By Juana Casas
TEGUCIGALPA (Reuters) - Politically isolated Honduras braced for months of austerity under the spectre of economic sanctions after a June 28 coup and ousted President Manuel Zelaya on Saturday vowed actions to help reinstate him.
With the textiles and coffee exporting economy seen contracting this year amid the global economic crisis, the interim government that replaced Zelaya estimates it already has been denied about $200 million (123.4 million pounds) in suspended credits.
The United States has cut $16.5 million in military assistance and warned a further $180 million in other aid is at risk, and any repeat of a brief boycott by neighboring trade partners would choke one of Latin America's poorest countries.
"We have to think in terms of austerity and we want to ask the people to do the same," interim president Roberto Micheletti said on Friday. He had asked his finance minister to find ways to cut state spending to ride out the coming months.
The interim government, installed by Congress after widely unpopular Zelaya was booted out of the country in his pajamas last month by soldiers, has resisted international pressure and says Zelaya's reinstatement is not negotiable.
It accuses Zelaya, who ran afoul of his political base and ruling elites in the conservative country by allying himself with Venezuela's firebrand leftist President Hugo Chavez, of contravening the constitution and seeking to illegally extend his rule.
That has left little wriggle room for talks brokered by Costa Rica aimed at defusing one of the worst crises in Central America since the Cold War. The talks have resulted in little apparent progress, aside from agreeing on more discussions.
Zelaya's term was due to end in January and local commentators suspect the interim government is seeking to buy time to make his reinstatement obsolete.
The United States, facing a major test of President Barack Obama's promise of a fresh start in relations with Latin America, has joined many regional governments in strongly condemning Zelaya's ouster but has urged him against trying to return unilaterally to avoid stoking tensions and violence.
At least one pro-Zelaya protester was killed in clashes at Tegucigalpa's airport last Sunday when Honduran troops blocked an attempt by Zelaya to return in a plane provided by Chavez.
Speaking at the end of a visit to Dominican Republic, Zelaya said on Saturday the talks in Costa Rica had opened a "window" for a deal. He vowed unspecified actions to back his case for restoration both at home in Honduras and in the international arena.
HONDURAS "ISOLATED"
"Honduras is isolated, as a demonstration that a mistake has been made," Zelaya said in Santo Domingo after a farewell breakfast hosted by the Dominican Republic government. "Possibly next week, we'll have some actions inside the country ... we'll have others on the international front," he said.
Former Cuban President Fidel Castro, whose country backs Zelaya, wrote in a column late on Friday he feared a wave of copy-cat coups in Latin America unless Zelaya is reinstated.
Vowing not to back down, Micheletti is hunkering down for what he expects to be a tough five or six months.
Business leaders who back the interim government have agreed to freeze prices of basic goods to help stem inflation, which exceeded 11 percent last year.
Interim Finance Minister Gabriela Nunez said this week she expects the economy to shrink by up to 2 percent this year after growing by 4 percent in 2008 -- a far cry from forecasts for 2 percent to 3 percent growth predicted earlier this year.
"We have to guarantee food security given this critical situation but if there are job losses and investment projects are stalled (due to cuts in multilateral aid), that would be really serious," Nunez said.
Economic sanctions would hammer a land where 70 percent of the more than 7 million population is poor.
Central American governments imposed a 48-hour commercial blockade shortly after the coup which cost the region some $61 million in trade, according to Honduras' business council. However any repeat of such a move could backfire.
"A commercial blockade could be very serious but 57 percent of trade is with the United States and protected by CAFTA (the Central America Free Trade Agreement) and in terms of Central American trade, such a blockade would only hurt them," said Guillermo Matamoros, head of the council.
(Additional reporting by Manuel Jimenez in Santo Domingo and Jeff Franks in Havana, Writing by Simon Gardner; Editing by Pascal Fletcher and Bill Trott)
