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In Honduras, a toy factory's quest for profit

Can a toy factory and other foreign businesses survive in post-coup Honduras?

Small wooden tigers, Dec. 12, 2007. (Michaela Rehle/Reuters)

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.