Caribbean & Central America - November 2009 (ISSN 1741-4458)

A progressive Washington-based economic think tank, the Center for Economic and Policy Research (CEPR), argued in a recent paper, published on 9 November (Honduras: Recent Economic Performance) that poverty and inequality decreased significantly during the administration of President Manuel Zelaya, with rapid economic growth of more than 6% for the first two years. The Zelaya government also increased school enrolment significantly by abolishing school fees and expanding the school lunch programme. More eye-catching and controversially, Zelaya also raised the minimum wage by 60%, drawing fierce opposition from employers and business groups. Furthermore, in 2008, the government used expansionary monetary policy to counteract the effects of the global credit crunch and recession. Since the 28 June 2009 coup against Zelaya, the central bank has seen its international reserves drop by 18.4%, because of trade restrictions and a drop in tourism. Because of the coup regime's lack of international legality, the central bank cannot access the extra reserves that the International Monetary Fund (IMF) has recently provided to its member countries to help counteract the global downturn. The CEPR forecasts that the economy will shrink by 2.6% this year, but warns that this may be a best-case scenario. Honduras is also enormously dependent on remittances, which peaked at more than 21% of GDP in 2006. The continuing decline in this source of income and foreign exchange will also hurt the economy.