BUSINESS & ECONOMICS

Monday, August 30, 1998 Online Edition 121

For some months now, I've had the feeling that all was not well. My income seemed to be buying less. Like many foreigners here, I am living here primarily on a dollar income.

This was not a totally new feeling. We finished our house here a little less than a year ago, and during the construction period the price of cement in lempiras had nearly doubled. True, the dollar bought more lempiras as time marched along, but it didn't buy anywhere near twice as many.

To check my intuition, I got an armload of the latest documents from the Banco Central de Honduras, and did a bit of manipulation to determine what really happened here to the everyday consumer, both Honduran and foreign. A tabulation of inflation statistics based on an index of 100 for January 1995 accompanies this article. Note that in the past 3 ½ years, prices have nearly doubled to Hondurans, and have increased about 35 percent in dollar terms.

Like you usually find, there is both good news and bad news.

The good news is that the Honduran economy seems to be generally improving, and inflation is much improved compared to the 1995 and 1996 levels. This reflects the benefit of fiscal restraint, as well as the benefits reaped by improved exports, both industrial and agricultural.

There does seem to be a tendency toward higher inflation to Hondurans now. The year on year rate in lempiras bottomed at 11.4 percent in January 1998, and the July figure was 14.8 percent. I've read speculation that the year on year figure for December 1998 would be about 18 percent. This is a high figure, considered unacceptable in much of the world.

The Lempira has been strong for some time now, having depreciated only 3.1 percent versus the U.S. dollar in the last year and a half. The primary reason seems to be the steady flow of dollar income to Honduras sparked by strong exports. The maquilas have been especially strong earners of late. More men's shirts sold in the United States come from Honduras than any other source. Although coffee prices are well off their highs, they're still strong by historical standards. Melons, bananas and shrimp remain strong export earners too.

A strong lempira helps Honduran inflation too. Most Honduran imports come from the United States, or from another hard currency economy. With a strong lempira, foreign import prices remain fairly stable, also promoting reduced inflation. Petroleum products are always priced in dollars, so with a strong lempira, petroleum prices are stable.

For the person living on a dollar-based income, the news isn't so good. Inflation is still well and alive, and inflation in lempiras is expected to be about 18 percent for 1998. At present rates, the lempira will depreciate only about 3 percent versus the dollar, so the foreigner living here on a dollar income will see his real prices rise about 15 percent. No foreign pensions cover inflation at more than very modest rates, so the bottom line is that the foreigners living here are seeing a real bite taken out of their purchasing power.

Over the longer term, Honduran inflation in dollar terms has been modest, as covered in one of my analyses in 1996.

There is no way to predict exactly what will happen in the future, but over a long historical period, higher inflation rates normally tend to depreciate currencies, so it is my guess that the dollar inflation rate will subside for those living in Honduras.

Higher dollar inflation here has some potential negative consequences for Honduras. Higher relative prices cut demand. Perhaps other countries will win new maquilas if another country can produce more for the dollar. Also, a steady stream of retirees is moving to Honduras and other accommodating countries. I suspect that many of them do a careful analysis before they move, and if prices are too high, they will choose elsewhere.

Certain important bankers in Honduras have suggested that the relatively high quantity of U.S. dollars now held by the Honduran Central Bank could be used to stabilize the lempira at 12.5 per dollar. This may be possible for a time, and if it is followed, it will help stabilize Honduran prices. The downside will be loss of exports, and possibly an eventual economic crisis of some sort as has been experienced in Mexico and elsewhere.

As long as inflation in the local currency is occurring as it is here in Honduras, a gradual devaluation may be appropriate to maintain a competitive position in world markets. If the Central Bank and National Congress really want to effectively take inflation out of the economy, then a truly stable lempira should be possible.

Due to the lack of stickers, the date set for car registration has been pushed back a week until Tuesday (Sept. 1), the daily La Tribuna reported. Registration was scheduled to begin Tuesday (Aug. 25) but had to be postponed because the Association of Municipalities (AMONH) has still not delivered the city stickers that car owners receive on paying their fees. Currently there are more than 300,000 vehicles in Honduras and the government revenue office (DEI) expects to collect Lps. 155 million, almost Lps. 50 million more than last year.

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According to preliminary data, the DEI, the government's revenue office, has collected Lps. 5,522.1 million in taxes during the first two quarters of 1998, the daily La Prensa reported. Over the same period last year, the government received Lps. 4,062.8 million. More than 62 percent has come from indirect taxes -- sales tax, cigarette tax, liquor tax and customs duties.

Monday, August 24, 1998 Online Edition 120

One police force or two is not the question

By MELANIE WETZEL

The transition to the new National Police system continues. The two-year old Direccion de Investigacion Criminal (DIC) has now become the Direccion General de Investigacion Criminal (DGIC). While this seems to be just a cosmetic change -- just one letter in the acronym after all -- it is this exact change that is causing the majority of the controversy of the new law enforcement system.

There has been great public outcry over the "single" police force. In the previous system, which is being slowly phased out, the police or Public Security Force (FSP), was part of the military and the DIC was subordinate to the Public Ministry, an executive branch that controls the Public Prosecutors Office. Under the new Police legislation, there is a new ministry, the Ministry of Public Security, that is in charge of the entire police organization.

In what everyone seems to think of as the "good old days," when the two police bodies were separate, the main function of the FSP was to patrol and be a preventive police force. Much of this "patrolling" was limited to standing in front of the banks that paid an additional fee for the service.

The FSP were not an investigative police. They could not carry out crime scene investigations and could only arrest suspects caught in the act of committing a crime. They had to have higher orders -- from a judge or from the DIC -- in order to act against suspected criminals. All investigation was handled by the detectives from the DIC. Just like in the cop shows, the beat cops just string up the yellow crime scene tape, then the detectives show up and say, "Thanks, boys, we'll take it from here."

Another vital part of this two-police system was that the DIC carried out investigations of corruption in the FSP and vice-versa. This is the part that noisy protesters do not want to see disappear. They feel that when the two bodies are under the same governing ministry, there will be no monitoring of corruption within the police force.

But the true effectiveness of this monitoring between the two police forces should be closely scrutinized before it is declared an ideal system. The two groups naturally felt a certain amount of competitiveness, due to the conflicting power bases. The FSP have the military power behind them, but the DIC get to make the "Thanks, boys" speech, and do all the exciting police work.

In this situation, giving the two groups the power to investigate each other only added to the fire of contention. Before long, there was open antagonism between the two police bodies in many areas, and the most important thing was not to catch criminals, but to make the other cops look bad.

The new police system has two levels of police, preventive or patrolling police and investigative police, both within the same organization, along with some always-frightening "Special Forces." In addition, there will be an internal affairs unit, which is in charge of investigating acts of corruption by officers on any level of the organization.

Will the "single" police force be unable to control corruption within its ranks? Could the results be any worse than the two-police system? The deciding factor in the success or failure of the new police system will most likely not be the structure.

Good initiative, careful planning and strong leadership will be successful within any structure. If the leadership of the new National Police are serious about fighting corruption, and show it by giving the internal affairs unit the support it needs to operate, it will work. If they are determined to offer Honduras a more effective and user-friendly police force, and they show it by providing officers with a decent salary, and opportunities for education and advancement, the new system will work.

But if the highest levels of the Police administration and the government of Honduras do not devote the necessary time and money to the creation of a modern police force, it will be just as fatally flawed as its predecessor, no matter what structure is used.

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Monday, August 10, 1998 Online Edition 118

International law regulates human rights in any country

By MELANIE WETZEL

International law is a branch of law that regulates the relations between countries. It is based on treaties, conventions, and charters, such as the San Francisco Charter of the United Nations, and the Geneva Convention.

Most hard-core theoreticians say that only countries can be subjects of international law. But in a more open interpretation we can see that international organizations and institutions, such as the United Nations, are also subject. The Geneva Convention's Humanitarian Laws that regulate the "rules of war" also include guerilla groups as subjects.

In 1948, following the World War II, along with the creation of the United Nations, treaties were signed that guarantee certain human rights to all individuals, in all member countries. Does this mean that the human being is also a subject of international law?

In a limited manner, yes. The great difference between the person as a subject and the other subjects is that the person cannot act on his own behalf in the international arena. But he does have certain rights that are regulated by international law.

A person who feels that his human rights, such as right to life, freedom of movement, etc., have been violated by a country or government can seek justice in three ways.

The first is through the diplomatic protection of citizens, which a consul provides to its citizens in a foreign country. If a person's human rights are being violated in a foreign country, the consulate of their country of citizenship will supposedly assist them in seeking justice.

If the person feels that their human rights have been violated by the country of which they are a citizen, they need someone to represent them in the international community, and that representative is obviously not going to be their government.

This is where the Inter-American Court of Human Rights and the Inter-American Commission of Human Rights come in. A case is presented to the commission, which is in Washington D.C., and if it is considered to be a violation of human rights the commission brings the case before the Court of Human Rights, in San Jose, Costa Rica.

Decisions made by the court are legal and binding as long as the country has agreed to submit itself to the court's jurisdiction. Honduras has submitted itself to the jurisdiction of the court on several occasions; they have lost important cases, been found guilty of human rights violations and have had to pay indemnizations to victims and families. The United States has not submitted to the jurisdiction of the court.

The third way to seek justice in a violation of human rights is through the normal internal court system. All signed treaties become part of the internal legislation of each member country. Therefore, in a trial in Honduras, which is a member of all treaties on human rights, one can cite the international legislation as basis for an internal trial.

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