Can Hondutel Be Saved?

Hondutel, the Honduran national telephone company, is in trouble. Big trouble.

As wired telephones become less important in residences and businesses in Honduras, Hondutel's income has fallen significantly; its income in 2011 was 2489.7 million lempiras (about $131.3 million dollars).  At the same time its costs rose to 2583.2 million lempiras (about $136.3 million dollars).  Since January, 2010, Hondutel has added over 1200 new employees, an increase of 33%, and those employees have received salary increases over the last two years.

It is unclear whether this poor economic performance will have any impact on the presidential aspirations of Romeo Vasquez Velasquez, the candidate for the newly formed right-wing political party, the Patriotic Alliance of Honduras.

Vasquez Velasquez, notorious for his role in the kidnapping of former president José Manuel Zelaya during the 2009 coup, was rewarded on retiring with the directorship of Hondutel, a role for which his military service manifestly has not prepared him.

President Porfirio Lobo Sosa has appointed a commission to suggest ways in which Hondutel, the state telecommunications company, can be made solvent. The commission can collect information and make suggestions. Vasquez Velasquez, however, remains in charge.

Losses at Hondutel are not new.  They've been going on for years.

They have become important now because as part of a new agreement with the IMF for stand-by funds, the Honduran government must present a balanced budget plan and show that it can and is sticking to it.

The new commission, headed by Hector Guillen, the Finance Minister, has 30 days to make recommendations.  Guillen made it clear that Hondutel is looking for strategic investors.  Over the last several years, several international telecommunications companies have expressed interest in a strategic partnership or outright purchase of the state-owned company. This never worked out, due to the lack of a mechanism to allow private investment in state-owned companies.

Guillen said it will be up to the commission to find a structure that makes such investment possible. Whether they find interested investors or not, Honduras continues to be not just open for business, but up for sale.

Permanent Policing by the Military?

On Tuesday at the weekly cabinet meeting, the Honduran government voted to extend the state of emergency declaration that allows the Honduran military to exercise most police functions.

Now Porfirio Lobo Sosa is talking about making it permanent.

The role of the Honduran military is spelled out in the constitution, in article 272:

The Armed Forces of Honduras, is a permanent national institution, essentially professional, apolitical, obedient and not deliberative.

They were instituted to defend the territorial integrity and sovereignty of the Republic, preserve peace, the rule of the Constitution, the principles of free elections and alternation in office of President of the Republic.

They will cooperate with the National Police in maintaining public order in order to guarantee the free exercise of suffrage, custody, transportation and supervision of election materials and other safety aspects of the process, the President of the Republic shall make available the Armed Forces for the Supreme Electoral Tribunal from one month (1) before the election, until they are decided.

This is the mission as defined in the constitution, but over the years the military has gained control of other budgets and other institutions, so that today it controls many of the strategic sectors of Honduras.

These include the merchant marine, immigration, intelligence, civil aviation, and most recently, forestry. The military also has a strategic partner in communications, where retired General Romeo Vasquez Velasquez was appointed head of HONDUTEL.

Only during the days of military dictatorship that preceded the 1982 constitution has the Armed Forces had a hand in more parts of the government. We've commented previously on this mission creep (here, here, and here).

And now, Porfirio Lobo Sosa would like to make their policing function permanent.

Clearly,there are new challenges that we have, new realities too. I am going to arrange in my government that the military participate in giving security to the people; this will be my fight. Its doesn't matter to me if that requires constitutional reforms.

With timing that could not have been anticipated, Paul Stockton, Assistant Secretary of Defense for Homeland Defense and Americas' Security Affairs, in a Congressional hearing today called for Latin American countries to carefully evaluate the use of their military to control organized crime and drug trafficking, because there always exists the possibility of human rights violations.

And it wasn't just Stockton.

In the same hearings, Carmen Lomelin, United States Ambassador to the OAS told Congress:

I can understand the frustration of the president (of Guatemala, Otto) Perez Molino and others, but I believe that this decision (to use the military) needs to be taken with much care, because of the past history. For obvious reasons you need to observe the history of the Americas and their relation with the military.

Stockton added:

The challenges in citizen security are better confronted by the institutions charged with citizen security.

In Honduras, it is the police who are constitutionally supposed to be in charge of citizen security.

Stockton pointed to Colombia under Uribe as an example of what can go wrong when you employ the military as police. There, among other things, the military showed off "rebels" it had caught and killed. Except they turned out to be Colombian citizens murdered by the military, some after being kidnapped, others killed during operations.

Stockton said:

If the military violates human rights they lose popular support, which makes it harder to reach the final objective.

He called Colombia under Uribe a good example of how human rights violations take root. He acknowledged that under Santos Colombia has begun to prosecute human rights violations.

And it is not just foreigners that think permanently militarizing policing is a bad idea. Retired General Mario Hung Pacheco, former commander of the Honduran Army, said

That's a tough topic and you have to handle it well. but it is not within the possibilities for reforming the role of the armed forces; they have their specific missions specified in the constitution of the Republic and one of those is to support the Police when there is a national or regional state of emergency.

General Rene Osorio Canales, the current head of the Honduran Armed Forces also spoke against the idea:

We need to do a detailed study before giving more public security powers to the Armed Forces.

But Tiempo reports Lobo Sosa replied:

This will cause deep debate...but we should have it and in some way make the constitutional changes necessary so that the Armed Forces participate in giving security to the people.

Give the man credit for sticking to his guns; in this case, all too literally. But maybe it would be worth noticing that even the military doesn't want to continue on this path.

Closing the deal.....

Yesterday the Lobo Sosa government failed to close a deal with the International Monetary Fund for standby funding for the government of Honduras for the next 18 months. This was an important test of the government's political capital as well as its economic capital, and it failed.

So why did the deal fall through at the last minute? The newspaper El Tiempo reported today that the IMF wants to be sure the Lobo government continues sound fiscal policies into the next year by examining its budget proposal in September.

The first negotiations between the IMF and the Lobo Sosa government began in March with a visit where the IMF reviewed the fiscal plans of the government. Among their suggestions, made in a public press release, was that the government needed to contain spending, especially the spending on salaries of public employees. The IMF also recommended that the government strengthen the finances of public institutions such as ENEE and Hondutel, strengthen the government pension plan, and improve the financial situation of the cities.

In response the government passed a set of new taxes, quite unpopular with business, but supposedly designed to have minimal impact on the poor.

It also started a new program financed by government bonds, that gives 10,000 lempiras to poor families. It has had to pay these piecemeal as its cash reserves are quite low and the market for government bonds could not absorb the full cost in a single offering. A new bond offering for $26 million towards this program was being offered by the government today.

Another response, however, weakened the Instituto Nacional de Jubilaciones y Pensiones de los Empleados Publicos del Poder Ejecutivo (INJUPEMP). The Secretary of Finances determined that the fund had over 1000 million lempiras it could invest, and decided to use those funds to retire the debt of the government Electric Company (ENEE) which buys electricity from private power plants that generate electricity using bunker oil. These plants are mostly owned by Honduran businessmen.

Honduras needs the standby agreement to finance budget shortfalls and to fund emergencies. In light of its failure to secure the agreement on this visit of the IMF, the government had to try to put a good face on its failure. All it could seem to find to brag about was there was an agreement that in the next year there would be no new taxes.

The lack of an IMF agreement highlights the failure of the Lobo government to completely unlock international finances. Instead, it has had to issue bonds backed by INJUPEMP funds, and others backed by the money owed to Petrocaribe to finance normal government spending. For now, the international financial community is keeping Honduras broke.

Political economy of Honduras: 1990s-2009 (Part 3 of 4)

Economist Miguel Cáceres Rivera and historian Sucelinda Zelaya set the stage for understanding the political economic crisis that led to the coup d'Etat of 2009 in their discussions of economic transformations in the early twentieth century and under the military dictatorships of the 1960s-1970s.

We enter the recent period with a transformed landscape: migration of rural farmers to cities where they became the labor force and reserve labor pool for industry, in parallel with surprisingly successful rural movements to take land from larger land owners and put it into production, creating demand for products of industry from a laboring farming population, all under the auspices of a military linked comfortably to the new industrial class, bypassing the traditional elites of the two party system.

Third crisis

Cáceres and Zelaya identify a third "crisis of reproduction" starting in the 1990s, in both rural and urban sectors throughout the country. They identify three root causes:

First, employment growth was insufficient;

second,

the continuing and growing extraction of income from the rest of the social classes on the part of the business elite by means of mechanisms such as devaluation, the monopolistic management of fuel prices, and the oligopsonistic management of the prices of electricity, mobile phone service, and high interest rates;

and third,

a constant and progressive exaction of income from the population by the State by means of taxes in general and the sales tax and tax on fuels in particular.

Or to simplify it: even in the face of limited employment, the State budget was based on regressive taxes that differentially affected poorer Hondurans , while state economic policies and the holding of business in the hands of a small group of individuals allowed the maintenance of price policies that benefited the wealthy business class at the direct expense of the working class.

Cáceres and Zelaya characterize these policies as "decimating" the potential of families to purchase goods, leading to a contraction in demand and thus in new job creation in industry, which in the second crisis had assumed a much greater role in the economy. They note that one-third of the employment-seeking young emigrated in search of work during this period. The remittances sent back by these individuals, they write, postponed the "eruption of the crisis" while providing yet another source of income for the banks controlled by the small wealth/political elite, which charged high service fees for transfers.

Meanwhile, the Honduran state inherited external debt from the reform era which led to increases in taxes and currency devaluation. "It was assumed that devaluation would stimulate a greater export production that would increase income in dollars" needed to pay the international debt. This led directly to government encouragement of increased export agriculture and the development of the maquilas, export sweatshops operated by multinational corporations. In the analysis of Cáceres and Zelaya, the government extracted from the general population the funds to pay debt that was accumulated to benefit the industrial business class in the earlier crisis, a "transfer of income equivalent to the amount of the debt and interest" from the working classes to the business class.

Devaluation of the lempira "is another state action of the same nature that increased the income of the exporters and the banks". They note that this came "at the cost of the equivalent reduction in purchase capacity" due to inflation that affected the working class, campesinos and self-employed service-sector workers, micro- and small-businesses, and professionals with secondary and university education. This "transfer of income" deteriorated the living conditions of families and made precarious the survival of business, and their ability to generate jobs. Businesses faced very high interest rates on loans, imposed by banks due to the high rate of inflation spurred by devaluation of which, the authors note, the banks themselves were actually beneficiaries.

Further contributing to the crisis was disinvestment in HONDUTEL, the phone company, and ENEE, the electrical company, opening up opportunities for the private enterprise elite to exploit the demand for these services.

The economic crisis "led to a crisis of faith in the political parties and the State, that have been very useful for the growth of the business elite and the functioning of a new axis of accumulation". The growth of political parties stalled, increasing more slowly than the voting-age population. About half of the population of Honduras, they say, has no party affiliation. As we covered extensively in the run-up to last November's election, abstentionism had reached about half the population of eligible votes.

The growth of maquilas, banks, cell phone companies, and electrical companies, and of non-traditional agricultural exports,

defines and places in relief a new axis of accumulation that implies a concatenation of agricultural, industrial and tertiary investments that the business elite manages and on which is supported its present economic and political power.

This elite, the authors argue, arose from the solutions of the first two crises they discussed. Further, they write,

It is the elite that in the process of strengthening its economic hegemony created the present crisis.