Responses to the Coup d'etat in Honduras on Sunday June 28, with special emphasis on producing English-language versions of commentaries by Honduran scholars and editorial writers and addressing the confusion encouraged by lack of basic knowledge about Honduras.

Saturday, July 4, 2009

The trigger was money, not continuity in office

As international media repeat that the center of the conflict between President Zelaya and his opponents was a supposed intention to remain in office (despite the self-evident fact that he had no control over the military, always the key allies in unconstitutional continuity in office), it is worth taking a step back and examining the long-term history. We have already seen how Honduran sociologist Leticia Saloman points to an alliance of media, business, and political parties, aided in the end as well by the military and church, as key in opposing President Zelaya's non-binding opinion poll.

But why were they all so bitterly opposed to this action? Honduran economist Miguel Cáceres Rivera, in a commentary in the form of an open letter to his brother whose poetry I refuse to violate by even attempting to translate it, provides the most complete rehearsal of the issues I have yet seen. What he demonstrates is that President Zelaya had accomplished several fundamental steps that lowered the cost of living for the poorest of the poor in Honduras, and raised their potential income. These gains came at the expense of the rich, who gave up some of their profit margin. It is the gap between rich and poor that swallowed up Zelaya.

Specifically, Cáceres Rivera lists the following actions, explaining whose interests were affected:

(1) Steps taken to reduce the cost of petroleum to consumers: this included putting into place subsidies; reducing the profit margin allowed by the distributors; and of course, entering into a contract through Petrocaribe that allowed purchase of fuel with long-term, low cost financing. Who benefitted: everyone whose job depended on fuel (taxi drivers, bus owners) or who would have ended up paying higher prices for goods if transport costs were higher (end consumers). Who lost: owners and investors in petroleum companies, who saw their profits reduced and limited.

(2) While I was aware of the oil contract issues, I was not aware that President Zelaya's government had persuaded bankers to reduce interest rates on home loans. Cáceres writes that these went from a range of 24-32% annually to one-half or even one-third of those rates. While 12% interest rates on home loans are still shocking, this one action would have made it possible for working Hondurans to remain in their homes as other parts of the cost of living rose. Who lost? obviously, banks whose profit margins were based on such high loan interest. Cáceres notes that these reforms actually allowed new banks, coming into the country from outside, to be competitive, offering loans at rates from 10.7% to 12.7%. He notes that this actually led to a boom in construction, and thus raised the income of the companies, from small to large, that supplied construction. In essence, he argues that while on the one hand business interests lost some interest income, the multiplier effect of the saved income, spent on housing, was good for the economy and for those capitalizing it.

(3) The raising of the minimum wage is the third factor Cáceres discusses. He notes that the costs of basic products within the country-- wheat, chicken, eggs, and palm oil (which replaced other sources of cooking oil in Honduras, even though the country still uses the word "manteca" translated elsewhere as "lard")-- increased as international prices increased, but then stayed high even when international prices declined. President Zelaya was unable to convince the producers of these goods to lower their prices, making an increase in the minimum wage the main way to give consumers enough purchasing power to survive again.

Cáceres then explores, as only an economist can, what these actions imply: a change in how economic growth is managed, and in particular, how the costs and benefits are distributed, that literally spreads the wealth around. But as he notes, this is a zero-sum game: what was previously managed by devaluation of Honduran currency (the lempira, which was for most of the 1990s constantly declining vis a vis the dollar) now is managed in other ways (and the lempira has remained notably stable, around 18 to the dollar, for the last few years). Devaluation, he explains, actually increased the supply of capital within the country as long as the minimum wage did not increase as the value of the lempira internationally declined.

To put it another way, labor that cost $10 in 2001 declined in cost to $8.50 by 2003, gains that exporting businesses and the banks financing them realized because they sold their products on the international market. Cáceres explains that those realizing gains and transforming them into sufficient consumption of imported goods actually passed the costs of their increased consumption onto the mass of Hondurans whose income was limited and who had to deal with increasing costs.

Cáceres gives precise numbers to illustrate what lies behind the differential patterns of consumption that exist today in Honduras, with imported luxury goods enjoyed by a minority while the majority use a new sector of sales of used clothing and goods to try to make ends meet. In 1989, the official pay for a farm worker was about $4.56 a day. In 2007, the official salary fell in value to $3.97 a day, declining 13% over 18 years. This, he notes, is an underestimate because he has not accounted for inflation at all, which means the purchasing power of the average worker will have eroded even more.

One outcome of this economic deterioration, he notes, is that 1.5 million young Hondurans have left the country, many as undocumented emigrants, in search of work they cannot find in the country. In addition, the main engines of economic development, small and medium sized businesses, oriented to internal consumption and thus lacking the means to profit from devaluation, have not been able to persist or expand.

Like Leticia Saloman, Cáceres points to the unprecedented concentration of economic interests in the hands of a few families that also monopolize most media as one of the features allowing the coup. In this group he includes the agro-food companies, the large export and import businesses, the banks, oil importers and refiners, large media networks, fast-food chains, as well as energy and telephone companies. He notes that Honduras has the highest prices for electricity, telephone, and fuel in Central America, benefitting this same network at the expense of medium and small business as well as the broader body of consumers.

Cáceres concludes that without some change, the gap between rich and poor will continue to widen as the rich benefit from structural conditions at the expense of the poor. Without changes, he warns,no matter what strategies to reduce poverty, no matter how much more well-intentioned international aid, no matter how much more focus on rural sustainable development, the attempts to battle poverty will be the perennial task of Sysiphus.

Cáceres identifies the stakes at play as economic, pointing to the potential, under a new constitution, that disadvantageous contracts that have given private enterprise exploitation of electrical generation and telecommunications for a fraction of what they could generate could be renegotiated. He notes that one of Micheletti's first actions was to return to international oil companies their monopoly on supplying oil, which President Zelaya had broken by his participation in Petrocaribe.

Finally, like Leticia Saloman, Cáceres notes that the existing governmental system is inextricably intertwined with the families that control these sectors of the economy. From this he concludes that a new attempt to reform government to allow broader participation is an unavoidable step, if there is to be fundamental improvement in the situation of poverty, and if there is to be more participatory democracy.


marcus medler said...

I understood he was building rural schools and fixing potholes in roads outside of the main towns, as well. These are threats to elites as well.

Johan said...

Can you please cite a source for the interim government's decision to leave the PetroCaribe cartel? I can't find any information on the Internet that corroborates that, though there are numerous articles saying it was Venezuela's choice.

This article says that Venezuela suspended shipments after Zelaya was deposed.

The Wikipedia article about Petrocaribe does not mention any changes at all.

RAJ said...

Our post here does not concern how the coup affected Honduras' relationship with Petrocaribe, but we are happy to take the opportunity to update this very old post.

We reported that one of Micheletti's first actions was to return to international oil companies their monopoly on supplying oil, as discussed by our source, Honduran economist Cáceres Rivera.

Petrocaribe suspended shipments to Honduras because they do not recognize the de facto regime. Petrocaribe is an inter-governmental group, and the agreements are guaranteed by the fact that the legitimate government authorities sign. No one speaking for Honduras at present is recognized as legitimate by any world government or body.

The cited article from Honduras News on July 8 is thus accurate. Quoted in that article, Venezuelan officials said “We cannot transfer the benefits of Petrocaribe to a dictatorship, and much less to a small group of industrialists who were responsible for a coup d’etat”.

When the Petrocaribe agreement came up for renewal in August neither side made any movement to discuss it. So it is suspended, not cancelled. The Micheletti government continues to make payments on the Petrocaribe loans, and continues to use the funds loaned back from Petrocaribe.

Wikipedia articles are only as good as the people who contribute.