Manuel Zelaya's Economy: The Other Side of the Coin

One of the arguments that supporters of former president Manuel Zelaya make in his favor has to do with the relatively high growth rates of Honduras' economy during 2006-2008. Mr. Zelaya himself often likes to take credit for the supposedly wonderful economy during his administration (2006 to mid-2009). In a letter that he wrote to President Barack Obama on Nov. 14, 2009, Mr. Zelaya pointed out with an underlying element of pride, "It has not been taken into account that I achieved the best economic indicators and the largest reduction in poverty in the 28 years of democratic life." If you only look at the economic growth figures for Honduras during Mr. Zelaya's shortened term, one would be tempted to think, "Hmm, not bad."

Be careful, though, because figures do not always provide the full extent of a story. Figures can be manipulated to tell any story one wishes. This is done by governments all the time in order to support their records. The U.S. government does this every year. U.S. politicians in their campaigns give totally different figures that tell completely different stories (in some cases, opposite ones) than what their opponents recount. One or the other has to be right, right? Sometimes neither is right. Sometimes, both are.

In the case of economic growth in Honduras, it is important to remember that one of the main reasons there was growth and some degree of temporary poverty "alleviation" was that the Zelaya government engaged in massive debt spending on social welfare programs -- spending that was made possible by the the largely debt-free situation that Honduras found itself in at the end of the Maduro Presidency (2002-2005). President Ricardo Maduro, with significant help from Cardinal Óscar Rodríguez, invested huge amounts of personal time and effort persuading the international financial community to forgive Honduras' debts. They succeeded, in no small part because of the World Bank (WB) and International Monetary Fund's (IMF) Heavily Indebted Poor Countries (HIPC) debt relief program targeted at the world's 39 poorest nations -- which included Honduras.

Remember, Honduras was still recovering from the tremendous damage caused by Hurricane Mitch in 1998, and thus there was still considerable international sympathy for the country and a realization that it could never pay back its debts, so it made sense to pardon them and allow Honduras to start fresh.

Almost as soon as it assumed power, the Zelaya administration proceeded to give away much of the money that had been saved as a result of the debt pardons -- money that was supposed to have been carefully invested in long-term poverty reduction programs, not short-term give-away schemes aimed at temporary relief -- as noble as that may have seemed at the time. Unfortunately, the Zelaya administration did not spend the funds in ways that helped empower people to be more productive and be able to sustain themselves over the long-term. President Zelaya's heart may have been in the right place, but he wasn't governing; he was simply handing out cash that would eventually have to be paid back by a future government or force a future president to yet again travel around the world begging for forgiveness.

In the short-term, this strategy fueled the Honduran economy because people spent the money they were given on food, clothing, housing, gasoline, cooking oil, and any number of other consumer items (vital as these are to daily life). But it didn't create a more competitive workforce and it did not begin to fix the institutional weaknesses and injustices of the country's governing and social systems. The Zelaya administration, like any other administration, spent a fair amount of time sidetracked, dealing with scandals and accusations of corruption and drug use. There were the obvious scandals like the one involving Hondutel and Mr. Zelaya's nephew, Marcelo Chimirri, but there were others.

In other words, Honduras' spurt of economic growth under the Zelaya administration was little more than a gimmick, an illusion. Something that was not sustainable -- much in the same way President Maduro's "mano dura" approach to tackling crime and gangs during his term was superficial, short-sighted, and unsuccessful over the long-term.

Homicides, kidnappings, gang activity, and drug trafficking all started to spike upward during the Zelaya administration.

Perhaps a greater contributing factor to the economic growth under the Zelaya administration, though, were the remittances from abroad. By far, the biggest generator of revenue for the Honduran economy are the remittances from Honduran nationals living and working (primarily) in the United States and Europe. The closest other sources of revenue are the coffee, maquila, and tourism industries -- each of which generate less than $1 billion per year.

The Central Bank of Honduras has been tracking these money transfers for many years. In 2001, remittances were estimated at $460 million; in 2002, $770 million; in 2003, $862 million; in 2004, $1.134 billion; in 2005, $1.763 billion; in 2006; $2.359 billion; in 2007, $2.512 billion; in 2008, $2.707 billion; in 2009, $2.408 billion; in 2010, $2.405 billion; in 2011, $2.610 billion; and in 2012, $2.761 billion.

Note the significant growth in remittances during 2006-2008. Those were the first three years of the Zelaya administration. The reason there was such a huge increase in remittances during those years is because the economic and social situation in Honduras was so bad that increasingly higher numbers of Hondurans felt so desperate that they had to emigrate to the U.S. The more Hondurans arrived in the U.S., the greater the increase in money sent back to families in Honduras, and voilà... more economic growth.

Whenever Mr. Zelaya and his supporters fondly recall his years in power and claim credit for the growth of Honduras' economy, there should be shame not pride, because the main reason the economy grew was due to remittances. A country that relies on remittances from its nationals abroad is a poorly governed country. Not only are Mr. Zelaya and his supporters not ashamed, they twist the facts in order to polish his record. Sympathetic economists and studies are quoted, but the analyses that these sources provide are limited because they mostly only look at the topline numbers, not all the other pesky stuff that goes with them.

So what happens is that history gets distorted, and the new story that emerges from the ashes of the discarded truth begins to be repeated so much that people -- even intelligent people -- begin to believe the strange concoction.