Country Report Honduras September 2009

Summary

Roberto Micheletti, the former congressional president, will continue to govern as de facto president, following the ouster in June of Manuel Zelaya, which has left Honduras in a profound institutional crisis.
The de facto government will go ahead with the November 29th general election in spite of international criticism and continued domestic protests.
Finding financing for the recently approved 2009 budget will be difficult and more spending cuts are likely in 2009, leaving the budget close to balance. The deficit will widen in 2010, reflecting a fast rise in catch-up spending.
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, its most important trade and investment partner, is also hurting Honduras. The US economy will contract by 2.3% in 2009, before staging a feeble recovery in 2010.
Honduras's GDP will contract by 4.4% in 2009 owing to a sharp decline in investment and consumer spending, before staging a recovery to grow by 3% in 2010.
The political crisis will have an impact on the external accounts. This will result in an even sharper narrowing of the current-account deficit in 2009 than previously expected.

The ouster of Mr Zelaya has hit the presidential chances of the Partido Liberal (PL), which is plagued with internal divisions. The opposition Partido Nacional (PN), however, is united around its candidate, Porfirio Lobo Sosa.
There has been no tangible progress with the international diplomatic efforts to have Mr Zelaya reinstated to the presidency.
Although relations have not been officially suspended, both the IMF and the BCIE were set to decide in September over their dealings with the interim government.
To defend the lempira, the Central Bank raised its Tasa de Politica Monetaria (TPM) by 50 basis points??