US pressuring new left-wing Honduras government over privatized cities

All the versions of this article: [English] [Español]

The Real News Network | 1 November 2022

US pressuring new left-wing Honduras government over privatized cities


Honduran President Xiomara Castro, who took office in January, promised on the campaign trail to abolish special economic zones known as ZEDEs (“Economic Development and Employment Zones” in English), where private investors have outsized power to shape labor laws, judicial systems, and local governance. These zones have garnered fierce opposition in Honduras for undermining the basic tenets of democracy.

In April, she achieved a major win when the Congress of Honduras unanimously voted to repeal the law that allows for ZEDEs, and to abolish the current ones, though the latter has to be ratified next year. But the forces who want to keep ZEDEs in operation are retaliating, and they’ve found allies on Capitol Hill.

Earlier this month, Sens. Bill Hagerty (R-TN) and Ben Cardin (D-MD) called on U.S. Secretary of State Antony Blinken to act against the Honduran government for moving to get rid of ZEDEs. In doing so, the senators are citing the findings of an influential think tank, the Center for Strategic and International Studies (CSIS), which has received direct support from a U.S.-based company that is invested in one of the ZEDEs.

The senators are not the first federal players to rebuke the Honduran government. In July, the State Department issued its own condemnation of Castro’s move to eliminate ZEDEs, and intimated that the government could be violating two trade agreements, the Dominican Republic–Central America Free Trade Agreement (CAFTA-DR) and a U.S.-Honduras bilateral investment treaty (BIT). “The government has exposed itself to potentially significant liability and fueled concerns about the government’s commitment to commercial rule of law,” the State Department’s “investment climate statement” asserts.

This comes despite the Biden administration’s overtures of cooperation toward the new left-wing Honduran president, after years of U.S. support for right-wing leaders in the country, and the apparent backing of a coup in 2009.

But Sens. Hagerty and Cardin have asked the State Department to go further. In their October 13 letter, they say the State Department must press the Honduran government to respect ZEDEs and encourage “good faith consultations and negotiations with U.S. investors in ZEDEs.” And they warn that they are considering legislative enhancements to an existing law that would “address any threats of expropriation or actions of the Honduran government relative to U.S. investments.” In 1962, in response to Cuba’s nationalization of U.S.-owned businesses, the Hickenlooper Amendment (named after Sen. Bourke Hickenlooper, a Republican from Iowa, not current Democratic senator from Colorado John Hickenlooper) halts U.S. aid to countries that nationalize U.S. property without compensation.

The senators—who both serve on the Senate Foreign Relations Committee—quote, at length, from recent commentary by Dr. Ryan C. Berg and Dr. Evan Ellis, published by CSIS. The commentary claims that ZEDEs “can serve as an accelerator of nearshoring and friendshoring” because they “contribut[e] to greater rule of law,” which will attract more private-sector investment, produce political stability in the country, and strengthen the bonds between Honduras and the U.S., warding off investment from the People’s Republic of China.

Critics say that the reality of ZEDEs is much different. The 2013 law establishing ZEDEs gave investors broad latitude to design local regulations and legal systems, granting them “functional and administrative autonomy over the powers of the state,” albeit with some limitations. The ZEDEs are a more extreme version of “special economic zones,” which are characterized by having different labor and trade regulations than the country that hosts them, in order to attract investment. From Mexico to Cambodia, such zones have come under fire for their loosening of labor protections and environmental regulations.

Carlos H. Reyes, a longtime labor leader in Honduras and president of the Beverage and Bottling Industry Union, told Workday Magazine and the Prospect through a translator, “In the ZEDEs, the Honduran labor code will not apply and neither would Honduran international agreements with the International Labor Organization. Labor conflicts would be resolved inside the ZEDEs’ structures, not in Honduran courts. They are a state within another state.”

CSIS calls itself “a bipartisan, nonprofit policy research organization dedicated to advancing practical ideas to address the world’s greatest challenges.” Yet there are signs that it may not be a neutral observer.

According to its own statements, CSIS has received direct support from the U.S.-based NeWay Capital LLC, an investor in Honduras Próspera, Inc., the Delaware-based company operating a ZEDE on the Honduran island of Roatán. “NeWay Capital LLC is an affiliate of Honduras Próspera Inc. with a significant minority interest in the corporation,” a spokesperson for Honduras Próspera, Inc., told Workday Magazine and the Prospect. Erick A. Brimen, the CEO and chairman of the board for Honduras Próspera, Inc., according to the company’s website, is also listed as CEO and chairman of the board on the website of NeWay Capital.

CSIS is open about receiving direct assistance from NeWay Capital LLC. On its YouTube channel, CSIS hosts a video, dated August 17, in which Berg discusses the ambitious model of ZEDEs in Honduras, and touts the jobs created by the Roatán ZEDE operated by Honduras Próspera, Inc. Berg argues that, instead of elimination, the Honduran government should work with ZEDE operators to “identify reasonable reforms.” The video description states, “This project was made possible with support from NeWay Capital LLC.”

On May 16, Berg hosted a discussion titled “What Lies Ahead for the Zones for Employment and Economic Development in Honduras?” whose panelists included Welby Leaman, senior director for global government affairs for Walmart. Berg’s points mirror those made in the August 17 video. The event description on the CSIS website states, “This event was made possible through generous support from NeWay Capital LLC.” This is a typical construction you hear when a grant has been made.

A report by Berg and Matthew Carusi released last week, entitled “Engines of Prosperity: The Promise of ZEDEs in Honduras,” also says it “was made possible through generous support from NeWay Capital LLC,” and even contains a photo of a Honduran worker, with credit for the photo going to NeWay Capital LLC.

CSIS has not responded to a request for comment. The think tank’s website states that 30 percent of its operating revenue comes from “Corporate Grants & Contributions.”

“It’s really disturbing to see that U.S. senators are relying on information from a think tank that receives money from those behind the Próspera project in order to defend the interests of Próspera, and to interfere in Honduras’ internal policies in which ZEDEs have been declared unconstitutional,” Victoria Cervantes, co-coordinator of the Honduras Solidarity Network, an advocacy network based in the United States and Canada, told Workday Magazine and the Prospect. (While the company’s official name is Honduras Próspera, Inc., the company and the ZEDE it operates are broadly referred to as Próspera.)

A spokesperson for Sen. Cardin told Workday Magazine and the Prospect that “Senator Cardin has no relationship with Próspera, which runs one of the ZEDEs in Honduras.” The spokesperson recommended reaching out to Sen. Hagerty’s office, which “did the drafting” of the letter. That office did not respond to a request for comment.

When asked whether the company had been in touch with the senators or the State Department about ZEDEs policy, Trey Goff, chief of staff for Honduras Próspera, Inc., replied, “We speak to audiences around the world to share our vision of how Próspera can empower Honduras and strengthen freedom and opportunity throughout the region. We are delighted to receive support from people with a diverse range of views.”

Not everyone in Congress echoes the senators’ message. “When I visited Honduras with my colleagues in March, we heard directly from President Castro about her anti-corruption agenda and her efforts to roll back the policies of the post-coup dictatorship,” Rep. Ilhan Omar (D-MN) told Workday Magazine and the Prospect over email. “We also heard directly from indigenous communities that have been harassed, displaced, and in the worst cases disappeared and murdered because of their opposition to the ZEDEs and other similar projects. President Castro has not only the right but the obligation to defend those communities, and the United States should support her efforts.”

A Honduras Próspera, Inc., statement released eight days before the senators’ letter has striking similarities to the Cardin-Hagerty letter, including repeated reference to what Honduras Próspera, Inc., says is a 50-year legal stability guarantee from the Honduran government that is protecting the investment. The senators argue that any violation of this legal stability agreement would thereby violate the provisions of CAFTA-DR, including the provision ensuring “fair and equitable treatment and full protection and security.”

But according to Melinda St. Louis, the director of Public Citizen’s Global Trade Watch, a watchdog organization, “It is quite ironic that ZEDE investors are now claiming the right to maintain a ‘50-year legal stability agreement’ when the ZEDEs themselves had been granted the ability to operate outside Honduran legal and judicial processes, undermining the legal stability of Honduran citizens.”

“It would be outrageous,” St. Louis continued, “for the U.S. government to side itself with the creative legal argument of large multinational corporations that a government’s decision to end highly controversial extreme investor rights is a violation of the already overly expansive ‘fair and equitable treatment’ standard in the CAFTA-DR.”

There are signs, meanwhile, that other U.S. officials are meeting with ZEDEs operators. On September 29, the U.S. embassy in Honduras tweeted that its deputy chief of mission, Roy Perrin, “met today with Honduras Próspera to talk about the climate for investment in Honduras, the legal guarantees that will permit those businesses to create jobs, and how sustainable development can create economic opportunities for all Hondurans.”

This spurred a harsh rebuke from the Honduran Foreign Minister Enrique Reina: “To create jobs and investment is important, but within a clear legal framework. The ZEDEs are the biggest legal aberration that arose from a narco-state that came to power through fraud.”

According to Próspera’s Goff, workers at the ZEDE have “the right to form unions as easily as entrepreneurs can form corporations, and personal ownership of employer-funded labor benefits, which are portable from employer to employer and capable of being used for a wide array of social benefits.”

Goff said that at the ZEDE, workers make above the Honduran minimum wage, but Workday Magazine and the Prospect were unable to independently verify this claim.

When asked for verification, the company pointed to the ZEDE’s labor statute. But labor rules on paper are not evidence of paid wages.

Advocates and experts say it is bad policy to simply trust a company to voluntarily grant rights in perpetuity.

According to Cervantes, “Próspera can promise all kinds of things, but the way the ZEDE economic model gives the Próspera governing body power over all civil law in its territory, Próspera can give and take away wages, benefits, working conditions, and limit in practice the right to unionize or strike, leaving the workers with no guarantees.”

Beth Geglia, an anthropologist who has studied the ZEDEs since 2014, told Workday Magazine and the Prospect, “This is largely about being able to experiment with new legal systems, very flexible regulatory systems, and this kind of privatized government.”

In a September 2020 podcast interview, Brimen championed the ZEDE operated by Honduras Próspera, Inc., on the island of Roatán, which uses Bitcoin as currency, as a “charter city,” proclaiming: “Now what’s unique in our case, it’s that it’s not just a new city scale project. It’s a whole new legal system.” The CEO of the Free Cities Foundation, which has invested in the ZEDE, said in a 2019 interview that the private government of the ZEDE reserves “the right not to accept serious criminals, communists and Islamists,” as Brett Heinz and Geglia pointed out for the Center for Economic and Policy Research, a left-leaning think tank.

The concept of a charter city was pioneered by economist Paul Romer, who wrote of the model in 2010, “A host country would provide land; a source country would provide residents; and a guarantor country would provide the assurance that the new city’s charter would be respected and enforced.” (Romer has argued it’s not colonialism because “choice” is involved.)

Some company leaders are active in charter city circles. Goff was among the presenters featured at a “Liberty in Our Lifetime” conference held October 21–23 in Prague. That conference is organized by the Free Cities Foundation, which says it “works with small territories that are adopting liberty-oriented policies to give citizens more choice in the rules that govern their lives.”

The company also has at least one high-ranking official with Republican affiliations. Joel Bomgar, the president of Honduras Próspera, Inc., is also a Republican state representative in the Mississippi legislature. In January, he was one of just five House representatives who voted against a bill protecting gender pay equity, with 111 bipartisan House representatives voting in favor. And in March, he was one of just four representatives in the House who voted against a pay raise for Mississippi K-12 teachers, with 118 bipartisan House representatives voting in favor.

Honduras Próspera, Inc., declined to provide a full list of its investors, with Goff stating, “Some investors prefer to remain behind the scenes.” When asked whether the company has libertarian leanings, Goff said, “Our backers defy easy categorization because we work hard to identify the best ideas in good faith based on what actually works regardless of ideology, and that creates some unusual alliances. We have backers from the left, right and center, as well as apolitical backers—but all believe that Próspera is helping empower Hondurans and building a future of prosperity and opportunity.”

But some residents say they do not feel empowered. The creation of the ZEDE operated by Honduras Próspera, Inc., on Roatán spurred protest among residents of a nearby fishing village, Crawfish Rock, who say they were not fully aware of what the project would entail. Meanwhile, as Heinz and Geglia note, even the State Department acknowledged that the ZEDEs “were broadly unpopular, including with much of the private sector, and viewed as a vector for corruption,” in the same document where it rebukes Castro’s attempt to eliminate the zones.

According to Cervantes, “The Honduran people and their labor movement, the indigenous organizations, the small farmer organizations, their national Congress, and their president, recently elected by a very large majority, have all made it very clear that they do not want the ZEDE project in the country.”

“They don’t believe the promises,” she added, “and they are not willing to accept any constraints on their national sovereignty and control over their own territory.”