Honduras candidate Hernandez says currency devaluation 'not an option'

By Gabriel Stargardter, Miguel Gutierrez and Gustavo Palencia TEGUCIGALPA (Reuters) - Honduran ruling party presidential candidate Juan Hernandez said on Thursday a currency devaluation, which is widely seen as a pre-condition for a new International Monetary Fund (IMF) credit deal, is not on the cards if he wins this week's vote. The National Party's Hernandez is currently running neck-and-neck with Xiomara Castro, the wife of ousted former leader Manuel Zelaya, to be the next president of the violence-racked Central American nation. The eventual winner of Sunday's vote faces a stiff challenge to lower a murder rate of more than 85 per 100,000 people - the world's highest - and steady the country's precarious finances. Annual growth is not expected to reach 3 percent this year, economists say, while the fiscal deficit will likely exceed 7 percent of gross domestic product (GDP). Public debt will probably come in at 41 percent of GDP - double 2008's level. Hernandez has said he will seek IMF credit, like a roughly $200 million deal from 2010 that expired last year, but still has some minor disagreements with the Fund. On Thursday, speaking with reporters outside his campaign office, he reiterated those doubts. But he made clear a currency devaluation was out of the question. "It's not an option for us," he said. Most experts believe a currency devaluation, along with a slashing of public salaries, a tax overhaul and the privatization of loss-making state utilities, will be prerequisites for a re-opening of IMF credit lines. Hernandez said he would be willing to undertake some of the Fund's probable measures, but declined to say which, adding that he would only say after the election. Hernandez favors using the army alongside a newly formed military police force to tackle the drug gangs who have invaded the Central American country of about 8 million people. But despite the similarities of his proposed security tactics with those of former Mexican President Felipe Calderon, who also sent in the army to tame the cartels, Hernandez said the example of Mexico was not one Honduras could learn from. "We're learning from the good practices and from the examples that weren't so successful," Hernandez said. "We're very sad to see what happened in Mexico's case." Critics say Calderon's military-led assault on the gangs splintered them, exacerbating a conflict that led to roughly 70,000 deaths during his six-year presidency. Castro, the candidate for the Liberty and Refoundation Party (LIBRE) - a coalition of leftist politicians, unions and indigenous groups founded by her husband Zelaya - wants to create a community police force, limiting the army to intercepting drug shipments on the border. According to the latest polls, she and Hernandez are statistically tied. (Additional reporting by Gustavo Palencia; Editing by Simon Gardner and Eric Walsh)