A plan to create special self-governing zones for foreign investors in Honduras was left in limbo with the new government’s repeal of a law that many criticized as a surrender of sovereignty.
The zones were inspired by libertarian and free-market thinkers as a way to attract foreign investment to the impoverished country. Not only were they free from import and export taxes, but they could establish their own internal forms of government, as well as courts, security forces, schools, and even social security systems. They were authorized by a constitutional amendment and an enabling law passed in 2013.
Critics worried that the zones could become quasi-independent states, and President Xiomara Castro, who took office in January, campaigned against the law. On Monday, she signed a measure approved by the Honduran Congress to repeal it, although the permit for the zones still remains in the constitution.
The zones, known as ZEDE, had been promoted by his predecessor, Juan Orlando Hernández, who was extradited to the United States on April 21 to face drug and arms trafficking charges.
Castro called the repeal “historic” and said Honduras was “recovering its sovereignty.” His administration said that he did not want to destroy what had already been built, but that changes were coming.
“We are going to work hand in hand to do things responsibly because we don’t want to try to destroy what has been built either,” said Rodolfo Pastor, a member of Castro’s Cabinet. “With those who already [exist] there is going to be dialogue because autonomous zones are not going to be allowed.”
He said a committee would be formed to work with the three existing zones.
Perhaps the most ambitious is a 58-acre planned development called Prospera on the Caribbean island of Roatán promoted by American libertarians with plans for modernist buildings drawn up by Zaha Hadid Architects.
Prospera’s backers released a statement just before the repeal vote saying they intend to proceed “confidently with plans to invest hundreds of millions of dollars and create tens of thousands of good-paying jobs in Honduras relying on their acquired rights.” under the ZEDE framework.”
“For the State of Honduras to deny these rights would clearly violate its obligations under international and national law based on well-established legal principles,” the statement said.
After the law was repealed, Prospera’s president, Mississippi State Rep. Joel Bomgar, said that Honduras would have a brighter future with Prospera.
“All that is needed is for Honduras to comply with its international commitments,” he said. “Prospera arrived in Honduras with the best intentions to invest and generate opportunities, based on legal commitments assumed by each party, and that intention and commitments remain.”
Another area, a sprawling agro-industrial park called Orquidea near the southern city of Choluteca, is also making headway, but it is more prosaic. It has rows and rows of enormous greenhouses that produce peppers and tomatoes for export.
“Right now we are all in limbo, but the important thing is to listen to the government to see how the process they are carrying out can be supported,” said Guillermo Peña Panting, technical secretary of Grupo Orquidea.
“We have to have an open talk to see what [the government] is willing to do or create, because what we want is to continue contributing to the economy and developing what we have been doing in a serious and responsible manner”, he added.
Part of the uncertainty is due to the fact that the authorization of the ZEDEs remains in the constitution despite the fact that the law under which they operate has been repealed.
Congress and Castro have moved to remove that language from the constitution, but that would require a second vote by a new Congress next year.
“The companies that are working will have to continue to work, because constitutionally they continue to exist,” said constitutionalist Juan Carlos Barrientos. “But now no one is going to come to invest in a useless thing, because without a law no one is going to risk investing here.”
Political analyst Raúl Pineda Alvarado said that the now repealed law was the most controversial part of the legal framework.
“That organic law had provisions that went beyond the constitutional reform,” said Pineda, with privileges that were not in the constitution.
The law had said the zones must comply with most Honduran constitutional principles and international human rights agreements, but critics argued that they essentially allowed the creation of separate states within a state, undermining the country’s sovereignty.
A 21-member “best practice” committee was created to oversee and help regulate the zones with a view to creating a business-friendly environment.
The Center for Strategic and International Studies, a Washington-based think tank, wrote Wednesday that there was no way for the Honduran government to take down the ZEDE overnight. And if he pursues the long outcome of the initiative, “investors have a series of legal mechanisms at their disposal.”
“The Castro government’s support for the repeal of the ZEDE will likely deter future investment in Honduras, certainly in the ZEDE, but also investment outside the ZEDE framework, and risks turning some of the criticism leveled by opponents into the ZEDE with respect to job creation in self-fulfilling prophecies. ”, said the analysis.
Meanwhile, the Office of the United Nations High Commissioner for Human Rights in Honduras applauded Castro’s cancellation of the zones. Last year he had warned that the ZEDE “could pose serious risks to compliance with the general obligation of the Honduran State to respect and guarantee the free and full exercise of the rights of all residents without discrimination.”
AP journalist Christopher Sherman in Mexico City contributed to this report.