In Honduras, a toy factory's quest for profit

TEGUCIGALPA, Honduras — Political instability never figured into Chris Haughey’s calculations when the American entrepreneur decided to build a toy factory in Honduras.

It seemed like the ideal spot for foreign investment given the country's cheap labor, tax incentives — and political stability. Indeed, Honduras hadn’t experienced a coup since the 1970s.

Yet shortly after Haughey (pronounced HO-we) broke ground on the outskirts of Tegucigalpa, the military ousted President Manuel Zelaya. Street protests led to curfews that caused construction delays at Haughey’s plant, which pushed back the start-up date for toy production.

“The impact for us has mostly been with delays,” said Haughey, 29, as he wandered past idle machinery. Workers and vendors “don’t show up because there’s a curfew for all or part of the day and so they’re not going to come out to the factory.”

Haughey and other business people in Honduras were already being squeezed by the world economic slowdown but the June coup made matters far worse.

Everything from coffee and banana exports to construction, tourism and foreign investment are plummeting. International aid has been squeezed by governments that have refused to recognize the de facto regime of Roberto Micheletti.

The economy of Honduras — which is already the third poorest country in Latin America — is expected to contract by as much as 4 percent this year, according to Raf Flores of Fosdeh, an economic think tank in Tegucigalpa.

“It’s a sad situation,” U.S. Ambassador Hugo Llorens said in an interview.

Meanwhile, it’s unclear whether the recent presidential election will do much to resolve the crisis.

Unlike the left-wing Zelaya, President-elect Porfirio Lobo has close ties to both the business community and the United States. But many Latin American nations have refused to recognize the election, which was organized by the Micheletti government.

Even if the Honduran Congress votes to restore Zelaya to the presidency for the brief period before his term ends on Jan. 28, the ousted leader says he won’t go along with the plan because it would only serve to legitimize the coup.

“The uncertainty slows down local and international investment while non-recognition of the government stops loans and donations,” Flores said.

Before the coup, he added, “the poverty rate had been falling. But now it’s getting worse. It’s almost 70 percent of the population.”

Part of the problem is Honduras’ dependence on the United States, which buys nearly three-quarters of the country’s exports.

The U.S. financial crisis depressed demand for Honduran coffee, bananas, shrimp and apparel. Remittances from Hondurans living in the United States account for about 21 percent of the country’s GDP. But those money transfers are in a freefall.

In January, President Zelaya boosted the monthly minimum wage by 60 percent to about $300. He also decreed that domestic workers are entitled to social security pensions. Those moves were triumphs for the labor movement but prompted a wave of layoffs and turned the business community firmly against Zelaya.

Then came the coup, which was supported by many business leaders. But the World Bank, the United States and several other nations reduced their aid programs to the de facto government. Now, many Hondurans are only buying essential items.

“We’ve had protests and curfews and it seemed like war was about to break out,” said Alba Castaneda, who has seen her printing press business lose 40 percents of its sales and has laid off five of her 18 employees. “So people are only buying what they need, like food.”

Through it all, Haughey remains upbeat. He was born in New Zealand, grew up in Missouri and first came to Honduras in 2006 as a volunteer worker with homeless children. His company, called Tegu, will build classic wooden toys embedded with magnets so they’ll fit together like Legos.

But he’s one of the exceptions.

“There’s no new foreign direct investment going on in Honduras,” Haughey said. “Any plans that were being made to put in new industry have either been put on hold or have been cancelled.”

Hotel owners claim the coup has been even worse for business than Hurricane Mitch, which laid waste to much of Honduras in 1998.

After the storm, legions of aid workers flooded Honduras and stayed in hotels for months. But in the aftermath of the June coup, street protests and the temporary closure of the country’s main international airport led to an exodus of tourists and a wave of cancellations. In addition, the U.S. State Department issued a travel alert recommending that Americans defer all non-essential travel to Honduras.

“Tegucigalpa was completely empty,” said Ana Maria Maradiaga, who runs a training school for hotel and restaurant workers. “Big hotels, small hotels, restaurants … . Tourism was dead.”

The crisis has also put much needed aid projects on hold.

“There are constantly groups coming down from the U.S., from Canada and other nations to assist with water and health projects and poverty alleviation,” Haughey said. “And those groups have put their plans on hold.”

Haughey and other business owners are crossing their fingers that people will eventually forget about the coup and that the incoming Lobo government will be recognized by the international community. The United States gave the election its seal of approval.

“Our hope is that democracy can be restored and the country’s situation can be normalized,” said Llorens, the U.S. ambassador.

Critics argue that such a policy would set a bad example by allowing the plotters to get away with an illegal coup. But others, especially those who cheered Zelaya's ouster, argue that turning the page will be good for business.