Latin America

How the U.S. economic meltdown helped create a crisis in Honduras.

By Fernando Carrera Castro

The coup d'état in Honduras has received due international attention for its political implications -- and its potential to erode democracy across Latin America. Unfortunately, that's only half the story. Equally important are the economic factors that both catalyzed discontent and could now exacerbate the country's internal crisis.

Honduras is the most open economy of Central America and the one that most depends on its relationship with the United States. Exports to the United States accounted for almost a quarter of Honduras's GDP in 2007 (the second highest in Central America, after Nicaragua), according to figures collected by the Central American Institute for Fiscal Studies. Remittances from migrants amounted to 21 percent of GDP in 2008 and are expected to remain about the same this year. Meanwhile, U.S. direct investment in Honduras is among the highest in Central America. All told, Honduras's links to the U.S. economy represented close to 60 percent of the country's GDP in 2007.

Such a remarkable dependence was a blessing from 2003 to early 2008, while markets were booming and U.S. consumption was at an all-time high. But it turned out to be a major problem with the first signs of economic downturn, and since the last quarter of 2008, the situation has become a nightmare. The impact on exports, foreign direct investment, and tourism has resonated across Honduras. Businesses have gone belly up, consumer expenditure is down, unemployment and poverty are rising, and the government's coffers are running dry.

The downturn might have played well for ousted President Manuel Zelaya's increasingly populist rhetoric. But it also presented Zelaya with an awkward reality: Despite his nationalist rhetoric, Honduras would desperately need help from the United States and the international community to keep his government afloat. Calculations made in the early months of 2009 indicated that a fifth of the fiscal budget was expected to be financed with international loans and donations. By June, with the worsening economic situation and fallen fiscal revenue, this figure might have reached 35 percent. It is clear, then, that the government was not going to be able to pay its employees' salaries this year without external financial support. And this was the situation before the coup.

The current political crisis can only make matters worse (if such a situation is even possible). Any Honduran government will depend on the international community's financial support to survive in the coming year. The poorest citizens in Honduras, with one of the highest malnutrition and infant mortality rates in Latin America, might even need international humanitarian assistance if things continue on their current path.

Given this daunting situation, it is rather impressive that anyone wants to be president of Honduras at all. But if you are not poor, and your future is not threatened by the current economic crisis, you might find the presidency a very attractive job. One could ask Manuel Zelaya and Roberto Micheletti about that.

Fernando Carrera Castro is executive director of the Central American Institute for Fiscal Studies (Instituto Centroamericano de Estudios Fiscales).

Photo: ORLANDO SIERRA/AFP/Getty Images

Why Honduras must bring back the very man most responsible for the crisis.

By Kevin Casas-Zamora

The old demons that have given Latin America a tragic political history are dormant but hardly dead. On Sunday, Honduras's president, Manuel Zelaya, was ousted by the military, capping weeks of tension brought about by the president's ill-conceived attempt to engineer his own reelection. As U.S. founding father John Adams might have put it, Zelaya chose to have a government of men and not of laws.

Zelaya's fatal mistake was in organizing a de facto referendum to test the idea of allowing him a second term. Honduras's Constitution explicitly forbids holding referendums -- let alone an unsanctioned "popular consultation" -- to amend it and, more specifically, to modify the presidential term. Unsurprisingly, the president's idea met with resistance from Congress, nearly all political parties (including his own), the press, the business community, electoral authorities, and, crucially, the Supreme Court, which deemed the whole endeavor illegal.

Last week, when Zelaya ordered the armed forces to distribute the electoral material to carry out what he called an "opinion poll," the military commander refused to comply and was summarily dismissed (he was later reinstated by the Supreme Court). The president then cited the troubling history of military intervention in Honduran politics, a past that the country -- under more prudent governments -- had made great strides in leaving behind in the past two decades. He neglected to mention that the order he had issued was illegal.

Then Zelaya -- a late convert to Venezuelan President Hugo Chávez's Bolivarian doctrine -- introduced an ideological rationale for his ambition: creating a "participatory" democracy in Honduras and subverting the country's dominant oligarchy (of which he is the quintessential product). Chávez and Fidel Castro, in an ironic turn of events given the two men's history, sternly denounced the danger of a military takeover in Honduras.

There was, of course, nothing ideological about Zelaya's plan. He never bothered to explain what kind of constitution he wanted, other than one that allowed his own reelection. In that respect, Zelaya is less a disciple of Chávez than of Nicaraguan President Daniel Ortega, another unsavory character bereft of any ideal other than staying in power by hook or by crook.

Now the Honduran military has responded in kind: An illegal referendum has met an illegal military intervention, with the avowed intention of protecting the Constitution. Zelaya's civilian opponents, meanwhile, are celebrating. For the past week, the Honduran Congress has waxed lyrical about the armed forces as the guarantors of the Constitution, a disturbing notion for Latin Americans. At the very least, we are witnessing in Honduras the return of the unfortunate role of the military as the ultimate referee in political conflicts among civilian leaders, a huge step back in the region's consolidation of democracy.

That's why Zelaya, though he bears by far the greater responsibility for this crisis, must be reinstated in his position as the legitimate president of Honduras. The Organization of American States, the neighboring countries, and the U.S. government (which is still enormously influential in Honduras) should demand no less. They should also call upon all political actors in Honduras to take a deep breath and do what mature democracies do: allow the law to deal with those who try to step outside it. If Zelaya must be prosecuted for his harebrained attempt to subvert the Honduran Constitution, then let the courts proceed as rigorously as possible. And the same applies to the coup perpetrators. If Honduras is to have a decent future, its politicians and soldiers, in equal measure, must learn that the road to democracy and development runs through the rule of law.

Dark clouds are gathering again over Central America, and the United States would do well to pay attention. The current crisis in Honduras, the governance problems in Guatemala, and the ongoing destruction of democracy in Nicaragua form an ominous trend. U.S. President Barack Obama now has the opportunity to show both friends and foes in the Western Hemisphere that the United States has finally decided to side unequivocally with democracy -- and that the rule of law matters in Tegucigalpa as much as it does in Washington.

Kevin Casas-Zamora is a senior fellow at the Brookings Institution. He was vice president and minister of planning of Costa Rica from 2006 to 2007.

Photo: ORLANDO SIERRA/AFP/Getty Images

That pesky little detail about "democracy"...

By Lino Gutierrez

On September 11, 2001, minutes after the attacks on the World Trade Center and the Pentagon, representatives of the Organization of American States (OAS) in Lima, Peru, signed the Inter-American Democratic Charter, a document that established that only democracies could be members of the organization. Last week, representatives of the same organization, which expelled Cuba in 1962, rescinded Cuba's expulsion and invited the hemisphere's lone Marxist dictatorship to return.

What happened in eight years? For one thing, the regional dynamics have shifted. After September 11, many believed that the United States, occupied elsewhere in the world, was paying little attention to its own backyard. Latin American countries, moreover, were never comfortable with the Iraq war. Even Chile and Mexico, usually staunch Washington allies, failed to provide needed votes when the United States sought the U.N. Security Council's approval to take Baghdad. Abu Ghraib, reports of civilian casualties, and George W. Bush's personal unpopularity all contributed to a precipitous drop in the U.S. image across the region.

Things changed for Cuba, too. Once a feared, Soviet-backed promoter of worldwide revolution, the Castro regime got new support thanks to the election of populist leaders like Venezuela's Hugo Chávez, Bolivia's Evo Morales, and Nicaragua's Daniel Ortega -- all of whom are admirers of Fidel. Suddenly, it is politically correct to welcome Cuba back to the family like a prodigal son. Under the leadership of Brazil's President Luiz Inácio "Lula" da Silva, the Rio Group, a collection of Latin American democracies, asked Cuba to join its ranks late last year (Cuba accepted). At least eight hemisphere presidents have visited the island of late, all getting the requisite picture with the ailing Fidel in his track suit (none of these official visitors asks about or visits Cuba's brave dissidents).

In the United States, too, some members of Congress are calling for an end to the 47-year-old trade embargo and travel ban. Although President Barack Obama has affirmed that libertad (freedom) will be the cornerstone of his Cuba policy, he has called for a new approach. Obama fulfilled his campaign promise to lift the Bush administration controls on remittances and travel by Cuban-Americans to visit their relatives in Cuba -- a measure that will mean additional foreign exchange for Cuba. Now, the U.S. president has called for Cuba to reciprocate.

The OAS would have been a great chance for Cuba to do just that. But Cuba won't rejoin the organization, which Fidel Castro once called a "Yankee bordello," anytime soon. The island's leaders did hail the OAS's invitation as a great victory, of course. But becoming an OAS member would subject Cuba to the kind of international scrutiny it has avoided for the past half century. The invitation calls for Cuba to rejoin the organization and commit to its established norms -- including the Democratic Charter. And while Venezuela and its allies would gladly give Cuba a pass, the United States, Canada, and others would require that Cuba at least begin a process that leads toward democracy.

That is a process that Cuba will not undertake so long as the Castro brothers are in charge. Though Fidel is no longer on stage, he continues to influence decisions behind the scenes. Brother Raúl seems to be open to more dialogue with the United States, and many Cubans hoped he was a closet reformer. But after announcing some modest economic reforms in 2008 (Cubans can now stay in tourist hotels), the regime seems to have retrenched and closed ranks, as the recent firing of reform-minded economist Carlos Lage and Foreign Minister Felipe Pérez Roque seems to indicate. Both Fidel and Raul have said that, while they're willing to talk to the United States, the revolution's principles are non-negotiable.

Curiously, the variable in the present equation is none other than Obama. Despite Fidel's boast of having outlasted 10 U.S. presidents, neither he nor Raúl have dared take on the popular U.S. president. Cubans are fascinated with Obama, having been told by the Castros for years that blacks were second-class citizens and that no African-American could ever hope to be in a position of power in the United States. In a country that is 60 percent Afro-Cuban, Obama's very election has sparked new hope among many that things could at last get better. How and when this will happen remains to be seen -- but at least for now, Cuba's future won't be in the OAS.

Lino Gutierrez was the U.S. ambassador to Argentina from 2003 to 2006.

Photo: ADALBERTO ROQUE/AFP/Getty Images

The political fallout of Argentina's dengue fever epidemic.

By Michael Shifter

Mexico's swine flu outbreak has captured the world's attention over the past two weeks. But Latin America's other, less-noticed epidemic is not only more severe, but may have more serious consequences for the government struggling to control it.

The worst outbreak of dengue fever in Argentine history has affected more than 20,000 people since the beginning of this year, including two children born with the disease and at least half a dozen people who died. A tropical disease transmitted by the Aedes aegypti mosquito, dengue is accompanied by severe flulike symptoms, but the vast majority of cases are not lethal. In Argentina, roughly 80 percent of the dengue cases have been in the predominantly poor, rural northern provinces of Chaco and Catamarca, but several cases have been confirmed in the capital, Buenos Aires.

Dengue fever is a wake-up call for one of Latin America's most prosperous and highly educated countries. Argentina enjoyed a period of robust growth between its devastating, unprecedented economic crisis in 2001 and the onset of the current global slowdown. The outbreak is disheartening for many Argentines who had begun to think their country had reversed its recent decline. Dengue is common in neighboring Bolivia, Paraguay, and Brazil, but until a decade ago Argentina had managed to escape the ravages of the fever.

Argentine President Cristina Fernández de Kirchner had already moved the midterm legislative elections up four months to June 28 to avert even greater political damage to herself and her Peronist party in a worsening economy. Now, her government's handling of the fever crisis has emerged as a potentially damaging campaign issue.

In the midst of their heated clash, both the government and the opposition have been criticized for exploiting the dengue epidemic for political gain. Fernández has been accused of downplaying the severity of the outbreak, resisting opposition pressure to declare a national health emergency. Meanwhile, some say the opposition is more focused on pointing fingers than finding a solution, failing to recognize government efforts after a slow start. As the author Mempo Giardinelli wrote in Argentina's left-leaning daily Página/12 on April 30, both sides are guilty of "prioritizing the elections over the health of the population."

Although they responded aggressively to prepare for the possibility of swine flu infection, Argentine officials did not immediately take sufficient measures to deal with the homegrown plague. The problem exposes serious deficiencies in the country's healthcare system -- another example of often precarious public services throughout Latin America.

Preventive measures aside, it is essential at least to have accurate and credible data on the status of the epidemic. Because the Fernández administration's statistics on inflation and other economic indicators are widely seen as underreported relative to rising prices, people are similarly suspicious of government figures related to the spread of dengue cases.

The handling of the dengue outbreak is emblematic of deeper governance and institutional weaknesses, particularly poor coordination and relations between provincial and federal governments. In just two years, the once unassailable public support for Fernández and her husband, former President Néstor Kirchner, has plummeted from about 70 percent to 35 percent. Polls indicate that growing insecurity in urban areas is the top public concern, while the perception of manipulated inflation figures and official corruption also stand out in this distressed economic environment.

Fernández is looking forward to the start of the Argentine winter on June 21, as the cold weather should help contain the fever. But she is most likely apprehensive about the critical elections a week later, when her government could possibly lose its current majority in the legislature. Whatever the outcome, the dengue epidemic has already helped put the country's deepening governance difficulties in even sharper relief.

Michael Shifter is vice president for policy at Inter-American Dialogue and adjunct professor of Latin American studies at Georgetown University's School of Foreign Service.

CLAUDIO SANTANA/AFP/Getty Images

Barack Obama doesn't have to become best friends with Hugo Chávez. But he does have to be civil with the Venezuelan leader if he wants the real Summit of the Americas work to get done.

By Joseph S. Tulchin

As Barack Obama heads to the Summit of the Americas beginning April 17 in Trinidad and Tobago, the outlook for U.S.-Latin American relations looks brighter than it has in the last eight years. The U.S. president has already taken on the two issues that were most likely to distract from the summit's real business: Mexico and Cuba. He's visiting Mexico on the way to the summit to reemphasize U.S. cooperation in combating the drug problem. And Obama has relaxed the travel and remittance restrictions imposed by his predecessor on Cuban-Americans who wish to visit family members in Cuba, relieving tension on the second touchy subject.

Still, there's one thorny issue that could spoil the party: U.S.-Venezuelan ire. Venezuelan President Hugo Chávez said on April 4 that he would like to reset the U.S.-Venezuelan relationship. (Since Fidel Castro, Chávez's mentor, declared his willingness to open a dialogue with the United States over recent weeks, Chávez could do no less.) But what exactly would a reset look like?

At first glance, the U.S.-Venezuela spat amounts to little. Even through the heated rhetorical exchanges (Chávez calling Obama an "ignoramus," Obama saying that Chávez was halting progress in the region), Venezuela has continued to ship oil to the United States and, with a very brief interruption, has been sending heating oil to Bostonians at a subsidized price. Indeed, since candidate Obama made it clear that he would talk to everyone, even the states that George W. Bush defined as the axis of evil, why not talk to Chávez? Yes, Chávez threw out the U.S. ambassador last year, but all he has to do is invite the United States to send another one, right?

If only it were so easy. First, there are U.S. security fears, justified or not. Southern Command, for example, continues to study threats that might come from Iran, Russia, or China as they conduct joint military exercises in the Caribbean basin or even penetrate the Venezuelan armed forces. Second, a few bilateral disputes remain unresolved. Venezuela, for example, wants the United States to turn over Luis Posada Carriles, the Cuban-Venezuelan who masterminded the bombing of a Cuban airliner in 1976. Several U.S. companies allegedly owe back taxes to Caracas and have taken the matter to international courts. Third, the United States is concerned about Venezuelan aid to Colombian rebel groups such as FARC, both on Venezuelan territory and inside Colombia. Finally, the United States worries about Chávez's accelerating authoritarian drift.

But hitting the reset button, distasteful though it may seem, would be a smart move. If Obama doesn't proactively work to defuse tensions, Chávez and his big mouth could be tempted to cause trouble, especially for U.S. allies such as Chile, Colombia, and Brazil. In that respect, he could hamper progress on arguably more important regional issues, such as the economy, Mexico, or Cuba.

Small steps might be the best way to begin. The United States, for example, could promise to turn over all but the Posada case to the Organization of American States to moderate, a gesture that would signal to Latin America that the Obama administration is serious about multilateralism. Reinstating direct U.S. diplomatic representation in Caracas would also open doors, and the ongoing trade in oil and gas could form the cornerstone of productive new ties.

Even a photo op between Obama and Chávez might get the ball rolling. A follow-up conversation between U.S. Secretary of State Hillary Clinton or Assistant Secretary of State for Western Hemisphere Affairs Thomas Shannon and a Venezuelan counterpart would be an added bonus. Obama doesn't have to hit it off with Chávez. He just has to make sure the Venezuelan leader doesn't have an excuse to interrupt the real work of the summit.

Joseph S. Tulchin is senior scholar of the Woodrow Wilson International Center for Scholars.

Hugo Chavez is being practical, but don't expect it to last.

By Amy Jaffe

Venezuela’s launch of a new bidding round for foreign direct investment in its oil-rich Orinoco Belt region this past December, and Hugo Chavez’s decision last week to allow Western energy companies to bid for them, signals a reality check for international oil players. Despite all the hullabaloo about resource nationalism, re-nationalization, and energy weapons, there is nothing like a good market correction to focus the mind.

More than 19 companies indicated interest in bidding for new contracts in Venezuela, including several major Western oil companies. They seem willing to shrug off Venezuela’s past political difficulties to gain access to its huge reserves. But the question is whether Caracas is willing to offer attractive investment terms to lock in billions of dollars of new investment from Big Oil. With oil revenues crashing and Venezuelan domestic oil production falling, Chavez may have to be more practical than ideological. But it likely won't last.

Populist hopes that the oil boom and bust cycle would end once and for all in 2008 have proven as wrong as they were in 1973. Also wrong were the assumptions that peaking world oil supply would keep oil producers such as Venezuela back in petrodollar surpluses and the geopolitical driver’s seat forever. Both of these faulty assumptions could have dire circumstances for these producers’ fiscal national balances in 2009.

Newly socialist Ecuador has already defaulted on a debt payment, and Venezuela is having to trim spending, devalue its currency, and raise debt as a means to weather the credit crisis and declining oil receipts. The new price and credit environment will retest the notion of whether populist resource nationalism can remain the driving force to political power in Latin America.

In the end, populations will expect social welfare bills to be paid. Chavez may not like to admit it, but increasing foreign oil company participation in the oil sector has been a solution chosen by previous administrations during previous oil price downturns. Now it appears to be the chosen path to survival for him as well.

Still, it remains to be seen whether the oil producer-consumer balance of power is definitively shifting. Though European buyers have raced around frenetically looking for liquefied natural gas to replace disrupted Russian pipeline supplies, a longer term solution to the risks posed by energy supply from Russia seems elusive. When the recession is over and world oil demand begins to recover anew, will we be see the return of the same resource nationalism? History would indicate, yes.     

THOMAS COEX/Getty Images

President Calderón is fighting America's third war, and America's backing his enemies.

By Shannon O'Neil

When President-elect Barack Obama is sworn in next week, he'll become the proud owner of several wars. There is the familiar mayhem in Afghanistan and reluctant optimism in Iraq. And then there is America's forgotten war: the war on drugs. That battle's newest front is its southern neighbor Mexico, whose president, Felipe Calderón, Obama met on Monday. If Calderón speaks his mind, he could put it simply to Obama: We are fighting your war, and you are supplying our enemies -- with demand for their drugs, money for their cartels, and guns for their violence.

Mexico is fighting for its life, and Calderón has ratcheted up the battle since becoming president in 2006. Still, the picture remains grim.

Drug-related violence is spreading throughout Mexico. In 2008, drug-war-related deaths topped 5,600 -- more than the five-year total of U.S. casualties in Iraq. Drug cartels are undermining the state: They infiltrate local and regional governments, corrupt police officers and judicial officials, and threaten and kill independent journalists. Those in public positions often face the ultimate Faustian bargain -- "la plata o el plomo" -- money or death.

The United States has been slow to recognize its responsibility as the main consumer of these illegal drugs. But the U.S. Congress did pass the Merida Initiative last May, increasing security aid to the country's embattled neighbor from a paltry $40 million to $400 million a year.

Sounds like real help, right?

Unfortunately, these numbers pale in comparison with the funds the United States supplies to Mexico's bad guys. U.S. drug consumers send at least $12 billion a year back to Mexico's cartels, and the U.S. government does little to stop it. Dealers gather individual sales of $20, $50, $100, or more from the streets of New York, Chicago, Charlotte, or Fresno. Through bank transfers, money wiring, and even Greyhound bus, the cash is amassed at the southern border, then put into cars and trucks, and shipped south -- without a glance from U.S. customs officials. This money keeps the cartels in business, funding corruption and violence.

The gun situation is even worse. The Merida Initiative promises some sophisticated gear to the Mexican government, including helicopters, speedboats, and high-end database and surveillance systems. Yet the arms that cartels can and do buy from the open U.S. market -- completely illegally -- leave Mexico's police force and even its military outgunned. There are nearly 7,000 gun shops along the southern U.S. border, about three for every mile. They sell thousands of hand grenades, rocket-propelled grenade launchers, AK-47s, and "cop killer" guns and bullets that cut through Kevlar body armor. The weapons quickly flow south, again with barely a nod from U.S. Border Patrol.

There are many areas where the United States and Mexico can and should work together to improve the situation on both sides of the Rio Grande. For starters, the United States should enforce its own laws. It should investigate and stop money laundering across state lines and international borders. It should enforce arms regulations and stop selling guns to the cartels and their straw buyers. Most of all, it should end the flow of assault rifles and more serious weaponry. In short, instead of just worrying about what is coming north, the United States needs to take a hard look at what is going south.

Obama has indicated his support for the Merida Initiative, as well as the goal of stopping gunrunning. This is a good start. But if the United States really wants to limit the violence in Mexico, it needs to stop funding and arming both sides of the conflict. After all, it's America's war, too.

Shannon O'Neil is Douglas Dillon fellow for Latin America studies at the Council on Foreign Relations and blogs at www.LatIntelligence.com.

ALFREDO ESTRELLA/Getty Images