THE BLOG

Honduras: Inklings of Mr. Hernández's Governing Style

The Hernández administration has already begun. Oh sure, President-elect Juan Orlando Hernández is not scheduled to be sworn in as President of Honduras until January 27, 2014. But that's really more of a technicality than anything else. Judging by the unusually significant moves taken by the lame duck Lobo government during the past few days, it's clear that Mr. Hernández is now calling the shots and laying the groundwork for the smoothest possible transition to his own four-year term in office. With President Lobo's firing of his controversial police chief, Juan Carlos "El Tigre" Bonilla (dogged by allegations that he ran "death squads" when he was a low-level officer), last week and congressional passage of huge tax hikes on Saturday, Mr. Hernández will now have more flexibility to act in two key problem areas: security and public spending.

In many ways, the proactiveness of Mr. Hernández in convincing Mr. Lobo to push through these changes is a good sign in terms of governance. He demonstrates that he is able to think ahead, make tough decisions, and persuade people to follow his lead. Note that this should not come as any great surprise to anyone who has been tracking Mr. Hernández's record as president of the National Congress during the past four years. While you can question the ethics, constitutionality, and wisdom of some of his legislative initiatives, it's much harder to doubt his intelligence, cleverness, and behind-the-scenes strong-arming skills. Say what you will about Mr. Hernández, the man should definitely not be underestimated. He is young (only 45 years old), extremely ambitious, and as politically savvy as they come.

The firing of Chief Bonilla will allow Mr. Hernández to deal more easily with the US Congress, whose more liberal members have been irritated by Honduras' human rights record, and particularly by the allegations against Mr. Bonilla. Any suspected ties to death squads has the effect of resurrecting unpleasant memories of shady activities in Central America in the 1980s by the Reagan administration. With Mr. Bonilla out of the picture, Mr. Hernández will have a much easier time trying to obtain additional economic and military assistance from the US.

Meanwhile, the tax increases, or "fiscal reforms", are designed to raise about $800 million in additional revenue each year to help pay off Honduras' soaring public debt -- now at $2.9 billion -- and pay the salaries of public employees. But primarily the increases are aimed at placating the International Monetary Fund (IMF) in advance of negotiations with that institution to come up with a new credit deal for Honduras that will further ease the country's growing liquidity and foreign debt crises. If Mr. Hernández and his team can enter these talks showing that they have already taken some distasteful fiscal medicine by raising taxes and cutting spending, then the bargaining will likely go much more smoothly and some sort of a deal with the IMF will be cut by spring or early-summer.

According to Reuters, "The legislation raises taxes on gasoline and eliminates a sales tax exemption for dozens of basic consumer goods and services. Telecommunications services will also face higher sales tax under the law while an electricity subsidy will be reduced. The law also freezes 2014 budget allocations and transfers to ministries, cities and state governments at their 2013 levels, while imposing new sanctions on officials who over spend."

The fiscal reforms will undoubtedly hurt the poor and the middle class, but Mr. Hernández does not see any other short-term solution to the liquidity problem, and so he's willing to force the population to swallow the harsh medicine in the hope of buying time to get the country's fiscal house in order. This is an example of Mr. Hernández's ability to make tough decisions. But it also an example of the man's cleverness. Note that during his presidential campaign, Mr. Hernández promised he would not raise taxes during this administration. By getting Mr. Lobo and the current Congress to do the dirty work for him, he can avoid soiling his own hands. He gets his much-needed revenue and he keeps his promise. Priceless.