U.S. moves toward formal cutoff of aid to Honduras

WASHINGTON (Reuters) - U.S. State Department staff have recommended that the ouster of Honduran President Manuel Zelaya be declared a “military coup,” a U.S. official said on Thursday, a step that could cut off tens of millions of dollars in U.S. funding to the impoverished Central American nation.

The official, who spoke on condition he not be named, said State Department staff had made such a recommendation to U.S. Secretary of State Hillary Clinton, who has yet to make a decision on the matter -- although one was likely soon.

Washington already suspended about $18 million in aid to Honduras following the June 28 coup and this would be formally cut if the determination is made because of a U.S. law barring aid “to the government of any country whose duly elected head of government is deposed by military coup or decree.”

The official said $215 million in grant funding from the U.S. Millennium Challenge Corporation to Honduras would also have to end should Clinton make the determination that a military coup took place.

According to the MCC, just over $80 million of this has already been disbursed. A second U.S. official said this implied the remaining roughly $135 million could not be given to Honduras should the determination be made.

But MCC officials could not immediately say exactly how much of the MCC funds for Honduras were in jeopardy.

Diplomats said the United States had held off making the formal determination to give diplomacy a chance to yield a negotiated compromise that might allow for Zelaya’s return to power.

Such efforts appear, however, to have failed for now and so the United States is taking steps -- including its decision on Tuesday to cease issuing some visas at its embassy in Tegucigalpa -- to raise pressure on the de facto government.

“The recommendation of the building is for (Clinton) to sign it,” the first U.S. official said of the “military coup” determination.

The official said this was a response to the de facto government’s rejection of proposals put forward by Costa Rican President Oscar Arias, whose mediation effort has stalled over the government’s refusal to allow Zelaya to return to power.

The San Jose accord proposed last month by the Nobel Peace Prize winner would have allowed Zelaya to return to office until elections are held by the end of November.

The State Department said on Tuesday it would only provide visa services to potential immigrants and emergency cases at its embassy in Tegucigalpa.

A U.S. official who spoke on condition of anonymity told reporters the visa decision was “a signal of how seriously we are watching the situation” and said Washington was considering other steps, though it was premature to disclose these.

Editing by Jackie Frank and Todd Eastham