Event

Following presidential, legislative and municipal elections on 24 November, Juan Orlando Hernández of the ruling National Party (PN) is the new President-elect of Honduras. According to the electoral commission, the centre-right candidate secured 36.5% of the vote, thus prevailing over Xiomara Castro of the leftist Liberty and Refoundation party (LIBRE), who won 28.8%. Yet LIBRE has refused to acknowledge defeat, claiming “serious electoral inconsistencies” and urging its supporters to take to the streets. This rhetoric highlights the significant level of political polarisation in Honduras as witnessed in June 2009 with the PN- backed coup against then-president Manuel Zelaya, who subsequently founded LIBRE in 2011 and is Castro’s husband.

Impact on country risk

It may prove difficult to mobilize for mass protests against the election outcome, with the organization being praised (security was ensured effectively, there was a large voter turn-out, and international observers called the process transparent) and Hernández already having received congratulations from many international leaders including Nicaragua’s leftist Ortega. Nonetheless, LIBRE along with the new Anti- Corruption Party has crucially changed Honduras’ political landscape by successfully challenging the legislative duopoly of the PN and the Liberal Party for the first time. Lacking a majority in the National Congress, Hernández will struggle to keep his promise of broadly continuing the policies of outgoing president Porfirio Lobo – including the militarization of security in a country plagued by drug-trafficking and youth gangs, and suffering the highest murder rate in the world, and pro-market measures like legal and tax reform to encourage private initiative, development of special economic zones to attract FDI, privatization of state assets to service debt. Moreover, despite agreement on the necessity to re-open negotiations with the IMF - credit has been withheld since March 2012 over differences related to public spending cuts-, a broad coalition government or Mexican-style national pact that includes both the PN and LIBRE seems unlikely given the deep waters between the two. So the political divide will complicate decision-making to deal with the country’s security issues and economic woes, the latter including vast poverty and inequality (both among the highest in Latin America), troubled public finances (with large budget deficits fuelling public debt), declining international reserves now covering just 2.5 months of imports and dependence on energy imports for electricity generation. Hence, domestic political instability is likely to remain high in the years to come.

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