The economy of Honduras is based mostly on
agriculture
Agriculture or farming is the practice of cultivating plants and livestock. Agriculture was the key development in the rise of sedentary human civilization, whereby farming of domesticated species created food surpluses that enabled people t ...
, which accounts for 14% of its
gross domestic product
Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjective nature this measure is oft ...
(GDP) in 2013. The country's leading export is
coffee
Coffee is a drink prepared from roasted coffee beans. Darkly colored, bitter, and slightly acidic, coffee has a stimulating effect on humans, primarily due to its caffeine content. It is the most popular hot drink in the world.
Seeds of ...
(US$340 million), which accounted for 22% of the total Honduran export revenues. Bananas, formerly the country's second-largest export until being virtually wiped out by 1998's
Hurricane Mitch
Hurricane Mitch is the second-deadliest Atlantic hurricane on record, causing over 11,000 fatalities in Central America in 1998, including approximately 7,000 in Honduras and 3,800 in Nicaragua due to cataclysmic flooding from the slow motion ...
, recovered in 2000 to 57% of pre-Mitch levels. Cultivated
shrimp is another important export sector. Since the late 1970s, towns in the north began industrial production through
maquiladoras, especially in
San Pedro Sula and
Puerto Cortés.
Honduras has extensive forests, marine, and mineral
resources
Resource refers to all the materials available in our environment which are technologically accessible, economically feasible and culturally sustainable and help us to satisfy our needs and wants. Resources can broadly be classified upon their av ...
, although widespread
slash and burn
Slash-and-burn agriculture is a farming method that involves the cutting and burning of plants in a forest or woodland to create a field called a swidden. The method begins by cutting down the trees and woody plants in an area. The downed veget ...
agricultural methods continue to destroy Honduran forests. The Honduran economy grew 4.8% in 2000, recovering from the Mitch-induced recession (−1.9%) of 1999. The Honduran
maquiladora sector, the third-largest in the world, continued its strong performance in 2000, providing employment to over 120,000 and generating more than $528 million in foreign exchange for the country.
Inflation
In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduct ...
, as measured by the
consumer price index, was 10.1% in 2000, down slightly from the 10.9% recorded in 1999. The country's international reserve position continued to be strong in 2000, at slightly over US$1 billion. Remittances from Hondurans living abroad (mostly in the United States) rose 28% to $410 million in 2000. The Lempira (currency) was
devaluing for many years, but stabilized at L19 to the
United States dollar
The United States dollar ( symbol: $; code: USD; also abbreviated US$ or U.S. Dollar, to distinguish it from other dollar-denominated currencies; referred to as the dollar, U.S. dollar, American dollar, or colloquially buck) is the officia ...
in 2005. The Honduran people are among the poorest in
Latin America
Latin America or
* french: Amérique Latine, link=no
* ht, Amerik Latin, link=no
* pt, América Latina, link=no, name=a, sometimes referred to as LatAm is a large cultural region in the Americas where Romance languages — languages derived f ...
;
gross national income
The gross national income (GNI), previously known as gross national product (GNP), is the total domestic and foreign output claimed by residents of a country, consisting of gross domestic product (GDP), plus factor incomes earned by foreign ...
per capita (2007) is US$1,649; the average for Central America is $6,736.
Honduras is the fourth poorest country in the
Western Hemisphere
The Western Hemisphere is the half of the planet Earth that lies west of the prime meridian (which crosses Greenwich, London, United Kingdom) and east of the antimeridian. The other half is called the Eastern Hemisphere. Politically, the te ...
; only
Haiti,
Nicaragua
Nicaragua (; ), officially the Republic of Nicaragua (), is the largest country in Central America, bordered by Honduras to the north, the Caribbean to the east, Costa Rica to the south, and the Pacific Ocean to the west. Managua is the countr ...
, and
Guyana are poorer. Using
alternative
Alternative or alternate may refer to:
Arts, entertainment and media
* Alternative (''Kamen Rider''), a character in the Japanese TV series ''Kamen Rider Ryuki''
* ''The Alternative'' (film), a 1978 Australian television film
* ''The Alternative ...
statistical measurements in addition to the gross domestic product can provide greater context for the nation's poverty.
The country signed an
Enhanced Structural Adjustment Facility The Enhanced Structural Adjustment Facility (ESAF) was a program of financial assistance given to poor countries from December 1987 through 1999 through the International Monetary Fund. It replaced the Structural Adjustment Facility (SAF) and was ...
(ESAF) – later converted to a
Poverty Reduction and Growth Facility
The Poverty Reduction and Growth Facility (PRGF) is an arm of the International Monetary Fund
The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered ...
(PRGF) with the
International Monetary Fund
The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster glo ...
in March 1999. Honduras (as of the about year 2000) continues to maintain stable
macroeconomic policies. It has not been swift in implementing structural changes, such as privatization of the publicly-owned telephone and energy distribution companies—changes which are desired by the IMF and other international lenders. Honduras received significant debt relief in the aftermath of
Hurricane Mitch
Hurricane Mitch is the second-deadliest Atlantic hurricane on record, causing over 11,000 fatalities in Central America in 1998, including approximately 7,000 in Honduras and 3,800 in Nicaragua due to cataclysmic flooding from the slow motion ...
, including the suspension of bilateral debt service payments and bilateral debt reduction by the
Paris Club
The Paris Club (french: Club de Paris) is a group of officials from major creditor countries whose role is to find co-ordinated and sustainable solutions to the payment difficulties experienced by debtor countries. As debtor countries undertake ...
—including the United States – worth over $400 million. In July 2000, Honduras reached its decision point under the
Heavily Indebted Poor Countries
The heavily indebted poor countries (HIPC) are a group of 39 developing countries with high levels of poverty and debt overhang which are eligible for special assistance from the International Monetary Fund (IMF) and the World Bank.
The HIPC ...
Initiative (HIPC), qualifying the country for interim multilateral debt relief.
Land appears to be plentiful and readily exploitable, but the presence of apparently extensive land is misleading because the nation's rugged, mountainous terrain restricts large-scale agricultural production to narrow strips on the coasts and to a few fertile valleys. Honduras's manufacturing sector has not yet developed beyond simple textile and agricultural processing industries and assembly operations. The small domestic market and competition from more industrially advanced countries in the region have inhibited more complex
industrialization.
Economic history
![Honduras econ 1983](https://upload.wikimedia.org/wikipedia/commons/4/46/Honduras_econ_1983.jpg)
After Honduras achieved independence from
Spain
, image_flag = Bandera de España.svg
, image_coat = Escudo de España (mazonado).svg
, national_motto = ''Plus ultra'' (Latin)(English: "Further Beyond")
, national_anthem = (English: "Royal March")
, i ...
in the early 19th century, its economic growth became closely related to its ability to develop attractive export products. During much of the 19th century, the Honduran economy languished; traditional cattle raising and
subsistence agriculture produced no suitable major export. In the latter part of the century, economic activity quickened with the development of large-scale,
precious metal mining
Mining is the extraction of valuable minerals or other geological materials from the Earth, usually from an ore body, lode, vein, seam, reef, or placer deposit. The exploitation of these deposits for raw material is based on the economic ...
. The most important mines were in the mountains near the capital of
Tegucigalpa
Tegucigalpa (, , ), formally Tegucigalpa, Municipality of the Central District ( es, Tegucigalpa, Municipio del Distrito Central or ''Tegucigalpa, M.D.C.''), and colloquially referred to as ''Tegus'' or ''Teguz'', is the capital and largest city ...
and were owned by the
New York and Honduras Rosario Mining Company (NYHRMC).
Silver
Silver is a chemical element with the symbol Ag (from the Latin ', derived from the Proto-Indo-European ''h₂erǵ'': "shiny" or "white") and atomic number 47. A soft, white, lustrous transition metal, it exhibits the highest electrical ...
was the principal metal extracted, accounting for about 55% of exports in the 1880s.
Mining
Mining is the extraction of valuable minerals or other geological materials from the Earth, usually from an ore body, lode, vein, seam, reef, or placer deposit. The exploitation of these deposits for raw material is based on the economic ...
income stimulated commercial and ancillary enterprises, built infrastructure, and reduced monetary restraints on trade. There were few other beneficial economic effects, however, because the
mining industry
Mining is the extraction of valuable minerals or other geological materials from the Earth, usually from an ore body, lode, vein, seam, reef, or placer deposit. The exploitation of these deposits for raw material is based on the economic via ...
was never well integrated into the rest of the Honduran economy. The foreign mining companies employed a small
workforce
The workforce or labour force is a concept referring to the pool of human beings either in employment or in unemployment. It is generally used to describe those working for a single company or industry, but can also apply to a geographic reg ...
, provided little or no government revenue, and relied mostly on imported mining equipment.
20th century
Honduras's international economic activity surged in the early 20th century. Between 1913 and 1929, its agricultural exports rose from $3 million ($2 million from bananas) to $25 million ($21 million from bananas). These "golden" exports were supported by more than $40 million of specialized banana company investment in the Honduran infrastructure and were safeguarded by US pressure on the national government when the companies felt threatened.
The overall performance of the Honduran economy remained closely tied to
banana prices and production from the 1920s until after the mid-century because other forms of commercial export agriculture were slow to emerge. In addition, until drastically reduced in the mid-1950s, the workforce associated with banana cultivation represented a significant proportion of the wage earners in the country. Just before the banana industry's largest strike in 1954, approximately 35,000 workers held jobs on the banana plantations of the
United Fruit Company
The United Fruit Company (now Chiquita) was an American multinational corporation that traded in tropical fruit (primarily bananas) grown on Latin American plantations and sold in the United States and Europe. The company was formed in 1899 fro ...
(later United Brands Company, then Chiquita Brands International) or the
Standard Fruit Company (later brought by Castle and Cook, then
Dole Food Company
Dole plc (previously named Dole Food Company, Standard Fruit Company) is an Irish agricultural multinational corporation headquartered in Dublin, Ireland. The company is among the world's largest producers of fruit and vegetables, operating wit ...
).
After 1950 Honduran governments encouraged agricultural modernization and export diversification by spending heavily on transportation and communications infrastructure, agricultural credit, and technical assistance. During the 1950s—as a result of these improvements and the strong international export prices—
beef
Beef is the culinary name for meat from cattle (''Bos taurus'').
In prehistoric times, humankind hunted aurochs and later domesticated them. Since that time, numerous breeds of cattle have been bred specifically for the quality or quantit ...
,
cotton
Cotton is a soft, fluffy staple fiber that grows in a boll, or protective case, around the seeds of the cotton plants of the genus '' Gossypium'' in the mallow family Malvaceae. The fiber is almost pure cellulose, and can contain minor pe ...
, and
coffee
Coffee is a drink prepared from roasted coffee beans. Darkly colored, bitter, and slightly acidic, coffee has a stimulating effect on humans, primarily due to its caffeine content. It is the most popular hot drink in the world.
Seeds of ...
became significant export products for the first time. Honduran
sugar,
timber
Lumber is wood that has been processed into dimensional lumber, including beams and planks or boards, a stage in the process of wood production. Lumber is mainly used for construction framing, as well as finishing (floors, wall panels, w ...
, and
tobacco
Tobacco is the common name of several plants in the genus '' Nicotiana'' of the family Solanaceae, and the general term for any product prepared from the cured leaves of these plants. More than 70 species of tobacco are known, but the ...
also were exported, and by 1960 bananas had declined to a more modest share (45 percent) of total exports. During the 1960s, industrial growth was stimulated by the establishment of the
Central American Common Market
The Central American Integration System ( es, Sistema de la Integración Centroamericana, or SICA) has been the economic and political organization of Central American states since 1 February 1993. On 13 December 1991, the ODECA countries (Spa ...
(CACM—see Appendix B).
As a result of the reduction of regional
trade barriers
Trade barriers are government-induced restrictions on international trade. According to the theory of comparative advantage, trade barriers are detrimental to the world economy and decrease overall economic efficiency.
Most trade barriers work ...
and the construction of a high
common external tariff
A common external tariff (CET) must be introduced when a group of countries forms a customs union. The same customs duties, import quotas, preferences or other non-tariff barriers to trade apply to all goods entering the area, regardless of which ...
, some Honduran manufactured products, such as soaps, sold successfully in other Central American countries. Because of the greater size and relative efficiency of the Salvadoran and Guatemalan industrial sectors, however, Honduras bought far more manufactured products from its neighbors than it sold to them. After the 1969
Soccer War with
El Salvador, Honduras effectively withdrew from the CACM. Favorable bilateral trade arrangements between Honduras and the other former CACM partners were subsequently negotiated, however.
![SanPedroSula](https://upload.wikimedia.org/wikipedia/commons/2/28/SanPedroSula.jpg)
A political shift in the 1980s had strong and unexpected repercussions on the country's economic condition. Beginning in late 1979, as insurgency spread in neighboring countries, Honduran military leaders enthusiastically came to support
United States
The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territori ...
policies in the region. This alignment resulted in financial support that benefited the civilian as well as the military ministries and agencies of Honduras. Honduran defense spending rose throughout the 1980s until it consumed 20 to 30 percent of the national budget. Before the military buildup began in fiscal year (FY) 1980, United States military assistance to Honduras was less than US$4 million. Military aid more than doubled to reach just under US$9 million by FY 1981, surged to more than $31 million by FY 1982, and stood at $48.3 million in FY 1983. Tiny Honduras soon became the tenth largest recipient of United States assistance aid; total economic and military aid rose to more than $200 million in 1985 and remained at more than $100 million for the rest of the 1980s.
The increasing dependence of the Honduran economy on foreign aid was aggravated by a severe, regionwide economic decline during the 1980s. Private investment plummeted in 1980, and
capital flight
Capital flight, in economics, occurs when assets or money rapidly flow out of a country, due to an event of economic consequence or as the result of a political event such as regime change or economic globalization. Such events could be an increa ...
for that year was $500 million. To make matters worse,
coffee prices plunged on the international market in the mid-1980s and remained low throughout the decade. In 1993 average annual per capita income remained depressingly low at about $580, and 75 percent of the population was poor by internationally defined standards.
Traditionally, Honduran economic hopes have been pinned on land and agricultural commodities. Despite those hopes, however, usable land has always been severely limited. Honduras's mostly mountainous terrain confines agriculturally exploitable land to narrow bands along the coasts and to some previously fertile but now largely depleted valleys. The country's once abundant forest resources have also been dramatically reduced, and Honduras has not derived economically significant income from mineral resources since the 19th century. Similarly, Honduras's industrial sector never was fully developed. The heady days of the CACM (mid to -late 1960s), which produced an industrial boom for
El Salvador and
Guatemala, barely touched the Honduran economy except to increase its imports because of the comparative advantages enjoyed by the Salvadoran and Guatemalan economies and Honduras's inability to compete.
Bananas and coffee have also proven unreliable sources of income. Although bananas are less subject to the vagaries of international markets than coffee, natural disasters such as
Hurricane Fifi
A tropical cyclone is a rapidly rotating storm system characterized by a low-pressure center, a closed low-level atmospheric circulation, strong winds, and a spiral arrangement of thunderstorms that produce heavy rain and squalls. Depend ...
in 1974, drought, and disease have appeared with a regular, albeit random, frequency to take their economic toll through severely diminished
harvests
Harvesting is the process of gathering a ripe crop from the fields. Reaping is the cutting of grain or pulse for harvest, typically using a scythe, sickle, or reaper. On smaller farms with minimal mechanization, harvesting is the most labor- ...
. Moreover, bananas are grown and marketed mostly by international corporations, which keep the bulk of wealth generated. Coffee exports, equally unreliable as a major source of economic support, surpassed bananas in the mid1970s as Honduras's leading export income earner, but international price declines coupled with huge fiscal deficits underlined the vulnerability of coffee as an economic base.
1990s
As Honduras entered the 1990s, it did have some factors working in its favor—relative peace and a stronger civilian government with less military interference in the politics and economy of the country than in past years. The country was hobbled, however, by horrendous foreign debt, could claim only diminished natural resources, and had one of the fastest-growing and urbanizing populations in the world. The government's daunting task then became how to create an economic base able to compensate for the withdrawal of much United States assistance without becoming solely dependent on traditional agricultural exports.
In the 1990s, bananas were booming again, particularly as new European trade agreements increased market size. Small banana producing cooperatives lined up in the 1990s to sell their land to the commercial giants, and the last banana-producing lands held by the government were privatized. Like most of Central America, Honduras in the 1990s began to woo foreign investors, mostly Asian clothing assembly firms, and it held high hopes for revenue to be generated by privatizing national industries. With one of the most strike-prone labor forces in Central America, debt-burdened and aging industrial assets, and a dramatically underdeveloped infrastructure, Honduras, however, has distinct economic disadvantages relative to its Central American and Caribbean neighbors, who compete with Honduras in the same export markets.
Honduran president
Rafael Leonardo Callejas Romero, elected in November 1989, enjoyed little success in the early part of his administration as he attempted to adhere to a standard economic
austerity package prescribed by the
International Monetary Fund (IMF) and the
World Bank
The World Bank is an international financial institution that provides loans and grants to the governments of low- and middle-income countries for the purpose of pursuing capital projects. The World Bank is the collective name for the Inte ...
. As the November 1993 presidential elections drew closer, the political fallout of austere economic measures made their implementation even less likely. Any hope for his party's winning the 1993 election was predicated on improving social programs, addressing employment needs, and appeasing a disgruntled, vocal public sector. However, reaching those goals required policies that moved away from balancing the budget, lowering
inflation
In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduct ...
, and reducing the deficit and external debt to attract investment and stimulate economic growth.
Callejas inherited an economic mess. The economy had deteriorated rapidly, starting in 1989, as the
United States Agency for International Development
The United States Agency for International Development (USAID) is an independent agency of the U.S. federal government that is primarily responsible for administering civilian foreign aid and development assistance. With a budget of over $27 b ...
(AID) pointedly interrupted disbursements of its grants to Honduras to signal displeasure with the economic policies of the old government and to push the new government to make economic reforms. Nondisbursal of those funds greatly exacerbated the country's economic problems. Funds from the multilateral lending institutions, which eventually would help fill the gap left by the reduction of United States aid, were still under negotiation in 1989 and would be conditioned first on payment of arrears on the country's enormous external debt.
Between 1983 and 1985, the government of Honduras—pumped up by massive infusions of external borrowing—had introduced expensive, high-tech infrastructure projects. The construction of roads and dams, financed mostly by multilateral loans and grants, was intended to generate employment to compensate for the impact of the regionwide recession. In reality, the development projects served to swell the ranks of public-sector employment and line the pockets of a small elite. The projects never sparked private-sector investment or created substantial private employment. Instead, per capita income continued to fall as Honduras's external debt doubled. Even greater injections of foreign assistance between 1985 and 1988 kept the economy afloat, but it soon became clear that the successive governments had been borrowing time as well as money.
Foreign aid between 1985 and 1989 represented about 4.6 percent of the
gross domestic product (GDP)
Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjective nature this measure is ofte ...
. About 44 percent of the government's fiscal shortfall was financed through cash from foreign sources. Side effects of the cash infusion were that the national currency, the lempira became overvalued and the number of exports dropped. A booming public sector, with its enhanced ability to import, was enough to keep the economy showing growth, based on private consumption and government spending. But the government did little to address the historical, underlying structural problems of the economy—its overdependence on too few traditional commodities and lack of investment. Unemployment mushroomed, and private investment withered.
By 1989 president Callejas's broad economic goal led a return of Honduran economic growth to 1960–80 levels. During the decades of the 1960s and 1970s, the country's economy, spurred mostly by erratically fluctuating traditional agricultural commodities, nevertheless averaged real annual growth of between 4 and 5 percent. At the end of the 1980s, however, Callejas had few remaining vehicles with which to pull the country out of the deep regionwide recession of the 1980s. Real growth between 1989 and 1993 translated to mostly negative or small positive per capita changes in the GDP for a population that was growing at close to 4 percent annually.
President Callejas attempted to adhere to conditions of desperately needed new loans. Cutting the size of the public sector workforce, lowering the deficit, and enhancing revenues from taxes—as mandated by the multilateral lending institutions—were consistently his biggest stumbling blocks. Despite his all-out effort to reduce the public-sector deficit, the overall ratio of fiscal deficit to the GDP in 1990 showed little change from that in 1989. The total public-sector deficit actually grew to 8.6 percent of the GDP, or nearly L1 billion, in 1991.
The 1993 deficit expanded to 10.6 percent of GDP. The Honduran government's medium-term economic objectives, as dictated by the IMF, were to have generated real GDP growth of 3.5 percent by 1992 and 4 percent by 1993. In fact, GDP growth was 3.3 percent in 1991, 5.6 percent in 1992, and an estimated 3.7 percent in 1993. The economy had operated so long on an ad hoc basis that it lacked the tools to implement coherent economic objectives. Solving the most immediate crisis frequently took precedence over long-term goals.
Inflation
By 1991 President Callejas had achieved modest success in controlling inflation. Overall inflation for 1990 had reached 36.4 percent—not the hyperinflation experienced by some Latin American counties—but still the highest annual rate for Honduras in forty years. The Honduran government and the IMF had set an inflation target of 12 percent for 1992 and 8 percent for 1993. The actual figures were 8.8 percent in 1992 and an estimated 10.7 percent for 1993. Hondurans had been accustomed to low inflation (3.4 percent in 1985, rising to 4.5 percent by the end of 1986), partly because pegging the lempira to the dollar-linked Honduras's inflation rate to inflation rates in developed countries. But the expectation for low inflation made the reality of high inflation that much worse and created additional pressures on the government for action when inflation soared in 1990.
Unemployment
Between 1980 and 1983, 20 percent of the workforce was unemployed—double the percentage of the late 1970s. Job creation remained substantially behind the growth of the labor force throughout the 1980s. Unemployment grew to 25 percent by 1985, and combined unemployment and underemployment jumped to 40 percent in 1989. By 1993, 50 to 60 percent of the Honduran labor force was estimated to be either underemployed or unemployed.
The government's acceptance of foreign aid during the 1980s, in lieu of economic growth sparked by private investment, allowed it to ignore the necessity of creating new jobs. Honduras's GDP showed reasonable growth throughout most of the 1980s, especially when compared to the rest of Latin America, but it was artificially buoyed by private consumption and public-sector spending.
Mainstay agricultural jobs became scarcer in the late 1970s. Coffee harvests and plantings in border area decreased because fighting in neighboring Nicaragua and El Salvador spilled over into Honduras. Other factors contributing to the job scarcity were limited land, a reluctance on the part of coffee growers to invest while wars destabilized the region, and a lack of credit. Small farmers became increasingly unable to support themselves as their parcels of land diminished in size and productivity.
Problems in the agricultural sector have fueled urbanization. The Honduran population was 77 percent rural in 1960. By 1992 only 55 percent of the Honduran population continued to live in rural areas.
Peasant
A peasant is a pre-industrial agricultural laborer or a farmer with limited land-ownership, especially one living in the Middle Ages under feudalism and paying rent, tax, fees, or services to a landlord. In Europe, three classes of peasant ...
s (campesinos) flocked to the cities in search of work but found little there. Overall unemployment has been exacerbated by an influx of refugees from the wars in neighboring countries, attracted to Honduras, ironically, by its relatively low population density and relative peace. In the agricultural sector (which in 1993 still accounted for about 60 percent of the labor force), unemployment has been estimated to be far worse than the figures for the total labor force.
Honduran urban employment in the early 1990s has been characterized by underemployment and marginal informal-sector jobs, as thousands of former agricultural workers and refugees have moved to the cities seeking better lives. Few new jobs have been generated in the formal sector, however, because the domestic private sector and foreign investments have dropped and coveted public-sector jobs have been reserved mostly for the small Honduran middle-class with political or military connections. Only one of ten Honduran workers were securely employed in the formal sector in 1991.
In the mid-1980s, the World Bank reported that only 10,000 new jobs were created annually; the low rate of job creation resulted in 20,000 people being added to the ranks of the unemployed every year. The actual disparity between jobs needed for full employment and new jobs created exceeded that projection, however. For those with jobs, the buying power of their wages tumbled throughout the 1980s while the cost of basic goods, especially food, climbed precipitously.
Role of government
Throughout the 1960s and most of the 1970s, the military-led governments of Honduras ran a state-sponsored and state-financed economy. The governments provided most guarantees for loans to a strong but patronage-dominated and somewhat corrupt public sector that included recipients of graft extracted from foreign and domestic investors, and to costly state-developed enterprises. By 1989 and the election of president
Rafael Leonardo Callejas Romero, however, a heavy toll had been taken by regionwide economic recession, civil war in neighboring countries, the drying up of most external credit, and capital flight equaling more than $1.5 billion.
![Rafael Leonardo Callejas Romero (cropped 3x4)](https://upload.wikimedia.org/wikipedia/commons/4/41/Rafael_Leonardo_Callejas_Romero_%28cropped_3x4%29.jpg)
Callejas began to shift economic policy toward privatizing government-owned enterprises, liberalizing trade and tariff regulations, and encouraging increased foreign investment through tax and other incentives. The Callejas administration did not seek less government control. Rather it changed the government's objectives by focusing on reducing public-sector spending, the size of the public-sector workforce, and the trade deficit. Overall economic planning became the responsibility of the National Superior Planning Council, directed by the minister of economy and commerce. President Callejas, a US-trained economist, brought new professionalism and technical skills to the central government as he began the arduous task of long-term economic reform.
The official exchange rate of the lempira, pegged at US$1=L2 since 1918, was dramatically devalued in 1990. Exchange controls had been introduced in 1982, resulting in a parallel currency market (black market) and several confusing official exchange rates operating simultaneously. Some of those rates were legally recognized in 1990 when President Callejas introduced a major series of economic policy reforms, which included reducing the maximum import tariff rate from 90 to 40 percent and getting rid of most surcharges and exemptions.
The value of the lempira was adjusted to US$1=L4, with the exception of the rate for debt equity conversions, which remained at the old rate of US$1=L2. The official conversion rate of the lempira fell to US$1=L7.26 in December 1993. The president also introduced temporary taxes on exports, which were intended to increase central government revenue. Additional price and trade liberalization measures and fewer government regulations became part of his ongoing reforms.
Budget
Throughout the 1980s, the Honduran government was heavily financed by foreign assistance. External financing—mostly bilateral credit from the United States—rose dramatically until it reached 87 percent of the public deficit in 1985, rising even further in subsequent years. By 1991 the public-sector deficit was entirely financed with net external credit. That financing permitted the government to reduce the demand for internal credit and, therefore, to maintain its established exchange rate.
In 1991 Callejas managed to give the appearance of having reduced the overall fiscal deficit, a requirement for new credit. But the deficit decrease was mostly an accounting device because it resulted from the postponement of external payments to the Paris Club debtors and eventually would be offset by pressure to raise public investment. During 1991, loan negotiations with multilateral and bilateral lending institutions brought Honduras $39.5 million in United States development assistance, $70 million in balance-of-payments assistance in the form of cash grants, and $18.8 million in food aid.
Honduras country also negotiated $302.4 million in concessional loans from the multilateral lending institutions. Total outstanding external debt as a percentage of GDP fell from 119 percent in 1990 to 114 percent in 1991 and to 112 percent in 1993. This drop was largely the result of debt forgiveness of $448.4 million by the United States, Switzerland, and the Netherlands. Scheduled amortization payments of an average $223.2 million per year, however, guaranteed that Honduras's gross funding requirements would remain large indefinitely.
The government of Honduras projected that overall tax revenues would increase from 13.2 percent of GDP in 1989 to about 15.7 percent in 1991. Adjustments for low coffee prices and the continuation of lax collection methods, however, undermined those goals. Despite these tax increases, compared to developed countries, Honduras has low tax rates with, particularly low property taxes.
Labor force
Honduras suffers from an overabundance of unskilled and uneducated laborers. Most Honduran workers in 1993 continued to be employed in agriculture, which accounted for about 60 percent of the labor force. More than half of the rural population, moreover, remains landless and heavily dependent on diminishing seasonal labor and low wages. Fifty-five percent of the farming population subsists on less than two
hectares
The hectare (; SI symbol: ha) is a non-SI metric unit of area equal to a square with 100-metre sides (1 hm2), or 10,000 m2, and is primarily used in the measurement of land. There are 100 hectares in one square kilometre. An acre is a ...
and earns less than $70 per capita per year from those plots, mostly by growing subsistence food crops.
In 1993 only about 9–13 percent of the Honduran labor force was engaged in the country's tiny manufacturing sector—one of the smallest in Central America. Skilled laborers are scarce. Only 25,000 people per year, of which about 21 percent are industrial workers, graduate yearly from the National Institute of Professional Training (Instituto Nacional de Formación Profesional- -INFOP) established in 1972.
Hundreds of small manufacturing firms, the traditional backbone of Honduran enterprise, began to go out of business beginning in the early 1990s, as import costs rose and competition through increasing wages for skilled labor from the mostly Asian-owned assembly industries strengthened. The small Honduran shops, most of which had manufactured clothing or food products for the domestic market, traditionally received little support in the form of credit from the government or the private sector and were more like artisans than conventional manufacturers. Asian-owned export assembly firms (maquiladoras), operating mostly in free zones established by the government on the Caribbean coast, attract thousands of job seekers and swell the populations of new city centers such as San Pedro Sula,
Tela
Tela is a town, with a population of 38,030 (2020 calculation), and a municipality in Honduras on the northern Caribbean coast. It is located in the department of Atlantida.
History
Colonial era
Tela was founded by the Spanish conquistador ...
, and
La Ceiba
La Ceiba () is a municipality, the capital of the Honduran department of Atlántida and a port city on the northern coast of Honduras in Central America. It is located on the southern edge of the Caribbean, forming part of the south eastern bo ...
. Those firms employ approximately 16,000 workers in 1991.
About one-third of the Honduran labor force was estimated to be working in the service or "other" sector in 1993. That classification usually means that a person ekes out a precarious livelihood in the urban informal sector or as a poorly paid domestic. As unemployment soared throughout Central America in the 1980s, more and more people were forced to rely on their own ingenuity in order to simply exist on the fringes of Honduran society.
As for the informal sector, research has shown that evidence of
child labor
Child labour refers to the exploitation of children through any form of work that deprives children of their childhood, interferes with their ability to attend regular school, and is mentally, physically, socially and morally harmful. Such e ...
has been observed mostly in the Honduran agricultural sector. In 2014, the
U.S. Department of Labor
The United States Department of Labor (DOL) is one of the United States federal executive departments, executive departments of the federal government of the United States, U.S. federal government. It is responsible for the administration of fede ...
's ''
List of Goods Produced by Child Labor or Forced Labor The ''List of Goods Produced by Child Labor or Forced Labor'' is an annual publication issued by the United States Government’s Bureau of International Labor Affairs at the U.S. Department of Labor. It has been published within the December 2014 D ...
'' cites three goods produced in such working conditions in Honduras; namely
coffee
Coffee is a drink prepared from roasted coffee beans. Darkly colored, bitter, and slightly acidic, coffee has a stimulating effect on humans, primarily due to its caffeine content. It is the most popular hot drink in the world.
Seeds of ...
, lobsters and melons.
Employment indicators and benefits
Honduran governments have set minimum wages since 1974, but enforcement has generally been lax. That laxity increased at the beginning of the 1980s. Traditionally, most Honduran workers have not been covered by social security, welfare, or minimum wages. Multinational companies usually paid more than the standard minimum wage, but, overall, the Honduran wage earner has experienced a diminution of real wages and purchasing ability for more than a decade. When they occurred, minimum wage adjustments generally did not keep up with the cost of living increases.
After a major currency devaluation in 1990, average Honduran workers were among the most poorly paid workers in the Western Hemisphere. By contrast, the banana companies paid relatively high wages as early as the 1970s. Banana workers continued at the top of the wage scale in the 1990s; however, in the 1980s, as banana production became less labor-intensive, the companies had decreased their investment and workforce. Consequently, fewer workers were employed as relatively well-paid agricultural wage earners with related benefits.
President Callejas responded to the severe poverty by implementing a specially financed Honduran Social Investment Fund (Fondo Hondureño de Inversión Social—FHIS) in 1990. The fund created public works programs such as road maintenance and provided United States surplus food to mothers and infants. Many Hondurans slipped through that fragile
social safety net
The social safety net (SSN) consists of non-contributory assistance existing to improve lives of vulnerable families and individuals experiencing poverty and destitution. Examples of SSNs are previously-contributory social pensions, in-kind and fo ...
. As a continuing part of the social pact, and even more as the result of a fierce union-government battle, President Callejas announced in 1991 a 27.8 percent increase over a minimum wage that the government had earlier agreed upon. That increase was in addition to raises of 50 and 22 percent set, respectively, in January and September 1990. Despite those concessions, the minimum daily rate in 1991 was only $1.75 for workers employed by small agricultural enterprises and $3.15 for workers in the big exporting concerns; most workers did not earn the minimum wage.
Labor unions
Honduras has long been heavily unionized. In 1993 approximately 15 to 20 percent of the overall formal workforce was represented by some type of union, and about 40 percent of urban workers were union members. There were forty-eight strikes in the public sector alone in 1990, protesting the government's economic austerity program and layoffs of public-sector workers. More than 4,000 public-sector employees from the Ministry of Communications, Public Works, and Transport were fired in 1990. About 70,000 unionized workers remained in the faltering public sector at the beginning of 1991. However, the government largely made good its pledge to trim that number by 8,000 to 10,000 throughout 1991 as part of its austerity program.
In the private sector, 1990 saw 94 strikes in 64 firms, as workers fought for wage increases to combat inflation. A forty-two-day strike at the Tela Railroad Company (owned by
Chiquita Brands International—formerly United Brands and United Fruit Company) was unsuccessful, however, and that defeat temporarily ended union efforts at direct confrontation.
In 1993 Honduras had three major labor confederations: the
Confederation of Honduran Workers (Confederación de Trabajadores de Honduras—CTH), claiming a membership of about 160,000 workers; the
General Workers Central (Central General de Trabajadores—CGT), claiming to represent 120,000 members; and the Unitary Confederation of Honduran Workers (
Confederación Unitaria de Trabajadores de Honduras—CUTH), a new confederation formed in May 1992, with an estimated membership of about 30,000. The three confederations included numerous trade union federations, individual unions, and peasant organizations.
The CTH, the nation's largest trade confederation, was formed in 1964 by the nation's largest peasant organization, the National Association of Honduran Peasants (Asociación Nacional de Campesinos de Honduras—Anach), and by Honduran unions affiliated with the
Inter-American Regional Organization of Workers (Organización Regional Interamericana de Trabajadores—ORIT), a hemispheric labor organization with close ties to the
(AFL-CIO).
In the early 1990s, the confederation had three major components: the 45,000-member Federation of Unions of National Workers of Honduras (Federación Sindical de Trabajadores Nacionales de Honduras—Fesitranh); the 22,000 member Central Federation of Honduran Free Trade Unions (Federación Central de Sindicatos Libres de Honduras); and the 2,200-member Federation of National Maritime Unions of Honduras (Federación de Sindicales Marítimas Nacionales de Honduras). In addition, Anach, claiming to represent between 60,000 and 80,000 members, was affiliated with Fesitranh.
Fesitranh was by far the country's most powerful labor federation, with most of its unions located in San Pedro Sula and the Puerto Cortés Free Zone. The unions of the United States-owned banana companies and the United States-owned petroleum refinery also were affiliated with Fesitranh. The CTH received support from foreign labor organizations, including
ORIT Orit is a Hebrew language feminine given name ().
Notable people with this given name include:
*Orit Gadiesh
*Orit Noked
*Orit Strook
* Orit Wolf
* Orit Adato
*Orit Rozin
*Orit Bar-On
*Orit Ishay
*Orit Zuaretz
*Orit Galili-Zucker
Other uses
* The ...
, the
American Institute for Free Labor Development (AIFLD), and Germany's
Friedrich Ebert Foundation and was an affiliate of the
International Confederation of Free Trade Unions
The International Confederation of Free Trade Unions (ICFTU) was an international trade union. It came into being on 7 December 1949 following a split within the World Federation of Trade Unions (WFTU), and was dissolved on 31 October 2006 when ...
(ICFTU).
Although it was not legally recognized until 1982, the CGT was originally formed in 1970 by the
Christian Democrats
__NOTOC__
Christian democratic parties are political parties that seek to apply Christian principles to public policy. The underlying Christian democracy movement emerged in 19th-century Europe, largely under the influence of Catholic social ...
and received external support from the
World Confederation of Labour
The World Confederation of Labour (WCL) was an international labour organization founded in 1920 and based in Europe. Totalitarian governments of the 1930s repressed the federation and imprisoned many of its leaders, limiting operations until the ...
(WCL) and the Latin American Workers Central (Central Latinoamericana de Trabajadores—CLAT), a regional organization supported by Christian Democratic parties. In the late 1980s and early 1990s, however, the CGT leadership developed close ties to the
National Party of Honduras (Partido Nacional de Honduaras—PNH), and several leaders served in the Callejas government. Another national peasant organization, the National Union of Peasants (Unión Nacional de Campesinos—UNC), claiming a membership of 40,000, was affiliated with the CGT for many years and was a principal force within the confederation.
The CUTH was formed in May 1992 by two principal labor federations, the Unitary Federation of Honduran Workers (
Federación Unitaria de Trabajadores de Honduras—FUTH) and the Independent Federation of Honduran Workers (Federación Independiente de Trabajadores de Honduras—FITH), as well as several smaller labor groups, all critical of the Callejas government's neoliberal economic reform program.
The Marxist
FUTH, with an estimated 16,000 members in the early 1990s, was first organized in 1980 by three communist-influenced unions, but did not receive legal status until 1988. The federation had external ties with the
World Federation of Trade Unions
The World Federation of Trade Unions (WFTU) is an international federation of trade unions established in 1945. Founded in the immediate aftermath of World War Two, the organization built on the pre-war legacy of the International Federation o ...
(WFTU), the Permanent Congress for Latin American Workers Trade Union Unity (Congreso Permanente de Unidad Sindical de Trabajadores de América Latina—CPUSTAL), and the Central American Committee of Trade Union Unity (Comité de Unidad Sindical de Centroamérica—CUSCA). Its affiliations included water utility, university, electricity company, brewery, and teacher unions, as well as several peasant organizations, including the National Central of Farm Workers (Central Nacional de Trabajadores del Campo—CNTC), formed in 1985 and active in land occupations in the early 1980s.
FUTH also became affiliated with a number of leftist popular organizations in a group known as the Coordinating Committee of Popular Organizations (Comité Coordinadora de las Organizaciones Populares—CCOP) that was formed in 1984. Dissident FUTH member formed the FITH, which was granted legal status in 1988. The FITH consisted of fourteen unions claiming about 13,000 members in the early 1990s.
Agriculture and land use
![Colbanana04](https://upload.wikimedia.org/wikipedia/commons/c/c4/Colbanana04.jpg)
In 2018, Honduras produced 5.5 million tons of
sugar cane
Sugarcane or sugar cane is a species of (often hybrid) tall, perennial grass (in the genus '' Saccharum'', tribe Andropogoneae) that is used for sugar production. The plants are 2–6 m (6–20 ft) tall with stout, jointed, fibrous stalk ...
, 2.5 million tons of
palm oil, 771 thousand tons of
banana and 481 thousand tons of
coffee
Coffee is a drink prepared from roasted coffee beans. Darkly colored, bitter, and slightly acidic, coffee has a stimulating effect on humans, primarily due to its caffeine content. It is the most popular hot drink in the world.
Seeds of ...
, these being its main crops. In addition, it produced 704 thousand tons of
maize
Maize ( ; ''Zea mays'' subsp. ''mays'', from es, maíz after tnq, mahiz), also known as corn (North American and Australian English), is a cereal grain first domesticated by indigenous peoples in southern Mexico about 10,000 years ago. The ...
, 261 thousand tons of
orange
Orange most often refers to:
*Orange (fruit), the fruit of the tree species '' Citrus'' × ''sinensis''
** Orange blossom, its fragrant flower
*Orange (colour), from the color of an orange, occurs between red and yellow in the visible spectrum
* ...
, 293 thousand tons of
melon
A melon is any of various plants of the family Cucurbitaceae with sweet, edible, and fleshy fruit. The word "melon" can refer to either the plant or specifically to the fruit. Botanically, a melon is a kind of berry, specifically a " pepo". Th ...
, 127 thousand tons of
beans
A bean is the seed of several plants in the family Fabaceae, which are used as vegetables for human or animal food. They can be cooked in many different ways, including boiling, frying, and baking, and are used in many traditional dishes thr ...
and 81 thousand tons of
pineapple
The pineapple (''Ananas comosus'') is a tropical plant with an edible fruit; it is the most economically significant plant in the family Bromeliaceae. The pineapple is indigenous to South America, where it has been cultivated for many centuri ...
, in addition to smaller yields of other agricultural products such as
watermelon
Watermelon (''Citrullus lanatus'') is a flowering plant species of the Cucurbitaceae family and the name of its edible fruit. A scrambling and trailing vine-like plant, it is a highly cultivated fruit worldwide, with more than 1,000 varie ...
,
potato
The potato is a starchy food, a tuber of the plant ''Solanum tuberosum'' and is a root vegetable native to the Americas. The plant is a perennial in the nightshade family Solanaceae.
Wild potato species can be found from the southern Unit ...
,
tomato
The tomato is the edible berry of the plant ''Solanum lycopersicum'', commonly known as the tomato plant. The species originated in western South America, Mexico, and Central America. The Mexican Nahuatl word gave rise to the Spanish word ...
,
cabbage,
grapefruit,
sorghum etc.
The total land area of Honduras is 11.2 million hectares, of which a scant 1.7 million hectares (about 15 percent) are well suited for agriculture. Most land in Honduras is covered by mountains, giving rise to the country's nickname, "the Tibet of Central America." Nevertheless, the Honduran economy has always depended almost exclusively on agriculture, and in 1992 agriculture was still the largest sector of the economy, contributing 28 percent to the GDP.
Less than half of Honduras's cultivable land was planted with
crops as recently as the mid-1980s. The rest was used for pastures or was forested and was owned by the government or the banana corporations. Potential for additional productivity from fallow land was questionable, however, because much of Honduras's soil lacks the thick volcanic ash found elsewhere in Central America. By 1987 about 750,000 hectares of Honduran land had been seriously eroded as a result of misuse by cattle ranchers and slash-and-burn
squatters
Squatting is the action of occupying an abandoned or unoccupied area of land or a building, usually residential, that the squatter does not own, rent or otherwise have lawful permission to use. The United Nations estimated in 2003 that there ...
who planted unsuitable food crops.
The Honduran government and two banana companies—Chiquita Brands International and Dole Food Company—owned approximately 60 percent of Honduras's cultivable land in 1993. The banana companies acquired most of their landholdings in the early 20th century in return for building the railroads used to transport bananas from the interior to the coast. Much of their land remained unused because it lacked irrigation. Only about 14 percent of cultivated land was irrigated in 1987. Most land under cultivation in 1992 was planted in bananas, coffee, and specialized export crops such as melons and winter vegetables.
Agricultural policy
The agricultural sector's output showed little or no growth between 1970 and 1985. As a result of favorable weather and market conditions beginning in 1995, however, the agricultural sector grew at a rate of 2.6 percent annually, slightly above the average for Latin America during that period. Production of basic grains and coffee increased; the export price of bananas was high; and pork, poultry, and milk produced for the domestic market increased. Nontraditional fruits and vegetables also increased in value.
Honduran agricultural production overall has tended to be low because the amount of crop yielded by a given amount of land has been low. For example, Honduran chocolate yields historically have been only about half those of Costa Rica. Instead of using improved techniques to increase the productivity of the land, Honduran farmers have merely expanded the