Controlling the Supreme Court

The Honduran Supreme Court last week rolled over and offered its belly to Congress, voting 10-3 to open a disciplinary investigation into justice Marco Zuniga.

Zuniga, you will recall, wrote a scathing letter which he made public to chief justice Jorge Rivera Aviles in which he accused Rivera Aviles of being an alcoholic.

The Supreme Court vote came shortly after Congress threatened to dismiss Zuniga if he maintained his confrontational attitude with Rivera Aviles.  The threat came from Congressman Oswaldo Ramos Soto, chief author of many of the laws the previous Constitutional Branch of the Supreme Court found unconstitutional.  Ramos Soto says that Congress gave Rivera Aviles special powers to have full authority over personnel within the court, to re-assign justices to other positions within the Supreme Court, and to appoint the new council that will in the future, review and appoint judges. 

Ramos Soto said:

It's too bad that in the highest court of justice you have this type of problems.  I recommend to the magistrates involved that they moderate their tempers, calm down, because if it comes to Congress, Congress is ready to make the call, including firing them for insubordination in the Court.

The Supreme Court took the action of opening an disciplinary investigation into justice Marco Zuniga after voting 10-3 to confirm that Chief Justice Rivera Aviles was authorized by Congress to move judges around between the branches of the court, an unprecedented action.  Neither Rivera Aviles nor Marco Zuniga participated in the voting.

Congressional threats are not limited to the Supreme Court.  Now that Congress has given itself the power to remove anyone in government, it is considering removing the Public Prosecutor, Luis Rubí, who has a lousy investigation and conviction record. 

During the discussion of a revision to the law code to address hate crimes against women, Juan Orlando Hernandez said:

In advance, I tell you, I would not take it badly that as we are evaluating the performance of the Supreme Court and the Police, that this be done with the public prosecutors.

Marvin Ponce has said Rubí will be the first political justice case tried under the new law. 

This statement comes just after the Comisión de Reforma de la Seguridad Pública (CSRP) issued a report requesting the anti-corruption prosecutor be removed for corruption and incompetence, and a second report supposedly financed by the US Embassy was produced, recommending a complete reorganization of the public prosecutor's office. 

Marvin Ponce, vice president of Congress, confirmed he's heard of these reports, but the actions that might be taken are just rumors.

As Rafael Padilla of the Lawyers Against Corruption said:

The tragedy of Honduras is that justice is political, not legal, a product of the autocratic government that prevails.

As if to underscore Padilla's point, the Supreme Court ruled 9-4 with two abstentions to uphold the police cleanup law, the very same law that the four justices illegally fired by Congress said was unconstitutional because it failed to provide for the due process rights of the accused. So Congressional moves to remove justices who dared to disagree with them worked: from here on, expect Congress to be able to act with impunity.

Another Questionable Power Deal?

On February 12 Emil Hawit, the head of the National Electric Company (ENEE in Spanish), and Porfirio Lobo Sosa signed a letter of intent with the Spanish company Isofotón, to construct a 50 megawatt photovoltaic power station in Honduras.

The powerplant is supposed to be expandable to 150 megawatts.  The investment needed to make this happen is estimated at $200 million dollars.  The location of the proposed power plant was not announced, but is said by the press to be somewhere in the south of the country in Choluteca.  Hawitt told El Heraldo

 "they've been working on locating the right place and gave me the required information in meetings held at ENEE."

Juan Orlando Hernandez told Congress that an important agreement had been signed for the construction of a solar power plant in the south of the country as part of the reborn model cities initiative.

Hmm...model cities initiative in Choluteca.  That should sound familiar to our readers.  Choluteca is one of the three locations mentioned in every discussion of model cities in Honduras.

Isofotón is a privately owned company and as such releases no financial information.  The Affirma Business Group owns 80 percent, and a Korean company called TOPTEC owns the other 20 percent.  TOPTEC, a specialist in industrial automation, reportedly already has an office in Honduras.

But Isofotón is in financial hot water.  According to PV Magazine, which covers photovoltaic markets, it is contemplating bankruptcy filings.  It has told Spanish government officials that it has begun negotiations to refinance its debt.  A Madrid law firm has set up a web page soliciting Isofotón's creditors to represent their interests in insolvency proceedings against Isofotón.

In 2009, Isofotón's sales dropped 83%.  It had three different CEOs in less than a year.  Then in 2010 it was acquired by Affirma Energy Engineering and TOPTEC.  Its profits have dropped from a high of 10 million euros to less than 5 million this year.  Meanwhile in Spain Isofotón has responded to three days of protests by its employees threatened with layoffs by announcing that on March 5 it will release the terms under which it will lay off 380 of its 600 Spanish employees.

It is currently building a manufacturing plant in Toledo, Ohio, scheduled to open in July, and in February partnered with China National to acquire minority share in Tianjin Lishen Battery Co. to build solar panels in China.  At the same time as Isofotón announced the Honduras deal, it announced a new partnership to build a photovoltaic manufacturing line and polysilicon plant in Kazakhstan.

Isfotón CEO Angel Luis Serrano told Bloomberg:

We want to increase manufacturing capacity and that will happen in the United States, China and Latin America rather than in our plant in Spain.

Its Latin American presence is limited. In addition to Honduras, Isofotón signed a memorandum of understanding with the government of the state of Yucatan in Mexico for a 150 megawatt photovoltaic generation plant to be built starting in 2014.

As with other proposed investments in power generation in Honduras, this deal seems rocky from the start. Where will this $200 million investment in Honduras come from?

Reading between the lines, Isofotón is depending on the Honduran government to act as intermediary and connect it with either governmental, NGO, or private money interested in actually investing in the project.  It does not have access to the funding to build the plant on its own. We aren't quite in the position of concluding this is another questionable power deal-- but we certainly can raise the question: is this another deal doomed to fail?

Please Buy My Bonds.....

Honduras is broke.

It can't pay government employees, contractors, or suppliers.  Its not unusual for teachers to go six months between paychecks under Porfirio Lobo Sosa.  Road construction has stopped again due to government debts to the construction companies.  It stopped paying the IHSS, the government health provider, the fees it collected from government employees to pay for their health care, prompting IHSS to threaten to cut off government employees.

So what does a bankrupt government do?

Honduras is now seeking to privately place over $750 million dollars in bonds.  In that private placement, it is using Barclays and Deutsche Bank as its agents.  These two banking firms have been hired by the government of Honduras to set up meetings with potential investors.  Meetings have now been set up in London (March 4), New York (March 6), Boston (March 6) and Los Angeles (March 7).

But there's a last minute hitch. Congress, which had to vote to allow the issuance of these bonds, changed the term from 8 years to 10 years.  This increases the amount the government of Honduras will have to pay out to investors by prolonging interest payments for two more years.

If that wasn't enough, both Moody's and Standard and Poor's dropped Honduras's bond rating this week because of what they called the risk of investing in a country where there the government cannot pay its existing debts.  Moody's also changed their outlook from "stable" to "negative".  This in turn will raise the interest rate that Honduras will have to pay on the bonds.  Moody's indicated that the downgrade was caused by

a worsening in the external finances of the country's economy, reflected in an increase of the deficit which is only partially covered by foreign direct investment.

The public debt in Honduras, according to Moody's, is about 35% of its gross domestic product, which is moderate. 

But that is not the whole story. Because of the temporary cessation of international funding under the de facto regime that ruled in 2009 following the June coup d'etat, the country had to rely on internal credit markets, which were costlier, raising the government's debt payment burden.  Debt service (principal and interest payments) was about 10% of the budget last year, up from 3% of the budget in 2008.  Much of this increase is due to the debt shift from external to internal credit markets under the seven month de facto regime.  Both Moody's and Standard and Poor's cited the increased costs from using internal credit markets in their downgrades.

So off to market with $750 million dollars in bonds with a newly downgraded credit rating and an extended term of payment, just a week before the private placement meetings kick off in Europe and North America. Not the kind of bargaining position anyone would like to be in.