An In-Depth Analysis of a Honduras - Essay Example

Brief history of Honduras The Republic of Honduras is an independent nation in Central America’s western part. It is bordered by Guatemala in the west, Pacific Ocean and El Salvador in the southwest, Nicaragua in the south, and Gulf of Honduras and Caribbean Sea in the east and north. In the backdrop of self declaration of independence from the Spanish rule and attaining statehood in the United Provinces of Central America (UPCA) in 1821, Honduras became a free republic in 1840 with the formal demise of the United Provinces after prolonged civil war among its member states. Demographics Spread over approximately 1, 12,090 square kilometers of land, the country’s population presents a solid picture of unity in diversity. As per the census of July 2002, Honduras population stood at 65, 60,508 and in terms of ethnic composition, its population consists of Mestozos, Amerindians, Black Africans  and Whites representing 90%, 7%, 2% and 1% respectively. In terms of religious composition, Roman Catholics are in majority with 97% of the population hailing from this group. The Whites mostly live in the areas of northern coast and are proud of preserving their culture which they have inherited from their ancestors. It must be noted that Honduras was initially part of the British Empire and later on came under the Spanish rule gradually. Garifuna people, belonging to a minority community, also live along the northern coast in harmony with many Afro-Latin Americans. There are also some people of Asian descent in Honduras and most of them are Japanese and Chinese origins. Hundreds of families can still find their origins in the families somewhere in Lebanon and Palestine. Some of them have got connections with Middle 2 Eastern families called ‘Turcos’. But Turcos are also part of Honduras population. They along with the Jewish minorities constitute the highest income groups in Honduras and are in control of politics and economy. Some sections of people have relations with families in Spain as Spain also ruled the country for a long time. But the beauty and greatness of the country is that the indigenous natives of Honduras are spread all over the country and all people live in perfect harmony. Tribal people like Chortis (Mayan descent), Payas, Pech, Tolupanes or Xicaques/Jicaques, Lencas, Sumos or Tawahkas, and Olmecas live in utter poverty as they live in far off and remote places. It seems that the Government is unable to do anything for their upliftment because of lack of budgetary funds and poor funding by the developed countries. Following is the map which shows Honduras and its neighbours. (Map source: http://en.wikipedia.org/wiki/Image:Honduras_sm04.png) 3 Historical figures Honduras has a great historical figure. He is Florencio Xatruch who had led the country’s armed forces and fought successfully against an attempted invasion by North American filibuster William Walker in 1857. A Honduran can be proudly called by the nickname of Catrocha or Catrocho which is inspiringly derived from the last name of Florencio. Every Honduran takes pride in being called with this nickname. Another noteworthy person hailing from Honduras to be mentioned is Salvador Moncada , one of the world famous scientists who has 12 highly cited papers to this credit. His research on heart related drugs includes the development of Viagra. Moncada works at the University College of London and funds an NGO in Tegucigalpa, the capital city of Honduras. Biological resources By virtue of the nature’s gift, Honduras is siuated conveniently in a land zone of biodiversity hot spot which is also known as the Mesoamerican region. This region extends from Southern Mexico to Panama and is famous for its diversity of species. Like other countries in the region, Honduras too has diverse biological resources and its indigenous cultures as well. As per the biological estimates, Honduras contains approximately 6000-8000 species of vascular plants and the number of reptiles and amphians species recorded so far is around 245.Birds can be between 650-700 species and mammal species are close to 110. Country’s economic status Honduras is an embodiment of scenic beauty and natural attractions. 80% of the country’s terrain consists of mountains (80%) and its natural resources include timber, gold, silver, copper, lead, 4 zinc, iron ore, coal, fish and hydro power. With GDP per capita at USD 2050 per year (1999), Honduras is one of the poorest countries in the Americas. The economic growth rate is 5% but most of the people are still under poverty line. The World Bank and the International Monetary Fund (IMF) have classified Honduras as one of the Heavily Indebted Poor Countries (HIPC) eligible for debt relief. Honduran currency is Lempira. Agricultural production Honduras, rich in forests and marine resources, is endowed with 1.8 million hectares of cultivable land but agriculture is yet to be developed in its full-fledged and finest form in the country. With 0.28 ha (hectare) per capita, it is the second largest country in the region in terms of arable land with respect to its population. The northern coast is full of cultivable lands and presents beautiful and scenic greenery with tender crops of banana, sugarcane, palm oil and tropical fruits. The southern belt is also equipped with lands suitable for sugarcane and sorghum production. But the southern regions are prone to recurring droughts. And people here have to cope up with haphazard cropping patterns. The central agricultural areas are rich with atmospheric conditions suitable for crops of coffee and grains. The country earns substantial amount through agricultural exports and the key agricultural export products are coffee, shrimps, bananas, melon, lobsters and pine apples. However, in recent years, exports of cigars, wooden furniture, processed and fresh vegetables had gradually picked up. But, on the whole, the contribution of agricultural sector to the GDP has come down drastically from 21.6 percent in the late 1980s to 17 percent in the late 1990s. 5 There are several reasons for this. Honduras has been quite on and off facing the nature’s fury and the agricultural sector has become a victim of hurricanes and floods causing severe damages to the crops and disturbing the cropping patterns. In fact, the agricultural sector is very wide with crops ranging from coffee, banana, maize, sorghum, beans, rice, tobacco, cantaloupes, citrus, potatoes and pine apples sharing the contributions for the agricultural wealth of the tiny Republic. Cotton, the most liked crop once, has almost disappeared from the agricultural sector. In October 1998, the devastating Hurricane Mitch obliterated the agricultural wealth of the country besides killing 5000 people, leaving thousands of people homeless and damaging the infrastructure of the country. Agricultural trade, corruption and removal of barriers Honduras, similar to other developing countries like India and Malaysia, is also plagued by chronic social problems of corruption, illiteracy and unemployment. It is a known fact that growth is always hampered by these social ailments and Honduras in no exception. It is true that agricultural trade barriers like the price band system, heavy duty on agricultural imports and the quasi-tariff-rate quota system on imports of rice administered by the Honduras authorities have become a stumbling block for the growth of agricultural trade with the US. But corruption aggravates lawlessness and causes lethargy killing skills and workmanship. Honduras’ investment climate is therefore hampered by high levels of crime, juridical insecurity, high levels of corruption, low educational levels among the population, an antiquated labor code, a troubled financial sector and limited infrastructure. With regard to employment, Honduras implements a stringent rule which says that in all investments, at least 90 percent of a company’s labor force 6 must be Honduran, and at least 85 percent of the payroll must be paid to Hondurans. Because of these stringent policies, foreign direct investment flow into the county has slowed down. The United States has strongly opposed the Honduran duty and pricing policies on imports of grains and other agricultural products and always argued that these measures would curtail the agricultural product imports from US restricting the bilateral trade. Honduras maintains a ban on some U.S. raw poultry imports, based on sanitary and phytosanitary (SPS) 1 measures which are meant for protecting human, animal or plant life or health. The U.S. Department of Agriculture had estimated that if Honduran restrictions on U.S. raw poultry and poultry parts were lifted, U.S. producers could export an additional $10 million of poultry products to Honduras annually. In October 2003, the Government of Honduras increased tariffs on thirty specific dairy products, including milk and powdered milk, sour cream, yogurt, some cheeses, butter, and ice cream. As the US Foreign Trade Department document point out, “for most of the products, the tariffs were raised from 15 percent to 35 percent, the maximum allowable tariff rate under Honduras' WTO commitments”. (Tariffs, Second Para) Except these stumbling blocks in trade, Honduras has always had a harmonious operational trade relationship with the US and its co-Central American neighbors from the very beginning. In the early 1990s, US remained the leading trading partner of Honduras followed by Japan. Though both Honduras and US are involving in healthy trade policies, Honduras current account deficit ------------------------------------------- 1 Sanitary and phytosanitary measures: Text of the Agreement, The WTO agreement on the application of sanitary and phytosanitary measures (SPS agreement), (http://www.wto.org/english/tratop_e/sps_e/spsagr_e.htm) 7 has been rapidly increasing. Agricultural trade barriers and restrictions prevailing in Honduran economy are the main obstacles coming in the way of the trade. Because of the prevailing trade barriers, foreign direct investment (FDI) in Honduras from the US lowered to $ 184 million in 2002, down by 24% in relation to the 2001 figures. The US and other countries in the region have been regularly complaining about these trade barriers and restrictions and demanding their elimination. Their argument always cantered on trade restrictions and unfavorable tendencies prevailed in the Honduran economy. These countries pointed out that a trade administration tuned with limitations and restrictions would limit their options to pump in more investments and to indulge in the expansion of the bilateral trade. Many problems prevailing in the areas of customs administration, protection of intellectual property rights, services, investment, and financial services market access and protection, Government procurements, sanitary and phytosanitary (SPS) barriers and other non-tariff barriers were the prime problem areas where the Honduras Government was asked to address immediately to boost up its bilateral trade. CAFTA The U.S. - Central America Free Trade Agreement (CAFTA) was a stepping stone for reaching the objectives and aims in bilateral trade. As part of the measures to boost up the bilateral trade through removal of trade barriers, Honduras along with other Central American nations signed the CAFTA on May 28, 2004 under which more than 80% of the US consumer and industrial exports and over half of US farm exports to Central America had become duty free. (CRS Report for Congress, Summary, first Para, Page 2) 8 Under the CAFTA, the Honduras Government had agreed to gradually work towards a regime of liberalization program. As per the agreed proposals, under the CAFTA, tariffs on dairy products will be phased out over a 20-year period. Tariffs on most grains and flour will be eliminated within 15 years, except for rice tariffs, which will be phased out over 18 years. Under the CAFTA, textiles and apparel have become duty-free and quota-free promoting new opportunities for U.S. and Central American fiber, yarn, fabric and apparel manufacturing. Honduras on an average exports 70% of its merchandise goods to the United States, compared to 45% for Costa Rica. Honduras also has the highest import percentage from the United States at 55% compared to Nicaragua’s 24%, which is the lowest. (CRS Report for Congress, Figure 1, Central America’s Direction of Merchandise Trade, 2002, first Para, Page 14) For Central American nations (except Cost Rica) including Honduras, exports of apparel had grown up by leaps and bounds boosting up their trade relations with the US. In recent years, out of the total US imports from Central American countries, apparels alone had accounted for 60%. Again, more than 75% of apparel imported by the US from all eligible countries in 2002 was sewn from U.S. fabric and 95% of the amount that entered duty-free came from the Central American countries. This amounted to 79% of US’s total apparel imports (including non-production sharing apparel imports) from eligible Caribbean countries in 2002. Honduras had 28% of the total, followed by the Dominican Republic with 27%, El Salvador with 19%, Guatemala with 11%, Costa Rica with 9%, and Nicaragua with 2%. This trade figures show 9 how US gives importance to Honduras in trade and business transactions with Central American nations. ((CRS Report for Congress, Figure 1, US Imports, Second Para, Page 15). Macroeconomic policies The background for the present macroeconomic policies of the Honduras Government was laid out by the old regime headed by President Rafael Leonardo Callejas Romero who inherited an economic mess in 1989. He attempted to adhere to a standard economic austerity package prescribed by the International Monetary Fund and the World Bank. As the November 1993 presidential elections drew closer, the political fallout of austere economic measures made their implementation even less likely. Any hope for his party's winning the 1993 election was predicated on improving social programs, addressing employment needs, and appeasing a disgruntled, vocal public sector. However, as Economist Intelligence Unit points out, reaching those goals required policies that moved away from balancing the budget, lowering inflation, and reducing the deficit and external debt to attract investment and stimulate economic growth.( Country Report: Nicaragua, Honduras [London], First Para.) Because of the National Party Government’s inability to allot more funding for the public sector and social welfare programs, it was defeated in the 1993 elections by the people who were looking for a change. Liberal Party of Honduras (PLH) won the presidential elections in 1993 and 1997 and continued in power till 2001. But in 2001 November elections, people had a change of heart and gave power to the National Party and Ricardo Maduro Joest became the President of Honduras. 10 The Liberal Party, which retained power and ruled the tiny nation for 8 years without break, however, adopted a cautious economic policy trying to revive the country’s economy under sustained American pressure. In 1999, the Government had embarked on a 3-year multipurpose economic policy supported by the IMF’s Poverty Reduction and Growth Facility (PRGF) program. It continued to work on the path laid out for the recovery of economy and consolidating the macroeconomic stability involving structural reforms. As per the letter written by Honduran Minister for Finance, Gabriela Nuñez de Reyes, on April 13, 2000, to Stanley Fischer, Acting Managing Director of IMF, Honduras Government implemented macroeconomic policies aimed at reducing current account deficit to 6-7 percent, stabilizing the inflation rate between 9-11 percent, bringing up the growth rate to above 5 percent. ( Memorandum of Economic Policies .) Simultaneously, the Government had also accorded top priority for a program involving social security and pension reforms aimed at reduction of poverty among the elder people of society. The country’s structural reforms included stabilizing the growth rate by attracting foreign direct investment from private multinationals and official funding agencies. Honduras and free trade Honduras era of free trade began with its signing the World Trade Organization (WTO) on April 15, 1995.Even after joining the WTO, Honduras Government continued with some sort of import restrictions to protect the local manufacturers / markets following the footsteps of other developing countries. The import restrictions are mostly based on phyto-sanitary, public health, and national security factors. Honduras did not negotiate any tariff rate quotas when it became a 11 member of the WTO. It does however, have limitations on imports of rice and corn in order to protect local production. Imports of these two products during harvest time are not allowed. In addition, Honduras does not allow imports of fresh, chilled, or frozen poultry meat due to phytosanitary barriers. In addition to signing limited trade agreements with Colombia and Venezuela, Honduras signed a free trade agreement at the regional level with the Dominican Republic in December 2001. Honduras supported India at GATT talks Honduras always played an important role in GATT industrial tariff negotiations siding with India, Egypt and other developing countries. Honduras supported the Indian cause in the 1999 September round GATT discussions and argued in favor of continuing the tariffs in developing countries for generation of more revenue. It had also expressed reservations on rich nations unilaterally taking up for discussion the topic of industrial tariff policies pursued by the developing countries. Honduras is of the opinion that the developing and poorer nations should be given a chance to express their point of view in negotiations related to world trade. It always demanded, along with other developing countries, that the big powers should try to understand and evaluate the problems faced by the developing countries in the industrially advanced countries. It expressed the views that the economic interests of small nations should be safe guarded when policies are formulated. Preferential Trade Agreements Honduras benefits from three preferential trade arrangements with the United States. Special export arrangements have been established through the Caribbean Basin Economic Recovery Act 12 (CBERA), the Generalized System of Preferences (GSP), and the "9802 Textile Program." Both CBERA and GSP provide unilateral and temporary duty-free trade preferences to designated countries, including Honduras, by the United States. For the consecutive period 1999-2003, Honduras has had the first place rank as CBI and Central American supplier to the U.S. market. Honduras pushed to the wall due to lack of support The present economic status of Honduras is very much disturbing. Despite its HIPC status and the Government’s serious efforts to stabilize its economy through structural reforms, IMF failed to provide substantial debt relief to the country. Honduras embarked on an ambitious program known as PRSP (Poverty Reduction Strategy Papers) and Education for all to improve the people’s economic status and to provide primary education for all Honduras children by 2015. But thanks to the IMF’s failure to provide the much needed funds and the backtracking by the donor countries, the programs are getting diluted and things are there where they were in the past. Already, the poor country has lost two / three years of precious time after initiating the much needed structural reforms. What is needed? The US and other rich nations should sympathetically consider the economic status of Honduras and support its programs of literacy, employment and poverty reduction. US should never think in terms of a philanthropist with regard to Honduras as it not a begging country. It is a country that wants to achieve self sufficiency through growth and development, and not through accepting the American alms. 13 Works cited Tariffs. Import Policies. Honduras. 26 Oct.2005 CRS Report for Congress, Summary. The U.S.-Central America Free Trade Agreement (CAFTA): Challenges for Sub-Regional Integration. The Library of Congress, June 1,2004 CRS Report for Congress, Figure 1. Central America’s Direction of Merchandise Trade, 2002. The U.S.-Central America Free Trade Agreement (CAFTA): Challenges for Sub-Regional Integration. The Library of Congress, June 1,2004 CRS Report for Congress, Figure 1. US Imports. U.S.-Central America Free Trade Agreement (CAFTA): Challenges for Sub-Regional Integration. The Library of Congress, June 1,2004 Country Report. Recent Growth. Macroeconomic trends. 24 Oct.2005 Memorandum of Economic Policies. Introduction, Fiscal policy , Monetary Policy and Structural Policies. 25 Oct.2005 Read More