Can a charter city make Honduras prosperous?

Can a charter city make Honduras prosperous?

Investors around the world follow Honduras leading a new Charter City project. Yet, citizen discontent threatens the project with political instability.

The second poorest country in Central America, Honduras faces many challenges as a result of underdevelopment. The small Central American state, lodged between the Pacific Ocean and the Caribbean, is the murder capital of the world, with the U.N. Global Study on Homicide reporting over 90.4 homicides per 100,000 people, 2012. In the rural parts of the country, 63% of residents live in dismal poverty. However, there is a possibility that in just a few decades, Honduras could grow to become the Hong Kong of the West.

In a nutshell, the Honduran government wants to carve out an area inside the country with its own set of laws – economically freer and less complicated for businesses and citizens to navigate – to make Honduras richer quicker. The idea of free zones for trade and economic activity is prominent across Asia to the Middle East. Countries that have long been fans  are doubling down.

Honduras’ idea is to adopt regulations that worked in other countries. Ideally trade zones will have their own government, write their own laws, manage their own currency and hold their own elections.

Unlike traditional special economic zones that address one dimension through the use of economic incentives, for Honduras, the Zone for Employment and Economic Development (ZEDE in Spanish) will take into consideration four other dimensions and addresses the legal, economic, administrative and political (LEAP) zones.

The ZEDE is designed to be competitive and to create an investment/employment jurisdiction that meets international standards for efficiency, security and transparency that is governed by corporations, instead of the nations in which they exist.

Honduras as home to the most advanced charter-city project, which has yet to start, is being backed by a group of American Libertarians. The location for the project will most likely be the island of Amapala.

Many Honduran citizens fear that the project will operate as a state within a state, where they will be overlooked in favour of enriching affluent investors. As this project is the first of its kind in Honduras, such absolute ventures are likely to encounter political instability.

US economist Paul Romer, the father of the charter city concept, withdrew from the project after a temporary transparency commission he formed was not consulted when the government signed with an investor group led by activist Michael Strong, who has worked with many Libertarians. Strong later disappeared from the project but nine Americans have stayed to remain key players.

With so few details made available to the public, Hondurans have started to question whether there is any real money behind the project and whether it will really benefit them or destroy their livelihoods.

Many believe the project is unconstitutional and by extension, a violation to national sovereignty. According to the project, Honduras will sell territory to investors. This territory will become an autonomous region no longer governed by the Honduran government. The general population is not comfortable with the territory clause, since many fear they will be kicked off their land and left with nowhere to reside, let alone survive.

With discontent growing in the background, there is every chance Honduras could potentially face another coup, similar to the one seen in 2009, when ex-president Manuel Zelaya was overthrown. If such an event were to occur, Honduras could be plagued with violence and the project might become a tool for control of the country.

Doug Henwood of the Left Business Observer offered his assessment of the relationship between freedom and democracy in the context of charter cities. In a 2011 email to Al Jazeera’s Belen Fernandez, Henwood commented the following:

“It’s interesting how the charter cities concept unmasks the libertarian dream as deeply undemocratic. The compatibility of [Augusto] Pinochet and Milton Friedman offered plenty of hints, but this Honduran experiment looks like conclusive proof. First you need a coup. And then you need to set up a zone of freedom – but a special kind of freedom. Not the freedom of association, or of individual expression and development, but the freedom of manoeuvre for an economic elite to do as it pleases under a special kind of state protection.”

This begs the question: can “charter cities” really bring prosperity to Honduras? Or will it simply be a failed project showing the government’s reliance on quick rich schemes as a continued open invitation for foreign investment at the cost of national stability?

Categories: Economics, Latin America

About Author

Yesenia Lugo

Yesenia Lugo has written and worked on global governance and international financial institutions (IFIs) for a Washington, D.C. NGO. Her interests include economic opportunities, emerging financial markets and fiscal transparency reform. Yesenia holds a Masters in Diplomacy and International Relations from Seton Hall University, where she specialized in economic development and international security.