After Honduras achieved independence from Spain in the early
nineteenth century, its economic growth became closely related to its
ability to develop attractive export products. During much of the
nineteenth century, the Honduran economy languished; traditional cattle
raising and subsistence agriculture produced no suitable major export.
In the latter part of the century, economic activity quickened with the
development of large-scale, preciousmetal mining. The most important
mines were located in the mountains near the capital of Tegucigalpa and
were owned by the New York and Honduras Rosario Mining Company (NYHRMC).
Silver was the principal metal extracted, accounting for about 55
percent of exports in the 1880s. Mining income stimulated commercial and
ancillary enterprises, built some infrastructure, and reduced monetary
restraints on trade. Other beneficial economic effects were few,
however, because the mining industry was never well integrated into the
rest of the Honduran economy. The foreign mining companies employed a
small work force, provided little or no government revenue, and relied
mostly on imported mining equipment.
Honduras's international economic activity surged in the early
twentieth century. Between 1913 and 1929, its agricultural exports rose
from US$3 million (US$2 million from bananas) to US$25 million (US$21
million from bananas). These "golden" exports were supported
by more than US$40 million of specialized banana company investment in
the Honduran infrastructure and were safeguarded by United States
pressure on the national government when the companies felt threatened.
The overall performance of the Honduran economy remained closely tied
to banana prices and production from the 1920s until after the
mid-century because other forms of commercial export agriculture were
slow to emerge. In addition, until drastically reduced in the mid-1950s,
the work force associated with banana cultivation represented a
significant proportion of the wage earners in the country. Just before
the banana industry's largest strike in 1954, approximately 35,000
workers held jobs on the banana plantations of the United Fruit Company
(later United Brands Company, then Chiquita Brands International) or the
Standard Fruit Company (later brought by Castle and Cook, then Dole Food
Company).
After 1950 Honduran governments encouraged agricultural modernization
and export diversification by spending heavily on transportation and
communications infrastructure, agricultural credit, and technical
assistance. During the 1950s--as a result of these improvements and the
strong international export prices-- beef, cotton, and coffee became
significant export products for the first time. Honduran sugar, timber,
and tobacco also were exported, and by 1960 bananas had declined to a
more modest share (45 percent) of total exports. During the 1960s,
industrial growth was stimulated by the establishment of the Central
American Common Market (CACM--see Appendix B). As a result of the
reduction of regional trade barriers and the construction of a high
common external tariff, some Honduran manufactured products, such as
soaps, sold successfully in other Central American countries. Because of
the greater size and relative efficiency of the Salvadoran and
Guatemalan industrial sectors, however, Honduras bought far more
manufactured products from its neighbors than it sold to them. After the
1969 Soccer War with El Salvador, Honduras effectively withdrew from the
CACM. Favorable bilateral trade arrangements between Honduras and the
other former CACM partners were subsequently negotiated, however.
A political shift in the 1980s had strong and unexpected
repercussions on the country's economic condition. Beginning in late
1979, as insurgency spread in neighboring countries, Honduran military
leaders enthusiastically came to support United States policies in the
region. This alignment resulted in financial support that benefited the
civilian as well as the military ministries and agencies of Honduras.
Honduran defense spending rose throughout the 1980s until it consumed 20
to 30 percent of the national budget. Before the military buildup began in fiscal year (FY) 1980, United States military assistance to Honduras was less
than US$4 million. Military aid more than doubled to reach just under
US$9 million by FY 1981, surged to more than US$31 million by FY 1982,
and stood at US$48.3 million in FY 1983. Tiny Honduras soon became the
tenth largest recipient of United States assistance aid; total economic
and military aid rose to more than US$200 million in 1985 and remained
at more than US$100 million for the rest of the 1980s.
The increasing dependence of the Honduran economy on foreign aid was
aggravated by a severe, regionwide economic decline during the 1980s. Private investment plummeted in 1980, and capital
flight for that year was US$500 million. To make matters worse, coffee
prices plunged on the international market in the mid-1980s and remained
low throughout the decade. In 1993 average annual per capita income
remained depressingly low at about US$580, and 75 percent of the
population was poor by internationally defined standards.
Traditionally, Honduran economic hopes have been pinned on land and
agricultural commodities. Despite those hopes, however, usable land has
always been severely limited. Honduras's mostly mountainous terrain
confines agriculturally exploitable land to narrow bands along the
coasts and to some previously fertile but now largely depleted valleys.
The country's once abundant forest resources have also been dramatically
reduced, and Honduras has not derived economically significant income
from mineral resources since the nineteenth century. Similarly,
Honduras's industrial sector never was fully developed. The heady days
of the CACM (midto -late 1960s), which produced an industrial boom for
El Salvador and Guatemala, barely touched the Honduran economy except to
increase its imports because of the comparative advantages enjoyed by
the Salvadoran and Guatemalan economies and Honduras's inability to
compete.
Bananas and coffee have also proven unreliable sources of income.
Although bananas are less subject to the vagaries of international
markets than coffee, natural disasters such as Hurricane Fifi in 1974,
drought, and disease have appeared with a regular, albeit random,
frequency to take their economic toll through severely diminished
harvests. Moreover, bananas are grown and marketed mostly by
international corporations, which keep the bulk of wealth generated.
Coffee exports, equally unreliable as a major source of economic
support, surpassed bananas in the mid1970s as Honduras's leading export
income earner, but international price declines coupled with huge fiscal
deficits underlined the vulnerability of coffee as an economic base.
As Honduras entered the 1990s, it did have some factors working in
its favor--relative peace and a stronger civilian government with less
military interference in the politics and economy of the country than in
past years. The country was hobbled, however, by horrendous foreign
debt, could claim only diminished natural resources, and had one of the
fastest growing and urbanizing populations in the world. The
government's daunting task then became how to create an economic base
able to compensate for the withdrawal of much United States assistance
without becoming solely dependent on traditional agricultural exports.
In the 1990s, bananas were booming again, particularly as new
European trade agreements increased market size. Small bananaproducing
cooperatives lined up in the 1990s to sell their land to the commercial
giants, and the last banana-producing lands held by the government were
privatized. Like most of Central America, Honduras in the 1990s began to
woo foreign investors, mostly Asian clothing assembly firms, and it held
high hopes for revenue to be generated by privatizing national
industries. With one of the most strikeprone labor forces in Central
America, debt-burdened and aging industrial assets, and a dramatically
underdeveloped infrastructure, Honduras, however, has distinct economic
disadvantages relative to its Central American and Caribbean neighbors,
who compete with Honduras in the same export markets.
Honduras - MACROECONOMIC TRENDS
Recent Growth
Honduran president Rafael Leonardo Callejas Romero, elected in
November 1989, enjoyed little success in the early part of his
administration as he attempted to adhere to a standard economic
austerity package prescribed by the International Monetary Fund (IMF)
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, 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.
Callejas inherited an economic mess. The economy had deteriorated
rapidly, starting in 1989, as the United States Agency for International
Development (AID) pointedly interrupted disbursements of its grants to
Honduras to signal displeasure with the economic policies of the old
government and to push the new government to make economic reforms.
Nondisbursal of those funds greatly exacerbated the country's economic
problems. Funds from the multilateral lending institutions, which
eventually would help fill the gap left by the reduction of United
States aid, were still under negotiation in 1989 and would be
conditioned first on payment of arrears on the country's enormous
external debt.
Between 1983 and 1985, the government of Honduras--pumped up by
massive infusions of external borrowing--had introduced expensive,
high-tech infrastructure projects. The construction of roads and dams,
financed mostly by multilateral loans and grants, was intended to
generate employment to compensate for the impact of the regionwide
recession. In reality, the development projects served to swell the
ranks of public-sector employment and line the pockets of a small elite.
The projects never sparked private-sector investment or created
substantial private employment. Instead, per capita income continued to
fall as Honduras's external debt doubled. Even greater injections of
foreign assistance between 1985 and 1988 kept the economy afloat, but it
soon became clear that the successive governments had been borrowing
time as well as money.
Foreign aid between 1985 and 1989 represented about 4.6 percent of
the gross domestic product (GDP). About 44 percent of the government's
fiscal shortfall was financed through cash from foreign sources. Side
effects of the cash infusion were that the national currency, the
lempira became overvalued and the amount of exports dropped. A booming
public sector, with its enhanced ability to import, was enough to keep
the economy showing growth, based on private consumption and government
spending. But the government did little to address the historical,
underlying structural problems of the economy--its overdependence on too
few traditional commodities and lack of investment. Unemployment
mushroomed, and private investment withered.
By 1989 President Callejas's broad economic goal became to return
Honduran economic growth to 1960-80 levels. During the decades of the
1960s and 1970s, the country's economy, spurred mostly by erratically
fluctuating traditional agricultural commodities, nevertheless averaged
real annual growth of between 4 and 5 percent. At the end of the 1980s,
however, Callejas had few remaining vehicles with which to pull the
country out of the deep regionwide recession of the 1980s. Real growth
between 1989 and 1993 translated to mostly negative or small positive
per capita changes in the GDP for a population that was growing at close
to 4 percent annually.
President Callejas attempted to adhere to conditions of desperately
needed new loans. Cutting the size of the public sector work force,
lowering the deficit, and enhancing revenues from taxes--as mandated by
the multilateral lending institutions--were consistently his biggest
stumbling blocks. Despite his all-out effort to reduce the public-sector
deficit, the overall ratio of fiscal deficit to the GDP in 1990 showed
little change from that in 1989. The total public-sector deficit
actually grew to 8.6 percent of the GDP, or nearly L1 billion, in 1991.
The 1993 deficit expanded to 10.6 percent of the GDP. The Honduran
government's medium-term economic objectives, as dictated by the IMF,
were to have generated real GDP growth of 3.5 percent by 1992 and 4
percent by 1993. In fact, GDP growth was 3.3 percent in 1991, 5.6
percent in 1992, and an estimated 3.7 percent in 1993. The economy had
operated so long on an ad hoc basis that it lacked the tools to
implement coherent economic objectives. Solving the most immediate
crisis frequently took precedence over long-term goals.
Inflation
By 1991 President Callejas had achieved modest success in controlling
inflation. Overall inflation for 1990 had reached 36.4 percent--not the
hyperinflation experienced by some Latin American counties--but still
the highest annual rate for Honduras in forty years. The Honduran
government and the IMF had set an inflation target of 12 percent for
1992 and 8 percent for 1993. The actual figures were 8.8 percent in 1992
and an estimated 10.7 percent for 1993. Hondurans had been accustomed to
low inflation (3.4 percent in 1985, rising to 4.5 percent by the end of
1986), partly because pegging the lempira to the dollar linked
Honduras's inflation rate to inflation rates in developed countries. But
the expectation for low inflation made the reality of high inflation
that much worse and created additional pressures on the government for
action when inflation soared in 1990.
Unemployment
Between 1980 and 1983, 20 percent of the work force was
unemployed--double the percentage of the late 1970s. Job creation
remained substantially behind the growth of the labor force throughout
the 1980s. Unemployment grew to 25 percent by 1985, and combined
unemployment and underemployment jumped to 40 percent in 1989. By 1993,
50 to 60 percent of the Honduran labor force was estimated to be either
underemployed or unemployed.
The government's acceptance of foreign aid during the 1980s, in lieu
of economic growth sparked by private investment, allowed it to ignore
the necessity of creating new jobs. Honduras's GDP showed reasonable
growth throughout most of the 1980s, especially when compared to the
rest of Latin America, but it was artificially buoyed by private
consumption and public-sector spending.
Mainstay agricultural jobs became scarcer in the late 1970s. Coffee
harvests and plantings in border area decreased because fighting in
neighboring Nicaragua and El Salvador spilled over into Honduran. Other
factors contributing to the job scarcity were limited land, a reluctance
on the part of coffee growers to invest while wars destabilized the
region, and a lack of credit. Small farmers became increasingly unable
to support themselves as their parcels of land diminished in size and
productivity.
Problems in the agricultural sector have fueled urbanization. The
Honduran population was 77 percent rural in 1960. By 1992 only 55
percent of the Honduran population continued to live in rural areas. Campesinos have flocked to the cities
in search of work but found little there. Overall unemployment has been
exacerbated by an influx of refugees from the wars in neighboring
countries, attracted to Honduras, ironically, by its relatively low
population density and relative peace. In the agricultural sector (which
in 1993 still accounted for approximately 60 percent of the labor
force), unemployment has been estimated to be far worse than the figures
for the total labor force.
Honduran urban employment in the early 1990s has been characterized
by underemployment and marginal informal-sector jobs, as thousands of
former agricultural workers and refugees have moved to the cities
seeking better lives. Few new jobs have been generated in the formal
sector, however, because domestic private sector and foreign investment
has dropped and coveted public-sector jobs have been reserved mostly for
the small Honduran middle-class with political or military connections.
Only one of ten Honduran workers was securely employed in the formal
sector in 1991.
In the mid-1980s, the World Bank reported that only 10,000 new jobs
were created annually; the low rate of job creation resulted in 20,000
people being added to the ranks of the unemployed every year. The actual
disparity between jobs needed for full employment and new jobs created
exceeded that projection, however. For those with jobs, the buying power
of their wages tumbled throughout the 1980s while the cost of basic
goods, especially food, climbed precipitously.
Honduras - The Economy - ROLE OF GOVERNMENT
Fiscal Policies
Throughout the 1960s and most of the 1970s, the military-led
governments of Honduras ran a state-sponsored and state-financed
economy. The governments provided most guarantees for loans to a strong
but patronage-dominated and somewhat corrupt public sector that included
recipients of graft extracted from foreign and domestic investors, and
to costly state-developed enterprises. By 1989 and the election of
President Callejas, however, a heavy toll had been taken by regionwide
economic recession, civil war in neighboring countries, the drying up of
most external credit, and capital flight equaling more than US$1.5
billion. Callejas began to shift economic policy toward privatizing
government-owned enterprises, liberalizing trade and tariff regulations,
and encouraging increased foreign investment through tax and other
incentives. The Callejas administration did not seek less government
control. Rather it changed the government's objectives by focusing on
reducing public-sector spending, the size of the public-sector work
force, and the trade deficit. Overall economic planning became the
responsibility of the National Superior Planning Council, directed by
the minister of economy and commerce. President Callejas, a United
States-trained economist, brought new professionalism and technical
skills to the central government as he began the arduous task of
long-term economic reform.
Monetary and Exchange-Rate Policies
The official exchange rate of the lempira, pegged at US$1=L2 since
1918, was dramatically devalued in 1990. Exchange controls had been
introduced in 1982, resulting in a parallel currency market (black
market) and several confusing official exchange rates operating
simultaneously. Some of those rates were legally recognized in 1990 when
President Callejas introduced a major series of economic policy reforms,
which included reducing the maximum import tariff rate from 90 percent
to 40 percent and getting rid of most surcharges and exemptions. The
value of the lempira was adjusted to US$1=L4, with the exception of the
rate for debt equity conversions, which remained at the old rate of
US$1=L2. The official conversion rate of the lempira fell to US$1=L7.26
in December 1993. The president also introduced temporary taxes on
exports, which were intended to increase central government revenue.
Additional price and trade liberalization measures and fewer government
regulations became part of his ongoing reforms.
Budget
Throughout the 1980s, the Honduran government was heavily financed by
foreign assistance. External financing--mostly bilateral credit from the
United States--rose dramatically until it reached 87 percent of the
public deficit in 1985, rising even further in subsequent years. By 1991
the public-sector deficit was entirely financed with net external
credit. That financing permitted the government to reduce the demand for
internal credit and, therefore, to maintain its established exchange
rate.
In 1991 President Callejas managed to give the appearance of having
reduced the overall fiscal deficit, a requirement for new credit. The
deficit decrease, however, was mostly an accounting device because it
resulted from the postponement of external payments to the Paris Club
debtors and eventually would be offset by pressure to raise public
investment. During 1991, loan negotiations with multilateral and
bilateral lending institutions brought Honduras US$39.5 million in
United States development assistance, US$70 million in
balance-of-payments assistance in the form of cash grants, and US$18.8
million in food aid. The country also negotiated US$302.4 million in
concessional loans from the multilateral lending institutions. Total
outstanding external debt as a percentage of GDP fell from 119 percent
in 1990 to 114 percent in 1991 and to 112 percent in 1993. This drop was
largely the result of debt forgiveness of US$448.4 million by the United
States, Switzerland, and the Netherlands. Scheduled amortization
payments of an average US$223.2 million per year, however, guaranteed
that Honduras's gross funding requirements would remain large
indefinitely.
The government of Honduras projected that overall tax revenues would
increase from 13.2 percent of GDP in 1989 to about 15.7 percent in 1991.
Adjustments for low coffee prices and the continuation of lax collection
methods, however, undermined those goals. Despite these tax increases,
compared to developed countries, Honduras has low tax rates with
particularly low property taxes.
Honduras - LABOR
Composition of Labor Force
Honduras suffers from an overabundance of unskilled and uneducated
laborers. Most Honduran workers in 1993 continued to be employed in
agriculture, which accounted for about 60 percent of the labor force.
More than half of the rural population, moreover, remains landless and
heavily dependent on diminishing seasonal labor and low wages.
Fifty-five percent of the farming population subsists on less than two
hectares and earns less than US$70 per capita per year from those plots,
mostly by growing subsistence food crops.
In 1993 only about 9 to 13 percent of the Honduran labor force was
engaged in the country's tiny manufacturing sector--one of the smallest
in Central America. Skilled laborers are scarce. Only 25,000 people per
year, of which about 21 percent are industrial workers, graduate yearly
from the National Institute of Professional Training (Instituto Nacional
de Formaci�n Profesional- -INFOP) established in 1972.
Hundreds of small manufacturing firms, the traditional backbone of
Honduran enterprise, began to go out of business beginning in the early
1990s, as import costs rose and competition through increasing wages for
skilled labor from the mostly Asian-owned assembly industries
strengthened. The small Honduran shops, most of which had manufactured
clothing or food products for the domestic market, traditionally
received little support in the form of credit from the government or the
private sector and were more like artisans than conventional
manufacturers. Asian-owned export assembly firms (maquiladoras),
operating mostly in free zones established by the government on the
Caribbean coast, attract thousands of job seekers and swell the
populations of new city centers such as San Pedro Sula, Tela, and La
Ceiba. Those firms employed approximately 16,000 workers in 1991.
About one-third of the Honduran labor force was estimated to be
working in the service or "other" sector in 1993. That
classification usually means that a person ekes out a precarious
livelihood in the urban informal sector or as a poorly paid domestic. As
unemployment soared throughout Central America in the 1980s, more and
more people were forced to rely on their own ingenuity in order to
simply exist on the fringes of Honduran society.
Employment Indicators and Benefits
Honduran governments have set minimum wages since 1974, but
enforcement has generally been lax. That laxity increased at the
beginning of the 1980s. Traditionally, most Honduran workers have not
been covered by social security, welfare, or minimum wages.
Multinational companies usually paid more than the standard minimum
wage, but, overall, the Honduran wage earner has experienced a
diminution of real wages and purchasing ability for more than a decade.
When they occurred, minimum wage adjustments generally did not keep up
with cost of living increases. After a major currency devaluation in
1990, average Honduran workers were among the most poorly paid workers
in the Western Hemisphere. By contrast, the banana companies paid
relatively high wages as early as the 1970s. Banana workers continued at
the top of the wage scale in the 1990s; however, in the 1980s, as banana
production became less laborintensive , the companies had decreased
their investment and work force. Consequently, fewer workers were
employed as relatively well-paid agricultural wage earners with related
benefits.
President Callejas responded to the severe poverty by implementing a
specially financed Honduran Social Investment Fund (Fondo Hondure�o de
Inversi�n Social--FHIS) in 1990. The fund created public works programs
such as road maintenance and provided United States surplus food to
mothers and infants. Many Hondurans slipped through that fragile social
safety net, however. As a continuing part of the social pact, and even
more as the result of a fierce union-government battle, President
Callejas announced in 1991 a 27.8 percent increase over a minimum wage
that the government had earlier agreed upon. That increase was in
addition to raises of 50 and 22 percent set, respectively, in January
and September 1990. Despite those concessions, the minimum daily rate in
1991 was only US$1.75 for workers employed by small agricultural
enterprises and US$3.15 for workers in the big exporting concerns; most
workers did not earn the minimum wage.
Labor Unions
Honduras has long been heavily unionized. In 1993 approximately 15 to
20 percent of the overall formal work force was represented by some type
of union, and about 40 percent of urban workers were union members.
There were forty-eight strikes in the public sector alone in 1990,
protesting the government's economic austerity program and layoffs of
public-sector workers. More than 4,000 public-sector employees from the
Ministry of Communications, Public Works, and Transport were fired in
1990. About 70,000 unionized workers remained in the faltering public
sector in the beginning of 1991. However, the government largely made
good its pledge to trim that number by 8,000 to 10,000 throughout 1991
as part of its austerity program.
In the private sector, 1990 saw ninety-four strikes in sixtyfour
firms as workers fought for wage increases to combat inflation. A
forty-two-day strike at the Tela Railroad Company (owned by Chiquita
Brands International--formerly United Brands and United Fruit Company)
was unsuccessful, however, and that defeat temporarily ended union
efforts at direct confrontation.
In 1993 Honduras had three major labor confederations: the
Confederation of Honduran Workers (Confederaci�n de Trabajadores de
Honduras--CTH), claiming a membership of about 160,000 workers; the
General Workers' Central (Central General de Trabajadores--CGT),
claiming to represent 120,000 members; and the Unitary Confederation of
Honduran Workers (Confederaci�n Unitaria de Trabajadores de
Honduras--CUTH), a new confederation formed in May 1992, with an
estimated membership of about 30,000. The three confederations included
numerous trade union federations, individual unions, and peasant
organizations.
The CTH, the nation's largest trade confederation, was formed in 1964
by the nation's largest peasant organization, the National Association
of Honduran Peasants (Asociaci�n Nacional de Campesinos de
Honduras--Anach), and by Honduran unions affiliated with the
Inter-American Regional Organization of Workers (Organizaci�n Regional
Interamericana de Trabajadores--ORIT), a hemispheric labor organization
with close ties to the American Federation of LaborCongress of
Industrial Organization (AFL-CIO). In the early 1990s, the confederation
had three major components: the 45,000-member Federation of Unions of
National Workers of Honduras (Federaci�n Sindical de Trabajadores
Nacionales de Honduras--Fesitranh); the 22,000 member Central Federation
of Honduran Free Trade Unions (Federaci�n Central de Sindicatos Libres
de Honduras); and the 2,200-member Federation of National Maritime
Unions of Honduras (Federaci�n de Sindicales Mar�timas Nacionales de
Honduras). In addition, Anach, claiming to represent between 60,000 and
80,000 members, was affiliated with Fesitranh. Fesitranh was by far the
country's most powerful labor federation, with most of its unions
located in San Pedro Sula and the Puerto Cort�s Free Zone. The unions
of the United States-owned banana companies and the United States-owned
petroleum refinery also were affiliated with Fesitranh. The CTH received
support from foreign labor organizations, including ORIT, the American
Institute for Free Labor Development (AIFLD), and Germany's Friedreich
Ebert Foundation and was an affiliate of the International Confederation
of Free Trade Unions (ICFTU).
Although it was not legally recognized until 1982, the CGT was
originally formed in 1970 by the Christian Democrats and received
external support from the World Confederation of Labor (WCL) and the
Latin American Workers Central (Central Latinoamericana de
Trabajadores--CLAT), a regional organization supported by Christian
Democratic parties. In the late 1980s and early 1990s, however, the CGT
leadership developed close ties to the National Party of Honduras
(Partido Nacional de Honduaras--PNH), and several leaders served in the
Callejas government. Another national peasant organization, the National
Union of Peasants (Uni�n Nacional de Campesinos--UNC), claiming a
membership of 40,000, was affiliated with the CGT for many years and was
a principal force within the confederation.
The CUTH was formed in May 1992 by two principal labor federations,
the Unitary Federation of Honduran Workers (Federaci�n Unitaria de
Trabajadores de Honduras--FUTH) and the Independent Federation of
Honduran Workers (Federaci�n Independiente de Trabajadores de
Honduras--FITH), as well as several smaller labor groups, all critical
of the Callejas government's neoliberal economic reform program.
The Marxist FUTH, with an estimated 16,000 members in the early
1990s, was first organized in 1980 by three communist-influenced unions,
but did not receive legal status until 1988. The federation had external
ties with the World Federation of Trade Unions (WFTU), the Permanent
Congress for Latin American Workers Trade Union Unity (Congreso
Permanente de Unidad Sindical de Trabajadores de Am�rica
Latina--CPUSTAL), and the Central American Committee of Trade Union
Unity (Comit� de Unidad Sindical de Centroam�rica--CUSCA). Its
affiliations included water utility, university, electricity company,
brewery, and teacher unions, as well as several peasant organizations,
including the National Central of Farm Workers (Central Nacional de
Trabajadores del Campo--CNTC), formed in 1985 and active in land
occupations in the early 1980s.
FUTH also became affiliated with a number of leftist popular
organizations in a group known as the Coordinating Committee of Popular
Organizations (Comit� Coordinadora de las Organizaciones
Populares--CCOP) that was formed in 1984. Dissident FUTH member formed
the FITH, which was granted legal status in 1988. The FITH consisted of
fourteen unions claiming about 13,000 members in the early 1990s.
Honduras - AGRICULTURE
The Honduran government nominally began to address inequitable land
ownership in the early 1960s. Those efforts at reform focused on
organizing rural cooperatives. About 1,500 hectares of government-owned
land were distributed by the National Agrarian Institute (Instituto
Nacional Agrario--INA) beginning in 1960.
A military coup in 1963 resulted in an end to the land reform
program. Lacking even modest government-directed land reforms, illegal
squatting became the primary means for poor people to gain land
throughout the early 1970s. These actions spurred the government to
institute new agrarian reforms in 1972 and 1975. Although all lands
planted in export crops were exempted from reform, about 120,000
hectares were, nevertheless, divided among 35,000 poor families.
By 1975 the pendulum had swung back, and agrarian reform was all but
halted. From 1975 through the 1980s, illegal occupations of unused land
increased once again. The need for land reform was addressed mostly by
laws directed at granting titles to squatters and other landholders,
permitting them to sell their land or to use it as collateral for loans.
Despite declarations by the Callejas government in 1989 of its intent
to increasingly address social issues, including land tenure and other
needs of small farmers, the early 1990s were jolted by increased
conflicts between peasants and the Honduran security forces.
Agricultural credit and government support increasingly favored export
crop producers at the expense of producers of basic food crops.
The Honduran land reform process under President Callejas between
1989 and 1992 was directed primarily at large agricultural landowners.
An agrarian pact, signed by landowners and peasant organizations in
August 1990, remained underfunded and largely unimplemented.
Furthermore, violence erupted as discharged members of the Honduran
military forcibly tried to claim land that had already been awarded to
the peasant organization Anach in 1976. In May 1991, violence initiated
by members of the Honduran military resulted in the deaths of eight
farmers. To keep similar situations around the country from escalating
into violence, the government promised to parcel out land belonging to
the National Corporation for Investment (Corporaci�n Nacional de
Inversiones--Conadin). The government also pledged to return to peasants
land that had been confiscated by the Honduran military in 1983.
An Agricultural Modernization Law, passed in 1992, accelerated land
titling and altered the structure of land cooperatives formed in the
1960s. The law permitted cooperative members to break up their holdings
into small personal plots that could be sold. As a result, some small
banana producers suffering from economic hard times chose to sell their
land to the giant banana producers. After an agreement was reached with
the European Union (EU) to increase Honduras's banana quota to the EU,
the large banana companies were avid for additional land for increased
production to meet the anticipated new demand from Europe.
Honduras - Traditional Crops
Throughout the twentieth century, Honduras's agriculture has been
dominated first by bananas and then to a lesser extent by coffee and
sugar. Although their overall importance has declined somewhat, bananas
and coffee together still accounted for 50 percent of the value of
Honduran exports in 1992. The combined value of the two crops also
continued to make the biggest contribution to the economy in 1992. Total
banana sales that year were US$287 million, and total coffee sales
amounted to US$148 million. These figures, which reflect a substantial
decline from previous years' sales, reflect production losses suffered
by banana producers and the withholding of coffee exports from the
market in a futile effort to force improvements in the face of record
breaking price declines.
Two United States-based, multinational corporations--Chiquita Brands
International and Dole Food Company--now account for most Honduran
banana production and exports. Honduras's traditional system of
independent banana producers, who, as late as the 1980s, sold their
crops to the international banana companies, was eroded in the 1990s. In
the absence of policies designed to protect independent suppliers,
economically strapped cooperatives began to sell land to the two large
corporations.
Although Honduran banana production is dominated by multinational
giants, such is not the case with coffee, which is grown by about 55,000
mostly small producers. Coffee production in Honduras has been high
despite relatively low yields because of the large numbers of producers.
Honduras, in fact, consistently produced more than its international
quota until growers began to withhold the crop in the 1980s in an
attempt to stimulate higher prices. Despite the efforts of the growers,
coffee prices plunged on the international market from a high of more
than US$2.25 per kilogram in the mid-1970s to less than US$0.45 per
kilogram in the early 1990s. As a result of the declining prices, coffee
producers were becoming increasingly marginalized.
The outlook for the sugar industry, which had boomed during the 1980s
when Honduran producers were allowed to fill Nicaragua's sugar quota to
the United States, seemed bleak in 1993. Restoration of the sugar quota
to Nicaraguan growers has been a major blow to Honduras's small
independent producers, who had added most of Nicaragua's quota to their
own during the United States embargo of Nicaragua. Higher costs for
imported fertilizers because of the devaluation of the lempira add to
the problem. Honduran producers seek relief from a relatively low
official price of 25 lempiras per kilogram of sugar by smuggling sugar
across the borders to Nicaragua and El Salvador, where the support
prices are higher. Sugar growers who can afford it have begun to
diversify by growing pineapples and rice. Many independent sugar
growers, like independent banana producers, have become indignant over
the relatively high profits shown by refiners and exporters. Strikes by
producers at harvest time in 1991 forced the closure of the Choluteca
refinery for a short time but had little effect on the depressed
long-term outlook for the industry.
Honduras - Nontraditional Crops
As in much of Central America, Honduras's once abundant forest
resources have been badly squandered. In 1964 forests covered 6.8
million hectares, but by 1988 forested areas had declined to 5 million
hectares. Honduras continued to lose about 3.6 percent of its remaining
forests annually during the 1980s and early 1990s. The loss is
attributable to several factors. Squatters have consistently used land
suitable only for forests to grow scantyield food crops; large tracts
have been cleared for cattle ranches; and the country has gravely
mismanaged its timber resources, focusing far more effort on logging
than on forestry management.
The government began an intensive forestry development program in
1974, supposedly intended to increase management of the sector and to
prevent exploitation by foreign-owned firms. The Honduran Corporation
for Forestry Development (Corporaci�n Hondure�a de Desarrollo
Forestal--Cohdefor) was created in 1974, but it quickly developed into a
corrupt monopoly for overseeing forest exports. Timber was mostly
produced by private sawmills under contracts selectively granted by
Cohdefor officials. In fact, ongoing wasteful practices and an
unsustainable debt, which was contracted to build infrastructure, appear
to have undercut most conservation efforts. The military-dominated
governments contracted huge debt with the multilateral development
agencies, then extracted timber to pay for it. Cohdefor generally
granted licenses to private lumber companies with few demands for
preservation, and it had little inclination or incentive to enforce the
demands it did make.
With encouragement from the United States Agency for International
Development (AID), the Honduran government began to decentralize
Cohdefor beginning in 1985. Under the decentralization plan, regulatory
responsibilities were transferred from the central government to mayors
and other municipal officials on the assumption that local officials
would provide better oversight. Despite decentralization and the sale of
government assets, Cohdefor's remaining debt was US$240 million in 1991.
The government also assumed continued financial responsibility for the
construction of a new airstrip in the area of timber extraction,
upgrading facilities at Puerto Castilla and Puerto Lempira, and
providing electricity at reduced prices to lumber concerns as part of
the privatization package.
Major legislation was passed in 1992 to promote Honduran
reforestation by making large tracts of state-owned land more accessible
to private investors. The legislation also supplied subsidies for
development of the sector. The same law provided for replanting
mountainous regions of the country with pine to be used for fuel.
Honduras - NATURAL RESOURCES AND ENERGY
Manufacturing
The country's manufacturing sector was small, contributing only 15
percent to the total GDP in 1992. Textile exports, primarily to the
United States, led the Honduran manufacturing sector. The maquiladora,
or assembly industry, was a growth industry in the generally bleak
economy. Asian-owned firms dominated the sector, with twenty-one South
Korean-owned companies in export processing zones located in the R�o
Sula valley in 1991. The maquiladoras employed approximately
16,000 workers in 1991; another nine firms opened in 1992. Job creation,
in fact, is considered to be the primary contribution of the assembly
operations to the domestic economy. The export textile manufacturing
industry all but wiped out small, Honduran manufacturers, and food
processors, whose goods were historically aimed at the domestic market,
were also adversely affected. The small Honduran firms could not begin
to compete with the assembly industry for labor because of the maquiladoras'
relatively high wage scale of close to US$4 per day. Small firms also
found it increasingly difficult to meet the high cost of mostly imported
inputs. Membership in the Honduran Association of Small and Medium
Industry (Asociaci�n Hondure�a de Empresas Peque�as y Medianas)
declined by 70 percent by 1991, compared to pre-maquiladora
days, foreshadowing the likely demise of most of the small shops.
Honduran domestic manufacturers also suffered from increased Central
American competition resulting from a trade liberalization pact signed
in May 1991 by Honduras, El Salvador, and Guatemala. Overall, the
Honduran manufacturing sector has mimicked other sectors of the
economy--it is mostly noncompetitive, even in a regional context,
because of insufficient credit and the high cost of inputs. Relatively
high interest rates and a complicated investment law have also inhibited
the foreign-dominated manufacturing sector from taking off.
The government-sponsored Puerto Cort�s Free Zone was opened in 1976.
By 1990 an additional five free zones were in operation in Omoa, Coloma,
Tela, La Ceiba, and Amapala. A series of privately run export processing
zones were also established in competition with the government-sponsored
free zones. These privately run zones offered the same standard
import-export incentives as the government zones. Most of the government
and privately run zones were located along the Caribbean coast in a
newly developing industrial belt.
Firms operating outside of the special "enterprise zones"
(either privately run, export-processing zones or governmentsponsored
free zones) enjoy many of the same benefits as those operating within
the zones. The Honduran Temporary Import Law permits companies that
export 100 percent of their production to countries outside the CACM
countries to hold ten-year exemptions on corporate income taxes and
duty-free import of industrial inputs.
Analysts continue to debate the actual benefits of the shift away
from the import-substitution industrialization (ISI) policies of the
1960s and 1970s toward a new focus on free zones and assembly industries
in the 1990s. Critics point to the apparent lack of commitment by
foreign manufactures to any one country site or to the creation of
permanent infrastructure and employment. They question whether new
employment will be enough to offset the loss of jobs in the more
traditional manufacturing sector. A value of US$195 million to the
Honduran economy from assembly industries in 1991--when the value of
clothing exports was greater than that of coffee--was a compelling
argument in favor of the shift, however.
Honduras - Construction
The Honduran financial sector is small in comparison to the banking
systems of its neighbors. After 1985, however, the sector began to grow
rapidly. The average annual growth rate of value added to the economy
from the financial sector for the 1980s was the second-highest in Latin
America, averaging 4 percent. By 1985 Honduras had twenty-five financial
institutions with 300 branch offices. Honduran commercial banks held 60
percent of the financial system's assets in 1985 and nearly 75 percent
of all deposits. With the exception of the Armed Forces Social Security
Institute, all commercial banks were privately owned, and most were
owned by Honduran families. In 1985 there were two government-owned
development banks in Honduras, one specializing in agricultural credit
and the other providing financing to municipal governments.
At the behest of the International Monetary Fund (IMF) and World
Bank, Honduras began a process of financial liberalization in 1990. The
process began with the freeing of agricultural loan rates and was
quickly followed by the freeing of loan rates in other sectors.
Beginning in late 1991, Honduran banks were allowed to charge market
rates for agricultural loans if they were using their own funds. By law,
the banks had to report their rates to monetary authorities and could
fix rates within two points of the announced rate.
In 1991 commercial banks pressured the government to reduce their 35
percent minimum reserve ratio. This rate remained standard until June
1993 when the minimum requirement was temporarily lifted to 42 percent.
The rate was dropped to 36 percent three months later. The banks had
excess reserves, and lending rates were in the area of 26 to 29 percent,
with few borrowers. Prior to liberalization measures, the Central Bank
of Honduras (Banco Central de Honduras) maintained interest rate
controls, setting a 19 percent ceiling, with the market lending rate
hovering around 26 percent in late 1991. With inflation hitting 33
percent in 1990, there was, in fact, a negative real interest rate, but
this situation reversed in 1991 when rates were high relative to
inflation. Rates of 35 to 43 percent in 1993 were well above the
inflation rate of 13 to 14 percent. Bankers argued for further
liberalization, including easing of controls in the housing and
nonexport agricultural sectors.
A Honduran stock exchange was established in August 1990 with
transactions confined to trading debt. Nine companies were registered
with the exchange in 1991; in 1993 this number had grown to eighteen. It
appears doubtful, however, that the market will develop fully, given the
reluctance of family-held firms to open their books to public scrutiny.
Honduras - Tourism
