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Honduras (09/04)For the most current version of this Note, see Background Notes A-Z.
PROFILE OFFICIAL NAME: Geography People Government Economy (2003) PEOPLE Independence Since independence, Honduras has been plagued with nearly 300 incidents of unrest, including internal rebellions, civil wars, and changes of government--more than half of which occurred during the 20th century. The country traditionally lacked both an economic infrastructure and social and political integration. Its agriculture-based economy was dominated in the 1900s by U.S. companies that established vast banana plantations along the north coast. Foreign capital, plantation life, and conservative politics held sway in Honduras from the late 19th century until the mid-20th century. During the relatively stable years of the Great Depression, authoritarian Gen. Tiburcio Carias Andino controlled Honduras. His ties to dictators in neighboring countries and to U.S. banana companies helped him maintain power until 1948. By then, provincial military leaders had begun to gain control of the two major parties, the Nationalists and the Liberals. From Military to Civilian Rule Gen. Lopez's successors continued armed forces modernization programs, built army and security forces, and concentrated on Honduran Air Force superiority over its neighbors. The regimes of Gen. Melgar Castro (1975-78) and Gen. Paz Garcia (1978-83) largely built the current physical infrastructure and telecommunications system of Honduras. The country also enjoyed its most rapid economic growth during this period, due to greater international demand for its products and the availability of foreign commercial lending. Following the overthrow of Anastasio Somoza in Nicaragua in 1979 and general instability in El Salvador at the time, the Honduran military accelerated plans to return the country to civilian rule. A constituent assembly was popularly elected in April 1980, and general elections were held in November 1981. A new constitution was approved in 1982, and the Liberal Party government of President Roberto Suazo Cordoba took office following free and fair elections. Suazo relied on U.S. support to help during a severe economic recession which was the result of regional instability caused by the revolutionary Sandinista government in Nicaragua and the chaos of the brutal civil war in El Salvador. Close cooperation on political and military issues with the United States was complemented by ambitious social and economic development projects sponsored by the U.S. Agency for International Development (USAID). Honduras became host to the largest Peace Corps mission in the world, and nongovernmental and international voluntary agencies proliferated. As the November 1985 election approached, the Liberal Party had difficulty settling on a candidate, and interpreted election law as permitting multiple presidential candidates from one party. The Liberal Party claimed victory when its presidential candidates, who received 42% of the vote, collectively outpolled the National Party candidate, Rafael Leonardo Callejas. Jose Azcona Hoyo, the candidate receiving the most votes among the Liberals, assumed the presidency in January 1986. With the endorsement of the Honduran military, the Azcona administration ushered in the first peaceful transfer of power between civilian presidents in more than 30 years. Four years later, Rafael Callejas won the presidential election, taking office in January 1990. Callejas concentrated on economic reform, reducing the deficit, and taking steps to deal with an overvalued exchange rate and major structural barriers to investment. He began the movement to place the military under civilian control and laid the groundwork for the creation of the public ministry (attorney general's office). Despite his administration's economic reforms, the nation's fiscal deficit ballooned during Callejas' last year in office. Growing public dissatisfaction with the rising cost of living and with widespread government corruption led voters in 1993 to elect Liberal Party candidate Carlos Roberto Reina over National Party contender Oswaldo Ramos Soto, with Reina winning 56% of the vote. President Reina, elected on a platform calling for a "moral revolution," actively prosecuted corruption and pursued those responsible for human rights abuses in the 1980s. He created a modern attorney general's office and an investigative police force and was successful in increasing civilian control over the armed forces and transferring the police from military to civilian authority. Reina also restored national fiscal health by substantially increasing Central Bank net international reserves, reducing inflation, restoring economic growth, and, perhaps most importantly, holding down spending. Carlos Roberto Flores Facusse took office on January 27, 1998, as Honduras' fifth democratically elected President since democratic institutions were restored in 1981. Like three of his four predecessors, Flores was a member of the Liberal Party. He was elected by a 10% margin over his main opponent, National Party nominee Nora de Melgar. Upon taking office on January 27, 1998, Flores inaugurated programs of reform and modernization of the Honduran government and economy, with emphasis on helping Honduras' poorest citizens while maintaining the country's fiscal health and improving international competitiveness. In October 1998, Hurricane Mitch devastated Honduras, leaving more than 5,000 people dead and 1.5 million displaced. Damages totaled nearly $3 billion. The Honduran Government agreed to a new transparent process to manage relief funds, which included significant donor oversight. This open process greatly facilitated the relief and reconstruction effort. President Flores and his administration successfully managed more than $600 million in international assistance. Civil society's role in the government-coordinated reconstruction process was lauded internationally. President Flores also moved judicial and penal reforms forward. He established an anticorruption commission, supported passage of a new penal code based on the oral accusatorial system, and saw passage of a law that created an independent Supreme Court. Flores cemented the transition from military to civilian rule by eliminating the military’s commander in chief position, and by signing a law that established a civilian Minister of Defense with formal authority over the military. Ricardo Maduro Joest of the National Party was elected to the Honduran presidency on November 25, 2001, outpolling the Liberal candidate, Rafael Pineda Ponce, by 8 percentage points. He was inaugurated on January 27, 2002. The elections, characterized by international observer teams as free, fair, and peaceful, reflected the maturing of Honduras' democratic institutions. During his campaign, President Maduro promised to reduce crime, reinvigorate the economy, and fight corruption. Working to fulfill this promise, Maduro’s first act as President was to deploy a joint police-military force to the streets to permit wider neighborhood patrols in the ongoing fight against the country’s massive crime problem. While the initial result of this policy was overwhelmingly positive, the policy appears to have had only a minimally positive long-term effect on the country’s crime rate. President Maduro has been a strong supporter of the global war on terrorism and joined the U.S.-led coalition in Iraq with a contribution of 370 troops. Under President Maduro’s guidance, Honduras also participated in the successful Central America Free Trade Agreement talks and actively promoted greater Central American economic integration. GOVERNMENT POLITICAL CONDITIONS Political Parties Principal Government Officials Honduras maintains an embassy in the United States at 3007 Tilden Street NW, Washington, DC 20008 (tel. 202-966-7702). ECONOMY Family remittances from Hondurans living abroad (mostly in the United States) rose 19% to $860 million in 2003, and are soon expected to pass the maquila sector as the country's largest source of foreign exchange. The exchange rate as of July 2004 was 18.26 Honduran Lempira to the dollar, compared to 17.18 Lempira to the dollar a year earlier. The currency has been undergoing a steady and controlled devaluation of roughly 6% per year for the last several years. Inflation, as measured by the consumer price index, was 7.7% in 2003, identical to the rate of 2002 and considerably lower than the double-digit inflation rates of the 1990s. International reserves, which had fallen from $1.235 billion at the end of 2002 to $1.16 billion at end of 2003, rebounded to $1.248 million by April 2004. Unemployment was officially estimated at around 27.5% in 2003. The economic slowdown in the United States in 2001 and 2002 caused a downturn in the growth of Honduras' maquila sector, but investment and employment revived in 2003. Employment in the sector is almost back to its 2000 peak of 125,000 workers. In July 2000, Honduras reached its decision point under the Heavily Indebted Poor Countries (HIPC) initiative, qualifying the country for interim multilateral debt relief. However, fiscal problems soon derailed the government’s International Monetary Fund (IMF) program and put the HIPC debt relief on hold. After the Honduran Government took several important measures to control government spending and improve its fiscal situation, the IMF approved a new 3-year Poverty Reduction and Growth Facility program in February 2004. This in turn made possible the signing of a debt relief agreement with Paris Club creditors in April 2004, and positions the country for the HIPC completion point as of February 2005. NATIONAL SECURITY FOREIGN RELATIONS Honduras is a strong proponent of Central American cooperation and integration, and is working towards the implementation of a regional customs union by the end of 2004. The agreement would ease border controls and tariffs among Honduras, Guatemala, Nicaragua, and El Salvador. In 1969, El Salvador and Honduras fought the brief "Soccer War" over disputed border areas and the emigration of some 300,000 Salvadorans to Honduras in search of land and employment. The catalyst was nationalistic feelings aroused by a series of soccer matches between the two countries, but the roots of the conflict lay in local disputes over land ownership and usage. The two countries formally signed a peace treaty on October 30, 1980, which put the border dispute before the International Court of Justice (ICJ). In September 1992, the Court awarded most of the disputed territory to Honduras. In January 1998, Honduras and El Salvador signed a border demarcation treaty to implement the terms of the ICJ decree although delays continue due to technical difficulties. Honduras and El Salvador maintain normal diplomatic and trade relations; however, they continue to disagree over the status of their maritime borders in the Gulf of Fonseca. Honduras and Nicaragua had tense relations throughout 2000 and early 2001 due to a maritime boundary dispute off the Atlantic Coast. Relations between the two countries have since improved, although some animosity remains. Overview The United States favors stable, peaceful relations between Honduras and its Central American neighbors. During the 1980s, Honduras supported U.S. policy in Central America opposing a revolutionary Marxist government in Nicaragua and an active leftist insurgency in El Salvador. The Honduran Government also played a key role in negotiations that culminated in the 1990 Nicaraguan elections. Honduras continues to participate in the UN observer mission in the Western Sahara, contributed troops for the reconstruction of Iraq, and remains interested in participating in other UN peacekeeping missions. The United States is Honduras' chief trading partner, supplying 53% of its imports and purchasing 69% of its exports in 2003. U.S.-Honduran trade is dominated by the Honduran maquila industry, which imports yarn and textiles from the United States and exports finished articles of clothing. Other leading Honduran exports to the United States include coffee, bananas, seafood (particularly shrimp), minerals (including zinc, lead, gold, and silver), and other fruits and vegetables. The United States encourages U.S. investment that contributes to Honduran development and bilateral trade. U.S. direct investment in Honduras is valued at $601 million, about 44% of the total foreign direct investment (FDI) in the country of $1.37 billion. FDI flow into Honduras in 2003 totaled $176 million, with the United States leading the way with investments totaling $145 million, or 82% of the total FDI. The largest U.S. investments in Honduras are in the maquila sector, in which apparel and textile export revenues totaled $2.53 billion in 2003. There are also significant U.S. investments in fruit production--particularly bananas, melons, and pineapple--tourism, energy generation, shrimp culture, animal feed production, telecommunications, fuel distribution, cigar manufacturing, insurance, brewing, leasing, food processing, and furniture manufacturing. Many U.S. franchises, particularly in the restaurant sector, operate in Honduras. From January to December of 2003, the United States negotiated a free trade agreement with Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua. Further negotiations in 2004 brought the Dominican Republic into the agreement as well. The agreement was signed in May 2004, but must be ratified by the U.S. Congress and by those of the other participating countries before it enters into force. The agreement, known as the U.S.-Central America Free Trade Agreement or CAFTA, will eliminate tariffs and other barriers to trade in goods, services, agricultural products, and investments. Additionally, CAFTA is seen as a mechanism to solidify democracy, encourage greater regional integration, and provide safeguards for environmental protection and labor rights. The United States maintains a small presence at a Honduran military base; the two countries conduct joint peacekeeping, counternarcotics, humanitarian, disaster relief, and civic action exercises. U.S. troops conduct and provide logistics support for a variety of bilateral and multilateral exercises--medical, engineering, peacekeeping, counternarcotics, and disaster relief--for the benefit of the Honduran people and their Central American neighbors. U.S. forces--regular, reserve, and National Guard--benefit greatly from the training and exercises. As of early 2001, the U.S.-trained Honduran demining unit had cleared nine major minefields measuring about 333,000 square meters, and more than 2,200 mines had been destroyed. This project is on track to be completed in 2004, at which point Honduras will be declared mine free. U.S. Policy Toward Honduras U.S.-Honduran ties are further strengthened by numerous private sector contacts, with an average of between 80,000 and 110,000 U.S. citizens visiting Honduras annually and about 11,000 Americans residing there. More than 150 American companies operate in Honduras. Economic and Development Assistance October 1998's Hurricane Mitch--the worst natural disaster ever to strike the Western Hemisphere--left hundreds of thousands homeless, devastated the road network and other public infrastructure, and crippled certain key sectors of the economy. Estimates show that Hurricane Mitch caused $8.5 billion in damages to homes, hospitals, schools, roads, farms, and businesses throughout Central America, including more than $3 billion in Honduras alone. In response, the United States provided more than $461 million in immediate disaster relief and humanitarian aid spread over the years 1998-2001. This supplemental assistance was designed to help repair water and sanitation systems; replace housing, schools, and roads; provide agricultural inputs; provide local government crisis management training; grant debt relief; and encourage environmental management expertise. Additional resources were utilized to maintain anti-crime and drug assistance programs. The vast majority of the U.S. reconstruction projects were scheduled to finish by December 31, 2001, with the exception of some water and sanitation and transparency projects that were extended for another 14 months. In 2001, the United States also provided food aid in response to a short drought and the depressed state of the agriculture sector. Subsequently, the United States provided $265,000 in disaster assistance after Tropical Storm Michelle inundated the north coast with floods. New and existing U.S. economic programs--some with proposed enhancements that have taken on even greater importance since the hurricane--include the Caribbean Basin Economic Recovery Act, Overseas Private Investment Corporation financing for private investment and insurance against risks of war and expropriation, U.S. Trade Development Agency grant loans for pre-feasibility studies of projects with U.S. product and services export potential, and U.S. Export-Import Bank short- and medium-term financing for U.S. exports to Honduran importers. All of these provide greater economic opportunity for U.S. and Honduran businessmen and women. The Peace Corps has been active in Honduras since 1962, and currently the program is one of the largest in the world. In 2004, there were 223 Peace Corps Volunteers working in the poorest parts of Honduras. The U.S. Government strongly supports the professionalization of the civilian police force as an important element in strengthening the rule of law in Honduras. The American Embassy in Tegucigalpa provides specialized training to police officers through the International Criminal Training Assistance Program. Security Assistance In the absence of a large security assistance program, defense cooperation has taken the form of increased participation by the Honduran armed forces in military-to-military contact programs and bilateral and multilateral combined exercises oriented toward peacekeeping, disaster relief, humanitarian/civic assistance, and counternarcotics. The U.S. Joint Task Force Bravo (JTF-B), stationed at the Honduran Soto Cano Air Base, plays a vital role in supporting combined exercises in Honduras and in neighboring Central American countries. While JTF-Bravo has been involved in several multilateral exercises and numerous smaller humanitarian deployments, it played an absolutely critical role in helping the United States to respond to Hurricanes Mitch and Keith, and the earthquakes in El Salvador by saving lives, repairing critical infrastructure, and in meeting high priority health and sanitation needs. U.S. forces also delivered millions of dollars worth of privately donated goods to those in need. U.S. Business Opportunities Opportunities for U.S. business sales include textile machinery, construction equipment, automotive parts and accessories, telecommunications equipment, pollution control/water resources equipment, agricultural machinery, hotel and restaurant equipment, computers and software, franchising, and household consumer goods. Best prospects for agricultural products are corn, milled rice, wheat, soybean meal, and consumer-ready products. U.S. citizens contemplating investment in real estate in Honduras should proceed with extreme caution, especially in the Bay Islands or coastal areas, because of frequently conflicting legislation, problems with land titles, and a weak judicial system. Investors or their attorneys should check property titles not only with the property registry office having jurisdiction in the area in which the property is located (being especially observant of marginal annotations on the deed and that the property is located within the area covered by the original title), but also with the National Agrarian Institute (INA) and the National Forestry Administration (COHDEFOR). Investors in land should be aware that even clear title is not a guarantee that a future dispute over land would be resolved equitably. Principal U.S. Embassy Officials The U.S. Embassy in Honduras is located on Avenida La Paz, Tegucigalpa (tel.: 011-504-2369320; faxes: general--011-504-236-9037, USAID--011-504-236-7776, PAS--011-504-236-9309, Military Group--011-504-233-6171, Commercial Section--011-504-238-2888, Consulate--011-504-237-1792). Internet: http://honduras.usembassy.gov/english/index_e1.htm Contact Information Caribbean/Latin American Action U.S. Department of Commerce U.S. Agency for International Development |
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