Honduras This Week Online Business & Economics: July 1999

BUSINESS AND ECONOMIC OUTLOOK

Deforestation back on the agenda

Fumanitas, a Tegucigalpa-based educational foundation, recently presented a book concerning poverty, the environment and deforestation. Before an audience of intellectuals, journalists and businesspersons, authors Ian Walker, Jose Rafael del Cid and Delmis Cardenas explained the ties between economic growth and the degradation of the environment and the political process that could find a balance between these competing activities. In this context, deforestation of the maple-leaf areas was mentioned as one of the great environmental tragedies of this century. Annual number of hectares deforested was estimated at 125,000.

Savings in dollars growing

According to the latest Central Bank figures, savings in dollars have increased over the last four years. In 1995, Hondurans had saved $135 million whereas in April 1999 the figure had risen to $527 million, an increase of over 300 percent. Honduran citizens residing in the U.S. have increased the size of remittances to their families, which stood at $800 million for the whole of last year. These figures make this item number one in the dollar-earning league. Devaluation of the lempira through June 30 stands at 2.7 percent and is not expected to surpass 5.4 percent at the end of the year. Inflation for 1999 will also be similar to 1998 results, between 12 and 13 percent.

Coffee and bananas recovering

IHCAHFE, the autonomous institution responsible for supervising coffee issues, has announced that next year's crop will set a new record with production estimated at 3.5 million bags. In spite of multiple cases of bankruptcy in the sector, President Flores has ordered FONAPROVI, a second-floor financial institution, to allocate Lps. 300 million to coffee growers. Bananas are also growing but exports are not expected to resume in earnest until next March. Earlier this month, a major setback was inflicted to a "cooperativa" in the northern area of Guanchias. Sixty-five hectares of export bananas were destroyed by strong winds for a total loss of Lps. 30 million. Workers and owners of the cooperativa vowed to double their working hours in order to offset the losses.

Experts discuss pros and cons of dollarization
WASHINGTON, D.C. -- Making the U.S. dollar the official legal tender of Latin America "could be a good idea in the long run," but a jump into "official dollarization" is inadvisable for most countries in the region, according to Liliana Rojas-Suarez, managing director and chief economist for Latin America at Deutsche Bank Securities in New York.

The goal of a currency union, with the U.S. dollar as the lead currency, should be the last step taken in the "ongoing market-led process of regional financial integration," Rojas-Suarez told a joint hearing of the Senate Subcommittees on Economic Policy and on International Trade and Finance July 15.

She was one of several witnesses who testified before the panel as it examines ways to help further stabilize the Latin American economic climate. The issue of dollarization, in which a country eliminates its own currency and adopts the U.S. dollar, has come to the forefront due to the history of chronic inflation and economic volatility in Latin America.

U.S. Treasury officials, however, have repeatedly cautioned Latin American governments that dollarization is not a "magic bullet" and is a move that carries with it many potential costs as well as potential benefits.

For Rojas-Suarez, the theory that quick dollarization is the means to help Latin American countries deal with highly volatile international capital flows "suffers from several fundamental deficiencies, the most important being that it fully ignores the main risk facing countries in the region -- the so-called 'country' or 'default' risk."

This risk, she said, has a lot more to do with the underlying fundamentals of an economy than with a specific exchange-rate regime.

Rojas-Suarez admitted she was skeptical about dollarization in the immediate future because "flexible exchange-rate regimes better equip countries facing [repeated] trade shocks to minimize the costs of a shock." In addition, she said, "key pre-conditions for dollarization are often taken lightly by most adamant defenders of the common-currency proposal."

Most of the economic problems in Latin America, Rojas-Suarez said, are due "more to fiscal and banking mismanagement, for which dollarization is far from being a useful tool, than to monetary issues."

In fact, she said, flexible exchange rates combined with large reserve holdings seem to have served well those countries that faced large external shocks.

Other witnesses suggested that dollarization offers clear benefits for the region and the United States.

Manuel Hinds, El Salvador's former minister of finance, said the benefits of dollarization "far outweigh its true costs and risks." In his testimony, he outlined the economic and social benefits that would result from adopting the U.S. dollar as legal tender throughout Latin America.

Dollarization, he said, would improve the entire business environment of the dollarized countries. Enterprises would no longer devote a substantial portion of their time to "hedge against shifts in the dollar exchange rate of the local currency and would operate confidently in the long term." This is a "requisite" for economic growth, he maintained, and added that Latin America's shift to the dollar would result in lower average interest rates and longer maturity of loans throughout the economy, producing higher rates of investment.

Adopting the dollar as legal tender, he said, would increase "equality of opportunities across the population" as these advantages would be concentrated on the small- and medium-size enterprises that now are subject to foreign-exchange risks.

Under social benefits, Hinds said pension funds and other savings would be protected against devaluations and inflation, while the population would have increased access to housing and other durables because of the reduction in interest rates and increased loan maturity. The heightened equality of opportunities would have a substantially positive social impact, he added.

Hinds acknowledged the arguments against dollarization, including fears that it would prevent the exercise of an independent monetary policy. But "given the sad history of the region in terms of its management of monetary policy," Hinds said, dollarization "would increase the markets' confidence in the dollarized countries. Quite likely, their credit ratings would [improve]."

Another witness, David Malpass, who served as Deputy Assistant Treasury Secretary for Developing Nations in the Reagan administration, and who now works for the New York investment, banking and brokerage firm of Bear, Stearns & Company, called dollarization a "viable approach for many developing countries." The United States, he said, should actively support this approach by committing to keep the value of the dollar stable, and supply technical support to interested countries.

Malpass described the present system, in which countries constantly change the value of their money, as "unworkable." For developing countries, he said, the exchange-rate uncertainty raises the cost of capital, reduces investment and growth rates, and leaves them poor.

Already this year, he said, "we've seen devastating exchange-rate crises in Brazil, Ecuador and Colombia. Russia, Turkey and Venezuela have been failing economically, in large part due to their exchange-rate systems. China and Argentina are battling virulent deflation."

Malpass argued that instead of relying on proposals for a new global "financial architecture" to be led by International Monetary Fund, successful economies should be built on stable currencies, low tax rates, slow growth in government and reliance on contracts, entrepreneurship and small businesses. By supporting dollarization, he said, the United States has a chance to promote a world of stable currencies.

Another proponent, economist Michael Gavin, said official dollarization would be an "evolutionary, not a revolutionary, change" in Latin America's monetary arrangements.

"This is not to suggest that official dollarization would be a minor change in monetary arrangements," he said. "But the fact is that many countries of the region are already heavily dollarized, in the sense that U.S. dollars circulate and are used alongside the national currency, and that much of the banking system already operates in dollars."

Gavin, who heads economic research for Latin America for the investment banking firm of Warburg Dillon Read in Stamford, Connecticut, said that in Argentina, Peru, and Bolivia, for example, most of the private-sector deposits in the local banking system are in dollars, and the banks do most of their medium- and long-term lending in dollars.

Gavin claimed the evidence is compelling that dollarization would promote economic integration in the Americas, and would lead to economic development in less developed economies. Simply switching to a common currency, he said, "would promote hemispheric integration as effectively as would many thousands of man-hours devoted to the ongoing negotiations over a free-trade agreement for the Americas."

As to what position the United States should adopt, Gavin said the U.S. "should mainly stand aside and allow individual countries to make the decision through their own democratic process. However, given that the United States has an enlightened self-interest in allowing dollarization to proceed, we should certainly remove unnecessary barriers to dollarization."

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USTR official expects FTAA action on customs, transparency

WASHINGTON, D.C. -- Four months before a meeting of 34 Western Hemisphere trade ministers, free-trade area negotiators are nearing consensus for quick implementation of at least some business facilitation measures, a U.S. trade official says.

Assistant U.S. Trade Representative Peter Allgeier says Free Trade Area of the Americas (FTAA) participants will likely agree on implementing some measures to streamline customs procedures and others to make national trade rules more accessible and transparent.

Business facilitation would satisfy the FTAA goal of achieving some concrete progress by 2000 as a way to impart momentum to achieving the ultimate goal of free trade in the hemisphere by 2005 as agreed in the 1994 Miami Summit, he said.

Allgeier made the remarks in a July 16 interview ahead of the July 28-30 meeting of the FTAA Trade Negotiating Committee (TNC) in Cochabamba, Bolivia.

The TNC meeting of vice ministers like Allgeier, chaired by the Canadians, should prepare a draft agenda and draft elements of a declaration for the November FTAA ministerial meeting in Toronto. Allgeier said the 34 countries have already indicated support for some elements of a customs package, including streamlined procedures for express shipments -- critical spare parts and the like.

He expected wide support also for a code of conduct for customs officials. "I think everybody knows that in some countries corruption is a problem in the customs area," Allgeier said, "and the idea is to promote more integrity."

More controversial is a proposal for hemisphere-wide adoption of the control-and-release system already used by customs services in the United States and some other countries.

The idea is that for certain merchandise and certain exporters, customs officials clear imported merchandise first and the importer files the paperwork and pays the duties later -- a system crucial for just-in-time production.

None of the proposals precludes customs officials from investigating suspicious packages, Allgeier emphasized.

He expected widespread support also for adoption of transparency measures requiring full access to all of the 34 countries' trade regulations.

He said the United States prefers creation of an Internet system where each country's sanitary and phytosanitary regulations, for example, could be accessed by hyperlink. A published compilation of all the regulations would less likely have up-to-date information, he said.

The TNC must also prepare for the trade ministers' consideration a program for the next phase of FTAA negotiations, through the April 2001 ministerial scheduled for Argentina, he said.

For the November ministers' meeting the negotiating groups should have prepared annotated chapters describing how the agreement should look in form, he said. For April 2001, he said, the United States seeks to have bracketed texts for all the chapters -- brackets indicate areas of disagreement for negotiation. Then would come the tough part -- negotiating away the brackets.

Also in November the ministers will have to appoint new chairs for the nine negotiating groups through April 2001, Allgeier said.

Another controversy remains for the TNC in Cochabamba and the ministers in Toronto -- deciding the fate of the committee on civil society representing labor, environmental, consumer and social justice groups.

"Not all countries are very enthusiastic about this civil society process, to say the least," Allgeier said.

"The U.S. view is this is a phenomenon that is now a part of trade negotiations," he said. "It's not that radical in that for decades governments have interacted with the business community, and now we're just finding that broader areas of society feel they have a stake in trade negotiations."

He said the Canadians are organizing some sort of forum for civil society groups just ahead of the Toronto ministers' meeting in line with the business forum already scheduled.

"The U.S. view is that through some way the outcome of the civil society forum should be made known to the ministers while they're in Toronto just as the outcome of the business forum is," Allgeier said.

He said the United States wants the civil society committee to continue its work, moving on to developing means of regular communications with the negotiators. The ministers should also respond to 69 proposals submitted from all over the hemisphere to the committee, he said.

Allgeier said he expected Brazil will give full attention to FTAA negotiations. Brazilian officials have made public statements placing higher priority on MERCOSUR (the Brazil, Argentina, Paraguay, Uruguay common market) and World Trade Organization (WTO) activities.

"Obviously MERCOSUR is an extremely important thing for Brazil," Allgeier said. "Particularly it is now because it is under such strain, such tension since the Brazilians devalued. And Brazil is consistently a very big player in the WTO. So that's not surprising that that's important for them.

"But their President Cardoso has been very clear several times in public that FTAA on time remains a goal for them and that building MERCOSUR is not in conflict with that," he said.

Also July 16 Katherine McCallion, the Canadian who chairs the TNC, told a U.S. Chamber of Commerce luncheon she was optimistic about achieving a good business facilitation package at the Toronto meeting and satisfied with FTAA progress so far in light of global economic crisis.

"We are about where we expected to be at this point in the process," McCallion said.

Proof of obligations a must in legal actions

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By MELANIE WETZEL

The only way to forcibly persuade a person to do something is through the law, embodied in a judicial system. Other methods of persuasion, such as threats to the kneecaps, ideally can be impeded through legal channels. In order to use the legal system to force someone to comply with an obligation, one must be able to prove its existence.

The Honduran legal system recognizes seven types of evidence or proof:

PUBLIC DOCUMENTS -- Instrumentos publicos or public documents are those documents created or authenticated by a notario, certain government officials or judicial officials. Sentences handed down by courts are public documents, as well as official statements made by ministries. All escrituras publicas are public documents, as their name indicates. Photocopies of these documents must undergo a process of authentication to be considered public documents.

PRIVATE DOCUMENTS -- These are documents that are created by the parties involved with or without witnesses. Private contracts, receipts, even letters are considered private documents and can be admitted as evidence in a civil action.

JUDICIAL CONFESSION -- Either party in a lawsuit can be required to appear in an audience before the judge and give a sworn statement, answering questions about the issues in the lawsuit. There are now criminal penalties in place for perjury in Honduras. In cases where there is no documentation of an obligation, in many cases the only option in a lawsuit is to bring in the other party and see if they will confess their obligation.

PERSONAL INSPECTION -- The judge, at the request of one of the parties in a lawsuit, will personally inspect a site that could provide information necessary to the case. This might be an investigation of a building that is infringing on the rights of neighbors or an investigation of a workplace and its records to verify that a person is employed there.

TESTIMONY OF WITNESSES -- Testimony provided by witnesses will be taken into consideration. A single witness cannot be considered conclusive evidence. Family members, friends and known enemies of either of the parties cannot offer testimony. Any person who is asked to provide testimony in a civil case must do so.

EXPERT BRIEFS -- Each party in a lawsuit may name an expert to offer a brief on technical matters, such as an architect or engineer. The two experts will work together to produce a brief, and if they are unable to reach an agreement, a third expert will be named by the court.

LEGAL PRESUMPTIONS -- Many legal presumptions are found in the Honduran Civil Code. For example, good faith is presumed. A child born to a married couple is presumed to be the child of both members of the couple.

Any time you enter into a relationship with another person that is going to result in an obligation for one or both parties, it is important to keep in mind that if legal action should ever be necessary, you will need to be able to prove the obligation. Creating and maintaining documents and records of all legally binding acts is good preventive legal planning.

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BUSINESS BRIEFS

Back to the future

The renowned education company Futurekids has established operations in Honduras. Based in Los Angeles, California, the American company operates on five continents and more than 70 countries, offering a sophisticated curriculum aimed at teaching computer skills to children aged three to 14. The program incorporates state of the art educational techniques in English and Spanish to develop skills in all standard desktop applications, including word processors, spreadsheets, databases, graphic design, drawing programs and use of the Internet.

The Honduran initiative was inspired by the success of the company in neighboring El Salvador, where more than 7,500 children have enrolled in the program in a period of less than two years. The formal launching of Futurekids will take place in late August and will be attended by Roberto Murray Meza, president of Futurekids of El Salvador and Juan Valiente, executive vice president.

Debt burden is heavy

According to the latest figures from the World Bank, Honduras foreign debt totalled $4.7 billion in 1997 (100 percent of GDP), down from the 1994 high of 129.2 percent of GDP. Public medium and long-term debt made up 83.2 percent of the total debt stock in 1997; multilateral debt comprised half of the total. Short-term debt increased from $199 million to $482 million in 1997. Honduras paid $505 million in debt service in 1997, 10.8 percent of GDP, down from 14 percent of GDP in 1995. According to a European

think tank, since Hurricane Mitch struck last October the debt burden has become unmanageable in spite of the deferrals granted until 2001 by the Paris Club last March. After the meeting in Colonne, Germany in June of the industrialized nations, the Honduran government has increased its hopes to qualify for a two-third's reduction of its bilateral debt stock.

New rules for insurance industry

A new law concerning insurance companies activities is in the offing. This project was presented by Victoria Asfura de Diaz, a former Central Bank director and its new president. According to well-informed sources, capital requirements will be in the range of 15 million to 40 million lempiras and will have to be paid in full before the company starts operations. Moreover, every two years, during the first quarter, the Central Bank will determine the actual size of the paid-in capital in reference to the rules established under the new law. Each company with a reduction of 25 percent or more in its capital will have a period of at most six months to restore its finances to solvency. The Central Bank could force out of business any insurer failing to comply with the aforementioned rule.

Transition is plentiful

AHIBA (Asociacion Hondurena de Instituciones Bancarias) has elected a new president and board of directors. Vicente Williams Agasse, a Choluteca builder and founder of Banco Futuro, was elected as AHIBA president. Also present on the ticket were Camilo

Atala, (FICOHSA), Federico Alvarez (BANCAHORRO) and Maria Elena de Cantor, formerly with Citybank. The losing candidate was Rene Becerra Zelaya, general manager of Banco del Comercio, who headed a coalition formed by practically all the junior members of the association.

Avoid "tramitadores" when seeking an interview date for a U.S. visa

By DON PEARLY

Special to Honduras This Week

(Last of two parts)

What is in a name? In researching the visa situation, I have had personal experience with a group of young men who hang out at the front door of the U.S. Embassy pretending to provide a service. They have been referred to as "scalpers", "head hunters", "vultures", "con men", and the most polite of all, "tramitadores."

Before beginning this segment on how to acquire a United States travel or student visa, I want to quote a statement from Marti Estell, U.S. Embassy spokesperson. "Anyone in the line before 7:30 in the morning receives a visa interview date and time sticker in their passport." Only on rare occasions are people turned away due to total overload. The visa interview may not be for the same day, but everyone gets a number.

This is important because if you understand that, you will better resist the urge to pay these "tramitadores" for doing absolutely nothing for you. They cut in line in front of shy people, take time out of honest people's days and gouge everyone they meet for money. Do it the straight legitimate way and you will be ahead. What is the straight legitimate way you ask?

Although the hours for non-immigration visa interviews are from 8 a.m. till noon, it is best to be there early. Be in line by 7:30 a.m. and they promise you a visa interview number and date. The actual person desiring the visa does not have to stand in line for this appointment but rather a friend or relative can do so as long as they hold the proposed traveler's passport in their hands. This is particularly convenient for older people or parents with young children. The "tramitadores" will do this for you as well, but it is unadvisable to give your passport to anyone other than a friend or relative.

Enter the building when your sticker says it is your turn, pay the visa application fee and carefully and neatly fill in the form if you have not already done so. Have yourself organized with all or as many of the items mentioned in last week's article. Be a person with a goal, with a plan, with honesty in your eyes when you explain why you want to go to the United States and why you will return to your home in Honduras on schedule.

Today alone, about 125 people will be granted permission to travel. You should be one of them. Be polite and ready to answer any questions asked. They might not seem appropriate but somehow they are helping the interviewer make his or her decision. Should you be turned down be sure and have a clear understanding of why it happened and if is there anything more you can do to qualify. Never show anger or even disappointment at their decision because it is not personal, it is their duty to call them as they see them. They can give some pointers that will help you next time, ask politely for their assistance but do not take up too much time, since there are 249 people still waiting behind you.

If you are one of the fortunate ones and your visa has been approved, you will have to return at the end of the next day after 3 p.m. to pick it up or, for a $10.00 or Lps. 143.00 fee, the trustworthy DHL company will send your passport back to you once the visa has been processed. This service is only good to the towns of San Pedro Sula, La Ceiba, Puerto Cortes, Santa Rosa de Copan, Danli and Comayagua.

New conveniences are on the horizon. By October of this year, a method of paying your application fee at a local bank will be in place. Along with your receipt you will receive an appointment slip telling you the exact date and time of your personal interview in Tegucigalpa. This will allow you to plan your activities much better and more efficiently.

Also, if you have held a multiple entry 5-year tourist visa in the past and not more than two years have gone by since it expired, there is a separate revalidation process that does not require a personal interview.

The applicant or anyone on behalf of the applicant submits a package to the consular section any day except Wednesday from 2 to 3 p.m. that must include the passport, current and former ones, showing the expired visa and previous travel, a recent photo and a receipt showing payment of the $45 application fee and financial evidence. At the moment one submits the application he or she will be told when to return to pick up the passport.

Don Pearly is the general manager of the Bayman Bay Club on the island of Guanaja.

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LatAm Internet growth predicted to rise 175 percent in 1999

WASHINGTON, D.C. -- Latin America will experience a 175 percent growth rate in spending related to Internet commerce in 1999, although that figure could have been higher had the region been experiencing healthier economic conditions, says a Massachusetts research firm.

The firm, International Data Corporation (IDC), says Internet-related spending reached nearly $167 million in 1998, an increase of 361 percent over 1997 levels. IDC said that throughout 1998, regional web commerce was increasing at a "rapid pace as new consumer Web users were busy dabbling in the increasingly popular trend of Web purchasing and corporations were beginning to roll out their business-to-business commerce solutions." The firm said, however, that "economic difficulties being experienced by the major market -- Brazil -- are expected to dampen this robust growth.

These findings were made in an IDC report called "1999 Latin America Internet and E-Commerce Strategies." The report offered an intensive study of six major Internet markets in Latin America -- Argentina, Brazil, Chile, Colombia, Mexico, and Venezuela.

The report also said that Latin America leads the world in the addition of new Internet users, with 4.8 million in 1998, and an estimated 19.1 million users by 2003. Latin America's electronic commerce spending in 2003 was predicted to reach $8,000 million.

IDC said that the "perceived commonalities shared by the region's countries -- culture, values, history, economics, language -- are numerous enough to believe not only in the strong potential for Web commerce, but also in the possibility that Web commerce may [create] a truly unified, albeit virtual, regional market.

The program manager for IDC's Latin America's Internet Research unit, Annika Alford, was quoted by the firm as saying that "as the conduit to Web commerce, the Latin American extension of the information superhighway is more riddled with silver-lined potholes than it is paved with gold. The potential is real, but many obstacles need to be overcome before it becomes a reality.

IDC said obstacles affecting the region's ability to foster Internet commerce include "weak credit card processing infrastructures, the high cost of basic Internet access to the end user, existing tariff barriers, and the high cost of logistics (i.e., shipping).

More information about the report can be obtained on IDC's home page at <http://www.idc.com/Data/
LatinAmerica/Content>.

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