Event

Like Brazil and Guatemala, Honduras has recently been unsettled by revelations of high-level corruption. And there too, people are outraged. Since May, thousands of ‘indignados’ have taken to the streets of the capital – Tegucigalpa – on a weekly basis to protest against government graft. Alleged fraud within the public health system that benefited the ruling National Party (PN) has particularly fuelled discontent. In exchange for bribes, public officials are suspected to have allowed drug companies to sell poor quality medicines to the government at inflated prices. The vice-president of Congress, a PN member, has indeed been arrested on suspicion of involvement. In total, the PN is accused to have diverted some USD 300 million from the Honduran Social Security Institute, partly to finance the 2013 election campaign of current President Juan Orlando Hernández. Hence the demonstrators' call for the resignation of the President and their demand for the creation of an international commission tasked with combating corruption (akin to the UN-sponsored ‘International Commission Against Impunity in Guatemala’). On 23 August, 'indignado' leaders gave President Hernández until 10 September to make progress towards the latter demand, threatening with national strikes in transport and other sectors if he fails to comply.

Impact on country risk

President Hernández has denied personal involvement in the corruption scandal. Without evidence to the contrary, his resignation or impeachment looks unlikely. That being said, the scandal may well have important political and economic consequences. For one thing, because the government doesn’t seem eager to set up an international anti-corruption commission (and UN support isn’t guaranteed either), protestors may make good on their promise to stage a disruptive national strike. Even more importantly, because the scandal has tainted the reputation of the PN, opposition parties may become ever more reluctant to help it achieve a legislative majority. That could crucially undermine the government’s policy-making capacities, and in turn possibly jeopardize early efforts at fiscal consolidation (under IMF auspices, the primary balance of government improved from minus 5.5% of GDP in 2013 to minus 2.2% in 2014, and it stands to reach a surplus by the end of this year) and modest gains in combatting violent crime (though still one of the highest in the world, the murder rate in Honduras decreased from 79 per 100,000 inhabitants in 2013 to 66 in 2014). Such an evolution would obviously weaken President Hernández' chances of securing re-election in 2017, which is now allowed after the Honduran Supreme Court scrapped the one-term limit in April.

Analyst: Sebastian Vanderlinden, s.vanderlinden@credendogroup.com