Country of Honduras – Comparative Economic Analysis The country of Honduras is located in Central America with neighboring countries of Guatemala, El Salvador and Nicaragua. This country is located along the Caribbean Sea although does have western port access to the Pacific Ocean through the Gulf of Fonseca, with territorial waters of the gulf divided between Honduras, neighboring El Salvador, and Nicaragua. The country is mostly mountainous which has hindered communication and a sense of nationhood among its people. Development in this country has been extremely slow (National Geographic). The purpose of this analysis is to determine specific areas in need of economic improvement, and to make recommendations towards that overall economic condition of the Honduran economy.
Historical Legacy and Context: Economically, Honduras ranks as the second poorest nation in the western hemisphere, second only to the country of Haiti. Other statistics report Honduras is the third poorest nation in all of Latin America, ahead of only Nicaragua and Guyana (Cordero). In analyzing a nation’s economy, it is important to look at history, how the country came into existence. Any country’s philosophy towards its economic development will have been influenced by the basic beliefs that have survived since the nation’s inception, so a general background is a logical starting point (Angresano, J.). The original inhabitants of this nation were the indigenous tribes of Central America, most notably the Mayans and the Lencas. These tribes coexisted with occasional conflicts although did establish primitive commercial trade with each other as well as other tribes throughout the Central American Region as well as to the north and west into what is present-day Mexico. In the early sixteenth century with the arrival of the Spaniards, European control was first established in the area when Herman Cortes attempted to establish the first European-type government in the region. Spain gained control of the land for the next 250 years (U.S. Dept of State). In 1821, Honduras gained its independence from Spain. For a brief period, Honduras was annexed by the Mexican Empire, but just two years later, in 1823, joined the newly developed Federation of Central American Provinces. The economy at the time was dominated by U.S. companies, primarily banana and tobacco plantations, with the influx of foreign capital playing a vital role in the early Honduran economy well into the twentieth century. According to information gathered from the U.S. Department of State (n.d.), Honduras being a rural and primarily mountainous country has struggled to bring the population together as a unified nation. Lack of modern communication to rural communities, an influx of refugees from neighboring Nicaragua and El Salvador escaping political turmoil in those countries, and until 1979 a strong military control over the government with a history of human rights violations, have hindered its economic growth. The climate classification is tropical to subtropical. The public support for its political leaders has always been lacking as well as a general sense of distrust for the business community. Although a democracy, and having strong economic ties to the United States, distrust of its leaders has led to continued political turmoil and this general sense of distrust of any local as well as outside media. The country is considered to be one of the most dangerous places outside of the war zones in the Middle East for anyone working in the media as random assassinations of members of the media continue (U.S. Dept of State).
Philosophical Basis: The philosophical basis is regarding any informal rules of the nation’s participants which the formal working rules are based, so is a vital area of concern when performing any analysis (Angresano, J.). Honduras is considered to have a developing economy. The national language is Spanish, although English is often spoken in the tourist areas of the Caribbean. The dominant religion is Catholicism as it is throughout most Latin-American countries. This religion does set the tone for behavior within the business community and certain behaviors and traditions will have an effect on the economy.
The business community in Honduras is much more relaxed than in the United States. The proper etiquette is a gentle, almost limp and prolonged handshake for both men and women. Titles are important when addressing new business acquaintances. Often heard in the business community is the phrase si Dios quiere (God willing) when a commitment is made, which is due to a long history of trying to survive in a poor country (Honduran Business Culture). Small bribes in business negotiations are customary because of the poor living situations. Family and personal relationships in Honduran culture take a priority over business, therefore it is common to hear a common phrase, hora latina (Latin time) when scheduling meetings (Honduran Business Culture). When negotiating business arrangements, or during governmental meetings regarding the economy in general, it is important to remember to socialize first. This is the tradition in this country. Relationships must first be cultivated before getting down to business. To do otherwise is considered insulting in this Latin culture. This contributes to the slower pace of economic change or recovery. Punctuality is not emphasized in this culture, so any proposed change will most of the time face expected delays (Honduran Business Culture). While government statistics show one-third of the Honduran workforce to be comprised of women, it is still very much a male-dominated business society as is often seen as traditional behavior throughout Latin-American countries. Poor working conditions exist throughout the nation for women with many female factory workers regularly injected with contraceptives while being told they were tetanus shots. Females in the garment industry where exports dominate are often distributed contraceptive pills regardless of medical condition; anyone refusing faces suspension without pay or termination (Honduran Business Culture). The current political administration has attempted to stop these and other human rights violations; however, the traditional views of women in a society such as this are hard to change. Organized labor unions are prominent, although any discussion of this unfair treatment based on gender is often viewed as being aggressive if coming from a female, and unmanly or weak if coming from a male (Honduran Business Culture).
Honduras is considered to be one of the most corrupt countries in all of Latin America. Corruption often comes from a basic survival instinct when living in a poor nation. Gratuities are expected with any business arrangement, although outright business fraud is felt to be no higher in Honduras than any major city in other nations (Honduran Business Culture).
Social and Political Structure: There were several notable findings regarding the Honduran population, all of which do have an effect on the economy. Currently Honduras is one of the poorest countries in the western hemisphere with estimates that over 60% of the population live in poverty. Population: 7.1 million Capital city (Tegucigalapa) population > 1 million Average population growth rate 2% Average life expectancy 70 Adolescent fertility rate 95 per 1000 births Mortality rate for children under 5 32 per 1000 Besides the capital city of Tegucigalapa, the largest industrialized city of San Pedro Sula has a population of approximately 600,000, but the majority of the country’s population reside in rural areas, primarily peasant lower class citizens.
From a technological standpoint, the country is lagging in their development and ability to compete as compared to major industrialized nations. As the global economy becomes more and more linked, Honduras has not been able to compete satisfactorily in order for this to play a significant role in their economic growth. Cellular users among population 59%
Population with internet access 6%
High tech exports 1%
From a social standpoint, society in Honduras is similar to that in many other Latin-American countries with unequal distribution of wealth. The majority of Honduran citizens are considered lower class and live in virtual poverty. The minority upper class controls the majority of the nation’s wealth, and have been able to perpetuate rules to maintain and enhance their rank in social standings as well as to benefit from a greater distribution of the nation’s wealth. Giving power to this upper class is the military who are granted privileges over the remainder of the population. A very small group of citizens emerged in the 1950s from the ultra poor, now considered to be in the middle class. Unfortunately, the middle class has suffered along with the lower class during economic downturns. Requirement for classification as middle class requires the completion of higher education. Education rates remain low among the lower class citizens with only 79% of the population completing the sixth grade and the average years of schooling for the entire adult population being only 4.3 years. The illiteracy rate for those 15 years and older is 23.2% (Central America and the Caribbean) The lower class live in mostly rural areas of the country who sometimes out of desperation due to lack of economic opportunity migrate to join the ranks of the urban poor. The majority of the lower class are unable to make an adequate living farming on their own so end up working as laborers in the service sectors in urban regions, peasants working as laborers on larger farms, or as sharecroppers. Meager wages barely provide for necessary basic living expenses. While the official unemployment figures are not extremely high, it is the underemployment widespread throughout the nation in both urban and rural communities, which is the most problematic for economic growth (Merrill, T.). In the 1950s, peasants first began to organize into local union associations. In 1954, a banana worker’s strike further strengthened their cause. The labor movement in Honduras actually became the strongest organized peasant union in all of Central America. From time-to-time, labor unions have gone from working alongside the military in agricultural projects to fighting against the government and military to improve living standards. Statistics show 40% of the urban labor force currently unionized, especially in the manufacturing sector, compared to 20% in rural agricultural areas; however, their power is questionable due to immediate military intervention during labor strikes (Merrill, T.).
From a historical perspective, military rule took over the country during the Great Depression. Various military coups with different groups trying to obtain political power have occurred over the decades since that time. There was an emphasis among its people to develop a strong democratic society. Because the economy of Honduras had such strong ties and almost a dependence on the United States, this may have contributed to a push towards developing a democracy. It took until 1957 for the first democratic assembly election to be held in Honduras. Over the following two decades, numerous military leaders staged coups, each of which overthrew its predecessor. Control of the country would go back and forth between groups. It was not until 1979, when after a military coup in neighboring Nicaragua, as well as political turmoil in another adjacent country (El Salvador), fearing a backlash Hondurans finally went forth with electing a constituent assembly in 1980 and held a general election in 1981, followed by finalization of their constitution in 1982. For the first time in the country’s history, seven successful consecutive democratic elections have been held. (U.S. Dept of State).
In general, the Honduran government has always been, and still remains a close ally of the United States, especially regarding international security issues. Honduras is a willing participant in the U.S. Container Security Initiative (CSI). This is of great important to the United States, as it is Honduras’ largest and primary trading partner. The United States is the largest investor economically in Honduran growth.
Working Rules: In order to complete a full analysis of any economy, a full analysis of that nation’s working rules must be undertaken (Angresano, J.). The findings of that analysis revealed the government of Honduras classification is that of a Constitutional Republic. After many years of military control, civilian rule returned in 1979 with the eventual establishment of their first constitution in 1982. There are five political parties, with the National Party and the Liberal Party holding the most strength and influence, their size and dominance in Honduran politics compared to the Republican and Democratic parties of the United States. Many governmental agencies have been unable to carry out plans due to budgetary constraints. In 2006, up to 94% of all departmental budgets was estimated to have been spent on bureaucracy while only 6% went to actual programs that would benefit the general public sector. This can to some extent, explain the lack of economic growth within this country (ECLAC; IMF). The economic policies have been created based on a framework of the standby agreement with the International Monetary Fund (IMF). The IMF has been involved in assisting Honduras maintain conditions which are necessary for reducing poverty and sustaining growth. The goal is to assist in maintaining macroeconomic stability. A goal was set in 2008 to set the public sector deficit at 1.5% of GDP. A ceiling was placed on spending for anti-poverty programs at 7% of GPD; an additional 6.5% on public investment spending. Given the high poverty rates, the efficacy of these low ceilings is questionable to be able to improve the economic conditions in Honduras. Their 2008 goals were not met due to the development of the global financial crisis (ECLAC).
Fiscal policies have focused on decreasing deficits. The government was successful in seeing an overall decrease in fiscal deficits between 2007 and 2008, although again the global financial crisis has increased overall fiscal deficits. Decreased revenues from tariffs due to the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR) have further increased the country’s fiscal deficit. The latest presidential administration in its first year of governmental control has been working towards new goals of economic stability as the country recovers from the detrimental results of the global financial crisis, although much still remains in the early planning stages (ECLAC). Trade policies are concentrated on gaining benefits from the CAFTA-DR since becoming the nation’s policy in 2006. Central American exports are now given preferential access to the United States commercial markets. In addition to CAFTA, negotiations have been underway with the European Union regarding resolving disputes over trade of two of Honduras’ primary crops, that being bananas and coffee (ECLAC). Adjustment of monetary policies occurred in 2008 due to inflationary pressure and the overall global economic downturn. The Central Bank of Honduras raised its monetary policy rate from 7.5% to 9% in the first two quarters of 2008, which was prior to the acute phase of the economic downturn in the third quarter. Also increased was the mandatory investment rate for institutions in the financial system to 9%. Because of the global economic crisis a higher reserve was required for deposit liabilities in local as well as foreign currency. At the same time for the generation of further production activities, reserve requirements for back loans for these activities in specific targeted areas saw a reduction to 0% (ECLAC).
Other policies to spur economic growth were implemented in 2009, including lower rates of seven-year loans geared at new construction, the agriculture and maquila sector, as well as other small businesses. Loosening of loan requirements for loans from private banks was done to spur growth in the private sector, including renegotiation of agriculture loans. The goal was to expand credit to the social sectors to stimulate further economic growth during the downturn. Unfortunately, there have been many delays due to viability studies associated with any proposed expansions (ECLAC).
The primary industries include sugar, coffee, textiles, clothing, wood products and cigars. The maquila industry has gained strength as more and more industrialized nations are outsourcing manufacturing jobs to developing countries. Agriculture products include bananas, coffee, citrus, corn, beef, timber, African palm, seafood consisting of shrimp, tilapia, and lobster. The long-term effects from the 2010 oil spill on the Gulf of Mexico/Caribbean ecosystem may not be determined for many years. This may or may not affect the fishing industry and overall economic conditions of Honduras. Energy production does not meet local demands. Consumption exceeded production with the need for energy imports for both electricity and oil. Natural gas is not used nor is it found in reserves for use in Honduras (CIA).
Infrastructure: Communication remains limited throughout this mountainous country. The number of fixed land lines are increasing although still limited. Cellular technology has become increasingly popular, although more than 40% of the population is without access. Only 6% of the population is estimated to have internet access. Low education levels with high illiteracy rates contribute to the low numbers of technologically-savvy Hondurans, further hindering economic growth. Other forms of communication include multiple privately-owned terrestrial (non-satellite) television networks, as well as multiple cable television networks. Radio Honduras is the only government-owned radio network. There are also other (approximately 300) privately owned radio stations. Transportation has been a problem for decades. Only twelve of the nation’s 104 airports have paved runways and very few of the 13,600 roadways are paved. Recurring natural disasters contribute to this nation’s problems with transportation, both automobile and railway. Widespread flooding in 2008 destroyed over half of all paved roadways in the country. A decade prior to this, in 1998, Hurricane Mitch caused massive infrastructure damage. The president at the time declared 50 years of progress reversed with massive damage to Honduran infrastructure from that tropical storm. Waterways consist of 465 km but are suitable for only small crafts. There are four main ports into Honduras: La Ceiba, Pureto Cortes, San Lorenzo, and Tela. The merchant marine consists of 123 vessels for imports/exports, 42 of which are foreign-owned vessels (U.S. Dept of State).
Summary of Economic Behavior with Specific Problem Areas: Honduras has a long history of economic problems including unemployment with an even higher level of underemployment, inflation, and economic overdependence on bananas and coffee exports for over a century. The economy is currently classified as “developing.” There is an extraordinary unequal distribution of income between the social classes. The economy has a high reliance on U.S. imports/exports, as well as foreign currency financial aid. Honduras is considered a strong ally of the United States in its battle against international terrorism so economic aid from the U.S. is expected to continue. The Honduran GDP in 2009 during the global economic crisis was $14.8 billion in U.S. dollars with a growth rate of -2.1%. The per capita GDP was $1,829 (official exchange rate); $3,130 (PPP, IMF). Real GDP growth rate between 2004 and 2007 was in the 6% range, dropping to 4% in 2008. Current forecasts for 2010 are for a slight improvement over 2009 to a positive 2%. GDP (PPP) share of the world total is only 0.05% (Global Finance). Historically, the Honduran economy had very few products for export. Primary products were traditional cattle ranching and subsistence agricultural products. Towards the end of the nineteenth century, there was the development of large-scale precious metal mining, mostly in the mountainous regions near the capital city of Tegucigalpa. These were joint owned by the New York and Honduras Rosario Mining Company (NYHRMC). The primary mineral was silver which was sought as a product for export. This mining income contributed to other commercial industries and for the first time significant infrastructure was developed. There were also reduced monetary constraints on trade due to this high demand for Honduran silver. However, with foreign capital funding much of the mining, this activity did little to improve the Honduran economy. Most equipment used in mining was imported by foreign investors and did not provide much in the way of additional employment opportunities except for dangerous mining labor (Merrill, T.). In the early part of the twentieth century, Honduras became known as a “Banana Republic.” This was due to U.S. corporations developing huge, successful banana plantations. Millions of dollars in banana company investments contributed to the Honduran infrastructure. The United States government stepped in from time-to-time when the foreign countries felt any local pressure, especially in regards to labor disputes. The Honduran economy became highly dependent on global banana prices – those prices often fluctuate. Up until the 1950s, the laborers associated with banana farming contributed to a significant portion of all wage earners in Honduras. Before the 1954 banana workers labor strike there were estimated to be 35,000 workers employed at various foreign-owned banana plantations (Merrill, T.). It wasn’t until the 1950s when through the encouragement from the Honduran government, agriculture was modernized to the point where export diversification was accomplished, changing from primarily that “Banana Republic” to producing products such as beef, cotton, coffee, and other fruit products that were beginning to be demanded globally. Other products included sugar, tobacco, and timber products. During the 1960s, the Central American Common Market (CACM) was established to ease commercial trade between other nations throughout Latin America. However, as greater efficiency was seen in neighboring countries including El Salvador and Guatemala, a trade deficit developed between Honduras and these neighboring nations. The Honduran economy has depended primarily on land and agricultural commodities. The available land for production of these products has always been limited due to the primarily mountainous terrain of this country. The dominant banana and tobacco plantations are confined to the Caribbean lowlands. Poor farming techniques have led to depleted soil. Abundant forests in the mountainous areas have also suffered from logging exploitation. Income from mining has not been a large contributor to the economy since the late nineteenth century. Honduras has had difficulty competing economically with neighboring El Salvador and Guatemala for export of other commodities. While coffee and bananas have been products demanded heavily in the global economy, especially exports to the United States and to countries in the European Union, natural disasters have periodically affected growth and harvests. Somewhat frequent hurricanes have devastated crops from time-to-time. Over recent decades, as U.S. assistance decreased, the country faced the task of changing its economic base so it would not be completely dependent on agricultural products. Just as Honduras begins to become more industrialized, natural disasters have periodically destroyed much of the country’s infrastructure, setting the country’s economic advancement back decades (Merrill, T.). Even with the emphasis on further industrialization, the economy still relies heavily on just a few exports, that being apparel, bananas and coffee. This is why the economy is still highly susceptible to natural disasters such as hurricanes and earthquakes, of which Honduras frequently suffers. Various tropical storms from time to time have had devastating effects on the Honduran infrastructure. An emphasis has been placed on increasing the maquila (outsourced jobs from industrialized nations) in one attempt to diversify the economy; however, the emphasis on this is shifting in the U.S. economy with tax policies changing towards businesses who outsource jobs to foreign nations. Therefore, while the maquila industry may continue in the short term, long term economic benefits may decrease. Almost half of all the economic activity is directly connected to the United States; 30% of GDP from exports to the U.S., and another 22% from foreign remittances (Hondurans working abroad). The U.S. Central American Free Trade Agreement has helped improve the Honduran economy by reducing tariffs and increasing the demand for exports from this country, although marginal economic growth is expected to continue. While CAFTA did help the economy initially, the global economic downturn reversed many of these gains (ECLAC). Honduras has had a growing fiscal deficit. While improvement was seen with a reduction in the deficit in early 2008, due to the global financial crisis these gains were erased with an overall increase in deficit spending. A large contributor to inflation in 2008 was the global increase in oil prices and the corresponding global economic recession (ECLAC).
Budgeted revenues (2009) $2.8 billion
Expenditures 3.4 billion
Public debt estimate 24.4% of GDP
Inflation rate (2009) 5.9%
Inflation rate (2008) 11.4%

Trade deficit:
Commodities exported 5.196 billion (2009 estimate)
Commodities imported 7.78 billion (2009 estimate)

Primary exports: Apparel, bananas, coffee, seafood, wire harnessing, cigars, gold, palm oil, and various fruits.

Leading export nations:
United States 59.60%
Other Central American countries 15.08%
Germany 4.04%

Primary imports: Machinery and transportation equipment, industrial raw materials, chemical products, fuels as well as various food products, raw materials to the maquila industry imported for assembly and later export of the finished goods back to various industrialized nations.

Leading import nations:
United States 46.81%
Other Central American countries 26.5% The country of Honduras in 2009 had an estimated $3.315 billion dollar external debt, tiny in comparison to the U.S. global debt, yet for a country of this size and poverty level of the majority of the population, is significant. The Honduran currency is the lempira, although there is a strong dependency on foreign currency, especially with its economic ties to the United States. The economy is further dependent on foreign remittances from Hondurans working abroad. The International Monetary Fund, the World Bank, as well as other global aid organizations continue to provide some stability of Honduran currency. The IMF continues its work with the Honduran government to provide guidance towards monetary and fiscal policies (IMF).
Following the changes in monetary policy in 2008 to combat the global economic downturn, the narrow measure of the money supply (M1) expanded by only 1.8%, compared with 16.3% in 2007. Cash in the economy from outside bank deposits diminished. The local currency liquidity (M2) increased 2.5%, with broader liquidity (M3) increased 4.9%. Of note, due to the changes in reserve requirements, foreign currency deposits were up over 10% due to the substitution of local currency for foreign currency (ECLAC).
Institutional change in Latin American countries moves at a slow pace. Poor nations often accept bribery and other forms of corruption as a means to survive. Common business practice is to develop a social relationship first before discussing business. Therefore, any change aimed at improving the economy must consider the common etiquette expected in Latin-American countries (Honduran Business Culture). Any attempt to change working rules of the economy should expect to have accompanying “gratuities” (bribes). The attitudes of the economy’s participants have dominated this society for decades. This behavior is not expected to change at any time in the near future, or at least not without influence from the government. Negotiations at a governmental level are often slower than in other industrialized nations because of this culture. This cultural factor will hinder any economic recovery and overall continued performance of the economy. Summary and Recommendations: There are many problems within Honduras which have hindered and sometimes prevented economic growth. Most concerning areas includes: * Low education of the majority of its population * Conflicts within the classes * Unequal distribution of wealth * Inadequate infrastructure which has been frequently damaged by tropical storms * High economic dependence on the United States * Lack of economic diversification * Labor highly unionized but with no real power to influence the economy * High external debt with often high reliance on foreign currency

The primary issue preventing economic growth within Honduras is the lack of advanced education for the majority lower class population. Advanced education to the post-secondary level will be needed; however, currently Honduras is lacking even what is viewed in America consider to be a basic high school education. Whether due to financial hardship or just family tradition, many Hondurans do not seek to further their education beyond even the basic grammar school level. Many attempt to enter the workforce while still children. This could very easily be due to financial hardship, but also out of tradition among peasant farmers. The government must create some type of national education system that will provide incentives not just for children to stay in school, but also for adults to return to school. An economy cannot diversify unless it has a well-trained workforce. The needed industrial growth will not be successful if it does not have a trained and educated labor supply to fill the demand of that growth. Educating its people fully of course will take years so the program must be designed with the long-term benefits in mind. One of the first issues to solve of course is the high illiteracy rate of the Honduran population. Any governmental programs aimed at improving education will be expensive. Honduras does not have the capital for the needed aggressive education programs, nor any other program for that matter. An aggressive program must be designed which will encourage foreign investment in order to achieve these goals. An increased involvement from the Peace Corps could also be encouraged. The emphasis towards this new national aggressive education program could bring in volunteer instructors from the United States, the European Union countries, as well as from other nations to assist in these broad education goals. It must be understood from all involved improving education is a long-term goal. Changes to the economy will not be felt overnight. Changes will occur gradually, but they can happen. It will take decades to fully educate and re-educate the population of Honduras to be at a level where this country can be competitive on a global basis. Having a sound national educational plan that is workable will encourage foreign capital investments in this part of the world. As noted in studying the class structure of Honduras, to escape the ranks of the lower class one must have completed a level of higher education. As such, secondary issues of class conflicts between the majority peasants and that of the middle and especially upper class will resolve on their own, especially once the dramatic unequal distribution of wealth corrects with the vast majority of its citizens reach a higher education level. Another area in need of attention is the inadequate infrastructure throughout this nation. A study regarding how to improve and increase infrastructure in a mountainous country such as Honduras is necessary with some design changes for roadways and bridges that can better withstand the frequent tropical storms affecting this part of the globe. In the recent past, much infrastructure has been decimated during the annual hurricane seasons. Commerce within this country will always be limited in some regions due to the mountainous terrain. Studies of travel, communication and commerce within other mountainous countries throughout the world such as in Europe and the United States may aid this country also if similar obstacles can be surmounted and overcome. To coincide with the aggressive educational programs planned, programs to improve infrastructure could also be presented to the global economic community to further promote capital investments in this country.
Currently the Honduran economy is limited in its ability to expand. The country’s economy has been dependent on the United States for decades. There is little diversification of the economy. As Honduras is highly dependent on land and agricultural commodities with the high susceptibility to natural disasters, greater diversification is in order immediately.
Regarding agriculture, integration of terrace farming techniques practiced for centuries in other mountainous countries can vastly increase farmable land. The terrace farming techniques used centuries ago by the Incas, in addition to current farming practices in southeastern Asian countries could be modeled. Encouragement through tax subsidies for the organization of larger farms should be promoted, as smaller peasant farms join to offer greater productivity of a wider variety of agricultural products. Other diversification on a broad sense in the economy is necessary to limit the devastating effects of periodic natural disasters that have crippled the economy due to the lack of diversification. When damage to one commodity that supports the majority of the economy occurs during the tropical storm season, other areas of the economy could then help lessen the overall effects on the entire nation. Tax subsidies and an ease of restrictions and burdensome paperwork currently required for foreign capital investment will encourage foreign investors to enter and support economic growth and diversification. Broad diversification is necessary for both agricultural products as well as industrial growth. Diversification could also lead to increased commodity exports, alleviating the current trade deficit. Overall, Honduras is in need of attaining a better self-sufficient status. This currently is lacking with the ongoing trade deficit. Regarding the fiscal condition of the country, budgeted revenues for 2009 were $2.8 billion, with budgeted expenditures exceeding this at 3.4, creating a deficit. Lack of diversification is one primary cause. With an aggressive re-education program aimed at encouraging foreign investments to expand economic conditions, this could help resolve some of the deficit. Certainly, investment needed for the re-education program will increase expenditures. However, a well-planned program for aggressive improvement in the educational system could bring in the necessary capital from foreign investors as well as savings through Peace Corps initiatives to alleviate some of this burden. The noted monetary expansion in recent years has not been sufficient to promote economic growth. Further negotiations with the IMF and the World Bank could aid in this area. An additional recommendation is to change the longstanding social conditions with the traditional approaches in the business arena. The slow and relaxed atmosphere has been business as usual for this country and has played a role in hindering economic growth. Given that punctuality has never been emphasized, along with the known human rights violations that continue to occur, a drastic change will be needed in the business community to compete on a global basis. As seen in the United States, tax programs often are created to encourage certain behavior of its citizens. These same behavior modification tactics could also be used in Honduras. Some sort of tax incentive could be provided to encourage a change in behavior of its citizens. The costs of such a program could then be offset by the eventual economic gain provided to the economy overall. As Honduras then grows and diversifies, further investment will be seen on a national level, further growing their economy. Incentives are also needed to change current working rules that hinder industrial expansion due to a bogged down bureaucracy. Historically, countries with lengthy and burdensome requirements regarding obtaining permits and other bureaucratic hurdles to cross end up with citizens deciding to enter the underground economy or get involved in other illegal activities just in order to survive. Changes in working rules have long been needed to promote easier and rapid industrialization of this nation. With this and necessary tax incentives to encourage economic investment, the Honduran economy will benefit as a whole. In addition to getting rid of some of the current requirements new businesses face, expansion of credit into the social sectors to stimulate further economic growth is needed. A final recommendation for the Central American region is to negotiate with neighboring countries for the mutual benefits of improved and increased trade among these Latin-American countries. The Central American Free Trade Agreement was intended to benefit all countries in this region, but further collaboration can be established, benefiting all economies in this part of the world. By working together, Central American countries could even consider forming a Central American Union modeled after the successful European Union. As noted in the textbook (Angresano), changes in Europe and the development of the EU with a single currency took many decades. As the EU was the first of its kind with the combining of many different economies into one, lessons can be obtained regarding the successes and failures that occurred throughout Europe during their progress towards a unified economy. These lessons can lessen the time it takes to create a Central American Union (CAU). Once economic diversification occurs, the CAU could then move towards improving security issues in the region. Forces could be combined between these countries to combat the flow of illegal drugs through the region and could benefit the global economy. This would be expected to receive strong support from the United States as it would help with its illegal drug problem as it lessens the supply from South American drug-producing nations. The Honduran economy has had many significant problems for decades. While a lack of diversification and a largely uneducated peasant population, as well as other conditions noted above are serious problems, with effort these areas of concern can be resolved. The global financial downturn further hindered any advancement of its economy in recent times. With cooperation among its people to follow the recommendations noted to improve the overall economy, Honduras could eventually be able to lift itself out of poverty. Eventually, with cooperation from neighboring Central American countries, Honduras could be able to become competitive in the global marketplace.

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