Pressure grows on Honduras, violence feared

By Simon Gardner and Esteban Israel

TEGUCIGALPA (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.

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.

"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.

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.