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Honduras MACROECONOMIC TRENDS
Recent Growth
Unavailable
Figure 5. Gross Domestic Product (GDP) by Sector, 1992
Source: Based on information from Economist Intelligence Unit,
Country Report: Nicaragua, Honduras [London], No. 2, 1993,
5.
Honduran president Rafael Leonardo Callejas Romero,
elected in
November 1989, enjoyed little success in the early part of
his
administration as he attempted to adhere to a standard
economic
austerity package prescribed by the International Monetary
Fund
(IMF--see Glossary)
and the
World Bank (see Glossary). As
the November 1993 presidential elections drew closer, the
political
fallout of austere economic measures made their
implementation even
less likely. Any hope for his party's winning the 1993
election was
predicated on improving social programs, addressing
employment
needs, and appeasing a disgruntled, vocal public sector.
However,
reaching those goals required policies that moved away
from
balancing the budget, lowering inflation, and reducing the
deficit
and external debt to attract investment and stimulate
economic
growth.
Callejas inherited an economic mess. The economy had
deteriorated rapidly, starting in 1989, as the United
States Agency
for International Development (AID) pointedly interrupted
disbursements of its grants to Honduras to signal
displeasure with
the economic policies of the old government and to push
the new
government to make economic reforms. Nondisbursal of those
funds
greatly exacerbated the country's economic problems. Funds
from the
multilateral lending institutions, which eventually would
help fill
the gap left by the reduction of United States aid, were
still
under negotiation in 1989 and would be conditioned first
on payment
of arrears on the country's enormous external debt.
Between 1983 and 1985, the government of
Honduras--pumped up by
massive infusions of external borrowing--had introduced
expensive,
high-tech infrastructure projects. The construction of
roads and
dams, financed mostly by multilateral loans and grants,
was
intended to generate employment to compensate for the
impact of the
regionwide recession. In reality, the development projects
served
to swell the ranks of public-sector employment and line
the pockets
of a small elite. The projects never sparked
private-sector
investment or created substantial private employment.
Instead, per
capita income continued to fall as Honduras's external
debt
doubled. Even greater injections of foreign assistance
between 1985
and 1988 kept the economy afloat, but it soon became clear
that the
successive governments had been borrowing time as well as
money.
Foreign aid between 1985 and 1989 represented about 4.6
percent
of the gross domestic product
(GDP--see Glossary). About
44 percent
of the government's fiscal shortfall was financed through
cash from
foreign sources. Side effects of the cash infusion were
that the
national currency, the lempira (L; for value of the
lempira--see Glossary),
became overvalued and the amount of exports
dropped. A
booming public sector, with its enhanced ability to
import, was
enough to keep the economy showing growth, based on
private
consumption and government spending. But the government
did little
to address the historical, underlying structural problems
of the
economy--its overdependence on too few traditional
commodities and
lack of investment. Unemployment mushroomed, and private
investment
withered.
By 1989 President Callejas's broad economic goal became
to
return Honduran economic growth to 1960-80 levels. During
the
decades of the 1960s and 1970s, the country's economy,
spurred
mostly by erratically fluctuating traditional agricultural
commodities, nevertheless averaged real annual growth of
between 4
and 5 percent. At the end of the 1980s, however, Callejas
had few
remaining vehicles with which to pull the country out of
the deep
regionwide recession of the 1980s. Real growth between
1989 and
1993 translated to mostly negative or small positive per
capita
changes in the GDP for a population that was growing at
close to 4
percent annually
(see
fig. 5).
President Callejas attempted to adhere to conditions of
desperately needed new loans. Cutting the size of the
public sector
work force, lowering the deficit, and enhancing revenues
from
taxes--as mandated by the multilateral lending
institutions--were
consistently his biggest stumbling blocks. Despite his
all-out
effort to reduce the public-sector deficit, the overall
ratio of
fiscal deficit to the GDP in 1990 showed little change
from that in
1989. The total public-sector deficit actually grew to 8.6
percent
of the GDP, or nearly L1 billion, in 1991. The 1993
deficit
expanded to 10.6 percent of the GDP. The Honduran
government's
medium-term economic objectives, as dictated by the IMF,
were to
have generated real GDP growth of 3.5 percent by 1992 and
4 percent
by 1993. In fact, GDP growth was 3.3 percent in 1991, 5.6
percent
in 1992, and an estimated 3.7 percent in 1993. The economy
had
operated so long on an ad hoc basis that it lacked the
tools to
implement coherent economic objectives. Solving the most
immediate
crisis frequently took precedence over long-term goals.
Data as of December 1993
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