Honduras and the New Year: A Glass Half Empty or Half Full?

EspañolHonduras will start 2014 with a new administration, but the same ruling party. This would be the first time in the country’s democratic history that the Honduran National Party has won two presidential terms in a row. Even though this “new” government will be a continuation of the previous one, we still have hopes, and doubts, that Juan Orlando Hernández — as the newly elected president — and his cabinet can turn this occasion into an opportunity. He may be able to start from a clean slate: to expand liberties, employment, economic growth, free trade, investment, and development.

While I don’t intend to be a pessimist, all these aspirations seem difficult to accomplish. The president hasn’t even taken office, and the new administration has already promoted and approved a new “fiscal package.” This includes a series of measures that raise and complicate taxes in a disastrous manner. It’s unfortunate that Hernández hasn’t chosen to foster greater state income, by boosting private investment and cutting government spending as a percentage of the economy, as Peru and Colombia have.

Within these regulations, the government has raised the sales tax, from 12 percent to 15 percent, and removed about half of the goods that were previously tax-exempt as normal household consumption. It has also increased fuel prices by HNL$5.30 (US$0.25). Meanwhile, it’s likely that a currency depreciation is underway, and thus, an inflationary process.

At the very least, alongside any tax increases, the state should get current expenditure under control. It should also apply policies that attract and guarantee investor security, as a means to generate employment and income and to avert further fiscal crises.

Between 2012 and 2013, Honduras’ economic situation reflected a deep crisis. The fiscal deficit reached 6 percent of economic activity — HNL$25 billion, slightly more than US$1 billion — due to falling tax revenues, rising government spending, out of control internal and external public debt, declining international currency reserves, and the eroding of public infrastructure. The inflation rate reached 5.4 percent, and the economic growth was 3.3 percent.

Furthermore, corruption still prevails in the country as a strong custom — Honduras is the most corrupt country in Central America, according to Transparency International. So too does excessive bureaucracy, and even President Porfirio Lobo has publicly condemned it. Both practices have been refined over the years, and are compromising the country’s enormous potential. Severe undermeployment, unemployment, and poverty rates are additional problems that the nation needs to address.

In that context, the results of the latest presidential elections, held in November 2013, were unsettling, since they marked a historic collapse of Honduras’ two-party system. After a heated campaign, the winning candidate obtained a victory with barely 36.89 percent of the votes, followed by LIBRE, a new party. LIBRE, born from the constitutional crisis in 2009, is headed by former president Manuel Zelaya, and his wife and presidential candidate, Xiomara Castro.

These results reflected a country that now faces serious challenges to governance due to high political polarization. Juan Orlando Hernandez’s party didn’t earn a majority in congress, so there will also be parliamentary divisions, which will obstruct agreements and the approval of any bills.

However, the future could be promising as well. Honduran politicians have the opportunity to finally approve necessary reforms and laws that could represent two much-desired development projects. They are the Employment and Economic Development Zones (ZEDEs), and the privatization of several public offices through Public-Private Partnerships (PPPs) — to attract private investment, with emphasis on foreign investment — and to improve public services.

The legislation for the ZEDEs creates Startup Cities, which will operate under the central government’s limited supervision. The creation of a ZEDE can go through two procedures: (1) a referendum, where voters can choose to create their own local ZEDE, and (2) a government enactment, that declares a region with lower population levels as a ZEDE.

ZEDEs seek to attract foreign investment through low taxes, free trade, institutional protection against political interference, and transparent governments — along with low barriers to entry, which will increase competition. This will lead to job creation and motivate Hondurans to stay in the country, rather than exiling in search of better opportunities abroad. The ZEDEs will also allow the creation of financial and international logistics centers, renewable energy districts, agro-industrial areas, as well as special zones for tourism, mining, and woodland areas.

Unfortunately, the creation of these zones still faces strong opposition inside the country. They have received harsh criticism, especially from collectivist advocates and various ethnic groups, who accuse the project’s developers of betrayal by “selling Honduran territory to the highest bidder.” All these necessary reforms will require several alliances at National Congress, if they want to succeed.

For developing countries to progress, they must take action. However, Honduras still isn’t committed to freedom and growth. Rulers and citizens haven’t realized that private companies — small, medium, or large — are the only ones with the capacity to generate jobs, and are the only source of true progress and well-being.

Let’s give these new authorities the benefit of the doubt, and say the glass is half full in Honduras. There is a clear opportunity to develop democracy and live in freedom under a state of law with higher levels of security, more transparency, and accountability — along with superior public services such as education, health, and transportation.

For now, though, the challenge is to make an agreement that reaches an effective and successful application of these reforms, creates wealth, reduces state intervention in the economic sphere, and promotes space for development and growth of the free enterprise.

Translated by Marcela Estrada.

Subscribe free to our daily newsletter
Sign up here to get the latest news, updates and special reports delivered directly to your inbox.
You can unsubscribe at any time