Caribbean & Central America - June 2015 (ISSN 1741-4458)

Undeterred by a recent corruption scandal, President Juan Orlando Hernández has his eyes on the prize.

On 9 June President Hernández was front and centre at a signature ceremony for a new contract with the global consulting firm McKinsey & Company, whereby McKinsey will design strategies to help promote and develop investment in Honduras. Hernández didn’t reveal the cost (or duration) of the contract but said that it was funded jointly by the government and private sector companies grouped in the Consejo Nacional de Inversiones (CNI). Also signing the contract were the president of the Comisión para la Promoción de las Alianzas Público Privadas (Coalianza), Erasmo Padilla, the vice president of Fundación Hondureña de Estudios para el Desarrollo (FHED), Victoria Asfura, the head of the Consejo Hondureño de la Empresa Privada (Cohep), Jorge Díaz, and finally Hugo Baquerizo, a principal partner at McKinsey.

According to Hernández, McKinsey will finalise strategies over the next five months (apparently, it has been working for a year already) to promote the country’s economic development, with the aim of generating US$5bn in national and international investment, leading to the creation of 130,000 new jobs and sustainable annual real GDP growth of 5%. He noted that McKinsey has been doing similar work in Colombia for the past two decades.

The ceremony followed a weekend of fresh protests across the country against public corruption, in the wake of the estimated US$300m corruption scandal at the Honduran social security institute (IHSS), which has reached all the way up to the president himself. On 3 June, Hernández was forced to admit that his 2013 election campaign had received funds siphoned off from the IHSS by its unscrupulous former president, Mario Zelaya and various cronies, including former government ministers (all now in jail awaiting trial). Hernández, who denied all knowledge of the funds (“Me, myself, Juan Orlando, I had nothing to do with it”), has spun the scandal as an important opportunity to instigate root and branch reform, declaring his administration “morally placed” to lead a new “crusade” against corruption in the country.

Hernández says the government has taken steps to promote greater transparency and accountability in Honduras, working with the NGO Transparency International (TI). Honduras actually fell three places to 126 (of 175 countries surveyed) in TI’s latest (2014) Global Corruption Perceptions Index, while its also-deteriorating ranking on the World Economic Forum (WEF)’s Ease of Doing Business Index (DB) underlines how much needs to be done. In the latest (2015) DB index, Honduras fell four places to 104 (of 189 countries), on the back of worsening or stagnant scores across most of the sub-indices (which include things like the time it takes to start a new business, access to credit, contract enforcement and ease of cross border trade). And at the end of the day, no amount of expensive consultancy reports will deliver investment without the types of business environment reforms that bring Honduras up to international operating standards.

Economy on the up

On the positive side, the economy is rebounding, with first quarter growth of 3.7% year on year, according to the index of economic activity (IMAE) compiled by the central bank (BCH). Strong growth in domestic consumption and a good export performance (especially by coffee), has been steadily driving up overall growth. Exports rose 12% to US$1.15bn in the first quarter, according to the BCH.

• Improved fiscal position

The collapse in world oil prices has also helped the government’s fiscal position – the first quarter fiscal deficit was 0.5% of GDP, from 0.9% in the equivalent year-earlier period – while inflation was 3.6% in April, compared to 5.9% 12 months previously.