Honduras: economy could “quickly buckle”

The Central American Bank for Economic Integration (BCIE) announced on Aug. 26 that it was freezing credits to Honduras as a result of a coup that removed Honduran president JosĂ© Manuel Zelaya Rosales from power two months earlier, on June 28. The move is provisional, since the banks’ governors are still considering whether to join the many multilateral agencies and foreign governments that have suspended financing for aid projects until Zelaya is returned to office. The BCIE has provided about $971 million in financing for Honduras over the last five years. (Associated Press, Aug. 27)

The Honduran economy, with an annual gross domestic product (GDP) of about $14.1 billion, was already shrinking before the coup. According to the Banco Central de Honduras (BCH), economic activity declined by 3% during the first six months of the year as a result of the world recession; the economy had grown by 3.5% during the same period in 2008. Exports dropped 13% from the first six months of 2008, to $1.37 billion, while remittances from Hondurans living abroad fell by 10%, to $1.19 billion. The recession especially affected the maquiladora sector—the tax-exempt plants that assemble products chiefly for export, employing about 140,000 people out of a population of 7.6 million. Textile and apparel production, the main activity in the maquilas, fell by 17.9% compared to the same period last year.

The decline in international aid and commerce after the coup—combined with investor uncertainty and strikes against the de facto government by the labor movement—has added to the country’s economic problems. As of Aug. 28, the BCH reported that liquid reserves of international currency were at $2.064 billion, reportedly down by about $400 million since the coup. Alcides Hernández, director of the economics program at the National Autonomous University (UNAH) in Tegucigalpa, told the Bloomberg news services that the political crisis was probably costing the country about $20 million a day in lost trade, aid, tourism and investment.

Edwin Araque, the president of the BCH in Zelaya’s government, told the Tegucigalpa daily La Tribuna, which supported the coup, that the economic problems are created by Honduras’ isolation from the international community. “This won’t be resolved with economic policies,” he said. “It will be resolved with a political solution.” Araque was removed from office by the administration of de facto president Roberto Micheletti; he was one of five officials from Zelaya’s government that a Honduran court charged with corruption on Aug. 12. But the BCH president appointed by the de facto regime, Sandra Midence, largely agreed with Araque. “If this political situation keeps up into next year, we’ll have problems,” she told the Bloomberg news service. “It’s intensifying the economic crisis.”

“I don’t know how long the Micheletti government can resist international pressure,” UNAH economist Hernández said. “If they start blocking trade too, a country as poor as ours would quickly buckle.” (Bloomberg, Aug. 7; La Tribuna, Aug. 20; La Prensa, Honduras, Aug. 13, 27; Honduras Coup 2009 blog, Aug. 28)

From Weekly News Update on the Americas, Aug. 30

See our last post on Honduras.

  1. IMF bailing out Honduras?
    Edwin Araque, head of the Honduran central bank under the Zelaya government, denied reports that the IMF has granted the de facto regime a $150 million bailout. Araque called the claim an “artifice” to create the impression of normality in the country. (Prensa Latina, Sept. 2)