Tag Archives: flores

Honduras

Hernández takes office with agenda already largely in place

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What’s most unusual about today’s inauguration of Juan Orlando Hernández as the next president of Honduras is that so much of his agenda is already in place.honduras flag icon

Upon taking office today, Hernández (pictured above) will face daunting security, economic and political challenges.

But on at least a few matters, he’ll take office with key elements of his agenda already in place, thanks to the efforts of the outgoing administration of Porfirio Lobo Sosa and the wide majority of the Partido Nacional (PN, National Party) in the outgoing Congreso Nacional (National Congress).  Hernández served as president of the National Congress from 2010 to 2014.  The transition from Lobo Sosa to Hernández marks the first time since the return of democracy to Honduras in 1981 that the conservative National Party will hold two consecutive presidential terms (Honduran presidents are constitutionally ineligible to run for reelection).

Hernández takes office today, but he does so after enacting several key security and fiscal policies in the final months and weeks of the Lobo Sosa administration, including a new, less controversial national police chief, a new military police force, landmark fiscal reforms (including a wide tax increase) and a plan to privatize Honduras’s public electricity company.  Last weekend, the new National Congress was sworn in, which means that the National Party will control just 48 seats in the 128-member unicameral parliament, a sharp reduction from the 75-seat bloc that Hernández commanded during the Lobo Sosa era.

From ‘whatever it takes’ to ‘the party is over’

Even before the election campaign reached full swing, Hernández last September pushed through legislation authorizing the creation of a new policia militar (‘military police’) that will deploy in full force early this year, and he campaigned on a slogan to do ‘whatever it takes’ (¡voy hacer lo que tenga que hacer!) to make Honduras safe.  The controversial legislation creates an elite militarized unit loyal to Hernández that (hopefully) won’t be corrupted by organized crime and drug traffickers, which have already infiltrated much of the Honduran police and military. Critics worry that the new military police could trample human rights in a country barely three decades removed from death squads.  Many Hondurans fear the police more than drug traffickers and criminal gangs.

Late in December 2013, Lobo Sosa fired the head of Honduras’s national police, Juan Carlos Bonilla, known as ‘El Tigre.’  Bonilla had become a controversial figure, given alleged ties to the death squads of the 1980s.  Since becoming the head of Honduras’s national police force in August 2012, Bonilla became linked to a trend of humanitarian violations at the hands of the national police, including beatings, illegal detentions and other harassment of gay and lesbian Hondurans, journalists and leftists in political opposition to the current administration.  Bonilla also seemed either unwilling or unable to crack down on rampant corruption within his ranks.  Given that police salaries are a pittance, however, reforming the national police force could prove just as difficult in the Hernández era as well.

Bonilla’s removal represents one less headache for Hernández, who would have continued to face ongoing skepticism  from both within and outside Honduras over Bonilla’s leadership.  But there’s no sign that the future will be any less corrupt or any more respectful of human rights — and no clear sign that Bonilla’s successor, Ramón Sabillón, previously the commander of the national police’s special investigations division, will do any better.

Stabilizing Honduras will be Hernández’s top challenge in the next four years, and he’s staked his presidency on doubling down with a military solution rather than a strategy of community-based policing.  Though the United Nations The United Nations Office on Drugs and Crime recorded a rate of 91.6 per 100,000 in 2011, but the Violence Observatory at the National Autonomous University of Honduras estimated a rate of 85.5 in 2012 and just 80 per 100,000 in 2013.  While that’s a significant drop, it still means that Honduras has the world’s highest homicide rate.

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In his inaugural address today, Hernández declared that for criminals, se le terminó la fiesta (‘the party is over), and he wasted no time in announcing a massive military operation, Operácion Morazán, named after Honduras’s founding father.  To that end, Hernández indulged a demonstration at his inauguration earlier today of Los Tigres, one unit of Honduras’s increasingly militarized network of squads and paramilitary police forces (pictured above).

Rigoberto Chang Castillo, a top Hernández ally, has become Honduras’s new interior and population minister, and rising National Party star Reinaldo Sánchez will become the minister of the presidency.

Bilateral relations with the United States and drug policy

One of the most surprising aspects to Hernández’s inaugural address, however, was a stern admonishment of US drug policy.  Declaring a double standard, Hernández spoke out against the United States for its role in Honduras’s state, noting that North American demand for drugs has fueled so much violence throughout Latin America, and that while drugs are merely a ‘health’ issue for US consumers, it’s a matter of life and death for Honduras, which fights traffickers with limited resources — and the blood of its own people: Continue reading Hernández takes office with agenda already largely in place →

El Salvador

El Salvador’s experience in dollarization

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On the way back home from Honduras, my plane landed briefly in El Salvador at San Salvador’s airport.el salvador

Not wanting to pass up a brief opportunity to try my first Salvadoran pupusa in El Salvador*, I started looking for a cash machine to withdraw some local currency.  Within seconds, however, I remembered that El Salvador switched from the colón to the US dollar 12 years ago, so of course there was no need, and I began thinking a little more about why El Salvador adopted the US dollar and whether it has seen any benefits from doing so in the past decade or so.

That decision was among the most important of the administration of Francisco Flores, El Salvador’s president between 1999 and 2004, and a member of the conservative Alianza Republicana Nacionalista (ARENA, National Republican Alliance).  Flores became one of the top US allies in the region at a time when Hugo Chávez was cementing his control on power in Venezuela.  Not only did he stand firmly with US president George W. Bush over regional affairs, he even deployed Salvadoran troops to Iraq in support of the US invasion.

Dollarization was controversial even at the time, but the policy goal was that it would reduce El Salvador’s interest rates and facilitate trade — this was in the era before the Central American Free Trade Agreement (CAFTA), which came into effect in 2009 among the United States, the Dominican Republic and four Central American countries.**

But the broader economic benefits haven’t materialized as fully as Flores might have hoped a decade ago — El Salvador’s GDP growth rates have lagged behind even some of its poorer Central American peers in the past 12 years:

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The entire Central American economy is tied heavily to the US economy due to massive trade and remittances from family members living and working in the United State.  That’s especially true for El Salvador, because many Salvadorans migrated during the brutal civil war during the 1980s (in the Washington, DC metro region, for example, Salvadorans represent the largest Latino nationality group, outpacing even Mexicans).  With around 6.3 million people, El Salvador has over three-fourths of the population of Honduras, but less than one-fifth of the area of Honduras.***

But it’s been essentially the sick man of Central America for some time, routinely underperforming Honduras, which is struggling under the weight of political polarization, trafficking-related violence and massive corruption.  El Salvador faces those problems as well, but it’s generally believed that those problems are at least slightly less drastic in El Salvador.

What’s clear is that while dollarization may (or may not) have worked for Panamá and Ecuador, the benefits have either been too small for El Salvador to realize or, worse — and more likely, dollarization has actively hampered the Salvadoran economy.

Salvadoran central bank president Carlos Acevedo earlier this year admitted that dollarization was ‘a sack of unfulfilled promises’:

Bank President Acevedo made his most recent statements (reported by Active Transparency) following the release of a government study on dollarization, which reached some rather negative conclusions. The report found that many key economic indicators, including exports and GDP fell, while inflation and interest rates rose. Dollarization has failed to shield the economy from downturns and instead made El Salvador more susceptible to instabilities in the U.S. economy, as witnessed during the 2009 recession. The Economista published an article yesterday reaching very much the same conclusions.

In his statements this month, Acevedo said dollarization was “badly designed, improvised and lacking consultation,” and that El Salvador’s fiscal performance with dollarization was the worst in sixty years. He also said the performance was so poor that even proponents of dollarization could not ignore its negative impacts.

Prices in San Salvador’s airport do seem to be higher than prices in Tegucigalpa’s airport, though perhaps the better comparison is to the swankier airport in San Pedro Sula.  But there’s definitely a sense among Salvadorans that consumer prices rose after 2001, though the reasons for that phenomenon remain an open question, even among economists.

Another IMF report from 2011, however, indicated that dollarization had reduced interest rates between 4% and 5%, thereby contributing to savings and boosting GDP by 0.25% to 0.5% annually.

It’s tempting to argue that El Salvador is suffering from the same fate as the eurozone — i.e., that El Salvador and the United States do not comprise an optimal currency zone), Salvadorans are ‘stuck’ with US monetary policy, which may not be appropriate for the Salvadoran economy, and there’s obviously no mechanism for fiscal transfers from the US federal government to the Salvadoran government.   Continue reading El Salvador’s experience in dollarization →