The Case of the Invisible Aid
Shepherd, Philip L.
"Poorly pays the Devil to those who serve him well." Popular Honduran saying HONDURAN SOCIAL SCIENTIST VICTOR Meza has said that "in Honduras warfare has become the continuation of business by...
...Honduran society changed considerably after 1950, undermining both exceptionalism and the banana republic...
...Military support skyrocketed...
...Using diplomatic pressure and U.S...
...Andlisis Econdmico, November 27, 1986, pp...
...Moreover, when commercialized agriculture disrupted traditional land tenure after 1950, it gave rise "to the most militant and, before long, best organized peasant movement in Central America...
...This humiliating conditionality was revealed by the amendments attached to Economic Support Funds in June 1986...
...But there were a few positive features of this pattern of underdevelopment, especially when compared to neighboring nations...
...and a large-scale effort to sell off state enterprises...
...Both are highly invisible and of little value to the average Honduran...
...Moreover, it appears CONADI firms will be sold back to the same cast of characters who caused the scandal, with losses the government estimated at $300 million...
...1 5 -35...
...Military support skyrocketed...
...landtitling...
...interference and influence in economic as well as political affairs...
...has special security or foreign policy objectives...
...Moreover, it was rumored that ex-President Suazo C6rdova passed out more than $4 million in scarce foreign exchange to friends in his last two months in office...
...banana firms were invited in to build railroads and "develop" the nation...
...Several kinds of food aid projects have grown considerably...
...Yet the worst danger is not that Reaganomics might fail, but that it might, however improbable, succeed...
...And the banana republic has been considerably transformed...
...National leadership, economic or political, was virtually nonexistant...
...Whereas 41% of aid consisted of grants in the 1946-1981 era, from 1982 to 1987 75% was donated...
...AID, "Approaches to the Policy Dialogue," December 1982...
...6 - 7 . 12...
...only in the banana plantations was class conflict apparent...
...labor skills improvement...
...4 6 But harvesting-by poorly paid, unskilled women-remains labor-intensive...
...United Nations Economic Commission for Latin America (ECLA), Notas para el estudio econdmico de Amdrica Latina y el Caribe, Honduras 1985, pp...
...Honduras has been allowed to use local currency earned from the sale of ESF dollars as its share of "counterpart funds...
...Agency for International Development (AID) most certainly is not...
...twice as much was granted in the first two years that Reagan controlled the budget (FY 19821983) as had been allocated in the preceding 35 years...
...9. Good sources for this period include Mark B. Rosenberg, "Honduran Scorecard: Democrats and Military in Central America," Caribbean Review, Vol...
...Caribbean Review, No.1 (Winter 1981), pp.38-42...
...Honduras is thus more dependent than ever on traditional commodities like bananas, coffee, meat, metals and unprocessed lumber...
...diplomats and businessmen make and break unstable (often military) governments...
...Alarmed by the Sandinista victory and instability in El Salvador, the Carter Administration began to implement militarization-cum-reform strategies to stave off insurgency in Honduras...
...Tina Rosenberg, "Don't Shoot the Ambassador: Reagan's Central American Policy Has Been to Fire the Diplomats for Delivering the Bad News," Washington Monthly, (September 1986), pp.41-44...
...Washington quickly realized that this magic was elusive...
...The Central American Common Market increasingly turned Honduras into a captive market for Salvadorean goods...
...Philip L. Shepherd, "The Tragic Course and Consequences of U.S...
...But Washington's $1 billion subsidy to Tegucigalpa-with another billion planned over the next five years-has done precious little to stabilize the economy...
...twice as much was granted in the first two years that Reagan controlled the budget (FY 19821983) as had been allocated in the preceding 35 years...
...Twenty-nine conditions were placed on disbursement of $61.2 million, covering four general areas: streamlining the public sector...
...Publicized in early 1982, the Honduran press promptly dubbed it "Reaganomics for Honduras...
...4 8 Experience with such exports in Honduras is woefully lacking, especially in the marketing and distribution so crucial to success...
...The war exposed the bankruptcy of the conservative regime and the armed forces' inability to carry out their avowed mission of protecting the nation...
...Its strength lies in the Administration's effective use of dollars to keep Honduras in line...
...4 3 CONADI's deficit is an increasing burden for the government, since it comprises much of Honduras' priJANUARY/FEBRUARy 198837 JANUARY/FEBRUARY 1988 37Honduras vate foreign obligations, yet no one has been indicted...
...Embassy in Tegucigalpa sent a short, but sharply worded memo to the recently elected government of Roberto Suazo C6rdova...
...This led to some bitter bureaucratic infighting: on one side, the State Department and the Pentagon-who cared little about the Honduran economy...
...AID was caught in the middle, though leaning toward the Treasury/OMB position...
...private agricultural research and extension...
...No other word describes the tactics used to bludgeon Honduras into conformity with the White House version of last week's border skirmish between the Sandinista army and contra guerrillas...
...El Tiempo March 11, 1987...
...Unlike Guatemala and El Salvador, Honduras did not develop an oligarchy of coffee exporters...
...Hondurans widely considered the dollars as "blood money" in payment for cooperation...
...As the country was sparsely populated with abundant land for subsistence farming, communal ownership of land endured and neither state properties nor peasants were pressed into service for coffee...
...6. Steven Volk, "Honduras: On the Border of War," Report on the Americas, Vol.15, no.6 (November-December 1981), p. 6 . 7. Charles A. Brand, "The Background of Capitalistic Underdevelopment: Honduras to 1913," unpublished Ph.D...
...The United States was still in the process of mounting its military infrastructure in Honduras and could not afford to lose Honduran cooperation...
...Furthermore, the AID privatization plan continues to depend on government help in the form of tax breaks, subsidies, low-cost loans, training and other forms of assistance...
...CONADI's debtors are prominent among the country's private and public sector elites...
...Honduran private enterprise depends on monopoly, protectionism, state subsidies, favors and corruption...
...There is even a controversial private sector birth control program and a plan to launch a "mini-Wall Street" capital market...
...108-118...
...assistance had either been stolen or wasted.29 Despite an elaborate offical system for allocating dollars, in practice public and private sector elites have cut into foreign exchange through informal channels...
...A ND U.S...
...And Washington has been creative in war on its own people...
...Se va una transnacional," Boletin Informativo, No.17, March 1987, p. 1 0 (Tegucigalpa: CEDOH...
...Transferred directly to U.S...
...5. For example, James A. Morris, "Honduras: An Oasis of Peace...
...Honduras now hosts more Peace Corps volunteers than any nation in the world...
...ESP for FY 1987 includes $65 million for sukmental request...
...For example, statistics indicate self-sufficiency in basic grains...
...Cushioned by Washington's generosity, Tegucigalpa refused to sign another agreement, thus avoiding devaluation, deep cuts and extensive privatization...
...Embassy, "1982 Investment Climate Statement-Honduras...
...Dollars) FY 1982-1987 1946-1981 FY 1982 FY 1983 FY 1984FY 1985FY 1986 FY 1987 FY 19882 Total 1. Economic Aid DevelopmentAssistance(DA) 276.1 31.1 31.2 31.0 44.3 44.3 40.9 40.3 222.8 EconomicSupportFunds(ESF) 1.6 36.8 56.0 400 147.5 61.3 136.4 100.0 478.0 PL48OTitIeI 18.0 7.0 10.0 15.0 15.0 1 3.9 12.0 12.0 72.9 PL48OTjtleIJ 36.2 3.1 5.5 4.3 3.6 3.3 3.4 2.7 23.2 Pe.aceCorps 28.9 2.6 3.2 3.8 5.0 5.2 5.1 3.8 24.9 TotalEconomicAssistance 361.5 80.6 105.9 94.1 215.4 128.0 197.8 158.8 821.8 II...
...March 27, 1986...
...Vetada ley que rebajaba impuestos a vehiculos," Inforpress Centroamericana, November 20, 1986, p. 1 5 . 35...
...And as one AID dissident told me, "When AID steps in and runs things, becoming a shadow government, it hardly works to build Honduran institutional abilities...
...DURING THE SUAZO CORDOVA REGIME (1981-1985), tension between the political and economic aims of U.S...
...Honduran exceptionalism, if it ever existed, would disappear forever...
...1. Estimated...
...2 Unenthusiastic about the contras, Ferch got the axe after he hesitated to lean on President Jos6 Azcona Hoyo in March 1986...
...Indeed, the first six months of 1987 registered a decline over 1986.50 Non-traditional exports accounted for only 21% of Honduran exports in 1985 down from 27% in 1980...
...El Tiempo, March 11, 1987...
...Honduras was increasingly forced to relinquish control over economic policy as well...
...food, which it then sells for local currency...
...Development is not even on the agenda...
...3 7 Nor has AID limited its terms to economic policy and ESF disbursement...
...After falling out of compliance with an IMF agreement in 1983, Honduras adroitly played the United States off against the IMF...
...The memo suggested structural reform of the entire economy from top-down-with Washington leading the cast of characters...
...Surprisingly, one of the private sector's most vociferous critics is Vice President Jaime Rosenthal, himself a banker and prominent businessman, who once said that the country's business community "thinks the government is a pifiata...
...About 90% of its foreign obligations are medium and long-term, and 87% of it is owed by the public sector to bilateral and multilateral lenders on concessionary terms...
...Even the extensive production of bananas by U.S...
...By 1981 CONADI was effectively bankrupt, leaving the government a $315 million debt, much of it owed to foreign banks...
...Trade was dominated by Arabs and Chinese...
...ESF and military aid are defined by U.S...
...A LL THIS WAS TO CHANGE IN 1979...
...heavy dependence on the United States...
...Particularly worrisome was the poor performance in non-traditional exports such as melons, seafood, cucumbers, softballs and clothing-the centerpiece of Reagan's development strategy...
...Bananeros ricos y bananeros pobres," Inforpress Centroamericana, No.746, (July 9, 1987), p. 1 2 . 22...
...By early 1986 the country faced certain givens: the contras, U.S...
...The memo outlined a series of "suggestions" for the new Administration based on an extremely conservative vision of free market capitalist development...
...By the end of Suazo's term in 1985, Washington and Tegucigalpa were increasingly at odds over Suazo's Machiavellian attempts to illegally extend his stay in power, Honduran support for the contras and domestic issues of privatization and economic management...
...Increasingly, support has taken the form of outright grants rather than low interest, long-term loans...
...6 The conditions are tough: monies are released in portions as targets are met...
...2 Second, AID's private sector approach clashes head on with huge government deficits largely caused by U.S.-fostered militarization...
...Political tolerance was the rule...
...Although there was considerable continuity between Carter and Reagan policies, it was soon clear that the Reagan Administration was not content with containment and would move aggressively toward counterrevolution...
...and massive public spending to complete a large hydroelectric project...
...La Tribuna, December 19, 1986...
...business-hardly novel in Honduran history-the memo was noteworthy for two reasons: the extraordinary scope of the proposed free market "privatization...
...UST WHAT HAS REAGAN'S AID YIELDED...
...small farm and co-op businesses...
...increasing export competitiveness...
...Ayuda . .. . ,A cambio de qud...
...IN NOVEMBER 1981, JUST AS WASHINGTON was setting up the contras, the U.S...
...The gross domestic product (GDP) has been falling for seven years and is now the lowest in a decade...
...But the cushy, risk-shy private sector is no better...
...Between 19751980 it provided $51 million in direct loans and $54 million in debt guarantees at a rate of $8 to every $1 dollar invested by the private sector...
...The short-lived Central American Federation (1824-1838) collapsed under the weight of provincialism...
...While direct foreign investment did manage to regain the 1980 figure of $28 million for the first time in the 1980s, in 1986 the Rosario Mining Co...
...La corrupcion en cifras," Boletin Informativo No.78, October 1987, p. 1 (Tegucigalpa: CEDOH...
...At first the memo did not seem to portend much real change...
...And given the program's political underpinnings, much of the money has sustained elite and middle class urban consumption, including a healthy portion of luxury goods...
...El Heraldo (Tegucigalpa), April, 13, 1985...
...Security interests were far too important for the Administration to effectively press Reaganomics for Honduras, although the groundwork was laid in those years.' 6 Perhaps inadvertently, Suazo C6rdova's macroeconomic management was marked by a surprising degree of realism, pragmatic improvisation and independence...
...CONADI: Destapando una caja de Pandora," Inforpress Centroamericana (August 21, 1986), pp...
...businesses, contractors and consultants, these dollars never make it to Honduras...
...0 Aid in FY 1982-1987 has been virtually three times the total amount provided between 1946 and 1981...
...private education...
...Included in the total are the $59.75 million approved as additional aid by the U.S...
...Economic Support Funds (ESF) which serve to close the balance of payments gap and fiscal deficit, thus "bailing out" the economy, subsidizing military spending and propping up elite consumption became dominant...
...Honduras was left nonetheless with large trade and account deficits...
...aid program to Honduras was radically transformed (see table...
...New" entrepreneurs will not emerge...
...Yet that is the supposed goal of AID in Honduras, to help create a modern functioning state and economy...
...and the remarkable degree, even for Honduras, of U.S...
...The most extraordinary changes occurred, however, not in military monies, but in "economic" aid...
...In the early 1980s, U.S...
...Honduras already has one of Latin America's most open, export-dependent, private enterprise economies...
...The most extraordinary changes occurred, however, not in military monies, but in "economic" aid...
...And Washington has been creative inRp or04, t AeCicA4 Honduras finding other ways to bolster its strategic ally...
...subsidiary of AMAX), a fixture in Honduras for over 100 years, closed its operations and pulled out, leaving thousands unemployed...
...1 0 9 - 1 5 5 . 2. Miami Herald, February 7, 1986...
...In early 1987, Rosenthal unleashed a national scandal by alleging that as much as 30% to 50% of U.S...
...El Tiempo, November 7, 1986...
...AID IS INDEED INVISIBLE...
...consultants for studies and feasibility reviews has galled some Honduran policymakers...
...better yields and prices for bananas and coffee...
...Ibid...
...The situation is so severe that for the first time Hondurans are heading north to Mexico, hoping to enter the United States...
...and Appendix IX...
...2. As per reques t in Congressional FY 1988...
...4 Less well understood is the aid program's impact and efforts to restructure the Honduran economy in keeping with the Administration's long-term political and economic interests...
...a private university...
...The national budget and the fiscal deficit nearly doubled, while spending as a percentage of GDP jumped from 24% in 1981 to 31% in 1985...
...No Credit For Good Behavior," Honduras Update, Vol.4, no...
...The Spanish conquest left the country a third-rate mining and cattle-producing province, wholly dependent on colonial Guatemala...
...ASSISTANCE SEEMS INVISIBLE, THE U.S...
...Inter-American Development Bank, Honduras: Informe socio-econdmico (October 1986), p. 1 6 . 23...
...economic bailout would be necessary...
...Four out of the five largest "Honduran" firms are U.S.-owned, the largest private bank is U.S.-owned as is the only oil refinery...
...Capitalism spread beyond the banana plantations and the tiny urban commercial sector, stimulated by government credits and infrastructure, including a vastly expanded array of state agencies for agriculture, banking and labor...
...Whereas 41% of aid consisted of grants in the 1946-1981 era, from 1982 to 1987 75% was donated...
...CEDAL, Notas para el estudio econ6mico,1985, p. 35, Cuadro 10...
...as Hondurans say, it came "by mail," following Mexico's success in 1821...
...tax-free industrial assembly parks (maquilas...
...In pre-Columbian times, it fell largely outside the glory of the ancient Indian empires...
...Miami Herald, July 22, 1986...
...IDB, Honduras, p.33...
...and others, such as renegotiating the foreign debt...
...Noting that the hundreds of millions seemingly had not touched the Honduran people, one author described it as "invisible aid...
...Policy in Honduras," World Policy Journal, Vol.1, no.1, (Fall 1984), pp...
...3 This kind of heavy-handedness prompted The Miami Herald to editorialize on March 30, 1986 about the Administration's use of "extortion": How low will the Reagan Administration sink in its fervor to send arms to the Nicaraguan contras...
...2 Moreover, economic woes are but symptoms of deeper structural and policy problems: a lack of competitiveness internationally...
...NVESTMENT REMAINS AT DEPRESSED 1982 levels...
...Underemployment affects around twice that number and only one in ten Hondurans has a secure job...
...4 Apart from the recommendations which would favor U.S...
...They had been less than .5% of all aid in the 1946-1981 period, but accounted for 41% of the whole aid program and around 50-55% of the economic support given in FY 1982-1987...
...Reaganomics for Honduras broke through the dike of Honduran resistance shortly after President Azcona was elected in November 1985...
...The threats, aid cutoffs and delays the United States has used in the 1980s to bully Honduras into cooperation have been so blatant that even Reagan's one-time envoy, John A. Ferch, criticized the tactics after leaving his post...
...the regional war and militarization...
...assistance to finance its budget and generally "bail out" the economy...
...While unequal, land tenure was much less so than elsewhere in the region until the postwar arrival of commercialized agriculture...
...food, which it then sells for local currency...
...From the broadest national fiscal and monetary policies down to the smallest grassroots development projects, AID has been calling the shots...
...Honduran exceptionalism" is said to explain why the country has largely escaped the violence engulfing other nations in the region...
...See Miami Herald, August 18, 1986...
...It remained a backwater, virtually outside the system of international trade...
...Golpeado afio de exportaciones," Inforpress Centroamericana (July 30, 1987), p. 8 . 51...
...Robert Pollins and Eduardo Zepeda, "Latin American Debt: The Choices Ahead," Monthly Review (February 1987), p.5...
...The U.S...
...4 5 North Americans have long dominated agribusiness, with the partial exceptions of coffee and cattle...
...largesse, elections were encouraged in 1980 and 1981.9 Although there was considerable continuity between Carter and Reagan policies, it was soon clear that the Reagan Administration was not content with containment and would move aggressively toward counterrevolution...
...business more prominent and important...
...AID constantly monitors "progress," cutting off funds when U.S.-imposed targets are not met, threatening, prodding and generally harassing the Hondurans, a process known as "policy dialogue" in AID jargon...
...The vehicle for this top-down transformation is a private sector/foreign investment model based largely on non-traditional exports...
...By accepting the scheme, Honduras automatically buys into AID's changes...
...5. As opposed to loans o n concessional terms...
...9 Although the economy grew by 2.6% in 1985 and 2% in 1986, population growth in excess of 3% eroded this gain...
...From 1981 to 1985, Honduras got away with state expansion to counteract the economic crisis, running up huge deficits while paying lip service to privatization...
...4. Security Aid inclu4eMi1itaiy Aid and Economic Support Funds...
...40% remained in Mexico, according to Mexican authorities...
...Indeed, it cautioned against Honduran expectations of large U.S...
...Imports and exports did recover their 1980 levels and the declining terms of trade Honduras and other nations in the region have suffered were partially reversed...
...policy was palpable...
...7-8...
...As a top economic policy-maker told me in 1984: "It doesn't give [the North Americans] the right to do whatever they please with our economy and society...
...threatened to slash his foreign aid did [President] Azcona understand how serious a peril the Sandinistas were...
...Washington's aid program is not merely linked to U.S...
...Unemployment has increased by over two-thirds since 1980, with a quarter of the workforce idle in 1985...
...firms after 1900 did not directly hurt campesinos as companies originally imported workers to till what had been uncultivated lands.6 HONDURAS ENTERED THE 20TH CENTURY without an agrarian capitalist class, an intransigent landed oligarchy or allied commercial/industrial entrepreneurs...
...a "policy dialogue" scheme to further AID influence...
...largesse, elections were encouraged in 1980 and 1981...
...and a small elite runs the country in flagrant disregard for the well-being of the vast majority of its people...
...Seven large firms alone account for 69% of the debt...
...There were over 125 U.S...
...troops, an obviously durable economic crisis and heavy dependence on U.S...
...The Administration proposes to revolutionize Honduras' outdated "crony capitalism...
...Now the White House propagandists have added extortion to their contra-boosting bag of tricks...
...Several kinds of food aid projects have grown considerably...
...Indeed, there is little tangible evidence of the heavy rain of dollars...
...Further, Washington has not hesitated to exploit the political clout its support has purchased...
...Industry expanded, though dominated by the banana firms' attempts to diversify into agroindustry...
...First, the attempt to revitalize the economy through private investment (both foreign and domestic) will not work in a climate of declining investor confidence...
...May 10, 1987...
...Real GDP per capita has fallen over 15% since 1980...
...Marta Ortiz-Buonafina, "The Strategic Implications of the Caribbean Basin Initiative: A Case Study of the Honduran Export Sector," Florida International University, March 1984...
...15-16...
...The country's overwhelming dependence on the United States and notoriety as an unstable, poverty-stricken banana republic took root during these years...
...1 "" Aid in FY 1982-1987 has been virtually three times the total amount provided between 1946 and 1981...
...3. Includes Military Assistance Program (MAP), Foreign Military Sales...
...Lastly, Tegucigalpa has come to rely on ever greater levels of U.S...
...Apparently the irony of a private sector capitalist revolution led by a large government bureaucracy in the form of AID has not been recognized...
...military intervention suffered by Nicaragua...
...Honduras was sluggish in requesting more military aid to "defend itself" against a "Sandinista invasion...
...The transparently political motives for Washington's largesse have fostered a cynical "get-it-while-youcan" attitude, powerfully encouraging capital flight and corruption...
...Note that in official U.S...
...the same old faces will back "new" enterprises...
...The Contras, Miskito Indians and the U.S.A.," Honduras Update, Vol.4, no.6 (March 1986), pp...
...Washington frequently cites the CONADI fiasco in justifying AID's aggressive push to sell off public enterprises...
...Edward Sheehan, "The Country of Nada," New York Review of Books (March 27, 1986), p. 1 1 . 14...
...3 4 Between 1982 and 1985 the import of durable consumption goods increased by 38% and non-durables by a whopping 74...
...aid program to Honduras was radically transformed (see table...
...dissertation, University of Pittsburgh, 1972, pp...
...Nor did the military view its function as making 32REPORT ON THE AMERICAS REPORT ON THE AMERICAS 32Summary of United States Foreign Aid to Honduras, FY 1946-1988 (Millions of U.S...
...Another delivers food to private voluntary organizations to distribute free, although these "Title II" foodstuffs have often wound up in contra camps...
...But the banana enclave constrained, rather than fostered, development...
...Only 25% is owed to private banks.25 But external debt has been growing at the relatively high rate of 10% a year and debt service absorbed 39% of export earnings in 1985...
...economic assistance, relying on the magic of the market place to correct the already grim picture...
...The Reagan revolution in Honduras will likely prove a sham...
...The "dessert economy," as it is sometimes called, excludes most Hondurans who are relegated to subsistence agriculture...
...But for Reagan policy-makers, aid to Honduras has become the continuation of warfare by other means...
...November 7, 1986...
...Agency for International Development (AID...
...Debt service, public spending on infrastructure and ballooning defense expenditures have taken a heavy toll...
...Without a local elite to protect, Honduras did not develop a professional military tied to concentrated economic interests...
...USAID, Congressional Presentation, FY 88, p. 1 4 3 . 29...
...And exports to the rest of the region declined once again to only 4% of total exports...
...REPORT ON THE AMERICAS deficits...
...Popular Honduran saying HONDURAN SOCIAL SCIENTIST VICTOR Meza has said that "in Honduras warfare has become the continuation of business by other means...
...Because much assistance is "fungible' ---- direct cash transfers such as Economic Support Funds (ESF) or credits which provide the government with local currency (PL 480 food sales)-it in effect frees up other resources for the military and debt servicing...
...Economic Support Funds consist of large-scale dollar grants to the Honduran government, which in turn sells the dollars to importers for local currency...
...Alarmed by the Sandinista victory and instability in El Salvador, the Carter Administration began to implement militarization-cum-reform strategies to stave off insurgency in Honduras...
...Honduras was classified a "high-risk" for investors by Frost and Sullivan in 1986 and ranked 19 out of 24 countries in credit rating and debt capability, according to 75 international banks surveyed by Institutional Investor...
...AID now functions in Honduras as a "shadow government," with parallel bureaus matching Honduran ministries and agencies...
...Independence altered little...
...Inflation continued its recent decline to only 4% in 1986, reflecting the economy's depressed state...
...And precisely because of its unchallenged dependence on Washington, Honduras managed to remain relatively free of the direct U.S...
...Much of the "exceptionalism" has eroded, making Honduras more like its neighbors now wracked by crisis...
...goods and services...
...ECLA, Notas para el estudio econdmico, 1985, p.39, Table 12...
...Congress in late June 1987...
...Economic Assistance to Central America GAO/NSIAD-84-71, March 1984...
...they're all public [enterprises] because they depend on all kinds of subsidies, special treatment and tax breaks...
...That's right: extortion...
...Economic & Military Aid (Totals) 400.9 111.9 154.2 171.5 282.8 189.2 259.0 240.3 1,168.6 IV...
...Washington's use of aid for short-term political purposes in Honduras and other parts of Central America has received considerable attention...
...Rapid private sector-led growth would surely create new elites, deepen inequality in this desperately poor society and lead to more repression and instability...
...firms had an estimated $230 million in direct investment in Honduras, over 10 times the investment of second-ranked Japan ($18 million...
...law as "security aid," for use "where the U.S...
...See GAO, Providing Effective Economic Assistance...
...During 1982-1985, 60,000 Hondurans sought Mexican visas...
...And while in 1980 almost two-thirds of.government monies went to social and economic programs such as public health, education and agriculture and only a third to defense and debt service, by 1984 the reverse was true: debt and defense were absorbing nearly two-thirds of spending while other programs received only 35%.26 IN SOME WAYS, HOWEVER, CONVENTIONAL analysis obscures as much as it reveals about Honduras' real economic problems...
...Honduras now hosts more Peace Corps volunteers than any nation in the world...
...Since even the private sector has not always taken kindly to interference, AID has simply made an end-run around the established business community, setting up 11 new private sector organizations since 1981.19 N HONDURAS, FEW DOUBT THAT THE PUBlic sector is incompetent and venal...
...A HONDURAN WRITER ONCE REMARKED that 400 years after the conquest Honduras is still "a place where everything remains yet to be done...
...It is widely believed that the officer corps has fingers in three aid pots simultaneously: money for the contras, for the military and economic support...
...U.S...
...This unequal state of affairs, coupled with an influx of Salvadorean peasants to Honduras, eventually led to the 1969 Soccer War-a disaster for both sides...
...MOST STRIKING ABOUT AID'S PLAN IS that it simply amounts to more of the same...
...This contrasted with the Reagan team's growing right-wing rigidity and shrill disregard for Honduras' impoverished majority...
...Nowhere else in Central America is U.S...
...For example, in FY 1986, $53.3 million-87% of Honduras' Economic Support Funds in that year--were spent on raw materials, machinery and spare parts in the United States...
...Boletin Informativo No.68, December 1986, p. 2 (Tegucigalpa:CEDOH...
...ESF and military aid are defined by U.S...
...Most significantly, during the Cold War the Honduran military began to "professionalize" under U.S...
...firms operating in Honduras, employing at least 20,000...
...This, the Reagan team hopes, will vindicate its claim that the free market offers a sure path to Third World development...
...an obsolete export-led development model...
...Goldstein is one of the principal owners and managers of Azucarera Central, S.A., the second-largest CONADI debtor with $21 million outstanding...
...Acelerando el cumplimiento de condiciones de AID," Inforpress Centroamericana (November 13, 1986), p.13-14...
...3. Miami Herald, July 1, 1986...
...Reagan backed down-for political and security reasons-from several attempts to pressure Honduras to devalue the lempira, cut social spending and reduce its fiscal and balance of payments deficits...
...For instance, during the worst economic crisis in Honduran history, legislators vehemently debated a bill lowering taxes on imported automobiles...
...U.S...
...Despite the whopping $1.2 billion assistance during the Reagan years, the Honduran government and economy is increasingly unable to shoulder even the most concessionary of loans...
...security objectives on the isthmus but is integral to those objectives...
...An AIDinspired non-traditional export project recently announced with much fanfare is one example...
...Using diplomatic pressure and U.S...
...Economic Assistance (Boulder, CO: Westview Press, 1988...
...68, December 1986, p. 1 4 (Tegucigalpa: CEDOH...
...Economic Support Funds (ESF)-which serve to close the balance of payments gap and fiscal deficit, thus "bailing out" the economy, subsidizing military spending and propping up elite consumption-became dominant...
...Embassy, Honduran elites concentrated on government jobs and patronage, leaving the few dynamic economic activities to foreigners...
...As late as 1950 only 48% of the land was privately owned...
...2' Second, the aid has covered the fiscal deficit created by extraordinary military expenditures and debt payments...
...4. One of the best treatments is Tom Barry and Deb Preusch, The Soft War (New York: Grove Press, forthcoming...
...The economy's performance during 19851986 was particularly disappointing, since several favorable conditions had raised high hopes: large U.S...
...reports military aid totals are notoriously understated, so that Economic Support Funds (ESF) are listed as "economic Gilberto Goldstein, a prominent Honduran businessman of CONADI fame...
...Credit Financing (FMS) and In ternational Military Education Training (IMET...
...Benjamin Crosby, "Fragmentaci6n y realineamiento," in Forrest Colbum, ed., Centroamerica: Estrategias de Desarrollo (San Jos6: EDUCA, 1987), pp...
...5, (February 1986), p. 3 . 18...
...Since then government economic action has been largely dictated by the U.S...
...private sector management...
...Key tndlcators Security Aid4 as%of Total Aid 10 61 68 69 76 65 76 76 71 Military Aid as%ofTotal Aid 10 30 31 45 24 32 24 34 30 Development Assistance as%of Total Aid 69 28 20 18 16 23 16 17 19 Economic Support Funds as%of Total Aid 0.4 33 36 23 52 32 53 42 41 Grants and Donations5 as%of Total Aid 41 28 65 78 88 84 90 90 75 Source: USAID, Congressional Presentation, various years F? 1984-1988, Annex III Latin America and the Caribbean...
...Only when the U.S...
...and weak, corrupt and incompetent private and public institutions...
...The logic is strange, since CONADI was, if anything, an elite private sector subsidy boondoggle...
...35 million was used in this way in FY 1986.'2 The preponderance of security aid is both the shortterm strength and the long-term weakness of the Reagan program...
...Agency for International Development, Congressional Presentations, various years (Washington, D.C...
...Reproduced in Spanish and English in Boletfn Informativo, No.9, February 1982 (Tegucigalpa: Centro de Documentaci6n de Honduras, CEDOH...
...Shepherd, The Honduran Crisis and U.S...
...Increasingly, support has taken the form of outright grants rather than low interest, long-term loans...
...8. Volk, "Border of War," p.14...
...12, no...
...Stated more dramatically, 79% of all fresh loans is automatically returned to lenders to service previous debt...
...Often the case in Honduras, much of the push for change came from abroad: aid institutions pressured for "modernization," while raw materials and agricultural products were in demand...
...military intervention suffered by Nicaragua...
...Another delivers food to private voluntary organizations to distribute free, although these "Title II" foodstuffs have often wound up in contra camps...
...5 To North Americans, however, Honduras is the quintessential "banana republic": modern, largescale banana enclaves coexist with subsistence farming...
...In reality, the population has become too poor to purchase even these staples...
...the Inter-American Development Bank projects Honduran growth rates at 1.7% a year for 1987-1990.24 While external debt reached $2.9 billion in 1986, about 80% of GDP, Honduras is better placed than many Third World debtors...
...4 7 The difficulty with development based on non-traditional exports is that, as two analysts of Latin American debt observed, "capturing export markets requires time and sustained promotional effort, even after a country's products have become more competitive through devaluation...
...1 (Winter 1983), pp...
...Despite the whopping $1.2 billion assistance during the Reagan years, the Honduran government and economy is increasingly unable to shoulder even the most concessionary of loans...
...on the other, hardline economic conservatives at the Treasury Department and Office of Management and Budget (OMB), who wished to push Reaganomics on Honduras...
...Lacking an entrenched oligarchy, Hondurans occasionally lament, "Here even the rich are poor...
...only in the banana plantations was class conflict apparent...
...Aid recipients are required to provide these matching funds to demonstrate their own commitment...
...Both images are true, yet neither wholly captures the dynamics of Honduran underdevelopment...
...More than a politicalmilitary vassal of the United States, Honduras was to follow its tutelage in economic policy as well...
...2 0 Disinvestment of this sort JANUARY/FEBRUARY 1988 35Hondurast Aecs Honduras does not augur well for the future, especially since the major transnational banana companies threaten similar action almost annually to obtain lower taxes and other government concessions.21 More importantly, in a vote of no-confidence, domestic private investment declined 67% from 1980 to 1985.22 Gross investment has fallen from 25% of GDP in 1980 to an average of only 18% in 19801985.23 The future seems bleak...
...The Case of the Invisible Aid 1. Meza was referring to corruption among military and civilian politicians in connection with contra aid...
...Reaganomics for Honduras seems almost perversely designed to aggravate these fundamental problems...
...USAID, Congressional Presentation, FY 88, p. 1 4 2 . 33...
...The modern sector of the economy continues to revolve around a few traditional exports like bananas and coffee...
...They had been less than .5% of all aid in the 1946-1981 period, but accounted for 41% of the whole aid program and around 50-55% of the economic support given in FY 1982-1987...
...One grants low-interest credits to the government to buy U.S...
...5 IF U.S...
...Volk, "Border of War," pp.25-28...
...Miami Herald, March 6, 1984...
...has special security or foreign policy objectives...
...A LL THIS WAS TO CHANGE IN 1979...
...7 As Sam (the "Banana Man") Zemurray, legendary owner and manager of the United Fruit Company, once said, "In Honduras a mule costs more than a Congressman...
...La Tribuna, October 16, 1986...
...As aid increased so, too, did accompanying diplomatic, political and military conditions...
...In a region known for poverty and underdevelopment, Honduras has been the poorest and least developed...
...Economic Assistance (Boulder, CO: Westview Press, 1988...
...law as "security aid," for use "where the U.S...
...The Administration even brags about the private sector focus, despite the lack of tangible results: "Although ESF and PL 480 [food] resources were provided through government channels, the private sector was the major beneficiary of these funds and programs...
...Ibid., pp.28-32...
...Economic Support Funds consist of large-scale dollar grants to the Honduran government, which in turn sells the dollars to importers for local currency...
...Political tolerance was the rule...
...There was little room for maneuver when the United States turned from a security agenda to pressing its restructuring plan...
...How can the state be the fundamental obstacle to progress when, at least until recently, it played an almost neglible role in economic matters...
...Washington Post, October 4, 1983...
...USAID, Congressional Presentation, FY 88, pp.142-143...
...JANUARY/FEBRUARY 1988 31Honduras o z4 Amea Honduras T WO THEMES DOMINATE HONDURAN HIStory, especially before 1950...
...lower oil prices...
...4 9 Despite AID gimmicks like President Azcona's declaration of 1987 as the "Year of Export," the non-traditional export program has failed...
...R EAGAN'S ECONOMIC POLICIES FOR HONduras are beset with contradictions...
...In Honduras we've gotten to the point where everyone wants the government to subsidize them and the gov- ernment simply can't do it.41 A classic example of the private sector's modus operandi is the National Corporation of Industrial Development (CONADI), set up in 1974 to provide lowcost investment funds to private firms...
...Acutely aware of its backwardness and poverty, the nation tried to "catch up" with the magic key to 19th century progress-railroads...
...JANUARY,FEHRUARY I9 war on its own people...
...Chapters 2 and 4. 16...
...In a climate of "unity" a national front government ruled until 1972, when it collapsed under organized pressure from land-hungry peasants...
...There is even a U.S./Honduran plan afoot to "export" Honduran unemployed for farm work in the United States...
...See "CONADI," Inforpress, pp...
...For the first time in years, corn and beans were imported during 1987 due to an extremely poor harvest in 1986...
...Demagoguery and outright deceit already have become commonplace...
...4 2 But recipients discovered they could send this money abroad or invest it in other enterprises for a higher return, and simply never pay up...
...export agriculture and mining by North Americans...
...some even ventured that the "rent" on Honduras was too cheap...
...Obstaculizada exportaci6n de mano de obra," Inforpress Centroamericana, No.745 (July 2, 1987), p. 8 . 20...
...One grants low-interest credits to the government to buy U.S...
...A list and critique of each of these projects is found in Shepherd, Honduran Crisis, Appendix I. 39...
...A bewildering array of "Trojan Horse" projects reaching into the farthest corners of society have been designed to sweeten policy shifts...
...1215...
...Always in the shadow of the banana firms and the U.S...
...for security reasons a large-scale U.S...
...3 Furthermore, Washington's generosity has been invisible because so much of it is earmarked to purchase 36A major mining company pulled out...
...Boletin Informativo No...
...46...
...The large balance of payments gap has been met with transfers from abroad, mostly the United States...
...promoting private investment...
...3 2 The use of high-priced U.S...
...The project is run by sugar plantation owner References The Military: Willing to Deal 1. See U.S...
...See "Los refugiados econ6micos de Honduras," Boletin Informativo, No.63, July 1986, p. 8 (Tegucigalpa: CEDOH...
...As such, the aid cannot meet its ostensible goals: economic stabilization and development...
...How, then, can greater openness and privatization make it better...
...Before 1950, land scarcity was rarely a problem and most peasants led meager but relatively secure lives...
...MOST of it has gone to the private sector, either directly or indirectly, to cover trade and balance of payments Aid beneficiaries: Mostly elite and middle class...
...Only 24 of the 64 firms financed have paid their debts, mostly small- and medium-sized firms...
...By the 1840s, the nation had settled into the inauspicious pattern of pre-capitalist landholding and subsistence agriculture that still characterizes much of rural Honduras...
...And precisely because of its unchallenged dependence on Washington, Honduras managed to remain re- latively free of the direct U.S...
...Honduras is becoming an international welfare case...
...3 0 Although Honduras has arguably witnessed less "recycling" of support dollars into capital flight than some of its neighbors, particularly El Salvador, at least some monies have ended up in foreign bank accounts...
...Similarly, the idea that development presupposes more U.S...
...99% of its portfolio is now considered lost or high risk...
...The U.S...
...General Accounting Office (GAO) Providing Effective Economic Asisstance to El Salvador and Honduras: A Formidable Task, GAO/NSIAD-85-82, July 3, 1985 and GAO, U.S...
...aid flows...
...Philip L. Shepherd, The Honduran Crisis and U.S...
...This multimillion dollar endeavor uses advanced Israeli drip irrigation to produce melons for export...
...There are projects in non-traditional export promotion...
...As Vice-President Jaime Rosenthal pointed out, both civilians and the military have the idea that "It's only gringo AID money...
...El Tiempo, March 11, 1987...
...Honduras' is increasingly a war economy, in which a free market system is decreasingly viable...
...Ibid., p.6 44...
...investment is undercut by its already overwhelming presence in Honduras...
...Reagan's rhetoric about free enterprise does not jibe with the reality of large-scale foreign aid...
...Washington's strategy was simply to outwait Suazo and press its agenda on the new Azcona government, a policy which seems to have borne fruit...
...40 There is no such thing as 'private enterprise' in Honduras...
...tutelage in the context of a banana workers' strike and the CIAbacked overthrow of Guatemala's reformist government...
...MilitaryMd3 39.4 31.3 48.3 77.4 67.4 61.2 61.2 81.5 346.8 RI...
Vol. 22 • January 1988 • No. 1
