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Honduras GROWTH AND STRUCTURE OF THE ECONOMY
After Honduras achieved independence from Spain in the
early
nineteenth century, its economic growth became closely
related to
its ability to develop attractive export products. During
much of
the nineteenth century, the Honduran economy languished;
traditional cattle raising and subsistence agriculture
produced no
suitable major export. In the latter part of the century,
economic
activity quickened with the development of large-scale,
preciousmetal mining. The most important mines were located in the
mountains near the capital of Tegucigalpa and were owned
by the New
York and Honduras Rosario Mining Company (NYHRMC). Silver
was the
principal metal extracted, accounting for about 55 percent
of
exports in the 1880s. Mining income stimulated commercial
and
ancillary enterprises, built some infrastructure, and
reduced
monetary restraints on trade. Other beneficial economic
effects
were few, however, because the mining industry was never
well
integrated into the rest of the Honduran economy. The
foreign
mining companies employed a small work force, provided
little or no
government revenue, and relied mostly on imported mining
equipment.
Honduras's international economic activity surged in
the early
twentieth century. Between 1913 and 1929, its agricultural
exports
rose from US$3 million (US$2 million from bananas) to
US$25 million
(US$21 million from bananas). These "golden" exports were
supported
by more than US$40 million of specialized banana company
investment
in the Honduran infrastructure and were safeguarded by
United
States pressure on the national government when the
companies felt
threatened.
The overall performance of the Honduran economy
remained closely
tied to banana prices and production from the 1920s until
after the
mid-century because other forms of commercial export
agriculture
were slow to emerge. In addition, until drastically
reduced in the
mid-1950s, the work force associated with banana
cultivation
represented a significant proportion of the wage earners
in the
country. Just before the banana industry's largest strike
in 1954,
approximately 35,000 workers held jobs on the banana
plantations of
the United Fruit Company (later United Brands Company,
then
Chiquita Brands International) or the Standard Fruit
Company (later
brought by Castle and Cook, then Dole Food Company).
After 1950 Honduran governments encouraged agricultural
modernization and export diversification by spending
heavily on
transportation and communications infrastructure,
agricultural
credit, and technical assistance. During the 1950s--as a
result of
these improvements and the strong international export
prices--
beef, cotton, and coffee became significant export
products for the
first time. Honduran sugar, timber, and tobacco also were
exported,
and by 1960 bananas had declined to a more modest share
(45
percent) of total exports. During the 1960s, industrial
growth was
stimulated by the establishment of the Central American
Common
Market (CACM--see Appendix B). As a result of the
reduction of
regional trade barriers and the construction of a high
common
external tariff, some Honduran manufactured products, such
as
soaps, sold successfully in other Central American
countries.
Because of the greater size and relative efficiency of the
Salvadoran and Guatemalan industrial sectors, however,
Honduras
bought far more manufactured products from its neighbors
than it
sold to them. After the 1969 Soccer War with El Salvador,
Honduras
effectively withdrew from the CACM. Favorable bilateral
trade
arrangements between Honduras and the other former CACM
partners
were subsequently negotiated, however.
A political shift in the 1980s had strong and
unexpected
repercussions on the country's economic condition.
Beginning in
late 1979, as insurgency spread in neighboring countries,
Honduran
military leaders enthusiastically came to support United
States
policies in the region
(see
Honduras in the Middle: United States Policy and the Central America Crisis
, ch. 1). This
alignment
resulted in financial support that benefited the civilian
as well
as the military ministries and agencies of Honduras.
Honduran
defense spending rose throughout the 1980s until it
consumed 20 to
30 percent of the national budget
(see Defense Budget
, ch.
5).
Before the military buildup began in fiscal year
(FY--see Glossary)
1980, United States military assistance to Honduras was
less than
US$4 million. Military aid more than doubled to reach just
under
US$9 million by FY 1981, surged to more than US$31 million
by FY
1982, and stood at US$48.3 million in FY 1983. Tiny
Honduras soon
became the tenth largest recipient of United States
assistance aid;
total economic and military aid rose to more than US$200
million in
1985 and remained at more than US$100 million for the rest
of the
1980s.
The increasing dependence of the Honduran economy on
foreign aid
was aggravated by a severe, regionwide economic decline
during the
1980s (see
table 4, Appendix A). Private investment
plummeted in
1980, and capital flight for that year was US$500 million.
To make
matters worse, coffee prices plunged on the international
market in
the mid-1980s and remained low throughout the decade. In
1993
average annual per capita income remained depressingly low
at about
US$580, and 75 percent of the population was poor by
internationally defined standards.
Traditionally, Honduran economic hopes have been pinned
on land
and agricultural commodities. Despite those hopes,
however, usable
land has always been severely limited. Honduras's mostly
mountainous terrain confines agriculturally exploitable
land to
narrow bands along the coasts and to some previously
fertile but
now largely depleted valleys. The country's once abundant
forest
resources have also been dramatically reduced, and
Honduras has not
derived economically significant income from mineral
resources
since the nineteenth century. Similarly, Honduras's
industrial
sector never was fully developed. The heady days of the
CACM (midto -late 1960s), which produced an industrial boom for El
Salvador
and Guatemala, barely touched the Honduran economy except
to
increase its imports because of the comparative advantages
enjoyed
by the Salvadoran and Guatemalan economies and Honduras's
inability
to compete.
Bananas and coffee have also proven unreliable sources
of
income. Although bananas are less subject to the vagaries
of
international markets than coffee, natural disasters such
as
Hurricane Fifi in 1974, drought, and disease have appeared
with a
regular, albeit random, frequency to take their economic
toll
through severely diminished harvests. Moreover, bananas
are grown
and marketed mostly by international corporations, which
keep the
bulk of wealth generated. Coffee exports, equally
unreliable as a
major source of economic support, surpassed bananas in the
mid1970s as Honduras's leading export income earner, but
international
price declines coupled with huge fiscal deficits
underlined the
vulnerability of coffee as an economic base.
As Honduras entered the 1990s, it did have some factors
working
in its favor--relative peace and a stronger civilian
government
with less military interference in the politics and
economy of the
country than in past years. The country was hobbled,
however, by
horrendous foreign debt, could claim only diminished
natural
resources, and had one of the fastest growing and
urbanizing
populations in the world
(see Population Growth
, ch. 2).
The
government's daunting task then became how to create an
economic
base able to compensate for the withdrawal of much United
States
assistance without becoming solely dependent on
traditional
agricultural exports.
In the 1990s, bananas were booming again, particularly
as new
European trade agreements increased market size. Small
bananaproducing cooperatives lined up in the 1990s to sell their
land to
the commercial giants, and the last banana-producing lands
held by
the government were privatized. Like most of Central
America,
Honduras in the 1990s began to woo foreign investors,
mostly Asian
clothing assembly firms, and it held high hopes for
revenue to be
generated by privatizing national industries. With one of
the most
strikeprone labor forces in Central America, debt-burdened
and
aging industrial assets, and a dramatically underdeveloped
infrastructure, Honduras, however, has distinct economic
disadvantages relative to its Central American and
Caribbean
neighbors, who compete with Honduras in the same export
markets.
Data as of December 1993
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