Country Report Honduras July 2009

Outlook for 2009-10

• The ouster of the president, Manuel Zelaya, has left Honduras plunged into a profound institutional crisis. Roberto Micheletti, the congressional president, is due to see out Mr Zelaya's term.
• Given Honduras's acute dependence on international aid, it appears likely that the general election set for November 29th will be brought forward to allow a swift transition and re-establishment of international relations.
• Financing the budget will be a serious problem if multilateral inflows and grants are not restored quickly; this will force the interim government to make large spending cuts at a time when the economy is already contracting.
• Acute political uncertainties combined with the suspension of international aid flows will compound pressures on the quasi-fixed exchange rate. There is a growing devaluation risk if aid suspension becomes prolonged.
• A global recession and a contraction in the US economy, its most important trade and investment partner, is also hurting Honduras's economy. The US will contract by 2.9% in 2009, before staging a feeble recovery in 2010.
• Honduran GDP will contract by 4.4% in 2009 owing to a sharp decline in investment and consumer spending, before staging a recovery to 3% in 2010.
• The political crisis will impact the external accounts as exports have been temporarily suspended and import compression increases. This will result in an even sharper narrowing of the current-account deficit in 2009.

Monthly review

• The ouster of Mr Zelaya has exposed the profound underdevelopment of Honduras's political institutions and democratic culture.
• International condemnation has left the country isolated and suspended from the Organisation of American States (OAS), the first time the OAS has taken this action since 1962 when it suspended Cuba.
• Talks between Mr Zelaya and Mr Micheletti, led by Costa Rica's president Oscar Arias, and supported by the US, started on July 9th.
• The interim minister of finance, Gabriela Nunez, has prioritised the passage of the 2009 budget.
• Banking sector indicators have continued to deteriorate according to a report by the Banco Central de Honduras (BCH, the Central Bank). The level of non-performing loans (NPLs) has risen sharply and profitability has decreased.

Source: Country Report

This report covers the following industry codes:
SIC Code: 37;49;60;53;59;48;2834;80;1;70
NAICS Code: 336;22;52;44;517;3254;62;11;72