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Central American University - UCA  
  Number 154 | Mayo 1994
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Honduras

The Frist Hundred Dayds

President Reina wants a strong civil society, a strong private sector and a strong state. All this requires much political will and a great capacity for maneuvering. Up till now, there are no signs that the new government possesses these abilities.

Mario Posas

President Carlos Roberto Reina and his governing team are locked in a critical push pull situation with the International Monetary Fund, the World Bank and the Interamerican Development Bank. The economic situation Reina inherited when he took office on January 27 is so serious it leaves little room for negotiating with these all powerful lending institutions.

A Tough Legacy

Callejas' neoliberal government left a foreign debt that weighs heavily on all economic policy decisions. Even though more than $500 million was forgiven, the foreign debt grew by more than $200 million during Callejas' administration. More than 40% of both exports and the budget goes toward paying interest on the debt, which is now just over $3.5 billion.

Reina also inherited a fiscal deficit that one well known local banker characterized as "dreadful." Callejas had committed Honduras to reducing it to 3.8% of the Gross Domestic Product, but it was still 10.6% when he left office.

The solution the international lending institutions especially the IMF want to impose is a more rigid version of their neoliberal plans, but the government, despite its vulnerability, is putting up a fight. For example, Reina refuses to accept the IMF's proposal to up sales taxes from 7% to 10%, since doing so would betray his promise to the Honduran people that he would not approve any new taxes that would make daily life more difficult.

The IMF is also demanding an elimination of state subsidies, the imposition of a highway toll and a hike in electricity and water rates. Reina and his economic Cabinet have agreed to eliminate some subsidies, such as those the government extends to cement, coffee and wheat, but not the one for urban transport. "A price increase for urban transport could topple a government," declared Reina. Nonetheless, he was forced to accept the highway toll and an eventual increase in water and electricity rates.

Order From On High: Privatize

The IMF, the World Bank and the IDB want the Honduran government to privatize HONDUTEL (the state telecommunications enterprise), SANAA (the water and sewage system) and ENEE (the electrical utility). Reina and his economic team have agreed to privatize HONDUTEL, but not the other two.

The privatization of HONDUTEL has turned into a major topic of debate in Honduras. Millionaire Jaime Rosenthal, a leader of the governing Liberal Party, holds that selling HONDUTEL for some $800 million could help reduce the tremendous weight of the country's foreign debt. The Honduran military, which has administered HONDUTEL in the name of the Honduran state since the 1960s, tried to get HONDUTEL "privatized" to it, but its own lack of capital has forced it to reluctantly accept the company's eventual sale to a transnational enterprise.

Businessman Juan Ferrera, the new minister of the treasury, charged that the Honduran military has run HONDUTEL based on cronyism and corruption. He publicly challenged the military to prove him wrong, but was met only with the Olympian silence of the High Command.

President Reina has turned his government's agreements and disagreements with the IMF, the World Bank and the IDB into central elements of his economic program. In his national radio and television broadcast on March 7, Reina reported on his decision to shrink the state budget by reducing the central and decentralized state institutions by 10% and cutting state investment in infrastructural works. He stressed that improving the tax collection system and solving the country's severe energy crisis would be key elements of his economic program. He authorized the new private businesses that are forming to offer these services.

FVA Hike

In these first months prior to the Honduran government's signing a letter of intent with the IMF, not all has been resistance and struggle, however. To appease the IMF and other lending institutions by trying to reduce the fiscal deficit, Reina's economic Cabinet decided on February 11 to raise what is known as the Customs Appraisal Factor (FVA) from 6.20 to 7.27 lempiras.

The FVA is the official US dollar exchange value of the lempira used to charge import taxes in the country's customs houses. In the past, the lempira devalued in relation to the dollar by 100 or more points on the black market each time the FVA was increased. To avoid this, the Central Bank of Honduras has implemented a range of control measures this time. But they could not prevent a black market devaluation of some 50 points. The FVA increase has thus acted as a new factor inflating the cost of living for most Hondurans.

The decision to increase the FVA was made parallel to those of reducing state investment in infrastructural works and improving controls over the state tax collection systems to prevent tax evasion and fraud. It is estimated that these two elements will allow the government to recover about one billion lempiras annually. Banker Jorge Bueso Arias, one of the new government's economic advisers, calculates that rigorous application of the control systems will make it unnecessary to create the new taxes that the IMF is proposing.

Reina's economic Cabinet also decided to reduce bank reserves by two points: from 36% to 34%. By mid 1993, the reserve requirement had climbed to 42% of the banks' net daily intake. The new gradual reductions that have been announced are expected to lower interest rates in the private banks, and thus stimulate the country's financial and productive activity.

The preferential attention given to the bank reserve has led Reina's adversaries to characterize his government as a defender of banking interests. And there are indeed important bankers in the new government, one of whom is Bueso Arias, both the manager of the Atlantida Bank, a powerful Chase Manhattan affiliate, and the coordinator of Reina's economic Cabinet. This conflict of interests has made Bueso the target of sharp criticism.

Congress: A New Actor

By increasing the FVA, the government introduced an actor back into economic decision making that had been wholly subordinated by the previous government. That actor is the National Congress. The Callejas administration induced the National Congress to transfer many of its constitutional responsibilities in the economic arena to the minister of the treasury and public credit, the minister of economy and commerce and the president of the Central Bank of Honduras' board of directors.

On February 17, Carlos Flores Facussé, president of the National Congress, introduced legislation aimed at restoring the power of the legislative branch to make economic decisions relating to finances and, particularly, the FVA. It was immediately approved. As a result, the economic Cabinet and missions from the international organizations will now have to include the president of the National Congress in their deliberations and negotiations, and with a more important role than this representative has ever had in economic issues.

Flores' initiative responds not only to his interest in giving Reina a more credible social and economic policy image, but also to discontent in the Liberal party with the executive branch's diffident response to the demands of Flores' followers for a new divvying up of state posts. Their only alternative was to stake out territory in the National Congress and fight from there. Flores himself aspires to be the official Liberal candidate in the 1997 presidential elections.

Neoliberalism Lives On? Will Reina's administration be able to substantially distance itself from the neoliberal extremism practiced by the Callejas government? Given such a weak economy and such tremendous international pressures, it would seem virtually impossible.

By taking the basic negotiating stance that it will not impose new tax burdens on Honduras' majorities, officials in the new government are attempting to differentiate themselves from the Callejas government. They are trying to support some of the social sectors whose interests were postponed by radical neoliberalism. That brand of neoliberalism only served to make President Callejas and his cronies rich, while impoverishing the great majority of Hondurans.

Under the leadership of the natural resources minister and the Higher Council of Economic Planning, the new government has also vowed to promote a food security program that would guarantee a basic diet for Hondurans. The program's linchpin is the design of a preferential credit policy for small and medium agricultural producers. It is still only at the project stage, so its fruits will not be seen for several months. Meanwhile, the government has had to authorize massive imports to overcome a relative rice shortage in the country.

Although Reina has not publicly committed himself to carrying out an agrarian reform, he has shown a willingness to negotiate changes in the controversial Law of Agricultural Modernization approved by the Callejas government in March 1992. Among the most controversial aspects of this law are regulations protecting the uncultivated part of large landholdings; prior to the law, these idle lands could be turned over to peasants. Stipulations permitting peasant lands from the reformed sector to be sold to any bidder could also be modified. Although these stipulations sparked strong opposition from the country's peasant movement, that movement has now been effectively disarticulated, since about a hundred peasant groups have already sold their lands to local and foreign buyers.

To begin to reverse the Callejas administration's abandonment of state social services, the new government says it will invest 35% of the national budget in these areas. To date, that promise has gone no further than the drafting of some projects.

Reina has still not worked out how to neutralize the inflation that is overwhelming the majority of Hondurans, who anxiously watch as their salaries rapidly shrink too much to maintain a decent living standard. The Ministry of Economy and Commerce has come up with little else than signing a treaty with the Honduran Higher Council of Private Enterprise (COHEP) to temporarily freeze the prices of eight key goods in the basic market basket. This price moratorium basically aims at giving the government and the Honduran population breathing room while negotiations are concluded with the IMF, the World Bank and the IDB.

The general impression is that the new administration has yet to get off the ground. In his public address of March 7, President Reina announced that, in an undetermined future, a social pact will be signed with all sectors of the country to reach a basic agreement that could improve the standard of living for all Hondurans. He spoke in favor of a strong civil society, a strong private sector and a strong state. Achieving all this will take a major dose of political will and maneuvering capacity that the current government has yet to demonstrate.

Right after Reina was elected, most national and international observers predicted that the country would move towards that economic hybrid known as social neoliberalism. So far, all tendencies suggest that they were right.

Voluntary Military Service?

If people kept their economic expectations from Reina on a short leash, they hoped for more from him politically. His new government was expected to demonstrate the intelligence and guts necessary to "civilize" Honduran society by submitting the military to civilian power, and to struggle against the corruption that has so damaged the country's institutional life. Reina had made few clear promises regarding the military, but he emphatically took on the challenge of becoming the standard bearer of a "moral revolution" in Honduran society in general and the state apparatus in particular.

To date, his government has not fulfilled its major promise to replace compulsory conscription with voluntary, educational military service. The army high command beat it to the punch by proposing an educational, but still obligatory, service, leaving Reina in a bad light.

How to effect a voluntary and educational military service has become a very controversial topic among military officers, who are trying to reject the civil society's opinions on and involvement in this issue. Fulfillment of his promise is turning into an important test of Reina's credibility and a sign of his political will to subordinate the military to civilian power.

Voluntary military service would lead to an important reduction in the army's current troop strength and, more than anything, in the military budget, which is still a target of serious criticisms. Health Minister Enrique Samayoa recently complained that his public health budget is only 620 million lempiras annually, while the armed forces receive twice that. The final approval of any plan for voluntary military service and an eventual reduction of the army's budget falls to the National Congress, which is already being subjected to an array of pressures.

Another long time aspiration of Honduran civil society is the return to civilian jurisdiction of Civil Aeronautics, the General Office of Population and Immigration Policy, the National Geographic Institute, the Merchant Marine and other state institutions in the hands of the Honduran military since the 1960s. So far, President Reina and the National Congress have ignored this issue, even though it was reiterated in March by Eduardo Facussé, president of the Tegucigalpa Chamber of Industry and Commerce.

And the Moral Revolution?

The struggle against institutionalized corruption is barely getting started. No corrupt politician has yet been brought to court, but an investigation into the use and management of state institutional funds is underway and the government has said that it will have the results within two months.

A positive step in this struggle was the appointment of Edmundo Orellana Mercado, a respected lawyer, as Attorney General. The Office of Criminal Investigation (DIC), the state's new police corps, will function under the auspices of the Attorney General's office. The Honduran military is getting used to the idea that it must cede control of the new police force to civilians and is taking steps in that direction, but it has not accepted the idea willingly. In fact, the existing force has fallen into a kind of "disobedience" that is increasing citizen insecurity: it is simply refusing to carry out its vigilance functions.

The decision to transfer the police to civilian control was made by an Ad Hoc Commission named by the Callejas administration in mid 1993, at a time when some military and police officers were being accused of involvement in criminal activity. The Commission was headed by Tegucigalpa Archbishop Oscar Andrés Rodríguez.

The new attorney general has publicly sworn to put corrupt politicians behind bars. At the moment, Orellana is fighting for a decent budget and assuring the institutional immunity necessary for such a delicate position. The population holds the hope that he will cast his net wide enough to bring in a few of the really "big fish." There are more than enough to choose from.

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