During 2009 the Honduran economy was seriously hit by the global slowdown and by an internal political crisis. The GDP decreased almost 2% and unemployment increased significantly. The fiscal situation experienced a marked deterioration and gross international reserves fell by around $360 million reaching its lowest level since 2006.
Although the external conditions have experienced a slight improvement this improvement has not been reflected in the country´s economic growth and recovery is still facing risks.
The new economic program
The Honduran Government with the aim of establishing the conditions for a solid and sustainable mid- term growth has began to implement key reforms designing an economic program (the Program) for 2010–2011 focused on decreasing the macroeconomic imbalances and strengthening the public sector finances.
This will help to improve the investors´ trust and to consolidate the support of the international community.
To support said Program the Honduran Central Bank signed an Agreement with the IMF on October 1 2010 by which quantitative performance criteria and structural goals are being expected from the country. The Government has said that it will keep the public informed about the Program's progress.
This Program is being supported by the IMF with a financial assistance up to DEG 129.5 million (almost $202 million) through two credit lines: The Stand- By Agreement (SBA) and the Stand- by Credit Facility (SCF).
The main objective of the Program is to re-establish the macroeconomic stability, fortify the public finances, support the establishment of the conditions for sustainable economic growth and raise the resources for investment.
The Government´s policies for fiscal consolidation aim to improve revenue management and collection, followed by a better composition of the public waste, a strict control on total wages to allow an increase in the programs of reduction of poverty and public investment.
During this Program the Government will not modify the exchange rate policy nor establish multiple exchange rate practices and will not restrict imports due to balance of payments reasons; it will continue accomplishing the agreed obligations with IMF.
The implementation of the Program is being monitored through five quarterly reviews. This year the IMF mission has visited the country twice, on February 15 2011 and May 15 2011.
In the last visit the IMF mission acknowledged the accomplishment of the quantitative performance criteria and implementation of structural reforms in Honduras.
Both the IMF and the Honduran Government have reasserted their understandings about the macroeconomic framework. A GDP growth of 3.5% is expected and an inflation rate of almost 8%. However, the public sector deficit will remain in 3.1% of GDP in 2011. The Central Bank is committed to strengthen the monetary policy posture if the inflation pressures intensify and to protect the external position.
The IMF will continue its talks with the Honduran Government focusing on the financial and economic policies for 2011 and 2012.
New legislation to encourage investment
At the same time and within the structure of the National Investment Promotion Program, Honduras has defined a new legal and institutional framework to attract and protect investments.
Through this the country offers domestic and foreign investors a package of laws among which we find 'The Law for the Promotion and Protection of Investment' (July 2011) and the 'Public Private Partnership Law' (August 2010).
With The Law for the Promotion and Protection of Investment the State declares the promotion of investment as a primary concern; it creates mechanisms providing different tax incentives, it provides full guarantees to property rights in the country and assures arbitration for the solution of conflicts.
On the other hand, the new Law on Promotion of Public Private Partnership (PPP) allows public-private participation in the implementation, development and administration of public works and services.
Additional new laws
In line with the reform of the country's legal framework in the past year the country has adopted the following:
- The Secured Transactions Law, with the consequent establishment of the Register of Security Interests and by which a large number of assets may be pledged as collateral for loans;
- The law for the Strengthening of the Income and Fiscal Equity, which reformed taxes on income and sales and which looked for the public finances reorder to obtain some deficit reduction in 2010; and
- The National Hourly Employment Law, which establishes special working shift arrangements with limited time for work or services.
Conclusion
Honduras has really taken a big step in charting a new legal framework for local and foreign investments.
Through domestic and foreign private investment the country is willing to carry out the great social transformation that it needs to overcome the lack of development that so far has characterised it.
We believe that this first major step in the country´s modern history requires a follow up, in order to take full advantage of the momentum and that the present and future governments must show through deeds, not words, their unconditional support for this initiative to create a better country for the benefit of all its inhabitants.
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