(For full coverage of Honduras, click on [ID:nN28343997])
* U.S. warns of possible cuts to aid
* European Commission suspends payments
* De facto government says won’t bow to pressure
* Zelaya supporters plan highway blockades, strike (Adds U.S. warning, planned protests)
By Simon Gardner and Esteban Israel
TEGUCIGALPA, July 20 (Reuters) - Honduras’ de facto leader came under increased pressure on Monday to hand power back to the ousted president with Washington threatening to cut aid and Latin American leaders warning of bloodshed if he does not back down.
Efforts to broker an end to the power struggle in Honduras following a June 28 military coup collapsed on Sunday after interim leader Roberto Micheletti rejected a proposal to reinstate overthrown President Manuel Zelaya. [ID:nN19522687]
Costa Rican President Oscar Arias, the frustrated peacemaker in the talks, asked both sides to give him until Wednesday to broker a solution to the crisis. But Micheletti, who was appointed by Honduras’ Congress after the coup, remained defiant despite being shunned by foreign governments.
"My position is unchangeable," he said in a speech on Monday at the presidential palace to a standing ovation.
U.S. Secretary of State Hillary Clinton held a "very tough phone call" with the caretaker president, warning him he could face cuts in economic aid unless he strikes a deal with his enemy, spokesman P.J. Crowley said. [N20129879]
"She reminded him about the consequences for Honduras if they fail to accept the principles that President Arias has laid out, which would (have) a significant impact in terms of aid and consequences, potentially longer-term consequences ..., for the relationship between Honduras and the United States," he said.
It was not clear what sanctions might apply but the options include slashing $180 million in economic aid.
The United States has already halted $16.5 million in military aid and multilateral lenders have put another $200 million on hold.
The European Commission also tightened the screws on Micheletti, suspending all budgetary support payments to Honduras. It had earmarked 65.5 million euros ($92.73 million) in payments in the 2007-10 period. [ID:nLK223534]
Latin American leaders fear violence in the impoverished Central American country unless Micheletti steps aside.
"Insurrection and confrontation are not a good path to take, but I don’t think we will avoid it unless the de facto government shows some flexibility," said Jose Miguel Insulza, the chief of the Organization of American States.
The United States and other governments pleaded with Zelaya to wait out the 72 hours requested by Arias before staging a return to Honduras from exile in Nicaragua.
Zelaya says resistance is being organized in Honduras to pave the way for his return this weekend, despite the de facto government’s threats to arrest him. The government has imposed a night-time curfew.
Zelaya tried to fly back to Honduras earlier this month but soldiers blocked the runway and at least one protester was killed in clashes with the army.
Pro-Zelaya protesters gathered peacefully outside Congress on Monday but protest leader Juan Barahona said they planned highway blockades on Wednesday and union leaders called for a national strike on Thursday and Friday.
"This is just the start. For now, these are peaceful protests but things could get a lot worse," said Wilfredo Moncado, a 59-year-old union leader who joined the march.
A DIFFERENT COUP
Zelaya was expelled from the textile and coffee exporting country in his pajamas in the middle of the night. He had upset his political rivals by trying to lift presidential term limits and the army toppled him after the Supreme ordered his arrest.
The crisis is widely seen as a litmus test for U.S. President Barack Obama as he seeks a fresh start with Latin America despite ideological differences with vocal U.S. foes like Venezuelan President Hugo Chavez, a close ally of the deposed Honduran leader.
Micheletti has a base of local support in business circles as well as the Supreme Court, Congress and the Catholic Church, making this coup unlike those that battered Latin America in the 1970s and 1980s.
On Monday, he urged business leaders to continue investing in Honduras and asked his supporters to help him try to turn the tide of world opinion in his favor.
Analysts say he is biding his time so that Zelaya’s reinstatement becomes a moot point. His term was due to end in January, and elections were scheduled for November. (Additional reporting by Gustavo Palencia in Tegucigalpa, Juan Casas and John McPhaul in San Jose, Tim Gaynor in Washington and Rodrigo Martinez in Santiago; Writing by Louise Egan; Editing by Kieran Murray)