Highlights
– Zelaya to attempt land-based entry in coming days
– International economic risk may be too high
– Civil unrest to intensify throughout nation; road and border blockades expected
Deposed Honduran President Manuel Zelaya attempted to re-enter Tegucigalpa on July 5, 2009, when his plane was prevented from landing by military blockades along the runway. Thousands of supported led a march to the airstrip. Violent clashes erupted and at least two people were killed by military gunfire.
Despite large-scale domestic and international resistance against the acting government, Honduras’ military and Congress remain uncompromising. Approximately 50 percent of Hondurans live in poverty and remain vulnerable to rising gasoline prices and inflation – likely results of diplomatic and economic isolation from the recent ouster. Civil unrest will likely intensify throughout Honduras, particularly against acting President Roberto Micheletti and other members of the de facto regime in the near to medium term.
De Facto Government Obstinate to International Recourse
After several hours of circling the Honduran airstrip, Zelaya, accompanied by a number of other heads of state, retreated for a landing in El Salvador and vowed to attempt entry via land-routes in the coming days.
• The acting government, however, has vowed to arrest Zelaya on the charges of 18 alleged criminal acts, including treason and failing to implement more than 80 laws approved by Congress since he took office in 2006.
We note the interim regime remains unresponsive to multinational pressures. However, we believe international forces supporting Zelaya will begin to intensify economic pressure in order to force the interim government’s hand in the near-term. As nearly 20 percent of Honduras’ federal budget relies on foreign donations and credit lines, Micheletti will be provoked to consider the drastic economic consequences of his takeover should he fail to yield to international pressure.
Honduras Not Able to Afford Multinational Isolation
The global economic crisis alone slashed Honduras’ top income sources , namely remittances from the US and exports like coffee, bananas and lumbers as well as clothing and shrimp. Since the ouster, a significant amount of international aid and loans to Honduras have been withheld. The threat of trade sanctions also looms as a unanimous regional consensus denies the legitimacy of the interim government and Venezuelan oil supplies to Honduras have already been cut, allowing the interim government little room to maneuver. The following recent events will play a major role in disrupting Honduras’ economic climate:
• Standard & Poor’s recently reduced Honduras’ B+ long-term credit rating to a negative, arguing political instability was “weakening the government’s ability to adjust fiscal and monetary policies on a timely basis.”
• Directly following the rating drop, the World Bank and the Inter-American Development Bank together suspended an estimated US$470 million in aid and loans to Honduras, waiting for what representatives called a “clarification of legal issues.”
• The suspension of Venezuelan fuel imports. Venezuela sold Honduras approximately US$350 million in fuel last during 2008, as part of Chavez’s Petrocaribe oil initiative. The deal entitled Honduras to as many as 20,000 barrels a day since June 2008 – nearly half of the country’s daily fuel need. A loss in these imports would drastically surge oil prices.
A major concern for Hondurans would be the loss of more than US$100 million in US aid, which rests on how the US State Department will classify Zelaya’s ouster. If the takeover were determined to be a “coup” the US could trigger an automatic suspension of appropriations. Subsequently, it would likely take a number of years to reconcile broken contracts and resume funding following an eventual diplomatic solution. The White House, at the time of this reporting, has only defined the incident as “not legal.” For the near-term, we believe Washington wishes to tread lightly in the regions political crisis, in efforts to preserve recent diplomatic progress made in the region by the Obama administration in early 2009.
• United States (US) funding includes US$43 million in direct assistance during 2009, as well as an undelivered US$114 million pledged through Millennium Challenge Corporation. A fallout in the aid would result mass layoffs, cut government services, as well as prevent the construction of hospitals, roads and schools and other state-sponsored projects.
Civil Unrest to Intensify Without a Near-Term Resolution
On July 7, 2009 Zelaya supporters vowed to expand protests and block trade nationwide, obstructing major highways and border crossings nationwide in an effort to impede trucks carrying fuel and merchandise. Sympathizers are demanding Zelaya be reinstated and that international forces, including the US and United Nations peacekeepers take action to ensure his return.
As previously reported, we believe there will be intensified civil unrest as Zelaya presses to reassume power in Honduras, notably during the upcoming week as Hondurans anticipate Zelaya will attempt once again to re-enter the country. Road blockades are likely to continue, causing large-scale traffic disruptions throughout the country and at cross-national highways for the near-term. The brunt of the violence will remain in Tegucigalpa, likely affecting businesses continuity in the area (Previous Report).
Diplomats with the US, UN, OAS, and European nations are coordinating to seek terms with Micheletti, who insists he will not negotiate until “things return to normal.” The regime may, however, come to a degree of compromise in the near-term, as the domestic climate becomes untenable.
If Micheletti is reluctant to negotiate in the medium-term, we believe Honduras will suffer large-scale economic repercussions. A surge in fuel prices, hiked inflation, and a loss in basic public services would leave Hondurans reeling, likely resulting in large-scale civil unrest and violence for the medium to long-term.
