Order Code RS21103
Updated January 19, 2005
CRS Report for Congress
Received through the CRS Web
Honduras: Political and Economic
Situation and U.S. Relations
Mark P. Sullivan
Specialist in Latin American Affairs
Foreign Affairs, Defense, and Trade Division
Summary
Honduras under current President Ricardo Maduro faces enormous challenges in
the areas of crime and human rights and improving overall economic and living
conditions in one of the hemisphere’s poorest countries. The United States has a close
relationship with Honduras, characterized by significant foreign assistance, an important
trade partnership, a military presence in the country, and cooperation on a range of
transnational issues. A U.S.-Central America Free Trade Agreement (CAFTA) with five
Central American countries was signed on May 28, 2004, and a combined U.S.-
Dominican Republic-Central America Free Trade Agreement (DR-CAFTA) was signed
on August 5, 2004. The Bush Administration views DR-CAFTA as a means of
solidifying democracy in Honduras and promoting safeguards for environmental
protection and labor rights in the country; critics fear that a CAFTA without strong
environmental and labor provisions would do nothing to spur reforms in the country.
For additional information, see CRS Report RL31870, The Dominican Republic.-
Central America-United States Free Trade Agreement (DR-CAFTA); CRS Report
RL32322, Central America and the Dominican Republic in the Context of the Free
Trade Agreement (DR-CAFTA) with the United States; and CRS Report RS21040, Latin
America: Terrorism Issues.
Political and Economic Situation
Honduras has enjoyed uninterrupted civilian democratic rule since the military
relinquished power in 1982 after free and fair elections. In the November 2001
presidential elections, National Party candidate Ricardo Maduro defeated his Liberal Party
rival Rafael Pineda Ponce 52-44%, a wider margin than some had anticipated, although
neither of the two major parties gained a majority in the 128-member unicameral
Congress. For most of this century, the Liberal and National parties have been the two
dominant political parties. Both are considered center-right parties, and there appear to
be few major ideological differences between the two. In the electoral campaign, Maduro,
a Stanford University-educated economist and businessman, ran on a strong anti-crime
platform, which appealed to many Hondurans concerned about the dramatic increase in
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gang violence in the country over the past several years. Maduro’s own son was kidnaped
and murdered in 1997.
When he was inaugurated to a four-year term in January 2002, Maduro became the
6th elected president since the country’s return to civilian rule. After three years in office,
President Maduro has faced enormous challenges in the areas of crime, human rights, and
improving overall economic and living conditions in one of the hemisphere’s poorest
countries. The next national elections are scheduled for November 2005, but the
campaign has been underway for some time. Political parties are holding primaries on
February 20, 2005. President Maduro will not be a candidate because, under the Honduran
Constitution, anyone who has served as president may not be re-elected.
Crime and Human Rights. Upon taking office, crime and related human rights
issues were some of the most important challenges for President Maduro. Kidnaping and
murder had become common in major cities, particularly in the northern part of the
country. Youth gangs known as maras terrorized many urban residents, while
corresponding vigilantism increased to combat the crime, with extrajudicial killings
increasing. Honduras, along with neighboring El Salvador and Guatemala, has become
fertile ground for gangs, which have been fueled by poverty, unemployment, leftover
weapons from the 1980s, and the U.S. deportation of criminals to the region.1 President
Maduro, who campaigned on a zero-tolerance platform, increased the number of police
officers and cracked down on delinquency. The Maduro government signed legislation
in July 2003 making maras illegal and making membership in the gangs punishable with
12 years in prison. While the crackdown has reduced crime significantly (for example,
an 80% decline in kidnapping and a 60% decline in youth gang violence2) and is popular
with the public, some human rights groups have expressed concerns about abuses and the
effect of the crackdown on civil liberties. There also have been concerns that poor
conditions in already overcrowded prisons will be exacerbated. In May 2004, 104
inmates, predominately gang members, were killed in a fire in an overcrowded San Pedro
Sula prison.
On December 23, 2004, a massacre of 28 people on a public bus in San Pedro Sula
shocked the Honduran nation. The Mara Salvatrucha gang was reportedly responsible for
the killings, and a number of arrests have been made. President Maduro maintains that
the massacre was potentially a gang response to the government’s zero-tolerance policy.
Another theory is that Mara Salvatrucha carried out the killings on the turf of a rival gang
known as M-18.3
Economic Challenges. President Maduro also has faced significant challenges
in improving living conditions and the overall state of the Honduran economy.
Traditional agriculture exports of coffee and bananas are still important for the Honduran
economy, but nontraditional sectors, such as shrimp farming and the maquiladora, or
1 Kevin Sullivan, “Spreading Gang Violence Alarms Central Americans,” Washington Post, Dec.
1, 2003, p. A1.
2 John Authers and Sara Silver, “Death of Son Persuades Honduran to Take Political Stage,”
Financial Times, Aug. 11, 2004.
3 Chris Kraul, “Honduran Sees Massacre as a Warning,” Los Angeles Times, December 27, 2004.

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export-processing industry, have grown significantly over the past decade. With a per
capita income of $970 (2003, World Bank estimate), Honduras remains one of the poorest
countries in the hemisphere. Among the country’s development challenges are an
estimated poverty rate of 79%; an infant mortality rate of 34 per 1,000; chronic
malnutrition (33% of children under five years); an average adult education level of 5.3
years; and rapid deterioration of water and forest resources, according to the U.S. Agency
for International Development.4 Honduras also has a significant HIV/AIDS crisis, with
an adult infection rate of 1.6%. The Garifuna community (descendants of freed black
slaves and indigenous Caribs from St. Vincent) concentrated in northern coastal areas has
been especially hard hit by the epidemic.
In October 1998, Hurricane Mitch devastated the country, killing more than 5,000
people and causing billions of dollars in damage. As a result, gross domestic product
declined by 1.4% in 1999. More than five years after Hurricane Mitch, observers maintain
that the country is still feeling the effects of the storm, with roads and bridges broken, the
agricultural sector still not recovered, and scores of orphaned children, many of whom
have joined criminal gangs.5
Spurred on by U.S. assistance in the aftermath of Hurricane Mitch, the economy
grew by 6% in 2000. Economic growth in 2001 and 2002 was reduced to 2.5% and 2.6%
respectively because of such factors as a drought in western Honduras, flooding in the
north caused by a tropical storm, and low coffee prices worldwide that reduced the value
of Honduran coffee exports. In the last two years, economic growth has rebounded, with
3.2% growth in 2003 and estimated 4.2% growth in 2004.6
Amid the country’s reconstruction efforts, former President Flores developed a good
relationship with the international financial institutions. In 1999, Honduras signed a
poverty reduction and growth facility (PRGF) agreement with the International Monetary
Fund (IMF) that was extended through 2002. The agreement imposed fiscal and monetary
conditions requiring Honduras to maintain firm macroeconomic discipline and to develop
a comprehensive poverty reduction strategy.
Under the Maduro government, the IMF approved a three-year PRGF program in
February 2004 for Honduras that could ultimately make the country eligible for some
$950 million in debt relief under the IMF and World Bank’s Highly Indebted Poor
Countries (HIPC) Initiative. The objectives of the program, according to the IMF, are to
alleviate poverty and move the economy to a path of higher economic growth and lower
inflation.7 As part of the agreement, the Honduran government agreed to lower the fiscal
deficit and undertake structural reforms, including financial system reform and democratic
institution building. The IMF acknowledged that broad public support for the program
4 U.S. Agency for International Development. Congressional Budget Justification FY2004, Latin
America and the Caribbean volume.
5 Michael. A.W. Ottey, “Hurricane Mitch Still Scars Honduras,” Miami Herald, Nov. 5, 2003.
6 “Honduras Country Report,” Economist Intelligence Unit, December 2004.
7 International Monetary Fund, “IMF Approves in Principle Three-year US$107.6 million Poverty
Reduction and Growth Facility Arrangement for Honduras and Grants Additional Interim
Assistance under the Enhanced HIPC Initiative,” Press Release No. 04/29, Feb. 18, 2004.

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is crucial for its success. At times, street demonstrations against economic reforms have
made it politically costly for the government. In late August 2003, some 12,000 protestors
blocked entrances to the capital and forced their way into Congress. The government
faces the dilemma of balancing the IMF’s calls for reducing public expenditures and the
public’s demands for increased spending. In November 2004, an IMF staff mission
maintained that the government was on track with its economic program and had made
progress toward its goal of reaching the HIPC completion point in early 2005.
U.S. Relations
The United States has had close relations with Honduras over the years,
characterized by significant foreign assistance, an important trade relationship, a military
presence in the country, and cooperation on a range of transnational issues, including
counternarcotics efforts, environmental protection, and most recently the fight against
terrorism. The bilateral relationship became especially close in the 1980s when Honduras
returned to democratic rule and became the lynchpin for U.S. policy in Central America.
At that time, the country became a staging area for U.S.-supported excursions into
Nicaragua by anti-Sandinista opponents known as the contras. Today, overall U.S. policy
goals for Honduras include a strengthened democracy with an effective justice system that
protects human rights and promotes the rule of law, and the promotion of sustainable
economic growth with a more open economy and improved living conditions. If
approved, DR-CAFTA would lead to increased U.S.-Honduran economic linkages. The
Bush Administration views DR-CAFTA as a means of solidifying democracy in Honduras
and promoting safeguards for environmental protection and labor rights in the country,
although critics fear that a CAFTA without enforceable environmental and labor
provisions would do nothing to spur reforms.
U.S. Foreign Aid. The United States has provided considerable foreign assistance
to Honduras over the past two decades. In the 1980s, the United States provided about
$1.6 billion in economic and military aid to Honduras as the country struggled amid the
region’s civil conflicts. In the 1990s, U.S. assistance to Honduras began to wane as
regional conflicts subsided and competing foreign assistance needs grew in other parts of
the world. Hurricane Mitch changed that trend as the United States provided almost $300
million in assistance to help the country recover from the devastation of the storm. As a
result of the new influx of aid, U.S. assistance to Honduras for the 1990s amounted to
around $1 billion.
With Hurricane Mitch funds expended by the end of 2001, U.S. foreign aid levels
to Honduras declined. Foreign aid funding amounted to $41 million for FY2002, $53
million for FY2003, and an estimated $44 million for FY2004. The Bush Administration
requested almost $50 million for FY2005. These amounts include support for a variety
of development assistance projects, food aid, and the largest Peace Corps presence in the
world, with over 200 volunteers. Honduras could receive substantial U.S. foreign
assistance under the Bush Administration’s Millennium Challenge Account (MCA), a
performance and results-based assistance program intended to focus exclusively on
development goals without regard for other U.S. foreign policy objectives. In early May
2004, the Millennium Challenge Corporation’s Board deemed Honduras eligible to
compete for MCA grants in FY2004.

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Military Issues. The United States maintains a troop presence of about 550
military personnel known as Joint Task Force (JTF) Bravo at Soto Cano Air Base. JTF
Bravo was first established in 1983 with about 1,200 troops, who were involved in
military training exercises and in supporting U.S. counterinsurgency and intelligence
operations in the region. Today, U.S. troops in Honduras support such activities as
disaster relief, medical and humanitarian assistance, counternarcotics exercises, and
search and rescue operations that benefit Honduras and other Central American countries.
Regional exercises and deployments involving active and reserve components provide
training opportunities for thousands of U.S. troops. In the aftermath of the Hurricane
Mitch in 1998, U.S. troops provided extensive assistance in the relief and reconstruction
effort and were involved in delivering relief supplies, repairing bridges and roads,
rebuilding schools, and operating medical clinics.
Honduras was among the coalition of the willing supporting U.S. military operations
in Iraq, and in July 2003, Honduras began providing a military contingent of 370 troops
to Iraq, joining other contingents from El Salvador, Nicaragua, and the Dominican
Republic. The Maduro government’s proposal to send the troops was approved by the
Honduran Congress, but the narrow margin of 66-62 reflected strong opposition by some
sectors, including the opposition Liberty Party.8 The Honduran troops served under a
brigade commanded by Spain, but when Spain decided to bring home its troops, Honduras
followed suit and removed all its troops by June 1, 2004.
Migration Issues. A significant issue in bilateral relations has been the migration
status of some 82,000 undocumented Hondurans living in the United States. In the
aftermath of Hurricane Mitch in 1998, the United States provided temporary protected
status (TPS) to the undocumented Hondurans, protecting them from deportation, because
the Honduran government would not be able to cope with their return. Originally slated
to expire in July 2000, TPS status for undocumented Hondurans has been extended four
times — most recently on November 1, 2004 — and is now scheduled to expire July 5,
2006. The undocumented Hondurans send back millions of dollars annually in
remittances to their families in Honduras. (For more on TPS, see CRS Report RS20844,
Temporary Protected Status: Current Immigration Policy and Issues, by Ruth Ellen
Wasem and Karma Ester.)
U.S. Trade and DR-CAFTA. U.S. trade linkages with Honduras have increased
since the early 1980s. In 1984, Honduras became one of the first beneficiaries of the
Caribbean Basin Initiative, the one-way U.S. preferential trade arrangement providing
duty-free importation for many goods from the region. In the late 1980s, Honduras
benefitted from production-sharing arrangements with U.S. apparel companies for duty-
free entry into the United States of certain apparel products assembled in Honduras. As
a result of these production-sharing arrangements, maquiladoras or export-assembly
companies flourished, most concentrated in the north coast region. The passage of the
Caribbean Basin Trade Partnership Act in 2000 (CBTPA), which provides Caribbean
Basin nations with NAFTA-like preferential tariff treatment, is expected to further boost
Honduran maquiladoras.
8 “Debate on Sending Central American Soldiers to Iraq,” Inforpress: Central America Report,
July 18, 2003.

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The United States is by far Honduras’ major trading partner, and is the destination
of about half of Honduran exports and the origin of about half of its imports. Honduras
is the third largest exporter of apparel to the United States after Mexico and China. In
2003, U.S. exports to Honduras amounted to about $2.8 billion, with knit and woven
apparel inputs accounting for almost half. U.S. imports from Honduras amounted to
about $3.3 billion, with knit and woven apparel (assembled products from the
maquiladora sector) accounting for the lion’s share. Other important Honduran exports
included coffee, bananas, seafood, minerals, and other fruits and vegetables.
Honduras views CAFTA as a way to make the country more attractive for investment
and as a way to protect the existing preferential trade arrangement for exports to the
United States. CBTPA benefits are scheduled to expire in 2008, and Honduran officials
also have fears of not being able to compete with China and other Asia apparel producers
after quotas are removed in 2005 under the WTO Agreement on Textiles and Clothing.
Honduran officials also view CAFTA as an important tool in helping transform the
country’s agricultural sector. Nevertheless, there are concerns about the adverse effects
of CAFTA in opening the Honduran market to U.S. agricultural products, especially for
several sensitive products such as corn, rice, beef, poultry, and pork. Most significantly,
Honduran officials are concerned about the loss of jobs, which could lead to social unrest
if not addressed properly through long-term investment in the agricultural sector.
One of the controversial issues regarding DR-CAFTA is how labor provisions will
be handled. The DR-CAFTA agreement has provisions that would provide for the
enforcement of domestic laws and would establish a cooperative approach to improve
working conditions that would involve working with the International Labor Organization
(ILO) and building local capacity to improve labor rights. Opponents argue that the
agreement should have provisions enforcing international standards, maintaining that
Central American countries have a history of non-enforcement of inadequate domestic
laws. Honduras and other Central American countries are reportedly expected to unveil
a new labor initiative in early 2005 to demonstrate their commitment to protect labor
rights.9
Honduras has received criticism for its poor labor conditions. According to the State
Department’s February 2004 human rights report, there is credible evidence that
blacklisting has occurred in the maquiladoras because of employees’ union activities. The
Office of the U.S. Trade Representative (USTR) reported in 2001 that there were
widespread allegations of dismissal and other reprisals against workers for their union
activities. An estimated 400,000 children work illegally in Honduras, occurring frequently
in rural areas and in small companies. In December 2004, two labor groups submitted a
petition to USTR to review Honduran labor practices regarding its eligibility for General
System of Preferences (GSP) trade benefits. The groups alleged that Honduras has done
nothing since 2000 to fully implement a 1995 agreement with USTR regarding
improvement of its labor practices.10
9 “CAFTA Countries to Unveil Labor Initiative to Thwart Congressional Critics,” Inside U.S.
Trade, December 17, 2004.
10 “Labor Groups Petition USTR to Review FTA Partners’ GSP Eligibility,” Inside U.S. Trade,
December 24, 2004.

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