the reaching of HIPC Completion Point, foreign public debt is projected to decline from 66% of GDP in 2004 to 45.6% in 2005. Thereafter it will continue to decline more slowly, reaching 40.6% of GDP in 2009, as GDP growth will be faster than future debt accumulation (see Table III.2).

Table III.2

Honduras: Macroeconomic Projections

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Source: BCH


A. Poverty and Inequality

37. The main challenge posed in the PRSP is reducing poverty from 66.0% (1999) to 42% (2015). Using the income method, we find that the poverty rate has diminished slightly from 65.9% to 63.5% between 2000–2003. The same trend is seen in the magnitude of poverty, in terms of the proportion of poor people and indigents according to indicators for the scope and severity of poverty—in other words the relative income deficit of the poor with respect to the poverty line (the Gap) as well as the degree of the disparity in income distribution among the poor (Severity). (See Table IV.1).

Table IV.1

Honduras: Poverty Indicators by Income.

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Source: UNAT, developed based on the EPHPM, INE

* The exercise makes use of the EPHPM rounds conducted during the first half of each year.


Honduras. Pobreza segôn ingresos, 1998–2004

Citation: IMF Staff Country Reports 2005, 082; 10.5089/9781451817096.002.A001

38. The conclusions outlined in this analysis clearly illustrate that despite their slight reductions, the changes in these indicators are not statistically significant. To summarize, although poverty has not diminished in an accelerated manner during the period being examined, the situation of the poor—in terms of income—has not worsened.

39. A better outlook may be found in the extreme poverty indicator, the incidence of which has dropped four points between 1999 and 2003, showing a systematic trend of reduction. This trend would imply a better possibility of achieving the goal of reducing extreme poverty by 24 points by 2015, which is also consistent with the Millennium Development Goals (MDGs). Nonetheless, efforts will need to be redoubled, above all in relation to designing adequate policies that increase the income of the poor through generating employment in the economy’s formal sector.

40. The highest incidence of poverty is found in rural zones, where 70.2% of households lack sufficient income and 58.4% are living below the extreme poverty line. This contrasts with urban areas, where extreme poverty reaches around 29.6% (2003). This clearly evidences the need to expand efforts through measures that insure that the poorest share the benefits of economic growth.

41. Although the Government may focus greater efforts on developing programs and projects for sectors with the greatest poverty indices in the country, programs stimulating productive sectors are key to increasing productivity and competitiveness so that the lowest income segments of the population may more successfully integrate into the economy.

42. When we evaluate the structure of income distribution based on the percentage of total income that households receive (in increasing order), we find that 80% of households received only 39.8% of the nation’s total income (May 2003) while 60.2% of the nation’s income pertained to the wealthiest 20% of households. Table IV.2 shows that although this structure has not been significantly modified in recent years, there is a slight trend toward increased income among the poorest quintile of the population, due to a slight shift downward of income from the third and fourth quintiles.

Table IV.2

Honduras: Participation in total income distribution, by quintiles. 1999–2003

(in percentages)

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Source: UNAT, developed on the basis of the EPHPM, INE* The exercise makes use of the EPHPM rounds carried out during the first half of each year.
Table IV.3

Honduras. Evolution of Inequality Indices.

(in percentages)

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Source: UNAT, developed based on the EPHPM, INE.

The exercise makes use of the EPHPM rounds carried out during the first half of each year.

43. The Gini index shows that inequality has remained relatively stable since the PRSP began (2001–2003), reaching 56.8% in 2003. Despite the stability shown by the indicator, its level is still relatively high compared to neighbor countries such as Costa Rica (44.6%) and even Nicaragua (54.1%).4 Furthermore, when we consider transfers to the lowest portion of the income distribution scale, the Theil index shows a two-point decrease for the period analyzed. Similarly, by assigning more weight to households with lower income than those with higher income, the Atkinson index (e=2) shows an increase of almost four points for this period. We can conclude that distributional inequality remained generally stable in terms of the Gini quotient, albeit still at high levels; but by assigning greater weight to the lower portion of income distribution we find a slight distributional deterioration with a tendency to fall over the medium term, given the greater income expectations associated with decreases in extreme poverty levels in recent years and the economic improvement forecasted for the country.

B. Global Performance Indicators

44. The PRSP’s global goals and indicators were designed to be consistent with elements that are closely associated with poverty. These were discussed with civil society organizations and the cooperation community during the consultative process, and were aligned with the Millennium Development Goals (MDGs).

45. During the first years of PRSP implementation, the trends among most of the global indicators have been relatively stable, due mainly to the generally unfavorable economic environment in Honduras and delays caused by the absence of an agreement with the IMF. This, in turn, impeded reaching the Culmination Point of the HIPC Initiative and full relief of the external debt. The agreement signed with the IMF in February 2004 directs government efforts at structural reforms that will help reassign resources in function of achieving the Strategy’s goals, and that will allow results-based programming and budgetary assignments to increase the efficiency of public sector interventions.

46. Table IV.4 details the results for global indicators in relation to the goals planned during 2003 and 2004. In analyzing these achievements, we find that the Government has faithfully fulfilled its commitments to adopt certain policy measures. The goal for GDP growth was met, with 3.75% growth registered for 2003 versus the goal of 3%. In 2004, a real GDP growth of 4.6% is planned, again surpassing the proposed goal. Per capita GDP increased by 0.8%, surpassing the 0.6% goal for 2003, and it is expected that the goal for 2004 will be met as well. Poverty spending as a percentage of the GDP had similar results, reaching 7.8% in 2003 versus the goal of 7.5%. In 2004, the PRSP budget is expected to fulfill the 8.1% proposed goal for this indicator, since spending was already equal to 7.2% of the GDP in September.



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1. BCH; 2. UNAT, with data from the BCH and INE; 3. SEFIN based on the new definition of poverty spending; 4. Estimates based on EPHPM; 5. ENESF; 6. Secretariat of Health: Research about maternal mortality and women of childbearing age in Honduras, 1997; 7.ENEE Registries; 8. HONDUTEL/CONATEL Registries; 9. Report on Human Development (UNDP); 10. COHDEFOR statistical yearly report; 11. SERNA (Center for the Study and Control of Contaminants, CESCCO), no monitoring was carried out in 2002, and monitoring was carried out through December of 2004; 12. Data for this year are the revised goals based on the First Progress Report; 13. For 2004, the estimate is based on the May 2004 EPHPM; 14. For 2004 there are estimates through September based on the registries of the respective Secretariat; 15. The real GDP growth rate is a BCH projection, and the per capita GDP also makes use of INE population projections; 16. The amount observed corresponds to PRSP spending programmed and approved for 2004 (it is worth mentioned that implementation through September was equal to 7.2% of the GDP); 17. The goal is considered met if the difference between the value observed and the goal is not greater than 0.5%.

47. Although the specific goals for poverty and extreme poverty were not met, as mentioned earlier, a systematic improvement in the latter indicator was observed. This behavior may be attributed to the fact that per capita growth is still not sufficient to guarantee sustainable income levels in the poorest households, and the fact that income is still poorly distributed (see above).

48. In addition, the data for 2003 is from the month of September while data for 2004 is from May, given that it is the only information available at this time. Therefore, the statistical significance of differences caused by estimating poverty during different periods should also be considered.5 When data from May is compared for the 2003–2004 period, we find that poverty in 2003 equaled 65.1%, and extreme poverty 47.0%. Although the goals in this respect were not met, we see an even more marked trend of diminishing levels of both indicators. Finally, it should be stressed that these poverty measurements will be complemented by data from the Standard of Living Survey (ENCOVI) when it becomes available. The data of this Survey is currently being processed, and it will provide more robust indicators for measuring poverty. This Survey will provide measurements of traditional poverty indicators, but these measurements will classify well-being based on consumption, making them more comprehensive and well-rounded. In addition, measurements based on income can also be made, allowing information to be compared.

49. In education, the goals for preschool coverage were met in 2003 and 2004. In 2003, coverage was 37.7%, surpassing the goal of 34.9%, and 36.0% coverage was achieved in 2004, again surpassing the 35.7% goal.6 On the other hand, the net coverage index for the 1st and 2nd cycles of primary education has not met the proposed goals for the periods under study: 88.1% (2003) and 89.3% (2004). Although the trend was in the right direction, it was not sufficient for achieving the specific goals. It is hoped that initiation of the Education for All (EFA) program, launched in mid-2004 and beginning implementation in February 2005, will help to effectively adjust the goals. In addition, there was a significant improvement in net coverage of the 3rd cycle of primary education (middle school), which rose from 31.2% in 2003 to 38.2% in 2004, effectively meeting its goal for that year. In a similar fashion, the net coverage indicator for the diversified secondary school cycle shows permanent improvements, meeting the goal in both years. This indicator for 2003 was 18.9%, versus the goal of 19.0%, and rose to 21.3% in 2004, versus the goal of 20.6%.

50. Up to date information about indicators in the health sector are not available, since the ENESF is only conducted every five years. As described in the first progress report, the indicators showed positive results in 2001. Moreover, the trend of intermediate indicators points to improved access to basic health services, which directly impacts global indicators. It should be mentioned that resources are being negotiated to conduct the ENESF more frequently and to strengthen health sector administrative registries up to date, so that more continuous health indicators and/or higher quality intermediate indicators are available to better evaluate progress toward the goals.

51. With respect to access to infrastructure services, the rate of electricity coverage has tended to improve since the PRSP began, even though the proposed goals have not been fully met. Thus, the indicator increased from 62.1% to 63.7% during the 2003–2004 periods.7 The telecommunications sector showed a similar trend. The global indicators for this sector changed due to the evolution of this market, with the expansion of fixed lines, the entry of new cell phone companies, and the deregulation of the Internet market. The indicators that are used to measure telephone density in the country are: density of fixed lines (for every 100 inhabitants) and the penetration of mobile phones (users per 100 inhabitants).8 The density of fixed lines for each 100 inhabitants evolved from 4.9 in 2003 to 5.18 in 2004. The penetration of mobile telephones increased from 5.6 (2003) to 8.85 (2004), meeting and surpassing the goal in the last year thanks to the entry of a new cell phone concession into the market. The goals for these two indicators have been revised in the context of SIERP implementation, sector growth programs (Telephones for All, Modernization for Honduras), and thanks to the development of technological platforms and the evolution of national and international markets.

52. Water and basic sanitation coverage did not meet goals until 2004. Potable water coverage increased from 81% (2003) to 82.2% (2004), as compared to the goals for the respective years: 82.1% and 82.6%. Basic sanitation coverage grew from 68.6% in 2003 to 76.7% in 2004, in comparison to the goals of 70.7% and 71.9% for the same years.

53. The goal for the gender-related Human Development Index was met in 2003, just reaching the proposed 0.65. Meanwhile, the gender empowerment index showed a trend toward improvement but not enough to achieve the goal proposed for that year (0.43, instead of the goal of 0.47). It is likely that this indicator will improve significantly in the 2004 report with approval of policy measures aimed at guaranteeing access to elected office for more women.

54. In relation to the environment, the goal for Priority Protected Areas with management plans in place was met, achieving the specific goals for 2003 (15) and 2004 (23). Thus, the percentage of priority protected areas with management plans has evolved from 37.5% in 2003 to 57.5% in 2004. Finally, the air pollution indicator for urban centers is under review, since no annual data for monitoring is available and the methodology used for measuring contamination has varied from year to year.

55. To summarize, the indicators that showed permanent improvements during the 2001–2004 period are macroeconomic indicators, and indicators for extreme poverty, education, electricity, telecommunications, human development, and the territory declared as protected areas. This translates into an approximate 18% improvement in relation to the goals proposed for 2015.

56. The main problems in achieving the PRSP goals have been related to health coverage and service coverage, mainly water and sanitation. Despite government efforts to increase spending in these sectors, no significant progress has been made. Therefore, intervention strategies will need to be reviewed and an approach that better focuses resources on coverage will need to be developed, to insure greater impact on PRSP indicators.

57. Thus, what should be stressed is the generally improved performance of indicators, which is verified when we add up fulfillment of goals in relation to levels achieved in the previous year. While 40% of the goals were met in 2003 (7 out of 17 observable goals), this percentage rose to 75% in 2004 (12 out of 16 observable goals), which is a significant improvement.


A. Evolution of Poverty Spending

58. This chapter deals with the financial implementation of the PRSP during 2001–2004. This first section provides detailed documentation and analysis of PRSP spending by program area, by economic classification and source of financing. In the second section, the use of interim debt relief funds awarded to Honduras between 2001 and September 2004 is detailed.

59. The PRGF sought to ensure that the necessary fiscal adjustment was not undertaken at the expense of poverty-related spending. To this end, the 2004 PRGF agreement included a precise definition of poverty spending and a target was set for this to increase at 0.6% of GDP in each year of the program. At the same time, the definition of poverty spending was revised, following extensive discussions and consultation around the first PRSP Progress Report, which was submitted to the boards of the World Bank and IMF in the first quarter of 2004, together with the PRGF agreement itself.

60. The spending definition was widened from the conceptualization used in the original PRSP, drafted in 2000, which was limited in the main to externally funded investment operations. The new definition includes both current and capital expenditures and both externally and nationally funded activities.9 On this basis, poverty spending was estimated at 7.5% of GDP in 2003 and was slated in the PRGF program to increase to 8.1% in 2004.10

61. Particular attention was given to defining the poverty-related component of spending financed with national funds. This was necessary to ensure that HIPC debt relief led to additional poverty related spending, rather than substituting for expenditures that were already being undertaken with national funds.

62. To this end, in 2004 the Government reformed the Law of the Poverty Reduction Fund, to establish a “Virtual Fund”, along the lines of that established in Nicaragua and other HIPC countries. This change - which was supported by World Bank technical staff-replaced the previous tacking mechanism, which was a real fund in the Central Bank. The old mechanism was limited to ensuring that the direct product of debt relief was spent on poverty related items, without checking for fungibility in the rest of the fiscal program.

63. The new system for tracking poverty spending is centered on the Finance Secretariat’s Integrated Financial Administration system (SIAFI), which was strengthened with World Bank support during 2003–2204. The SIAFI system labels all expenditure items in the budget according to whether or not they fall within the poverty definition established in the first PRSP Progress Report. These definitions have also been applied retroactively to all financial years since 2000, allowing analysis of the global trend of poverty spending (on the new definition) during the period of HIPC Interim Relief (2001–2004).

64. Table V.1 summarizes the financial execution of the PRSP between 2000 and 2004, in Lempiras, and Table V.2 summarizes the same data as a ratio of GDP. The data show that total poverty spending stood at 8.2% of GDP in 2000, rose to 8.8% in 2001 (when post-hurricane reconstruction spending was at its apogee); fell back to 7.5% in 2002 and then grew to 7.8% in 2003 and 8.4% in 2004. Thus, Honduras clearly met the PRGF goal of increasing PRSP spending by 0.6% of the GDP in 2004.

Table V.1

Honduras: Poverty Reduction Strategy SUMMARY OF FINANCIAL IMPLEMENTATION Millions of Lempiras

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Source: SEFIN and BCH
Table V.2

Honduras: Poverty Reduction Strategy SUMMARY OF FINANCIAL IMPLEMENTATION % of GDP

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Source: SEFIN

65. By Program Area, investments in human capital have been consistently the largest item in the PRSP. In 2004, they accounted for 4.8% of GDP or 57% of the total. Second in importance are investments related to the sustainability of the strategy (1.6% of GDP, 19% of the PRSP total in 2004). Programs to reduce rural poverty in 2004 accounted for 1.1% of GDP (13% of the total). Programs focused on urban poverty were 0.6% of GDP (7% of the program total); social protection programs were 0.4% of GDP (5% of the PRSP total); and programs focused on economic growth were less than 0.1% of GDP (only 0.2% of the program total). However, the PRSP Implementation Plan for 2004–2006 (presented to the Consultative Group meeting in Tegucigalpa in June 2004) emphasized the need to increase investment in programs focused on faster, more equitable growth. The programs linked to the Millennium Challenges Account (MCA) financed by the US Government, presently under negotiation, will concentrate in this part of the Strategy. As a result, this part of the PRSP budget will be considerably strengthened in 2005.

66. In 2004, the distribution of PRSP spending by economic category was as follows. A little over 40% of the total was used for wages and salaries of workers providing basic services such as education and health,11 35% was used for investments (both direct investments by the Central Government and capital transfers to municipal governments and agencies such as the water company, SANAA). 14% of the resources were used for current transfers, and 9% for the purchase of goods and services (such as medicines).

67. The main source of financing for the portfolio of PRSP projects has been the National Treasury, which has financed an average of 63% of the total investment over the last four years, followed by loans (25%), and donations and HIPC funds, which have supplied an average of 7% and 4% of resources, respectively.

68. In 2004, the largest part of the funding for the PRSP, as in previous years, came from national resources (4.7% of GDP and 56% of the PRSP total). Loans from international development agencies were the second largest contributor (2.6% of GDP and 31% of the PRSP total). During 2004, the implementation rate for loan-funded programs surpassed that projected in the PRGF, in an amount equivalent to 0.5% of GDP. This more than offset the shortfall in the execution of PRSP programs funded by donations, which reached 0.4% of GDP compared with 0.5% in the PRGF projections, due to delays in implementation of the Education for All (EFA) Fast Track Initiative and of the Global Fund for HIV-AIDS and Tuberculosis.

69. HIPC interim relief financed poverty spending worth 0.2% of GDP in 2000, 0.9% in 2001 and 0.8% in each of 2002, 2003 and 2004. Total nationally funded poverty spending stood at 4.9% in 2000 and declined to 4.5% in 2003 before recovering to 4.7% of GDP in 2004. However, this analysis does not take into account the effect of post-hurricane reconstruction spending, much of which was classified as PRSP spending.

HIPC Relief Additionality

70. The principle of HIPC relief additionality establishes that the debt relief must be invested in initiatives aimed at reducing poverty. This condition was established in Cologne, Germany in 1999. However, debt relief funds were also to be used to complement national efforts underway to combat poverty (using national resources). Thus, HIPC relief should not be fungible, and should be added to—in other words, complement—internal Poverty Reduction efforts.

71. At first sight, in the data presented in Table V.2, it appears that there may have been a tendency for part of the HIPC relief to “crowd out” nationally funded poverty spending, since the latter declines from 4.9% of GDP in 2000 to 4.5% in 2003, rising back to 4.7%in 2004. However, in order to provide an undistorted measure of the underlying trends in poverty spending, it is necessary to distinguish between post-hurricane reconstruction spending and the rest of the PRSP.

72. This is done in Table V.3, which provides details of the total national budget in nominal Lempiras between 2000 and 2004, distinguishing between non-reconstruction PRSP spending; PRSP spending related to reconstruction; and non PRSP spending. It can be seen that adjusted pro-poor spending (excluding spending related to Hurricane Mitch) has grown systematically and at a higher rate than total spending, even greater than the increase in interim debt relief resources that have been awarded, despite delays in reaching the Completion Point.

Table V.3

Honduras: HIPC Relief Additionality MILLIONS OF LEMPIRAS

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Source: SEFIN


Includes saving due to reingeneiring measures for L. 326 mm

Includes Multilateral Relief (HIPC including CABEI) and Bilateral Relief (Paris Club)

73. Table V.4 presents a detailed summary by spending source of PRSP spending excluding reconstruction spending, in nominal Lempiras and in % of GDP. The data show that on this adjusted definition, poverty spending stood at 6.4% of GDP in 2000. This rose to 7.0% in 2001, fell back slightly to 6.5% in 2002 and recovered strongly to 7.8% in 2003 and 8.4% in 2004, in line with PRGF program targets. Within this total, nationally funded poverty spending (excluding reconstruction spending) can be seen to have remained steady between 2000 and 2004.

Table V.4

Honduras PRSP Spending excluding hurricane reconstruction

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Source: SEFIN and BCH

74. In summary, the data presented in this section show that Honduras met the target for poverty spending subscribed in the PRGF for 2004. It has also met its obligation to establish a transparent tracking system for poverty spending and to assign debt relief to additional poverty related spending.

B. Utilization of HIPC Funds

a. Interim HIPC Debt Relief received

75. The Decision Point Document for Honduras (DPD) provided for interim relief between July 2000 and July 2002, which was the date originally set for the Completion Point. However, this period was extended due to the delay in reaching the Completion Point. Table V.5 provides details the HIPC Debt Relief received by Honduras to date, which totals USD$256.8 million.

76. The World Bank (WB) began delivery of debt relief in December 2000 in the form of a quarterly donation modality (transfers) covering approximately 50% of the debt service paid during the previous quarter. By July 2002, the WB had awarded the total interim debt relief specified in the DPD, totaling US$36.8 million and further relief was suspended pending Completion Point.

Table V.5

HIPC Debt Relief Received for the PRSP Millions of US$

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Source: BCH

77. The IDB began debt relief in November 2001 in the form of transfers, totaling approximately US$14.0 million. By late 2001 it had awarded a total of US$22.8 million. and a further US$18.5 million was given in 2002. During 2003, a further US$5.8 million was received. In total, the IDB has contributed total debt relief of US$47.1 million.

78. The IMF began delivery of interim debt relief in 2001. It provided relief of $1.3 million in 2001, $4.5 million in 2002 and $5.7 million in 2004, for a total of, US$11.5 million.

79. CABEI has awarded HIPC relief for the PRSP using a scheme a portion of the balance owed at March 8, 2000 was re-financed with a new loan of US$251.8 million. This loan must be paid on the last day of its maturity, through a United States Treasury Bond purchased by the GOH and kept in custody for the BCIE. To estimate the value of this relief for application to poverty spending, the Government used a methodology called the Percentage of Effective Nominal Relief in Net Present Value Terms (PENR/NPV), which consolidates the positive debt relief flows and the negative debt relief flows (which occur in some years) using a Net Present Value calculation. Using this methodology, the estimated value of debt relief received to date from CABEI is US$63.5 million.

80. Paris Club creditors began giving interim HIPC debt relief in April 2002, under the modality of debt service restructuring and write-offs, established (retroactively) in the Paris Club V Agreed Minute signed in April 2004. The value of the relief given has been calculated as the difference between the debt service after application of a hypothetical operation on Naples terms (67% reduction of current value), and the debt service really due after application of the Paris Club V Agreed Minute (90% reduction in the current value). The interim debt relief from these creditors will become effective once bilateral agreements have been signed with the specific creditors of each country. An estimated US$93.6 million in debt relief will be received through the end of 2004.

81. The Commonwealth Development Corporation (CDC) has provided US$4.3 million of relief through the end of 2004, under the modality of a 100% write off of the debt service, subtracting 67% of traditional relief and 10% of additional relief (in accordance with the principles specified in the DPD).

b. Assignment of Debt Relief

82. HIPC debt relief resources have been earmarked according to agreements made in the framework of the HIPC Decision Point for Honduras. As detailed in Table V4, US$236.63 million had been implemented up to the end of 2004. Most of the investment has been earmarked for human capital, especially for education and health.



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83. Spending of HIPC resources has represented less than an average of 1% of the GDP per year, concentrated during the four years mainly on implementation of the Honduran Community Education Program (PROHECO), support to formal primary schools, and support to formal primary education. In the area of health, most of the resources have been earmarked for hospital care and epidemiological control of diseases via Investments in Human Capital. An additional 9% of the total debt relief resources have been earmarked for social protection networks, specifically vouchers awarded by the Family Allotment Program (PRAF). Finally, 6% of the resources were invested in projects aimed at reducing poverty in rural zones. Appendix D presents more detailed information about the use of HIPC funds by program.

84. There is a small remainder of debt relief received to date which has not yet been applied to PRSP programs, estimated at $20.2 million, as shown in table V.5. This will be applied to PRSP spending in 2005.

Table V.7

Honduras: Reconciliation of HIPC Debt Relief received and applied to the PRSP, 2000–2004

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Source: BCH

c. HIPC Debt Relief for the PRSP beyond the Completion Point

85. The amount of HIPC debt relief that is expected after achieving the Completion Point (estimated for March 2005) is calculated on the basis of the following assumptions. Each participating creditor (the World Bank, IDB, IMF, IFAD and OPEC) will calculate the remaining amount of debt relief taking account of Interim Relief already given, so that the total will be equal to the amount defined on the basis of the Common Reduction Factor specified in the Decision Point Document.

86. The debt relief modality proposed by OPEC is to award a new loan whose resources, combined with the profit from the investment of the same, are used to pay the debt service. In this way, relief that is channeled to the PRSP is calculated on the basis of the methodology (PANE/VPN) agreed upon by the WB and the GOH. In the case of the BCIE, debt relief is calculated on the basis of the prepayment agreement signed in March 2000, and using the same methodology. Debt relief for the CDC has been calculated on the basis of a 100% write of the balance at the moment of the Culmination Point, minus 67% of traditional relief and 10% of additional relief.

87. For the Paris Club creditors, the relief has been calculated on the basis of a debt restructuring and write off modality, reducing the eligible debt by 90% of its present net value according to the Cologne financial terms, effective as of April 2005, and subtracting the service resulting from application of the Cologne balance operation from the debt service remaining after the (hypothetical) balance operation in Naples terms.

88. For the bilateral creditors who are not members of the Paris Club, debt relief has only been calculated for Costa Rica, based on this nation’s willingness to receive such relief (according to responses to notifications sent by the Central Bank of Costa Rica). In addition, the case of Venezuela has also been considered in the negotiations that the GOH is currently conducting. Meanwhile, the remaining bilateral creditors who are not members of the Paris Club have indicated that they will not take part in awarding debt relief.

89. Based on the information expressed in the paragraphs above, it is calculated that US$838.2 million in external debt relief will be received for the 2000–2018 period for PRSP spending in the framework of the HIPC Initiative. Of this amount, US$256.8 million will have been received by the end of 2004, thus US$581.4 million will be received in the 2005–2018 period.


90. This chapter centers on progress made in the financial and physical implementation of PRSP programs and projects. In addition, it enumerates the reforms to sector policies that adjust them to the PRSP’s programmatic structure, and the evolution of intermediate indicators of the fulfillment of program goals.

A. Area I: Equitable and Sustainable Economic Growth

a. Policy Measures

91. PRSP implementation has taken an important turn, shifting its focus to economic growth that favors the poor. The presentation of the 2004–2006 PRSP Implementation Plan at the Meeting of the Consultative Group in Tegucigalpa marked the launching of this proposal, whose purpose is revitalizing the economy in a framework of general well being. Some of the most noteworthy actions developed were:

  • Approval of the Administrative Simplification Law.

  • Approval of the Finance System Law and reform of the CNBS Law, the BCH Law and the Insured Deposits Fund (FOSEDE) Law.

  • Approval of Copyright Protection Laws and norms.

  • As part of Central American integration efforts, approval of the work program for the Central American Customs Union by the presidents of Central America.

  • Conclusion of the FTA negotiations with the United States.

  • Creation of the National Competitiveness Commission.

  • Establishment of the National Center to Promote Agro-Business.

  • Creation of the Tourism Cabinet and Tourism Police.

  • Approval of a policy to support competitiveness among MIPYMEs.

92. The nation’s possible qualification for the US Government’s Millennium Challenge Accounts (MCA) will provide access to resources for productive infrastructure development, such as: the Logistical Corridor, which links the Atlantic and Pacific littorals; access roads linked to the Logistical Corridor; and a series of irrigation projects for the neediest sectors.

b. Program and Projects

93. The Government is strengthening the road network through investments in rural roads and primary and secondary road networks, and through improving access both within and outside of the country. This takes place in the context of the CAFTA agreement and support to the productive sector via micro-enterprises. Currently, 50 micro-enterprises located in different zones of the country are generating direct benefits to more than 600 people, and indirect benefits to close to 4,000. Approximately 2,777 kilometers of the paved road network are being serviced, and the goal for next year is inclusion of another 5 micro-enterprises. In addition, approximately L.7.5 million have been allotted to implementing “aperture,” maintenance and small-scale construction projects (bridges, modules, etc.) as part of specific attention to ethnic communities.

94. The percentage of the maintained road network has grown from 21.03% (2000) to 49.98% (2003), and some 50.49% of the road network has received maintenance to date in 2004. In addition, roads constructed that are not part of the official road network have increased from 96 kilometers (2001) to 225 kilometers (through September 2004). This clearly demonstrates the Government’s commitment to public investment in this area, whose Road Fund is expected to cover 60% (7,920 km) of the road network in 2004, 70% in 2005, and 25% in 2006.

95. With respect to the energy sector, ENEE has provided technical assistance through developing biomass, wind, geothermal and hydroelectric projects. In 2003, 18 renewable energy contracts were approved—both biomass and hydroelectric—and 6 additional contracts are anticipated in 2004. The electricity coverage indicators show that 2.6% increases had been registered between December 2003 (62.09%) and September 2004 (63.71%), as a result of the national electrification process. In 2003, 241 social electrification works were concluded nationwide, with an approximate investment of US$6.6 million, which signified an additional 17,725 households receiving electricity service. A total of 134 projects were concluded by September 2004, with an investment of US$3.5 million and 7,950 households electrified. By the end of 2004, national electricity coverage is expected to reach 65.94% of the population.

96. With respect to sector reforms to improve efficiency, the Government is planning to expand its generation capacity through contracting private generators, to adjust tariffs in order to compensate ENEE for operational losses and the rises in oil prices, and to restructure the organization of electricity services through separating generation, transmission and distribution.

97. In the area of telecommunications, and in the context of the “competitiveness” agenda, progress has been made in deregulating markets. This effort began in 2003 and the goal is to have achieved definitive deregulation by late 2005. Thus, the “Telephones for All” program was implemented (via private providers with rates set freely on the basis of costs), to deregulate the local call market, and a second cell phone concession was awarded to the Megatel Company. Progress restructuring HONDUTEL has continued, with the goal of readiness for deregulation by 2006.

98. In this context, the National Fiber-Optic Network was created, the Domestic Satellite Network was modernized, and the National Microwave Network was also modernized with 70 new links, the total digitalization of the network, and expansion of the MAYA 1 submarine cable. In addition, rate plans that reduce the cost per minute for local, national and international calls were instituted. Other noteworthy advances included the installation of 15,000 lines in Tegucigalpa, San Pedro Sula and Catacamas, the acquisition of 20,000 lines for different neighborhoods in the Central District and 8,000 lines for Tegucigalpa and San Pedro Sula through the copper pairs multiplier system as an access network. All of these efforts increased the fixed line density for every 100 inhabitants by 5.3%, which increased from 4.87 (2003) to 5.13 (September 2004).

99. As part of its plans and strategies for developing tourism, the Government of Honduras is carrying out actions to develop the first Comprehensively Planned Tourism Center (CIP) in the Tela Bay Region. This is expected to form a comprehensive tourism cluster, which will join sites that have already been consolidated at the international level (the Bay Islands and the Copán Ruins). The CIP is an element that “detonates” tourism development, acting as a distribution center for consolidated tourism development poles and the rest of the country. In this context, initiatives that tend to strengthen micro- and small-scale tourism enterprises and/or tourism-related activities are being supported, through managing the Sustainable Coastal Tourism Project and activating the Prosperity Fund, placing special emphasis on capital support to this productive sector, employment generation, productive development and business opportunities.

c. Intermediate Indicators

100. The main macroeconomic indicators have shown a certain level of stability. For instance, the Monthly Economic Activity Index (IMAE) rose from 216.9 in 2003 to 221.3 in 2004, which predicts a 4.0% or more increase in the real GDP. The external value of currency has had acceptable variations, with an average 4.7% drop in relation to the dollar in recent years, and a drop of 4.5% in 2004. The cost of money has tended to decrease in recent years, with a decrease in the real active interest rate from 13.4% in 2003 to 11.0% in 2004, for a 2.4% reduction. Public investment had reached 1.8% of the GDP in September of 2004, which makes it likely that the percentage invested in 2003 (2.3%) will be surpassed.

101. The amount of foreign exchange generated by tourism has tended to grow, reaching 12.8% of total exports in 2004 (by September 2004), already surpassing the amount generated by the end of 2003 (12.4% of total exports). Substantial increases were also observed among traditional exports and non-traditional exports, and the promotion of foreign investment also increased the aggregate value of maquila industries, accounting for 1 in 12 companies opened during 2003 and 2004.

B. Area II: Reducing Poverty in Rural Zones

a. Policy Measures

102. To reduce rural poverty, the equitable, safe and sustainable access to factors of production is sought, along with the generation of employment and income and access to basic services through participatory mechanisms. Some of the key actions aimed at achieving these goals included:

  • Approval of the Law to Strengthen Agricultural Producers (June 2003), which consolidated corresponding benefits into one single legal instrument and restructured and relieved the debts of more than 13,000 producers.

  • Approval of the Property Law on May 28, 2004, which also creates the Property Institute.

  • A total of 25,132 property titles have been issued, benefiting 629 farmers from the agrarian reform sector, especially peasant businesses; 24,482 independent farmers obtained individual titles and some 21 ethnic groups received community titles. Thirty percent of the titles have been issued to women.

  • Between 2001 and September 2004, the National Fund for Production and Housing (FONAPROVI) awarded L.4.09 billion for reactivating agricultural production. Through BANADESA, approximately L.1.027 billion was awarded between 2001 and September 2004, mostly to finance the agriculture sector. Alternative Rural Financing Systems (SIFARs) have been created to benefit small-scale farmers who plant on terraced lands and upper watersheds, and different ethnic groups.

  • With financing from the private finance sector, the Land Access Project (PACTA) has generated profitable business opportunities and developed business skills among the agriculture sector, through establishing productive enterprises on private lands. A total of 355 families have benefited from setting up 25 productive enterprises in 23 municipalities located in 9 provinces of the country.

  • A Gender Equity Policy for Honduran Agro (PEGAH) is being implemented, which crosscuts all levels of this sector. By 2004, the incorporation of rural women under equal conditions had increased by 54% through the coordination and articulation of the public agricultural sector, INAM, local governments/AMHÖN, NGOs and women’s organizations linked to development.

  • Around 23,000 hectares of land were incorporated into the irrigation system during the 2002–2004 period, which signified 58% of the Government’s goal of 40,000 hectares (10,000 hectares per year).

  • In June 2004, in the framework of the Agro-Forestry Roundtable, the Agro-Forestry Sector Strategic Plan for 2004–2006 was concluded, which defines priority policy measures for the sector.

  • Agricultural diversification was promoted as a production alternative for national producers of grapes, papaya (for vegetable use), oriental vegetables, pitahaya, annatto, medicinal plants, stevia and cassava. The program on Lethal Cocotero Yellowing was continued, to help supply plant varieties that are resistant to this pest. The first Map of Potential Agricultural Zones in Honduras was produced using precision techniques.

  • The State Policy on Food and Nutritional Security for 2004–1015 is being formulated.

b. Program and Projects

103. Programs and projects financed with approximately L.4.712 billion were implemented during the 2001–2004 period, some 29% of which were financed with national funds and 66% with foreign loans. The most important of these programs included:

  • The National Sustainable Development Program (PRONADERS), which has benefited a total of 288,461 rural families during the 2001–2004 period through 21 rural development projects. The resources of these projects mainly target improvements in productivity, natural resource management, crop diversification, and strengthened food security. Approximately 30.3% of the funds earmarked for Reducing Poverty in Rural Zones are used for this project. The main projects implemented by PRONADERS are:

  • Rural Areas Administration Project (PAAR—now called the Honduran Land Administration Program, or PATH), with L.467.8 million (10% of the funds for Reducing Poverty in Rural Zones);

  • Development of Water Resources in the Nacaome Valley, with L 351.8 million;

  • National Reconstruction Master Plan/FHIS, with L.350.8 million. This project has benefited a total of 894,000 inhabitants in rural zones with water and sanitation projects;

  • The Department of Agricultural Science and Technology (DICTA), with L.265.6 million. Technical assistance has been provided for the production of basic grains, vegetables, and fruits, among others.

  • Diverse Communal Support Projects for the Poor, with L.185.0 million;

  • Electricity Social Development Fund, with L.149.5 million; and

  • Sustainable Rural Development Project in Ecologically Fragile Zones of the Trifinio Region (PRODERT), with L.26.4 million.

  • Rehabilitaiton of the El Coyolar Dam and improvement of the Irrigation Network of the Flores and Selguapa District, with L.105.3 million.

c. Intermediate Indicators

104. Six agro-food chains that work with dairy products, African palms, vegetables, honey, pork and beef products were set up (benefiting approximately 70,000 farmers nationwide); and the Center for Agro-Business (CDA) was created, to help strengthen skills for negotiating and commercializing products

105. Some 300 forestry agro-businesses are currently operating on an area of 250,000 hectares with the participation of more than 13,000 families. In addition, 50 micro-enterprises have been set up for small-scale production of non-agricultural products, promoted mainly by PRONADERS.

C. Area III: Reducing Poverty in Urban Zones

a. Policy Measures

106. To stimulate development of Micro, Small and Medium Scale Enterprises (MIPYMEs), more actions that support innovative financial services and products have been undertaken to satisfy immediate needs. The Competitiveness Policy has been developed and implemented, to support MIPYMEs and the economy’s social sector. Through this, programs and projects that stimulate economic and productive development will be defined, to improve and consolidate the competitiveness of this sector’s enterprises and organizations.

107. To support social interest housing, a legal and institutional framework was defined to strengthen regulations for this sector and better synchronize the construction of human settlements while reducing ecological vulnerability. These factors are included in the draft framework law for the sector, which is currently being reviewed and will later be presented to the National Congress.

108. To improve access to basic services in priority areas, a framework Law for Potable Water and Sanitation was approved. Its objective is promoting an expansion of coverage, assuring quality, and establishing a management framework for protecting and preserving water sources and managing sanitation. It also establishes the criteria for assessing services, setting tariffs and defining compensatory and “social solidarity” mechanisms to guarantee access to these services by the most vulnerable social groups. It is also aimed at better organizing the management of services, giving municipalities preference for making use of surface or underground waters.

b. Program and Projects

109. The total amount invested in this programmatic area during the 2001-September 2004 period was L.2.407 billion. Interventions were mainly financed with reimbursable external resources (47.3%), followed by donations (31.2%) and the rest with national resources.

110. Most of the resources were used for providing access to basic services in priority areas where the potable water and sanitation projects are located. Financial implementation for this area was L.1.616 billion.

111. A total of L.713.0 million was used to finance “social interest” housing. Some of the key projects in this area included the IDB-1037 Post-Hurricane Housing Program, the Solidarity Housing Reconstruction Program, the Minimal Rural Housing Program and Urban Dwelling Improvement Program (PRIMHUR), and finally L.78.5 million for the sub-component to develop intermediate-sized cities.

112. One of the actions supporting the development of social interest housing was the SOPTRAVI- AMHON Agreement (Association of Honduran Municipalities), whose objective is assisting families with high poverty levels in urban or rural zones. This agreement has total funding of more than L.30.0 million, and finances both the construction of new homes and improvements to existing homes (as long as they are not in high risk zones), benefiting a total of 1,187 families. The project is located in six of the nation’s poorest provinces. It is expected to conclude in December 2004.

113. One of the main investments related to access to basic services is the SANAA projects, some of the most noteworthy of which are: Supplying Water to Developing Neighborhoods, with an accumulated implementation of over 80%; Rehabilitation and Improvement of the Potable Water and Sewage Systems, with 50% implementation; Sewage and Water Systems for Marginal Neighborhoods of Tegucigalpa (PRRAC), which is in the pre-investment stage; and the Water Purification Plant Project, which has concluded its second phase and is beginning its third.

114. The objective of Investing in Potable Water and Sewage Systems is to expand and improve potable water and sanitation coverage through renovating existing infrastructure and building new works. The following related documents have been written: i) Basic Document for Pre-Classifying Construction Works in the Catacamas and Tela Municipalities; ii) Initial Report on the Development of Municipal Policies (Consultancy); iii) Description of the scope of the Siguatepeque Municipality Program; and iv) Strategy for Transferring Potable Water Services from SANAA to the Municipalities.12

D. Area IV: Investing in Human Capital

115. The component on developing human capital receives the largest amount of PRSP resources. When implementation of the PRSP began in 2001, 52% of PRSP spending was earmarked for investments in education and health. In 2004, this percentage is closer to 60%. An average of approximately L.4.8 billion has been invested annually, 68.9% of which has been used to expand the coverage and improve the quality of education, and 31.1% for guaranteeing more and better access to health services.

1. Education

a. Policy Measures

116. The PRSP policy measures for the education area are mainly intended to improve the coverage, quality, efficiency and equity of education, at different levels. The following progress has been made in this respect:

  • The Education for All Plan for Honduras for 2003–2015 has been designed, approved and initiated, with resources totaling US$86 million. The objective is to achieve universal sixth grade graduation for all school-age children by 2015.

  • Draft legislative reforms—the General Education Law and the UNAH Organic Law—have been harmonized by the National Congress’s Education Commission.

  • The norms that will regulate obligatory preschool attendance by five-year-old children were defined.

  • The Deconcentrated Management Model was implemented, which includes the new organic-operational structure for different Education Departments and their corresponding regulations, and the transformation of District Departments to Municipal Departments.

  • The twelve teacher training schools were converted into higher education centers for the initial training of already working teachers, and academic and/or vocational training centers (secondary level).

  • The national network for educational research and training was created, made up of four schools associated with the INICE, and 2,725 Teacher Education Centers (CADs).

  • The national curriculum for preschool and primary education was officialized and is being used in the nation’s 18 provinces.

  • Teachers received comprehensive training about the National Primary School Curricula (CNB).

  • New school textbooks related to the new CNB were produced.

  • The UMCE conducted academic performance tests with students about basic subjects so that corrective measures related to teacher and student performance could be applied.

  • 719 primary schools were converted into middle schools (7th–9th grades).

  • 4,240 positions were created in the preschool and primary levels in 2002 and 2003, and 812,915 hours/class were assigned for attending to primary and vocational education.

  • The National Primary School Curricula was adapted to the Bilingual Inter-Cultural Education model, and educational materials were reviewed and adjusted.

  • The Information and Statistics System and the Comprehensive Teacher Administration System (SIARHD) are operating.

b. Financial and Physical Implementation of Programs and Projects

117. Of the total funds implemented in the education sector between 2001 and September 2004, 86.4% were national funds, 6.3% loans, 6.5% HIPC funds, and 0.8% donations.

118. Of the total funds invested during the period, 75.8% were for projects aimed at expanding the coverage of primary, secondary and technical education, 9.3% for formal preschool education, 6.5% for PROHECO, 2.3% for scholarships, 1.7% for alternative education, and the remainder for school infrastructure and pedagogic and technical support.

119. Although financing for different programs and projects came from national sources, loans, HIPC resources and donations, some 86% of national resources were focused on projects to expand primary, secondary and technical education, while 93% of loans were earmarked for PROHECO, community education, primary and secondary education, and Education for All (EFA). Some 75% of donations were assigned to formal primary schools and alternative education, while 39% of HIPC resources were used for PROHECO, 23% for formal primary education, and 20% for formal primary schools.

120. These projects had the following results:

  • 1,697 Central Education Projects (PEC) were implemented.

  • 4,000 ADELs were organized, trained and legalized as uni- and bi-teacher schools and primary schools (“basic education centers”). The equivalent of US$1,000.00 is contributed to 3,023 of these schools annually.

  • 1,000 student governments were organized.

  • 5,937 PROHECO schools were created, with annual transfers of approximately L95,018 per year per school.

  • 603 Preschools (CEPREBs) were organized.

  • Educational software was installed in 400 computers of different schools, and teachers from innovative education rooms received training.

  • 150,000 young people and adults who were not enrolled in the formal school system were attended annually through alternative service delivery systems.

  • 5,818 facilitators were trained in alternative education.

  • 18,000 teachers were trained about different themes related to the educational transformation and the CNB.

  • An average of 142,000 students has received scholarships and vouchers every year.

  • 2,097 projects to build expand and repair schools—preschools, primary, vocational and secondary schools—were implemented.

c. Intermediate Indicators

121. Institutional indicators tended to improve during 2001–2004 (see Appendix B2). The proportion of fiscal spending in the sector with respect to the GDP grew systematically, although not as specified in Appendix D.1 (Appendix C from the First Report). Meanwhile, net coverage goals for the first and second cycle of primary education are consistent with the intermediate indicators for dropouts and grade repetition.

122. On the other hand, although there is no comparative data about dropouts, this rate reached 7% in 2003, which means that 93 out of every 100 children who enroll in school remain there. This result can be explained in part by the expansion of programs aimed at reducing school dropouts, such as the school snack program and other incentives to generate demand.

2. Health Sector

a. Policy Measures

123. The PRSP priorities for the health sector are focused on strengthening primary care, mother and child care, and better quality health services all around. During the 2001–2004 period, the main policy measures linked to these goals were:

  • Developing the framework for the reform process based on separating functions within the health sector, and strengthening the regulatory role of the Health Secretariat, which includes:

    • ➢ Establishment of eighteen Provincial (Departmental) Health Regions and two Metropolitan Health Regions, and implementation of the process.

    • ➢ Initiation of licensing, accrediting and certifying public and private health establishments.

    • ➢ Initiation of certifying private health service providers that offer basic health service packages.

    • ➢ Auditing work posts (underway), to organize and manage personnel linked to the Health Secretariat.

    • ➢ Incorporation of the decentralization of 9 hospitals into the general budget allotments for 2005, as an initial experience.

  • Initiating implementation of the Maternal-Infant Mortality Initiative, which includes:

    • ➢ Implementation of the training program for addressing maternal and infant mortality during the neonatal period.

    • ➢ Development of national norms for maternal-neonatal care.

    • ➢ Implementation of a program to monitor and analyze maternal and infant deaths.

    • ➢ Development of a proposal for expanding Community-AIN.

    • ➢ Adaptation of the service network, to strengthen implementation of the Comprehensive Care Strategy for Children (AIEPI).

  • Updating graduate level curricula on child and adolescent care, in collaboration with the School of Nursing of the UNAH.

  • Strengthening the framework of health policies through formulating the Strategic Health Plan for 2021, the mother-child health policy, and the nutrition policy.

b. Programs and Projects

124. Of the total funds utilized in the health sector through September 2004, 76.3% were national funds, 11.1% were loans, 6.4% were HIPC funds and 6.2% were donations. Approximately 86% of these resources have been invested in programs and projects related to outpatient care, epidemiological control of diseases, and hospital care. An average of L.1.2 billion has been assigned annually to finance these projects.

125. Some 91% of national resources have been earmarked for the hospital network via acquisition of medicines and surgical equipment and strengthening primary care, particularly the sustainability of the expanded program of immunizations and comprehensive community-based care for children (AIN-C).

126. Donated resources complement or strengthen the performance of the primary care network. One outstanding program has been “sustainable improvements to family health,” through which child survival services are provided, along with the use of practices to prevent Sexually Transmitted Diseases and HIV/AIDS, services to control and prevent malaria, tuberculosis and dengue, and reproductive health care. Also, the PRRAC project in health and sanitation provides training to institutional and community personnel, equips health centers, provides communal medication funds, and constructs health care infrastructure.

127. Loan resources are used for the “institutional reorganization and health service expansion” program (PRIESS), and the health sector reform project. The main interventions include:

  • Implementing local level strategies, currently covering 64 municipalities, 675 communities, and a population of more than 200,000.

  • Extending coverage through new management and financing models for health service provision, through external service providers in Mancorsaric in Copan and el Guante in Francisco Morazan.

  • Modernizing (underway) the management, expansion and remodeling of infrastructure, and equipping 18 hospitals that are part of the public health network.

  • Beginning the rehabilitation and equipping of 12 maternal-infant clinics.

155. Loan and donation resources have been used mainly for building and equipping the Tela, Danlí and Comayagua Hospitals. Construction of the Maternal-Infant Ward of San Pedro Sula’s Leonardo Martínez Hospital. Through the FHIS, some 168 projects to build, expand and repair Rural Health Centers and Dentist Offices. 1,465 locations for attending to “chagas” disease were set up, and 163 rural basic sanitation projects were implemented.

156. In addition, the Global Fund made the following progress with non-reimbursable resources:


    • ➢ Strengthening of the national ombudsman network of the national human rights commissioner in addressing the special law on HIV/AIDS.

    • ➢ Drafting and signing of project implementation agreements to tackle vulnerable populations affected by HIV/AIDS:

    • ➢ Consolidation of a comprehensive care model and access to antiretroviral therapy at a national level that permits access to antiretroviral therapy to be provided to approximately 3,000 people.

  • Tuberculosis

    • ➢ Support to the consolidation of the Health Secretary’s National Program to tackle Tuberculosis

    • ➢ Signing and initiating the implementation of 25 local management agreements at the municipal government level to tackle tuberculosis.

    • ➢ Definition of a protocol to tackle multiresistant tuberculosis.

    • ➢ Support to the consolidation of the Health Secretary’s National Program to Tackle Malaria.

    • ➢ Signing and initiation of the implementation of 44 local management agreements at the municipal government level to tackle malaria.

157. A model that ensures universal and equitable access to quality health services is being promoted through Project ACCESO, based on health promotion and primary or preventive care with the participation of the community and the municipal governments.

158. Congruent with the Millennium Goals related to reducing the incidence of malaria and other serious illnesses, the National Chagas Plan was approved, whose objectives are: i) Control and eliminate vectors, ii) Strengthen the sifting of blood for Chagas diseas at a national level, iii) Diagnose and treat cases of Chagas, iv) Epidemiological monitoring emphasizing community participation, and v) Improve housing in areas with conditions of extreme poverty.

c. Intermediate Indicators

159. The PRSP goals in the health sector related to maternal and infant mortality and nutrition cannot be fully evaluated, since there are no systematic measurement instruments that would demonstrate trends.

160. Available information about maternal mortality—108 deaths per 100,000 live births—dates from 1997. However, it could be expected that maternal mortality has tended to decrease, given both the emphasis on implementing mother-child health policies and the trends found in intermediate indicators for institutional birth coverage, births attended by trained birth attendants (midwives), and the average number of prenatal checkups, which all have improved over the past four years (appendix).

161. Similarly, no recent data is available for infant mortality and malnutrition rates among children younger than 5 years. Actions in this area related to strengthening the community-based AIN strategy, and positive trends in indicators such as immunization coverage, diarrhea and pneumonia incidence and the main causes of infant mortality are generating positive progress in global goals.

E. Area V: Strengthening Protection for Specific Groups

a. Policy Measures

162. With respect to social security networks, actions have been undertaken to develop a conceptual and operational social policy framework for implementing the PRSP. Thus, work has been underway to define a Plan of Attention for the Most Socially Vulnerable Groups: street children, sexually exploited children, children orphaned by HIV/AIDS, gang members, the disabled, the elderly and female victims of violence.

163. In a parallel manner, actions to improve the living conditions of the poorest populations living in rural zones are continuing through the Honduran Social Investment Fund, which finances 104 small social infrastructure projects benefiting children, adolescents, the disabled and the elderly. Its investment had reached L.85.2 million through September 2004.

164. The National Policy for the Prevention of Disabilities, the Comprehensive Care and Rehabilitation of Disabled Persons, and Protection of their Rights and Duties was approved, and the development of a corresponding National Plan of Action is underway. Cooperation agreements have been signed to support a community-based rehabilitation strategy in the Honduran Mosquitia region.

165. The Permanent Commission on the Protection of Children’s Moral and Physical Integrity has continued (through 2004) implementing the Plan of Action for eradicating child labor.

166. The National Policy on Women and an Equal Opportunities Plan were formulated and approved through a nationwide consultative process.

167. The National Commissioner on Human Rights developed the Special Program on Women’s Rights, and work is underway to incorporate a gender approach into the formulation of public policies, plans of action and institutional budgets.

168. To improve the socio-economic situation of indigenous groups and Afro-Caribbeans, the Commission to Eliminate All Forms of Racial Discrimination was created. Moreover, the Support Program for Indigenous and Black Populations (PAPIN) is being implemented, whose main component is implementing an ethnic-engineering model in two pilot communities (Belén in Mosquitia and Nueva Esperanza, Lempira) with 34 projects at a cost of L. 21.9 million.

169. The Government and Justice Secretariat is coordinating actions to guarantee compliance with the Law on Special Treatment for the Elderly, Retirees, and Invalid Pensioners, more commonly known as the Elderly Law. Other actions are carried out through the Health Secretariat, under its Elderly Care Program.

b. Programs and Projects

170. From 2001 to September 2004, spending for this program area has fluctuated. The majority of resources have been earmarked for the “Social Security Networks” component, followed by “Development of Ethnic Peoples” and finally the “Gender Equity and Equality” components. The main source of financing was national funds (50% during the entire period), followed by loans (39%).

171. By September 2004, some L.365.9 million had been implemented, which was 11% higher than the previous year. Of L.362.1 million destined for the Social Security Networks component, most of the resources were invested in vouchers for education, health and nutrition, maternal-infant care, school and families. Under the Family Allotment program, the sum of L.638,987.6 was implemented during the 2002-September 2004 period for income compensation vouchers benefiting a total of 394,024 children, young people, women and the elderly. As part of the Development of Ethnic Persons component, L.4.8 million were invested in projects from the Innovative Development and Social Assistance Fund and Our Roots (both from the FHIS program), the Support Program for Indigenous and Black Populations (PAPIN), and the Ethnic Improvement Program.

172. Most of the resources assigned to the Gender Equity and Equality component were used for the PRAF program, the Women’s Comprehensive Development project, and to a lesser extent for the Rural Women’s Equal Opportunity Project.

F. Guaranteeing the Strategy’s Sustainability

1. Strengthening Participatory Democracy, Justice, and Citizen Security

a. Policy Measures

173. The following policy reforms have been carried out to consolidate good governance, guarantee “transparent” public management and improve the quality of political representation:

  • Legislative Decree 153–2003 eliminated the figure of Presidential Designate, and replaced it with the figure of Vice-President.

  • The constitutional reform decree that will separate the National Elections Tribunal (tnE) from the National Registry of Persons (RNP) was ratified.

  • The Superior Accounts Tribunal was created with approval of the Tribunal’s Organic Law. The Tribunal began operating in January 2003 with the inauguration of the three magistrates, as established by Law.

  • A Constitutional Reform was adopted which incorporates plebiscites and referendums as democratic options, ratified on November 24, 2004.

  • The New Electoral Political Organizations Laws were approved in April 2004.

  • Through Legislative Decree 62–2004, the New Law on the National Registry of Persons was approved and entered into force in May 2004.

174. The project, “Strengthening a State of Law and Respect for Human Rights,” was initiated, through which 10,747 case files have been dismissed during the February–August 2004 period alone, and 41,560 expedients have been collected nationwide.

175. Loan agreement 115/SF-HO was signed with the IDB in December 2002, to finance the second stage of the Program to Support Modernization of the Administration of Justice. The program in comprised of two sub-programs: Legal Reform and Efficiency and Accountability.

176. The theme of citizen security has been one of the Government’s main priorities. This refers to monitoring not only the conditions set in both the PMRtn and the PRSP, but also other citizen concerns expressed during consultative arenas such as the Great National Dialogue and regional consults about the PRSP. In this context, some of the most important initiatives have included:

  • Reduction of the crime rate.

  • Implementation of Preventive Education Projects managed by the Gang Prevention Division.

  • Approval of the Legislative Decree 117–2003 that reforms Article 332 of the Penal Code and constitutes the Anti-Gang Law, which sets severe penalties for the types of illicit association that give rise to gangs or “maras.”

  • Implementation of the “Safer Community” Program, in which citizens work together with the National Police to insure community safety.

  • Implementation of the Strategy to Combat Drug Trafficking in the Gracias a Dios and Colón provinces.

  • Reform of the Transit Law and the Law on Firearm Ownership, Registration, and Possession and Control of Munitions, Explosives and Other Similar Devices (published in La Gaceta No. 30–224 on November 19, 2003).

b. Programs and Projects

177. A budget of L.5.355 billion was implemented during the 2001–2003 period, used mostly for modernizing public administration and decentralization, as well as for protecting the environment and risk management. Although no budgetary allotment was made to “Strengthening Justice and Citizen Security” during the first two years, HIPC resources were assigned beginning in 2004 to improve special investigation services and strengthen preventive police work.

2. Transparency and Accountability

a. Policy Measures

178. To reduce the risk of corruption, various processes aimed at increasing public sector accountability have been promoted, key to which as been approval of the new “Money Laundering Law.”

179. With respect to transparency in state procurements, the Government has implemented the Program for Efficiency and Transparency in State Procurements and Hiring. To support the Program, a Consultative Council was set up (CCPET) in February 2003, which was constituted through Executive Agreement 045–2002.

180. The regulations for the Normative Office for State Acquisitions and Hiring were developed and promulgated, and published in La Gaceta on May 13, 2004. A web site for the Normative Office for State Hiring and Acquisitions (ONCAE) has also been designed: www.oncae.gob.hn.

181. Another effort related to transparency and accountability that has been taking form is the Social Audit initiative, which creates local citizen oversight networks that manage community resources. This effort has facilitated the appointment of Municipal Commissioners and Citizen Accountability Commissions assigned to the 15 regional and provincial CONADEH delegations, which cover the nation’s 18 provinces.13

182. The National Congress approved Legislative Decree 105–2004, a Constitutional Reform that eliminates Article 200 and Section 15 of Article 205 that bestow impunity upon the President of the Republic, the Presidential Designates, magistrates and other high level State functionaries.

3. Modernization of Public Administration and Decentralization

a. Policy Measures

183. The Plan of Action of the National Decentralization and Local Development Program (PRODDEL) has been approved, to effectively decentralize the economic sector. In addition, municipal administration in the areas of planning, taxation and municipal civil service are being strengthened.

184. Training was provided to 219 municipalities throughout the country about: budgetary development, implementation and liquidation; municipal legislation, production of arbitration plans; tax administration; and local management. Currently, the municipalities present their budgets, arbitration plans and budgetary liquidations.

185. Development Commissions were created through Decree 21–2002, and a Draft Municipal Finance Law was jointly developed with AMHON to simplify and modernize the tax system, regulate municipal indebtedness, and strengthen financial management and the 5% transfer. It is worth noting that municipal transfers have risen from 1.9% in 2001 to 3.65% in 2004.

b. Programs and Projects

186. The projects with the largest investment implemented during this period included: Municipal Social Investment Plans (L.2.443 billion), transfers to Municipalities (L.1.613 billion), Allotments for Community Development Programs (L.259 million), and Loans to Municipalities (L.241.3 million).

187. The responsibility for different project cycles was transferred to 120 municipalities through the first project. This includes: (i) identification (pre-cycle); (ii) formulation; (iii) implementation; and (iv) maintenance (post-cycle). Training and technical assistance activities were financed for three areas of the Preventive Maintenance pilot program: finances, institutional norms and local works. The results were essential for developing a program budgetary manual and promoting active participation in financing maintenance activities.

188. In addition, municipal finances were strengthened through training about designing municipal debt policies, which included components on accountability and social auditing, and through developing a plan to simplify and modernize municipal tax systems.

4. Improving Environmental Protection and Risk Management

a. Policy Measures

189. The National Congress approved the Territorial Planning Law, which emphasizes administrative aspects of organization and creates the Territorial Planning Executive Council (CEOT). Also, both the Water Law and Forestry Law are close to passage, and restructuring of AFE-COHDEFOR is underway.14

190. To support the territorial organization process, the National Territorial Information System (SINIT) is being implemented, which creates and maintains a baseline of biophysical and socio-economic information and is the technological instrument used by the Registry of Territorial Organization Norms (RENOT).

191. The National Environmental Information System (SINIA) is operative, with 89 environmental indicators classified into 14 areas. The Climatic Change and Biodiversity nodes were also set up.

192. Efforts have been made to improve water management and planning, including: the development of a National Water Inventory, the development of a hydro-meteorological information database, the rehabilitation of the National Telemetric Network (16 stations), and the operation of 37 hydrometric and 71 climatology stations.

193. The Non-Formal Environmental Education Manual has been updated for the municipal governments; a “National Publicity Campaign on Environmental Awareness” will be developed with coverage all over the country and emphasis on 25 municipalities of 6 provinces, in which environmental strategic plans will be drawn up. In addition, 274 Municipal Environmental Units (UAMs) have been created, of which 192 have been technically strengthened.

194. In the area of energy, the Special Executive Commission for Developing Hydroelectricity Projects was created through Executive Decree 002–2003, to coordinate the actions of governmental agencies involved with this resource. The development of the Renewable Energy, Rural Energy and Energy Efficiency Policy is of particular importance, since it is based on a broad-based social consensus. At the regional level, the Central America Bio-Power Project is being developed to promote the generation of energy from biomass.

195. To prevent and mitigate the risk of disasters in ecologically and socially high risk zones, the National Action Plan for Combating Drought and Desertification was developed with the participation of local populations from the 76 most vulnerable municipalities in Lempira, Intibucá, La Paz, Valle, Choluteca, the southwest region of Paraíso and the southern region of Francisco Morazán.15

196. Through the Sula Valley Executive Commission (CEVS), La Lima has been effectively and fully protected against regular annual flooding. Protective works have been constructed in high risk zones (Chamelecón to Choloma), most outstanding of which are the construction of the Chotepe, Maya and Chambers water channels, and the recently initiated Calán Channel, at a cost of L.700 million, providing protection to 65,000 hectares.

197. The creation of a National Civil Protection System is underway, which consists of emergency actions in response to natural occurrences, expanding the coverage of COPECO actions. The seismic station network has also been strengthened, and the hydro-meteorological station network has been linked into early warning systems. The “113” call system for emergencies was also introduced, providing immediate responses 24 hours per day.

b. Programs and Projects

198. A total of L.189.6 million was used between 2000 and 2004 for the environmental protection and risk management sub-component. The most important investment project (45.7% of the total) is the Natural Resources Management Program for Priority Watersheds (MARENA), located in the upper basins of 3 priority watersheds: Ulôa, Chamelecón and Nacaome. To date, the project has: i) strengthened and trained the National Watershed Network; ii) developed an informational and documentary database for the Higuito, Mejocote, Yojoa and Mid-Humuya sub-basins; iii) promoted the organization, training and operation of emergency committees in 5 of the mentioned sub-basins; and iv) established the basis for operating early warning systems combined with structural and bio-physical works to mitigate disasters.

199. The Disaster Mitigation Project received around 45% of the sub-component’s total investment. It has fulfilled physical goals such as developing the Plan to Strengthen the National Hydro-Meteorological Network and providing rescue equipment to regional COPECO delegations. The Upper Lempa River Watershed Management Program absorbed some 6.1% of the sub-component’s total financing, with a radius of action in 5 municipalities of the Ocotepeque province (Dolores, Merendón, Concepción, Santa Fe, and Sinuapa), and at this stage 4 potable water systems, 22.5 kilometers of rural roads, sanitary sewage systems and irrigation systems have been developed.

200. The National Land Use Program (PRONOT) concluded its work in Comayagua, leaving concrete land use plans in place for Comayagua, Ajuterique and Lejamaní, and a general land use planning methodology. The Climatic Change project is implementing the Refrigerants Plan, and the Plan to Eliminate Methyl Bromide from melon, tobacco and banana production through which a reduction in the use of gases and substances that damage the ozone layer is expected. The Social Forestry Program has incorporated 80,700 hectares of land into forestry management plans (10%), has maintained the operations of some 300 agro-forestry organizations on 250,000 hectares of land with the direct involvement of 13,000 families, and has contributed to a 21% increase in resin production.

c. Intermediate Indicators

201. Intermediate indicators for the environment reflect efforts undertaken to improve management in this area, especially in the forestry sector. Within this policy framework, the indicator for the number of priority protected areas with management plans has improved significantly, increasing from 5 in 2000, to 12 in 2002, to 15 in 2003 and 23 in 2004. Other indicators such as the number of priority protected areas that have been legally declared as such had also improved between 2000 and 2002, but have since remained static. This can be explained, in part, by the grouping of the Delgaditos, Jicarito and San Bernardo areas as the “Gulf of Fonseca,” and the Utila and Guanaja Islands as the “Bay Islands.”

202. Despite its lack of change since 2002, the indicator for priority protected areas with community participation shows that more than 75% of priority protected areas are being managed with some form of community participation (including co-management), influenced by decentralization processes underway in the sector and the implementation of projects such as Forest and Water, PROBAP, MAFOR, PROCUENCA, PROMANGLE, and Transforma-CATIE, among others.

203. There has been an annual reduction in the indicator for the number of controlled fires, explained by more active participation of municipalities, communities and civil society organizations in fighting forest fires. Nonetheless, it should be clarified that climatic factors also influenced the reduction of this number in 2004. Despite the fact that the indicator for the number of pests or outbreaks shows annual decreases, the number of outbreaks being controlled has actually dropped, explained by the AFE’s limited operational and financial capacity to support this activity.

204. The indicator for forest coverage is an important one, because it refers to the nation’s most serious environmental problem. Unfortunately, there is no data available after 1995. The AFE estimates that approximately 100,000 hectares of land is deforested every year. An updated forest map needs to be developed to obtain more accurate information about deforestation.

205. Indicators related to creating, promoting, consolidating and strengthening Municipal Environmental Units indicate progress resulting from SERNA’s efforts in decentralizing environmental management and empowering local communities vis-à-vis environmental themes.


206. This chapter describes progress made in PRSP planning and programming processes, the basis of which is detailed in the PRSP 2004–2006 Implementation Plan (see Table 2), which the Honduran Government presented at the Consultative Group Meeting in June 2004, and which will be developed through the so-called Sector Wide Approach Programs (SWAps). Progress in Harmonizing and Aligning Official Development Assistance (ODA), which is fundamental to successful implementation of the PRSP, is also presented in this chapter.

Table 2

Achieving the Goals of the Poverty Reduction Strategy PRSP Implementation Plan, 2004–2006

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A. Medium- and Long-term Strategic Planning

207. The current framework for planning and programming the nation’s development is established by the Public Administration Law. This Law assigns macro level planning functions to the Economic and Social Cabinets: it also creates Management Planning and Evaluation Units (UPEGs) that are responsible for sector planning by line ministries. Finally, it creates the Technical Support Unit of the Presidential Secretariat (UNAT), whose function is to coordinate the process at the sector level and to help the Economic and Social Cabinets to define policies and programs. Currently UNAT is designing an institutional framework that integrates coordination with international cooperation agencies and the public investment process into planning efforts. As part of this effort, it sent a proposal for Reforming the General Public Administration Law to the National Congress, aimed at improving the institutional structure and adapting it to the needs of the PRSP.

208. To strengthen the programmatic planning process and the definition of the medium and long-term priorities, the new Organic Budgetary Law, which was enforced since January 2005, establishes that the National Budget must be prepared based on the medium-term goals. In order to do this, a Multi-Year Medium Term Plan must be designed based on Sector Plans, in order to articulate the PRSP goals with their costs presented in the budgetary programming.

209. In addition, the structure of Sector Roundtables was redesigned to make the process of defining Medium Term Programs more participatory, giving them responsibility for planning and monitoring sector programs; these programs are going forward in that way, and are being respectively consulted and validated. Six roundtables with six crosscutting themes were set up for that purpose. Currently, four of them (education, health, water and sanitation, and agro-forestry) have long-term programs that are aligned with PRSP goals. Together with the PRSP Implementation Plan, these plans will serve as the basis for developing the PRSP’s Multi-Year Implementation Plan that will later be linked to the national budget.

210. Another important element is the promotion of planning and management work based on demands generated at the local level. To achieve this, the Decentralization and Local Development Program (PRODDEL) is being implemented with the support of various donors to assist Municipal Governments in prioritizing and managing their demands in a manner that is consistent with governmental supply. This objective is achieved through the instrument of Municipal Development Strategic Plans (PEDMs). To date, some 83 PEDMs have been developed in low-income municipalities, and another 153 are being designed. It is hoped that in 2005, all programs will be covered by these plans that link local supply with demand.

211. To strengthen the local planning process, work has been done with the CCERP members since 2003 in designing and implementing the regional PRSPs, which seek to provide a holistic vision to the medium- and long-term planning, thus complementing national efforts. A commission made up of members of Civil Society, the Government and G-17 as observers is now discussing how to link the local and regional plan with the sector-wide planning initiated by the Roundtables.

212. Besides the effort of articulating the local demands, the commission appointed within the CCERP has the main objective of prioritizing the debt-relief resources that will be obtained starting with the Completion Point of the HIPC Initiative in 2005. In order to do this a standard methodology was designed to ensure the inclusion of the demands coming from the various sectors of civil society, whether through the PEDMs or any other channel. The idea is that this methodology could be applicable in the future to the total PRSP budget.

B. Harmonizing Cooperation

213. The main objective of harmonizing cooperation is to determine the steps to ensure that international cooperation efforts complement national efforts rather than substitute them, thereby achieving sustainable economic and social development and reducing the transaction costs as much as possible. Moreover, the provision of cooperation resources in accordance with the nation’s priorities is also sought, along with alignment of the strategies of cooperating agencies and nations with the Poverty Reduction Strategy (PRSP) or the equivalent national frameworks.16

214. The Government of Honduras has assumed the challenge of leading this harmonization process. Thus, following the High Level Forum in Rome (2003), the Government organized three workshops with support from the IDB (Zamorano I, II and III), with the goal of adapting international cooperation to national priorities in the framework of the PRSP. Agreements were reached at these workshops that tend to improve the efficiency of cooperation, such as: i) supporting programs rather than projects; ii) linking these programs in the framework of the PRSP; and iii) defining a series of appropriate management indicators. Also, the new proposal for participatory planning via Sector Roundtables was presented, and the progress of the H&A process was reviewed and corresponding recommendations were made.

215. Concrete progress has been made in harmonizing and coordinating donors, and aligning ODA with the nation’s programs and priorities. This work also addresses the standardization of the national bidding processes and financial resource management systems through SIAFI and the System of State Purchases and Contracts, respectively. Furthermore, the National Congress approved the Law on Poverty Reduction Management, whose objective is to create a framework that sustains PRSP implementation through 2015. The G-17 has acted as a key coordination structure in this process, not only monitoring the fulfillment of investment programs and policy commitments made in the framework of the PMRtn and the PRSP, but also acting as the main counterpart for the H&A process since it began.

216. Moreover, actions aimed at building the nation’s capacity to define coherent development programs have been carried out, making it possible to more effectively visualize the manner in which Honduras will fulfill the PRSP goals. Despite the progress mentioned, there are still a large number of projects—many of them relatively small and unrelated to one another—that tend to overstretch the nation’s coordination and management capacities. It is anticipated that the joint efforts of the Government and Cooperation will facilitate the operations through the reduction of transaction costs and the construction of standardized systems for more efficient program and project management.

217. The Government’s efforts to design and implement the PRSP, to improve its capacity to manage resources and external cooperation efforts and thereby improve coordination and to promote harmonization and alignment initiatives have had important results. Most cooperation agencies now prioritize PRSP programs as a norm, since its six “pillars” include almost all fields relevant to external aid in Honduras. Nonetheless, not all of these programs have embraced the concept of Poverty Spending in the framework of the PRGF Program.



218. During implementation of the PRSP, activities have been carried out to speed up monitoring of the Strategy. Since January 2004, the Technical Support Unit (UNAT) and the National Statistics Bureau (INE)—attached to the Office of the Presidential Secretariat and the Finance Secretariat—took the initiative to begin developing a prototype for a monitoring and evaluation system using available resources and information. On March 31, 2004, the PRSP Information System (SIERP) was presented on the official web site: www.sierp.hn.

219. The SIERP is a general information system that facilitates the monitoring and evaluation of national anti-poverty measures. The system is based on analyzing the progress of global and intermediate indicators linked to the physical and financial advance of PRSP programs and projects. The System also generates impact analyses of the policy measures and the population programs and policies through instruments such as the PSIA.

220. As evidence of the PRSP’s monitoring and evaluation system, three PRSP Progress Reports have been generated per quarter using information contained in the SIERP database. This information is also made available to the public through the web site.

221. During this period, an intensive review of the current prototype and the consolidation of links with the national information network has been underway, to establish a solid foundation for the SIERP. The main result of this process has been the design of a Master Plan for SIERP Implementation, which is conceived as a tool that will determine the strategic guidelines, main theories and specific activities required for its short, medium- and long-term implementation.

222. In mid-2004, the work of defining, compiling and discussing indicators began with all institutions. Model matrices were developed, so that each institution could include the indicators it considers pertinent. The matrices were designed for compiling information from the institution, existing information systems, and the indicators themselves. The attributes of these indicators are differentiated by time, level of breakdown, generation, among others.17

223. Following this first stage, a workshop was organized in to review and restructure PRSP indicators. The inputs for this workshop were the matrices that had already been analyzed by participating institutions. The workshop began with an explanation of conceptual aspects related to social indicators and the indicators most frequently used internationally. Later, the group was divided into work groups organized according to PRSP pillars.

224. Once organized, the work groups were responsible for discussing each of the indicators with the representatives of institutions present. The discussions led to a review and in some cases modification or improvement of each indicator. At the end of the workshop, a better catalogue of indicators was structured, each with its own characteristics and those responsible for oversight were defined.

225. For sectors that still did not have a primary list of indicators, the work of defining these has continued. In such cases, meetings were held and the basis through which responsible institutions and UNAT technical staff would begin the work of defining and refining a minimum number of indicators was established.

226. Defining a “catalogue” of indicators is a process that will take form while the PRSP is being implemented. It is important to see this task as a process, since the indicators can be modified as institutions begin producing more and better quality information.

227. Two of the most important aspects of the work carried out in recent months has been the establishment of an information network that will be responsible for compiling a catalogue of increasingly more accurate and appropriate indicators, and the promotion of continuous updating of SIERP data for use in producing PRSP progress reports.

228. The results of this process may be found in the appendix on intermediate indicators, where all of the information supplied by different institutions taking part in building the national information network is compiled.

B. Impact Evaluation

229. Measuring progress toward the PRSP goals is an essential part of guaranteeing adequate monitoring and evaluation of specific improvements in the population’s living conditions. It is also essential for beginning a learning process that allows both policy proposals and the content of sector programs to be reviewed and corrected in a timely fashion when required. Thus, technical instruments and tools are needed that help design policy recommendations, which in turn facilitate decision-making.

230. In Honduras, the PSIAs are the instrument used for analyzing the distributional impact of different policy reforms on the well being of different segments of the population, with a particular focus on the poorest and most vulnerable groups. Well-being is understood as both the income and non-income dimensions of poverty.

Table 3

What is a PSIA?*

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*Source: PSIA Users Manual, World Bank, 2002.

231. This tool has become more popular since 2001, when the International Monetary Fund (IMF) and the World Bank (WB) agreed to conduct a PSIA of the macroeconomic and structural policies of the programs they were developing in Honduras.

232. Similarly, the Department for International Development of the United Kingdom (DFID) has joined this agenda, initially supporting a pilot project to develop PSIAs in different countries. In Honduras, this took the form of a study about the impact of privatization of the electricity sector.

233. The main findings related to Honduras are that these studies may be carried out using existing data and public knowledge about the reforms. To be effective, a PSIA must inform about policy options through sharing information and through its appropriation by a given society, and must be immersed in the context of the Poverty Reduction Strategy (PRSP).

Table 4

Evaluation of the Distributional Impact of Tax Reform in Honduras

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234. Although the PSIAs are not new, they are still not regularly employed as part of government reform initiatives. Thus, they must validate findings from a broad spectrum of sources and clearly demonstrate the implications that alternative policy decisions have on reducing poverty. They must also establish the basis for improving national capacities to generate and adopt methodologies for evaluating the impact of policies as well as programs and projects.

235. The essence of PSIAs is presenting policy options based on evidence, explicitly demonstrating a specific reform’s impact on poverty and well being, and promoting the appropriation of such reforms through publicly debating the trade-offs of policy decisions.

236. Three PSIAs for Honduras have been conducted. The first was an analysis of “The Possible Privatization of Electricity Distribution. A Case Study: Honduras 2002,” while the second entailed an “Evaluation of the Distributional Impact of the Honduran Tax Reform, 2004.” The third is about to conclude, and evaluates “The Impact of Oil Price Hikes on the Poorest Population.”

Table 5

Evaluation of the Impact of the Rise in Oil Prices

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237. The Government has adopted an agenda for impact evaluations through the Presidential Secretariat’s Technical Support Unit (UNAT), where a study division will be set up to coordinate and implement the use of this type of investigative tool. This division will be directly linked to the central SIERP unit, and will be responsible for evaluating and monitoring governmental reforms. In addition, a team led by one main researcher and supported by an inter-institutional and multi-disciplinary technical team will be set up for each study, with the goal of strengthening local capacities through the transfer of methodological tools. Finally, the results will be shared through a process that directly involves civil society organizations and donors in a tripartite effort to disseminate and validate the results.

238. A series of studies are planned in coordination with international cooperation agencies, as outlined in the following schedule. All of these are aimed at developing local capacities to use different methodological tools and share the results nationwide, providing the nation with a technical instrument to support policy decisions.

239. To support this effort, the Government of Honduras will contract a permanent research-analysis unit that will: contribute technical suggestions for decision-makers in the field of policy reform; organize workshops to explain the relationship between reforms and progress in reducing poverty to the general public and the international community; and finally provide technical tools that help design social policies with a more “pro-poor” character.

Honduras: Schedule for Impact Studies and Evaluations

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Note: The dates indicate when the study will be concluded and its results publicized.


240. There is general consensus about the importance of providing continuity to PRSP implementation as the motor force behind the nation’s development policy. However, national support must be obtained to guarantee the process’s sustainability, in light of the political cycle that will be confronted in late 2005. Thus, the Government has proposed a multi-level publicity plan to generate greater appropriation of the PRSP at a general level.

241. A massive PRSP publicity program must be promoted. It must consider the structuring of popular versions of both the original document and the progress reports. this will allow the population to be duly informed about the progress of the proces and will ensure its appropriation by the beneficiaries.

242. National Congress approval of legislation that allows progress in key areas will be needed, such as reforms to the Civil Service Law General, Public Administration Law and General Water Law, so that the nation’s institutional framework is adapted to the PRSP’s planning requirements.

243. Continued efforts to target spending on the most vulnerable sectors are essential, so that this is reflected in the indicators. It will especially necessary to expand sustainable income generation programs for households living in relative poverty whose members are working in the informal sector or are unemployed.

244. With respect to harmonizing cooperation, although ODA is generally aligned with the PRSP’s programmatic areas, there is still no effective coordination between donors and the Government with respect to expanding the quality and coverage of public services, or expanding other investments needed for achieving the PRSP’s goals. The Government considers the previously mentioned proposal for reforming the planning and management of external cooperation key to making progress in this area.

245. Although there has been progress with respect to improving the planning process and harmonizing and aligning cooperation, there is still a great deal to be done. The PRSP needs to remain the key reference point for defining public investment priorities and aligning external cooperation. The reform proposed for rationalizing the “institutionality” of external cooperation planning and management needs to be approved and implemented. In addition, dialogue and involvement in the PRSP’s development needs to be strengthened, and coherency between the PRSP and civil society concerns and proposals needs to be assured.

246. Efforts aimed at linking the supply and demand for local level services should continue, in the framework of Municipal Development Strategic Plans. In addition, these demands need to be consistent with the regional proposals that civil society organizations are promoting within the CCERP.

247. It is very important to strengthen the SIERP and impact studies (PSIAs), so that the results of PRSP policies and programs may be effectively and adequately evaluated.

248. The Honduran economy’s resource absorption capacity as well as improved efficiency of public investment continues to be one of the main challenges the country faces to achieve socioeconomic development. It is fundamental that the governmental authorities double their efforts to increase the public sectors investment resource management capacity. The possibility of achieving this is subject to requirements such as development of an adequate legal public career framework, strengthening of the capabilities of government employees, institutional consolidation and transparency of executrices.


(Millions of Lempiras)

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Source: Department of Economic Studies, Central Bank of Honduras

preliminary e/ estimated BP 19/1/04