Honduras coup tensions take toll on economy

TEGUCIGALPA (Reuters) - Business was bad in Honduras even before the president was ousted in a June coup, unleashing months of political turmoil that have deepened the impoverished country’s economic woes.

Honduras was already suffering from the recession in the United States, its top trade partner, due to slack demand for its key clothing exports and a plunge in the amount of cash being sent home by relatives.

And while Central American neighbors show signs of recovery from the global slowdown, Honduras’s economy is shrinking at an annual rate of more than 3 percent as nervous tourists shun the country and shoppers tighten their purse strings.

“Sales have fallen something rotten since the coup,” said fruit seller Ana Julia Varela, 45, at the capital’s Jacaleapa market. “I’ve been in this market for 30 years and it’s never been like this. We just want peace so our sales pick up.”

A de facto government is running the coffee and textile producing nation as campaigning for a disputed November 29 presidential vote gathers pace, and a U.S.-led deal to end the five-month political crisis is in tatters.

Foreign direct investment plunged 42 percent in the first half of the year to $251.7 million and economic analysts say it will likely fall further as investors freeze plans due to the lingering uncertainty.

“The situation in Honduras is hampering its ability to move forward,” said Jose Antonio Cordero, an economist at the Washington-based Center for Economic and Policy Research who has written a recent report on Honduras.

“If there hadn’t been this political instability, the government might have been able to apply corrective measures such as a more evident and decisive fiscal stimulus package,” he added.


Tourists are staying away, particularly U.S. visitors put off by a State Department travel warning that urges “extreme caution.”

“There’s no denying it’s affected us, mainly because of the drop in American visitors,” said Sandra Guerra of the Copan tourism chamber. “In July we had a tremendous decline of 70 percent (but) now things are starting to pick up a bit.”

In an effort to boost flagging sales, managers at one of Tegucigalpa’s biggest shopping malls have put up the Christmas decorations early and stores are cutting prices.

Trade with neighboring countries is also suffering as their governments refuse to recognize the de facto government, complicating customs procedures for agricultural goods, although coffee exports have not been disrupted by the crisis.

Main coffee areas were not the scene of roadblock protests meaning beans have been able to arrive at port as usual.

“Tourism and intra-regional trade have been worse affected because by not recognizing the government of (de facto leader Roberto) Micheletti, we can’t resolve any problems,” said Juan Daniel Aleman, secretary general of the El Salvador-based Central American Integration System, or SICA.

Meanwhile, health and welfare programs are suffering due to a freeze on aid by the European Union and lending by international development banks in protest at the toppling of President Manuel Zelaya.

Critics of Zelaya, who irked the country’s business elite by hiking the minimum wage and forming close ties with Venezuela’s socialist president, Hugo Chavez, blame his economic policies for scaring off investors.

Zelaya is urging his supporters to boycott the November 29 election, but at the Jacaleapa market, stall-holders hope the poll will get the country back to normal and encourage customers to loosen their purse strings.

“Things are awful, really awful,” said Maria Teresa Molina, who sells painted wooden toys and flowers. “I imagine it’ll calm down after the elections. Let’s hope it all goes smoothly because everyone wants that with all their heart.”

Editing by Andrew Hay