Honduran economic zones in ‘limbo’ after government repeal

A plan to create special self-governing zones for foreign investors in Honduras has been thrown into limbo with the new government’s repeal of a law that many criticized as a waiver of 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 establish 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 were concerned that the zones could become quasi-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 permission for the zones still remains in the Constitution.

The zones – known as ZEDEs for their Spanish acronym – were promoted by his predecessor, Juan Orlando Hernández, who was extradited to the United States on April 21 to face drug and weapons trafficking charges.

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

“Let’s work hand in hand to do things responsibly because we also don’t want to try to destroy what was built,” said Rodolfo Pastor, a member of Castro’s Cabinet. “With those who already [exist] there will be dialogue because autonomous zones will not be allowed.”

He said a committee will be formed to work with the three existing zones.

Perhaps the most ambitious is a 58-acre planned development called Prospera on the Caribbean island of Roatan, promoted by American libertarians with plans for modernist buildings by Zaha Hadid Architects.

Prospera supporters released a statement shortly before the repeal vote saying they intend to proceed “with confidence with plans to invest hundreds of millions of dollars and create tens of thousands of high-paying jobs in Honduras, based on their vested rights under the ZEDE structure.”

“For the State of Honduras, denying 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After the law was repealed, the president of Prospera, Mississippi State Representative Joel Bomgar, said that Honduras would have a better future with Prospera in it.

“It is enough 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 commitments remain.”

Another zone, a sprawling agro-industrial park called Orquidea near the southern city of Choluteca, is also advancing, but it is more prosaic. It has rows and rows of huge greenhouses producing peppers and tomatoes for export.

“Right now we are all in limbo, but the important thing is to listen to the government to see how the process they are doing can be supported,” said Guillermo Peña Panting, technical secretary of Grupo Orquidea.

“We have to have an open conversation to see what [the government] is willing 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 way”, he added.

Part of the uncertainty is due to the fact that authorization for 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 for a new Congress next year.

“Companies that are operating will have to continue working, because constitutionally they continue to exist,” said constitutional lawyer Juan Carlos Barrientos. “But now, no one will come to invest in useless things, because without the law, no one will risk investing here.”

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

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

The law said that the zones must comply with most Honduran constitutional principles and international human rights agreements, but critics argued that it essentially allowed the creation of separate states within a state, undermining the country’s sovereignty.

A 21-member “best practices” committee was created to oversee and help regulate the zones with the aim of creating 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 the initiative is pursued for a long time, “investors have at their disposal a series of legal mechanisms”.

“The Castro government’s support for the repeal of the ZEDEs is likely to impede future investment in Honduras – certainly in ZEDEs, but also investments outside the ZEDE structure – and risks turning some of the criticism leveled by ZEDE opponents about job creation into prophecies. self-fulfilling. ,” said the review.

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

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

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