Envío Digital
Central American University - UCA  
  Number 105 | Mayo 1990



Neoliberalism Unopposed

Envío team

After a year laced with costly and festive electoral campaigning, Hondurans elected Rafael Leonardo Callejas as their new President in November. Callejas, of the National Party, won 51% of the vote, while Carlos Flores Facussé, candidate of the governing Liberal Party, received 43%. The Christian Democrats and the Party of Innovation and Unity (PINU), parties not directly associated with either the dominant classes or US geopolitical interests, shared only 3% between them (the remaining 3% were invalid).

While the votes monopolized by the two leading parties and even the pittance received by the centrist alternatives looked remarkably similar to Nicaragua's voting profile three months later, the difference is profound. In Honduras, the two dominant parties are as similar as the Democrats and Republicans in the United States, and no alternative espoused positions favorable to the poorer classes. In Nicaragua, it took a coalition of 14 like-minded-and not so like-minded parties to pull 55% of the vote; the FSLN, which received nearly 41%, is indeed a popular alternative.

Referred to as one of Central America's “emerging democracies” after nearly 20 years of military rule, Honduras' third election year in the past decade was defined far less by democratic process than by three other important and interwoven factors. The first was the multilateral lending agencies' increased imposition of austere economic measures. The second was the weaning of the military away from the political and economic power it enjoyed thanks to US subsidies during the Nicaraguan contra war. Last but hardly least is the progressive movement's weakness and lack of strategy. The inability of the popular organizations or political parties to effectively channel the poorer classes' desires for social justice left the dominant groups unhampered in their debate over Honduras' future.

Election promises: Who wins, who loses?

The Liberal Party did not have a glowing record on which to base a campaign to the masses. While Honduras' gross domestic product grew 17.6% between 1980 and 1988, per-capita income fell 29% in the same period, workers' real salaries dropped 26.4% since 1983, and unemployment climbed from 21% in 1982 to 30% in 1988. The production of basic foodstuffs also fell drastically in this predominantly peasant country, causing an 11% rise in food prices in 1988.

Yet the Liberal Party promised only more of the same. Facussé seemed little more than a sleazy trader in national interests. The National Party offered “change”: an end to corruption (though Callejas, too, was tainted with a corrupt past), and the image of a young, go-getter businessman who would help Honduras "pull itself up by its bootstraps.” The United States, the World Bank and the International Monetary Fund supported Callejas. After two terms of inept and divided Liberal Party rule, prostituted to the contras and the US military bases and accompanied by increased military corruption and power-mongering, it is a wonder that Callejas received only 51% of the vote.

For the people, electoral periods bring an almost ritual change of families linked to different traditions of political patronage; they enjoy the fray much as they would a cockfight. Given the deterioration in their living standard, they voted for a change, but for them it did not really matter who won. No candidate would or even could do more than tighten the public belt. None offered to end the salary freeze, in effect since 1981; none promoted a much-needed agrarian reform. None even offered an agrarian policy that would encourage the peasants to produce more food. The elections determined who would take over the reins of the neoliberal economic package and who would benefit most. The people were the biggest losers, as is always the case in Honduras.

This package of stabilization polices and structural adjustments, pushed by the international lending agencies and hotly debated by the upper echelons of Honduran society during the campaign, offered nothing to the people. It was dictated by the shifting needs of the international market and US regional geopolitics. Callejas' election permitted the consolidation of the rightmost neoliberal sectors, interested in aligning Honduras with their counterparts in the rest of Central America. Together they will march to the economic drumbeat of the lending agencies and US geopolitics.

Military platform, subsidized stagnation

There was virtually no structural economic change in Honduras between 1970 and 1988. Most notable was a 10% shift in the gross domestic product (GDP) from agriculture to trade and services, and minimal growth in industry. This phenomenon, which has occurred throughout the region, simply reflects the difficulty small peripheral countries experience in trying to shift capital from the circuit of exchange to the productive sphere.

Beginning in 1982, the United States selected Honduras as the regional military platform from which to fight El Salvador's revolutionary movement and destabilize Nicaragua's revolutionary government. The Honduran army became the beneficiary of the fastest growing US military aid in Latin American history, averaging $3.1 million per year in 1977-79, and $125 million annually since 1985. US economic grants, which averaged less than $30 million in the late 1970s, peaked at $145 million in 1986, for a 1982-88 total of $634 million. Together El Salvador and Honduras became the largest recipient of US aid per capita in the world. In addition, Honduras received $1.4 billion in bilateral and multilateral loans in the same period, nearly doubling Honduras' $1.9 billion foreign debt. In the same period, by contrast, Guatemala's foreign debt went up slightly more than half and Costa Rica's by only a quarter. While the respective government deficit of those two countries was 2.6% and 2% in 1988, Honduras' was 14%.

The country's conversion into a regional military platform has affected the behavior, if not the structure, of its economy. The Honduran government did not invest this avalanche of money to encourage efficient production; it threw it at producers and consumers in the form of subsidies to keep them quiescent. The expanded military presence actually hindered production. For example, the costly Cajón complex, with its hydroelectric plant, sawmills and paper factory, was installed in Olancho; that region is now a major military zone and the complex is virtually inoperative.

The export of goods and services—whose growth is the main goal of neoliberal policy—fell from 36.5% of the overall national supply (GDP plus imports) in 1980 to 31.7% in 1988. Export diversification took a backward turn, reestablishing Honduras' identity as a “banana republic” to the benefit of Standard Fruit Co., which still controls half of Honduran banana exports. Most other traditional and nontraditional exports contracted, with the exception of shrimp and lobster, also controlled by transnational corporations—and the Honduran military.

In sum, as of 1988 we have a picture of structural economic deficiencies and extreme dependence on transnational corporations and US assistance to the Honduran military. Since then, the population has already experienced two years of incipient neoliberal policy. The only remaining debate between the Liberal and National parties in the elections was when to radically devalue the national currency (the lempira) to make the short-term economic policy coherent, and what to do about the armed forces' corruption and extravagance.

Neoliberal packet phase one

A 1988 World Bank structural adjustment program and AID financial assistance agreement required Azcona to tighten the government's monetary policy (reduce the banking system's liquidity by restricting credits to producers), its fiscal policy (cut state spending and raise average tax income) and its salary policy (keep workers' salaries frozen).

Monetary policy. Here the results were mixed. The expansion of liquidity was halted, and credit to the private sector, which had grown by more than 15% during 1987, was reduced to only 3% in 1988. As a result, private investment, which had grown 7% in 1987, fell to -0.4% without the credits—and there is no growth without investment. The monetary stabilization conflicted with economic growth. In 1986 and 1987, the multilateral agencies had demanded cuts in state investment (a large part of it military), which dropped 27% and 22% respectively. In 1988, with no private investment, the state had to become the dynamic element of the economy. The government invested in the construction of public and private housing, schools, access roads, irrigation projects, rural electrification and communications. The construction sector thus grew by 7.5% and, since construction has a multiplier effect, cement production grew by 24%, fiber-cement panels by 15%, iron rods by 30% and mining by 6.5%. While this channeled income to a handful of industrialists, the credit cuts affected the majority of small and medium producers, especially of basic grains, coffee and cattle.

Structural adjustment, good for capital as an international whole, is not attractive to most capitalists in a small peripheral country. Left to its own devices, the capitalist class of a country like Honduras, characterized by inefficient and uncompetitive production, will never implement monetary stabilization and structural adjustment programs. While one logic of adjustment is to reward efficient exportation, another is to concentrate capital and eliminate producers less able to endure the restrictions. In Honduras, the policy did not even hit the mark of expanding export production; in fact, it subsidized internationally uncompetitive producers for the domestic market. But it was right on target in concentrating capital into fewer hands, which engendered serious discontent among small and medium industrialists as well as traditional and inefficient agroexport producers.

To respond to this discontent, the government allowed the agroexporters to cash in 40% of their export earnings with Foreign Exchange Certificates for Exports (CETRAS), originally designed to encourage nontraditional exports, at a lempira price double that of the official exchange rate. The concession neither assuaged producers nor stimulated exports; it just put money back into the economy. All these measures—as well as patronage policies such as selling cars for private use at half their international price—meant that the fiscal deficit expanded at the 1987 rate and represented 31% of total government expenses.

Fiscal policy. The multilateral agencies also demanded an increase in the government's tax income. Yet a 1988 Central America-wide agreement to lower tariffs so as to encourage regional trade meant a loss of income from the previous protectionist import taxes. To recover this loss, the Honduran government decided to end tax exemptions for industrialists and importers; in the end, it only had the clout to lift the exemptions of old and small industrialists in the Chamber of Commerce who were not protected by an industrial promotion law. It also increased the sales tax on liquor, beer, tobacco and petroleum products, but this new burden on the consuming public was not enough to offset the concessions to the large and foreign industrialists and the loss of taxes resulting from the drop in agroexports. By year's end, the government had collected even fewer taxes than in previous years.

Salary policy. The only program the government complied with more or less fully was the freezing of minimum salaries, which fell more than 4% in real terms in 1988. Furthermore, the undervalued price for export products not cashed in with the CETRAS and other harsh policies imposed on agroexporters led them to depress workers’ salaries to maintain their competitiveness in the international market.

The contradictory application of these measures resulted in a 0.4% drop in the GDP growth rate and a 2.5% fall in export volume despite improved international prices. In coffee, for example, despite technical assistance and cheap credit from AID, shrinking salaries led to a labor shortage at harvest time and a 280,000-quintal drop in coffee exports from 1987. A similar phenomenon occurred in bananas. Sugar production fell by 21% and beef exports by 9%, due mainly to the overvalued national currency. Although the lumber trade was privatized, lumber production dropped 24%.

Even with $115 million in hard cash provided by the United States to subsidize the military in 1988, the Honduran government could not stop putting money into circulation or restrict the fiscal deficit to the levels required. The only way to avoid more monetary instability was to default on its debt service payment to the World Bank and other lending agencies. In 1988, it went into arrears some $125 million, an amount now grown to over $200 million.

In 1989, despite adjustments to favor exports, GDP growth fell to 2.5%, 1.3% lower than 1988. Production for domestic consumption decreased, most drastically in the production of basic grains and other peasant products. As Table 3 shows, corn, bean and rice production has fallen almost steadily since 1985. The drop in beans and rice in 1988 was exceptional, forcing the country to import basic grains. Food prices increased, and doubled again in 1989. High unemployment levels and the inflation provoked by the costly imported grains further undermined workers' real salaries. The short-term result, according to initial estimates, was a 6% decrease in purchasing power.

These negative results were largely the product of the government's hybrid and incoherent attempt to respond to the lending agencies' stabilization program while still saddled with the US military platform, which required subsidies and appeasement. The results were to be expected. Azcona went as far as he felt he could to implement the stabilization program. To satisfy the military, which used much of its US subsidy to buy cheap lempiras on the black market for its own business dealings, Azcona decided not to devalue the currency. But it was the overvalued currency that discouraged export production; cattle ranchers, for example, exported less beef because prices were more attractive in the domestic market. To ward off an outburst of economic discontent in the upcoming election year, Azcona could not reorder relative prices or eliminate the myriad of subsidies to producers, importers and consumers. One such example was the subsidized price for fertilizers and insecticides for the production of basic grains.

The illogical first phase of the stabilization and adjustment program produced new problems that would force the country to implement even harsher austerity measures. This spiral of the neoliberal policy exploded in 1989 in the political camp.

The devaluation debate: New alliances forged

The spiral made another turn with the World Bank's decision in early 1990 to suspend further loans following non-payment on the previous ones unless new measures were fulfilled. Hard on the heels of its announcement, World Bank and IMF representatives landed in Honduras with a “letter of intent” enumerating the following harsh measures:

1. Devalue the lempira by 50% across the board and continue selective devaluations by broadening exporters' access to foreign exchange certificates.

2. Increase taxes on producers, regulate import taxes to the price of the dollar on the parallel market and reform the income tax law.

3. Increase taxes to consumers by raising public service tariffs, selective excise taxes and general sales taxes.

4. Reduce government size, freeze public employee salaries, privatize businesses under state control and prohibit new government investment contracts.

5. Catch up on debt-service payments.

Central Bank president Gonzalo Carías noted that these measures would benefit about 100 of Honduras' 4.2 million population. It was an accurate statement, but a bit cynical given Central Bank policies the previous year.

President Azcona rejected the measures, calling them a copy of the ones that had just caused public riots in Venezuela. He sought approval from the four presidential candidates for a draft Economic Emergency Decree as a counterproposal. The decree included all of the measures minus the devaluation, which would have been the kiss of death for Azcona's party in the elections.

Azcona did not get their support, but the debate exacerbated the split in the capitalist class. The large capitalists in the Honduran Council of Private Enterprise (COHEP) faithfully allied with the lending agencies, while the small and medium capitalists of the Chambers of Industry and Commerce rejected the measures. AID financed three COHEP seminars to push the World Bank/IMF proposal. Their titles showed AID's links to the neoliberal project: “The Chilean Economic Model and Industrial Parks,” “International Seminar on Privatization” and “Basis for a New Economic Development Model in Honduras.”

The US business attaché in Honduras warred President Azcona that if he refused to sign the letter of intent, AID would not disburse the remaining $70 million in balance-of-payments support. He further suggested that Azcona fire Central Bank President Carías. An outraged Azcona responded by refusing to receive the credentials of President Bush's new ambassador.

Behind this drama, a new alliance was taking shape. National Party candidate Callejas was the man of the transnational corporations and COHEP big-business interests. The medium-sized producers and industrialists in San Pedro Sula, whose organization was headed by opposition leader Jaime Rosenthal Oliva, put their hope in the less conservative and more nationalist Liberal Party. The military sought a role in the pact even though economic requirements were forcing a weakening of its power and the military platform itself was becoming less vital to US geopolitical needs. The United States was slowly moving toward a tactical negotiation with the revolutionary movements in Nicaragua and El Salvador, experiencing international pressure to demobilize the contras in Honduras and developing plans to assure its bases in Panama. By the end of 1989, the US would in fact invade Panama and infiltrate the contras back into Nicaragua to intervene in the elections there.

Although the Honduran armed forces fundamentally agree with US dictates and an antipopular economic project, there are different currents among the officers. In 1989, they were caught in a fight for power. Similar to El Salvador, this fight is mainly over the naming of the armed forces' chiefs of staff and takes place between hotly competitive graduating classes (“promotions”) of the military academy.

In October 1989, on the eve of the elections and the choosing of a new chief of staff, The New York Times exposed then-Chief of Staff Regalado Hernández’s uncontrolled abuse of US Military Assistance Program supplementary funds. The source of the article was a report by Honduran army officials detailing a chain of corrupt activities by General Regalado throughout his administration. It denounced the acquisition of anti-aircraft weaponry through a well-known international arms dealer, a contract with General Electric to supply sophisticated naval equipment in which Regalado pocketed millions, the commissions he charged for authorizing transactions, payoffs to him and his wife from the Ochsner Hospital and Clinic in New Orleans for granting it exclusive rights to provide the Honduran armed forces' medical needs abroad, and indiscriminate use of army personnel and infrastructure for his personal business dealings. Top officials even rumored that Regalado had used the Honduran presidential plane to transport prize pigs to his ranches, leading the plane to be dubbed “the pigsty.” On top of all this, the report accused the general of having bought off journalists, many of them top national reporters. This explained the media's glowing praise of Regalado, even following the publication of some of this material in the Times.

Regalado, a member of the retiring Fifth Promotion, had angered members of the powerful Sixth Promotion by nominating Arnulfo Cantarero, one of its most irrelevant and unpopular members, for chief of staff. His win would represent the Sixth's last chance to control an armed institution plagued with emerging promotions equally ambitious for power. For Regalado, Cantarero was an un conditional ally who would prevent investigations into Regalado's corrupt activities. He would also guarantee Regalado's personal security, whether by providing hundreds of bodyguards or by pushing for him to become Honduras' first ambassador to open diplomatic relations with Israel. That country offered the best conditions to protect him against Matta Ballesteros, a powerful drug trafficker Regalado Hernández had handed over to US authorities. Such a betrayal is one that mafia dealers—with whom Regalado himself surely had connections--repay with death.

Regalado reportedly went from battalion to battalion with dollars in hand, promising immediate promotions to lieutenant colonels of the Ninth and Tenth Promotions to get support for Cantarero on the armed forces' Supreme Council. Cantarero was elected.

Callejas government: The first steps

A 100% devaluation (from two to four lempiras to the dollar) went into effect in the Central Bank 15 days before it was officially announced on April 1, 1990, within days of Callejas' inauguration. Ten days later a mini-devaluation put the dollar at 4.16 lempiras to compete with the black market, which had climbed to 4.40. Adding to the staggering drop this devaluation caused in the purchasing power of workers and peasants, the government increased sales tax from 5% to 7%. The measure aimed at transferring 500 million more lempiras from the people's pockets to the Central Bank.

These two measures sparked immediate discontent among consumers, to say nothing of merchants hurt by the population's drop in purchasing power. State-sector salaries remained frozen, creating further tensions among public employees, particularly teachers. The devaluation particularly hurt small and medium producers and industrialists, deepening their existing tensions with COHEP. Conflict between the Independent Banana Growers Association and Standard Fruit intensified when the gigantic firm closed its access to the international market.

As a strategy to contain this social unrest, Callejas created a Social Investment Fund with some $25 million in AID money. This fund will create 10,000 temporary, Pinochet-style emergency jobs and feeding centers for children of the neediest families. This strategy to cushion the neoliberal measures does not include any agrarian reform; the tiny budget of the National Agrarian Institute (INA) has even been cut. Christian Democrat Juan Ramón Martínez is considering quitting his new position as INA director, recognizing that he has no space to run it within the “Unity and National Agreement” proposed by Callejas. Popular organizations plan to add their protest to that of Martínez.

There is not yet much clarity about how to include the military in the new alliance. With an austerity package bound to promote social unrest, Callejas cannot afford any uprisings within the armed forces. So far, Callejas has announced a 10% cut in the military’s estimated $125 million budget, and closed down the National Council for Industrial Development, a facade used for military business. The military has responded to these measures with absolute silence, but there are rumors that the US is negotiating with the Sixth Promotion. An April 2 attack on US soldiers was attributed to Honduran guerrillas, but the military forces disguised as guerrillas perpetrated other similar attacks to get more US military aid. The recent attack could have come from officers dissatisfied with the new alliance or from groups outside the negotiations with the United States. In either case, the tactic backfired this time; the United States began to withdraw its troops and cancelled military maneuvers.

Limits to the project

The neoliberal project in Honduras faces three major limitations.
1. It has been unable to stimulate either traditional or nontraditional exports to date, and has failed to develop Honduras' comparative advantages in wood and refrigerated meat. The recent devaluations should improve exports in these two categories, although the limitations describes will delay their macroeconomic impact.

2. The economic structure is dominated by transnational corporations that send a large part of their profits out of the country. By stifling the development of small and medium-sized national enterprises and peasant food production, the neoliberal project will increase Honduras' dependency and put a further brake on the dynamic of its domestic market. Growing social instability, resulting from high levels of demographic growth and even higher levels of unemployment, promises an adverse climate for foreign investment, particularly given the new possibilities opening up in Eastern Europe.

3. World Bank expert Hans Binswanger points out the major vicious circle facing Central American countries entering a structural adjustment process. Given their foreign exchange and fiscal crises, they lack the resources to stimulate investment in agriculture—the very source of national growth that offers a promise of getting them out of those crises. This type of investment normally requires several years to mature and the countries have neither the hard-currency investment capital nor the institutional capacity for this medium-range effort. They also lack technical knowledge of the peasant economy or the production systems of small manufacturers, knowledge that would enable them to transfer resources from currently inefficient agroexport production, which eats away the base of national resources, to these producers who use financial resources more efficiently. Binswanger adds that in countries such as Honduras there is no experience or capacity to balance food assistance programs for the poorest sectors while stimulating national food production through increased prices.

The popular movement overcoming its weakness?

Callejas’ major advantage during his campaign, and now in the first years of his administration, is the popular movement's weakness. In El Salvador, Nicaragua and Guatemala, the wave of new neoliberal governments has faced strong popular opposition. Both in Nicaragua, where the FSLN still has the army, and in El Salvador and Guatemala, with the guerrillas of the FMLN and URNG, the quota of popular military power constitutes the main source of division between the “moderate pragmatist” neoliberals and the “extremists.” In Honduras, the Left tried to imitate the political-military movements of those other countries, and failed. In 1989, the police and death squads hit the weak and atomized popular movement hard. Their main leaders received repeated death threats, made good in some cases. Some, victims of dynamiting attempts, saved their lives by pure luck.

Progressive forces in the other Central American countries have seen the need for a less top-down mass line and more space to mobilize the masses based on their immediate economic needs. The relative stagnation of these mass movements is due more to the need to renew their mass line and political capacity in the new period than it is to deficiencies in their revolutionary military force or in party royalty and discipline. In Honduras, the progressive forces are internally divided and still cling to outdated leftist formulas.

Popular electoral strategy... or lack thereof

Honduras' organized popular movement did not take seriously its responsibility to the people in the three electoral campaigns in this decade. In the first case, it limited itself essentially to criticizing the elections as a bourgeois scheme; in the second, to retreating even from an analysis of them; and, in the most recent one, to pulling back from its ties to the broad Honduran masses. When progressive parties did participate in elections—as in the case of the Honduran Patriotic Front—they did not succeed in developing any kind of alliance, much less any propaganda that moved beyond small politicized circles in important urban centers.

In the 1989 elections, a few groups began to make their positions known in the last half of the year. The Communist Party, which has some influence in trade union circles, criticized the bipartisan nature of the two leading parties and called on its militants to vote for the PINU. Sharing this criticism, the Unitary Federation of Honduran Workers (FUTH) simply suggested that its followers vote for any of the smaller parties. FUTH holds a nationalist position within the union movement, defending sovereignty and workers' interests, but maintains a position independent of the leftist political military organizations.

Support for PINU or the Christian Democrats was not a brilliant option. These elections may have been their last opportunity for public presence. Sharing barely 3.3% of the total vote after two decades of existence, they are little more than useful adornments highlighting the traditional parties as the only political structures capable of mobilizing and controlling the Honduran people.

The last elections confirmed that the Honduran people are still very marked by the long history of traditionalism, dependence on authority figures and, above all, promises from above. Whether because of that traditionalism or the control of the established power, or even the patronage that surrounds the parties and their candidates, the people still put their hopes for change in the electoral process. It is, thus, an activity that no political sector can yet eschew if it truly seeks to make proposals that reach the majority of the people.

At the same time, however, the unprecedented 26% absentee rate in the recent elections shows an emerging critical consciousness in a sector of Honduran society. While still few, these people could be looking for an alternative to traditional parties that try to appear rejuvenated without ever separating themselves from a history that tarnishes even young leaders like Callejas.

A new road: Doing electoral battle

A month before the elections, a new alliance was born with great fanfare. The Unified Popular Alliance (APU) joined together the National Farmworkers Confederation, students, a sector of the teachers union, several workers’ unions and groups of organized women, almost all of whom have a history in Honduras' political left. APU's first public proposal took up the electoral process by promoting the creation of a new political party. The proposal has initiated an important debate in the various political sectors of the Honduran Left. It could be a channel for the aspirations of the popular sectors and a way for the Left to find some national political space.

Open discussion forums held in the last months of the electoral process were another indicator of the change in political focus among popular leaders. The movement issued various calls for unity, based on minimum platforms of struggle, such as the document "For the Democratization of Honduras," proposed in October by FUTH, the Federations of University Professionals of Honduras, the Honduran Federation of Cooperatives and the Independent Federation of Honduran Workers, among others. The indicator was, of course, APU's call to form a new party. A major task for the coming year will be to further this unity. The popular movement's path is still strewn with pitfalls. Honduras' capitalist class, advised by the multilateral lending agencies, is becoming more sophisticated. With the disappearance of the old socialist schemes tainted by Stalinism, the movement must heal its sectarian wounds, evolve theoretically with proposals that can draw in the masses and, above all, develop the economic side of the movement, the only realistic basis for a viable political alternative. This will mean working with the cooperatives and groups of urban artisans, organizing grassroots technical assistance and popular education involving production, not just politics. Perhaps even more than any other factor, the movement's ability to do this will determine the possibilities and limits of the new government.

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Neoliberalism Unopposed

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