New Report Looks at Honduran Economy Before and Since the Coup

Paper Finds Considerable Challenges to Honduran Economic Recovery Without a Solution to the Political Crisis

For Immediate Release: November 9, 2009
Contact: Dan Beeton, 202-239-1460

Source: CEPR

Washington, D.C. – The Center for Economic and Policy Research released a new report on the Honduran economy today. The report finds that the economy has become especially vulnerable to the combined impacts of the world recession and the political crisis that has followed the military coup of June 28th.

"The whole region (Central America) has been hit by the U.S. recession," said Mark Weisbrot, Co-Director of CEPR. "But things have worsened in Honduras since the coup in June and it is difficult to see how the economy will recover without a solution to the political crisis."

The paper, "Honduras: Recent Economic Performance," by Senior Economist Jose Antonio Cordero, looks at longer-term trends as well as the pre-crisis years. It finds that poverty and inequality decreased significantly during the administration of President Manuel Zelaya, with rapid growth of more than 6 percent for the first two years. The government also increased school enrollment significantly by abolishing school fees, expanded school lunch programs, and raised the minimum wage by 60 percent, drawing fierce opposition from employers and business groups.

In 2008, the government used expansionary monetary policy to counteract the effects of the global credit crunch and recession.

Since the coup, the Central Bank has lost about 18.4 percent of its international reserves and cannot access the extra reserves that the International Monetary Fund (IMF) has provided to all member countries, because of the coup regime’s lack of international legality. The economy is expected to shrink by 2.6 percent this year, and forecasts have been recently revised further downward.

The Honduran economy is also enormously dependent on remittances, which peaked at more than 21 percent of GDP in 2006. The continuing decline in this source of income and foreign exchange will also hurt the Honduran economy.