Caribbean & Central America - December 2021

The new president of Honduras, who takes office in January 2022, is poised to take over a country facing massive economic challenges.

One key measure of the situation is the percentage of households living in poverty, which rose to a shocking 73.6%, according to a report from the national statistics institute (INE) published on 8 November. The report was quickly changed, using what INE called an “alternative methodology” to reach a figure of 60% of households living in poverty, sparking criticism from commentators who took the original figures to be correct. According to the original figures, the poverty rate is higher in rural areas (76%) than urban areas (71.8%) and can be explained by the fact that household incomes are lower than the cost of a basic selection of everyday goods. Criticism rained down from various sectors, with Honduran economist Julio Raudales, of the Universidad Nacional Autónoma de Honduras (UNAH), pointing out that poverty rates have regressed 30 years.

Eduardo Facussé, president of the Cortés department chamber of commerce and industry (Ccic), called the report “devastating,” adding that Honduras is “destroyed” and calling public and economic policy by an “inept and incompetent government a “complete disaster”. Facussé said that “higher taxes and higher debt” have been “completely ineffective”.

Speaking to Radio Honduras on 31 October, Luis Guifarro, ex-president of the association of economists (CHE), said public policy and government programmes have not been consistent, and previous governments have not had a vision as to how to solve the country’s problems. “Reducing emigration and poverty has not been tackled, nor have crucial areas such as education and health been prioritised,” said Guifarro, who also highlighted a lack of job opportunities for the estimated 250,000 people who enter the labour market each year. Honduras does not offer the right conditions to attract investment, and corruption is entrenched, said Guifarro.

These are huge long-term issues that must be confronted by Xiomara Castro, who won a decisive victory in the 28 November general election for the leftist opposition Partido Libertad y Refundación, when she takes power on 27 January (see our sister publication, the Latin American Weekly Report, for further discussion of the election). In recent years Honduras has been battered by the coronavirus (Covid-19) pandemic and the effects of hurricanes Eta and Iota in November 2020. The economy contracted 9% in 2020 but will rebound to grow 8-9% in 2021, according to the central bank (BCH). However, the International Monetary Fund (IMF) predicts that GDP growth will be 4.4% in 2022, compared to 2.7% in 2019 and 4.8% in 2018. Institutional weakness and corruption was a problem before the Partido Nacional (PN) government of President Juan Orlando Hernández came to power in 2014, even if analysts agree that his rule has worsened the situation. Cleaning up government is perhaps the single most important thing for the new administration to do, but it’s not easy to do. It will be even harder when poverty rates are increasing, as voters will expect the government to prioritise immediate action to improve their daily lives, rather than technocratic efforts to improve governance in the long-term.

• Key policies

In her manifesto, Castro’s standout pledges include plans to repeal the law of the employment and economic development zones (Zedes), a contentious PN project [EB-21-08]; and to establish diplomatic and trade relations with mainland China (and sever ties with Taiwan) to address Honduras’ rising debt (which totalled 58.9% of GDP in 2020, up from 48.7% in 2019). END BOX

• FDI

According to an August 2021 report by the United Nations Economic Commission for Latin America and the Caribbean, Honduras attracted just US$224m of foreign direct investment (FDI) in 2020, a reduction of 76% on the previous year and barely one-fifth of the country’s average inflow of the last 10 years. The reduction is significantly more than the 34.7% average reduction in FDI to Latin America & the Caribbean as a result of the pandemic.