An Economical Rescue Plan for Honduras

Public hydroelectric projects can get the economy going in Honduras, create jobs, improve the national economy, and diffuse some of the social conflicts.

While many are still debating what to do with the split in Honduras, between the redshirts who want to write a new constitution from scratch, and the whiteshirts who insist on respecting the rule of law based on the existing constitution, Honduras is bleeding. Unemployment is around 30%; the economy hasn’t recovered since the double-crisis of world depression and severed diplomatic relations; crime is astronomical; and big infrastructure projects such as a hydropower project in the Patuca have seen their foreign investors pull out. The country is in crisis. What to do?

President Porfirio Lobo has spent much political capital on trying to re-establish diplomatic relations, so that foreign aid and credit can start flowing again. However, he has not managed to get the wheels turning, apparently not taking that matter so seriously. But it is imperative to deal with it.

I suggest that Honduras can lift itself by the bootstraps. This is how:

The state of Honduras should invest in infrastructure projects that lead to a long-term return on investment. There is an obvious candidate: Hydropower. Years ago I saw in a hydropower atlas that Honduras has the second highest unexploited hydropower potential per capita in the world, after Iceland. Yet, some 80% of the electricity is generated in thermic plants, using expensive imported fossil fuel in the form of diesel. Only 20% is hydropower, in a few plants owned by the state electrical utility company ENEE.

Since over 20 years the state has built no more hydropower plants, due to lack of foreign credit (which dried up when the neoconservatives took over the policy making). All new capacity has been privately funded, and thermal, since that gives a better short-term ROI. However, it is very detrimental to the national economy. Lately there has been interest from the private sector in developing hydropower, under concessions from the government. This has been met with resistance from people living in the affected areas, since they view their public land and water being given to private companies without them even being consulted.

There is a win-win way out of this, and that is to develop this renewable energy resource in a public utility instead of in a private company. By keeping it in ENEE, it will remain the property of the people, thus increasing the chances of social acceptance, and the possibility for the government to ensure an environmental-friendly implementation in harmony with local indigenous cultures.

The main reason to do this is to benefit the national economy. By carrying out the project by itself, the government can make sure that most of the money invested stays in the country, which means that it eventually comes back to the coffers of the state (in the form of taxes, decreased unemployment, and–importantly–in the form of increased GDP).

To fund the project or projects, the government should borrow money domestically, not internationally. I’ve heard that there is money in the banks, which is not lent out since there are no viable projects. Just like in the US or the EU, it is the state that has to kick-start the economy, using the principles of Keynes. By borrowing domestically they avoid creating a devaluation pressure, and once the investment starts paying off, the domestic currency (the Lempira) will gain in value, so the lenders will be paid back in a currency that was stronger than before. It’s a win-win.

Some might think that the private sector should have this chance to make money. My answer is, they do! Rather than pour the concrete they lend the money, and are payed back with interest, in a currency that is expected to be stronger than before. It seems to me that the capitalists have nothing to complain about on this plan. And as for the private engineering companies, many of them will surely get contract jobs, so they, too, should be content. The unemployed, finally, will discover that there will be more demand for them.

Once the plant is ready and operating, the hydropower will replace some of the need for thermal plants. The importation of diesel might, in theory, decrease, but in practice the overall consumption of electrical power might increase by a similar amount, due to the overall increase in GDP that these and related projects lead to.

In summary, I propose that Honduras should be able to lift itself by the bootstraps by developing hydropower within the public electric utility company ENEE, financed with domestic capital, built by domestic companies (with just some foreign assistance for key skills); and that this would lead to an increase in employment, in GDP, and a long term improvement in the state finances.

Note: These are my views and nothing else. In the interest of full disclosure I will say that I have worked as a consultant for ENEE in the past, and developed projects for environmental impact assessment of proposed hydropower projects.