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Weekly Report - 09 December 2021 (WR-21-49)

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HONDURAS: Transition period kicks off

Days after Xiomara Castro’s remarkable victory for the left-wing opposition Partido Libertad y Refundación (Libre) in the 28 November general elections [WR-21-48], her campaign team has begun meeting with various sectors, including the private sector lobby Consejo Hondureño de la Empresa Privada (Cohep) and a government mission led by the general coordination minister Carlos Madero and finance minister Luis Fernando, among others. Amid the flurry of meetings, members of Castro’s team have begun to give hints as to economic priorities upon taking office in January to address the dire economic situation which the new government will inherit [WR-21-37].

Castro’s transition team includes Hugo Noé Pino, a former finance minister under Castro’s husband and Libre founder, the ejected former president Manuel Zelaya (Partido Liberal [PL], 2006-2009). A well-respected economist and research professor at the Universidad Tecnológica Centroamericana (Unitec), a private university, Noé Pino also served as central bank president under former president Carlos Roberto Reina (PL, 1994-1998). Noé Pino also has diplomatic experience having served as an ambassador to the United Nations (UN) (1998-1999) and to the US (1999-2002).

Other members of the transition team include Marcio Sierra, also a former adviser to Zelaya; economist Rebeca Santos; Castro’s son and campaign manager Héctor Zelaya; and Pedro Barquero, the campaign chief for the Partido Salvador de Honduras (PSH), the party of Castro’s running mate and 2017 presidential candidate, Salvador Nasralla.

In an interview with the national daily El Heraldo that was published on 2 December, Noé Pino outlined some key economic priorities for the new government which will inherit a public debt burden approaching 60% of GDP, up from 48.7% in 2019. These include the need to address the crisis facing the state electricity company Empresa Nacional de Energía Eléctrica (ENEE), which runs a large budget deficit and continues to impact heavily on government finances.

This is in line with recommendations made by the International Monetary Fund (IMF) in a report published in September 2021 in the context of the fourth review under the IMF’s Stand-By Arrangement (SBA) and Arrangement Under the Stand-By Credit Facility for Honduras. The IMF report highlighted as key for fiscal sustainability and improving the business environment, the need to “expeditiously improve governance in the ENEE and strengthen its financial situation”.

  • ENEE

According to the IMF report published in September, continued coronavirus (Covid-19) pandemic-related liquidity shortages at ENEE, exacerbated by storms Eta and Iota which hit Honduras in November 2020, have resulted in the accumulation of arrears to generators of about L4.4bn (US$182m - some 0.7% of GDP).

Yet members of Castro’s team have hinted that Libre is intending to backtrack on one of its headline policies, that of establishing diplomatic and trade relations with mainland China, and severing ties with Taiwan, to address Honduras’s debt. This would have seen Honduras following in the footsteps of Costa Rica, El Salvador, and Panama in Central America, as well as the Dominican Republic, in recent years in making the switch.

In an interview with newswire Reuters published on 2 December, Nasralla said that any relations with China had to be weighed against ties with the US. When asked if Honduras would establish relations with China, Nasralla said “no”, adding that “there are no relations with China, relations continue with Taiwan”. Nasralla went on to underline that: “Our trade ally, our close ally, our historical ally is the US. We don’t want to fight with the US, the US is our main trade ally.”

The US remains Honduras’ most important economic partner with bilateral goods trade between the two nations totalling US$8.1bn in 2020, according to the US State Department. Meanwhile, bilateral, regional, and humanitarian assistance through the US State Department and US Agency for International Development (USAID) averaged US$165m per year (FYs 2019-2020). Honduras is also strategically important to the US in terms of security as the host of the US Joint Task Force Bravo air base, which was established in 1984 and is the longest-standing task force in the US military.

Another senior politician aligned with Castro, who spoke on the condition of anonymity, also told Reuters that there would be “no ramping up of China relations as the ‘conditions’ for that do not exist”, while Reuters cited Noé Pino as saying that the decision to establish diplomatic ties with China was “not final” and Castro’s team was “still in consultation with business, trade unions, peasant, and social organisations”.

Uncertainty over congressional results

The latest results presented on 8 December by the national electoral council (CNE) showed that, with 98.83% of the ballots counted, Xiomara Castro had won a decisive 50.63% of the vote, to 36.43% for the ruling Partido Nacional (PN) candidate, Tegucigalpa mayor Nasry Asfura, on a record turnout of 68.55%.

However, while there is little doubt regarding Castro’s victory, uncertainty continues to shroud the result of the 28 November legislative elections after Honduras’s attorney general’s office announced on 3 December that it had opened an official investigation into fraud allegations related to the election of national deputies.

The announcement by the attorney general’s specialised unit against electoral crimes (UECDE) followed tweets by two of the three members of the CNE, Ana Paola Hall and Rixi Moncada, that ballots for the legislative vote had been tampered with.

One of the complaints is against the minister for the presidency, Ebal Díaz, who is accused of tampering with ballots to benefit the PN. He has denied the claims.

The final results of the congressional elections are crucial to governability for Castro’s incoming administration.

Congress composition

Preliminary results suggest Libre will win 51 seats in the new 128-seat congress, with an additional 14 seats for the allied PSH, giving the incoming government 65 seats and the narrowest of majorities. The outgoing PN is projected to win 40 seats, down by 21 on its current total. A two-thirds majority of 86 would require striking a deal with the PL, which is poised to win 21 seats.

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