Tension in Tegucigalpa

Confidence in Xiomara Castro’s is starting to fade.

Honduras‘s first female leader – Xiomara Castro (“Castro“) – elected earlier this year faces the daunting task of combating the country’s eye-watering levels of corruption, worse here than anywhere else in Central America bar dictatorial Nicaragua. Indeed, in July the anti-corruption watchdog Transparency International and the Association for a More Just Society published a report recounting prevailing graft and consistently high rates of impunity.

Corruption stems from the country’s long-standing structural shortcomings, which are unlikely to improve – at least not for the foreseeable future. President Castro will face pressure to produce tangible results, and risks losing critical congressional support if she does not. Although an anti-corruption commission is to be established, businesses will continue to be exposed to corruption risks, particularly when dealing with public institutions. Our sources provide strongly contrasting views on her administration’s progress.

An adviser to president Castro explained, “The new government is working on two aspects to effectively combat corruption. The first is to reassure national or foreign investors and that has to do with dignifying government activity and strengthening the rule of law. The previous government was a narco-state whose former president is today detained for drug trafficking in the US. We are identifying the networks of corruption and complicity in the public administration that have traces of the previous government. Second point, this rearrangement is not automatic and the first results will come after a year of the current presidency.” Hondurans may be unwilling to wait that long.

“The previous government was a narco-state whose former president is today detained for drug trafficking in the US. We are identifying the networks of corruption and complicity in the public administration that have traces of the previous government.”

Adviser to president Castro, Honduras

Washington – the country’s key political and economic partner – is helping to provide better security, infrastructure and development conditions for investment from the US and elsewhere.

A retired lawyer and board member of several business councils in Honduras explained, “The administration is fixated on the extradition of the previous president as if it were an achievement. Yes, it is an achievement, but was done under pressure from Washington. The fight against corruption is done with legal mechanisms that give certainty to businesses, not with proclamations of voluntarism or making a shield to say: ‘the past is being investigated, but less so for my husband’s presidential period.'”

“The fight against corruption is done with legal mechanisms that give certainty to businesses, not with proclamations of voluntarism or making a shield to say: ‘the past is being investigated, but less so for my husband’s presidential period.'”

Retired lawyers and business council member, Honduras

What of investment opportunities? Agribusiness, focusing on coconut palm, coffee and sugar cane and, in terms of coffee, the investment in first-class decaffeination plants that not only receive Honduran coffee but also coffee from the region is being studied by the administration – this should whet the appetite of potential investors but only if the security situation improves, corruption is weeded out and red tape is meaningfully cut.

Investment in priority infrastructure is in intermodal transport routes, that is, ports, railways, highways and associated interconnections. Honduras enjoys access to both the Atlantic and Pacific oceans and the administration should take better advantage of such strategic geography.

As significant progress in tackling corruption is unlikely – at least in 2022 – corrupt practices will continue to represent operational and integrity risks. This will affect all business sectors, particularly those that deal directly with public institutions. Widespread graft and impunity in public entities leave businesses vulnerable to requests for facilitation payments for day-to-day dealings. Demands for bribes and other irregular requests (particularly in the awarding of contracts) will remain a regular practice. Investors beware!

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