Honduran economic zones in ‘limbo’ after government repeal

TEGUCIGALPA, Honduras (AP) — A plan to create special autonomous zones for foreign investors in Honduras has been thrown into limbo with the new government’s repeal of a law that many have criticized as giving up sovereignty.

The zones were inspired by libertarian and free-market thinkers as a way to attract foreign investment to the impoverished country. Not only were they exempt from import and export taxes, but they could set up their own internal forms of government, as well as courts, security forces, schools, and even social security systems. They were authorized by a constitutional amendment and an enabling law passed in 2013.

Critics feared the areas would become near-independent states, and President Xiomara Castro, who took office in January, campaigned against the law. On Monday, she signed a measure passed by the Honduran Congress to repeal it – although the authorization for the zones still remains in the constitution.

The zones – known as ZEDE in Spanish – had been promoted by his predecessor as president, Juan Orlando Hernández, who was extradited to the United States on April 21 to face charges of drug trafficking and weapons.

Castro called the repeal “historic” and said Honduras was “recovering its sovereignty.” His administration said they did not want to destroy what had already been built, but that changes were coming.

“We will work hand in hand to do things responsibly because we also don’t want to try to destroy what has been built,” said Rodolfo Pastor, a member of Castro’s cabinet. “With those who (exist) already, there is going to be a dialogue because autonomous zones will not be authorized.” He said a committee would be formed to work with the three existing zones.

Perhaps the most ambitious is a 58-acre development project called Prospera on the Caribbean island of Roatan promoted by American libertarians with modernist building plans drawn up by Zaha Hadid Architects.

Prospera supporters released a statement just before the repeal vote, saying they intended to “confidently pursue plans to invest hundreds of millions of dollars and create tens of thousands of well-paying jobs in Honduras based on its acquired rights under the ZEDE.”

“For the State of Honduras to deny these rights would clearly violate its obligations under international and domestic law based on well-established legal principles,” the statement said.

After the law was repealed, Prospera president, Mississippi State Representative Joel Bomgar said Honduras has a better future with Prospera.

“All it takes is for Honduras to honor its international commitments,” he said. “Prospera came to Honduras with the best intentions to invest and generate opportunities, based on the legal commitments made by each party, and that intention and those commitments remain.”

Another area, a sprawling agro-industrial park called Orquidea near the southern town of Choluteca, is also progressing, but is more prosaic. It features rows upon rows of massive greenhouses producing peppers and tomatoes for export.

“Right now we are all in uncertainty, but the important thing is to listen to the government to see how the process it is putting in place can be supported,” said Guillermo Peña Panting, technical secretary of the Orquidea group. .

“We need to have an open discussion to see what (the government) is ready to do or create, because what we want is to continue contributing to the economy and developing what we have been doing in a serious and responsible,” he said. added.

Part of the uncertainty is because the authorization of ZEDEs remains in the constitution even though the law under which they operate has been repealed.

Congress and Castro decided to remove that language from the constitution, but that would require a second vote by a new Congress next year.

“Businesses that work will have to continue to operate, because constitutionally they continue to exist,” said constitutionalist Juan Carlos Barrientos. “But now nobody is going to come and invest in a useless thing, because without law, nobody is going to risk investing here.”

Political analyst Raúl Pineda Alvarado said the now repealed law was the most controversial part of the legal framework.

“This organic law contained provisions that went beyond constitutional reform,” Pineda said, with privileges that were not in the constitution itself.

The law had stated that the zones had to conform to most Honduran constitutional principles and international human rights agreements, but critics argued that they were essentially creating a separate state within a state, undermining the sovereignty of the country.

A 21-member “best practices” committee has been established to oversee and help regulate the zones to create a business-friendly environment.

The Center for Strategic and International Studies, a Washington-based think tank, wrote on Wednesday that there was no way the Honduran government could end ZEDEs overnight. And if he pursues the long outcome of the initiative, “investors have a number of legal mechanisms at their disposal”.

“The Castro government’s support for the repeal of the ZEDEs will likely discourage future investment in Honduras – certainly in the ZEDEs, but also investments outside the ZEDE framework – and risks transforming some of the criticisms leveled by opponents of the ZEDE regarding job creation into self-fulfilling prophecies,” the analysis reads.

Meanwhile, the United Nations High Commissioner for Human Rights in Honduras applauded Castro’s cancellation of the zones. Last year, he warned that the ZEDEs “could mean serious risks to compliance with the general obligation of the Honduran state to respect and guarantee the free and full exercise of the rights of all residents without discrimination”.

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AP writer Christopher Sherman in Mexico City contributed to this report.

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