Honduras - Overview of economy

The Honduran economy, one of the least developed in Latin America, has traditionally been fueled by the export of bananas and coffee. In the 1980s these crops accounted for between one-half and two-thirds of the country's total exports. Such a narrow export base limited growth and left the entire economy vulnerable to changing market conditions and poor weather, so in the 1990s moves were made toward economic diversification. The production of nontraditional exports such as melon, pineapple, and shrimp increased; the manufacturing industry grew; and the services sector, once fairly limited, emerged as a vital component of the economy. This diversification helped the Honduran economy withstand the effects of Hurricane Mitch, which swept through the country in October of 1998, devastating the agricultural sector. In the northern Sula Valley, the hurricane destroyed 70 percent of the banana plantations and brought heavy losses to basic grains. Coffee production was cut by about 20 percent. Despite these losses, the economy still gained 3 percent in 1998, led by strong performances in the manufacturing and services industries. The 3 percent growth was considered solid given the severity of the hurricane, which killed 7,000 people, destroyed 200,000 homes, and left 1.5 million Hondurans temporarily homeless. The damage caused by Mitch was estimated at US$5 billion, equivalent to 95 percent of the country's gross domestic product in 1998.

Honduras, despite moves to improve its economy, still depends on international aid and imported goods to meet consumer and fiscal demands. This dependence was

heightened by Hurricane Mitch. The storm put domestic production on hold, increasing the need for imported goods and loans to help finance reconstruction. By 1999 Honduras was US$4.4 billion in debt, most of it owed to multilateral lending agencies and the United States. In 1999, in exchange for debt relief of nearly US$1 billion, the Honduran government agreed to restructure the economy along lines agreed to by the International Monetary Fund (IMF). As part of the structural adjustment program , Honduras agreed to privatize certain sectors of the economy. It also made a commitment to fight poverty and corruption, reform social security, strengthen the financial sector, and improve education and health care for the poor.

To spur the economy and increase foreign investment, the Honduran government, under President Carlos Roberto Flores Facusse, pledged in 1999 to accelerate the privatization programs which had stalled under the previous administration. Earlier privatization initiatives and the expansion of the tourist and manufacturing industries led to an increase in foreign investment in Honduras in the 1990s. Foreign investment in 1993 amounted to US$27 million. By 1999, that figure had grown nearly 10 times to US$230 million. Investment in Honduras will likely continue to increase as privatization initiatives move forward and industries expand. In the medium term Honduras will rely on close to US$3 billion in multilateral funding to assist in reconstruction costs and poverty alleviation programs.