Page last updated at 12:08 GMT, Thursday, 15 October 2009 13:08 UK

Honduras turmoil bears bitter fruit

By Robert Plummer
Business reporter, BBC News

As the third-poorest country in the Americas, Honduras can ill afford to lose the estimated $50m a day that its political crisis is costing the economy.

Ousted Honduran President Manuel Zelaya at the Brazilian embassy in Tegucigalpa
Manuel Zelaya has been given sanctuary by Brazil

While negotiators for ousted President Manuel Zelaya and interim leader Roberto Micheletti haggle over what to do next, the outside world has made its displeasure clear.

Politically, Brazil has played a key role in allowing Mr Zelaya to take refuge in its embassy in Tegucigalpa.

But economically, the only player that counts for Honduras is the US, which buys more than 70% of its exports and provides more than two-thirds of its foreign direct investment.

Honduras was one of the original banana republics, dominated for years by the United Fruit Company. Even today, US multinationals Dole and Chiquita control a big share of the country's farm output.

Coffee, bananas and other crops remain big earners in a mainly agricultural economy. But these days, they are rivalled by Honduras's thriving sideline in "maquiladoras" - factories that import textiles from the US and export finished items of clothing.

Funds withheld

The economic links with North America go further. The US is home to most of the Hondurans living abroad who send home hundreds of millions of dollars in remittances each year.

The US also supplies most of the tourists on the cruise liners that sail to Roatan island, the centre of the Honduran holiday industry.

Supporter of ousted Honduras President Manuel Zelaya in Tegucigalpa (8 October 2009)
Protests in support of Mr Zelaya are continuing in Tegucigalpa

But tourism has been hard hit by the crisis, contracting by 40% in the past three months.

US aid to Honduras is another casualty of the political stalemate. In 2005, the country signed a five-year deal with a US government agency, the Millennium Challenge Corporation, which undertook to invest $215m in improving its infrastructure.

But $15m of funding for new roads and better transport has been withheld since Mr Zelaya was ousted, on the grounds that Mr Micheletti's actions are "inconsistent with a commitment to democratic governance".

Jobs gap

Honduras was already suffering from the global recession before the political crisis began in June.

Consumers in the US have been tightening their belts, hurting sales of Honduran-made clothes in chainstores such as Gap and Wal-Mart.

Honduran maquiladoras employ about 114,000 people in a country with a population of 7.6 million.

GDP: $12.3bn
GDP per head: $1,635 (official exchange rate), $3,130 (purchasing power parity)
Agriculture: 13.8% of GDP
Manufacturing: 19.7% of GDP
Services: 54.2% of GDP
Exports: $5.59bn (70% to US)
Imports: $8.56bn (52% from US)
Sources: US State Department, IMF (2007 figures)

But 8,000 jobs have already gone this year and another 4,000 are likely to be laid off before the end of 2009.

"In 2008 there were $3.5bn in exports, while the projection for the end of 2009 would be about $2.7bn, less than the amount expected a few months ago," says Guillermo Matamoros of the Honduran Maquiladora Association.

Working conditions in the maquiladoras have long been condemned by human rights groups, who say that the curfews imposed by the authorities in September added to the employees' woes.

In an effort to make up for the lost production on those days, factory owners made their workers do overtime in violation of labour laws, they say.

Shrinking economy

As the political impasse has continued, the economic prospects for Honduras have sharply deteriorated.

In June, the respected survey organisation Consensus Economics was forecasting that the country's gross domestic product would shrink by 0.7% in 2009.

But in its most recent outlook, issued three weeks ago, it predicted a decline of 2.6% for the year.

Some Hondurans think the outcome could be even worse.

Honduran football fan
Qualifying for the World Cup has cheered many Hondurans

"People are talking about a contraction of 3% to 4% for 2009. It could even contract more," says Rebeca Patricia Santos Rivera, who was finance minister in Mr Zelaya's administration.

In a further indication of how the crisis is blighting Honduras's image abroad, Ms Santos Rivera is still attending international meetings on behalf of her country, because Mr Micheletti's interim government is not recognised.

All this is especially bad news for the very poorest members of Honduran society, who had reason to see Mr Zelaya as their champion.

At the start of this year, he raised the minimum wage by 60% to the equivalent of $289 a month, although he exempted the maquiladoras from the measure.

In a country where wealth tends to be concentrated in the hands of a small number of powerful families, it was a bold move. And according to some analysts, it was a key factor in his downfall, since it angered the Honduran elite.

So if Mr Zelaya is not returned to power, what do the Honduran masses have to look forward to?

Well, the 2010 World Cup, for one thing. On Wednesday night, the country's football team qualified for the tournament for the second time in history, beating El Salvador 1-0.

The win provided a rare ray of sunshine in a crisis that could drag on for some while yet.

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