Capital Markets and Portfolio Investment

There are no government restrictions on foreign investors’ access to local credit markets, though the local banking system generally extends only limited amounts of credit. Investors should not consider local banks a significant capital resource for new foreign ventures unless they use specific business development credit lines made available by bilateral or multilateral financial institutions such as the Central American Bank for Economic Integration.

A limited number of credit instruments are available in the local market. The only security exchange operating in the country is the Central American Securities Exchange (BCV) in Tegucigalpa, but investors should exercise caution before buying listed securities listed. Supervised by the National Banking and Insurance Commission (CNBS), the BCV theoretically offers instruments to trade bankers’ acceptances, repurchase agreements, short-term promissory notes, Honduran government private debt conversion bonds, and land reform repayment bonds. In practice, however, the BCV is almost entirely composed of short- and medium-term government securities and no formal secondary market for these bonds exists.

A few banks have placed fixed rate and floating rate notes extended to three years in maturity, but outside of the banks’ issuances, the private sector does not sell debt or corporate stock on the exchange. Any private business is eligible to trade its financial instruments on the BCV, and participating firms are subject to a rigorous screening process, including public disclosure and ratings by a recognized rating agency. Historically, traded firms have had economic ties to the different business and financial groups represented as shareholders of the exchange. As a result, risk management practices are lax and public confidence in the institution is limited.

Money and Banking System

The Honduran financial system is comprised of 15 commercial banks, and other state-owned banks, savings and loans institutions, and financial companies. There is no offshore banking or homegrown blockchain technology in Honduras.

Foreign Exchange and Remittances

Foreign Exchange Policies

Article 10.8 of CAFTA-DR ensures the free transfer of funds related to a covered investment. Local financial institutions freely exchange U.S. dollars and other foreign currencies. Foreigners may open bank accounts with a valid passport. For deposits exceeding the maximum deposits specified for different account types (corporate or small-medium enterprises), banks require documentation verifying the fund’s origin.

The Investment Law guarantees foreign investor access to foreign currency needed to transfer funds associated with their investments in Honduras, including:

• Imports of goods and services necessary to operate;
• Payment of royalty fees, rents, annuities, and technical assistance;
• Remittance of dividends and capital repatriation.

The Central Bank of Honduras instituted a crawling peg in 2011 to allow the Lempira to fluctuate against the U.S. dollar by up to seven percent per year. The Central Bank mandates any daily price of the crawling peg be no greater than 100.075 percent of the average for the prior seven daily auctions. These restrictions limit devaluation to a maximum of 4.8 percent annually. As of April 2017, the exchange rate is 23.70 lempira to the U.S. dollar.

The Central Bank uses an auction system to allocate of foreign exchange based on the following regulations:

• The Central Bank sets base prices every five auctions according to the differential between the domestic inflation rate and the inflation rate of Honduras’ main commercial partners;
• The Central Bank’s Board of Directors determines the procedure to set the base;
• The Board of Directors establishes the exchange commission and the exchange agencies in their foreign exchange transactions;
• Individuals and corporate bodies can participate in the auction system for dollar purchases, either by themselves or through an exchange agency. The offers can be no less than USD 10,000, no more than USD 300,000 for individuals, and no more than USD 1.2 million for corporations.

To date, the U.S. Embassy in Honduras has not received complaints from individuals with regard to converting or transferring funds associated with investments.

Remittance Policies

The Investment Law guarantees investors the right to remit their investment returns and, if they liquidate their investments, to remit the principal capital invested. Foreign investors may remit their investment proceeds from Honduras through foreign exchange transactions at Honduran banks or foreign banks operating in Honduras. These exchange transactions are subject to the same foreign exchange process and regulation as other transactions.

Sovereign Wealth Funds

Honduras does not have a sovereign wealth fund.

Honduras has a large supply of low-skilled labor. Due to low average education levels, there is a limited supply of skilled workers in all technological fields, including medical and high technology industries. While the unemployment rate in Honduras is 7.4 percent, 44 percent are underemployed. Approximately 72 percent of workers are in the informal economy. Honduran law lays out a multitier system for calculating minimum wage, based on the employment sector and size of the company. The Ministry of Labor, private sector, and labor confederations renegotiate specific starting levels on a multi-annual basis.

The Honduran Labor Law prescribes a maximum eight-hour workday, 44-hour workweek, and at least one 24-hour rest period per week. The Labor Code requires paid vacation of 10 workdays after one year, and 20 workdays after four years. Most employment sectors also receive two months bonus as part of base salary, known as the 13th and 14th month salary, issued in mid-December and mid-June, respectively. New hires receive a prorated amount based on time-in-service during their first year of employment. The Labor Code requires companies to pay one month’s salary per year of employment to employees terminated without cause. Companies do not owe severance to employees who they terminate for cause or who resign. Employees terminated for cause can contest the basis for the termination in court to claim severance. There are no government-provided unemployment benefits in Honduras, although unemployed individuals may have access to their accumulated pension funds.

Many employers hire employees on a temporary basis under the Temporary Employment Law. In some cases, employers will renew employees under short-term contracts, sometimes over a period of years. Labor groups allege some employers use temporary contracts to avoid responsibility for severance, provide employee benefits, and prevent union formation. The Honduran Secretariat of Labor and Social Security (STSS) is responsible for registering collective bargaining agreements. The Labor Code prohibits the employment of persons under the age of 14, but grants special permission for minors between ages 16 and 18 to work evenings as long as it does not affect schooling. The majority of the violations of the labor-related provisions of the children’s code occur in the agricultural sector and informal economy.

While Honduran labor law closely mirrors International Labor Organization standards, the U.S. Department of Labor has raised serious concerns regarding the effective enforcement of Honduran labor laws. Labor organizations allege the Honduran Ministry of Labor has failed to enforce labor laws, including the right to form unions, reinstating employees unjustly fired for union activities, child labor, minimum wages, hours of work, and occupational safety and health. A U.S. Department of Labor report provided recommendations to address labor concerns in Honduras and called for a monitoring and action plan (MAP) to improve labor law enforcement in Honduras. In March 2016, the U.S. Department of Labor report concluded STSS had made significant progress toward meeting the MAP benchmarks.

According to the U.S. Department of State Country Report on Human Rights Practices, a number of labor and human rights compliance issues affect the Honduran labor market. These include employers’ anti-union discrimination, refusal to engage in collective bargaining, threats against union leaders, employer control of unions, blacklisting of employees who support unions, and refusal of Honduran labor inspectors.