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.

Selling the Wind, or How Honduras Will Finance Its Debt

The government of Honduras wants to sell you the wind. Literally.

The proposal is for a new kind of investment instrument.

On July 20, the Honduran Congress passed a law called the Ley de promocón del desarrollo y reconversion de deuda publica, which can be read here in its entirety. 

The newly passed law, proposed by the Executive Branch, creates a special commission of trustees sited in the Central Bank of Honduras.  That commission, which includes the Minister of Natural Resources, will identify "idle" assets.  It will also create a technical committee to analyze the financial potential and return on such assets, and oversee the concession of assets to private parties.

So what are these "idle resources" that Honduras proposes selling?  The wind, for wind power; the rivers and the land for hydroelectric power; and mineral rights - gold, silver, and iron in particular, though it also just sold petroleum exploration rights. They can be pretty much anything not already under the control of the Comisión para la Promoción de la Alianza Público-Privada (COALIANZA).

Once the resource is identified as idle, the government will seek to lease it in concession to a third party. The lease process will involve estimating the income-producing potential of the asset, both for the party leasing it, and for the government.

The lease will produce, among other things, a future income stream for the government for the length of the lease. The leasing part of the law merely makes references to the processes used by COALIANZA for its concessions.  The same rules will apply.

Normally income from a lease would trickle in to the government coffers over the length of a lease, producing income for both the present and future governments of Honduras. 

But the new law empowers the Central Bank, or someone delegated by it, to securitize this future income stream and sell it to others, based on the discounted present value of that future income stream. 

This discounted present value of the future income stream will come to the government in a lump sum, rather than as several smaller payments over the lease duration.

The law specifies that it must be used to pay down the Honduran government's debt.

The Financial Minister, Wilfredo Cerrato, argued that the state would be getting the future income that this resource would generate over longer periods, like 20 years, but getting it all now instead of year by year over the 20 years, and that the money would then be used to pay down the national debt, because at least for now, the law prohibits it to be used to pay current expenses. 

Cerrato added:

What we want is to pay the internal debt, which is short term at high interest rates, to achieve what the law's title says, "reconversion of the debt".

Cerrato characterized the "idle resources" that are covered by the new law as not generating wealth but rather producing poverty.  He suggested that Honduran pension plans would be likely purchasers of the assets.

The law, which originated with Lobo Sosa's executive branch, was introduced and passed during a Congressional session held in Lempira rather than the capital of Tegucigalpa. 

The bill had not previously been disclosed or put through committee.  Its content was unknown to most at the start of this Congressional session.

Because the session was held outside the capital, fewer members attended, and those who did attend were primarily National Party members.

During the Congressional session, Congress voted to suspend the requirement for three debates and to hold only one debate on this law.  It then passed the law in a single debate. This has brought about much grousing from almost all sectors.

The law, by not going through the committee review, passed pretty much as it was submitted by the Executive Branch.  It was not publicly disclosed, so there was no discussion about what Congress was enacting. That seems to have been by design.

As Ralph Flores, an executive of the Foro Social de la Deuda Externa y Desarrollo de Honduras (FOSDEH) stated, the people should have been consulted.  FOSDEH is one place where the Honduran public gets to comment on proposed government policy.

Flores said that he thought the law probably was a good financial move, but that the government of Honduras shouldn't be managed like a private company.  As these are resources belonging to all the citizens, he said, probably they should have been consulted before the law was approved:

Unfortunately here they only talk about this type of activity as beneficial.  There needs to be an objective balance.  There are methodologies to analyze if an investment is positive or negative for the economy or for a society.  Here we only look at the financial stream as a positive element.

Mauricio Oliva, the new head of Congress, says that such lease arrangements are nothing new, that the approach has been used successfully by many other countries, and points to Costa Rica and Colombia. 

Cerrato vehemently defends the law, claiming that without it Honduras won't make payroll for government employees in November.  That in turn suggests they already have assets identified and potential buyers of concessions lined up and presume they can bring securities on these assets to market before November.

Hugo Noé Pino, who represents the  Instituto Centroamericano de Estudios Fiscales (ICEFI) in Honduras, told La Prensa that the law was suspicious because not only of the rapidity with which it was proposed and passed, but for the lateness in Lobo Sosa's term.  This made him suspect that there were some ulterior motives.  He said the law sells Honduras in pieces:

"The most worrying part of this affair, given that the government has not shown itself to be trustworthy, is that  through this hurried law, just as with the model cities, [it has] committed all the resources of the state of Honduras without leaving to the next government any possibility of structuring its own recovery and investment plan for the country.  The next government will have its hands tied by these decisions."

Lobo Sosa says the law helps, not hinders, future governments.  Lobo Sosa goes on to claim this will not benefit his government one bit, a statement seemly contradicted by his Finance Minister's statement that without this law the government will not be able to meet the November payroll, implying income to this government, surely a benefit.

By using the processes specific to COALIANZA, the government avoids its own contracting law which would impose a greater transparency on the process.  It was this process that resulted in COALIANZA signing an MOU with Michael Strong for a model city somewhere other than where Congress had stated it wanted model cities (eg, San Pedro Sula instead of Puerto Cortes). 

COALIANZA's processes are not transparent nor do they always work towards the same goals as the government, as the model cities bungle demonstrated.  Civil society has no input into what the new commission decides to license. 

All resource-based projects involve expropriation (with long delays in payment in cases like the Patuca III dam project now underway). They may involve the dislocation of populations living on the concession, without any compensation.

There are no controls on either the number of employees, or the budget of the oversight commission set up in the new law.  It is unconstrained, and at this time, unfunded. Future governments will have to allocate it a budget for salaries and operations.
 
Civil society should pause at the statements of the Finance Minister that employee pension funds should invest in these financial instruments, which are effectively unsecured bets where a payment to the government up front gives the lease holder the "right" to profits from exploitation of a resources that may or may not be successful.

It has been an expressed goal of Honduran governments since at least 2009 to use the large government employee pension funds to improve the liquidity of the central government. It sounds like Cerrato sees this as one such mechanism.

This is just the latest of a series of laws passed by this administration that takes control of national assets and turns them over to private parties. 

These include the original model cities law, and the COALIANZA law that has sold concessions to airports, roadways, and railways. It includes the ZEDE law (aka model cities 2) which creates private economic development zones that can have their own laws, as well as the new mining law, which pretty much gives mining companies permission to do what they want on their concession.

There apparently is nothing that the Lobo Sosa government won't privatize.

Even the wind.

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?

Honduran Congress Consolidates More Power

If it wasn't clear to outside observers, it certainly should be now.  The Honduran Congress is bent on controlling every aspect of the government, and by control, I mean, removing any trace of the constitutionally specified independence of powers. 

Their current obsession is with disciplining the Supreme  Court.

The new Congressional session started on January 25 of this year.  Since they started this new session they passed the so-called model cities legislation (decreto 236-2012) that gives Congress the ability to transfer territory to the sovereignty of a foreign set of investors. 

Honduran analysts note that this law includes special tourist zones that could see the transfer of the Copan archaeological site to foreign control.

Congress also passed the law of political judgement (decreto 231-2012). The US Embassy seems to believe this is an impeachment law, but it isn't: it circumvents Honduran due process guarantees.  It would allow Congress to continue to do what it did illegally in removing Supreme Court justices in December, leading to the current constitutional crisis.

Under the law of political judgment, Congress now has the authority to remove Supreme Court justices or even Presidents because Congress doesn't like their policies. It supersedes the existing law that already allowed the Public Prosecutor to bring charges against any high government official, which would be heard in the Supreme Court, and could lead to removal from office (which is why the Honduran Constitution no longer has an impeachment procedure: they provided a due process procedure in the legal code instead).

Congress also passed the new Minerals and Mines law, which allows concessions to be given to foreign governments in addition to private companies. This law is potentially unconstitutional because it presents the same kind of sovereignty issues raised by the model cities legislation that was found unconstitutional by the now neutered Supreme Court.  The new law governs concessions of gemstone (Honduras has opals and other gemstones in commercial quantities) and metallic mineral mines for a maximun of two (non-metallic minerals) to five (metallic minerals) years starting from the issuance of an environmental license.  It splits the income from such concessions between the municipality in which the mine is located, and the central government.

Congress also restricted, though changes to Article 17 of the constitution, the international treaties and agreements in which the government can participate. This pre-empts the role of the executive branch. Congress has always had to ratify treaties; this way, they do not have to pay the political price for it.

But these are almost minor violations of the Constitution, taken with impunity knowing that they have already reshaped the current Supreme Court into a rubber stamp. What they did next is bolder, clearer, and completely guts separation of powers.

This was to pass a new set of constitutional amendments that restricts what the Justices of the Constitutional branch, and only the Constitutional branch, can do. It also strengthens the powers of the Chief Justice, who, current experience shows, can be an ally of the Congress against the court. 

To understand the new law, a reminder: the Honduran Supreme Court's Constitutional branch hears challenges to laws as unconstitutional. Their decisions have to be unanimous. If their decision is not unanimous, the next step has been for the full court-- including the justices of the Constitutional Branch-- hear the matter. The full court merely needs to reach a majority decision. Since the Sala Constitucional includes one-third of the full court, the idea is, the other two-thirds will clarify the signal.

The new law passed by Congress makes a mockery of that provision. It specifies that in the event of a non-unanimous vote by the Constitutional branch on a case, those justices cannot vote on the matter when the full Supreme Court meets, or participate in the deliberations. 

This amendment was concealed in a series of constitutional amendments passed without discussion at the end of the previous session, on January 24, 2012 (Decreto 237-2012).  Maybe Congress doesn't trust the justices they just appointed?  In the opinion of most lawyers in Honduras, this amendment will undermine judicial certainty in Honduras. It certainly reshapes the balance of powers, depriving the Supreme Court of autonomy in action.

But that wasn't enough. Congress also passed legislation that deprives citizens of the right to even appeal the constitutionality of a law! 

Congress put this in place because of threatened challenges to their newly ratified replacement for the defeated model cities law, establishing Regimenes Especiales de Desarrollo. Citizen appeals of the constitutionality of the original model cities law worked as the Honduran Constitution provided.

That won't happen again.

Citizens may now only challenge the constitutionality of rules implemented by the government to enforce a law. Although Congress has shown it has no difficulty passing sweeping changes to the Constitution, apparently it irritates them to have to get it right, legally. Now, all their laws are, by law, constitutional.

Isn't democracy wonderful?

Not Really Model Cities Again

Juan Orlando Hernandez is determined to get new legislation approving Regimenes Especiales de Desarrollo (RED), what people have been calling "model cities", through the session of the Honduran Congress that ends this month.  To that end, he has introduced a new package of legislation.

He says this draft law takes into account the objections raised by the Supreme Court that made the previous law unconstitutional.  Uncommented on is why he did this, since he later got Congress to illegally dismiss the justices that found the law unconstitutional.  Might it be that they were right?  Oh my!

What he proposes is the establishment of 12 special kinds of entities:

international finance centers
international logistics center
autonomous cities
special economic zones
international commercial courts
special investment districts
renewable energy districts
zones with their own legal system
special agro-industrial zones
special tourist zones
mining zones
forest zones.

What Juan Orlando Hernandez has done is change the name, change the function, and keep the acronym.  This is meant to preserve the mental link to model cities, but this legislation is not about model cities.

The proposed entities are nothing like the previous Regiones Especiales de Desarollo proposed under the  unconstitutional law. Nor are these any kind of model city using either Paul Romer's or Michael Strong's definitions.  Forget everything you've read.  This is something very different.

These zones will all supposedly have "functional and juridical autonomy", although later in El Heraldo's brief description of this new system they say that conflicts will be handled either through arbitration or through a new branch of the existing Judicial system.  So that's clear, right?

There's a twist, though given Honduran electoral politics, not much of one: these new entities can only be established by a referendum and once established their charter can only be modified by a referendum of those who live within them.

The law will modify the Honduran constitution, which is why it's urgent to get it passed in the next few days, before this legislative session ends.  In Honduras, constitutional amendments must be passed by two successive sessions of Congress. More or less what Juan Orlando Hernandez plans is to bring this up as soon as January 19, then again right after January 25th when the new Congressional session begins. 

Article 294 of the constitution would be modified to divide the national territory into Departments (the existing administrative units, equivalent to states) and special zones:

The national territory will be divided into Departments and zones subject to special rules in conformity with Article 329 of this constitution.  Their creation and boundaries will be decreed by the national Congress.  The Departments will be divided into autonomous municipalities administered by officers elected by the people, as governed by law.

Also due to be modified is Article 329. It currently gives the government the power to develop economic plans, in consultation with its citizens and to set up whatever mechanisms are necessary to achieve these goals. El Heraldo does not give us the new language of this constitutional modification, but it will be the key to understanding these new special development regimes.  However, later in the day, Tiempo published the proposed language of Article 329 which seems to contain no changes to the existing language.

The new law would modify Article 303 of the Honduran Constitution, changing the rules governing how justice is administered.  The new Article 303 would read:

The ability to impose justice comes from the people and it is offered freely for the state, by magistrates and independent judges, only subject to the Constitution and the laws.  The Judicial branch is made up of a Supreme Court, special jurisdictions in regions of the national territory subject to special rules created by the Constitution of the Republic, by appeals courts, the courts and other dependencies indicated by law.

Again the modification here is to add the reference to special rules zones.  The key will be how justice in those special rules zones articulates with the Judicial branch, which notably is not spelled out in this change.

Along with Hernandez, the new law is being pushed forward by Congressman Rodolfo Irias Navas, a National party member and owner of TV stations (Channel 8 in Tela, Channel 45 in La Ceiba) and radio stations (Communicaciones del Atlantico, Radio El Patio of La Ceiba, Stereo 92 FM, Stereo 102.5 F, and Romantico 103.5 in La Ceiba, Radio Aguan in Colon, 91.5 and 92.7 FM in Tela).

(Irias Navas was also one of the spokespeople for the 2009 coup, who kept saying that the international community wasn't listening and would understand if they would only listen.)

Anyone who can read should see that this is not anything like the previous legislation, and that it's not about real development.  It's a law designed to benefit the monied class in Honduras that's responsible for underdevelopment, the class that sees the government of Honduras as its reliable income stream.

We're not the only ones to see it that way.

Analyst Raul Pineda pointed out that the reason this law is being rushed through is the urgent need for some in the oligarchy who owned or speculatively purchased lands they expected to be appropriated under the unconstitutional model cities law, to sell those properties for financial reasons.

Or as he put it: it's because a few people need to do business.

Lobo: Supreme Court Is Enemy of the State

Porfirio Lobo Sosa said over the weekend that the Supreme Court, whose Constitutional branch recently concluded that the police cleanup law is unconstitutional, is an enemy of the state. 

Speaking after the ruling, Lobo Sosa said:

"This is like fighting for a way, but there is an enemy of Honduras there, and everything that we do it overturns, as in the case of the Regiones Especiales de Desarrollo or model cities; it's like the court is playing against the country....The police cleanup will continue despite the opposition of the Supreme Court."

 OK, the finer points of constitutional separation of powers seem to be beyond the Lobo Sosa administration's grasp, but that's hardly news for any of our gentle readers. But there is more to this story, and the more is one word: intimidation.

What Lobo Sosa is attempting to do is to shame the whole Supreme Court, which must still vote on the police cleanup law because the Constitutional branch's vote was not unanimous.  In theory they have 10 days to do so.  Until they vote, the cleanup goes on.

After calling the court out as enemies, he later said that he was confident that Chief Justice Jorge Rivera Avilés would give the Executive branch time to remedy the parts of the law that affect the accused's due process rights.

This is, of course, a tacit admission by Lobo Sosa that the law as written actually is flawed.

As if to underline his willful ignorance of the separation of powers, Lobo Sosa told HRN radio later in the day that he was urging the president of Congress, Juan Orlando Hernandez, to push through the Referendum and Plebiscite law so that the people can decide if the government should continue with the police cleanup or not. 

Lobo Sosa doesn't seem to be acknowledging that an unconstitutional act passed by plebiscite or referendum would still be unconstitutional and subject to court review under the Honduran constitution.

(This is a situation not unlike the one that led to the coup d'etat overthrowing ex-President José Manuel Zelaya. Then, based on Zelaya's interpretation of existing laws, he wanted to put in place a public poll-- much less than a referendum or "plebiscite"-- about whether or not to convene a constitutional convention.) 

The current Executive Branch (under Lobo Sosa) and Legislative Branch (led by Orlando Hernández) have had particular problems with writing legislation that preserves people's constitutional rights. 

No one, not even the Honduran Supreme Court, would argue that there isn't corruption in the police, and that it must be removed.  Instead of doing things the easy, unconstitutional way, the Lobo Sosa administration is being urged to do it in a legal, somewhat harder, fashion. 

After all, lie detector tests are fallible, drug tests can record false positives, and someone accused of corruption must be able to defend themselves against the charge, if it's false.

So says the Honduran constitution. That's the opinion of the Sala Constitucional of the Supreme Court.

Which the President of Honduras says makes the Supreme Court the enemy of Honduras.

Model Cities definitively unconstitutional

The Supreme Court of Honduras ruled today that the Honduras legislation establishing charter or model cities was unconstitutional.  A ruling two weeks ago from the constitutional branch of the court established by a 4-1 vote that the law was unconstitutional. Because that decision was not unanimous, the entire Supreme Court had to consider and vote on the issue.

The full court voted 13-2 that decreto 283-2010 which reformed two constitutional articles to enable the model cities legislation violated the constitution.  

The court will release the reasoning behind its finding tomorrow. 

Grupo MGK reacted to the constitutional branch decision on October 8, stating:

We hope and expect that whether or not the full Supreme Court chooses to invalidate particular articles of the Constitutional Statute, that they will preserve enough of it intact that Grupo MGK along with other organizations will be able to create hundreds of thousands of jobs in Honduras.

While Honduras's model cities initiative was on hold, we learned a little more about Grupo MGK.  It is not a fully formed business entity, but rather is said to be part of a newly formed Nevada limited partnership that is not fully set up under the laws of Nevada.

La Prensa reported that Grupo MGK is part of Grupo de Desarrollos Especiales LLC, a company registered with the state of Nevada on September 4, 2012, by Kevin Lyons, a business partner of Michael Strong..  Like MGK, this is a newly registered company, with no track record.  It has until October 31 to file its list of officers, pay fees, and obtain a Nevada business license

Kevin Lyons was also responsible for setting up Grupo Ciudades Libres, a never-legally-established Nevada company whose goal was to set up a Free City in Honduras, according to The Economist.  Grupo Ciudades Libres LLC's filing as a partnership was revoked by the state of Nevada for not paying any of the associated legal fees that were due as part of establishing the company in 2011.

Now that the full Supreme Court has invalidated the Model Cities law, it will be interesting to see whether Grupo MGK persists in its efforts to create a free business colony in Honduras. Meanwhile, we would be willing to bet that the legal arrangements for Grupo de Desarrollos Especiales LLC won't be completed by October 31.

Model Cities Law Unconstitutional

The law enabling Regiones Especialles de Desarrollo (RED) sometimes referred to as Model or Charter Cities, has been found unconstitutional by the Constitutional Law branch of the Supreme Court in Honduras.  Justices  José Antonio Gutiérrez, José Ruíz, Gustavo Enrique Bustillo, and  Edith María López voted to sustain the legal challenge brought in 2011.  Only justice Oscar Fernando Chinchilla voted to reject the legal challenge.

Justice Chinchilla traveled to southeast Asia to visit Korean economic development zones with President of the Senate Juan Orlando Hernandez and refused to recuse himself from the case.

Because the decision was not unanimous, Chief Justice Jorge Rivera Aviles will have to assemble the full court of 15 justices and get their votes over the next 10 days before there is a final determination.

Model Cities Update

The Honduran press has been full of news about Model Cities over the last couple of weeks.

As our readers will recall, the oversight and transparency commission, headed by Paul Romer resigned en masse because they were shut out of the negotiations with Grupo MGK, and when they asked, denied permission to review the Memorandum of Understanding between Honduras and this group.

This lack of transparency seems not to bother Porfirio Lobo Sosa one bit.  With the removal of Romer and the other "transparency commission" members from the oversight and approval process, this means that the Honduran Congress has all the oversight  and approval power in the Model Cities process.

In a 50 minute interview with Michael Strong on a libertarian internet radio program on September 10, we learned that Strong plans that his model city will be in the valley around San Pedro Sula, and is not interested in the other locations being discussed.  So much for idea that model cities would be in uninhabited areas: the San Pedro Sula area is the business and industrial center of the country, a region already host to many free enterprise zones (maquilas). San Pedro itself is the country's second-largest city.

Michael Strong is not proposing to build Paul Romer's vision of a model city.

Strong's vision differs, he says, in four key ways.  First, it is based on the entrepeneurial model he says rules in Silicon Valley:  start small and when that works, scale it up.  In Strong's Free City, residents have access to the best laws without having to be governed by foreigners.  Strong sees this as more respectful of local autonomy and sovereignty than Romer's model. Third, the governor, a Honduran, chooses what legal systems are available to the residents. Thus residents can have contracts based on Honduran law, or, as Strong advocated in the interview, on Texas business law, because that is the closest to the 19th century ideal he favors.  Strong says, finally, that his model does not rely on a land grant from the Honduran government, but rather purchases the land to increase its size as needed.

There are signs that this normally rubber-stamp Honduran Congress is restless about the Model Cities project, however.

Juan Orlando Hernandez, the head of the Congress, and  a presidential candidate for the National Party, announced this week that any vote establishing the bounds of the land for Grupo MGK would be delayed until after the primary elections in November.  Ostensibly, the reason was that there were then 24 legal challenges to the law filed with the Supreme Court-- a number now much, much higher.

Practically, model cities are a political hot potato with the electorate.  Moving the vote after the primary elections may also be intended to prevent voter backlash.

Meanwhile, Hernandéz main legislation writing proxy in the Congress is hard at work, trying to fix the flaws in the law, presumably so that after the primaries, Hernandéz and company can proceed with their ever-evolving introduction of new colonialism in Honduras.

Where is Lempira when you need him?

Legal Challenges to Model Cities Law Proliferate

The law in Honduras that enables the Regiones Especiales de Desarrollo (RED), better known in English as model cities, is facing increasing opposition from Honduran citizens. 

The constitutionality of the law was first challenged in October, 2011 by the Asociación de Juristas para la Defensa del Estado de Derecho (Association of Jurists for the Defense of the Rule of Law).

Fourteen challenges against the model cities enabling law were filed on September 18, 2012. These fourteen challenges were filed on behalf of 14 separate individuals, including Miriam Miranda Chamorro, head of Organización Fraternal Negra Hondureña  (OFRANEH), a Garifuna organization.

On September 18, the Public Defender of the Constitution, a prosecutor with the Public Prosecutor's office, filed a brief with the Supreme Court on an October 2011 case challenging the constitutionality of the law. The Honduran Supreme Court solicits the opinion of the Defender of the Constitution whenever there is a constitutional challenge present in a case before the Supreme Court.  A legal countdown clock has now started, that by law gives the Supreme Court's Constitutional group of five judges just 20 days to render an opinion in that first legal challenge from October, 2011.

Nine more challenges to the constitutionality of the law were filed with the Honduran Supreme Court on September 21, 2012.  Eight of these were filed by the Consejo Cívico de Organizaciones Populares e Indígenas de Honduras (COPINH, the Civic Council of Popular and Indigenous Organizations) and the nineth by Father Fausto Milla, a Catholic priest in the Lenca region of Honduras.

On September 25, the LGBT community filed 30 more challenges to the constitutionality of the Regiones Especiales de Desarrollo law.

On September 26, a further 22 challenges against the law were filed.  One of these was by the Colectivo de Mujeres Hondureñas (Collective of Honduran Women), and the rest by individuals challenging the legislation.

For those of you keeping score, that's 76 separate challenges to the constitutionality of the RED legislation.

And that's not the only bad news. The Honduran Congress apparently agrees that the law, as written, is unconstitutional.

Oswaldo Ramos Soto, who drafted the existing RED law and is  Juan Orlando Hernandez's go-to guy for writing legislation, is preparing to introduce an amendment which will "fix" the unconstitutional parts of the law.

Ramos Soto wants to change Article 1 of the RED law to make it clear that the judicial system in the RED is still answerable to the Supreme Court, which is the court of last resort in Honduras.

Ramos Soto also wants to strip away the treaty-making power granted the model city in the existing law.  He proposes changing Article 18 to remove any mention of treaties, and to give to Congress the power to appoint judges in the model city. 

Ramos Soto also proposes changing Article 19 to make the legal system in a RED part of the Honduran judicial system, under the authority of the Supreme Court.

The net effect of Ramos Soto's proposed changes would be to gut one of the key features of Paul Romer's model cities: their judicial independence from the host country.

Both Romer and Michael Strong have argued that it is the legal systems in the host countries that are in part responsible for the poverty in them and the lack of economic development.

The experiment seems to be on the way to being over before it even began.

Bumps in the Road Toward "Model Cities"

Xiomara Castro de Zelaya is the presidential candidate for LIBRE, the progressive party founded in the wake of post-coup activism in Honduras. She is also, as most readers of this blog certainly know, the wife of former President José Manuel Zelaya Rosales, the target of the 2009 coup.

Xiomara became the consensus candidate for LIBRE in advance of party primaries, named as the presidential candidate by all the different movements within LIBRE-- a circumstance that actually required the Honduran Supreme Electoral Tribunal to make adjustments in procedures designed to insist that each current have its very own candidate.

No other party has such a consensus presidential candidate, so until the primary elections are held in November, only LIBRE has a clearly designated leader. That puts Xiomara in the unusual position of being able to issue statements on urgent national issues on behalf of the entire party, something other parties are not able to do.

This week, she spoke out against the model cities agreement announced by Juan Orlando Hernández, challenging the constitutionality of the law and describing it as contrary to sovereignty:

On this occasion we would like to alert those who, without having all the elements to judge might plan now to subscribe to contracts in Honduras under the protection of the Ley de Regiones Especiales de Desarrollo, better known as the Law of the "Model Cities". This law has already been judged unconstitutional by the Special Counsel for the Defense of the Constitution and diverse qualified segments of Honduran society have judged it an affront to the sovereignty of our country, that extends illegal privileges to the subscribers while it converts us, the rest of the Hondurans, into strangers in our own territory.

Legal challenges to the law were also filed today by what Honduran media report are fourteen groups or individuals representing affected social sectors, including campesino groups and the Garifuna organization, OFRANEH (the Organización Fraternal Negra de Honduras).

Press accounts of these legal challenges echo Xiomara's statement, citing a motion filed in October 2011 by Oscar Cruz, the former attorney for the Defense of the Constitution in the office of the Public Prosecutor. Presented to the Supreme Court, the news reports note that this motion awaits action.

Cruz is quoted in news reports as saying the law is "a mockery of the state" and "a catastrophe for Honduras":

it proposes the creation of a state within the state, a mercantile entity with state-like attributes outside the jurisdiction of the state, to which will be handed over all the traditional attributes of sovereignty.

Add to this the statement by the godfather of Model Cities, Paul Romer, who is reported to be having second thoughts about the role he supposedly was going to play in Honduras.

The British newspaper The Guardian says Romer may quit because he "not been given the powers and information necessary to fulfil his role as chairman of the transparency commission, which is meant to ensure governance of the new development zones". The report says he and others supposed to form the "transparency" commission

will issue a statement distancing themselves from this week's announcement [of the first agreements to found model cities] and calling into question the legality of their appointment, which they say has not been published in the official gazette as required by Honduran law, ostensibly because of a challenge in the constitutional court.

Meanwhile, on behalf of LIBRE, Xiomara not only challenges the constitutionality of the law: she warned

those who might initiate projects under this unconstitutional approach of model cities, will be exposed to the loss of their investment.

Xiomara ended her statement with a proposition grounded in the unique position of LIBRE as the continuation of participatory citizenship that was central to her husband's administration:

we invite the president of the National Congress and his National Party, based on Article 5 of the Constitution, which regulates plebiscites and referenda, that we should submit the Law of "Model Cities" to the opinion of the sovereign [power], and that it should be the people who decide it.

There is no possibility this "invitation" will be accepted.

What the statement does is focus attention on the fragile legitimacy of entrenched political structures in Honduras, which operate without real support from the people. Hernández will have to work hard to demonstrate any broader popular support for the controversial policy, something no one has challenged him, or Porfirio Lobo Sosa, to document before.

Is Honduras Too Backward to Have Sovereignty?

Pardon us for being blunt. But that is, really, the question at the heart of Paul Romer's promotion of his charter cities idea for Honduras.

The most recent volley in this campaign is a blog post on NPR by Romer and an associate. It follows a longer piece in a recent edition of the New York Times described by NPR as a "profile" of Romer.

The NPR piece inaccurately describes the plan as to "build a city from scratch — and get foreign governments to help run it".

The inaccuracy here comes from the fact that foreign governments have in fact declined to be involved. Romer may have wanted the experiment to have a veneer of international development, but it hasn't quite attracted the international support he apparently thinks it should.

Why? Maybe the terms of engagement hinted at in these two news stories give an idea of what might give pause to other governments.

The New York Times piece was titled Who Wants to Buy Honduras?

Too ugly for you? Try the seemingly nicer NPR headline: How Honduras Can Pull Off Five Centuries of Legal Reforms in a Decade.

Are you still not getting the message? Honduras is a backward country that can only be saved from itself by being sold to someone more advanced.

The NPR piece presents this as an opportunity for Honduras to "leverage" the experience of countries that supposedly have been "down [the] long and arduous path" to the rule of law. The authors are not clear about what countries they have in mind, but they quote former UK Prime Minister Gordon Brown saying "the first five centuries are always the hardest" in developing the rule of law.

Apparently, Honduras can profit from the five centuries of experience Great Britain has had in-- what? what do Romer and his associate imagine is relevant experience here? Five hundred years ago, Great Britain was launched on its way to becoming the model of modern colonial power. One presumes that isn't the part of their experience with the rule of law that Romer meant to invoke.

Romer and company ignore the actual history of Honduras including progress in the rule of law-- progress that was erased in the coup d'etat of 2009 and its aftermath, which seems beneath Romer's notice.

Instead, the NPR piece describes the challenges Honduras faces as if they have no recent historical causes, and as beyond any efforts of the Honduran people to solve in ways that would preserve their autonomy:

The rule of law is grounded in trust and shared norms, but establishing trust and shared norms is impossible if people live in fear – rural farmers fear repression; landowners fear expropriation; businesses fear that rivals will gain advantages through bribery; government officials fear that businesses will break contracts with impunity; urban residents fear violence from criminal gangs.

No. The issue in Honduras today is not fear: it is impunity on the part of the rich and powerful.

Rural farmers suffer from the impunity of the powerful who can attack them with private security forces, or can influence the government to call in the army for "enhanced" policing.

Landowners either have impunity-- and can act as they wish, ignoring laws about land use intended to encourage uses that benefit the entire country-- or are at the mercy of those with impunity, not, as the original suggests, government expropriation. As the prolonged negotiations to compensate landowners in the Bajo Aguan show, even when there is a case to be made for claims on the land by dispossessed peasants, the person holding the land in questionable legal circumstances can count on being paid for it, can demand a particular amount, and the peasants who in theory should be receiving land can be bound in almost feudal economic relations to the business of those landowners-- with impunity.

It is notable that the only use of the word impunity in Romer's description refers to a claim that the government "fears" that businesses will break contracts. Really? What we see is a government complicit with the wealthy in letting contracts to shell companies, often with inadequate compliance with environmental protections, without guarantees that the recipients of contracts will ever actually deliver on what they have promised.

And oh, the utter lack of knowledge betrayed in that "urban residents fear violence from criminal gangs". People in cities like San Pedro Sula fear crime-- in large part, because the police will not investigate, the legal system offers no promise of justice. Violence is complicated and multi-centered: reducing it to "criminal gangs" ignores the documented role of the security forces in visiting violence on citizens. It ignores people who, armed with all-too-easily obtained guns, take their defense into their own hands, with fatal results.

We are not going to revisit our previous critiques of the charter cities proposal in detail here. The neocolonialist structure is clearly based on ignoring the external causes of the difficulties of countries like Honduras-- including more than a century of interference in internal politics by foreign governments protecting their economic exploitation of Honduran resources.

Instead, let's look at how weak the current arguments in favor of this proposal are, even in these openly promotional pieces. Here's the New York Times attempting to praise Romer:

Romer’s charter city is trying to avoid this dark side of urbanization by adapting older, more successful models. The United Arab Emirates, Hong Kong and Singapore were able to build well-designed cities that housed and employed millions, in part by persuading foreigners to invest heavily. Dubai created a number of micro­cities — one of which, for instance, is governed by a system resembling English common law with judges from Britain, Singapore and New Zealand. 

Each has had well-known flaws, but Romer said the core idea can be replicated without them. The new Honduran charter city can work, he said, if its foreign leadership can similarly assure investors that they’ve created a secure place to do business — somewhere that money is safe from corrupt political cronyism or the occasional coup. If a multinational company commits to building new factories, real estate developers will follow and build apartments, which then provide the capital for electricity, sewers, telecom and a police force.

This makes it quite clear what the charter cities are about: safety for investors, security for business, a place where "money is safe". People become ancillaries to money in this nightmare vision.

Who will the servants of money residing in these mini-states be? Romer has visions of a city of 10 million people, more than the entire population of Honduras. Romer himself wants to be the chairman of the board that will run the Honduran experiment (required because no international government would sign on). No suggestion that he will move there (which the enabling Honduran law requires of the governing board). But obviously, his goal is to promote others to emigrate, although only the right kind of compliant laborers:

His charter city will have extremely open immigration policies to attract foreign workers from all over. It will also tactically dissuade some from coming. Singapore, Romer said, provides a good (if sometimes overzealous) model. Its strict penalties for things like not flushing a public toilet may make for late-night jokes, but they signal to potential immigrants that it is a great place if you want to work hard and play by the rules.  

Work hard and play by the rules. Unlike who?

Unlike Hondurans themselves, who haven't managed to make any progress toward the rule of law, and need a benign dictator to come and rescue them-- or at least, to rescue the money to be made in the land they currently occupy, without realizing its full potential.

After all, as the fawning author of the New York Times' piece reminds us

It’s easy to criticize experimenting with the livelihoods of the poor, but... the poor are already conducting daily experiments in how to make life better outside the formal economy. By and large, it isn’t working. We have to try some new things, probably many new things. And we have to accept that some of them won’t work.

That's what Hondurans deserve: to be made the material of international experiments taking place without their consent, against the protests of even the business community (contrary to the NPR article's counter-factual claim of broad support), that will deprive them of the right to control their own country, and that if successful, will pay international investors with the fruits of their labor.

This has been tried. It was called slavery. It is no prettier dressed up in academic dreams and ignorance.

Model Cities Are Unconstitutional

Model cities, or Redes Especiales de Desarrollo (RED) as they are known in the law (decreto 238-2010) enabling them, are "an attempt on the form of government and national sovereignty," according to a report issued by the Public Prosecutor's office. In it, the Defender of the Constitution, Xiomara Osorio, reasoned that because the law contemplates changes in the form of government over these regions, the lawmakers committed treason against their country. As such, the law is unconstitutional.

The legal opinion of Public Prosecutors office, which is not binding, was in a report they filed with the Supreme Court as part of the appeal of this law. They are agreeing in this report with a group of lawyers who filed a legal challenge to the law in November 2011 and have asked the Supreme Court to overturn the law.

One commentator on the El Heraldo report, said "That they violated the constitution, how is this news? They [Congress] do that every day!"

El Tiempo ran an editorial Monday in which it pointed out how the report from the Prosecutor's office echoes the points raised in their own editorial on the subject published last June 30.

While this is not the death knell of Model Cities in Honduras, it is none-the-less a severe blow. It is now up to the Supreme Court to rule on the constitutionality of the Model Cities enabling legislation.

Model Cities Law

The National Congress completed and passed Model City legislation last Wednesday and while the details continue to trickle out, the law is very different than the prototype they started with.

This was one of the first laws that Congress passed with its new electronic voting system. Instead of debating and passing the law as a whole, Congress debated and voted on each of the 72 individual articles of the law. They also added four new ones. Paul Romer, the Stanford economist whose brainchild this is, was available in Congress all week during the debate and consulted on the legislation without charge.

The new law firmly establishes that any Región Especial de Desarollo (RED) or Model City is part of Honduras and cannot be alienated. The territories encompassed will be subject to the constitutional clauses about national sovereignty, territory, national defense, identity papers, and foreign relations. This explicit bow to Honduran sovereignty was necessary to gain the support of the Liberal Party members of Congress.

Congress will be able to create a RED from either an unpopulated region, or from urban regions that request conversion through a binding local referendum.

Congress will vote on and approve charter legislation for any proposed RED. Congress made it particularly difficult to change approved charters, reportedly to keep from having to respond to jockeying for gains.

Any RED approved will have an Executive Governor, responsible to a "Transparency Commission", appointed for a seven year term.

Here's where things get strange. The Transparency Commission will consist of elected foreigners who reside in the RED. The Transparency Commission-- a group of non-Hondurans-- will function as the governing council of the RED.

An Auditing Commission will be responsible for the day-to-day administration of the RED and will report to the Transparency Commission.

Finally, the law calls for a "Norms Commission" which will function to set the laws and regulations of the RED. It will function somewhat like Congress. Its members will be elected by residents within the RED.

The RED will have its own judges, though in part, they will enforce the Honduran Penal Code. It will have its own police force. It will be able to administer airports and ports freely. It will be free to set its own currency and taxes, though some taxes will also be imposed by the Honduran government.

A RED will have its own labor law. By law, 90 percent of the jobs in a RED must be filled by Honduran citizens. Each RED can set up its own education system and health care system. The import of automobiles into and out of the RED will be regulated by the RED.

Hondurans will, by law, be able to travel freely into a RED, but foreigners will require special immigration procedures. These were not spelled out in press coverage.

So what should we think of this version of the idea? we have previously covered the reasons we think model cities is a bad fit for Honduras-- even if we set aside all the qualms we have about corporatizing governance, it does not seem to us that model cities will deliver on their hype. The places held up as illustrations of the potential benefit from conditions not present in Honduras.

Reaction to the new law in Honduras also is negative-- including from sectors that might have been expected to be more positive.

COHEP, the business council, hates the law, calling it unconstitutional and filled with inconsistencies. According to COHEP it does not provide sufficient guarantees for investors, be they Honduran or foreign.

The law is unclear about whether absolute title to the land involved transfers to the RED, and thus whether they may transfer title when they sell or lease it to others within the RED. COHEP believes title does transfer. This could, depending on the location of any proposed RED, contradict Honduran laws about foreign ownership of lands near the coast or international borders.

From our perspective, the law simply concretizes a lot of the concerns we and others have expressed.

It provides no protections (either through labor law, or social protections like payments to IHSS) for the Honduran workers who work in any future RED.

It is up to the RED to set labor law, including protections for workers, and to establish its own health care system. The law is vague about who will have access to that healthcare system, if created. Nor do employers have to provide health care for workers.

The law is equally vague about an educational system, and whether it would be only for residents, or potentially also for employees who work in the RED.

But regardless of concerns like these, or even those of the Honduran business community, the enabling legislation has been sent to Porfirio Lobo Sosa for signing and publication in La Gaceta.

There is one enthusiastic supporter of the law: Paul Romer told El Heraldo that in six months all kinds of investors will be coming to Honduras to take advantage of this legislation.

Honduras is indeed open for business-- what is utterly unclear is whether predictions like these will actually prove to be accurate; and if they do, whether Honduran workers will benefit or see their social supports erode even more.