Honduran economy vulnerable in coup aftermath

By Mica Rosenberg - Analysis

TEGUCIGALPA (Reuters) - Honduran business leaders are nervous last weekend's military coup could trigger retaliatory sanctions that would damage an already struggling economy and key industries like coffee and textiles.

The business elite feted Sunday's ouster of President Manuel Zelaya, who upset the courts, Congress and many in his party with a shift to the left and a push to lift presidential term limits, but worldwide condemnation of the coup has left the country isolated.

No foreign government has so far threatened sanctions, and the country's vital coffee industry has not been affected.

But Venezuela's socialist President Hugo Chavez, a close ally of Zelaya, has said he will halt sales of subsidized fuel to Honduras, Central American neighbors cut off trade for two days and international lenders have put loans on hold.

One of the poorest countries in Latin America, Honduras survives on agriculture, manufacturing and dwindling money sent home from some 1 million migrants living in the United States.

Falling U.S. demand has already cost the "maquiladora" or assembly-for-export factory sector some 19,000 jobs since last year, and economic growth is expected to halve to less than 2 percent this year as exports and remittances fall.

"In these times of crisis, this pressure means more job losses. Businesses will shut down," said Santiago Ruiz, the head of the national ranchers association.

The Inter-American Development Bank and the World Bank said this week they were suspending new loans to Honduras.

Central American governments imposed a 48-hour commercial blockade which cost the region some $61 million in trade, according to the head of Honduras' private business council, Guillermo Matamoros.

The new minister of commerce in a caretaker government set up after the coup, Benjamin Bogran, told Reuters that imposing economic sanctions would cause "social and economic chaos."

"The poorest sectors of society would suffer the most," Bogran said. More than 70 percent of the population is poor and around 40 percent live on less than $1 a day.

COFFEE, FACTORIES VULNERABLE

Honduras, a member of a the Central America Free Trade Agreement, or CAFTA, sends most of its exports to the United States, but it also weaves the bulk of the cloth used by clothing factories across the region, Matamoros said.

"(Extending the blockade) is not sustainable, it's an extreme measure. If you close the border with Honduras, you close down trade in all of Central America," he said.

Rowdy street protests and demonstrator clashes with police in the capital Tegucigalpa and the eastern manufacturing city of San Pedro Sula are also worrying the business sector.