Honduras will seek to sell $250 million in sovereign bonds in the United States in December.
To that end, it dispatched a team of government dignitaries to the United States to discuss the markets and the feasibility of placing the bonds. María Elena Mondragón, head of the Banco Central de Honduras,
and Wilfrido Cerrato, the Finance minister, will meet with
Representatives of the International Monetary Fund and the World Bank to
talk about the possibility of placing these bonds at an acceptable
rate. The funds raised will be used to support 2013 government spending.
The last time Honduras sought to place bonds, they found the 10% interest rate that would have been required too high. That seems unlikely to be much better now. In August, S&P reduced Honduras's debt rating to practically junk levels.
The Lobo Sosa government has been chronically late in paying government employees and contractors. Just today it reported that it had 5,900 million lempiras (about $295 million) backlog of payments owed, a backlog that it currently cannot pay.
Part of that debt is due to inefficiencies in collecting taxes owed the government. Collections are running about 2,000 million lempiras ($100 million) behind projections and have been since April. The other part is due to spending more that was even projected to come in through taxes and other forms of income.
The bonds Honduras seeks to place in the US capital market are not all it needs to close out the year. It will also seek to place a further 3,000 million lempiras ($150 million) in bonds internally. The Honduran government projects that if it places all these bonds, it will close the year with its debt equal to about 40.7 % of the Gross Domestic Product, better than the 45% of GDP predicted at the beginning of the year.
Honduran government monetary policy, especially the tactic of not paying segments of the workforce, has resulted in numerous public employee strikes. Last week it was the transit police, who were owed two months salary. This week it's the doctors, janitors, nurses, and medical staff at government hospitals, who are owed more than three months of back salary.
The police settled their strike after receiving one month's back pay.
Instead of paying the medical workers part of their back pay, Lobo Sosa had their strike declared illegal.
There is no money to pay these government workers without placing bonds, in part because of the $18.7 million payment made mid-September on the existing $500 million in bonds.
Do we need to say it: Honduras is broke.
Showing posts with label Banco Central de Honduras. Show all posts
Showing posts with label Banco Central de Honduras. Show all posts
Monday, October 14, 2013
Sunday, March 3, 2013
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
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.
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.
Monday, September 5, 2011
Honduran Coffee Break
It may be time to buy Honduran coffee. But cautiously.
I myself prefer tea. But when I began doing research in Central America, I learned to drink coffee. Tea bags were imported and very expensive, especially unaffordable the summer I was given $10 a week as a stipend.
Cafe El Indio ads saturated billboards and radio. The coffee that I remember most fondly was prepared on visits to the campo, prepared from whole beans roasted one batch at a time. Back in La Lima, though, coffee came from little brown paper bags with the logo of a Plains Indian in war bonnet printed in red, where the coffee tasted a lot like the bag.
Coffee is big business in Honduras. Costa Rican and Guatemalan coffee may have more brand-visibility, but Honduras actually produces more coffee than Costa Rica, and depending on the source you consult, close to or more than Guatemala. The Honduran government has just announced projections of production for the current season that would make the country the second largest producer of washed arabica beans (the variety that is desirable for fine coffee drinking), remaining only behind Colombia.
Coffee cultivation is ubiquitous in Honduras: a USDA overview this April reports that coffee was being grown in 213 of the 298 Honduran municipios, distributed in 15 of the 18 departments that comprise the country. According to the same source, 30% of the Honduran population was employed in the coffee industry. Domestic consumption has been rising, fueled by urban coffee shops that are in demand for internet access, up 56% from 2008 to 2009. But still, most of the crop (90%) is exported.
Not all of this production comes into world markets labeled as Honduran.
Substantial amounts of Honduran beans used to end up purchased in Guatemala and mixed with Guatemalan beans, since, as a 2010 USDA report put it, "Guatemalan coffee is often sold at a premium in the international market, while Honduran coffee is typically sold at a discount". One year later, that statement had been changed to reflect a new reality; now importers are "more aware of the quality coffee that it is being produced in Honduras which has increased demand within the formal market".
Consequently, one of the reasons Honduras is expected to move into second place as a world coffee producer is "a sharp drop in smuggling Honduran beans to Guatemala" leading the year's projection to be increased from 3.8 million bags to 4.29 million. In 2010, the estimate was that between 400,000 and 650,000 bags of Honduran coffee made their way across the Guatemalan and Nicaraguan borders without being registered, to be consumed under the names of these more established premium coffees. But as Dow Jones notes, "so far this season, Honduran coffee has been fetching higher prices than Guatemalan coffee, averaging $2.46 per pound through Aug. 3, as Honduran coffee gains quality recognition". This year, only 260,000 bags of Honduran origin are expected to trickle across the borders as contraband.
Not coincidentally, Honduran media are also reporting new funding of 11 million lempiras (about $560,000) invested in businesses of coffee producers in Sensenti, in the western Honduran state of Ocotepeque. The funds come from a public-private initiative supported by the World Bank and the Honduran government. About 4 million lempiras ($203,000) of the funding is in the form of loans from private and commercial sources.
A key goal is to increase the export of fine and "special" coffees in the international market. Already in 2005, the USDA report tells us, Honduras established a "Denomination of Protected Origin" for coffee from Marcala. In April 2010, the USDA reported that less than 8% of Honduran coffee produced in 2008-2009 was "specialty coffee", the kind that ends up being labeled by origin at trendy coffee shops. By April of this year, the proportion had risen to about 14%.
One of the two groups receiving funding is committed to increasing the production of "eco-friendly" coffee by 40%, which their business plan reportedly says should increase net earnings by 50% (due to the premium price that would be received for the more select coffee).
Coffee exports continuing to increase are critical if Honduras is to decrease its trade deficit on commodities. Earlier this year, the Banco Central de Honduras projected a deficit of about $6.3 million. At that point the year-to-year comparison showed the deficit larger than in the comparable period in 2010. Coffee exports were specifically singled out as promising to keep the deficit lower than would otherwise be projected. Coffee made up over 48% of commodity export income at the time of that article, with bananas far behind at just over 8%, and African palm oil, gold, melons, shrimp, sugar, silver and zinc following.
But is this all good news?
Concerns have been raised about the ecological impacts of increased coffee cultivation.
Indiana University anthropologist Catherine Tucker notes that
As long ago as 1999 a writer for Honduras This Week noted the negative ecological effects of the introduction of sun coffee, which eliminates the need for shade, and thus the incentive to maintain a more mixed vegetation that Tucker argues maintains a similar biodiversity to forests. The Honduran Coffee Institute IHCAFE in 2008 claimed that shade-grown coffee constituted 98% of that grown in the country. Ellen Mickle, who studied Honduran coffee growing for her 2009 BA Honors thesis in Environmental Studies at the University of Nebraska, placed the proportion of shade coffee in Honduras at between 65% and 98% in a 2010 article for Roast magazine.
The amounts paid most coffee workers do not constitute a living wage. US Embassy sources note that even low-wage vegetable farms paying 150 lempiras a day ($8) offered better pay than coffee picking, which paid only 80 lempiras (about $4.25). Progressive media have also questioned the use of child labor in coffee cultivation.
And then there is the question of the social impacts of coffee production, where the most valued lands are located precisely where the people with the most vulnerable economic and social positions live, including many indigenous communities. The research results are actually reasonably promising, although not due in the end to government policy so much as grass roots Honduran initiative.
Anthropologist Tucker's paper for the 2008 conference of the International Association for the Study of Commons describes strategies used by the Lenca community of La Campa, located in a coffee-producing area of western Honduras, to maintain control of land. Here, even as coffee production increased
These positive findings were tempered by observations of increased inequality, especially in land access. As Tucker notes, in a pattern unique in Central America, Honduras did not redistribute land to large coffee plantations in the 19th century, one of the factors delaying the expansion of the coffee industry there. She argues that government policy then aimed to encourage expansion of agricultural production fostered a decision to grant land titles to communities, not just individuals. Among those communities were indigenous pueblos that were able to maintain control of land as a result. Coffee production was split among more small producers, rather than concentrated in the hands of a few large landowners.
Indeed, even today the USDA report pointedly underlines this distinction:
This situation came under pressure in the 1980s, with a move to replace land titles that were communal or simply traditional (and thus undocumented) with individual titles, on the model of individual landholding familiar in the US, and favored by US-fostered Honduran governments. In parallel, new efforts went into expanding coffee cultivation, with new roads built to formerly remote locations, again with US support. While La Campa managed to control land, the circumstances involved show that this depended largely on the efforts of the local community, and in particular, on the choice made by many to seek communal, rather than individual, land titles.
In another study of the social relations of coffee production, anthropologist Erin Smith examined one cooperative marketing to the Fair Trade sector. She concluded that the Fair Trade movement was "a key contributor to sustainable income generating strategies and socio-economic stability among rural, small-scale farmers" in this cooperative, an outcome she credits to the local farmers' own ability to organize and to international NGO support.
At the same time, she cites the cost and difficulty of being certified and maintaining standards as barriers that the cooperative members had to overcome, and notes that some individual farmers were discouraged by these factors. It took time-- five to six years-- for the cooperative to see the full benefits from the Fair Trade relationship. Participants had to be willing and able to invest efforts for years to see the benefits.
The thread that runs through both of these studies is that local actions by organized groups made the difference. As the value of coffee exports increases we can expect incentives for larger landowners to seek control of more of the coffee sector to put new pressures on smallholders and communities holding land traditionally, or organized as cooperatives.
So by all means buy that new Marcala, Copan, or La Campa single-source cup in your local coffee shop. But keep an eye out for news that might indicate that you are drinking an unhealthy brew.
I myself prefer tea. But when I began doing research in Central America, I learned to drink coffee. Tea bags were imported and very expensive, especially unaffordable the summer I was given $10 a week as a stipend.
Cafe El Indio ads saturated billboards and radio. The coffee that I remember most fondly was prepared on visits to the campo, prepared from whole beans roasted one batch at a time. Back in La Lima, though, coffee came from little brown paper bags with the logo of a Plains Indian in war bonnet printed in red, where the coffee tasted a lot like the bag.
Coffee is big business in Honduras. Costa Rican and Guatemalan coffee may have more brand-visibility, but Honduras actually produces more coffee than Costa Rica, and depending on the source you consult, close to or more than Guatemala. The Honduran government has just announced projections of production for the current season that would make the country the second largest producer of washed arabica beans (the variety that is desirable for fine coffee drinking), remaining only behind Colombia.
Coffee cultivation is ubiquitous in Honduras: a USDA overview this April reports that coffee was being grown in 213 of the 298 Honduran municipios, distributed in 15 of the 18 departments that comprise the country. According to the same source, 30% of the Honduran population was employed in the coffee industry. Domestic consumption has been rising, fueled by urban coffee shops that are in demand for internet access, up 56% from 2008 to 2009. But still, most of the crop (90%) is exported.
Not all of this production comes into world markets labeled as Honduran.
Substantial amounts of Honduran beans used to end up purchased in Guatemala and mixed with Guatemalan beans, since, as a 2010 USDA report put it, "Guatemalan coffee is often sold at a premium in the international market, while Honduran coffee is typically sold at a discount". One year later, that statement had been changed to reflect a new reality; now importers are "more aware of the quality coffee that it is being produced in Honduras which has increased demand within the formal market".
Consequently, one of the reasons Honduras is expected to move into second place as a world coffee producer is "a sharp drop in smuggling Honduran beans to Guatemala" leading the year's projection to be increased from 3.8 million bags to 4.29 million. In 2010, the estimate was that between 400,000 and 650,000 bags of Honduran coffee made their way across the Guatemalan and Nicaraguan borders without being registered, to be consumed under the names of these more established premium coffees. But as Dow Jones notes, "so far this season, Honduran coffee has been fetching higher prices than Guatemalan coffee, averaging $2.46 per pound through Aug. 3, as Honduran coffee gains quality recognition". This year, only 260,000 bags of Honduran origin are expected to trickle across the borders as contraband.
Not coincidentally, Honduran media are also reporting new funding of 11 million lempiras (about $560,000) invested in businesses of coffee producers in Sensenti, in the western Honduran state of Ocotepeque. The funds come from a public-private initiative supported by the World Bank and the Honduran government. About 4 million lempiras ($203,000) of the funding is in the form of loans from private and commercial sources.
A key goal is to increase the export of fine and "special" coffees in the international market. Already in 2005, the USDA report tells us, Honduras established a "Denomination of Protected Origin" for coffee from Marcala. In April 2010, the USDA reported that less than 8% of Honduran coffee produced in 2008-2009 was "specialty coffee", the kind that ends up being labeled by origin at trendy coffee shops. By April of this year, the proportion had risen to about 14%.
One of the two groups receiving funding is committed to increasing the production of "eco-friendly" coffee by 40%, which their business plan reportedly says should increase net earnings by 50% (due to the premium price that would be received for the more select coffee).
Coffee exports continuing to increase are critical if Honduras is to decrease its trade deficit on commodities. Earlier this year, the Banco Central de Honduras projected a deficit of about $6.3 million. At that point the year-to-year comparison showed the deficit larger than in the comparable period in 2010. Coffee exports were specifically singled out as promising to keep the deficit lower than would otherwise be projected. Coffee made up over 48% of commodity export income at the time of that article, with bananas far behind at just over 8%, and African palm oil, gold, melons, shrimp, sugar, silver and zinc following.
But is this all good news?
Concerns have been raised about the ecological impacts of increased coffee cultivation.
Indiana University anthropologist Catherine Tucker notes that
coffee plantations are making incursions into important watersheds and high biodiversity forests. These processes occur in a context of climate change that is disrupting traditional expectations of weather patterns.
As long ago as 1999 a writer for Honduras This Week noted the negative ecological effects of the introduction of sun coffee, which eliminates the need for shade, and thus the incentive to maintain a more mixed vegetation that Tucker argues maintains a similar biodiversity to forests. The Honduran Coffee Institute IHCAFE in 2008 claimed that shade-grown coffee constituted 98% of that grown in the country. Ellen Mickle, who studied Honduran coffee growing for her 2009 BA Honors thesis in Environmental Studies at the University of Nebraska, placed the proportion of shade coffee in Honduras at between 65% and 98% in a 2010 article for Roast magazine.
The amounts paid most coffee workers do not constitute a living wage. US Embassy sources note that even low-wage vegetable farms paying 150 lempiras a day ($8) offered better pay than coffee picking, which paid only 80 lempiras (about $4.25). Progressive media have also questioned the use of child labor in coffee cultivation.
And then there is the question of the social impacts of coffee production, where the most valued lands are located precisely where the people with the most vulnerable economic and social positions live, including many indigenous communities. The research results are actually reasonably promising, although not due in the end to government policy so much as grass roots Honduran initiative.
Anthropologist Tucker's paper for the 2008 conference of the International Association for the Study of Commons describes strategies used by the Lenca community of La Campa, located in a coffee-producing area of western Honduras, to maintain control of land. Here, even as coffee production increased
the community has retained common property woodlots and grazing areas, and created a protected watershed in a cloud forest...forest cover expanded between 1987 and 2000, and protections of communal forests increased even as privatization proceeded in areas suitable for coffee production.
These positive findings were tempered by observations of increased inequality, especially in land access. As Tucker notes, in a pattern unique in Central America, Honduras did not redistribute land to large coffee plantations in the 19th century, one of the factors delaying the expansion of the coffee industry there. She argues that government policy then aimed to encourage expansion of agricultural production fostered a decision to grant land titles to communities, not just individuals. Among those communities were indigenous pueblos that were able to maintain control of land as a result. Coffee production was split among more small producers, rather than concentrated in the hands of a few large landowners.
Indeed, even today the USDA report pointedly underlines this distinction:
Honduras differs from other coffee-growing countries in the region because of the prevalence of small producers. 85,000 producers who annually produce less than 77 bags of 60 kg. of coffee constitute more than 90 percent of all production in Honduras and contribute to 50 percent of total exports.
This situation came under pressure in the 1980s, with a move to replace land titles that were communal or simply traditional (and thus undocumented) with individual titles, on the model of individual landholding familiar in the US, and favored by US-fostered Honduran governments. In parallel, new efforts went into expanding coffee cultivation, with new roads built to formerly remote locations, again with US support. While La Campa managed to control land, the circumstances involved show that this depended largely on the efforts of the local community, and in particular, on the choice made by many to seek communal, rather than individual, land titles.
In another study of the social relations of coffee production, anthropologist Erin Smith examined one cooperative marketing to the Fair Trade sector. She concluded that the Fair Trade movement was "a key contributor to sustainable income generating strategies and socio-economic stability among rural, small-scale farmers" in this cooperative, an outcome she credits to the local farmers' own ability to organize and to international NGO support.
At the same time, she cites the cost and difficulty of being certified and maintaining standards as barriers that the cooperative members had to overcome, and notes that some individual farmers were discouraged by these factors. It took time-- five to six years-- for the cooperative to see the full benefits from the Fair Trade relationship. Participants had to be willing and able to invest efforts for years to see the benefits.
The thread that runs through both of these studies is that local actions by organized groups made the difference. As the value of coffee exports increases we can expect incentives for larger landowners to seek control of more of the coffee sector to put new pressures on smallholders and communities holding land traditionally, or organized as cooperatives.
So by all means buy that new Marcala, Copan, or La Campa single-source cup in your local coffee shop. But keep an eye out for news that might indicate that you are drinking an unhealthy brew.
Saturday, December 11, 2010
Inflation: The Beans Did It
Blame the beans. The Honduran economy continues to get bad news. This time it's on the inflation front. November, 2010 inflation added a further 0.8 percent to the cumulative inflation for the year, bringing the total to 6.4% so far this year. This is more than double the inflation rate of 2009.
The Banco Central de Honduras (BCH) released the November Consumer Price Index, and it contained the bad news. The target established by the BCH for all of 2010 was 6% (except for El Heraldo, which claims it was 6-7%), so at the end of November we've already exceeded the target inflation for this year by 0.5% with all of December to go.
The main source of inflation? The BCH report identifies food, especially those pesky beans as the main cause of inflation in November. Oh and pork, eggs, and all the other 33 foodstuffs in the canasta basica. The BCH say that food costs account for about 75% of the inflation rate this month.
While El Heraldo claims the price controls passed by the government, which went into effect on November 19, have worked and kept inflation in check, other papers, such as Tiempo, have pointed out in recent days that the price controls are toothless, because there's no one to enforce them. The law contained funding to hire and train 300 inspectors to enforce it, but of course, that takes time, maybe months. In the meantime, caveat emptor.
Both Tiempo and El Heraldo pointed out there were no beans or pork to be found in Tegucigalpa farmers' markets as recently as December 5. Everyone who can find beans to buy that aren't at a Banasupro store is paying more than the government mandated 70 lempiras for 5 pounds of beans. Red beans were "frozen" at 14 lempiras a pound, but are, according to the Consumer Price Index, priced at a weighted average of 20.25 lempiras a pound in November.
Nor is the burden borne equally around the country. The BCH report shows that inflation is highest in Juticalpa and Danli, at 1.8% in November, followed by western Honduras (Santa Rosa de Copan) at 1.5% and central Honduras (Comayagua) at 1.5%. In fact, just about everybody outside of Tegucigalpa has an inflation rate higher than the "official" inflation rate for the country according to the BCH report. Only the San Pedro (0.5%) and La Ceiba (0.7%) regions have lower inflation.
What does this mean? It is bad news for the Lobo government, which continued to resist price controls until long after things got out of control. Missing your inflation target will have implications with the IMF perceptions of your management of the economy.
But ultimately its bad news for anyone who eats, and that's everyone in Honduras.
The Banco Central de Honduras (BCH) released the November Consumer Price Index, and it contained the bad news. The target established by the BCH for all of 2010 was 6% (except for El Heraldo, which claims it was 6-7%), so at the end of November we've already exceeded the target inflation for this year by 0.5% with all of December to go.
The main source of inflation? The BCH report identifies food, especially those pesky beans as the main cause of inflation in November. Oh and pork, eggs, and all the other 33 foodstuffs in the canasta basica. The BCH say that food costs account for about 75% of the inflation rate this month.
While El Heraldo claims the price controls passed by the government, which went into effect on November 19, have worked and kept inflation in check, other papers, such as Tiempo, have pointed out in recent days that the price controls are toothless, because there's no one to enforce them. The law contained funding to hire and train 300 inspectors to enforce it, but of course, that takes time, maybe months. In the meantime, caveat emptor.
Both Tiempo and El Heraldo pointed out there were no beans or pork to be found in Tegucigalpa farmers' markets as recently as December 5. Everyone who can find beans to buy that aren't at a Banasupro store is paying more than the government mandated 70 lempiras for 5 pounds of beans. Red beans were "frozen" at 14 lempiras a pound, but are, according to the Consumer Price Index, priced at a weighted average of 20.25 lempiras a pound in November.
Nor is the burden borne equally around the country. The BCH report shows that inflation is highest in Juticalpa and Danli, at 1.8% in November, followed by western Honduras (Santa Rosa de Copan) at 1.5% and central Honduras (Comayagua) at 1.5%. In fact, just about everybody outside of Tegucigalpa has an inflation rate higher than the "official" inflation rate for the country according to the BCH report. Only the San Pedro (0.5%) and La Ceiba (0.7%) regions have lower inflation.
What does this mean? It is bad news for the Lobo government, which continued to resist price controls until long after things got out of control. Missing your inflation target will have implications with the IMF perceptions of your management of the economy.
But ultimately its bad news for anyone who eats, and that's everyone in Honduras.
Monday, September 6, 2010
Minimum Wage or Living Wage?
In all the discussion about setting a new minimum wage, with its focus on the proposals and counter-proposals of business and labor organizations, it can be easy to lose sight of what it costs urban workers to subsist in Honduras. The Honduran government has defined this as the cost of the canasta basica alimenticia, a monthly supply of 32 basic products that feeds a family of six.
In 2008, Honduras' labor minister said the cost of the canasta basica was 6,800 lempiras ($360 US). The minimum wage then was just half that amount.
Rampant speculation in 2008 was driving up the cost of beans. When the minimum wage was last set, Honduras had the most expensive canasta basica in all of Central America.
When he set a new minimum wage in December 2008, Manuel Zelaya explicitly placed it at 500 lempiras less than what it would cost a worker to buy the components of the canasta basica at that time.
Yet the claim being made today is that the canasta basica costs a fraction of its 2008 price, a claim that if true, would justify (in some measure) a lower minimum wage. How is this estimate being produced?
COHEP says the canasta basica cost is about 4,400 lempiras per month, basing their estimate on pricing the goods at the Tegucigalpa government-subsidized supermarket called Banasupro and the wholesale market in Tegucigalpa. This is well under the current minimum wage of 5,500 lempiras.
The workers unions, in contrast, suggest the canasta basica costs about 6,300 lempiras a month in the stores where their employees actually typically shop. The difference between the two sides comes to about $100 (US) a month.
The Instituto Nacional de Estadistica (INE) calculates the prices of the constituents of the canasta basica in a quite different manner from that used by COHEP. INE collects prices from six retail markets in a specific city, for a given week, as well as in seven supermarkets, 46 pulperias and two farmer's markets in the same city, and for each category calculates an average price. These four averages are then averaged to get a price for a given item in the canasta basica. You can find the weekly price reports for 2006 to 2008 for several cities on the INE's website here.
The Banco Central de Honduras then use these prices and applies them to a standard amount of each item sufficient to feed a family of six for a month, and calculates the cost of the canasta basica.
What COHEP did, in contrast, is go to a wholesale food market and to a government subsidized supermarket, a disingenuous selection of prices that systematically profoundly underestimates the real cost of the canasta basica.
Current INE estimates, and in fact, any of those for 2009-2010, are not available online. But one thing is clear: proposing a minimum wage based on low prices very few Hondurans will actually be able to obtain would make the minimum wage something far different from a living wage.
La Prensa noted in August that, in general, prices have continued to increase throughout all of 2009 and 2010. Bean prices increased $0.80 a pound just in the month of August, largely due to speculation. Vegetable prices have increased rapidly as the persistent heavy rains damage field crops. To the extent that these prices are not reflected in neighboring Central American countries for the same commodities, and they are not, this indicates significant market price manipulation in Honduras.
When Porfirio Lobo Sosa was sworn in in January, 72 percent of Hondurans lived in households that didn't have access to even the canasta basica according to a European Union study, creating a serious food security problem for Honduras. That's 5.7 million people. A further 1.5 million Hondurans lived in households that earned enough to pay for the canasta basica every month, but not enough to afford housing, health care, transportation, education, etc. That leaves just 800,000 people in Honduras, according to the study, in households with incomes that adequately support them.
And that is what is at stake in the current negotiation, if we step back and think about how wages affect people's ability to survive.
In 2008, Honduras' labor minister said the cost of the canasta basica was 6,800 lempiras ($360 US). The minimum wage then was just half that amount.
Rampant speculation in 2008 was driving up the cost of beans. When the minimum wage was last set, Honduras had the most expensive canasta basica in all of Central America.
When he set a new minimum wage in December 2008, Manuel Zelaya explicitly placed it at 500 lempiras less than what it would cost a worker to buy the components of the canasta basica at that time.
Yet the claim being made today is that the canasta basica costs a fraction of its 2008 price, a claim that if true, would justify (in some measure) a lower minimum wage. How is this estimate being produced?
COHEP says the canasta basica cost is about 4,400 lempiras per month, basing their estimate on pricing the goods at the Tegucigalpa government-subsidized supermarket called Banasupro and the wholesale market in Tegucigalpa. This is well under the current minimum wage of 5,500 lempiras.
The workers unions, in contrast, suggest the canasta basica costs about 6,300 lempiras a month in the stores where their employees actually typically shop. The difference between the two sides comes to about $100 (US) a month.
The Instituto Nacional de Estadistica (INE) calculates the prices of the constituents of the canasta basica in a quite different manner from that used by COHEP. INE collects prices from six retail markets in a specific city, for a given week, as well as in seven supermarkets, 46 pulperias and two farmer's markets in the same city, and for each category calculates an average price. These four averages are then averaged to get a price for a given item in the canasta basica. You can find the weekly price reports for 2006 to 2008 for several cities on the INE's website here.
The Banco Central de Honduras then use these prices and applies them to a standard amount of each item sufficient to feed a family of six for a month, and calculates the cost of the canasta basica.
What COHEP did, in contrast, is go to a wholesale food market and to a government subsidized supermarket, a disingenuous selection of prices that systematically profoundly underestimates the real cost of the canasta basica.
Current INE estimates, and in fact, any of those for 2009-2010, are not available online. But one thing is clear: proposing a minimum wage based on low prices very few Hondurans will actually be able to obtain would make the minimum wage something far different from a living wage.
La Prensa noted in August that, in general, prices have continued to increase throughout all of 2009 and 2010. Bean prices increased $0.80 a pound just in the month of August, largely due to speculation. Vegetable prices have increased rapidly as the persistent heavy rains damage field crops. To the extent that these prices are not reflected in neighboring Central American countries for the same commodities, and they are not, this indicates significant market price manipulation in Honduras.
When Porfirio Lobo Sosa was sworn in in January, 72 percent of Hondurans lived in households that didn't have access to even the canasta basica according to a European Union study, creating a serious food security problem for Honduras. That's 5.7 million people. A further 1.5 million Hondurans lived in households that earned enough to pay for the canasta basica every month, but not enough to afford housing, health care, transportation, education, etc. That leaves just 800,000 people in Honduras, according to the study, in households with incomes that adequately support them.
And that is what is at stake in the current negotiation, if we step back and think about how wages affect people's ability to survive.
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