Moody's Cuts Honduras Credit Again

Moody's Investor Service cut Honduras's credit rating from B2 to B3 today.

Honduras now has a rating equal to that of the Congo and Argentina.

The reason: the widening fiscal deficit of the Honduran government.  Moody's places Honduras's credit rating as tied for the worst rating in Central America:

Costa Rica     Baa3
Panama         Baa2
Nicaragua      B3
El Salvador    Ba3
Honduras       B3
Guatemala     Ba1

Moody's describes Baa as a low risk investment, Ba as a somewhat risky investment, and B as a risky investment.

Porfirio Lobo Sosa was supposed to get the government budget under control in 2013, but he didn't.  Instead, he let it balloon out of control, and the deficit went from 5.9% of Honduras's gross domestic product to 7.7 % of the GDP.

This news comes as Juan Orlando Hernandez celebrates his first 30 days in power, and amid reports that in general, investors are counting on him to turn the fiscal deficits around.

They just don't believe Honduras will achieve the goals his administration has set.

Slight Improvement in Homicide Statistics

The Observatorio de Violencia of the Universidad Nacional Autonoma de Honduras (UNAH) announced over the weekend that 2013 closed out with 6,757 homicides, yielding an average of 79.7 homicides per 100,000 population or about 18.5 homicides per day. 

That's consistent with their prediction that Honduras would close out the year with a homicide rate of 80 per 100.000 population.  Its also a clear improvement over the previous year, when the homicide rate was 85 per 100,000 population.  Honduras's most violent year was 2011, when there were 92 homicides per 100,000 population.

Aruturo Corrales, the Security Minister, however, is not satisfied.

He would have you believe that Honduras improved even more.  He claims his new "official" statistics recorded a homicide rate of 75.1 per 100,000 population, or about 17 per day. 

As we have previously indicated, the problem with his "official" statistics is that he changed the definition of homicide, and the way the information is collected, so that his data cannot be compared with any previous data about the homicide rate in the country.  Corrales relies on the police to collect and evaluate the data but will not make the data publicly available for independent evaluation.  The Observatorio de Violencia, on the other hand, uses a publicly auditable set of procedures to collect and evaluate the homicide data for Honduras, and their data and procedures are available. 

It's a case of "trust me" statistics versus auditable statistics.

Corrales resents being challenged on his sleight of hand with statistics, so much so that he is threatening to create his own official Observatorio de Violencia that would be part of the Security Ministry. 

He also claims Honduras is on track to reduce the homicide rate to 30 per 100,000 population by the end of this year. That would be quite astonishing.

Like a bad statistician, Corrales keeps trying to present short-term statistics as if they represent a lasting change in homicide rates.  Accordingly, he claims the current homicide rate, over the last 37 days (!) is 14 per day.

For some reason, Corrales thinks the fact that homicides are mostly concentrated in just a few municipios (like San Pedro Sula, La Ceiba, and Tegucigalpa) makes the security situation better. True enough: but then, the majority of the population is also concentrated in those few municipios.

Migdonia Ayestas, the Director of the real Observatorio, says the state should think carefully about how it invests its scarce resources, but that even if they do create their own Observatorio de Violencia, the current one at the university will continue.

Julieta Castellanos, Rector of UNAH, added:

Corrales claims all that we do is repeat the numbers that they publish; nonetheless, the data that they process is less than the number of events registered each day and UNAH cannot publish a report that doesn't certify how the data were compiled....I think that he (Corrales) wants the number to be decreasing and we as academics cannot say what isn't true.

Ultimately success will not be measured by statistics, but by how safe the Honduran people feel.  The bad news is that regardless of the source of current homicide statistics for Honduras, it still has the highest homicide rate in the world.

Cell Phone Blocking versus Cell Phone Interception

Honduras has embarked on a very stupid program of forcing its cell phone providers to block calls from within the 23 prisons in Honduras. 

It's not that the idea is necessarily bad.  But the implementation they chose is exceptionally stupid.

The Honduran Congress under Porfirio Lobo Sosa passed a bill that requires cell phone providers to block any calls from prisons. This is not something that is done easily in a standard cell phone base station and requires special programming (and probably required the purchase of that capability from the base station provider). 

The idiocy comes from the fact that the law specifies that for each prison location, no cell phone be able to complete a call, text message, or Internet connection within a one kilometer circle around the prison.

The Honduran Congress definitely shouldn't have specified a technical solution to what recognizably is a problem for their desired management of the prison population. But they did, and they chose the worst possible solution for the Honduran populace that lives near the prisons.

It probably bears emphasis that in Honduras, prisons are often located in densely populated areas surrounded by housing.

The residents of these cities and towns living within one kilometer of the prisons targeted are suffering because their cell phones don't work, either.  That means no emergency service calls for medical help, no fire protection, no calling the police to report a crime in progress. 

In some cases the congressionally mandated solution wipes out the telecommunications capabilities of businesses.  And the affected zone is not actually limited to the mandated one kilometer: people living 2-3 km away from the prison in Gracias a Dios cannot use their phones.

Why? Because the system works by geolocating each phone and determining its distance from the prison. This is not always an accurate process.

Arturo Corrales, the Security Minister held over from the Lobo Sosa administration, strongly supports the law, and today said

the common good is above the good of individuals.

But who defines the "common good" being served here? 

There's an awful lot of people who can no longer use their cell phones despite a legitimate right to do so.

Cell phone jamming has been proposed as a possible alternative technology, but in trials around the world, it has a mixed record of success.  If there's a cell tower near the prison, it can easily swamp the jamming signal, and managing the tuning of the jammers is time consuming and requires ongoing attention. 

The Honduran military already has this capability and deployed it in 2009 during the coup if Corrales wants to try it.

The technological solution that's most appropriate for what Honduras wants to achieve is called "managed access". 

In this system, the prison would establish a small cell phone base station to provide a radio umbrella over the prison. That umbrella can be tuned fairly accurately to only affect the prison population. 

When a cell phone connects to the system, the system determines if it is an authorized cell number.  Authorized cell phones are then connected to the commercial services.  Unauthorized cell phones simply stop working.

Such systems are available from multiple vendors and have successfully been used in US prisons.

Corrales alludes to efforts to study possible technological solutions that might limit blocking to just the prison, but in the meantime, Honduran citizens with legitimate rights to use a cell phone will continue to suffer because Congress inappropriately specified a technological solution it did not understand.

From RED to ZEDE: What Honduran Company Will Develop the First ZEDE?

One Honduran company, Energía Renovable de Honduras, S.A. (ERHSA) has already drafted a concept for a RED in Amapala, in 2011.  Their concept, illustrated in a video and a slide show, seems to advocate for the installation of tidal generators, solar concentrators, and wind power.

ERHSA has never developed or installed any of these technologies.

What the slides show is a bridge running from Coyolito on the mainland, to Punta Segundo, roughly duplicating the current ferry route.  The bridge would be 15 meters wide.  Below it would be a series of tidal generators.  The deck itself would contain a two lane roadway, and lanes for pedestrians and bicycles as well as a zone for the above water equipment used in generating and transmitting power.

A "dock" would run from Punta Segundo out to Isla Concepcion and would house a deep water port with docks for cruise ships, a cargo area, and fuel service.  Isla Concepcion would be developed with a single giant glass pyramid-shaped structure that would contain apartments, commercial space, office space, recreation space, and so forth.

A bridge running from El Tigre island to Isla El Pacar would allow that island to be developed with tourist hotels and a large marina.

Plans call for a commercial airport built in the water near Amapala on El Tigre island with an 8200 foot landing strip, taxiways, and hangars.  This should be long enough for most larger aircraft in service in Central America.  A road and rail system would circumnavigate the island, with a tram taking people to the top of the extinct volcano that formed the island.  Punta Segunda would be used as a shipping container storage area, and for utilities including fuel storage and a solar concentrator power station.  The island would also have a technical university, a water desalination plant, a water treatment plant, a hospital, and a technology center.  Amapala itself would have its own seaport with commercial, cargo, and recreational boat docking areas.

Wind turbines would be set up on the sides of the volcano itself on Isla Tigre, as well as along the bridge from the mainland, along the dock structure, and on Isla Concepcion.

It's an ambitious plan, well beyond ERHSA's ability to fund, and well beyond anything they've ever developed.

A major drawback of ERHSA's presentation is that it is lifted wholesale from other technology companies, like OpenHydro, which designed the tidal generators shown in the video.  There's no indication of a partnership between ERHSA and the key technology companies visualized in the video.  Instead, ERHSA announced a partnership with the Korean firm Soosung, which makes industrial lift technology.

ERHSA has a history, and it is not promising.

It is also the company that sold the Sayab wind project, just a gleam in their eye at the time, to MINERCO, when MINERCO was pretending to be an energy company. Filings with the SEC indicate that MINERCO never paid ERHSA for its rights to Sayab, so they may have reverted to ERHSA. 

ERHSA did not then, and does not now, have access to the funding to develop any of its listed projects.

What ERHSA seems to do well is imagining a project.  They have never had the funding to develop any of the projects they imagined. It is hard to believe that it would turn out well if their first project was of the scale envisaged in their proposal.

Amapala, La Alianza, and Nacaome Studied for ZEDE Development

Honduras yesterday completed the announcement that Ebal Diaz started on February 5.  At that time he pre-announced that a ZEDE would be established in Choluteca or Valle. His latest announcement adds some details, but it turns out there is a lot more information that could be shared, and has not been.

On Monday February 10 Diaz, along with Juan Orlando Hernández, annnounced that in cooperation with the Korean International Cooperation Agency (KOICA) they would do a study of where in southern Honduras to establish a ZEDE.  Their announcement said that once an area is selected, the Koreans will develop a master plan for the administration of the ZEDE.  Diaz said:

It's an ambitious project which we start this day with a study and design of the country's first economic zone.

But there's a lot Diaz didn't say that's revealed in a document freely down loadable on the Honduran Ministry of Planning and External Cooperation (SEPLAN) website.  This document, signed by members of the previous administration on August 23, 2012, lays out the project more fully.

Titled in English "The Feasibility Study and Master Plan for the Establishment of a Special Development Region in Honduras", the document is signed by representatives of KOICA, Coalianza, SEPLAN, and the then-Vice President of Honduras, Maria Guillen de Bogran.

This agreement was made before the current ZEDE law was passed (in June 2013) and thus refers to Regiones Especiales de Desarrollo (RED), the predecessor to ZEDES in the model cities legislation that was found unconstitutional.

KOICA agreed to contribute $4 million, and the Honduran government an unspecified amount, in support of the project. The first step called for was a feasibility study of three particular locations in southern Honduras.

The studied locations are Amapala in Choluteca, and La Alianza and Nacaome in Valle.  Amapala is on Tigre Island in the Gulf of Fonseca.  La Alianza is located on the Guascoran river which forms the boundary between El Salvador and Honduras and currently has poor access to transportation.  Nacaome is on the Pan American highway which runs in one direction to El Salvador and in the other direction to Choluteca and on to Nicaragua.

The record of discussions between KOICA and the Honduran government indicates that the feasibility study should take three months from its inception.  The three feasibility studies will be given to the Honduran government, which will then have one month to select one of the three locations to build out.  Then, KOICA will do a more complete feasibility study, a concept design, a master plan for the design and operation of the ZEDE, and an implementation plan, all to be delivered about 19 months after the site is selected, or about halfway through the Hernández administration's term.

While the agreement between KOICA and the Honduran government was signed back in 2012,  apparently Porfirio Lobo Sosa decided to sit on it.  Juan Orlando Hernández, who traveled to Korea to see their economic development zones while head of Congress, and who supports the idea of model cities and economic development zones in Honduras, decided to proceed.

Like the model cities law, the ZEDE law has been contested, and on February 8 the Honduran Supreme Court admitted a challenge to the law.  The challenge alleges that the ZEDE law violates articles 294, 303 y 329 of the Honduran constitution.  These clauses have to do with the ordering of the Honduran territory, the justice system, and the economic development of Honduras.

After admitting the legal challenge, the Constitutional branch of the court passed the case on to the Public Prosecutor, Oscar Chinchilla, for comments.  Chinchilla was previously the lone Supreme Court justice in the Constitutional branch who did not find the model cities law unconstitutional.  Further, he traveled with Hernandez on the trip to visit Korean economic development zones. This suggests it is unlikely he will find anything wrong with the ZEDE law.

In theory, Honduras says it has local buy-in from the mayors of these towns.  But the ZEDE law exempts lands adjacent to the Gulf of Fonseca and on the Caribbean coast from having to hold a referendum for the population to approve being incorporated into a ZEDE.

So it will not surprise us if Amapala ends up being selected for development: the possibilities there include everything from a new port to luxury ocean residential properties, all in an area that has continued to be subject to tension with Honduras' neighbors on the Gulf of Fonseca. All this, and no need to hold a popular referendum if this site is selected.

First ZEDE Pre-announced

Ebal Diaz, advisor to Juan Orlando Hernández, pre-announced the announcement of the first Zona de Empleo y Desarrollo Económico (ZEDE) in Honduras. 

ZEDEs, private economic development zones,  are the concept that replaced model cities after that law was ruled unconstitutional.  Arthur Phillips has an excellent summary on how the ZEDE law came into being here.

The new ZEDE will be on the Pacific coast of Honduras and will reportedly occupy a number of municipalities in the department of Choluteca and possibly Valle as well.   Diaz said:

I dare say that on February 10 prestigious investors from all over the world will come to the country to invest in factories in several locations in the Departments of Choluteca and Valle. 

Diaz indicated that the project had both Honduran and international funding, and would be formally announced on February 10.