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 many criticized as surrendering sovereignty.

The zones were inspired by libertarian and free-market thinkers as a way to draw foreign investment to the impoverished country. They not only were free from import and export taxes, but 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 were worried that the zones could become nearly independent statelets, and President Xiomara Castro, who took office in January, campaigned against the law. On Monday, she signed a measure passed by Honduras’ Congress to repeal it — though the permission for the zones still remains in the constitution.

The zones — known as ZEDEs, for a Spanish acronym — had been promoted by her predecessor, Juan Orlando Hernández, who was extradited to the United States on April 21 to face drug trafficking and weapons charges.

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

“We are going to work hand-in-hand to do things in a responsible way 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 that already [exist] there is going to be dialogue because autonomous zones are not going to be allowed.”

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

Perhaps the most ambitious is a planned 58-acre development called Prospera on the Caribbean island of Roatan promoted by U.S. libertarians with plans for modernistic buildings drawn up by Zaha Hadid Architects.

Prospera’s backers issued a statement just prior to the repeal vote saying they intend to proceed “confidently with plans to invest hundreds of millions of dollars and to create tens of thousands of good-paying jobs in Honduras in reliance upon its acquired rights under the ZEDE framework.”

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

After the law was repealed, Prospera’s president, Mississippi state Rep. Joel Bomgar, said Honduras would have a brighter future with Prospera in it.

“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 legal commitments made by each party, and this intention and commitments remain.”

Another zone, a sprawling agro-industrial park called Orquidea near the southern city of Choluteca, is advancing as well, but is more prosaic. It features rows upon rows of massive 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, Orquidea Group’s technical secretary.

“We have to have an open talk 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’ve been doing in a serious and responsible way,” he added.

Part of the uncertainty is due to the fact that authorization for the ZEDEs remains in the constitution even though the law under which they operate has been repealed.

The Congress and Castro have moved to strip that language from the constitution, but that would require a second vote by a new Congress next year.

“The companies that are functioning will have to continue working, because constitutionally they continue existing,” said constitutional lawyer Juan Carlos Barrientos. “But now nobody is going to come to invest in a useless thing, because without a law, no one is going to risk investing here.”

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

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

The law had said the zones must comply with most Honduran constitutional principles and international human rights agreements, but critics argued they essentially allowed for 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 an eye toward creating a business-friendly environment.

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

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

Meanwhile, the United Nations Office of the High Commission for Human Rights in Honduras applauded Castro’s cancellation of the zones. Last year, it had 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.”

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