Honduras is still recovering from Hurricane Mitch, which swept through the country in 1998, interrupting the implementation of much-needed reforms, including decentralization and privatization programs. As the country rebuilds itself, and those reforms get back on track, Honduras could experience a period of solid economic growth.
The offshore manufacturing sector will continue to expand, and competitive access to American markets will keep export revenues high. Mining production could increase as well, which, along with the growth in manufacturing, could widen the export base, raise trade revenues, and generate foreign investment. Increased activity in the tourist sector will also play an important role in the country's economic revitalization. However, regional disputes still threaten to undermine the Honduran economy.
The ongoing land dispute between Nicaragua and Honduras flared up again in 1999 when Honduras recognized Colombia's right to a stretch of maritime land claimed by Nicaragua. Nicaragua, in retaliation, imposed a 35 percent tariff on all Honduran imports. Honduras, in turn, has threatened to impose trade sanctions on Nicaragua effective April 2000 if the tariffs are not lifted. The case has been taken up by the International Court of Justice in the Netherlands but will likely take years to resolve. In the meantime, Honduran exporters will suffer high regional tariffs, costing millions of dollars and stifling domestic growth.
On the political front, the Honduran democratic process will be put to the test in November 2001 when the country's next presidential election is set to be held. The 2 main parties are fiercely competitive and regard one another with hostility. The level of acrimony between them was heightened by a recent dispute over the eligibility of candidates. The dispute threatens to jeopardize political stability and plunge Honduran politics back into violence.
Honduras may benefit from the joint initiative developed by the World Bank and the IMF, known as the Debt Initiative for Heavily Indebted Poor Countries. The program provides debt relief for poor countries who, in exchange, commit to economic reforms. Reforms in Honduras have been opposed by the unions, but union influence has waned and, so far, the reforms are proceeding. The reforms include privatizing the telecommunications industry as well as power production in order to meet the terms of a 3-year poverty reduction program signed with the IMF in April 1999. It has been estimated that relief from the HIPC program will save Honduras nearly US$1 billion over 20 years.