Sept. 3 (Bloomberg) -- The State Department formally halted aid to Honduras other than humanitarian assistance because of the June 28 ouster of President Manuel Zelaya in a coup, saying the regime in power has resisted a deal to restore democracy.

The U.S. said it wouldn’t support the result of a planned November presidential election in the Central American nation unless the vote is free and open. The measures were announced as Zelaya visited the State Department to meet with Secretary of State Hillary Clinton.

Zelaya, wearing a white cowboy hat, told reporters as he left the department today that an election under the current circumstances “wouldn’t be recognized by anybody, by Europe or America.”

The U.S. actions, which also include the revocation of some visas held by backers of the coup regime, ratchets up the pressure on acting President Roberto Micheletti to reach a political agreement. About $30 million in aid is affected.

Clinton decided to take the steps “in light of the continued resistance to the adoption of the San Jose Accord by the de facto regime and continuing failure to restore democratic, constitutional rule to Honduras,” State Department spokesman Ian Kelly said in the statement.

Harm Hondurans

The accord, brokered by Costa Rican President Oscar Arias, would restore Zelaya to power and set the basis for an election.

Micheletti said U.S. aid cuts will only harm Hondurans and he’ll resist foreign attempts to “intervene” in Honduran affairs, according to an e-mailed statement from the foreign ministry today.

Honduras’ congress passed a motion today condemning the U.S. aid cut, which will “mostly impact poor Hondurans, those with the fewest resources,” the statement said.

Zelaya ran afoul of Honduran politicians wary of his ties with a group of socialist Latin American leaders headed by Venezuelan President Hugo Chavez. Before the coup, Zelaya had pursued a referendum for a national assembly to rewrite the nation’s constitution, an effort the Honduran Supreme Court ruled unconstitutional. Members of the opposition and some in Zelaya’s own party objected to his plan.

Visas Revoked

The U.S. said it has identified “individual members and supporters” of the Honduran regime whose visas are being revoked. That is a “step forward,” said Mark Weisbrot, co- director of the Center for Economic and Policy Research in Washington.

He said the administration ought to go further and freeze bank accounts to have a real impact.

Also today, Brazil said it was suspending an agreement to allow Honduran diplomats appointed by the Micheletti government to enter Brazil without a visa. The move, which won’t affect diplomats already in the country, was taken in accordance with Organization of American States and United Nations resolutions demanding Zelaya’s reinstatement.

The State Department didn’t find that Zelaya was deposed by a military coup, which would have required congressional approval for a resumption of aid, according to State Department spokesman Philip J. Crowley. Instead, State Department officials can determine when Honduras deserves to receive aid again.

Military Funding

On July 2, the U.S. suspended some assistance to Honduras, including $1.9 million distributed by the U.S. Agency for International Development and $16.5 million in military funding. Democracy assistance and humanitarian programs were largely excluded from the aid suspension. The U.S. was planning to give more than $43 million to Honduras in the current fiscal year.

On July 28, the U.S. revoked the diplomatic visas of four Hondurans who were members of the acting government, and a month later suspended some visa services at its embassy in Honduras. The U.S. has ceased military-to-military operations with Honduras, beyond what is necessary for maintenance of the Soto Cano Air Base in the country, Michael Hammond, a spokesman for U.S. Southern Command, said.

The Honduran base is used for drug-interdiction and humanitarian missions.

Zelaya told the Washington Post before his meeting with Clinton that he is devising “fighting strategies” to return to Honduras should political negotiations fail. He said he would seek to “kick the coup plotters out of power.”

Funding Dries Up

Other streams of development money have dried up for Honduras.

The Millennium Challenge Corp., a U.S. government agency that works with countries that demonstrate a commitment to democratic performance, decided not to move forward with activities under a $215 million rural development compact with Honduras that weren’t under way before June 28.

MCC signed the five-year rural development compact with Honduras on June 13, 2005. About $25 million remains yet to be committed to programs or activities.

The Central American Bank for Economic Integration said last week it had frozen operations in Honduras while its board decides whether to suspend loans to the country. The Tegucigalpa-based organization, known as CABEI, has released $971 million in development loans in the past five years to Honduras.

The European Union has also cut aid and the World Bank has suspended loans to Honduras.

Election Campaigning

In Honduras this week, six candidates officially began their bids for the presidency in Nov. 29 elections.

Zelaya’s ouster fractured his ruling liberal party, of which Micheletti is also a member, and paved the way for opposition party leader Porfirio Lobo, said Honduran analyst Jorge Alberto Palma, of the National Autonomous University in Tegucigalpa.

Zelaya refused Micheletti’s latest proposal to step down if the ousted leader would abandon his bid to be reinstated as president. Under the proposal, Micheletti would cede power to the head of the Honduran Supreme Court, Jorge Rivera, according to a statement. He would also welcome international observers to monitor November elections and would back a congressional amnesty proposal that would protect Zelaya from prosecution.

To contact the reporter on this story: Janine Zacharia in Washington at jzacharia@bloomberg.net

Last Updated: September 3, 2009 21:59 EDT