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Central American University - UCA  
  Number 162 | Enero 1995



The New Look of the "Red Package"

Cosmetics? Social patches? Something more? The neoliberal economic plan, “the red package”, underwent modifications in the Congress after a long debate. Now comes the test: taking it from paper to real life.

Mario Posas

In the wee hours of October 12, the National Congress approved the controversial neoliberal economic measures popularly known as the "red package" named for the colors of the party in power. The drafting and impassioned discussion of this package dominated national debate during almost all of 1994.

A Big Challenge for Congress' President

As only some expected, the package was modified by the representatives of the governing Liberal Party, which controls the Congress and its major decisions by a simple majority.
Getting the package approved just as it had been sent to Congress by the Economic Cabinet was a trial by fire for Congress president Carlos Flores Facussé, the governing party's strongest presidential hopeful for the November 1997 elections. Approving it with no changes would have been a premature political defeat for Flores, linking him to the implementation of unpopular economic measures. Approval of the "package" thus became eminently political.

Flores responded to the situation in two ways; with a publicity campaign that presented the National Congress as an autonomous state power independent of President Reina's government Cabinet; and with a broad social conciliation effort with representatives of those social sectors opposed to the package so as to eliminate the most controversial aspects and add some additional measures that would minimize the negative social impact. Arguing that the "red package" was basically a fiscal initiative, the Liberal bench in the National Congress, under Flores' leadership, dedicated itself to designing a new face for the government proposal.

What Taxes?

Congress gave a green light to the government proposal to liberalize the Customs Value Factor (FVA), the official dollar value of the lempira used to tax merchandise imported through customs. The FVA was 7.30 lempiras when the street value of the dollar was 9.25. With the measures, the FVA will be the same as the value established daily by the Central Bank of Honduras.

Congress sanctioned the sales taxes in the government proposal, but decided to eliminate the tax from a long list of merchandise, including household appliances. It also rejected the tax on savings accounts of under 50,000 lempiras, as well as the proposal to establish tolls on the country's roads and to apply a sales tax to gasoline and public services. It approved a 1% tax on business' net assets, but decided to raise the floor on these taxable assets from 500,000 to 750,000 lempiras. Finally, the Congress approved a 10% tax on beer, hard liquors and tobacco.

Beyond the "Package"

After dealing with the fiscal proposal, the National Congress decided to enrich the package with three additional chapters. The first contains a series of "spending containment measures"; the second, a series of "measures to promote production;" and the third, a series of "social compensation measures."
To cut spending, the Congress approved resolutions to reduce state spending by 10%, shrink the state bureaucracy by 10% in 1995, regulate foreign trips and the use of state luxury vehicles by public officials and prohibit the purchase of new vehicles in 1995.

Among the "measures to promote production" are resolutions aimed at stimulating banana production and the development of the piecework (maquila) industry, and creating a new program to support small farmers, providing land titles, training, credit and marketing.

The "social compensation measures" approved by Congress include a "fourteenth month" to be paid in June of each year. Another important measure was a price freeze on the main consumer products for the final months of 1994.

In addition, Carlos Flores Facussé introduced five new legislative bills. The first proposed to reduce the number of representatives in the National Congress from 128 to 80; the second to create an Executive Office of Income, under the Ministry of Housing, by uniting the General Customs Office, the National Tax Office, and the Income Fiscalization Unit, dependent on the National Congress. The third initiative gives life to the National Convergence Forum (FONAC) as the seat for national dialogue to analyze and debate national problems and reach consensual decisions on actions. The fourth and fifth bills would respectively make the Honduran Social Investment Fund (FHIS) and the Family Assignment Program (PRAF) permanent programs. The FHIS and the PRAF were created by the Rafael Leonardo Callejas administration (1990 1994) as temporary social compensation programs.

Marathon Session

The session of Congress that finally approved the modified "red package" was a marathon 12 hours, from 4 p.m. to 4 a.m. The National Party representatives only had access to the document containing the economic and social policy measures a few hours before the session began. It appears that Flores did not want to give the business sector time to organize a movement against the net assets tax and the paying of the fourteenth month.

The reformed package was approved by all 71 Liberal Party representatives and two from the Innovation and Unity Party (PINU). The 55 representatives of the opposition National Party withdrew from the session before midnight, charging procedural irregularities.

The approved package appeared in the official "La Gaceta" on October 28, at which point it became law. There was some fear that President Reina would veto it, but this did not happen. He signed it and presented it to the nation as the fruit of an agreement reached within the governing party.

The approval of the package with its modifications has reaped many positive political dividends for Carlos Flores Facussé. An opinion poll taken in San Pedro Sula and Tegucigalpa placed him as the most accepted political leader, not only among Liberals but also at the national level.

Applause from All

National public opinion was very favorable to the modifications made by the Congress. One of the most enthusiastic demonstrations of support came from Eduardo Facussé, president of the Tegucigalpa Chamber of Commerce and Industry (CCIT), who publicly recognized that "despite the limited time the representatives had to analyze the 'package,' they changed it to such a degree that they brought fiscal policy in line with the national reality, because it reflects a series of social concepts that were absent from the proposal put forward by the executive branch."
Facussé recognized that "the National Congress decision surprised the entire population, because it demonstrated that it is not a submissive Congress, but is combative and is trying to put its own house in order." He added that "it was expected that the fiscal measures would be approved, and the social face added is applauded by the entire nation. Although adverse reactions were expected from certain sectors, Carlos Flores Facussé has received nothing but applause. This is the first time that the population has applauded these kinds of measures."
In a conciliatory tone, the CCIT president recognized that the liberalization of the FVA, the payment of the fourteenth month, the net assets tax and the price freeze would affect business interests, but he called on businesspeople to accept the congressional decisions as a contribution to the country's social and economic development. The business leader failed to add that, in reality, most of these new burdens can be passed on to the consumer, to citizens permanently overwhelmed by devaluations, inflation, speculation and salary freezes.

Other business leaders preferred to refer to the aspects of the reformed package with which they disagreed. The president of the Cortés Chamber of Commerce and Industry opposed the fourteenth month of salary on principle. A leader of the National Association of Honduran Medium and Small Industrialists (ANMPIH) also opposed the measure, arguing that the great majority of members of his association would not have the necessary cash flow to pay the extra salary. Adolfo Facussé, President of the Honduran Council of Private Enterprise (COHEP), acknowledged the fourteenth month as just, but noted that the business sector most affected by this measure would be small and medium industry.

Pros and Cons

The position taken by the United Workers' Central of Honduras (CUTH), a moderate left union organization, is illustrative of the position taken by the union movement as a whole. In a public statement, the CUTH recognized that the approved economic and social measures addressed some of the Honduran popular movement's demands. It also expressed its pleasure with the autonomous and independent posture Congress demonstrated toward the executive branch, which strengthens democracy in the country.

Nonetheless, the CUTH criticized the short sighted nature of the measures, saying that the only objective was to reduce the fiscal deficit, leaving unresolved the large national problems of "stagnation of national production, shortage of basic grains, the energy crisis, the chaotic situation of small and medium industry, periodic devaluations, inflation, unemployment, illiteracy, delinquency, violence, etc. problems that keep Hondurans in a state of anxiety, hopelessness and ungovernability."
The CUTH demonstrated support for the price freeze and lamented that the measure was only temporary. It approved the measures aimed at cutting the bloated state sector, above all the "parachuters" those who receive a salary without working. But it pointed out that laying off state employees should not be an excuse to create vacancies only to fill them with incumbent party activists. Finally, it called the freeing up of the FVA nothing other than a hidden devaluation that would shortly trigger a new inflationary wave.

IMF: Open Doors

Other union organizations challenged Congress' ability to monitor the fulfillment of some of the approved measures, such as the rational use of state vehicles or the temporary price freeze. In reality, the price freeze has been more a hope than a reality, not only because of unstoppable speculation, but also because of the recent gasoline price increase announced by the Ministry of Economy and Trade, the sixth such increase in 1994.

Economic Cabinet officials watched the Congress carefully, and attended the long session in which the measures were approved. They recognized that, although the modifications introduced by the representatives will reduce the hoped for cut into the fiscal deficit, the bulk of the original package was approved.

With the neoliberal measures now approved, the government can present the needed solvency to negotiate with the International Monetary Fund the letter of intent it has been talking about since Reina won the elections in November 1993. This agreement will allow the country to receive some 630 million lempiras for agricultural and energy investments and to correct balance of payments deficits.

A new round of negotiations with the International Monetary Fund and the Interamerican Development Bank began on October 18. The temporary price freeze passed by Congress was not looked upon kindly. The meetings with the international organizations should have concluded with the signing of the letter of intent on November 15, but this did not happen. Economic Cabinet officials continue to insist that the signing is imminent.

The End of Rationing?

The electrical energy crisis has been another major issue in the national debate since the first months of the year.

The crisis a result of a lack of state planning, a growing demand for energy due to the growing maquila industry and the water shortage that totally paralyzed the turbines in the Francisco Morazán hydroelectric dam has severely punished the country's productive activity. The export sector alone suffered a reduction of US$36.7 million in the first six months of the year. The crisis has also transformed the lifestyle of urban Hondurans; their daily existence has been ruralized and they have had to stoically resist the aggravating noise of diesel generators used in restaurants, hotels and stores.

Rationing is now 14 hours daily. By buying energy from other Central American countries or borrowing thermal plants (Mexico loaned two, which are currently being rehabilitated), the government is able to reduce rationing on some days, but on other days there are still 13 hour blackouts. The majority of the population has reacted skeptically to the promise that rationing will definitively end on December 15. By that date the country should have an excess of 41 megawatts of electrical energy, and by 1995 the excess should be 175 megawatts.

Promises of a light filled December 15 were accompanied by the announcement of an increase in energy costs to compensate for the fuels needed to run the thermal plants that will supply much of the national demand. COHEP responded to the announcement by saying it is determined to oppose any increase.

Salary Readjustments

The country's unions continue to demand a general salary readjustment to offset, even if only partially, the shrinking of real salaries due to the combined impact of devaluations, inflation and speculation. The year ended with an inflation rate of almost 30%. The Honduran Workers' Confederation (CTH), the Social Christian General Workers' Central (CGT) and the CUTH joined together in the struggle for a salary readjustment.

In the framework of the Tela Railroad Company Workers' Union (SITRATERCO) strike against the powerful banana company a subsidiary of United Brands in July, President Reina publicly promised to order a salary readjustment in the least time possible for all the country's workers. But on October 21 he publicly reneged on his promise by declaring that he did not have the power to order a readjustment, because it would violate the constitutional right of collective bargaining. This was the same argument that COHEP had used against the unions.

In response, the unions have refused to join a commission, together with private enterprise and the government, to decide on the minimum wage increase. Although union leaders have made clear that they do not oppose an increase in the minimum wage, they argue that this is not the main problem. They insist that the principal need is for a general salary readjustment that will return to organized Honduran workers some of the buying power they have lost over the last four years.

The unions have announced actions to pressure President Reina or the National Congress which they see as the primary source of social compensation and the human face of the government to definitively order salary readjustments.

Two Great Achievements

Despite the decidedly neoliberal tone of some important economic decisions by the Cabinet and President Reina himself, positive actions have unquestionably been taken in the government. Two of them merit special mention.
The first is the government's rejection of the traditional policy of dividing popular organizations by creating parallel leadership positions controlled by the government. The Callejas government did this very well. The Reina government has not only refused to promote these parallel organizations, it has also promised to create favorable conditions for reunifying popular organizations that are still divided. This is the case of the Professional School of Magisterial Self Improvement (COLPROSUMAH), which reunified on October 12 under Reina government auspices. Since 1982 COLPROSUMAH was divided in two rival wings: the "authentic" and the "democratic."
The other notable action is the legal recognition of the Committee for the Defense of Human Rights (CODEH). On November 8, CODEH president Ramón Custodio received from the hands of President Reina the official registration that legalized the existence of this prestigious institution. Since its founding on May 11, 1981, CODEH has been working honestly and with determination, but without legal recognition. President Reina confessed that he was moved and proud to be able to give CODEH its legal standing. The Ministry of Government also declared its approval of this decision, affirming that throughout its existence CODEH has made great contributions to human rights. The words were meant for both the organization and Ramón Custodio, one of the founders of this organization which has been so highly visible and has won such respect since its creation.

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