Report No. 13317-HO Honduras Country Economic Memorandurn/Poverty Assessment November 17, 1994 Latin America and the Caribbean Region Document of the World Bank GOVERNMENT FISCAL YEAR January I - December31 CURRENCY EQUIVALENTS Currency Unit = Lempira US$1.00 = L8.4 (May 1994) ACRONYMS AND ABBREVIATIONS ASHONPLAFA Asociaci6n Hondureia de Planificaci6n Familiar (Honduran Association for Family Planning) BANADESA Banco Nacional de Desarrollo Agricola (National Agricultural Development Bank) BANASUPRO Suplidora Nacional de Productos Basicos (National Supplier of Basic Products) BANTRAL Banco Central de Honduras (Central Bank of Honduras) BOP Balance of Payments CELADE Centro Latinoamericano de Demografia (Latin American Center of Demography) CEM Country Economic Memorandum CESAMOS Centros de Salud con Mddicos (Health Centers with Physicians) CESAR Centros de Salud Rural (Rural Health Centers) CIAT Centro Interamericano de Administraci6n Tributaria (InterAmerican Center of Tax Administration) COHDEFOR Corporaci6n Hondurefa de Desarrollo Forestal (Honduran Corporation for Forestry Development) DGA Direcci6n General de Aduanas (General Directorate of Customs) DGEC Direcci6n General de Encuestas y Censos (General Directorate of Surveys and Census) DGT Direcci6n General de Tributaci6n (General Directorate of Taxation) DIA Departamento de Investigaci6n Agricola (Agricultural Research Department) DIP Departamento de Investigaci6n Pecuaria (Animal Research Department) DRS Debt Reporting System of the World Bank EAP Escuela Agricola Panamericana (Panamerican School of Agriculture) ENEE Empresa Nacional de Energia Electrica (National Electric Energy Enterprise) EPH Encuesta Permanente de Hogares (Permanent Household Survey) ESAF Extended Structural Adjustment Facility FIDE Fundaci6n Hondureia para el Desarrollo de Inversiones (Honduran Foundation for the Development of Investments) FHIA Fundaci6n Hondurehia de Investigaci6n Agricola (Honduran Foundation for Agricultural Research) FHIS Fondo Hondurefo de Inversi6n Social (Honduran Social Investment Fund) FOSOVI Fondo Social de Vivienda (Social Housing Fund) FVA Factor de Valorizaci6n Aduanero (Custom Valuation Factor) HONDUTEL Empresa Hondurefia de Telecomunicaciones (Honduran Telecommunications Enterprise) ICOR Incremental Capital Output Ratio IDA International Development Assiciation IDB InterAmerican Development Bank IHCAFE Instituto Hondureio del Cafe (Honduran Coffee Institute) IHMA Instituto Hondureno de Mercadeo Agricola (Honduran Institute of Agricultural Marketing) IHSS Instituto Hondurenio de Seguridad Social (Honduran Institute of Social Security) INA Instituto Nacional Agrario (National Agricultural Institute) INFOP Instituto de Formaci6n Profesional (Institute for Professional Training) INJUPEMP Instituto Nacional de Jubilaciones y Pensiones de Empleados del Poder Ejecutivo (National Institute of Retirees of the Executive Power) JNBS Junta Nacional de Bienestar Social (National Welfare Institute) LSMS Living Standards Measurement Survey NAFTA North America Free Trade Agreement NFPEs Non-Financial Public Enterprises NFPS Non-Financial Public Sector PAHO Pan American Health Organization PAN Plan de Acci6n Nacional para el Desarrollo Humano, la Infancia y la Juventud (National Action Plan for Human, Infant, and Youth Development) PASI Programa de Apoyo al Sector Informal (Informal Sector Support Program) PFO Occupational Training Project PHC Primary Health Care System PRAF Programa de Asignaci6n Familiar (Family Income Support Program) R&E Research and Extension RIT Regimen de Importaci6n Temporal (Temporary Import Regime) SANAA Servicio Aut6nomo Nacional de Agua y Alcantarillado (National Autonomous Water and Sewerage Service) SBS Superintendencia de Banca y Seguros (Bank and Insurance Superintendency) SECOPT Secretaria de Comunicaciones, Obras Publicas y Transporte (Ministry of Communications, Public Works, and Transport) SECPLAN Ministerio de Planificaci6n (Ministry of Planning) SHCP Secretaria de Hacienda y Credito Publico (Ministry of Finance and Public Credit) SRN Secretaria de Recursos Naturales (Ministry of Natural Resources) UNAH Universidad Nacional Aut6noma de Honduras (National Autonomous University of Honduras) ZIP Zonas Industriales de Procesamiento (Industrial Processing Zones) ZL Zonas Libres (Free Zones) HONDURAS: COUNTRY ECONONMC MEMORANDUM TABLE OF CONTENTS ACKNOWLEDGEMENTS ................................. v EXECUTIVE SUMMARY ................................ vii ADDENDUM ON MACROECONOMIC DEVELOPMENTS IN 1994 .... xvii PART I - MACROECONOMIC ISSUES I. RECENT MACROECONOMIC DEVELOPMENTS ................ 1 A. Background .................................... I Historical Overview ............................. 1 The Reform Program ............................ 1 The Challenge for the New Administration .............. 2 B. Economic Developments until 1993 ..................... 5 Growth .................................... 5 Investment and Savings .......................... 6 The External Sector ............................. 7 II. FISCAL AND MONETARY POLICY ........ .. .............. 11 A. Fiscal Policy ................................... 11 The Impact of the Fiscal Deficit ..................... 12 Recent Developments in Public Finance ................ 12 B. Management of Monetary and Exchange Rate Policy .... ....... 14 Exchange Rate Management ....................... 14 Management of Monetary Policy ..................... 16 The Financial Sector ........................... 18 C. Outstanding Issues and Policy Recommendations .... ......... 19 III. RESTRUCTURING OF EXPENDITURES AND TAX REFORM ................................... 21 A. Restructuring of Expenditures ........................ 21 Foreign Debt ................................. 23 Public Investment ............................. 23 The Public Sector ............................. 24 Budget Management ........................... 26 Recommendations .......... ................... 27 B. Tax Reform .................................... 28 Taxes on Foreign Trade ......................... 28 Fiscal Exemptions ............................ 31 Sales and Income Taxes: Scope for Increasing Revenues ... .. 31 The Tax and Customs Administrations ..... ............ 33 Outstanding Issues and Recommendations .... ........... 34 - ii - PART II - THE AGRICULTURAL SECTOR IV. REFORMS AND PROSPECTS FOR THE AGRICULTURAL SECTOR ........ .. .............. 39 A. Introduction ................................... 39 B1. Policies for Agricultural Growth ...................... 41 The Determinants of Agricultural Growth .............. 41 Agricultural Exports ........................... 43 Agricultural Imports ........................... 44 Trade, Marketing, and Credit Policies ................ 44 Recommendations ............................. 48 C. Research and Extension ............................ 49 D. Land Tenure .................................. 50 E. Forestry Policy ................................. 53 PART III - POVERTY ASSESSMENT V. POVERTY PROFILES, POPULATION, AND LABOR MARKETS ... 59 A. Demographic Features ............................ 59 B. Labor Markets and Labor Earnings ..................... 60 The Labor Force ............................. 60 Structure and Evolution of Wages ................... 61 Unemployment ............................... 62 C. Poverty Profiles ................................ 63 D. Rural Poverty .................................. 68 E. Summary and Conclusions .......................... 70 VI. SOCIAL SECTORS POLICIES .......... .. ............... 73 A. Introduction ................................... 73 B. Main Issues in Education ........................... 74 Lack of Prioritization in Government Strategy ... ........ 75 Low Quality of Primary Education .................. 76 Wages and the Investment Budget .......... ....... 76 Teacher Quality and Salaries ...................... 77 Inequity in Public Expenditures for Education .... ........ 78 C. Main Issues in Health ............................. 79 D. Conclusions and Recommendations ..................... 82 VII. INTERVENTIONS TARGETED AT THE POOR ...... ......... 85 A. Introduction ................................... 85 B. Development of Small-Scale Infrastructure - FHIS .... ........ 85 Efficiency .................................. 86 Efficacy of Targeting ........................... 86 Benefits ................................... 87 Incentives .................................. 88 - iii - C. Direct Transfer Programs - PRAF and Food Aid .... ........ 89 Food Aid .................................. 89 The Family Assistance Program (PRAF) .... ........... 90 D. Micro-enterprise Programs in FHIS and PRAF .... ......... 93 E. Recommendations ............................... 94 BIBLIOGRAPHIC REFERENCES TECHNICAL ANNEXES Annex A: Macro/Public Sector Annex B: Agriculture Annex C: Poverty Annex D: Social Sectors STATISTICAL ANNEX LIST OF TEXT TABLES Table 1.1: Structure of Production and Output Growth, 1980-93 Table 1.2: Key Economic Indicators, 1980-93 Table 2.1: Consolidated Non-Financial Public Sector Fiscal Accounts, 1985-93 Table 2.2: Central Government Spending, 1985-92 Table 3.1: Structure of Debt, 1992 Table 3.2: Distribution of Public Expenditures and Employment by Type of Public Entity, 1992 Table 3.3: Structure of Total Tax Revenues, 1985-92 Table 4.1: Land Use, 1989-89 Table 4.2: Shares of Sectoral Output Value, 1990-92, Principal Agricultural Products Table 4.3: Agriculture Prices and Output, 1981-92 Table 4.4: Export Volumes (MT), Selected Products, 1989-92 Table 5. 1: Structure of the Labor Force, 1992 Table 5.2: Proportion of Workers Earning Less than the Minimum Wage, 1992 Table 5.3: Evolution of Average Wages and Unemployment, 1989-93 Table 5.4: Poverty Profiles, 1992 Table 5.5: Trends in Poverty, 1989-93 Table 5.6: Production Features of Farms, 1987-88 Table 6.1: Social Sector Coverage, circa 1992 Table 6.2: Expenditures in Social Programs, 1985-92 Table 6.3: Public Expenditures in Education by Region, 1992 Table 6.4: Ministry of Education Expenditures and Enrollment by Program, 1988-92 Table 6.5: Ministry of Health Spending by Program, 1988-91 Table 6.6: The Incidence of Public Spending in Health Care, 1992 - iv - LIST OF TEXT DIAGRAMS Diagram 1. 1: Savings, Investments and the Current Account, 1980-93 Diagram 1.2: Real GDP and GDP Per Capita, 1970-93 Diagram 2. 1: Annual Average Inflation Rates, 1970-93 Diagram 2.2: Nominal and Real Exchange Rates, 1988-93 Diagram 4.1: Real Exchange Rate and Real Agricultural Prices, 1970-92 Diagram 4.2: Grains: Real Prices and Area Cultivated Diagram 5. 1: Evolution of Rural and Urban Wages, 1989-93 Diagram 5.2: Trends in Rural and Urban Poverty, 1989-93 LIST OF TEXT BOXES Box 1. 1: The Maquila Industry Box 2.1: Key Issues in the Finances of Public Enterprises, Social Security, and Municipalities Box 3. 1: Progress to Date in Public Sector Reform Box 3.2: RIT Box 4.1: The Resource Base Box 4.2: The Structure of Production and Exports Box 4.3: Price Bands Box 4.4: The Incidence of Subsidies in the 1980s Box 4.5: The Informational Infrastructure Box 5.1: Quality of Data Box 5.2: Methodological Problems in Estimating Poverty Lines - v - ACKNOWLEDGEMENTS This report draws on the findings of a mission that visited Honduras in August of 1993. The mission was led by Daniel Cotlear, who was the main author of this report. Mission team members were Andres Velasco (macroeconomic framework), Carlos Paredes (fiscal policy), Dominique Hachette (trade policy), Julio Paz and Roger Norton (agricultural policy), Adolfo Figueroa and Magdalena Garcfa (poverty), Osvaldo Larrafiaga (social policy) and Gabrielle Watson (targeted interventions). The report also summarizes and integrates a number of studies indicated in footnotes. The statistical appendix was prepared by James Kuhn and completed by Miguel Castilla. This draft benefitted from comments from Sebastian Edwards, Baran Tuncer, Robert Lacey, Ian Bannon, Anna Sant'Anna, Jean-Jacques de St. Antoine, Klaus Schmidt-Hebbel, Helena Ribe and Paul Trapido (IDB). Fresia Betancourt was in charge of desktop editing. Deborah Davis edited the final version of this report. Executive Summary vii EXECUTIVE SUMMARY Introduction 1 . This Country Economic Memorandum, the first for Honduras since 1987, focuses on policies for macroeconomic stabilization and poverty alleviation. It contains a Poverty Assessment and addresses three main areas: fiscal policy, agriculture, and the social sectors. Honduras has suffered from varying degrees of fiscal instability for the last two decades. Recently, this has become chronic. Significant fiscal deficits intensify poverty, first because the consequent macroeconomic instability hits the poor hardest and is inconducive to savings, investment, and growth; and second, because they severely limit the fiscal space available for targeted programs. In the social sectors, there are serious inefficiencies and misallocation of resources and insufficient focus on the needs of the poor. Agriculture is key to Honduras' ability to grow more rapidly in an equitable manner: society is largely rural, an overwhelming majority of the poor earn their livelihood in agriculture, and agricultural products generate 80 percent of export earnings. 2. This Report addresses the key policies and structural reforms required to: (i) underpin a substantially improved fiscal performance; (ii) promote more rapid and equitable growth in agriculture; and (iii) ensure more effective use of public resources in the social sectors and strengthen existing efforts to target the poor. The Fiscal Challenge 3. With support from the World Bank and other donors, the Callejas Administration implemented structural reforms to liberalize the economy and encourage private sector participation. To this end, a stabilization program was implemented, the exchange rate system and interest rates were liberalized, external tariffs were reduced, and agricultural trade was freed from price controls. These reforms were accompanied by the creation of a social safety net for the poor. The initial results were favorable. Economic growth was renewed, and exports reacted positively to the new stimulus after a decade of stagnation. Also, after an initial increase, poverty levels fell as growth accelerated. The reform of the exchange rate and trade systems improved producer prices in agriculture and led to increased agricultural employment, which became the key to the reduction in poverty. This took place mainly in rural areas where most of the poor make a livelihood. Some of this progress was lost, however, when the Government, prior to the November 1993 elections, dramatically increased public expenditures, giving rise to a large fiscal deficit. The public sector deficit was about 11 percent of GDP in 1993 and 8 percent of GDP in 1994. This major fiscal reversal is all the more discouraging given the achievements in the area of economic policy reform between 1990 and early 1993. 4. The challenge faced by the new Government is not only to reduce the public sector deficit drastically in the short run, but also to increase public savings substantially in the medium to long term to achieve a sustained primary surplus. This can be accomplished only through a restructuring of the public sector and tax reform. Previous fiscal improvements, unaccompanied by structural reform, proved viii Honduras - Country Economic Memorandum unsustainable as pressures for wage increases mounted, debt payments increased, and public investment soared. 5. The size and financing of the fiscal deficit has a strong bearing on macroeconomic balances. Between 1978 and 1985, approximately two thirds of the deficit was financed through foreign borrowing, resulting in large debt accumulation. In the second half of the 1980s, as foreign resources became scarcer, the Government turned increasingly to credits from the Central Bank of Honduras (BANTRAL), which caused a major increase in the money supply. During 1991-93, foreign financing was again the main source of deficit financing, leading to further debt accumulation. In the last three years, a tight monetary policy has been in place, initially to complement fiscal stabilization, and since 1992 to compensate for the loosening of fiscal policy. This, in turn, has resulted in very high domestic interest rates, with real rates at more than 10 percent. 6. The expansionary fiscal policy has caused upward pressure on the real exchange rate by raising the relative price of non-traded goods. However, BANTRAL has avoided overvaluation of the lempira by adopting a realistic exchange rate policy. Maintaining this policy is crucial to competitiveness until fiscal policy is brought under control. A competitive exchange rate without frequent changes in the nominal rates depends on a non-expansionary fiscal policy. Expenditure Restructuring 7. Public expenditures are high at 36 percent of GDP in 1993. The three most important items are debt service payments at 11 percent of GDP, public investment at 13 percent, and wages and salaries at 8 percent. Any expenditure restructuring effort needs to address these areas. 8. While foreign debt, which is about 107 percent of GDP, continues to be among the highest in Latin America, bilateral debt was substantially restructured in 1990-92 under some of the best conditions granted by the Paris Club. Over 50 percent of the outstanding debt is to multilateral institutions, which limits the scope for further reductions in debt obligations. However, with the implementation of satisfactory macroeconomic policy, additional restructuring of bilateral debt under the Paris Club is a possibility. Also, concessional credits from multilateral organizations and the "fifth dimension" line of credit from IDA are being used to reduce the cost of the debt portfolio. The Government should secure a primary surplus to reduce its debt, continue to implement its agreed program with the IMF to obtain further debt restructuring with the Paris Club, and avoid all new debt on non-concessional terms. 9. Public investment expenditures, which were about 13 percent of GDP in 1993, are unusually high by Latin American standards. It is in this area that a major downsizing of public expenditures is required. Even though some 65 percent of such investment is financed by external sources, the high level of public investment is a major cause of the fiscal deficit. For one thing, the implementation of public sector projects requires immediate counterpart funding from domestic sources. More important, however, public funding has to be earmarked for operations and maintenance for long periods. Also, to the extent that funds are borrowed, they add to the public sector's indebtedness, increasing annual expenditures for debt servicing. A large public investment program squeezes out the private sector since it uses scarce Executive Summary ix domestic savings. Once completed, public sector projects add to demands on the overstretched management capacity of the public sector. Moreover, such projects are not subjected to screening based on rigorous economic criteria. Three parallel actions are required. First, the size of the public sector investment program must be reduced. The World Bank will support the Government with a review of the public investment program, which should help it to downsize the public investment program and design a system for project selection and monitoring. Second, projects must be closely screened using rigorous economic criteria. Third, the Government should step up efforts toward privatization, encourage the private sector to invest in the provision of infrastructure services, and explore possibilities for contracting certain activities to the private sector. 10. The Honduran public sector is large and inefficient. It employs 104,000 people excluding the military, which is believed to employ an additional 20,000. Available data suggest that public employment grew by about one-third between 1984 and 1993, and is now dominated by manual and clerical workers with minimal education and skills. Qualified technical and managerial level staff are in short supply, contributing to poor management. In the Central Administration, about 30 percent of all civil service employees have, at most, only a primary education. Professional and technical staff represent only 20 percent of employees. Moreover, the Central Government has increasingly undertaken activities that are now obsolete or more efficiently carried out by local administrations or the private sector. The public sector also faces serious organizational problems including lack of functional coordination between public entities and overlapping of activities, and very high administrative costs relative to program costs. 11. The Government, with support from the World Bank and the InterAmerican Development Bank (IDB), is examining the potential savings and efficiency benefits that could be obtained from reforming the public sector. These would include reducing the size and improving the organization of the public sector, developing a consistent legal framework, and reducing public employment by eliminating redundant staff. Fiscal savings from this process are estimated at 2-3 percent of GDP. Some of the savings obtained by streamlining administration and reducing overall employment will be needed to finance higher salaries to retain qualified professional personnel. Tax Reform 12. Even though Honduras' tax collection effort is relatively strong, additional revenue will still be needed for increased social expenditures and for pay raises for skilled personnel. After changes in income, property, and sales taxes in 1990, as well as minor improvements in tax administration, collection went up to 18 percent of GDP in 1990-92, from about 15 percent in the late 1980s. However, several shortcomings still prevail: widespread tax exemptions, large legal loopholes, low rates (7 percent) for sales tax, a fiscally inefficient way of valuing imports for custom purposes, and high levels of tax evasion. At the same time, there is excessive reliance on taxes from international trade. 13. The sales tax has great potential to increase revenue through a higher rate and expansion of the base to include goods and services that are now exempted. A long-needed change is the elimination of x Honduras - Country Economnic Memorandum the Customs Valuations Factor (FVA). The FVA is the exchange rate used for computing the tariff, sales tax, and excise taxes on imported goods. It has traditionally been kept well below the open market exchange rate, thereby subsidizing imports. Using the market exchange rate for valuation purposes will increase tariff collections in one big jump. In early 1994, the gap between the FVA and the exchange rate was so large that eliminating the FVA could have increased tax revenues by more than 6 percent. 14. There are significant problems in tax administration. The level of tax evasion is high, perhaps 40 percent of sales tax collections, possibly more for income taxes and customs. A major source of these problems is the absence of a tax code with real penalties to facilitate enforcement. Another problem is the inability of the tax administration to pay enough to qualified staff to compete with the private sector. This has limited its capacity to recruit and maintain the type of staff that will be needed to increase collections. The gap in compensation has also created problems with morale and assertiveness of inspectors. A third problem is the persistence of major legal loopholes for income tax. 15. Reliance on taxes from international trade (imports and exports) is excessive at about 28 percent of all tax revenue. These taxes tend to be favored because of ease of collection, although heavy reliance on them could cause distortions in production and discourage exports. The Government has adopted a 5-20 percent range for import tariffs, but exceptions remain (a few items are taxed at more than 20 percent). Also, two additional surcharges apply to different imports. The Government should eliminate the surcharges on imports, tariffs of more than 20 percent, and exemptions. Policies for Sustainable Agricultural Growth 16. Agriculture is a sector of great developmental concern because it directly and indirectly generates about 40 percent of output; directly employs over 50 percent of the labor force and provides more than 80 percent of exports; and is where most of the poor are concentrated. 17. Agricultural output stagnated for a decade starting in 1978 after growing rapidly during most of the 1960s and the 1970s. The main underlying cause was the decline in real agricultural prices, which fell by 37 percent from 1978 to 1988. World market price trends were exacerbated by an increasingly overvalued exchange rate and by trade policies biased against agriculture. The decline in real prices was reversed beginning in 1988 with the rise in the real effective exchange rate; and prices continued to rise with the economic reforms of 1990. Real producer prices rose by 44 percent from 1987 to 1992. This initiated a five-year recovery in the sector that embraced virtually all product lines, with real agricultural GDP growing by 5 percent per year and a rapid expansion in earnings from both traditional and non- traditional exports. The rural poor benefitted significantly from this recovery. 18. To achieve and maintain a higher rate of growth in agriculture, remaining distortions in marketing and rural credit must be eliminated. New products and new technologies will have to be adopted, which will require more investment and an effective system of research and extension (R&E). To attract new investment, the prevailing insecurity of land tenure must he eliminated. To make growth environmentally sustainable, new natural resource management policies need to be implemented, especially in forestry. Executive Summary xi 19. Marketing and Rural Credit. During the 1980s, the Government attempted to compensate for the negative impact of macroeconomic and trade policies on agriculture with a wide range of interventions, controls, and subsidies in marketing and credit. As the economic reforms removed the main underlying causes of anti-agricultural bias, the justification for compensatory interventions was weakened. Thus, the Government implemented a number of reforms to liberalize product and credit markets. However, some of the reforms initiated remain incomplete. The main areas where further action is required are as follows: 20. In marketing: The tariff for wheat imports should be made compatible with tariffs for other grains; remaining trade and price controls should be eliminated, particularly the unjustified use of phytosanitary controls; the program of privatization of state silos should be completed; and the use of a grain reserve for price stabilization should not be reinstated. 21. In credit: The rationalization/divestiture of the national agricultural bank (BANADESA) should be completed, involving at least a clean-up of its portfolio and caps on the size of individual loans so as to target all new lending to small farmers. New credit institutions should be self-financing, and transitory transfers from the public sector should be transparent and subject to the overall fiscal framework. New self-financing schemes designed for the poor, such as the use of co-responsibility groups, should be investigated. 22. Research and Extension. Future agricultural growth will depend more on yield increases and changes in crop composition than on expansion of cultivated areas. This makes R&E services vital. Public sector R&E has been costly, inefficient in promoting productivity, and regressive in that it has favored medium and large farmers. The new legal framework requires substantial privatization of activities while retaining state financing for research and extension to small farmers. This new framework has not yet been implemented. An autonomous public coordinating agency needs to be established, which will be free from political pressures for recruitment and able to retain highly qualified personnel. Private extension firms need to be developed and supported by public funds in a way that makes these services accountable to the farmers. Mechanisms need to be established to permit subsidizing such extension services for the small farmers only. Research responsibilities for export crops should be transferred to the private sector, leaving in the public sector only those programs that focus on small farmers. 23. Land Tenure. Pervasive insecurity of land tenure, created by the 1974 Agrarian Reform Law, became a crucial constraint to investment in the sector by restricting land markets and taking a paternalistic approach to small farmers and women. The passage of the Agricultural Modernization Law in 1992 abolished the Agrarian Reform Law and brought profound changes to the land tenure regime. Its most important achievement was the creation of peace in the countryside, with land invasions ceasing in 1993. However, the implementation of the Law is still incomplete. Land titling needs to be accelerated, especially for farms of less than 5 ha. and for women. Necessary complementary measures include completing the rural cadastre and decentralizing and modernizing the system of property registration, in order to simplify property transaction procedures for buyers and sellers. Other areas in xii Honduras - Country Economic Memorandum which implementation needs to be accelerated include the restructuring of production cooperatives by allowing members to choose their form of organization, and the retraining of National Agriculture Institute (INA) staff, to enable them to carry out their new responsibilities more effectively. 24. Forest Policy. The forestry sector has been plagued by inappropriate Government interventions and regulations, which have led to an excessive and inefficient use of the natural forest and created disincentives for conservation and development. Deforestation is one of the most pressing environmental problems in Honduras. Some 2.3 million ha. are already deforested and as a consequence, a number of watersheds are experiencing a trend toward reduced availability of water. This has significantly affected the generation potential of the main hydroelectric plants. Fundamental reforms in this area were included in the Agricultural Modernization Law of 1992 to encourage private sector participation and channel the public sector to areas of regulation, fire prevention and control, and R&E. While some important efforts were launched in 1993, implementation of the new policy is only at the initial stages. Poverty Profiles 25. The main objective of public policy in Honduras must be to reduce poverty. This section describes poverty and recommends a strategy for poverty reduction that creates an enabling environment for growth, especially in agriculture, along the lines described above; increases efficiency and improves targeting in the delivery of social services; and strengthens the social safety net. A detailed analysis of the available poverty data reveals the following features: * A low per capita GDP and highly unequal distribution of income determine the existence of high poverty levels in Honduras; around 50 percent of households were living in poverty in 1992, and 30 percent were in extreme poverty; a Most of the poor live in rural areas and are engaged in agricultural activities or in agriculture-related services; about 7 percent of the poor live in urban areas; * Inequality of land tenure is a major determinant of rural poverty; * Women, especially in rural areas, are a more vulnerable group among the poor; * Poverty levels increase with recession and fall with economic growth, hence the poor benefitted from the improved economic performance 1990-92; the proportion of the total population below the poverty line was slightly lower in 1993 than before the adjustment program began; * The rural poor suffered less from the recession and gained more during the period of renewed growth than the urban poor; in 1993, the proportion of the rural population living in poverty was considerably lower than in 1989 while the proportion of the poor in the urban population had increased. Despite these trends, most of the poor continue to live in rural areas; Executive Summary xiii * Urban average incomes and wages are substantially higher than rural incomes and wages. While minimum wage policies are generally ineffective, the existing system imposes high transaction costs on firms seeking to circumvent the legislation; * Adjustment to economic fluctuations in the labor market occurs mainly through changes in incomes and not by changes in the unemployment rate; rates of unemployment are low; * Low wages and incomes are associated with low productivity of labor, which itself is a reflection of insufficient investment in education and health for the poor; * Minimum wages are not an effective floor for wages, since 40 percent of wage earners have wages lower than the minimum. Movements of the minimum wage are also not correlated with movements in wages; * An extremely high rate of population growth lies in the way of poverty reduction; and * More reliable data are needed to target operations and improve the monitoring of poverty. 26. A three-pronged strategy for addressing these issues is required. First, poverty reduction requires that policies to promote growth be sustained and be inclusive of the poor. Distortions that reduce the demand for labor, such as special tariff regimes for capital imports, should be avoided. Self-employed activity, especially in agriculture, should continue to be encouraged through extension, credit, and elimination of ad hoc restrictions on agricultural exports. The new land tenure policies that eliminate discrimination against the poor and women will be important to stimulate growth that includes the poor. Second, since a crucial determinant of poverty is low productivity of the labor force, caused partly by the low access among the poor to social services, especially in education and health, public expenditures in the social sectors need to be more effective and the access of the poor to education, health, and family planning services should be increased. Third, the social safety net created to channel public expenditures and nutritional assistance to the poor should be strengthened and the targeting mechanisms should be improved. A key to more accurate targeting will be the generation of more reliable poverty data. Public Policy in Education and Health 27. The Government's strategy, as expressed in the National Action Plan for Childhood and Youth Development (PAN) focuses on: (i) primary services in health, nutrition, sanitation, and education; (ii) targeting the poor; and (iii) developing new ways to mobilize resources to complement public funding of the social sectors. However, implementation of Government policy in the social sectors is not always consistent with this strategy. xiv Honduras - Country Economic Memorandum 28. Public expenditures in the social sectors, at over 9 percent of GDP (including social security), are high relative to income by international standards. This relatively high share of GDP was maintained during the stabilization and reform period. International comparisons of resources allocated to education and health, and of the relative efficiency of these efforts show that, controlling for income levels, the proportion of GDP used for public spending in health is close to the international average and the results in terms of life expectancy are better than average. In education, by contrast, the proportion of GDP spent is higher than the international average, while educational achievement is lower. 29. Education. In spite of ample coverage of primary education (86 percent), major quality issues remain. Low achievement levels are reflected in high ratios for repetition and dropouts. Inefficiencies arise from three main factors: First is a lack of prioritization in the Government's strategy for the sector. Investments are decided according to dubious criteria. Second, resources are insufficient, particularly for non-salary items in the budget. Non-wage expenditures are often sacrificed in favor of wages. Third, there are no technical criteria for hiring or evaluating teachers. Political considerations often prevail in recruiting personnel. A large proportion of personnel are in non-teaching positions, but very few have the skills required for administrative jobs. 30. In addition to being inefficient, expenditures in education are also inequitable. The poor do not sufficiently benefit from the services. Available data for primary education show that: (i) the poorer regions have lower primary coverage, higher dropout rates, and higher student/teacher ratios; (ii) current expenditures per student are lower in the poorer areas; and (iii) investments in school construction by the Honduran Fund for Social Investments (FHIS; see para. 34) are not an exception to the regressive allocation of resources. Per student expenditures by FHIS have been higher in the better-off departments. Furthermore, 18 percent of the educational budget is spent on only the 3 percent of students enrolled in higher education. This is a regressive transfer, since most university students belong to middle and high income families. The International Development Association (IDA) will help the Government address the main issues of efficiency and equity under the proposed Basic Education project. 31. Health. Honduras has developed an extensive primary health care system (PHC) with impressive results in the area of preventive medicine. A remarkable feature has been the continuity of PHC policy since its inception in 1973, regardless of political changes. In 1992, immunization coverage for children under one year of age was over 94 percent for the main vaccines. Another important achievement is the progressivity of PHC expenditures: per capita spending in primary health favors the poorest departments, and FHIS per capita spending in health and sanitation infrastructure follows a similar pattern. By contrast, per capita spending in hospitals is biased toward departments where poverty is not so severe. In particular, there is a need to increase and upgrade personnel at the basic health centers where an auxiliary nurse performs administrative, training, and outreach activities, and delivers PHC services to an average population of about 3,000. 32. Prioritizing the PHC system does not imply neglecting hospitals, which already face serious financial problems affecting infrastructure, equipment, and medical supplies. Two things need to be done. First, strong mechanisms need to be developed to protect the non-wage budget from pressures to raise wages. Second, new ways of raising revenues from private sources must be developed. There is Executive Summary xv ample scope to increase cost recovery before reaching the Government's goal of recovering 25 percent of operative non-wage cost. Also, widespread financing of curative care through social insurance is an alternative to channeling private resources into hospitals, which would release fiscal resources to the PHC system. Targeted Interventions 33. FHIS and another program, the Family Income Support Program (PRAF), were both introduced in 1990 to provide a social safety net to the poor. These programs are supported by IDA credits. FHIS is designed to generate emergency employment and to build social infrastructure. PRAF's main objective is to deliver subsidies in the form of food coupons to poor primary school children of female-headed households, low-income children under five, and pregnant and nursing mothers. Expenditures for these social safety net programs were on the order of I percent of GDP during 1991 and 1992. 34. FHIS. FHIS has proven to be a highly efficient system of procurement, disbursement, and supervision for constructing and maintaining small-scale infrastructure with relatively low cost per beneficiary. While it has developed the capacity of local small private contractors and NGOs, the sustainability of investments requires that more emphasis be given to the participation of communities and municipalities. FHIS's mandate is to focus on the poor, but the actual distribution of investments has not been sufficiently concentrated in the poorest municipalities. There is scope for further improving the targeting in the program. Unless better data and stricter targeting criteria are developed and implemented, there is a risk that political interference could divert resources from the poorer areas. Although FHIS was originally conceived as a jobs creation program, the amount of direct employment generated by FHIS directly has been relatively small -- fewer than 6,000 full time jobs. The justification for continuing the program comes from its impact on infrastructure development, its capacity to work with NGOs, and its potential for targeting, not from its impact on employment. 35. Nutrition Programs. Nutrition programs in Honduras date back to the 1950s, with coverage estimated at 26 percent of the total population. The results of these programs are unsatisfactory in view of the substantial amounts invested. The traditional food aid programs are under criticism and the evidence suggests that many of them should be replaced by programs that distribute coupons, such as PRAF. Targeting seems more accurate and costs are lower with coupons than with direct food aid. Addendum xvii ADDENDUM ON MACROECONOMIC DEVELOPMENTS IN 1994 1. After this Report was written, some important measures were taken on the fiscal front which improve the prospects for macroeconomic stability. The fiscal deficit, initially projected to reach over 12 percent of GDP in 1994, was brought down to around 8 percent of GDP during the first nine months of the year by, in the first quarter of 1994, eliminating subsidies to producers of coffee, cement and flour; substantially reducing subsidies to petroleum products; cutting expenditures on goods and services; reducing budgeted public investment; adjusting the price of gasoline in line with changes in costs; increasing the custom valuation factor to a level closer to the market exchange rate; and increasing electricity rates by 42 percent in June 1994. On October 12, 1994, Congress approved a fiscal package that would further reduce the fiscal deficit to 7.5 percent of GDP by the end of 1994 and to about 5 percent in 1995. On the revenue side, this package includes eliminating the custom valuation factor (with an estimated annual yield of 1.6 percent of GDP) so that imports henceforth will be valued at the official exchange rate; introducing a 1 percent tax on the gross assets of firms to ensure a minimum income tax payment by enterprises that have been exempted from income taxes or have evaded their tax obligations; eliminating income tax exemptions for new industries; and expanding the base of the sales tax. On the expenditure side, the fiscal package mandates a reduction in transfers and subsidies by 1.8 percent of GDP and in the wage bill by 0.3 percent, despite a 20 percent increase in teacher salaries and an additional monthly salary for all employees. These reductions will require a far-reaching reform of the public sector, and Congress has already mandated that Central Government employment be reduced by 10 percent over the next 18 months (except for teachers and medical personnel). The reform will also include privatizing part of the main utilities. The fiscal package mandates that steps toward the privatization of HONDUTEL begin by April 1995. In addition, the Government has announced its intention to partially privatize the electricity distribution system, some port services, and the San Pedro Sula airport beginning in 1995. The water utility will also be rationalized. 2. Another significant change in macroeconomic management took place in June 1994, when the Central Bank suspended the interbank market and established a centralized foreign exchange auction system with the aim of reducing exchange rate volatility pending improvements in the functioning of the exchange rate market. Under the new system, buyers can bid at a price that cannot differ by more than 1 percent from the base exchange rate which was initially set at the average buying exchange rate in the interbank market. The base rate is modified each time the average of successful bids differs in the same direction from the base rate for 15 consecutive auction days, with the new base exchange rate equal to the average of the successful bids. Under this system, the exchange rate was devalued by 12 percent (reaching L9.1 per US dollar) between June and the end of October. The operations of this foreign exchange market have been analyzed by the IMF and will be reviewed in the context of a mid-term review of the ESAF, scheduled for mid 1995. November 17, 1994 Part I The Macroeconomic Framework Honduras - Country Economic Memorandum 1 I. RECENT MACROECONOMIC DEVELOPMENTS A. Background Historical Overview 1.1 Honduras, together with other Central American countries, experienced a severe decline in economic activity during the early 1980s, followed by stagnation in the latter part of the decade. While real GDP growth had averaged 5 percent per year during the 1960s and 1970s, it averaged only 2.5 percent per year during the 1980s, below annual population growth. Fiscal policy during the early 1980s was particularly expansive, due mainly to high levels of public investment. Large current account deficits, which trebled between the mid 1970s and the mid 1980s, were the mirror image of the large fiscal gaps, which reached over 10 percent of GDP in the early 1980s. 1.2 Access to abundant bilateral and multilateral credit allowed the Government to stave off a major balance of payments crisis, and to hold off, for several years, the painful adjustment measures needed to address the economy's structural problems. As a consequence, the external debt grew sharply during the 1980s, almost tripling to over US$3.6 billion by 1990. Since much of the assistance was linked to the Contra War being fought along the Honduras-Nicaragua border and did not address the country's structural constraints, it did little to contribute to an expansion of the country's productive capacity. When political circumstances in the region changed in the late 1980s, transfers and concessional external finance became scarce, but the Government did not recognize the need to cut its fiscal deficit, resorting instead to external arrears and inflation to finance the deficit. In 1989, Honduras went into arrears with the multilateral institutions and was isolated from the international financial community. 1.3 The crisis of the 1980s had its roots in the economic policies pursued since the 1970s: the use of high barriers to protect an inefficient industry from international competition, widespread government intervention through price controls, subsidized credit, tax exemptions, and a prolonged and discretionary process of land reform. These policies led to: (i) a large and inefficient public sector; (ii) extensive administrative controls that discouraged private sector investment; (iii) a trade regime biased against exports; (iv) an inefficient system of financial intermediation, which discouraged domestic savings; and (v) insecurity of property rights in rural areas, which discouraged investment and encouraged environmentally unsustainable economic activities. The Reform Program 1.4 Some policy changes were introduced in the late 1980s, including a de facto devaluation of the lempira in 1988. But it was not until the Callejas Administration in 1990 that a more comprehensive reform program was adopted. In 1990 the new Administration initiated an ambitious program of 2 Recent Macroeconomnic Developments stabilization, structural adjustment, and a social safety net. The structural adjustment aimed at reactivating growth and increasing productivity. The specific objectives of the overall program were to: * reestablish macroeconomic stability; * improve the efficiency of the public sector; * provide incentives for the private sector through a correction of relative prices, deregulation, and trade and financial liberalization; * eliminate insecurity of property rights in rural areas; and * establish a program of interventions directed to the poor. The stabilization program implemented between 1990 and 1992 curtailed subsidies, reduced current expenditures, increased selected tax rates, and attempted to broaden the tax base. The reforms adopted during that period included: * trade reform, which decreased average tariffs, substantially reduced tariff dispersion to a band of 5-20 percent, and eliminated many non-tariff barriers; * liberalization of financial markets, which eliminated interest rate controls and scaled down programs of centrally mandated credit allocation; * liberalization of agricultural trade, which removed price controls and price guarantees in agriculture and substantially reduced government intervention in agricultural trade; * increases in public utility tariffs and the improvement of tariff adjustment mechanisms in some public utilities; * more flexible foreign exchange arrangements with the creation of an interbank market in which the lempira is allowed to float; and * development of a legal framework to provide secure property rights in agriculture and forestry and to develop market mechanisms for the allocation of public lands and public forests. These reforms were designed to benefit the poor by reestablishing growth -- especially in agriculture, where most of the poor make a living -- and by eliminating disincentives for the use of labor and containing inflation. In addition, specific measures were taken to benefit the poor through the creation of a social safety net to target public expenditures in infrastructure and income transfers to the poor. The Challenge for the New Administration 1.5 Much of the progress achieved between 1990 and 1992 was lost as the Callejas Administration dramatically reversed the course of economic policy in the run-off to the presidential elections ot Honduras - Country Economic Memorandum 3 November 1993. As the elections approached, the Callajas Administration's economic policy first faltered and then collapsed. Public sector savings declined by over 2 percent of GDP relative to 1992 as expenditures in goods and services, particularly transfers and subsidies to the private sector, increased sharply and public sector tariffs declined in real terms. Capital expenditures rose to 14 percent of GDP. The fiscal deficit, which was targeted to fall to 3.8 percent of GDP, reached 11 percent. Buoyed by strong import demand and sluggish export growth, the current account deficit reached 14.4 percent of GDP. The authorities tightened monetary policy and virtually halted the acquisition of foreign exchange to prop up the exchange rate, and over US$100 million of reserves were lost. Attempting to control an accelerating inflation that reached 13 percent in 1993, the outgoing Administration also imposed extensive but ineffective temporary price controls, which were not reinstated by the new Administration. 1.6 The Reina Administration, inaugurated in January 1994, has yet to confront the difficult situation it inherited. The economic situation deteriorated further in the first half of 1994. The fiscal deficit remained at around 11 percent of GDP during the first four months of the year. Annualized inflation accelerated to over 30 percent and international reserves declined further, to less than the equivalent of one month of imports. Faced with a rapid devaluation of the lempira, in June BANTRAL increased the legal reserve requirements by 6 percent; they are now 40 percent.' 1.7 The basic reforms implemented during 1990-92 still remain in place, but the new Government will need to reverse the backtracking that occurred in 1993 and deepen the reforms to ensure macroeconomic stability and develop a social policy that responds more effectively to the needs of the poor. The key challenges are: * Reducing the fiscal deficit: In the short term, this requires implementing measures that can rapidly reduce expenditures and increase revenues. In the medium term, structural reforms are needed to maintain a sustainable fiscal position, with emphasis on reducing expenditures. Processes that provide tighter control over public investment need to be developed, and more activities traditionally considered to be in the domain of the public sector should be devolved to the private sector. The basic structure of the public sector needs to be reformed to reduce the cost and increase the efficiency of the civil service. The public debt needs to be reduced. The tax system also needs to be reformed and administration strengthened. * Maintaining market reforms: The progress achieved during 1990-92 in eliminating price controls and liberalizing trade, the exchange rate, and interest rates encouraged a positive supply response in exports and agriculture, an incipient reallocation of resources toward the tradeable sectors, and -- during the period the Government remained committed to the reforms -- greater investor confidence. These reforms need to be maintained and in some cases, such as trade liberalization, deepened. I. The efforts of the new Administration to reduce the fiscal deficit until October 1994 are summarized in a Macroeconomic Addendum attached to the Executive Summary of this Report. 4 Recent Macroeconomic Developments Implementing policies for sustainable agricultural growth: The new legal framework for land and forest tenure provided a new sense of security in rural areas and began to change the rules and incentives for private investment and for natural resource management. However, this progress is at risk because of temptations among some policymakers in the new Government to reinstate interventions in agricultural marketing and rural credit and because of slow implementation of the new legal framework. * Strengthening poverty reduction policies: Poverty remains the most pressing problem in Honduras. While the initial impact of the 1990 stabilization program was to substantially increase the number of Hondurans living below the poverty line, the renewed economic growth of 1991 and 1992 began to improve the incemes of the poor. The reduction of poverty was particularly marked in agriculture, where the vast majority of the poor make their livelihood; this was mainly a result of the reform of the exchange rate and trade systems, which improved producer prices and employment in agriculture. In early 1993, the proportion of the rural population living in poverty was substantially lower than before the adjustment period began. Poverty reduction requires sustained growth, particularly in agriculture. To sustain this growth, the Government needs to provide a stable fiscal framework and deepen market and agricultural reforms. Long-term poverty reduction requires investing in human capital. Honduras spends 9 percent of its GDP in the social sectors, which is relatively high compared with other countries of similar income levels. However, the results obtained from this investment are disappointing, particularly in education. Given the fiscal constraints, the Government will have to rely on achieving greater efficiency rather than increasing expenditure levels to improve the quality of social services. Public expenditures in the social sectors need to be better targeted to the poor, and guided more by proper monitoring of firm poverty data and less by unfounded political manipulation. A social safety net has been developed since 1990 to target public expenditures and nutritional assistance to the poor. The initial impact been generally positive, but as the new institutions that constitute the safety net mature, they need to be strengthened and their targeting made more precise. A key to improving the accuracy of targeting will be the generation of new, more reliable poverty data. 1.8 This report is the first Country Economic Memorandum (CEM) prepared for Honduras in seven years. Its main focus is macroeconomic stabilization and poverty reduction. The reestablishment of fiscal equilibria is a precondition for stability and for an environment conducive to growth. Given the weight of agriculture in the economy and the high concentration of the poor in that sector, agricultural policies receive special attention in the CEM. This is combined with a Poverty Assessment that describes the evolution of poverty during the reform period and analyzes Government policy in the social sectors. Honduras - Country Economic Memorandum 5 1.9 The CEM is in three parts. Part I discusses the macroeconomic framework in three chapters emphasizing the impact of the fiscal deficit in the economy and analyzing the scope for reducing it. The rest of Chapter I describes recent economic developments. Chapter II analyzes fiscal and monetary policy. Chapter III analyzes the scope for reducing public expenditures and for increasing tax revenues. Part II deals with the reforms and prospects for the agricultural sector, focusing on the potential for growth, the policies needed for agricultural growth, agricultural research and extension, land tenure, and forestry policy. Part III is a Poverty Assessment in three chapters. The first contains poverty profiles and describes labor markets; the other two are a discussion of public policy in the social sectors, and an examination of the main interventions targeted at the poor. B. Economic Developments until 1993 1.10 The economy's initial response to the structural reforms was positive. The economy remained stagnant in 1990; but by 1991-92 growth was reinstated, particularly in the tradeables sectors and, importantly, in agriculture (Table 1.1). After a long period of stagnation, exports reacted positively to the new stimulus. The external accounts, however, worsened because of a deterioration in the terms of trade and the increased external debt payments. This chapter elaborates on these factors and describes key structural features of investment, savings, and the current account which will have an important impact on future growth prospects. The poverty headcount index increased in 1990 and then improved in subsequent years as a result of the renewed growth. This improvement was particularly marked in rural areas (see Chapter V). Growth 1.11 There had been no growth in GDP in 1990 because of the accumulated disequilibria, the effects of a hurricane, and implementation of the stabilization program. In 1991 and 1992, however, the economy began to react to the exchange rate and trade reforms. After a 3 percent GDP growth in 1991, investment recovered in 1992 and GDP growth reached almost 6 percent. In 1993, as a result of a hurricane, tight monetary policies introduced to compensate for fiscal laxity, and private sector uncertainty due to policy changes and the forthcoming elections, GDP growth rate slowed to 3.7 percent (Table 1.1). The slow-down was particularly severe in agriculture because of unfavorable weather and the delayed effect of inconsistencies in implementing exchange rate and trade policies in 1992 (paras. 4.8 and 4.12). No growth is expected in 1994 because of the disequilibria accumulated since 1993 and the need to cool down the economy. 1.12 The initial results of the reform program in 1991-92 indicated the beginning of a process of reallocating resources toward the tradeables sectors and enhancing export performance. Tradeables sectors, notably agriculture and manufacturing, reacted favorably to the change in the economic environment caused by depreciation of the real exchange rate (para. 2.14) and the drastic change in nominal protection rates (Annex Table A-10). Construction, a sector heavily influenced by public 6 Recent Macroeconomic Developments investment was one of the fastest growing sectors in the economy; a Table 1.1: Structure of Production and Output Growth, 1980-93" substantial part of this growth took place in transport infrastructure, Structure Annual Growth opening the way for even more of Rates growth in tradeables. However, Pro_du_ction (%) the process was still in its infancy during this period and was 91-92 89 91-92 93 brought to a halt by the policy reversals of 1993 and the initial Primary Production 19.9 2.7 5.0 1.3 Agriculture 18.4 2.9 4.9 1.1 hesitation of the new Government. Mining 1.5 2.2 7.4 4.8 Secondary Production 22.9 3.2 5.8 4.3 Investment and Savings Manufacturing 14.9 2.5 3.9 3.7 Construction 5.1 3.9 15.6 4.6 Public Utilities 2.9 9.2 0.8 7.7 1.13 Compared to many other Services 42.9 2.6 3,2 4.7 developing countries, Honduras' Transport & Communications 5.6 5.1 3.6 2.2 rate of investment is high. The Commerce 9.5 -0.7 2.6 6.8 average ratio of gross investment Banking, Insur. & to GDP was 18 percent for the Real Estate 6.9 4A4 9.5 5.0 Housing 5.6 4.6 3.3 3.9 late 1980s and 24 percent for Pub. Admin. & 1990-92 (Table 1.2). Particularly Defense 6.4 3.2 0.1 4.5 if compared with other countries Personal Services 8.9 2.7 0.2 3.9 Nu Indirect Taxes 14.3 1.1 6.1 4.3 in Latin America, where the 1980s Total (GDP) 100.0 2.5 4.4 3.7 brought a collapse of investment, these figures seem impressive. Ssu,re: Statixsbeal Amnex. these figures seem impressive. la The penod4 *hown in the table conTapmid to the 'prem' (19089). the yean when the refonn and otabilzaoo we having an umpact (199192), sod the yftt of renewed i exparion (1993). 1.14 Two observations, however, are warranted regarding investment performance. First, the share of public investment is relatively high, reaching 40 percent of the total in 1992. Second, both private and public investment have been highly skewed toward construction, to the detriment of investment in machinery and equipment. These two facts give rise to concern regarding the productivity of investment. Experience elsewhere indicates that private investment is usually more efficient than public investment. Also, investment in machinery and equipment (more than overall investment) tends to be associated with economic growth. Further, the Government a weak capability for project selection and appraisal, and there are indications that recent public investment included projects with low rates of return (paras. 3.9-3.14). The high Incremental Capital Output Ratio (ICOR) for the Honduran economy confirms these concerns. For 1980-92, the average ICOR was an extremely high 18.8, three times higher than ICORs for the East Asian Tigers (Taiwan, Korea, Singapore, Hong Kong), and also high when compared with other Latin American countries with high ICORs. Honduras - Country Economic Memorandum 7 1.15 While the savings performance has been improving in recent years, its level still continues to be very low. After reaching a low of about 6 percent of GDP in 1983, gross national savings have been rising in recent years, reaching 13 percent of GDP in 1990-92. This rate continues to be a third of the savings rate of the fastest growing developing countries, and substantially smaller than the rate of most countries in Latin America. 1.16 The key to improving savings performance in the short run is public sector savings. In the late 1980s, public savings averaged less than I percent of GDP. During 1991-92 the performance of public sector savings improved, averaging 4.6 percent of GDP. However, the situation worsened drastically in 1993, and public sector savings fell to around 1 percent. The External Sector 1.17 Both export and import volumes reacted to the economic reforms, especially in 1992, reflecting the increasing openness of the economy. Traditional exports, which had been stagnant during the 1980s, grew at an annual average of 4.7 percent in 1990-92. This growth occurred despite a heavy fall in banana exports in 1990 caused by adverse weather conditions and a significant strike on the banana plantations. The recovery in export volume was largely due to a drastic increase in coffee exports and to increases in exports of shrimp, beef, and minerals. Non-traditional exports fell significantly during the 1980s and had an equally significant recovery during the reform period. Between 1988-89 and 1992, non- traditional exports grew by 23 percent in constant dollars. The maquila industry also had a remarkable expansion (Box 1.1). After a drastic fall in 1990, imports in real terms grew every year, reaching the same level in 1992 as they were in 1989. 1.18 Despite renewed dynamism in the export sector, the trade balance deteriorated, mainly because of the sharp drop in the terms of trade, which fell by over 25 percent between 1989 and 1992. Particularly $o important were the declines in the 2l R 2 dollar price of coffee and bananas. 1.19 Servicing of the external debt also had an important role in the bulging account deficit, they are equivalent to 63 percent of the current account deficit in 1990-92. Interest .0 St 2 b OJ ff O n u 0 s On payments have risen steeply, from 4.0 |md r_t m"o _ C=w A-a t percent of GDP in 1988 to 5.2 l "Iwma _x mn SVb8ap r D(x(% % percent of GDP in 1992. Clearly, the large debt burden represents a Diagram 1.1: Savings, Investment, and the Current Account, 1980-93 substantial and enduring source of 8 Recent Macroeconornic Developments disequilibrium in the external accounts. 1.20 Reflecting the investment loo- P , ' X <.- .. ~ _. -.: performance described above and the 90 - c h chronically weak savings 10- . performance, the current account of 70- the balance of payments have been in deficit for the whole of the 1980-92 som~1900-1OO -- aperiod, averaging a staggering 9.6 percent of GDP. The current account œo III 111111111 deficit can be decomposed into the 70 'n 7IT3 74 75 76 77 S?0SOSlS0 81 82 45 S4 67s 91~9 difference between private and public investment and savings. Such an Diagram 1.2: Real GDP and GDP Per Capita, 1970-93 exercise reveals that for 1980-92, both sectors posted systematic Box 1.1: The Maquila Industry Growth of the maquila industry is one of the most remarkable economic features of recent years. The legal basis for its development was provided by the USA's 1983 Caribbean Basin Initiative. The recent economic reforms further encouraged development of the sector, particularly through the adoption of market exchange rates, which reduced labor costs in dollar terms and gave positive signals to investors. Geared to textiles and apparel, and catering fully to the US market, the maquila industry exported a value added of about US$120 million in 1992 (only exports of value added are registered for maquila). Growth has been very rapid: 10 years ago, exports were almost nil; the domestic value added of the assembly industry grew by a factor of 7 between 1990 and 1992. In a group of 7 countries which includes Dominican Republic, Costa Rica, Jamaica, Haiti, Guatemala, and El Salvador, Honduras's maquila exports ranked fifth in 1987, with exports equivalent to 10 percent of the exports of the largest exporter; today, it ranks third, and its exports are equivalent to 30 percent of the exports of the largest exporter. Estimates of employment for 1992 range from 23 thousand to 40 thousand jobs and suggest that employment may have grown by as much as 43 percent in 1992. The industry has attracted significant investment, domestic and foreign, mainly from Korea and the USA. Investment in the infrastructure of the Industrial Processing Zones (ZIPs), not including machinery and equipment, may have totaled $40 million up to December 1992 (data on investment and employment growth are from ESA/Price Waterhouse 1993). According to FIDE (Fundaci6n Hondureiia para el Desarrollo de Inversiones), a private entity in charge of promoting the maquila industry, there are firm plans to increase total investment to US$233 million in the near future. If this occurs, employment in the sector could double in the next two or three years. If the trend of export growth continues at the rate maintained in the 1990-92 period, maquila exports would become the second largest export -- after bananas -- by 1994, and the first by 1996. However, these optimistic projections do not take into account the probable impact of the North American Free Trade Agreement (NAFTA), which will divert investment from Central American maquila to Mexico. A recent Bank study on NAFTA's impact recommends that the Central American countries strengthen their efforts to export directly to Mexico. Honduras - Country Economic Memorandum 9 deficits. As private investment recovered, private savings did not rise at the same rate. One way to offset this effect would have been for the public deficit to fall, but exactly the opposite happened: public savings rose in 1991-92, but public investment rose by even more, particularly in 1992. As a result, the current account deficit reached extraordinarily high levels. This was further exacerbated in 1993 when public investment continued to rise and public savings fell dramatically. 10 Recent Macroeconomic Developments Table 1.2: Key Economic Indicators, 1980-93 Estimate 80-89 80-84 85-89 90-92 1993 REAL GROWTH RATES Gross Domestic Product (GDP) 2.5 1.0 4.0 3.0 3.7 Gross Domestic Income (GDY) 2.1 -0.3 4.6 2.3 5.7 REAL PER CAPITA GROWTH RATES Gross Domestic Product (GDP) -0.8 -2.3 0.7 0.0 0.7 Total Consumption -0.1 -0.5 0.3 -2.3 2.0 Private Consumption -0.1 0.0 -0.2 -1.4 2.i NATIONAL ACCOUNTS (as a share of GDP) Total Investment 18.0 18.2 17.7 24.5 26.7 Public fixed 7.8 9.5 6.1 8.0 9.9 Private fixed" 10.2 8.7 11.6 16.5 16.7 National Savings 8.5 7.7 9.2 13.0 11.8 Public 1.0 1.3 0.7 3.8 1.4 Private 7.5 6.4 8.6 9.2 10.5 Foreign Savings 9.5 10.5 8.5 11.5 14.8 ICOR (annual average) 5.2 3.4 7.1 64.1 41.7 NON FINANCIAI, PUBLIC SECTOR (as a share of GDP) Total Current Receipts 20.9 19.7 22.2 26.0 24.9 Total Current Expenditures 19.9 18.4 21.5 22.2 23.6 Public Savings 1.0 1.3 0.7 3.8 1.4 Capital Expend.& NetLendingb 9.3 11.7 6.9 8.1 13.0 Overall Balance -8.3 -10.3 -6.3 -4.3 -10.7 BALANCE OF PAYMENTS Exports GNFS (real growth rate) -1.4 -2.9 0.1 5.6 0.0 Exports GNFS/Current GDP' 27.2 29.4 24.9 30.9 31.2 Imports GNFS (real growth rate) -0.1 1.1 -1.2 0.5 9.0 Imports GNFS/Current GDP" 31.3 34.7 28.0 35.0 38.9 Resource Balance/Current GDP" -4.2 -5.2 -3.1 -4.1 -7.6 Curr. Acct. Balance/Current GDP -9.4 -10.7 -8.1 -10.1 -14.4 (before official transfers)"' Curr. Acct. Balance/Current GDP -7.0 -9.6 -4.4 -4.6 -11.4 (after official transfers)' Terms of Trade Index (1989= 100) 96.3 91.2 101.4 85.7 74.5 PRICES AND EXCHANGE RATE Consumer Price Index (Rate of Change) 7.4 9.9 4.9 22.0 10.7 Nominal Exchange Rate 1" 2.1 2.0 2.3 5.1 6.5 Real ExchangeRate Index (1989=100) 74.3 73.7 74.9 120.6 123.6 GDP (tnillion USS): 3,456.6 2,920.8 3,992.4 3,331.9 3,436.0 /a InCIude chanes in inventory. lb Capital expenditures an net of e.pitl revenue. Ic ODP conveuted to USS using Ath methodoloy. /d TDe discrepaney bet_w the curr. acr't/GDP & foreipn avinw, for historical yera, is due to the fact the balance of payment is brasd an the Atla OxchmnSe rate viereas National Accounts uses the offian pxchsnge rate. Source: Statistical Annex, Table I. Honduras - Country Economic Memorandum 11 II. FISCAL AND MONETARY POLICY A. Fiscal Policy 2.1 A large and sustained fiscal deficit is the central fact that dominates fiscal and monetary policies in Honduras. The fiscal deficit averaged 10 percent of GDP in the early 1980s. It was reduced to 6 percent of GDP in the late 1980s and was then temporarily compressed to 4 percent during the 1990-92 reform period before jumping to almost 11 percent of GDP in 1993. 'rhis section analyzes the impact of the fiscal deficit on debt accumulation, inflation, interest rates and the exchange rate. It then describes the fiscal stabilization program of 1990-92 and the main structural features of public finance. The Impact of the Fiscal Deficit 2.2 The history of debt accumulation and inflation in the last decade can be chronicled as the outcome of different financing alternatives used to cover the fiscal deficit, either from abroad or from the domestic banking system (including BANTRAL). In the early years of the expansionary period, foreign financing was readily available. In 1978-85, approximately A two thirds of the deficit was financed through AVOW _A"p CM foreign borrowing. It was during this period that the bulk of the external debt was accumulated. 2.3 But even with available foreign resources, there was a short-term inflationary component in / the financing of such large fiscal deficits. In the ,______________________ l_l absence of BANTRAL autonomy, monetary 10 7n 'n n UD n w nW 0 w "1 02 0 N N S4 n 00% w " " authorities were compelled to finance part of the deficits for which resources could not be found Diagram 2.1: Annual Average Inflation Rates, 1970-93 abroad. The fiscal gap that had to be financed domestically was enough to generate a drastic increase in monetary growth; MI growth went from an annual average of 1.7 percent in the 1960s to 6.6 percent in the 1970s. In the second half of the 1980s, as foreign resources became scarcer, the Government turned increasingly to domestic credit as a source of financing. Financing from bonds and from the domestic banking system accounted for over 43 percent of total fiscal financing in 1986-89, while it had accounted for only 19 percent in 1983-85. In the 1986-89 period, MI expanded by nearly 55 percent.2 Even in years during which monetary policy was relatively tight, the inflation tax has been 2. Harberger and Wisecarver (1989) stress the importance of this switch toward money financing as the main cause of the later inflationary surge. A plausible hypothesis is that because of price controls, utility prices that were adjusted infrequently, and the fixed exchange rate, inflationary pressures that built up in the second half of the 1980s were not fully reflected in the price level until 1990-91. 12 Fiscal and Monetary Policy an important means of financing the deficit. In years of relatively low inflation, such as 1989 or 1992, the inflation tax hovered around 1 percent of GDP. In 1990 and 1991, on the other hand, it reached 3 and 4.2 percent of GDP, respectively (Annex Table A-i). 2.4 In the last three years, a tight monetary policy has been in place, initially to complement the tightening of the fiscal policy, and since 1992 to compensate for the loosening of fiscal policy. This has kept domestic interest rates very high. Nominal lending rates have been systematically above 20 percent since the first quarter of 1991, even as inflation rates have declined sharply. This has meant that ex-post real loan rates have been extremely high -- over 12 percent on average in 1992, creating disincentives to private activity. 2.5 Fiscal policy is also important for determining the real exchange rate and international competitiveness. The real exchange rate (defined as the price of traded over the price of non-traded goods) is a relative price that is determined by fundamental supply and demand conditions in goods markets. Increases in aggregate demand originating in an expansionary fiscal policy tend to increase the demand for non-tradeable goods and will, ceteris paribus, tend to raise the relative price of non-traded goods and therefore appreciate the real exchange rate. The reform in exchange rate policy over the last few years has been successful in reversing the real appreciation and overvaluation of the lempira that had been accumulating since the mid 1970s (para. 2.14). Over the longer haul, however, keeping a competitive real exchange rate will require a less expansionary fiscal policy. Recent Developments in Public Finance 2.6 By international standards, the Honduran public sector is quite large. During the second half of the 1980s, total public sector expenditures were close to 29 percent of GDP and public fixed investment accounted for 7 percent of GDP (Table 2.1). During the first three years of the 1990s, this situation was not substantially modified. Total public sector expenditures surpassed 30 percent of GDP and public investment accounted for over 8 percent of GDP. Preliminary data suggest that total expenditures may have reached 36 percent of GDP in 1993. These public expenditure ratios are well above those observed in most other countries in Central America and in countries with per capita income levels similar to that of Honduras, and they highlight the crucial importance of public finance in the Honduran economy. When debt servicing is excluded, the primary expenditure of the public sector in 1992 accounted for a smaller but still sizable 24 percent of GDP. 2.7 The 1990 stabilization program helped to rapidly increase current revenues from 22 percent of GDP during 1985-89 to 26 percent of GDP in 1990-92. The growth in current revenues reflected both a large increase in tax revenues (2.3 percent of GDP) and expansion in the operational surplus of the non- financial public enterprises (1.9 percent of GDP). The latter reflected mainly increases in the rates charged by the most important utilities. Some of this gain was lost as part of the fiscal relaxation of 1993. Honduras - Country Economic Memorandum 13 2.8 In contrast with the important progress achieved on the revenue side, public expenditures were not curtailed. Rather, they increased by 1.6 percent of GDP between the late 1980s and 1990-92. Both current and capital expenditures increased during this period. There was a temporary reduction in public consumption during the adjustment period, but this reduction was offset by: (i) a sizeable increase in interest payments, which grew steeply from less than 5 percent of GDP in the late 1980s to almost 7 percent of GDP in 1992; and (ii) a large increase in public investment that jumped from 6 percent of GDP in the late 1980s to 10 percent in 1992 and was as high as 13 percent in 1993. 2.9 There was an effort to Table 2.1: Consolidated Non-Financial Public Sector (NFPS) compress current expenditures, Fiscal Accounts, 1985-93 (% of GDP) other than interest payments, with stop-gap measures that did 1985-89 1990-92 1993' not attack the structural causes TOTAL REVENUES 22.5 26.4 25.9 that gave rise to high level of Current revenues 22.2 26.0 24.9 Tax revenues 15.0 17.3 17.0 expenditures. Not surprisingly, Non-tax revenues 3.9 3.3 2.8 these measures proved to be Operating Surplus of NFPEs 3.3 5.2 5.4 unsustainable. Budgetary Current Transfers (MF adjusted) 0.1 0.1 -0.2 Capital revenues 0.3 0.4 1.0 restrictions on expenditures focused on public consumption, TOTAL EXPENDITURES & which fell relative to total NET LENDING 28.8 30.7 36.3 expenditures from 56 percent to Current expenditure 21.5 22.2 23.3 44 percent between 1989 and Wages and salaries 10.9 9.2 8.5 Goods and services 4,7 4.4 3.5 1992. As a result, purchases of Interest payments 4.9 6.6 6.8 goods and services and wages Current transfers 1.0 2.0 4.4 and salaries were reduced in real Capital expenditure 6.4 8.2 12.6 Fixed capital formation 6.0 8.0 12.3 terms. The reduction in the Other 0.3 0.3 0.3 wage bill was particularly Net lending 1.0 0.3 0.5 significant in 1991, but this decrease was achieved mainly NFPS savings 0.7 3.8 1.7 through sin real salaries, not NFPS primary balance -1.5 2.3 -3.9 through cuts in real salarles, not NFPS balance (cash basis) -5.8 -4.3 -10.7 in the size of employment. As shown by the events of the FINANCING 5.8 4.3 10.7 following years, this approach Official grants 1.3 1.2 0.6 was not sustainable, and as Net external financing 3.0 5.4 8.4 Net domestic financing 0.8 1.1 1.7 pressures for wage increases External debt service arrears 08 -3.4 0.0 mounted, the cost of wages rose again in 1992 and 1993. p/ preliminary. Source: BANTRAL, Ministry of Finance (SHCP), International Monetary Fund (1MF), and World Bank staff calculations. 2.10 During the second half of the 1980s, public savings were a negligible 0.7 percent of GDP. This extremely low level of savings was insufficient to finance the large public investment program, and consequently the overall budget deficit averaged over 6 percent 14 Fiscal and Monetary Policy of GDP during 1985-89. Despite the lack of adjustment in public expenditures, the increase in current revenues during 1990-92 allowed public savings to increase to 4 percent of GDP, diminishing the overall budget deficit to 4 percent of GDP. All this gain was lost in the fiscal morass of 1993, when the deficit reached over 10 percent of GDP. 2.11 The sectoral distribution of Central Government expenditures is summarized in Table 2.2. Three features deserve special emphasis when comparing 1985-89 and 1990-92: (i) the budgetary resources allocated to service the public debt (including interest payments and amortizations) more than doubled, reaching 41 percent of Government expenditures; (ii) public expenditures in the social sectors remained roughly constant; and (iii) the resources allocated to defense were curtailed by 1. 1 percentage points of GDP, bringing the size of the defense budget down by 40 percent (to 1.7 percent of GDP). This notable reduction in defense expenditures was facilitated by political developments in neighboring countries, which contributed to the pacification of the Central American region. 2.12 Several budget items are likely to show a high degree of downward inflexibility in the short run. We Table 2.2: Central Government Spending, have already discussed the Government's wage bill and 1985-92 (% of total spending) debt service. A third source of rigidity comes from legally earmarked expenditures: According to the 1985-89 1990-92 legislation, 5 percent of tax revenues must be allocated Social services 35.6 34.0 to the municipalities, 6 percent to the National Defense 12.7 7.4 Autonomous University of Honduras (UNAH), 3 Debt incl. principal 17.7 40.9 percent to the Supreme Court, and 4 percent of customs swrc.: Annex Table A-8. revenues to ports where the customs offices are located. I B. Management of Monetary and Exchange Rate Policy 2.13 The liberalization of the foreign exchange and financial markets has improved the environment for private sector activity, but at the same time has created new challenges for macroeconomic management. New instruments of monetary policy consistent with a liberalized financial system need to be developed, and the old instruments of intervention from the period of financial repression need to be phased out. Macroeconomic management is also constrained by the lack of technical regulation of financial operations. This section describes the instruments for managing exchange rate and monetary policies and the factors that constrain macroeconomic policies in the financial sector. Exchange Rate Management 2.14 One of the key distortions in the Honduran economy in the late 1980s was created by a large overvaluation of the real exchange rate due to fixed nominal exchange rate of 2 lempiras per U.S. dollar between 1918 and 1989. Between 1974 and 1988, as fiscal deficits grew and inflation rose Honduras - Country Economiic Memorandum 15 Box 2.1: Key Issues in the Finances of Public Enterprises, Social Security, and Municipalities Public Enterprises. Non-adjustment of tariffs has become a chronic problem in Honduras. Public Enterprises (PEs) represent about 9 percent of GDP as measured by their current revenues, a substantial rise in economic participation from about 6 percent of GDP in the 1980s. ENEE and HONDUTEL (the electric and telephone utility, respectively) alone represent 82 percent of current PE revenues. Tariffs were increased substantially in 1990, producing a large increase in public savings. The overall balance for the PEs, however, has been shrinking since 1990, and practically disappeared in 1992, due to a combination of rapid growth in the investment by the PEs and tariff increases insufficient to compensate for rapid inflation. A policy needs to be adopted to automatically adjust the prices charged by utilities to their corresponding economic values. For electricity, a law has been submitted to Congress to give the authority for rate setting to a board which would include Government officials and private sector producers. This board would monitor the maintenance of the average rate to the long run marginal costs of the industry. The participation of private producers of electricity is considered a crucial innovation since, for the ftrst time, there would be agents interested in avoiding politically- motivated reductions in the real prices charged for electricity. The law would also provide a legal framework for the participation of private operators in the sector. A similar framework is required for the other public enterprises. The Government, in collaboration with the World Bank and IDB, is preparing a study to reform the water and sanitation sector to allow for private sector participation. A framework to establish and maintain rates at their economic cost would be a prerequisite for this reform. Social Security. Actuarial projections anticipate an overall deficit in IHSS (the main social security institution), starting in 1995. Government subsidies are likely to emerge under this scenario unless a reform program is put in place in the immediate future. Social security expenditure represented 1.5 percent of GDP in 1985-92. Contributions from formal sector workers and employers are split between the health system and the pension fund program. The financial shortfalls are caused by a ceiling over monthly contributable wages which has remained constant in nominal terms since the 1960s, combined with the lack of mechanisms to contain social security health benefits. The pension fund shows surpluses which have been used in recent years to finance a large deficit of the health fund. Two factors contribute to these temporary surpluses. There is a low ratio between beneficiaries and contributors (because of the age structure of the population), and benefits are computed as a fraction of contributable wages so that the nominal ceiling on contributions results in very low real pensions rather than deficits. Pensions need to be increased, and the pension fund's surplus will rapidly become a deficit. Munkipalities. The municipalities saw their role expanded in 1992 through a law that allocates 5 percent of all tax revenues to them. Municipalities have little capacity for investment planning, and part of the additional funds are going to embellishment projects and to larger bureaucracies. In contrast with the Central Government, the local governments did not reduce their wage bill or curtail their purchases of goods and services during 1990-92. While there are many tasks that require the direct involvement of municipalities, strong institutional support to the municipalities will be needed before they can undertake the activities that are expected from them as part of the planned decentralization (including, for example, the maintenance of social sector and other infrastructure). above world levels, real appreciation amounted to approximately 30 percent.3 The overvalued exchange rate distorted relative prices in the economy and by contributing to the large balance of payments gap, led the Government to impose trade and exchange controls as a way of economizing on foreign exchange use. This overvaluation was corrected between 1988 and 1992 (Diagram 2.2). Substantial de facto devaluations took place in 1988 and 1989 following introduction of a system which allowed exporters to 3. Edwards (1990). 16 Fiscal and Monetary Policy exchange a portion of their foreign exchange earnings for certificates that could be resold to importers. Between 1990 and 1992, the new Government unified and devalued the exchange rate, and in mid 1992 authorized flotation of the lempira in the (official) interbank market. 2.15 The exchange rate used for current account transactions is determined in the interbank market, in which local commercial banks and exchange houses are authorized to operate. These intermediaries must sell a fixed percentage of the export receipts they purchase to BANTRAL.4 This is the only way in which BANTRAL intervenes in the market; otherwise, the exchange rate is allowed to float. Scarcity of international reserves has limited the scope for direct interventions and has led to tight monetary policy when BANTRAL wishes to prevent depreciation of the exchange rate. (The instruments of monetary policy are described in the next section.) 2.16 In recent years, short-term considerations have sometimes been allowed to prevail over the long- term objective of maintaining a competitive real exchange rate. Competitiveness for most exports and for agriculture, at present levels of productivity, requires a real exchange rate in the ranges achieved in 1990 and early 1991 and in mid 1993. Following liberalization of the exchange rate system, BANTRAL has on at least two occasions attempted to counteract the inflationary effects of a lax fiscal policy by intervening in the market to prevent a rise in the nominal exchange rate. This led to a temporary overvaluation of the real exchange rate in 1992 and in early 1993 with a strong negative impact on prices and profitability of tradeables, particularly in agriculture (para. 4.8). The final effect of these attempts to prevent a rise of the nominal exchange rate was volatility, as BANTRAL, lacking reserves was able to maintain the nominal exchange rate for only brief periods of time, after which it was forced to allow sharp depreciations (Diagram 2.2). This volatility created uncertainty in the private sector and led to speculation, with exporters delaying the repatriation of dollars in expectation of a devaluation. 2.17 The sharp depreciation of the real exchange rate reduced poverty by generating a substantial redistribution of income from urban to rural sectors (see Chapter V). The depreciation of the exchange rate (in the context of trade liberalization) led to a sharp readjustment of relative prices, which favored agriculture by improving real producer prices (see Chapter IV). Management of Monetary Policy 2.18 Market mechanisms to conduct monetary policy are not well developed, and BANTRAL uses high reserve requirements as the main instrument to manage the money supply. This instrument is becoming increasingly ineffective, however, and has contributed to disintermediation and to the proliferation of unregulated financial institutions. The high reserve requirements (which reached 42 percent in 1993) have created a large spread between borrowing and lending rates (a 9-10 percent spread since 1991), since the commercial banks need to charge higher interest on the fraction of deposits they lend to cover the costs of their total deposits. The high spreads also reflect in part the lack of competition and the high administrative costs in the financial sector (see next section). 4. The percentage is determined by BANTRAL and has recently fluctuated between 20 and 30 percent. Honduras - Country Economic Memorandum 17 2.19 In recent years, monetary policy has often been used to reduce pressures on the exchange rate. The large interest spread limits the effectiveness of this policy, since the policy provides fewer incentives to hold domestic assets (which pay low interest rates) instead of foreign xo~- ---- --- -- ..... .. ........ ... .................... ...... interest rates) instead of foreign currency. The high spread leads to higher demand for foreign currency for any given measure of monetary tightness. 2.20 Furthermore, high reserve requirements are, in effect, a tax on financial activity, and provide an .°. ............ incentive for financial I disintermediation. The large shift in deposits from banks to finance houses that occurred in recent years ..................... is but one example of this. If in place for long period of time, high reserve requirements encourage the growth of curb markets, since tllttttitttttttlllllllllllltlltttt investors can increase their return by bypassing formal financial I _a intermediaries and lending directly to those who demand credit. All of Diagram 2.2: Nominal and Real Exchange Rates, 1988-93 this, of course, conspires against the development of a modern and broad-based financial system. 2.21 Open market operations have not developed because BANTRAL has not issued instruments that are attractive under the newly liberalized financial markets. The main reason is that BANTRAL is not willing to face the high cost of offering its paper at market rates and continues to rely on reserve requirements for which it pays below-market interest rates. But, as financial markets have been liberalized, commercial banks are increasingly refusing to maintain the high reserve requirements imposed by BANTRAL. The nature of the existing instruments has added to BANTRAL's difficulties in placing them with investors. Bonds are issued for one to two years and are of the registered and not of the bearer type. There is no secondary market for them. It is far from surprising that investors are reluctant to acquire such illiquid securities, especially in an environment of very volatile prices and exchange rates. 18 Fiscal and Monetary Policy The Financial Sector 2.22 Commercial banking activity is highly concentrated, resulting in limited competition. The core of the formal financial system are 18 private commercial banks (three established since 1992), two state- owned banks, and a group of savings and loan associations. Four commercial banks, two of them closely linked, attract 50 percent of the deposits and account for the same proportion of the system's assets. Nearly all banks have a highly concentrated equity ownership, a large number of banks are associated with economic groups, and there is evidence that a substantial portion of their portfolios are concentrated with related parties. 2.23 One of the most worrisome features of the financial system is the lack of technical regulation of financial operations (including prudential regulations) and the limited regulatory powers and institutional capacity of the Superintendency of Banking and Insurance (SBS). The application of controls on the banking system in the 1980s, particularly in the form of interest rate ceilings and the use of high reserve ratios, led to the creation of about 500 non-bank lenders. These institutions are officially registered but are not subject to any supervision or control other than for tax purposes, and even that is considered lax. The group comprises non-institutional lenders, close to 100 finance companies, and leasing companies. By ownership or by business ties, the commercial banks are linked to the finance and leasing companies, with which they conduct credit operations and through which they channel some of their own operations. 2.24 The lack of technical regulation or monitoring of the non-bank institutions, and the close ties that exist between them and the commercial banks, threaten the system's stability. By virtue of the lack of capital requirements to back operations conducted by non-bank financial intermediaries, the bankruptcy of an institution in this sector would have to be absorbed by all its creditors. Savings and loan associations finance activities associated with construction, and to a lesser extent, make personal loans. In recent years, their unregulated activities have been diversified and there has been an enormous amount of off-balance sheet financing. 2.25 It is imperative to strengthen the system of monitoring and control, and support it with a package of prudential regulations. It is particularly important to introduce prudential standards to promote increased competition and transparency, evaluate levels of leverage based on lending risk, strengthen measures to ensure adequate reserves for problem portfolios, and establish limits on operations to related parties. Clear rules are also needed for starting up or closing down commercial banks and for approval of new financial instruments. 2.26 As a first step toward modernizing the financial system and promote competition, in 1992 the Government submitted to Congress a bill for the reform of the banking institutions in 1992. This proposal was later withdrawn and the terms of a new draft are under discussion. To confront the problems described above, the new law should: establish clear entry and exit regulations for participants; fix minimum capital requirements and the principles of basic prudential regulation, including limits on loans to related parties; allow the development of new financial products in the context of a non-specialized system; incorporate non-bank lenders in the general financial intermediation rules; establish mechanisms Honduras - Country Economic Memorandum 19 for intervention in institutions experiencing problems; and give legal powers to SBS to enforce the law and its own regulations. Passage of an appropriate law is crucial for the stability and greater competitiveness of the financial sector. Institutional support, including specialized technical assistance, will be required to enable SBS to undertake the new regulatory tasks. C. Outstanding Issues and Policy Recommendations 2.27 The analysis of Honduras' recent macroeconomic performance reveals that several aspects of economic policy need to be improved to ensure growth within a stable macroeconomic environment. Improvements are needed in the areas of fiscal policy, monetary and internal debt management, foreign exchange market intervention, and policies to stimulate savings and reduce current account imbalances. 2.28 A large and unsustainable fiscal deficit is the fundamental cause of macroeconomic disequilibrium. Inflation, high interest rates, debt accumulation and external imbalances are, to a greater or lesser extent, symptoms of the fiscal problem, and cannot be corrected until the fiscal situation is consolidated. Bilateral transfers are unlikely to regain the level they attained in the special political circumstances of the 1980s; multilateral disbursements will continue, but not necessarily at the high net positive level registered in 1992. This means that if macroeconomic stability is to be preserved, the deficit will have to be brought down to levels that can be financed domestically consistent with a low inflation. The next chapter examines the scope for introducing reforms that will increase public revenues and lower public expenditures. 2.29 Further fiscal adjustment is also necessary to restore external accounts to equilibrium, since by definition, the current account deficit represents the private and public excess of investment over savings. Policies should be sought to stimulate private savings, particularly by further refining the tax environment and continuing to develop capital markets. Nonetheless, the experience of many developing countries suggests that policy-induced increases in private savings tend to be quantitatively limited and slow to materialize. Therefore, in the short to medium term, there is no alternative to sustaining and enhancing the performance of public savings as a way of increasing national savings. Greater availability of public savings would have the desirable effects of helping reduce the current account deficit and Government indebtedness, both domestic and external. 2.30 The combination of a sustained fiscal deficit and an underdeveloped financial market has rendered the conduct of an independent and flexible monetary policy very difficult. The deepening of the domestic debt market, which would enable fiscal and monetary authorities to engage in open market operations, would provide much needed flexibility. Required changes include paying market interest rates and designing instruments with more attractive characteristics such as bearer rather than registered securities with a greater range of maturities, which would be sold to the public under market conditions. The development of a secondary market for such instruments must also be encouraged, so that Governnment paper will have the liquidity that investors normally require. Finally, the development of trading 20 Fiscal and Monetary Policy capabilities, including the establishment of a trading desk at BANTRAL, is an important component of this policy. The need for technical assistance in this area should be studied. 2.31 Open market operations should be viewed as an instrument to manage liquidity, not as a new source of systematic finance for fiscal deficits. There are two reasons why only limited amounts of net financing should be sought from this source. First, the Government is already highly indebted. Second, domestic debt will now carry market interest rates, and -- given the reasonable expectation that real rates in Honduras will remain above world rates -- will therefore be quite expensive and exacerbate longer-term fiscal problems. 2.32 It is imperative, especially as inexpensive financing for the current account becomes scarcer in the next few years, that the real exchange rate be kept competitive. That is the only way in which Honduras can advance down the road of export-led growth. It is also clear that in the face of ongoing deficits and monetization, a relatively stable nominal exchange rate cannot easily be achieved. Under perfectly floating exchange rates, the nominal rate will depreciate to offset any excess demand or excess supply in asset marke.s. In the recent past, the authorities have been reluctant to let the exchange rate depreciate sharply, fearing the instability and possible capital flight associated with large and sudden movements in the exchange rate. But as long as monetization needs remain, nominal devaluations will have to be tolerated. If the volatility of the nominal exchange rate under a clean float is deemed excessive, the authorities can intervene to smooth out transitory fluctuations, thus engaging in a controlled float. But such intervention should not be aimed at changing the fundamental trend of the exchange rate, and this trend will be upwards as long as monetization exceeds increases in money demand. Otherwise, periods of relative exchange rate stability will be followed by steep devaluations (when BANTRAL can no longer hold the line), as has happened in the last few years. Honduras - Country Economic Memorandum 21 III. RESTRUCTURING OF EXPENDITURES AND TAX REFORM 3.1 Eliminating the fiscal deficit requires actions to reduce expenditures and increase revenues. The scope for such actions is discussed below. A. Restructuring of Expenditures 3.2 Given the relatively high level of tax effort, deficit reduction should focus mainly on lowering expenditures. There are three main components to the high level of public expenditures: (i) interest payments on existing debt at 7 percent of GDP in 1993, (ii) public investment at 13 percent, and (iii) 12 percent operating costs in the public sector. Underlying all components is a lack of effective and integrated systems for budget management and for investment programming. Any expenditure restructuring effort will have to involve lasting cuts in these three areas and improved systems of budget management and investment programming. Foreign Debt 3.3 Honduras had an external debt of US$3.6 billion in 1992. Its external debt-to-GDP ratio, at 107 percent, is the fifth highest in Latin America and the Caribbean. In 1992, debt service on the foreign debt accounted for 31 percent of current expenditures in the public sector. Given its present level of debt, Honduras is unable to borrow commercially in international markets and relies solely on official sources for its financing needs. In the medium term, Honduras will have tc improve the solvency of the public sector to access the commercial capital markets, and to achieve this, it needs to reduce its debt-to-GDP ratio. This requires that the Government generate substantial fiscal savings to ensure long-term solvency and fiscal sustainability. Simulations were carried out to estimate the average primary surpluses required during the next ten years in order to lower the debt-to-GDP ratios under several different scenarios of GDP growth and interest and inflation rates (Annex Table A-2). The estimates show that fiscal adjustment is necessary simply to maintain the current level of indebtedness and ensure solvency. Achieving a significant decline in the debt-to-GDP ratio over the next ten years will require major increases in the primary surplus. For example, a primary surplus of 3 to 5 percent allows a reduction in the debt-to GDP ratio to only 90 percent, which clearly is not sufficient. Therefore efforts to increase the primary surplus need to be combined with debt restructuring efforts (para. 3.8). 3.4 Honduras broke relations with the international financial community in 1989 and was reinstated in 1990; and since reinstatement, has been able to restructure its debt with the Paris Club under highly favorable conditions and obtain important concessions from multilateral institutions. It paid off most of its multilateral arrears in mid 1990, and dealt with the bulk of bilateral arrears as part of a Paris Club rescheduling agreement concluded in September 1990. Since Honduras had been declared IDA-eligible in August 1990, the Paris Club extended its most generous terms for highly indebted, lower-middle 22 Expenditures and Taxes income developing countries. The next stage in the financial recovery began in September 1991, when Honduras was reclassified as IDA-only. That opened the door to the Extended Structural Adjustment Facility (ESAF) and to even better conditions for restructuring the Paris Club debt. In early 1992, the IMF declared Honduras eligible to borrow from ESAF. Following the approval of an ESAF program for 1992-95, the Paris Club agreed in October 1992 to reschedule debt service falling due during the ESAF period on enhanced Trinidad terms. The rescheduling reduced long-term bilateral debt by 11 percent in 1991 (Annex Table A-9). This debt increased again in 1992 and 1993, but remains lower than its 1990 peak. 3.5 The Callejas Government also developed a program to reduce Table 3.1: Structure of Debt, 1992 (¶) commercial bank debt. The mechanism consisted of debt Debt Debt conversions in which BANTRAL Outstanding Servic redeemed, at a discount debt, c certificates purchased in international Public & Publicly Guar. LT" 97.3 95.7 markets. As a result, commercial Official Creditor 90.4 80.9 bank debt was reduced from US$73 Multilateral 54.9 63.4 million in 1990 to US$38 million in of which: IBRD 14.9 24.4 1992. IDA 5.6 0.7 IDB'2 22.7 17.9 Bilateral 35.5 17.5 3.6 In 1 992, multilateral 3.6 In 1992, multilateral Private Creditors 6.8 14.8 institutions accounted for 55 percent of debt outstanding and 63 percent of Private Non-Guaranteed LT 2.7 4.3 debt repayments (Table 3.1). This Total 100.0 100.0 structure of debt poses a problem, Memo items: since these institutions cannot Total 1992 LT Debt Service (US$ millions) 362.3 restructure their debt. The World Total 1992 LT Debt Service (% Exports Goods & Services) 32.8 Bank, however, has been supporting Total 1992 LT Debt Service as % of Total Fiscal 31.1 Bank, howevr, has bee supportmg Expenditures the Government in two ways. First, since late 1991, all new lending has If long-term debt. been done on highly concessional 2/ Based on IMF series. IDA terms. Second, during the last two years, Honduras has benefitted from the "fifth dimension," a special line of credit created by the World Bank Group for IDA-only countries with IBRD debt. This line of credit, in IDA terms, has helped the Government to finance over 90 percent of IBRD interest payments during the last two years. 3.7 A significant reduction in public sector indebtedness will be extremely hard to achieve only by lowering the fiscal deficit. An informal offer by the Paris Club to cancel half of its stock of debt at the conclusion of the ESAF period, contingent on satisfactory completion of the program, will be crucial to Honduras - Country Economic Memorandum 23 reduce indebtedness. Also important in this regard will be maintaining access to credits on concessional terms from multilateral financial institutions. Public Investment 3.8 Public investment has been unusually high by Latin American standards. In the early 1980s, it averaged almost 12 percent of GDP, driven to a large extent by the construction of the large hydroelectric plant El Cajon. Following its completion, public investment decreased but remained at almost 7 percent during the late 1980s. In contrast to the experience of other Latin American countries, public investment grew during the 1990-92 adjustment period, fueled by external financing, and reached a staggering 13 percent of GDP in 1993. 3.9 These high levels of public investment constitute a source of macroeconomic disequilibrium. First, even when public investment has a large component of foreign financing (65 percent in 1993), the strong counterpart funding required for implementing the project has a strong fiscal impact. More important, however, public projects require recurrent long-term expenditures. Second, it adds to public sector indebtedness, increasing the expenditures for debt servicing. Third, most of the projects initiated in 1993 have not been subject to proper economic evaluation but were initiated following strong lobbying from suppliers who had access to foreign financing. The Government claims that several ongoing public investments in transport infrastructure and telecommunications were not subjected to sufficient analysis by Government agencies and are not expected to have a rate of return that justifies the investment. On the other hand, little effort has gone into developing infrastructure to support high-potential non- traditional exports (para. 4.11). 3.10 At the request of the Government and in view of the gravity of the fiscal crisis in 1994, the Bank helped the Ministry of Planning (SECPLAN) identify projects that could be postponed. The Government has further requested that the Bank undertake a review of the medium-term investment program. Vehicles for this analysis are being provided through the supervision of ongoing credits, which require that the Bank analyze the investment program in energy, transport, agriculture, and health; and by specialized missions to review public investment. This mission is planned jointly with IDB. 3.11 The high level of public investment combined with weak screening procedures is the result of institutional shortcomings in the agencies charged with investment planning; of lack of coordination among line agencies, SECPLAN and the Ministry of Finance (SHCP); of poor information systems; and of using the availability of foreign financing as the main criterion for undertaking investments. 3.12 Institutional weaknesses have led to duplication of planning efforts, and confusion in the preparation and evaluation of public sector expenditure programs. Honduras' Planning Law (Decree 179- 86) gives SECPLAN the responsibility for preparing the public investment program. However, legal provisions and complementary regulations giving other ministries planning responsibilities contradict the Law's intention. SECPLAN, the agency legally charged with responsibility for prioritizing investments and preparing the investment plan, has not done so, and in recent years no medium-term investment plan 24 Expenditures and Taxes has been prepared. SECPLAN has neither the administrative nor the technical capacities to function properly. This weakness has been reinforced by an attempt to extend its functions to short-term economic management, which in addition to overextending the agency beyond its capabilities has created overlaps and conflicts with the ministries of Finance and Economy. 3.13 Lack of coordination particularly affects projects with international financing. Government agencies frequently resort to international agencies as alternative sources of investment funds. Many projects have been initiated by donors or even by commercial interests linked to sources of financing. Many investment decisions now occur at the level of line ministries and public enterprises. Project initiation does not occur in relation to judgments of national capacity to incur debt or to the relation of specific projects to national priorities. Without a mechanism to coordinate the different ministerial requests, these practices have resulted in multiple projects that duplicate programs. Moreover, because international agencies often request that special units be created to implement their projects, duplication of work by similar task units has proliferated in many ministries. Also, poor information systems and follow-up practices have left a legacy of unfinished projects. Basic information on the size and objectives of international cooperation programs during the last decade is unavailable. The Public Sector 3.14 The public sector is large, fiscally costly, and generally inefficient. This is a result of the interventionist mood of past decades, which gave rise to a state apparatus inappropriate for promoting economic growth. The activities that have been increasingly undertaken by the Government are now obsolete, better performed by the private sector, or centralized and could be carried out more efficiently by the regional offices and/or local governments. The public sector has serious organizational problems, including lack of functional coordination between public entities and overlapping of activities, and very high administrative costs relative to program costs. The latter is due to the high level of bureaucratization and organizational disarray. The problem is compounded by the lack of adequate expenditure control resulting from preassigned revenue regimes and from extra-budgetary revenues. 3.15 There is vast overemployment in the public sector. It employs 104,023 people excluding the military, which is believed to employ an additional 20,000.5 Total public employment is slightly less than 10 percent of the labor force.6 Of the total, two thirds are in the Central Government (Table 3.2). Public employment is concentrated in the social sectors: 78 percent of the Central Government's labor force are in the education and health areas. Between 1984 and 1993, public employment increased by about one third, over 80 percent of which took place in the Central Government. Of the increase in 5. These figures do not include contracted staff and daily workers of the Central Administration, for which consistent data are not available. Government officials indicate that the numbers of contract staff and daily workers in the Central Administration -- which now stands at roughly 2,600 for contract and 6,000 for daily workers -- have increased by 130 and 50 percent, respectively, during the last decade. 6. Permanent Household Survey (EPH), 1992. This source does include the personnel mentioned in the previous footnote. Honduras - Country Econonic Memorandum 25 Central Government staff, 95 percent were recruited by the education and health sectors; all other sectors had small increases, or decreased in numbers (see Annex tables A-3 and A-4). 3.16 The long tradition of employment-driven rather than output-driven goals has created a public sector dominated by manual and clerical level workers with minimal education and skills. In the Central Government, about 60 percent of all civil service employees have completed only three years of middle school. Administrative and service employees account for 70 percent of total employment, while professional and technical staff represent only 20 percent. The overextension of low-level staff is particularly acute in the Ministry of Education, where much of the growth of the past decade has occurred. In this Ministry, only 4 percent of the non-teaching staff are professional and technical level. There is an urgent need for staff reduction and for changing the composition of employment. Table 3.2: Distribution of Public Expenditures and Employment by Type of Public Entity, 1992 (%) Current Capital Expenditures Total Expenditure & Net Lending Expenditure Employment" Central Government 72.3 33.8 60.6 67.0 Local Governments 6.5 7.2 6.7 7.3 Decentralized Institutions 13.8 10,9 12.9 12.8 Non-Financial Public Enterprises 7.4 48.0 19,7 12.9 Non-Financial Public Sector 100.0 100.0 100.0 100.0 1/ Employment figures are for June 1993. Sources: (a) Expenditures: BANTRAL, SECPLAN, SHCP, and iMF staff estimates. (b) Employment: Statistics Department and Superintendency of Decentralized Institutions, SHCP; and General Directorate of Municipal Technical Assistance, ministries of Interior and Justice. 3.17 A significant constraint on the ability of the public sector to attract and retain qualified personnel is the inadequate wage structure. While real salaries have deteriorated (by as much as 50 percent since 1985), the decline has been generally more abrupt for professional level staff than for staff at the lower end of the salary scale, who have had proportionately larger salary increases since 1985, and enjoy the added advantage of being exempt from income tax. The resulting compression ratio of highest to lowest salaries (comparing grade 39 to grade 1) is 6.5:1. Compared with the private sector, civil service salaries are competitive for unskilled service and administrative/support staff, but are low at professional/technical levels. 3.18 An overall expenditure rationalization is required to reduce the fiscal deficit. This implies a smaller and more efficient public sector in terms of both functions and personnel. The public sector should concentrate on essential functions, eliminate obsolete activities, and strengthen the structure and 26 Expenditures and Taxes the technical capacity of remaining ones to improve service delivery. The civil service should be made smaller, its composition altered, and the incentive structure of wages improved. The Callejas Administration took initial steps toward reforming public administration (Box 3.1). It privatized most of the small- and medium-sized public enterprises but did not attempt to privatize the large utility companies, which are responsible for most of the capital expenditure and a significant proportion of public employment (Table 3.2). It also made an unsuccessful attempt to reform civil service employment. Some of the savings from streamlining administration and reducing overall employment will be required to finance the higher salaries needed to retain professional/technical personnel. Hence, any net savings from the reform process will depend on the political commitment to reduce costs. Budget Management 3.19 Ineffective budget management procedures also contribute to the high level of public expenditures. The effectiveness of the budget exercise as a fiscal management and planning tool is weakened by the practice of decreeing additional credits to the approved budget during the fiscal year in which it is being implemented, and by the capacity of line agencies to initiate investment without the approval of SHCP. During 1985-92, actual expenditures surpassed originally budgeted expenditures by an average of 29 percent, which was well above the inflation rate during those years (with the exception of 1991). Therefore this practice led to increased expenditures in real terms and to larger deficits than originally envisioned. In 1993, the overrun was even larger than in the previous period, and many investments were initiated by line ministries through issuance of lOUs without the approval or even the knowledge of the Finance Ministry. 3.20 The techniques for budget preparation are rudimentary, based on the previous year's budget, and with no contingencies to allow for cuts in expenditures. The main instrument for budget control is the budget ceiling given to each ministry. There is no evaluation and consequently very little control and monitoring of the relative efficiency of public expenditure. 3.21 The control of expenditures of the public enterprises is even more problematic, particularly as they execute a large proportion of public investment. The lack of control is particularly acute for the PEs with operational surpluses, since they do not depend on Central Government transfers for many of their expenditures. Central Government authorities sit on the boards of all PEs, but this has not served as an effective control mechanism. An attempt to control the PEs was made through the creation in 1993 of a Superintendency of Decentralized Institutions, which provides technical assistance to the PEs for formulating budgets. Rather than helping to control public expenditure, however, the Congress still often encourages expenditures for political reasons. The Treasury has been unable to enforce adherence even to the approved budgets, and there are permanent budget overruns. Privatization of the PEs is an option, since this would subject these entities to rigorous commercial criteria for expenditure decisions and would open new sources of financing for future investment. Until that happens, there is a need to further strengthen Central Government control over PE expenditures. Honduras - Country Economic Memorandum 27 Recommendations Box 3.1: Public Sector Reform 3.22 The high level and poor quality of public The privatization process began in 1985 and was investment are major causes of the fiscal deficits. accelerated during the Callejas Administration. In the long term, the Government should However, the major public utilities -- ENEE, encourage the private sector to enter areas of SANAA, and HONDUTEL (electricity, water and investment traditionally considered the domain of sewerage, and telecommunications, respectively) -- have not been seriously considered for privatization the public sector. Consideration should be given although they account for 69 percent of public to privatizing the main utilities as a means of enterprise employment and for most public enterprise facilitating this process. In the short run, there is investment. Twenty-seven public enterprises were an urgent need to review the investment program privatized since January 1990 (Annex Table A-6 for 194 and 995 wih a viw to rducing provides a list). Gross revenues from privatization for 1994 and 1995 with a view to reducing amount to US$128 million dollars, equivalentto more expenditures as part of the more general fiscal than 80 percent of the income and property tax adjustment that will be required. revenues registered in 1992. The Callejas Administration also made attempts to rationalize public sector employment in key agencies. monitoring of public investment should include: With the financial support of USAID, which financed (i) strengthening and streamlining the process of the severance payments of displaced personnel, the setting priorities for public investment; (ii) Government planned to reduce the number of public training and creation of a cost/benefit analysis unit sector employees by 5,000 by 1993. This attempt met with some success. Personnel reductions took place in in the Ministry of Planning to screen all public the Ministry of Works (SECOPT) and in the four sector projects; (iii) eliminating the duplicate roles biggest agricultural public agencies, but the overall of SHCP and SECPLAN in preparing the budget target was not reached because a large number of new and strengthening the coordination of both personnel were hired elsewhere in the Government. Available figures suggest that total public employment institutions, possibly by merging them; and (iv) may have grown during 1990-93 despite the passage of a Foreign Debt Law setting stricter rationalization efforts. mechanisms for incurring public debt. A structural adjustment and a technical assistance project, now under preparation by the World Bank 3.24 The Government, with support from the and IDB, are assisting the Government in designing a World Bank and IDB, is examining the greater program to redefine the role and size of the public efficiency and potential savings that could be sector by rationalizing its entities and functions as well obtained from reforming the public sector. as its human resources. The program will limit the state to its central functions, eliminate redundant and Reforms would include reducing the size and obsolete ones, and transfer those that can be improving the organization of the public sector, performed better by other agents. The institutional developing a consistent legal framework, and restructuring will be accompanied by a reduction of reducing public employment to eliminate personnel, improvement of its composition, and redundant staff. Fiscal savings from this process decompression of the salary scale. These measures will substantially and permanently affect the level of are estimated at 2-3 percent of GDP. The public expenditures. implementation of this reform should take into account two implications of the analysis in this chapter. First, an attempt to reduce public employment has already taken place, particularly in areas of low political resistance. While there is scope for reducing public employment by eliminating ghost 28 Expenditures and Taxes workers and freezing vacancies, strong political commitment will be required to push this process further into areas where stronger political opposition is likely to arise. Second, the social sectors and especially education represent a very high proportion of public employment and nearly all of the increase in public employment during the last decade. This, and the Government's emphasis on the social sectors, suggests that the reform efforts should be focused on the social sectors. B. Tax Reform 3.25 Tax effort in Honduras is considerably stronger than some countries in Central America, such as Guatemala and El Salvador, but still insufficient in view of the recurring fiscal deficits. Even if the Government is able to downsize public investments and realize some savings through public sector reforms, additional revenue is needed to allocate substantial resources to social sectors and improve the pay for skilled personnel. This, in turn, will require further improvements in tax system and administration. 3.26 Significant improvements were introduced into the tax system by the Macroeconomic Policy Reform Law of 1990 (Decree 18-90), which modified the structure and rates of income, property, and sales taxes. In addition, the Callejas Administration improved the management of the customs system and the collection of sales tax. These reforms improved the buoyancy of tax revenues, raising collection from 15 percent of GDP in the late 1980s to over 17 percent in 1990-92. Despite these improvements, however, there are still several shortcomings in both tax policies and administration and enforcement. Large legal loopholes remain that carry significant fiscal costs, and tax evasion is still a significant problem. Also, there remains an excessive reliance on taxes from international trade. (The main features of the tax system are summarized in Annex Table A-7; the evolution of the main taxes is shown in Table 3.3.) Taxes on Foreign Trade 3.27 One of the most important objectives of the recent tax reforms has been to reduce dependence on international trade taxes. These taxes tend to be favored because of ease of collection, but heavy reliance on them is undesirable because they cause distortions in production and discourage exports. In 1992, 28 percent of all tax revenues were still coming from taxes on trade. By comparison, the average share of total revenues from trade taxes for all Latin American countries was 20 percent in 1987. 3.28 In addition to discouraging exports, relying on revenues from export taxes is also problematic because these revenues tend to be volatile, reflecting fluctuations in international commodity prices.7 7. Collections from export taxes have fluctuated due to changes in international prices of bananas and coffee and to the imposition of a temporary tax on export windfall profits generated by the large devaluation in 1990. The temporary tax was applied only in 1990 and 1991. Honduras - Country Economic Memorandum 29 Table 3.3: Structure of Total Tax Revenues, 1985-92 (%) 1985 1986 1987 1988 1989 1990 1991 1992 1985-89 1990-92 Income tax 21.4 22.2 23.8 24.8 24.2 20.3 20.9 25.4 23.3 22.2 Property tax 0.8 0.8 0.8 0.9 1.0 0.7 0.7 0.7 0.8 0.7 Saes tax 29.0 29.6 29.5 30.3 30.3 32.5 31.9 34.2 29.7 32.9 Export taxs 8.2 9.1 7.5 4.7 4.3 10.2 8.2 4.4 6.8 7.6 Import taxes 28.2 27.0 27.8 25,4 25.7 23.4 23.2 23.7 26.8 23.4 Other 12.4 11.3 10.5 13.9 14.5 12.8 15.2 11.5 12.5 13.2 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Tax revenue 15.5 14.8 15.1 14.8 14.7 16.9 18.3 16.8 15.0 17.3 (% GDP) Source: Statistical Annex. However, in the past 5 years, the relative importance of revenues from export taxes has hardly changed. Export taxes are levied on bananas and coffee. There is also a 1 percent surcharge on the value of all exports. Excepting the more complex case of how to tax traditional exporters (see below), there would appear to be no case at all for taxing any other export activity, especially when it is also Government policy to encourage exports through a complex system of tax incentives. 3.29 Custom tariffs have been significantly restructured since 1990. Honduras, Guatemala, El Salvador, and Nicaragua have begun dismantling barriers to the free movement of goods, and are discussing liberalizing the movement of factors of production and financial capital. The group has now a Common External Tariff and has started free trade negotiations with Mexico, Colombia, and Venezuela. The Common External Tariff has a maximum rate of 20 percent and a minimum rate of 5 percent (excluding surcharges). Compared with 1988, the new tariff structure reduces the unweighted average tariff on imports by about 50 percent and their dispersion by about two thirds. Prior to the reform, several imports, mainly of agricultural products, had zero tariff; nominal and effective protection in these cases has increased with the reform (Annex Table A-10). 3.30 In Honduras, the stated target of 5-20 percent Common External Tariff has not been reached. The Government continues to levy two surcharges on imports which remain a crucial component of tax revenues. Their elimination could reduce total tax revenues by as much as 10 percent.8 One is a 10 percent surcharge on about 25 percent of all imports. The existing IMF program requires the complete elimination of this surcharge. The second surcharge of 5 percent falls on about 90 percent of all imports. Officially, it has been justified as a fee for customs services. The General Agreement on Tariffs and Trade (GATT) has asked the Government to replace this 5 percent surcharge with a more defensible 8. Martinez-Vasquez, 1993. 30 Expenditures and Taxes charge. There is now an initial agreement with GATI' to reduce this surcharge by I percent a year until it is 1.5 percent in 1996. 3.31 The reform is also incomplete because of the persistence of numerous exemptions. There are two lists of exemptions, one with a 1 percent tariff on goods considered essential (85 tariff lines), such as medicines, computers, agricultural inputs, and state imports (including for decentralized enterprises). The second list, established for fiscal reasons, imposes a 25 percent tariff on luxury goods (20 tariff lines), including vehicles, perfume, and jewelry. 3.32 A long-needed reform is the elimination of the Customs Valuations Factor (FVA), or its transformation to a value equivalent to the market exchange rate. The FVA is the exchange rate used for computing the tariff, sales tax, and excise taxes on imported goods. It was created by the Callejas Government as an ad hoc mechanism to enable it to circumvent the complex legal procedures required to officialize the devaluation of the exchange rate. (Officializing the devaluation would require a modification of BANTRAL's Organic Law, which requires approval by a two thirds majority of Congress.) The FVA has traditionally been kept well below the open market exchange rate, thereby subsidizing imports. Using the market exchange rate for valuation purposes at Customs will have the unambiguous impact of increasing tariff collections in one big jump; in mid 1994, the gap between the FVA and the exchange rate was so large that eliminating the FVA would have increased tax revenues by over 6 percent. 3.33 The net effect of eliminating the FVA, the import surcharges, and the exemptions to the Common External Tariff would be a small fiscal loss. However, eliminating exemptions would contribute to simpler and more effective enforcement of regulations in Customs -- and this alone has the potential for more than compensating for such a loss. 3.34 Taxes on Banana Exports. A key decision will have to be made with regard to the tax on bananas, which is the most important component of export taxes, corresponding to 3.4 percent of total revenues in 1992. Honduras exports 42 million boxes of bananas, competing with Costa Rica, which produces 60 million boxes, and Ecuador, which produces 140 million boxes. The tax has recently come into question because of increasing competition in the international market and implementation of import quotas by the European Union. There has been mounting pressure from the exporting companies to eliminate or at least reduce the tax. Pressure to reconsider the tax is also coming from Costa Rica, which has decreased its tax per box from 50 cents to 40 cents and is planning a further reduction to 30 cents. Independent producers and cooperatives produce around half the total output, but sell to and purchase most of their inputs from one small and two large exporters. Given this structure, these exporters can easily shift any cost increases to local producers. Also, they have stated that unless better conditions are established, they might shift their business to other banana producing countries. There is clearly a need to reconsider the level and kind of tax applied to this industry. Among the alternatives being considered is replacing the export tax by a presumptive income tax base, for example on the value of land dedicated to banana production, the number of employees, or even total sales. To make an informed decision, more information is needed about the cost and tax structures prevailing in competing countries. Honduras - Country Economic Memorandum 31 Fiscal Exemptions 3.35 Fiscal exemptions are common in Honduras. In recent years, tax exemptions have been approved to create incentives for investment in several areas, including exports, mining, bananas, reforestation, tourism, and protection of the environment. These are generally exemptions from tariffs for imported inputs, machinery, and equipment. Even more importantly, there are often exemptions to income tax payments for long periods of time (usually 10 years). The Temporary Import Regime (RIT) alone may have caused a revenue loss equivalent to 20 percent of all tax revenues (Box 3.2). Because of its high fiscal cost and its pervasive negative impact on efficiency and equity, the present system of tax exemptions should be a priority for reform. Sales and Income Taxes: Scope for Increasing Revenues 3.36 The sales tax has great potential to increase revenue. The relative importance of this tax rose by 3 percent of GDP as a result of a 1990 increase in the general tax rate from 5 to 7 percent. The sales tax rate is lower than that of Costa Rica (10 percent), El Salvador (10 percent), and most other Latin American countries, where rates as high as 18 percent are not uncommon. The base for this tax is also smaller. A long list of exemptions include: processed and unprocessed food, medicines, wood products, books, most agricultural inputs, agricultural machinery and equipment, and packing material. Also exempt are certain products that carry excise and special consumption taxes, including sugar, gasoline, diesel, and new cars. Most services are also exempt from tax, including civil works and distribution of water, gas, and electricity. These services should be taxed, and if progressivity is desired, exemptions could be provided for households with low consumption of water and electricity. Since 1993, small firms of less than L120,000 (US$20,000) in total sales per year also have been exempted from sales tax, in contrast to the modern international practice of using a simplified system of payments for small firms to avoid the administrative difficulties of including them, while still maintaining them in the tax base. 3.37 Evasion is particularly serious for income taxes. Despite the improvement in tax administration and the enforcement effort carried out since 1990, income taxes fell slightly as a proportion of total tax revenues in 1990-92. For individuals, there are 6 income brackets, ranging from 12 percent to 40 percent; in addition, there are two surcharges that add up to 15 percent for the highest incomes. These high rates for top income earners are believed to be a major cause of tax evasion. Several complex deductions facilitate tax evasion. These deductions could be simplified. In order to achieve the desired progressivity, the minimum exemption could be raised. At present, the personal income tax is de facto paid mainly by wage earners through retention. There is a particular need to tax professional income more effectively. Given the high level of evasion of professional income, the use of presumptive income methods could be justified. 3.38 The concentration of tax revenues on a small number of taxpayers is a salient feature of the Honduran system. In 1990-92, the top 50 taxpayers accounted for over 50 percent of corporate income tax collections and over 60 percent of sales tax collections; and the largest 10 taxpayers accounted for over 27 percent of the corporate income tax revenues and over 45 percent of sales tax revenues. This 32 Expenditures and Taxes concentration of the tax burden on a few taxpayers did not change with the 1990 tax Box32: RIT reform. Actually, the emphasis A key piece in the system of fiscal incentives is the Temporary Import Regime (RIr!), placed by the tax administration introduced by Decree 37 in 1984 Estimates of the cost in lost revenues from the RIT in 1993 are close to LI 36 million, or 20 percent of all tax revenues. This estimate does on monitoring large taxpayer not include any losses in revenue due to evasion and avoidance, nor the higher tax compliance may have reinforced administration costs induced by RIT. This regime ptvvides exemption from the import duties, surcharges, and sales tax on impotts of any type of commnodity, including capital this feature. Although focusing goods, as long as they are used in the production of goods destined for export outside fiscalization efforts on the large the Central American market. In addition, exporters are free of income tax on all taxpayers constituted an efficient profits generated by export activities for a period of 10 years. In 1986, Decree 190-86 added to the existing advantages by exempting exports under the regime from export use of the administration's scarce taxes, and more importantly, by allowing firms to sell their tax free inported inputs to resources and has had positive 'other expotters' instead of using them in their own production and still pay no taxes, This measure added considerably to the possibilities of fraud and abuse of RIT. The short-run effects, it should be reforms of 1990 preserved Rrr in its entirety. complemented with measures aimed at enforcing tax A major area requiring attention is the lax enforcement and monitoring of the rules of RUT, under which US$195 million of imports were registered in 1992 (equivalent to 20 compliance by smaller taxpayers, percent of merchandise imports of that year). Information available from the Ministry among whom tax evasion seems of Economy illustrates the problem (t) only 248 of the 351 firns registered to benefit from Rrr filed income tax returns in 1992-93; (ii) expots of aome firms during the to be pervasive. Random tax 1985-92 period were zero, but their imports benefitted from Rff exemptions; and (iii) audits, not currently in use, 17 out of the 36 four-digit sIIC categories that benefit from RIT showed exempted should be introduced for this irnports of higher value than exports during the 1985-92 period. purpose. One of the problems with Rrr is that the right to grant special status has been given to the Ministry of Economy, which has very little incentive to enforce taxes. The auditing of abuses is done jointly by Customs and the Ministry of Economy. The Government 3.39 The administration of should get the Ministry of Financ directly involved, since it has a much larger interest petroleum taxes is inefficient, in controlling abuses. and part of the revenues A draft Law reforninig RIT was subritted to Congress in mid 1993, but was later generated are not included in the shelved. This law is a step in the right direction in some fronts, but insufflicient in others. The most important change is that it would phase out the 1 0-year exemption for budget. The total tax on income taxes. More is required in this important area. The question is whether this petroleum, including the excise draft law goes far enough in making enforcement possible and whether there are tax and the secial tax on alternative systems, such as drawback, that would be as effective in promoting exports tax n~ Peci taX on and save much more on administration and tax evasion. The Government should give imports, produced over 10 serious consideration to completely eliminating RIr. All other laws providing fiscal percent of all tax revenues in exemptions, especially exemptions from the paying income tax, should also be reviewed. 1992. The special tax on petroleum products is formally a surcharge, since it was not approved by Congress. Instead, it was set by the Ministry of Economy, which also manages petroleum tax revenues with no participation or oversight from the Ministry of Finance, although the latter has better control mechanisms and more incentive to enforce existing controls. The surcharge should be made less discretionary, and the revenues from this tax should become part of the national budget. Honduras - Country Economic Memorandum 33 The Tax and Customs Administrations 3.40 Tax administration is carried out by two General Directorates of the Ministry of Finance (SHCP). The General Directorate of Taxes is in charge of domestic tax administration, and the General Directorate of Customs manages taxes on foreign trade. Starting in 1990, the organizational structure of the General Directorate of Taxes was modernized, taxation processes were simplified, personnel were rotated and new personnel hired, information requirements were greatly reduced, and the penalties for tax evasion were extended to goods and services. The creation of specialized units, in particular those for control of large taxpayers, computer services, and training, have increased the Directorate's efficiency. 3.41 Despite this progress, however, some important problems remain. The level of tax evasion is high, perhaps 40 percent of sales tax collections, possibly more for income taxes and even more in customs.9 A major source of these problems is the absence of a Tax Code with real penalties to facilitate enforcement. Although the current penalties are steep enough to deter tax evasion (they include large fines and late payment fees with above market interest rates), in the case of income tax, the phrasing of the law is such that applying these penalties requires the tax administration to prove that the tax evader actually had the intention of evading (in contrast to not having paid due to honest underestimation). In practice, this has rendered penalties ineffective in fostering compliance. Between 1990 and mid 1993, sanctions were applied in only four instances, despite the fact that on multiple occasions, the tax administration had determined that large taxpayers had paid below the required levels (in such cases, taxpayers had to pay the difference but were not obliged to pay fines). In July 1993, the Government submitted a draft Tax Code to Congress. The proposed Code would remedy some of the problems with the current structure of penalties (for example, it would allow the temporary closing of businesses), but it may still not be severe enough, since imprisonment of tax evaders and impounding of assets is not permitted any circumstances." 3.42 Another problem is the Tax Directorate's inability to pay enough to qualified staff to compete with the private sector. This has limited its capacity to recruit and maintain the type of staff that will be needed to increase efficiency. The gap in compensation has also created problems with morale and assertiveness of inspectors. There is also a need for better training, although some training is being offered with technical assistance financed by IDB. 3.43 In contrast with the external assistance and progress registered in the case of the Tax Directorate, the General Directorate of Customs has not benefitted from external support, and very little progress has been achieved in modernizing customs administration. Problems include scarce financial and qualified human resource,, inadequate organizational structure and administrative procedures, lack of data processing infrastructure, and a legal framework that does not facilitate the Custom Directorate's operations (e.g., excessive number of tariff rates, surcharges, and exemptions; and special export and 9. Martinez-Vasquez, 1993. 10. There are some procedural issues in tax audit that require careful scrutiny and control. For example, when the auditors of the two big banana companies need to travel abroad to execute audits, the companies pay their travel expenses. 34 Expenditures and Taxes import regimes). In addition, a significant problem has been the politicization of the customs civil service and an accompanying high level of corruption. The customs service is not professionalized and jobs in the corps are still viewed as political privilege. Although some procedures have been simplified, cumbersome requirements reduced, and much progress achieved in liberalizing the foreign trade regime, the Directorate of Customs still does not have sufficient qualified personnel, adequate infrastructure, or modern customs procedures. For example, there are only 30 auditors to monitor all imports made under the special import regimes (RIT, ZIP, ZL [Free Zones]), and no random fiscalization. A new IDB technical assistance project aimed at strengthening the customs administration was launched in August 1993. Outstanding Issues and Recommendations 3.44 The tax system reform initiated in 1990 needs to be deepened. This is important not only from the point of view of increasing tax revenues to reduce the fiscal deficit, but also to improve incentives and avoid distortions created by the current system. To achieve this objective, legal exemptions must be reduced, enforcement of the tax law substantially strengthened, the tax base expanded, some taxes modified, and rates changed. Deepening tax reform also requires reducing distortions that continue to discourage exports. The following recommendations arise from this chapter. 3.45 Fiscal Exemptions: Undertake a review of all legislation providing tax exemptions, particularly those providing income tax exemptions, with a view to eliminating unjustified exemptions; eliminate RIT, if necessary in phases, and substitute a drawback mechanism or another mechanism that can easily be enforced and monitored; transfer the supervision of RIT to SHCP to improve monitoring and enforcement; and establish stiff penalties for misuse of fiscal exemptions. 3.46 Income Taxes: Strengthen penalties and improve mechanisms of enforcement; further simplify individual income taxes by eliminating all deductions and raising the general minimum exemption to achieve progressivity; and introduce presumptive income taxation for professionals and businessmen. 3.47 Sales Tax: Broaden the tax base to include gas, water, and electricity (with exemptions for households with low levels of consumption), processed food, agricultural inputs and equipment, and new vehicles; develop simplified systems to extend the sales tax to small contributors; incorporate in the base those goods and services now subject to special consumption taxes but exempt from the sales tax; keep zero rating exclusively for exports; and increase the tax rate to levels comparable to those in neighboring countries. 3.48 Petroleum Tax: Replace the surcharges on petroleum imports with formal taxes and transfer the management of these revenues to SHCP. 3.49 Foreign Trade Taxes: Eliminate the Customs Valuation Factor and use the market exchange rate for tax valuation purposes; eliminate the 10 percent surcharge on imports and phase out the 5 percent surcharge in accordance with existing international agreements; eliminate the numerous exemptions that Honduras - Country Economic Memorandum 35 currently apply to the Common External Tariff of the Central American countries; find alternative taxation mechanisms for the banana industry by undertaking, as a first step, a study to compare costs and taxes for this industry with competing countries; and eliminate all export taxes. 3.50 Tax and Customs Administration: Approve a tax code with stiff penalties to facilitate tax enforcement, including imprisonment for extreme cases; improve the compensation paid to tax administration employees and continue the programs of institutional strengthening; and strengthen the capability of customs inspectors to undertake field audits of how enterprises benefitting from fiscal incentives (including RIT, ZLs, and ZIPs) are using inputs. Part H Reforms and Prospects for the Agricultural Sector Honduras - Country Economic Memorandum 39 IV. REFORMS AND PROSPECTS FOR THE AGRICULTURAL SECTOR A. Introduction 4.1 In this chapter we focus on the potential for growth in agriculture. Improved productivity in this sector is essential for sustained economic growth and poverty reduction, since most of the poor in Honduras make their livelihood in agriculture (see Chapter V). Agriculture directly represents about 18 percent of total GDP, a larger share than manufacturing, while direct employment in agriculture covers 37 percent of the workforce. When agricultural processing and marketing activities are included, this more broadly defined sector generates about 40 percent of GDP and employs over 50 percent of the labor force. The agricultural sector generates more than 80 percent of exports. 4.2 Honduras has the potential to accelerate its rate of agricultural development. There are many manifestations of the potential to quickly raise output: until the mid 1970s, Honduras regularly exported grain to the rest of Central America and was considered the region's breadbasket; it has expanded coffee output more rapidly than any other country in the region in the last 20 years; non-traditional agricultural exports have demonstrated strong potential as manifested by cantaloupe exports rising to become the second largest in Latin America within a decade; and between 1988 and 1992, following an improvement in price incentives, agricultural output emerged from its stagnation to expand by 5 percent a year. In addition, technical studies of domestic resource costs have indicated a comparative advantage in a wide range of products (Annex Table B-2). The greatest potential growth source is the opportunity to shift large areas from low-value crops under traditional technologies, such as corn, and extensive livestock operations on natural pastures, to high-value crops, a phenomenon that already is occurring for a sizeable number of non-traditional export crops. Shifting into export crops instead of basic grains means a significant net gain in employment and income per hectare. Complete and consistent data are not available on employment and areas planted by crop, but existing information indicates that, for example, cantaloupe generates more than five times the employment and gross output value per hectare than corn does. Bananas and coffee generate about three times the employment per hectare of corn, and corn about twice that of beef and dairy cattle operations. 4.3 There is also potential for improved productivity in many crops, since new production technologies have proven to provide much higher yields than the current national averages. Current grain yields are generally below those of neighboring countries, which have similar soil and climatic conditions (Annex Table B-1). Use of agricultural inputs is low by Central American standards in all crops except some export crops. For example, the average rate of fertilizer application on grains is less than a third 40 The Agricultural Sector Box 4.1: The Resource Base Relative to its population size, Honduras is well endowed Table 4.1: Land Use, 198849 with agricultural land, forests, and marine resources, as compared to its Central American neighbors. It is the Area most forested country in Central America and is one of Type of Use Millions of ha. Percent the best endowed with arable land per capita. It has productive fishing grounds in two oceans and coastal Farm Land 2.5 22.4 resources that have mnade Honduras the second-largest Annual crops 0.5 4.3 exporter of shrimp in Latin America. Out of a total Perennial crops 0.4 3.3 surface area of 1 1.2 million ha., there are 2.4 million ha. Pasture 1.6 13.9 of cultivable land in farms (Table 4.1). The better Other 0.1 0.9 agricultural land is found in 31 valleys scattered throughout the country, the largest of which are found on Forest Land 7.7 68.3 the north and srcith coasts. Irrigation is relatively Broadleaf forest 2.9 26.1 undeveloped; it is estimated that only 15 percent of the Coniferous forest 2.4 21.4 irrigable land has been developed in that form. The rural Deforested area 2.3 20.8 population represents about 529,000 households, of which about 454,000 are engaged primarily in Other Uses 1.0 9.3 agriculture. Of that number, about 72 percent have a farm of at least I manzana (0.7 ha.) in size. An Total Area 11.2 100.0 additional 125,000 persons sustain themselves principally by agricultural day labor. Source: Encuesta Nacional Agricola 1989 and Estudios Forestales (COHDEFOR 1991); Bank staff calculalions. that of El Salvador. Access to institutional credit also is limited. Two independent studies" have estimated that only 10 percent of producers use institutional credit. Funding for medium- and long-term investments in agriculture is virtually unavailable -- a limitation that particularly affects export crops. 4.4 Future growth will require new investment and new technologies, which in turn require an enabling price environment, an efficient and equitable R&E system, and elimination of the insecurity of land tenure that has prevailed since enactment of the Agrarian Reform Law of 1974. These issues are discussed below. 4.5 Policymakers need to put greater emphasis on the environmental sustainability of future growth. In recent decades there has been a dramatic degradation of the resource base. One of the main determinants of this degradation was rapid deforestation. The causes of deforestation and the policies required to combat this problem are discussed in Section E below. 11. Webb, Abusda, and Velarde, 1988; GAlvez et al., 1990. Honduras - Country Economic Memorandum 41 Box 4.2: The Shucture of Production and Exports The principal agricultural products are bananas and coffee, which together represent about 45 percent of the value of gross output of crops and livestock (Table 4.2). Dairy products and beef represent another 21 percent of the output, and after that the product mix is highly diversified. Grains, which occupy a disproportionate amount of the debate on agricultural policy, are only about 13 percent of agricultural output. Farms of all size classes tend to be diversified in their output mix. For the smallest farms, nationwide, corn and beans generateonly about a fifth of their net income. This runs againsta popularbelief in Hondurasthat identifies the smaller farms with grain production. Of the 66,000 coffee producers, 93 percent have less than seven hectares of land, and most of them raise other crops as well. Livestock is a significant source of income even on farms with less than 2.5 hectares. The cooperative sector, created under the Agrarian Reform Law, is a major producer of palm oil, bananas, plantains, sugarcane, rice, corn, beans, beef and milk. Agriculture generates more than 80 percent of Table 4.2: Shares of Sectoral Output Value, commodity export earnings. While bananas and coffee 1990-92 remain the principal exports, generating between them Principal A8ricultural Products (%) about two-thirds of agriculture's foreign exchange earnings, a significant number of other commodities Bananas 32.3 Rice 1.4 areexported. Thenextsevenproductgroups in export Coffee 12.4 Pork 1.4 importance (shellfish, beef, wood, cantaloupes, sugar Milk 10.4 Tobacco 1.1 and molasses, pineapples, and fresh citrus, in that Beef 8.5 Sorghum 1.0 order) now have export earnings about one-fourth Corn 8.2 Cantaloupe 0.7 greater than those of coffee. An even larger number Poultry 5.6 Potatoes 0.5 of products have bright export prospects and have Eggs 4.0 Tomatoes 0.3 begun to expand rapidly from a small base (especially Plantains 2.8 Cabbage 0.2 omamental plants, cucumbers, squash, watermelon, Sugarcane 2.7 Onions 0.2 chilies, grapefruit, and mangoes). AnnexTable B-10 Beans 2.3 Coconuts 0.1 presents a comprehensive picture of agricultural Pineapple 2.2 Watermelon 0.1 exports in recent years. Analysis of export trends is Palm Oil 1.5 Cassava 0.1 hampered by the lack of reliable time series, but it appears that the aggregate of shellfish, cantaloupes, Source: Annex Table B-10. pineapples, and these smaller crops has been expanding export sales at about 10 percent annually in recent years. The economic importance of these exports can indicate that the aggredate of "all other agricultural be illustrated by observing that, if banana export levels exports" (other than coffee and bananas) will exceed remain static, export trends bananas in dollar earnings within four years, B. Policies for Agricultural Growth The Determinants of Agricultural Growth 4.6 Agricultural output grew rapidly in the 1960s and most of the 1970s."2 In 1978 a decade of stagnation set in, with agricultural output per capita declining by 1.1 percent a year. Agricultural imports expanded consistently during the period of agricultural stagnation; grain imports grew by about 10 percent 12. During this period the trend was only interrupted in 1974-75 by hurricane Fifi. 42 The Agricultural Sector a year. The main underlying cause of the stagnation was the trend in real agricultural prices. From 1978 to 1988, the index of real producer prices fell by 37 percent, which was felt in almost all product groups (Annex Table B-8). 4.7 The decline in prices reflected world market trends, but these trends were significantly amplified in Honduras by an overvalued exchange rate and by trade policies biased against agriculture." Because agricultural commodities are highly tradeable, real producer prices are strongly correlated with the real exchange rate, as illustrated in Diagram 4.1. The decline in real prices was reversed beginning in 1988, with the rise in the real effective exchange rate. Under the new exchange rate policy, from 1987 to 1992 the real producer price index increased by 44 percent. 4.8 From 1987 to 1992, real agricultural GDP grew by 5 percent a year, and grain output increased by nearly 12 percent a year (compared to less than 2 percent during 1980-88). The results of the recovery in real prices were also seen in the area planted in grain crops; farmers' plantings usually are a reliable indicator of trends in real price incentives (with a one year lag). Grain area increased at 7.0 percent per year (Diagram 4.2). These sustained production increases occurred when the weather was not exceptionally favorable, and accordingly appear to have been a prompt response to higher price stimuli. The five year recovery of agricultural production embraced virtually all product lines and appears to be one of the more important achievements of the 16CD ' 8|t macroeconomic reforms of ISO /N\ - - )Ad pwo6m be d 1990-92 (Table 4.3). This is 140 - Book Gram consistent with other 130- ~~s_> // \ " liow FPb* of countries' experiences in 120; > k ; \ structural adjustment, which 110o- \ ft \have shown that agriculture is 100,^ - < ~< . the sector that typically responds most quickly and 70 ____I _____I_I_I_I___t_i___t_t_t_-______ t_I_ t---t--_t strongly for the first few 70 years following the 7Gt 71 n 7 74 7 74 77 7 7P $t I tl2 t$4 tZ ts 7 n4 u tlt so I commencement of an Diagram 4.1: Real Exchange Rate and Real Agricultural Prices, 1970-92 adjustment program. This recovery produced a marked reduction in rural poverty (Chapter V). While data for 1993 were not available at the time of this writing, the positive trend is expected to have changed as a result of hurricane Gert, which affected important areas of Honduras in late 1993; of the reduced real price of grains caused by the temporary overvaluation of the real exchange rate in 1992; and of inconsistencies in the implementation of trade policy (see below). 13. Average effective protection rates in the industrial sector were estimated at 99 percent in the mid 1980s, while in agriculturethey were generally negative, especially for export products (Norton and Garcia, 1993; Annex Table A-12). Imports of basic food products were granted tariff exemptions. Honduras - Country Economic Memorandum 43 Agricultural Exports DoS _/ka \ t4.9 Traditional and sxW- <\9 RW flto&w rdo el non-traditional agricultural Ila. / \ \ 2exports responded to the ltXi- / A - / \ real devaluation of the lempira initiated in 1988. b4as leo \/ \ f \/ Traditional exports Ki-- . i/ Yperformed well during the 7 l l l l i reform period, despite the 70 71 7 73 74 75 77 76 n sk n e e 8, U , N s 90 I simultaneous strong decline *14 in world prices. In Diagram 4.2: Grains: Real Prices and Area Cultivated constant dollars, their export earnings grew by 5 percent a year from 1988 to 1992, compared with an annual growth rate of 0.4 percent from 1980 to 1988. Non-traditional exports experienced even more rapid growth in the same period (Table 4.4). In spite of weak growth during those years in the principal importing economies, the price-weighted annual growth rate for the non-traditional products shown in Table 4.4 (excluding shrimp, lobster, beef, and tobacco) was 9.1 percent. 4.10 Palm oil presents an example of the effect of policy reforms on exports. The volume of exports of this commodity had dropped from around 30,000 MT in 1986 to around 1,400 MT in 1991, for two reasons, according to major growers: (i) because of the overvalued exchange rate in the second half of the 1980s, gross margins in lempiras were increasingly unfavorable relative to costs; and (ii) exports had to be channeled through the one exporter who had sole authority to issue licenses for palm oil exports. Undoubtedly declining world prices also influenced the trend. The macroeconomic reforms at least partially solved the first problem and the export licensing requirements were abolished (see below). Now these same growers are returning to the export business. Even though the world price of palm oil in 1992 remained below its 1988 level, and well under prices earlier in the 1980s, exports of this product rebounded sharply. 4.11 Export-based development to date has been mostly limited to specific geographical areas (mainly the two large valleys and the north central coast). Continuing export growth will require incorporating additional sites, and that in turn implies the removal of some persisting bottlenecks, specifically: (i) poor maintenance of some roads; (ii) lack of refrigerated storage facilities in the ports; (iii) very high port handling costs; and (iv) still insufficient air cargo capacity for fresh produce destined for the U.S. and Europe, including lack of direct air cargo links to Europe. 14. For purposes ofthis report, traditional exports are defined as bananas, coffee, lumber, beef, sugar, tobacco, and shrimp and lobster. Both bananas and coffee have suffered from weak prices in recent years, but nevertheless the volume of coffee exported reached a new high in 1992. Honduras is a low-cost producer of coffee and has been taking over some of the market share lost by countries such as Brazil and Kenya since the collapse of the International Coffee Agreement. 44 The Agricultural Sector Agricultural Imports Table 4.3: Agriculture Prices and Output, 1981-92 4.12 The effect of economic reforms on (real growth rates) imports was less clear-cut than in the case of exports because of inconsistencies in 1981-87 1987-92 implementing trade policies. In February Agculture 1991, an administrative decree abolished Real GDP 2.8 4.9 farm support prices and the state Real Prices -4.1 5.8 monopoly on foreign trade in agricultural Total Crops Real GDP 2.0 5.3 products. The decree went into effect in Real Prices -4.1 5.9 May 1991.'5 In that three month Basic Grains interval, Congress acted to temporarily Real GDP 1.8 9,0 reduce agricultural tariffs, and Real Prices -1.7 1.8 Traditional Exports unexpectedly large volumes of corn and Real GDP 2.0 4.7 rice were imported that year. The effect Real Prices -4.2 7.7 on domestic grain prices was to reverse Other Export Crops Ofl ~~~~~~~~~~~~~Real GDP 2.2 6.7 some of the gains made in 1990 and early Real Prices -5.7 6.7 1991 in real farmgate prices. This incident Beef reinforced the impact of the temporary Real GDP 3.5 2.0 Real Prices -4.0 2.8 overvaluation of the real exchange rate Other Meat Products discussed above. It also had important Real GDP 4.9 6.8 political consequences, since it created Real Prices -4.1 5.3 skepticism about the beneficial effects of Source: Annex tables B-7 and B-8. the reforms on producer prices and the potential profitability of grain production. 4.13 Despite this incident, there are indications that grains can compete favorably in a liberalized market with levels of protection compatible with the 5-20 percent tariff structure. First, in response to the increased output (Annex Table B-12), agricultural imports in 1992 dropped abruptly to levels not experienced since 1986. Second, technical studies show that most grain production technologies either have a comparative advantage or can be competitive with modest protection (15-20 percent), if the real exchange rate remains at levels similar to those obtained in 1990-91 and again in mid-1993 (Annex tables B-3 and B-4). Since international grain prices suffer from strong fluctuations, a system of price bands was implemented in 1992 to protect domestic producers from these fluctuations (see Box 4.3). Trade, Marketing, and Credit Policies 4.14 During the 1980s, the Government attempted to compensate for the negative impact of the overvaluation of the real exchange rate and for agricultural trade policies with a wide range of 15. The contents of this decree were absorbed into the Agricultural Modernization Law of March 1992, to make them more permanent, and that law also abolished all prior licensing requirements for exports and imports. Honduras - Country Economic Memorandum 45 interventions, controls, and subsidies in marketing and Table 4.4: Export Volumes (MT), credit. In marketing, the Government established Selected Products, 1988-92 price support programs, intervened extensively in grain marketing, and established a monopoly on 1988 1992 foreign trade in agricultural products. In the financial system, the Government established subsidized lines Shrimp, lobster 6,107 8,673 y Beef 9,963 16,100 of credit earmarked for agriculture. The Agricultural Tobacco 1,124 1,900 Development Bank (BANADESA) and the National Pineapple 32,278 43,037 Agrarian Institute (INA) served primarily to channel Cantaloupe 22,400 58,000 Government funds into agriculture, without much Vegetables 4,200 14,400 emphasis on loan recovery. As shown by the Grapefruit 12,700 16,900 Plantains 8,500 13,400 continued stagnation of production and exports, these Ornamental 4,300 3,400 policies were ineffective in making the sector more Sesame 800 900 dynamic. Lemons 600 600 Source: Annex Table 511. Box 4.3: Price Bands Economy-wide tariff reforms and the decrees for agricultural trade were complemented by two laws approved in They were also fiscally extremely costly. BANADESA's 1992 that sets anarrowerrange of dispersion annual fiscal subsidies reached L50 million in some years for tariffs on grains and their derivatives, and laid out the full legal basis for the price prior to 1993; and during 1980-92, total subsidies from the band system. The objective of the system Honduran Institute of Agricultural Marketing (IHMA) is to smooth out international price amounted to about L64 million. These interventions, and the movements. It is not designed to increase the level of protection, and its average allocation of subsidies, were also extremely inequitable, effect on tariffs is zero. The price band since most of the benefits went to large farmers and only a system generates biwmekly revisions of the very small proportion reached small farmers (see Box 4.4). tariffs on the basis of movements in intemational prices, relative to a sixty- month moving average of those same prices, 4.15 As the main underlying causes of the anti- but not changing those tariffs on average. agricultural bias were removed with the macroeconomic The price band's mechanism for varying reforms, the justification for compensatory interventions was tariffs is activated when international prices rise above a pre-defined ceiling or below the weakened, and the Government implemented a number of corresponding floor. Over a period of reforms to liberalize product and credit markets. Product several years, the net average change in markets were liberalized with the elimination of price and tariffs arising from this system will bc zero. ioctsntrade in Under the bands, tariffs on rice rose from import controls; the state monopoly on international trade In their new base value of 25 percent grains and wood products; the non-targeted subsidies on (including surcharge) to 45 percent in late food distribution through the National Supplier of Basic 1992, and on corn they rose from 25 Products (BANASUPRO); and state intervention in the percent to 34 percent in the same period, as a response to unusually low international production, pricing, and commercialization of processed prices. They then decreased as international wood. In addition, since 1992, there are no longer tariff or prices began to rise again. non-trade barriers to the movement of agricultural goods within the Central American Common Market. 46 The Agricultural Sector Box 4.4: The Incidence of Subsidies in the 1980s 1 Many agricultural programs in the past were designed with a stated objective of targeting small farmners, but ended up benefitting larger farmers. Most of these programs have now been eliminated, but since they still have some proponents in Honduras, it is useful to discuss their record: 1.1 Guaranteed prices for grain crops, with subsequent sales to consumers at prices below cost: Among the smallest farmers, with less than 2.5 hectares of land, only 0.2 % had access to the guaranteed prices, whilc of thc largest farmers, with more than 50 hectares, 13% had access. Large farmers had 65 times the probability of small farmers of selling their grains at the guaranteed prices. The fiscal losses of the Honduran Agricultural Marketing Institute totaled US$5.9 million only in 1992, suggesting the order of magnitude of the subsidy involved. 1.2 Subsidized credit through BANADESA and INA, coupled with a lack of emphasis on credit recovery: While subsidized credit and the subsidy implicit in the lax loan recovery performance was extended to all farmers, 75% of the smallest farmers could not qualify for loans for lack of sufficient credit guarantees, compared to 12% for the largest farmers. In 1990 more than half of BANADESA's loan arrearage was for the largest loans, indicating a disproportionate benefit to the largest farmers. 1.3 Provision of agricultural extension services without charge: Although directed at all farmers, only 20% to 30% of small farmers received good quality and timely access to extension, while for larger farmers the corresponding share was 70% to 80%, indicating that tt.e incidence of the subsidy was regressive. 1.4 Sale of state-owned agricultural lands at highly subsidized prices: State-owned agricultural lands have been sold at below-market prices or simply ceded at no charge for decades. Of the 1,056 million hectares of state-owned lands, only 17% are occupied by small producers with less than 10 hectares, the remaining 83% going to larger producers. A conservative estimate of the subsidy value is US$397 million, at US$398 per hectare, with US$330 million of the subsidy going to medium and large farmers. 1.5 Sale of rights to cut timber in national forests at prices well below the timber's replacement cost and market value: Until 1991 the stumpage fee charged to timber concessionaires was below 25% of the market value of the standing timber, and this subsidy also has been regressive in its incidence. 2 Some legal dispositions in the old legislation further discriminated against the poorer rural families by circumscribing their economic rights: (i) Farmns with less than five hectares were prohibited from obtaining fee simple title (except for coffee farms), a measure that exacerbated their problems of access to credit and therefore to improved technologies, higher productivity, and higher value crop production. (ii) Land rental, an important means of access to land for poorer farmers in other developing countries, was legally banned. (iii) Agrarian reform beneficiaries were not permitted to exercise choice as regards their form of land tenure: the collective farming mode was imposed on them, although in many cases their preference was for individual owner-operated farms. (iv) Women were excluded from program benefits. 4.16 In the financial markets, the reforms included eliminating most of the subsidies on credit directed to agriculture, eliminating agricultural lending by state institutions other than BANADESA, and initiating the process of streamlining BANADESA. This included: (i) prohibiting loans to state enterprises and entities; (ii) prohibiting BANDESA from accepting loan guarantees from state institutions (primarily INA); (iii) reducing its staff from 1,146 to 611 persons; and (iv) improving its portfolio management and internal administration. Some of these reforms remain incomplete. The main areas where action is still required are described below: Honduras - Country Economic Memorandum 47 4.17 In trade: * Wheat imports face a lower tariff than other grains, creating an exception to the greater homogeneity in protection sought by the trade reform. This exception is unjustified because the corresponding subsidy to consumers of wheat products is regressive," and has a depressing effect on domestic corn prices. * Trade controls often continue to be used. An important mechanism for import controls is phytosanitary controls. For example, in late 1992 and early 1993, the Ministry of Natural Resources used the device of phytosanitary controls to block imports of vegetables from Guatemala and corn and beans from the world market. * Price controls also are often utilized. From 1989 onward the number of commodities with price controls was reduced in stages from 60 at the beginning until only 2 remained (coffee and lard) which could be justified by technical reasons. However, price setting for political reasons continues. For example, sugar prices are set by the cartel of millers, in concert with the Government, and the Government occasionally pressures producers to lower the prices of other commodities, especially milk. * Despite the formal elimination of tariff or non-trade barriers to the movement of agricultural goods within Central America, in practice the Government has often blocked imports from and exports to the region. For example, Honduras unilaterally declared an exception in late 1992 when Salvadorean sugar began to enter the country at a price lower than the price set by the oligopolistic pact of domestic sugar millers, and further imports of sugar were banned. * In 1992, the Government began a program for privatizing state-owned silos; so far, 9 out of the 15 state-owned silos have been privatized. This process should be completed. * The use of a grain reserve for price stabilization failed in 1992 and was fiscally costly. Experience around the world has shown that such reserves rarely function well. It should not be reinstated. 4.18 In rural finances: * In spite of the reforms, doubts remain as to BANADESA's long-run viability. Its overdue loan portfolio has not been cleaned up; it does not have significant capacity to attract voluntary private deposits; and there is always a risk that political considerations will influence its portfolio management. Also, despite Government statements that 16. Garcia et al., 1988. 48 The Agricultural Sector BANADESA's lending will be limited to small farmers, the institution continues to lend to large farmers. * A 1993 law also permits the creation of a Box 4.5: The Informational new rural credit system ("cajas rurales") Infrastructure whose owners will be, in part, the Since the early 1980s, the statistical base in agricultural producers. The initial agriculture has deteriorated significantly. The capitalization of the system would require 1993 agricultural census will help correct the deficiencies to some extent, but expanded a subsidy, but according to its advocates, annual production surveys are very much the system would expand by mobilizing needed. At present, data on crops other than rural savings. Savings deposits in rural grains, coffee, and bananas have a weak or areas are five times the volume of lending nonexistent statistical basis, and many of these areas re fie tims thevolum of lnding other crops represent the fastest growing part to agriculture, so the potential exists for of the sector. The Bureau of Statistics and using a greater share of this savings as Census has a long tradition and considerable agricultural finance. Although it remains capabilities in the survey field, but it has not been receiving the necessary institutional and unclear whether there will be sufficient budgetary support. There also is a funds to capitalize this system, the longstanding need to reconcile the temptation to use public funds to finance it discrepancies in statistical publications (on production and prices) between the Bureau of should be avoided. Other schemes, Statistics and Census and the Central Bank, including a Land Fund (for land purchases and to develop clear, published methodologies for the poor) are being discussed in the that link production and national accounts Government. data. These kinds of efforts are vital to the ongoing work of refining and implementing agricultural policies. Recommendations ___= 4.19 Significant advances have been made in the areas of trade, marketing, and pricing policy. The remaining steps, however, are equally important. They include: (i) eliminating the remaining controls on exports and imports, which appear to be used sporadically; (ii) relocating the program of phytosanitary controls outside the Ministry of Natural Resources, since the latter has a vested interest in discouraging imports, and requiring that all decisions and laboratory results related to import controls be published; (iii) eliminating the practice of negotiating prices for selected products; (iv) raising the tariff on wheat imports to the same level as on corn; (v) significantly lowering the remaining export taxes (Chapter III); (vi) completing the process of privatizing IHMA's silos; and (vii) eliminating the use of a physical grain reserve. 4.20 In addition, it will be important to formulate a detailed strategy for promoting agricultural exports. The strategy should include provisions for reducing port handling costs, investing in refrigerated storage in ports, encouraging competition in air freight services, instituting a policy of differential prices according to quality of coffee at the grower level, eliminating the Government's participation in coffee processing, and reviewing the possibilities for more unified private sector export marketing for small farmers. The export strategy should also include coordinating with the program of highway upgrading Honduras - Country Economic Memorandum 49 and maintenance, especially in the coffee growing highlands. It also needs to address the problem of the persistent labor conflicts in some agricultural export sectors. 4.21 In the financial area, it is important to make a decision soon on the future structure of BANADESA, taking into account the considerations mentioned in the text of this report. In particular, if BANADESA is not going to be closed down, its lending should be targeted to small farmers by placing a legal cap on loan sizes. Also, a fiscally cautious approach should be taken in relation to the proposed Cajas Rurales and Land Fund. In view of the past experience with agricultural credit, it would be best to adopt the system as a pilot scheme and monitor it carefully before allowing it to expand. C. Research and Extension 4.22 This area is vital, given that future agricultural growth will depend more on yield increases and changes in crop composition than on expanding the cultivated area. Agricultural and livestock R&E services rendered by the public sector have been ineffective in increasing agricultural productivity, as shown by the continued stagnation of physical yields for most crops serviced by the public sector and by the large gaps in physical yields between Honduras and its neighbors. Basic R&E has also been costly, with outlays representing 3 to 4 percent of agricultural GDP. In addition, survey data'7 show that only 7.5 percent of grain producers reported receiving some technical assistance and that the incidence of the subsidy in the system is regressive -- it favors medium and large farmers. 4.23 In research, the principal public institutions are the departments of Agricultural Research (DIA) and Livestock Research (DIP) in the National Resources Secretariat (SRN), and the research units within the integrated rural development projects, which are not directly under SRN's administrative control. Honduras has an outstanding private agricultural research institution in the Honduran Foundation for Agricultural Research (FHIA), which focuses on non-traditional export crops. Some high-quality research also is carried out at the Panamerican School of Agriculture (EAP) in Zamorano. The Honduran Coffee Institute (IHCAFE) carries out R&E for coffee, and important contributions are made in their areas by commercial companies in bananas, tobacco, cantaloupe, and sugar. 4.24 Extension was previously carried out by SRN, INA, the Institute for Professional Training (INFOP), and BANADESA, but the Agricultural Modernization Law prohibited the overlapping of responsibilities, so it now is concentrated in SRN, which focuses on grains and livestock. Other entities involved only in extension include NGOs, input distributors, and producer associations. 4.25 Shortcomings arise from insufficient funding coupled with a lack of control over the budget composition, the high turnover of professional staff, and the political nature of new recruitments. Over the past ten years, 85 percent of SRN's expenditures went for salaries and administrative expenses, 17. GAlvez et al., 1990. 50 The Agricultural Sector leaving only 15 percent available for operational and investment purposes. Funds per researcher in the public sector are only a fraction of that in the private sector. Administrative and financial management in SRN is extremely complicated and bureaucratic, without any regard for sound management principles. Low salaries and instability in employment, resulting from unreliable external support, have caused high turnover among researchers and extensionists, with a continuing loss of acquired training and expertise. Professional screening procedures for hiring new personnel are inadequate, with the result that as many of 50 percent of the staff members are political appointments. 4.26 Decisions concerning the contents of R&E are made without involving the farmers, and the generation and transfer of technology is inadequate for providing information relevant to their problems. Research is concentrated in short-term programs, such as repeating simple comparative variety trials year after year, and neglects longer-term research (such as on production systems). The methodology used by extension agents and their recommendations are applied largely indiscriminately throughout the country for all types of producers, without regard to variations in ecological, productive, social conditions. SRN's monitoring and evaluation system is based solely on a numerical comparison of activities (experimental trials, field days, farm visits, courses), with little information on the usefulness or adequacy of results. 4.27 Fundamental changes clearly are needed in the way that agricultural R&E is carried out. In recognition of the need for reform, the Agricultural Modernization Law provides for a new legal framework which requires substantial privatization of activities while retaining state financing of R&E for small farmers. This new framework has not yet been established. An autonomous public coordinating agency needs to be created, with new administrative and personnel policies that will free it from political pressures for recruitment and enable it to retain highly qualified personnel. The role of publicly funded private extension firms needs to be defined in a way that permits feedback from farmers on the adequacy of extension services directly to the providers of those services. An option favored by several technical studies is to give farmers the choice for selecting the extension workers. Mechanisms need to be established to permit those services to be subsidized for small but not for large farmers. 4.28 Research responsibilities for export crops should be transferred to the private sector, with well- defined procedures for coordinating between research results and extension activities. Public research programs directed to the needs of small farmers should go beyond the approach of repeating short-cycle experimental trials and place more emphasis on: (i) production systems; (ii) appropriate management of farming activities; (iii) socioeconomic information on farming; and (iv) harmonizing cropping practices with conservation needs. D. Land Tenure 4.29 The 1974 Agrarian Reform Law (abolished in 1992 with the passage of the Agricultural Modernization Law) caused pervasive insecurity of land tenure, which became a crucial constraint to Honduras - Country Economic Memorandum 51 investment in the sector by large and small farmers. The Agrarian Reform Law was characterized by restrictions on land markets and a paternalistic approach to the small farm sector. The insecurity of land tenure was created by the ambiguity of the grounds for expropriation; the lack of full title in most cases; and landless campesinos invading private and public lands (40,000 ha. per year on average between 1972 and 1992), a practice abetted by INA's tendency to legitimatize the invasions ex-post. State- owned lands were allowed to be occupied and tilled by medium- and large-scale farmers, and thus were not used to help fulfill the supposed aims of the agrarian reform to benefit the poor. Land rentals, an important means of access to land for the rural poor, was made illegal. Thus, in practice, the legal framework encouraged campesinos to invade farm lands because few other options were left open to them to attain land. 4.30 In spite of its stated aims of benefitting the poor through land redistribution, the Agrarian Reform Law had a negligible effect on land distribution. Before the agrarian reform, the large farms comprised 77 percent of the farm area and the small farms comprised 5 percent. The reform redistributed only 2 percent of the land from large to small farms. Small farms continue to occupy mainly low quality land (para. 5.30). More importantly, however, between 1966 and 1989, 72 percent of the increase in farm area benefitted the larger farms (Annex Table B-5). The custom of allowing large farmers to occupy state-owned land, and in some cases selling them the land at well below market prices, was the largest subsidy in the sector between 1974 and 1992. Its value has been estimated at a minimum of L2.5 billion over that period (in 1992 prices), or more than US$400 million. 4.31 The poorer farmers further suffered from other features of the Agrarian Reform Law. A collective form of production was imposed on the beneficiaries of the reform, contrary to the traditional preferences of campesinos for owning land individually. In addition, these collectives usually were not granted full title, so they were hampered in gaining access to commercial credit. When they could not cultivate all their land, a frequent occurrence, they were legally enjoined from renting or selling part of it. The agrarian reform discriminated against smaliholders and women. Farmers with less than 5 ha. were prohibited from obtaining full title, and it was very difficult for women to qualify to receive land under the reform program. 4.32 The state is a major landholder in rural areas. National and local governments together own slightly over one third of all agricultural land. That land is largely occupied by squatters under informal tenure arrangements. A significant share of the private land also is under informal tenure, in the sense that the owners do not have full (fee simple) title. Between 10 and 15 percent of agricultural land belongs to production cooperatives; most of them also do not have full title. 4.33 The passage of the Agricultural Modernization Law in 1992 profoundly changed the land tenure regime. However, implementation of the Law in this area is still incomplete. The following are the principal changes introduced by the Law: 52 The Agricultural Sector (i) To support continuing land reform, the grounds for expropriation of land have been clarified and considerably simplified, and injunctions against land invasions have been strengthened. Forest land has been declared inexpropriable. (ii) Exemptions from expropriability by type of product have been eliminated. In addition, the criteria for qualifying for an exception to landholding ceilings have been tightened and based on technical standards (employment and foreign exchange earnings per hectare), rather than being left to the discretion of public authorities. (iii) INA is now required to issue full instead of provisional titles to agrarian reform beneficiaries -- both collective units and individual farms. Collective farming units now can be organized as corporations if the members so desire, which previously was illegal. (iv) Land titling is permitted for farms of less than 5 ha., and women have been granted equality with men as beneficiaries of the reform. Land rental has been legalized, as well as joint investments in agrarian production collectives. (v) Recipients of land under the reform are now given the choice of whether to receive it as individual property, joint property, or in a mixed mode with some individual plots and some joint areas. Also, in cases of joint property, the entity is obliged to issue a form of legal shareholding to all its members. (vi) The right of ethnic communities to their lands, in the form of property that they choose, was reaffirmed. 4.34 In addition to these important improvements, the new policy includes two targeted programs to subsidize the purchase of state lands by poor farmers (the Land Fund) and provide a grant for the initial purchase of agricultural inputs (capital bonds). These programs are predicated on the need to help bridge the gap in financing until the agricultural credit institutions are reformed. Supporters of these schemes also argue that they are needed to make the whole package of reforms politically acceptable. Given the poor record of subsidized credit programs in Honduras and elsewhere, careful consideration should be given to these programs before deciding to implement them. Open-ended commitments should be avoided, the subsidy should be included in the budget as a transparent item, and the programs should be carefully monitored. 4.35 The Government anticipates that external technical assistance will be required to make the Land Fund operational, and that the more than 2,000 campesino production cooperatives will need advice on the choice of their form of property holding, on putting their decision into effect, and on issuing shareholding certificates to their members. INA has developed an operational program for this purpose, but delayed its implementation because of severe budget cuts in 1993 (a 56 percent reduction). For the same reason, progress on extending full titles was slowed during 1993, as was the vital work of extending the coverage of the national cadastre. After the initial delay, INA began to restructure itself in Honduras - Country Economic Memorandum 53 accordance with its new role under the Agricultural Modernization Law, but in order to fulfill its mandate, it is likely to need stronger budgetary support and external assistance in retraining staff and executing its new programs. 4.36 The most important recent change in land policy so far has been the achievement of peace in the countryside. In 1993, for the first time in more than 20 years, there have been no invasions of farmland by armed groups of campesinos. Some Government officials believe that including the targeted programs was essential to reaching the required consensus, since it gave the national campesino leadership reason to believe they would realize significant gains without resort to violence. Informed observers agree that the first, and most basic, achievement of the agricultural modernization program has been enhanced security of land tenure in rural areas. It is difficult to quantify the effects on production levels, but they are expected to contribute to greater output, in particular by reducing the amount of idle land in reform sector cooperatives and by promoting investments that will lead to higher productivity. 4.37 In this critical area, policymakers need to emphasize complete implementation of the reforms to ensure continued security of land tenure and help alleviate rural poverty. Land titling (in dominio pleno) needs to be accelerated, including for farms of less than 5 ha. Necessary complementary measures include completing the rural cadastre and decentralizing and modernizing the system of property registration, in order to simplify property transaction procedures for buyers and sellers. Other areas in which implementation needs to be accelerated include restructuring (reconversi6n) of the production cooperatives. The implementation of the proposed Land Fund, the new rural credit system, and the distribution of seed capital coupons should be undertaken as a carefully monitored pilot program, and only as financing is available for these programs. The retraining of INA staff to carry out their new responsibilities more effectively should be a high priority. E. Forestry Policy 4.38 The Agricultural Modernization Law also includes fundamental reforms to the forestry laws. Deforestation is one of the most pressing environmental problems in Honduras. Forest lands comprise 7.7 million ha., of which 2.3 million are deforested. The net annual rate of deforestation is estimated at 1.1 percent (80,000 ha.), mainly of broadleaf forest. As a consequence of deforestation, a number of watersheds have been experiencing a trend toward reduced availability of water. Soil erosion is leading to the loss of 10,000 ha. of agricultural land a year. The main causes of deforestation have been rapid population growth and misguided forestry policies. Together, these factors have led to unsustainable patterns of commercial logging; and to excessive cutting for fuelwood (for residential and industrial uses) and clearing for crops and pasture (during the last three decades, the amount of farmland expanded by more than 1.7 million ha.). Annual average timber production of around 730,000 cubic meters during 1990-91 was about 32 percent below the corresponding production of 1980-81 (Annex Table B-13), while the total export value of primary and processed wood products decreased by 47 percent in the same period (Annex Table B-14). Public revenues from stumpage fees and marketed volumes declined at an 54 The Agricultural Sector even faster rate than the harvesting of logs because of underpricing of the natural resources and distortive Government intervention (see para. 4.40). 4.39 Much of the forest land is owned by the state. In the coniferous forest, about 43 percent of the land is owned by the national government and 30 percent by local governments. In the broadleaf forest, state ownership also accounts for more than 70 percent of the total. Most of the national forest is found in large contiguous blocks in districts such as Olancho and La Mosquitia, which makes it attractive from a forest management viewpoint. Some forest lands are vital to the conservation of watersheds for dams: the hydroelectric installation of El Caj6n (the largest in Central America), the irrigation dam of Coyolar (for the vegetable-growing valley of Comayagua), and others. There are many campesino settlements in national forests; a few of them practice sustained forest management techniques but more of them are progressively deforesting their areas. 4.40 The forestry sector has been plagued by misguided Government interventions and regulations which have led to excessive and inefficient use of the forest and provided disincentives for conservation and development. The development of an efficient and sustainable forestry industry has been hampered by: (i) the absence of private property rights over the forest; (ii) the granting of only short-term (less than one year) logging contracts; (iii) the use of discretionary powers to allocate public lands as political favors without recourse to a market; (iv) an inadequate stumpage fee system that systematically has underpriced the natural resources and in practice eliminated quality premia; (v) the severe legal limitation on foreign capital participation in forestry-related ventures, which has limited investments and potential price competition for the natural resource; and (v) the Honduran Corporation for Forestry Development's (COHDEFOR) legal monopoly on timber exports, direct intervention in pricing and production, and controls over the production and marketing of wood products. 4.41 By law, all forest growth has been the property of the Government, with trees on private lands state owned and the landowner receiving only a very small portion of the low stumpage fees that COHDEFOR charges the sawmills. This has left landowners with no incentive to husband the forest on their land. Short-term contracts and limitations on foreign capital participation inhibited competition, investment, and long-term planning in the forest industry. COHDEFOR's intermediation in the export of sawnwood reduced the prices received by sawmills to substantially below international prices. The unfavorable prices to the sawmills were offset by a low stumpage rate, which led to over-harvesting and the use of high quality natural resources for products that could have used lower quality inputs. The low stumpage rates also led to the development of overcapacity, since subsidies were based on the number of tons processed, encouraging grantees to build larger sawmills so they could process more wood and receive a higher total subsidy. Since the market was not allowed to function, however, this large capacity was not translated into price competition. COHDEFOR's direct investments in sawmilling and secondary forest product industries contributed to the sawmills' aggregate overcapacity and diverted significant public resources to unprofitable ventures. 4.42 The modifications to the forestry laws introduced by the Agricultural Modernization Law aim to: (i) eliminate any activity or function of the public forestry sector (i.e. COHDEFOR) related to the Honduras - Country Economic Memorandum 55 production, marketing, and trade of forest products; (ii) reorient the public forestry sector's role toward managing and protecting public forests, regulating private forests, fire prevention and control, and forest extension and research; (iii) develop a market for forest products that raises stumpage fees closer to the social cost of the resources, use this market for allocating public forests for commercial use, and require management plans as a prerequisite for all forest utilization; (iv) return and guarantee ownership of timber resources to landowners; (v) exempt all forest lands from future expropriation, as had been allowed under the Agrarian Reform Law; and (vi) allow private sector entry into forest production, industrialization, and marketing, including foreign investment. 4.43 Some important efforts have been launched to implement the new policy. First, a new stumpage valuation system based on the value of standing timber, and an auction system for timber sales, were initiated in 1993. Second, COHDEFOR has started to redirect its policies and activities away from forest exploitation toward resource management, ceasing all its production activities and closing its sawmills. All of COHDEFOR's assets related to lumber production and processing are being sold, and its monopoly on exports has been abolished. Third, an intensive management program has been introduced. These and other reforms contemplated in the Agricultural Modernization Law are being supported by an Agricultural Adjustment Credit financed by IDA and the IDB. 4.44 Several issues requiring the attention of the new Government have already surfaced. (i) Forest management is complex and expensive, and the Government's activities in forest management cannot be self financed. Because of the positive externalities regarding water, power generation capacity, and soil retention it is not desirable to try to match revenues from stumpage fees to the costs of forest management. The fiscal difficulties encountered by the new Government make it unclear whether sufficient financing will be available for implementation. (ii) Partly because of the uncertain availability of Central Government financing, and partly because of different benefits that accrue from having access to an independent source of income, COHDEFOR continues to retain a significant part of the income from stumpage fees as a commission. This makes COHDEFOR institutionally dependent on forest cutting for its income, thus creating a conflict of interest with its role as an independent steward of forest resources. And (iii) a law on incentives for forest reforestation and plantations was approved in 1993. It includes the provision of free technical assistance for project elaboration and implementation, partial rebates of some investment costs, income tax exemptions, long-term guarantees of use and usufruct rights over forest land, and the creation of a Forestry Fund. This legislation could be incompatible with the new forest policy, since the main objective of that policy is to improve forest management and the new law will direct financial and human resources to reforestation activities, possibly to the detriment of management activities. The fiscal exemptions of the reforestation law could also be fiscally costly. 4.45 The priority in forest policy should be to fully implement the changes already initiated under the Agricultural Modernization Law. Strengthening COHDEFOR's capacity to protect and manage the country's forests is urgent. In that regard, it is important to review COHDEFOR's decision to retain a significant share of the revenues from stumpage fees, and to substitute for them general budget funds, in order to alleviate the conflict of interest of that institution depending on forest cutting for its income. The system for auctioning standing timber, and for utilizing management plans in private areas and 56 The Agricultural Sector concessions, was interrupted at an early stage and needs to be fully implemented. The new Government has gone back to the old -- now illegal -- practice of granting concessions by discretionary means; this should be stopped and all new concessions should be based on market mechanisms. Reforestation incentives should be carefully analyzed to estimate their likely fiscal costs and clarify the extent to which they will direct financial and human resources away from management activities. There is also a need to evaluate the experiences to date in campesino forestry cooperatives and settlements, in order to determine the elements that make such cooperatives viable. Part III Poverty Assessment Honduras - Country Economic Memorandum 59 V. POVERTY PROFILES, POPULATION, AND LABOR MARKETS 5.1 This chapter analyzes the magnitude and patterns of poverty in Honduras. A key factor affecting poverty is population growth, and the chapter begins by describing the main demographic features of the country. Since incomes among the poor are influenced by the labor market, the chapter looks at the main features of this market in relation to poverty. It then provides poverty profiles that answer three questions: How many are the poor? How has poverty evolved during the adjustment period? and Who are the poor? Most of the poor live in rural areas, and the chapter devotes a section to analyzing the determinants of rural poverty. The main policy implications of the analysis are then derived and related to rest of the report. The quality of the data and shortcomings of the methodology are discussed in two text boxes. A. Demographic Features 5.2 In 1992, the population of Honduras was estimated at 5.2 million. Population growth is an extremely high 2.9 percent a year, giving Honduras (along with Nicaragua) the highest population growth in Latin America."8 Birth rates have slowly declined since 1960, but mortality rates have fallen at a much faster pace; today they are a fourth of their 1950 level (Annex Table C-i). Desired fertility, as measured by recent surveys, has fallen faster than real fertility, suggesting that there is scope for significantly expanding the use of modern contraceptives from its present low level of 31 percent of sexually active women. 5.3 Honduras is mainly a rural economy. Official statistics use a broad definition of "urban" (towns with more than 2,000 inhabitants or with some basic services such as drinking water or a health center or primary school). By this definition, 42 percent of the population is urban. This proportion falls to 28 percent when only cities larger than 20,000 inhabitants are considered, and to only 20 percent if only the two largest cities are taken into account. Due to internal migration, population growth is higher in urban areas (4.7 percent a year) than in rural areas (1.7 percent a year), but Honduras will continue to be a mainly rural society for the remainder of this decade.'9 5.4 Internal migration, although still low by Latin American standards, is becoming important; already 20 percent of the population is migrant.' The departments with the highest expulsion rates include those located in the southwestern areas of the country: Copan, Lempira, La Paz, Ocotepeque and 18. The average worldwide rate for low-income countries is around 2 percent (World Development Report, 1993). 19. To maintain consistency with official data, the official definition of "urban" will be used in this chapter. 20. Pcrmanent Household Survey (EPH), 1992. 60 Poverty Profile Santa Barbara. This area is the most depressed in Honduras, where land is of poor quality and the supply of basic social services is very limited (Annex Table C-2). Most of the migration is directed toward the larger cities. B. Labor Markets and Labor Earnings21 5.5 This section analyzes how key features of the labor market impact on poverty. The main conclusions are that: (i) the labor force has low levels of skills, particularly in rural areas; (ii) large wage differences prevail among sectors, even when controlling for level of education; (iii) minimum wages are ineffective as a wage floor, and economic growth is the main determinant of real wage increases; and (iv) economic fluctuations in the labor market occur mainly because of wage changes and not changes in the unemployment rate -- unemployment is relatively low. The Labor Force 5.6 Table 5.1 shows the structure of the Honduran labor force. The size of the labor force was around 1.6 Table 5.1: Structure of the Labor Force, million in 1992. More than half of the labor force is rural 1992 (%) and only 30 percent is female. The rate of female labor participation is low (28 percent), but given the significant Wage Earners 51 role played by women, especially in the rural economy, it Private Sector 37 is likely that official statistics underestimate the female Domestic Servants 4 labor force. About half of the total labor force are wage Cooperative Members 1 earners. They constitute more than two thirds of the urban labor force, and almost one third of the rural labor force Unpaid Family Workers 11 (Annex Table C-3). The public sector employs less than Employers I 10 percent of the labor force, mostly in urban areas. In Self-employed 37 rural areas, wage earners are mostly employed in …--------------------- agriculture and agriculture related services such as Rural 56 transport and basic processing of agricultural products. Female 30 The self-employed (including unpaid family members) are the most numerous group in rural areas. They include Total Workers (thousands) 1,578 mainly small-holder campesino households who derive Source: EPH, 1992; Annex C-3. their income from a combination of sales of agricultural products, production for self-consumption, and seasonal or occasional wage employment. 21. Except were otherwise noted, all data in the remainder of this chapter are from the Permanent Household Survey (EPH), a description of which is provided in Box 5.1. When dates are not noted, figures are for 1992. Honduras - Country Economic Memorandum 61 5.7 The level of education of the labor force is low: 20 percent of the labor force is illiterate; and the proportion with six years of education or less (including illiterates), is 77 percent. Two thirds of the workers who have little or no education live in rural areas.2 Structure and Evolution of Wages 5.8 The national t. \average wage rate was so XUS$96 a month in March n5 1992, with important 7lo 0 sectoral differences: (i) us" us um2 vM urban wages were almost a Rag cMP~ ~ t&M war -- 3~ua'wiv _Z twice as high as rural pu ca 19s10 wages'; and (ii) wages I paid in agriculture were Diagram 5.1: Evolution of Rural and Urban Wages, 1989-93 equivalent to 93 percent of the rural mean, 64 percent of the national mean, and 53 percent of the urban mean (see Annex Table C-4).4 Wages for women are considerably lower than for men, even when location and level of education are taken into account; the wider differences between genders occur among the less educated in rural areas (Annex Table C-5). Wage rates increase steeply with the level of education. 5.9 Legal minimum wages exist for most sectors of the economy, but the minimum wage is not an effective floor in much of the labor market. In 1992, around 40 percent of wage earners received wages below the legal minimum wage. This is mainly explained by low productivity and large supplies of unskilled labor. While the minimum wage is ineffective, it imposes high transaction costs in some sectors where firms have to develop inefficient strategies (such as contracting out or splitting operations) to circumvent minimum wage legislation. 5.10 Economic growth was the main determinant of real wages during the period of reform (Diagram 5.1). Attempts to raise wages through direct Government intervention were not successful. Real wages during the reform period evolved following the same trend as per capita GDP (Table 5.3). Wages in all sectors fell in 1990 when the stabilization measures were first put in place and continued falling in 1991, 22. Figures from Permanent Household Survey, March 1992. The 1988 census showed that 33 percent of the population above ten years of age were illiterate. 23. Large differences persist when comparisons are controlled for human capital characteristics (Annex Table C-5). 24. Due to differences in relative prices, nominal wages are not strictly comparable between rural and urban areas. Unfortunately, price indices for these regions are not available. 62 Poverty Profile with the important exception of rural wages, which started Box 5.1: Quality of Data growing in 1991 as 1. The quality of household income data is a major problem for poverty agricultural production began analysis and for designing and monitoring targeted interventions. The Ministry to react to the new policy of Planning (SECPLAN) has made calculations of poverty levels in Honduras environment. Wages in all using data from the Permanent Survey of Households (EPH) conducted twice a year by the National Directorate of Surveys and Censuses (DGEC). These two sectors grew in 1992 and agencies need to be commended because, with scarce resources, they have 1993. Despite this trend, produced data for the analysis of poverty in a sustained manner since 1986, and real wages in early 1993 produced yearly data on a timely basis from 1989 to 1993. Also, the publication continued to be below their of these data has served to raise the awareness of policymakers about poverty continuedvto bel. Thelo hegl issues. However, there are serious problems with the quality of the data. 1989 level. The legal minimum wages (in real 2. The surveys which produced the data used in this chapter were values) followed a different administered in March of each year from 1989 to 1993, using February as the period of reference. Coverage was nationwide except for the Istas de La Bahfa trend, growing each year and Gracias a Dios. The sample was designed to be a weighted representative during the period (except for sample at national and regional levels, as well as for the major cities. The March 1991), and ending at a level 1992 survey, which is the main source of data for cross-section analysis in this report, estimated 916,000 households, which approximately equals population 18 percent higher than at the projects based on the 1988 census. The analysis excludes 8 percent of the beginning of the period. households for which income data were not available. Further, as discussed in Section IV-D above the 3. According to the March 1992 survey, the mean per capita annual income SectionIVD, above, the was L2061. GDP per capita calculated by BANTRAL was L3693 for 1992. This Agrarian Reform Law of difference can be explained in part by the exclusion of property income. 1974 hurt the poor by Income as measured by EPH includes wages and income from self-employment, limiting the titling of small but excludes income from property, such as rents, interest, and dividends. Several attempts were made to correct this underestimation, but were later farmers and women, by abandoned because they required too many arbitrary assumptions. In imposing a collective form of consequence, the available results have to be viewed with great care and with the p r o d u c t i o n o n t h e knowledge that income levels are underestimated. Since underestimation is due beneficaries f land eform, to lack of property income data, it is liely to affect data for the higher-income beneficiaries of land reform, strata. Hence, inter-temporal and cross-section comparison of charactenstics of and by limiting land rentals. the poor are likely to be of higher quality than comparisons across income strata. The Govemment urgently needs better data to monitor the effects of its poverty Unemployment policies and to guide its targeted interventions. 5.11 Adjustment to economic fluctuations in the labor market occurs mainly through changes in incomes and wages, not changes in the rate of unemployment. Unemployment rates are relatively low and do not vary significantly with economic activity. All fluctuations in the employment rate during the adjustment period have been of less than I percent (Table 5.3), while real wages for wage earners fell by 12 percent in real terms, and the self- employed also faced a reduction earnings (see below). This pattern reflects the unimportance of the formal sector as a source of employment. There is an active labor market, but except in small pockets, it is beyond Government intervention or union pressures. Policies to influence the labor market directly, Honduras - Country Economic Memorandum 63 through minimum wage legislation or small-scale employment creation Table 5.2: Proportion of Workers Earning Leus than activities, will have an impact on only the inium Wage, 192 a very small segment of the labor force and will tend to miss the Teguc. & Rest poor.'5 Sula Urban Rural National Wage earners 26.8 35.6 55.8 41.2 5.12 Unemployment in Honduras, Selfeployed 39.1 46.5 57.4 52.9 according to official figures, is a Source. Tabulaltons from Permanent Survey of Housholds. March 1W2. relatively low 5-7 percent of the labor force. In March 1992 there were 74,000 people actively looking for work. This group, defined by official data as facing open unemployment, represents 4.5 percent of the labor force. In this group, 68 percent were male and 32 percent female; 64 percent were laid off workers and 36 percent were new entrants to the labor market. The average period of unemployment was 5 months; 4 months for the laid off, and 7 months for new entrants. In addition, 2.4 percent of the labor force were working less than 36 hours per week, and willing but unable to work for longer periods. This category is defined in Honduras as visible unemployment. 5.13 The debate about unemployment is often wrongly focused on what official statistics term invisible unemployment. This is defined as wage earners and self-employed workers earning less than the minimum wage. This category only confuses the debate about unemployment, since it measures income and not employment. The level of invisible unemployment depends on the minimum wage, and grows every time the minimum wage is increased. Invisible unemployment is high because market wages are not pushed up by the legal minimum wage. The high rate of invisible unemployment is simply a measure of policy failure. This does not imply that a stronger enforcement effort is desirable, since that could lead to reduced demand for labor in some sectors. The problem of low earnings is extremely serious, but is mainly determined by low productivity levels and cannot be corrected by decree. C. Poverty Profiles 5.14 The low per capita income and high degree of inequality determine the high incidence of poverty in Honduras. Honduras is the third poorest country in Latin America after Haiti and Nicaragua (measured by GDP per capita). Concentration of income is also high -- Honduras has the fourth lowest proportion of income in the poorest quartile among Latin American countries.' 25. These features of the labor market should be taken into account for revision of the Labor Code, which the Ministry of Labor is now undertaking with support from UNDP. 26. After Panama, Brazil, and Guatemala (World Development Report, 1993). 64 Poverty Profile Table 5.3 Evolution of Average Wages and Unemployment, 1989-93 1989 1990 1991 1992 1993 Unemployment Rates (Percentage) Open" 4.8 5.0 4.6 4.5 4.7 Visible" 2.5 4.0 2.4 2.4 2.5 (Real Lempiras21) National Wage 332.7 306.0 282.7 305.7 312.7 Public Sector Wage 673.3 561.3 447.0 477. 4 514.3 Private Sector Wage 315.8 271.0 261.3 281.2 292.3 Urban Wage 490.3 388.1 347.3 374.3 388.6 Rural Wage 217.6 181.1 196.4 211.6 215.1 Minimum Legal Wage3' 158.0 178.4 153.1 183.0 186.1 GDP per Capita 2403.0 2336.0 2343.0 2404.0 2420.0 (Index 1989-100) National Wage 100.0 94.8 87.6 94.7 96.9 Public Wage 100.0 83.4 66.4 70.9 76.4 Private Wage 100.0 85.8 82.7 89.0 92.5 Urban Wage 100.0 79.2 70.8 76.3 79.3 Rural Wage 100.0 83.2 90.3 97.2 98.9 Minimum Legal Wage3' 100.0 112.9 96.9 115.8 117.8 GDP per Capita 100.0 97.2 97.5 100.0 100.7 1/ Scc text for defmitioc. 21 In 1989 lempiras 3/ Weighted averagc of mininum wagea by rcgicn and econmic activity. 21 Population figures from CELADE Source: Pernent Houhold Survey, t989-1993. 5.15 Inequality is high. In 1992, the distance between the extreme deciles was approximately I to 30. While the bottom 50 percent of households (with 57 percent of the population, due to the larger household size among the poor) got 21 percent of total income, the top 10 percent of households (with 7 percent of the population) got 35 percent of total income. The Gini coefficient was 0.49, indicating a relatively high level of inequality (Annex tables C-9 and C-10)."7 5.16 Income is substantially higher in urban than in rural areas. Average incomes in Tegucigalpa and San Pedro Sula were more than two and a half times higher than in rural areas and 35 percent higher than in other towns (Annex Table C-8). 27. These data exclude property income (Box 5.1). The degree of concentration would probably be higher if total income were considered. Honduras - Country Economic Memorandum 65 5.17 How many are the poor? To answer this question, we need to establish a poverty line; i.e., an income level below which people are categorized as living in poverty. The most common criterion applied to poverty analysis, which we also follow here, is deprivation in food consumption. Caloric intake below a certain threshold will define poverty. Because of the low quality of available income data (Box 5. 1) and the weaknesses of consumption data, poverty estimates are extremely sensitive to the assumptions and methodology used. The official methodology has some serious flaws, and new estimates were prepared for this report. The different methodologies used for these estimations are described in Box 5.2. 5.18 Estimations were made for households classified as "very poor" (those who cannot afford to buy the basic food basket) and for the "poor" (those who cannot afford to buy the basic basket plus other necessities). According to Ministry of Planning estimates, in 1992 the very poor comprised 55 percent of total households, and the poor (including the very poor) comprised 72 percent. According to mission estimates, the very poor constituted 31 percent and the poor 50 percent of households. 5.19 Several studies on the nutritional situation in Honduras have estimated the proportion of the population with nutritional deficits; those numbers seem compatible with our estimates of the very poor (31 percent of the total). The 1987 National Survey of Nutrition found that 31 percent of the children under five were undernourished under the criterion of weight-age. Including those cases of height deficits, this figure increased to 35 percent. The 1987 National Survey of Food Consumption estimated that 35 percent of households had a deficit in caloric intake; that is, less than 80 percent of the required amount. The 1991/92 National Survey of Epidemiology and Family vo - RWA Vmy NW Health estimated the infant malnutrition rate at 39 percent for ...... aW GM pff Capi children under five. This, together with the methodological problems of 130 /the higher estimate (Box 5.2) suggests 110 -/ that the more serious problems of malnutrition are probably concentrated in the poorer third of 70 households. To describe the me LM 1 im m9 _______________Amex___________Table_____________C_____12______ characteristics of the poor, we focus Sowre. Annex Table C-12. Diagram 5.2: Trends in Rural and Urban Povefty, 1989-93 our attention on the bottom 30 percent of the distribution. 5.20 An important conclusion emerging from this exercise is that a proper living standards survey, including income and expenditure data, is urgent if the Government is going to be able to effectively use poverty data for targeting and monitoring purposes. The World Bank will support the Government in undertaking a Living Standards Measurement Survey (LSMS) in support of FHIS. This survey will use new sampling and data collection methodologies, based on the Bank's experience in neighboring countries, that are designed to accurately measure incomes and poverty. 66 Poverty Profile Box 5.2: Methodological Problems in Estimating Poverty Lines 1. Ministry of Planning methodology for estimating the poverty line has two important shortcomings that lead to overestimation. First, the basic food basket used to determine the poverty line contains an abnormally high level of calories -- 2,600 for urban areas and 2,380 for rural areas -- which is more than 20 percent higher than the lNCAP/FAO recommendation for Honduras.' Second, the basket chosen does not represent an observed basket of food (which would show what the individuals are eating to satisfy their nutritional requirements); instead, it is based on a basket designed by nutritionists to improve the quality of the diet. 2. A new estimation was undertaken for this report. The main objective was to use a basket derived from observed consumption patterns, which has the advantage of showing the minimum cost at which food needs are satisfied, given relative market prices and consumers' income and preferences. Observed consumption baskets from the only available income and expenditure survey (1978) were selected, and the cost of these baskets was projected using prices for the food items in the basket. The food acquisition patterns for the urban and rural households in the lowest 30 percent income group that appeared to be at or slightly above the caloric recommendation were used to estimate the composition of a basic food basket. As a result of higher prices and differences in the composition of the baskets, food costs were found to be higher in urban than in rural areas. Caloric adequacy was achieved at an average daily per person cost in excess of L3.2 per day in the cities, where as the average daily per person cost for a diet that met caloric adequacy in the rural areas was slightly more than Ll.9 per day (Annex Table C-I I). Hence, two food basket "norms" were used, and the percentage of the population with per capita earnings lower than these norms were classified as poor. Thetotal numberof poor households is an aggregation of the urban and the rural poor estunated by this method. 3. To produce estimates comparable to those of the Ministry of Planning, two poverty lines were estimated, one to count the "very poor' and another one to count the "poor," In the first case, the line is equal to the cost of the basic food basket. In the second case, the line is equal to the total income needed to buy not only the basic food basket but also goods that satisfy non-food needs. Following Ministry of Planning methodology, the second poverty line was calculated under the assumption that food consumption expenditure is equal to 0.75 of total income in rural areas and equal to 0.50 in urban areas (see Annex Table C-i 1). 1/ Maletta, 1991, Table 16, p. 165. 5.21 Who are the poor? Most of the poor live in rural areas; 78 percent of households in the poorest 30 percent of the income distribution are rural (Table 5.4). Although the chances of being poor are almost three times higher for rural than for urban inhabitants, there are small pockets of very poor people living in urban areas. They represent less than 7 percent of the national population, but their living conditions are extremely inadequate. 5.22 It is notable that 76 percent of the households in the upper 20 percent of the income distribution are concentrated in urban areas. Tegucigalpa and San Pedro Sula alone have 46 percent of the nation's higher-income households, but represent less than 23 percent of total households. 5.23 Other notable characteristics of the poor are that: (i) they are concentrated in agriculture, and within this sector the self-employed (mainly campesino families) are significantly represented; (ii) rural households headed by women constitute a prominent group among the poor; (iii) in regional terms, households in the northeast and western regions are also predominantly "very poor" (Annex Table C-2). Honduras - Country Economic Memorandum 67 Table 5.4: Poverty Profiles, 1992 Share of Total % of the Poor in % of Category in Category Households (%) Category" Poverty" Rural 56 78 42 Urban 44 22 15 Household Head is: ' Employed in Agriculture 37 53 42 Urban Self-Employed 8 8 36 Self-Employed in Agriculture 26 40 76 Female 21 25 35 Female and Rural 9 15 49 Public Employee 9 2 5 I/ 'In poverty' is defined as belonging to the 30 percent with lowest income in the national distribution of per capita income. 2/ The categories defined below have overlaps and do not add up to 100 percent. Source: Permanent Household Survey, 1992. 5.24 How Has Poverty Evolved during the Years of Adjustment? The number of poor followed the trend of GDP per capita and average wages, implying that the poor suffered during the recession and benefitted from the economic upturn (Diagram 5.2 and Table 5.5). Poverty increased significantly in 1990, a year of recession, and peaked in early 1991. As economic growth resumed in late 1991 and 1992, poverty levels fell sharply, to increase slightly again in early 1993. The poverty index increased by 19 percent during the recessionary part of the period, then fell by 33 percent in 1992. This reduction was associated with substantial growth in rural wages and earnings of the self- employed in agriculture during the latter part of 1991 and early 1992. 5.25 Poverty levels evolved in drastically different ways in urban and rural areas during the period of economic reform (Diagram 5.2). The urban poor suffered most from the economic stabilization. The index for urban poverty was 77 percent higher in 1991 than in 1989.2" Despite a sharp reduction in urban poverty later in the period, poverty levels among the urban population remained 18 percent higher in 1993 than in 1989. Despite this trend, as discussed above, the rural poor continue to constitute the majority of the poor in Honduras. 5.26 The rural population suffered less during the initial years of the adjustment, and incomes in the lower income strata rose substantially in 1991 and early 1992, bringing poverty down substantially. In early 1993, the proportion of the rural population living in poverty was substantially lower than before the adjustment began. Due to the great importance of the rural poor, it seems appropriate to analyze this 28. This percentage increase may have been exaggerated by a methodological change in the classification of the data. Beginning in 1990, some rural clusters were reclassified as urban. Given the lack of documentation, these clusters cannot be identified and the degree of overestimation of urban poverty cannot be quantified. 68 Poverty Profile group's characteristics in some detail. This is done in the following section. Table 5.5: Trends in National Poverty, 1989-93 5.27 The substantial redistribution 1989 1990 1991 1992 1993 of income from urban to rural sectors was one of the main consequences of World Bank Estimaces the macroeconomic adjustment, and particularly of the strong depreciation Very Poor 36 43 43 31 32 particularly ~~~~~~Poor 55 62 63 50 53 of the real exchange rate. Agricultural output is generally more (Index 1989=100) tradeable than non-agricultural output. Very Poor 100 119 119 86 89 As the real exchange rate is the Poor 100 113 115 91 96 relative price of tradeable goods over Ministry of Planning Estimates" non-tradeable goods, a depreciation of (percentage) the real exchange rate improves the Very Poor 55 63 66 55 57 real prices of agricultural products Poor 72 78 82 72 74 (para. 4.7). Agricultural workers Index (1989= 100) benefitted from the price increase, and fm e cVery Poor 100 115 120 100 104 and from the increased production Po 0 0 1 0 0 Poor l O0 108 114 100 103 and employment generated by the price adjustment.29 By the same Memo item: token theurba poo suferedfrom Real GDP token, the urban poor suffered from per capita2' 2403 2336 2343 2404 2420 the increase in real food prices produced by the devaluation. 1/ WorldBank missionestimatesusirgEPHdataandMinistryofPlanning produced by the devaluation. ~ methodologies. Cut-off points are described in Annex Table C-It1. Anecdotal evidence suggests that this 21 1989 lempiras. Sources: Ministry of Planning. World Bank mission estimuates. process may have slowed rural to urban migration, at least temporarily. D. Rural Poverty 5.28 Inequality in land distribution is one of the principal contributing factors to rural poverty. The distribution of agricultural land in Honduras is highly concentrated. Among the landed, the largest 17 percent of the farms hold 75 percent of the land, and the smallest 55 percent hold only 8 percent of the land (Annex Table B-5). The quality of land is also significantly lower in the smaller farms (para. 5.29). In addition, about 25 percent of the rural population are microfarmers with less than one manzana (I manzana equals 0.7 ha.) or no land. This inequality in land distribution has not changed significantly during the last three decades in spite of the intensity of the commitment to agrarian reform during most of the period. 29. Schreider and Garcia, 1992. Honduras - Country Economic Memorandum 69 5.29 A common belief in Honduras is that the poor depend mainly on grain production, and this perception has influenced policymakers significantly. The data, however, contradict this belief. Among grain farmers, only 34 percent of the income of the smallest farms is derived from grain production.' In many countries, inequality in agriculture is based on differential cropping patterns, and there are "crops of the rich" and "crops of the poor." This is not the case in Honduras. Except for bananas, which are concentrated on plantations owned by three large multinationals, cropping patterns are diversified for all size farms. Coffee is predominantly a smallholder crop.3" 5.30 Although farms of all sizes tend to diversify, physical yields per hectare are lower on the smaller farms, reflecting poorer quality of land, less access to financing to buy modern inputs, and a low level of human capital, which makes it difficult to adopt modern technologies.32 These variations in yields are partly related to varying usage of modern inputs. The inability of small farms to make greater use of modern inputs relates in part to their cash flow limitations, and to the inefficiency and inequity of the R&E system discussed in Section IV-C. It is also a consequence of other factors. The smallest farms have a greater share of their land on sloping terrain. On hilly lands, chemical inputs are more likely to be wasted (to wash away), and in any case, the agronomically sound recommendations for such conditions often involve lower levels of input application and greater use of natural biological techniques. A crucial constraint to improved productivity is the low level of education among poorer farmers. Studies from many countries show that education is a crucial determinant of: (i) farmers' ability to introduce new crops to take advantage of more profitable opportunities; (ii) the speed with which farmers learn the usefulness of modern inputs and begin applying them; and (iii) farmers' access to less costly sources of credit. High illiteracy among small farmers no doubt adversely affects their ability to manage credit and to absorb information on improved production technologies. 5.31 In sum, the low incomes of small farmers are caused by the scarcity and low quality of land available to the poor and by their lack of access to new technology. This situation reflects the low levels of education prevailing in rural areas and the inefficiency and inequities of the R&E system. (Land tenure, credit, and R&E policies, including recommendations aimed at improving resources and productivity among the poor, were discussed in Chapter IV.) 30. The rest of the income of the smallest farms is follows: 23 percent is derived from livestock, 22 percent from laboring in other farms, and the rest from non-grain crops and other off-farm work. For the next farm size strata in this sample (from 2.5 to less than 5 ha.), the share of grains in total farm household income was 43 percent (CADESCA Survey, 1987-88). 31. Of the 66,524 coffee farms in 1988, around 62,000 possessed less than 7 ha. of land (Honduran Coffee Institute, 1988). 32. Corn yields were one MT/ha. for the smallest farms, 1.5 for the next higher stratum, and 1.8 for the largest farms (CADESCA, 1990). Bean yields were relatively constant over farm size groups, but rice yields rose from 2.6 MT/ha. for the smallest farms to 3.4 for the largest. 70 Poverty Profile Table 5.6: Production Features of Farms, 1987-88 (%) Farm Size (ha.) Less than 2.5 2.5-4.9 5-9.9 10-49.9 50 and more Corn Lands 2.4 15.6 9.2 33.6 28.9 Improved seeds 17.9 34.5 44.6 52.8 43.9 Fertilizers 7.8 25.0 35.6 27.6 18.5 Insecticides 14.7 19.6 19.8 28.3 51.5 Land on slopes 35.2 21.9 21.3 16.0 2.8 Grain Farrmers Illiteracy rates 57.4 46.9 46.0 39.6 37.2 Source: Adapted from CADESCA Survey, 1987-88. E. Summary and Conclusions 5.32 The overall conclusions on poverty in Honduras can be summarized as follows: * A low per capita GDP and highly unequal distribution of income determine the existence of high poverty levels; around 50 percent of households were living in poverty in 1992, and 30 percent were in extreme poverty; * Most of the poor live in rural areas and are engaged in agricultural activities or in agriculture-related services, but there are significant pockets of poverty in urban areas; * Inequality of land tenure is a major determinant of rural poverty; * Women, especially in rural areas, are a more vulnerable group among the poor; * Poverty levels increase with recession and fall with economic growth; hence the poor benefitted from the improved economic performance in 1990-92. The proportion of the total population below the poverty line was slightly lower in 1993 than before the adjustment program began; * The rural poor suffered less from the recession and gained more during the period of renewed growth than the urban poor; in 1993, the proportion of the rural population living in poverty was considerably lower than in 1989, while the proportion of the poor in the urban population had increased. Despite these trends, most of the poor continue to live in rural areas; Honduras - Country Economic Memorandum 71 * Urban average incomes and average wages are substantially higher than rural incomes and wages; * Adjustment to economic fluctuations in the labor market occur mainly through changes in incomes and wages, and not through fluctuations in the rate of unemployment. Rates of unemployment are low; * Low wages and low incomes are associated with low productivity of labor, which itself is a reflection of insufficient investment in education and health for the poor; * Minimum wages are not an effective floor for wages, since 40 percent of wage earners earn below the minimum wage. Movements of the minimum wage are also not correlated with movements in real wages; * An extremely high rate of population growth lies in the way of poverty reduction; and * More reliable data are needed to target operations and improve poverty monitoring. 5.33 A three-pronged strategy for alleviating poverty is appropriate. First, poverty reduction requires that policies to promote growth be sustained and continue to include the poor. Distortions that reduce the demand for labor, such as tax exemptions that favor capital imports, should be avoided. Growth among the self-employed, especially in agriculture, where most of the poor earn their living, should continue to be encouraged. The new land tenure policies that eliminate discrimination against the poor and women will be important to stimulating growth that includes the poor. It will also be important to eliminate restrictions on profitable export opportunities for the poor (such as beans, which were restricted in the past); and to make available credit and R&E tailored to their needs. Second, a crucial determinant of poverty is the low productivity of the labor force, caused partly by the lack of access to social services, especially in education and health. Public expenditures in the social sectors need to be made more effective, and access of the poor to education, health, and family planning services should be increased. Third, the social safety net created to channel public expenditures and nutritional assistance to the poor should be strengthened and targeting mechanisms improved. A key to making targeting more accurate will be to generate more reliable poverty data. Strategies for growth in agriculture were discussed in chapters II and IV. In the next chapters, we discuss the provision of social services and the safety net, emphasizing the need to increase efficiency and the accuracy of targeting. Honduras - Country Economic Memorandum 73 VI. SOCIAL SECTOR POLICIES A. Introduction 6.1 The Government's policy for the social sector was summarized in the National Action Plan for Human, Infant, and Youth Development (PAN), which sets quantitative targets for the year 2000. PAN was presented by President Callejas to a summit of Central American presidents in 1991. The Government's strategy, as expressed in the plan, is based, inter alia, on: (i) a focus on primary services in health, nutrition, sanitation, and education; (ii) targeting the poor; and (iii) developing new ways to mobilize resources to complement public funding in the social sectors. This chapter shows that implementation of Government policy in the social sectors is not always consistent with this strategy, and makes recommendations to help adjust implementation to the stated objectives. In addition, this chapter underlines the need to improve efficiency in social service delivery, particularly in education, where efficiency is particularly low. Given the Government's fiscal constraints (see Part I), improving the quality of social services will depend on achieving greater efficiency ratlher than increasing expenditures. 6.2 The main social indicators have improved significantly during recent decades, especially in health- related variables (Annex tables D-1 to D-3). Infant mortality and general mortality rates today are less than a third what they were in the 1950s. In education, despite a notable expansion of coverage at the primary level to its current level of 86 percent, Honduras continues to lag behind comparable countries in terms of literacy. Educational achievement, even among the young who benefitted from the recent expansion of coverage, continues to be at low levels. Nutritional problems are severe despite a long history of nutrition programs. In 1992, almost 40 percent of children suffered from chronic (low weight- age) malnutrition. Social statistics are even worse in rural areas. 6.3 While women have achieved educational levels similar to those of men, their health continues to be a problem deserving special attention. There are at present no gender differences in the overall literacy rate (Annex Table D-2). However, older women are less literate than older men, a sign that early development in primary education favored boys. Later on, women caught up and surpassed men. In 1990, 53 percent of students enrolled in higher education were female. Women's health status continues to be low because of maternity-related causes, and the rate of maternal mortality remains unacceptably high. A significant proportion of births are high risk because institutional delivery rates are low, pre- and post-natal care is limited and of poor quality, family planning is not practiced, and a high percentage of births occur among very young and older women. 6.4 Public expenditures in the social sectors, at over 9 percent of GDP, are high relative to income by international standards. This high share of GDP was maintained during the stabilization and reform period (Table 6.2). International comparisons of the fiscal effort given to education and health, and of 74 Social Policy the relative efficiency of these eftorts, Table 6.1: Social Sector Coverage, circa 1992 (%) were performed by means of regression analysis.3 Controlling Total % Public Target for income levels, these comparisons Coverage Sector Population show that the proportion of GDP used Educpation for public spending in health is close Pre-primary 14.0 80 ages 4-6 Primary 86.0 95 ages 7-13 to the international average and that Secondary 33.0 60 ages 14-19 results in terms of life expectancy are Higher 6.5 95 ages 18-24 better than average. In education, by contrast, the proportion of GDP spent Health < 80.0 95'l' all is higher than the international Sanitation average, while the literacy rate is Excreta disposal 64.0 1003' all below that average. This chapter Safe water 70.0 i003' all analyzes the efficiency and equity of public expenditures in education and Nutrition 26.3t' i00E3 all health. The following chapter Social Insurance 24.1 100 all examines the social safety net, (pension funds) particularly the achievements of the Social Investment Fund (FHIS) in Notes: 1/ Inicluding Social Secunty. financing social infrastructure for the 2/ See text for calculation. poor and of the Family Income 31 Also includes NGOs. Sources: Modermizalion plans in education and health; Honduran Institute of Support Program (PRAF), an Social Security (IHSS); UNICEF. innovative program that delivers food coupons to the most needy. B. Main Issues in Education 6.5 The education sector is relatively costly and inefficient and public expenditures are not sufficiently focused on the needs of the poor. There is a need to increase efficiency and equity in education to close the gap between the Government's stated strategy and implementation. The main problems are the lack of prioritization, the low quality of education, the difficulty of protecting the budget from non-wage expenditures, inequity in the regional distribution of expenditures for education, and a bias toward higher education. 6.6 Education programs are divided into two branches. The Ministry of Education is responsible for pre-primary, primary, and secondary education (Table 6.1). More than 95 percent of primary students attend public schools. Private schools become more important in secondary education, where they 33. A sample of 52 countries with per capita income between 340 and 2520 dollars was used. The results are shown in Annex D-6). Honduras - Country Economic Memorandum 75 account for 45 percent of enrollment. The second branch, higher education, is under the supervision of the National Council of Higher Education. There are four universities and four non-university higher education institutes. The public establishments, the National Autonomous University of Honduras (UNAH) and the National Teacher's University Pedro Morazan (UNPFM), represent 93 percent of higher education enrollment. The remaining 7 percent of students attend private institutions. Lack of Prioritization in Government Strategy 6.7 In 1993, the Education Commission for the Modernization of the State published a strategy and an operational plan to guide the Government's activities in the sector for the rest of the decade. While the strategy document provides a useful discussion of some of the most important ihortcomings of the education sector, it does not establish clear priorities for reform or investment. It lists 21 objectives for the educational system, ranging from Table 6.2: Expenditures in Social Programs, "solidarity with all nations" to the "happiness and 1985-92 optimism of childhood." 1985_89_1990_92 1985-89 1990-92 6.8 The (operational plan has a ten year (% of GDP) implementation horizon with an estimated cost of Education" 4.6 4.2 US$263 million. Projects that address shortcomings Healthv' 2.4 2.9 Others3' ~~0.8 0.6 in the quality of primary education are given Others' particular emphasis, and represent about two thirds Total 7.9 7.8 of the total budget. Among these projects are: of a grade, ~~~~~~Memo total in: universalization of a preparatory grade, primary Million L 1992 673.0 1232.4 school infrastructure, and the elimination of % Central Govt exp. 35.6 34.0 multigrade schools.4 The rest of the proposed % Primary expenditures 40.9 42.8 investment focuses on non-formal education and training. Projects for secondary education account Memo Social Security (% of GDP) for only 3 percent of the incremental budget. Health insurance 0.9 0.8 Pensions 0.6 0.7 6.9 Projects are classified high, medium, or Total Social' 9.4 9.3 low priority. The selection procedures, however, Notes: I/ Includes transfers to UNAH, UNPFM, and are open to question, since projects are graded FHIS funds targeted for education (1990-92). according to multiple criteria. Projects with a poor 2/ Includes transfers to SANAA and FHIS and pRitAF funds designated for health (1990-92). economic evaluation can be given top priority if 3/ lncludes expenditures to labor, social they are graded high in other criteria, some of them assistance, and housing sectors and transfers to INFOP, INJUPEMP, IHSS, JNBS, INVA, and as general as "impact on development" and from 1990-92 FOSOVI. "addressing a major problem." Moreover, some 4/ CG spending plus social security expenditures. projects given lower priority, such as the Source: Annex Table D-5. 34. The preparatory grade and the multigrade schools projects contain only personnel costs. All related equipment and construction items appear in the infrastructure project. 76 Social Policy elimination of multigrade schools by adding teachers to the existing schools, are already being implemented in response to political pressure for new hirings. Low Quality of Primary Education 6.10 As a result of a strategy aimed at universal coverage, Honduras has in recent years developed an extended public primary education system that now covers 86 percent of the population age 7 to 13. Despite this relatively ample coverage, however, the efficiency and efficacy of primary education remains a serious concern. The repetition rate was 12 percent in 1992. Almost a fourth of first grade students fail to be promoted to second year. Dropout rates average 4 percent during the last years of primary schooling. Only 21 percent of the 1988 cohort will graduate in time after 6 years; in rural areas, this rate is below 15 percent. Even worse, more than two thirds of the cohort will never complete primary education. Estimates on the cost of repetition at the primary level range from US$7 to US$13 million per year. 6.11 Repetition has been identified as the key problem in primary education. A study carried out by Harvard University35 found that repetition is the most significant cause of the high dropout rate. Most students who do not complete school are repeaters who become too old to rernain in school (e.g., 10 year old first graders). Repeaters increase class size and contribute to the low quality of education. They are also likely to repeat grades more than once, indicating that the factors behind their failure are not addressed merely by repeating a grade. The Harvard study correlated repetition rates and schooling inputs. Among the most important causes explaining repetition rates were: low attendance rates, a short school year, lack of textbooks and other teaching materials, inadequate instruction techniques in multigrade schools, and the lack of pre-primary education. 6.12 Instruction is of low quality. It is teacher centered and emphasizes mechanical rules and memorization rather than student involvement. In 1992, 3,911 schools (52 percent) were multigrade with one teacher dealing simultaneously with more than one class; however, neither instruction techniques nor teaching inputs were appropriate for this multigrade setting. About 29 percent of schools were incomplete, offering less than six primary grades. Less than 20 percent of primary entrants were exposed to preschooling. Poverty related conditions -- such as the 39 percent rate of chronic malnutrition -- impair students' concentration and learning abilities. School infrastructure is inadequate. FHIS found that 54.6 percent of primary schools lacked safe water, 30 percent did not have adequate sanitation services, and 85 percent lacked electricity. Sometimes a "school" is just a blackboard in an open space. Wages and the Investment Budget 6.13 Wages, representing over 90 percent of the Ministry of Education budget (excluding transfers to higher education), dominate all decisions concerning expenditures. Teaching materials are less than 2.5 percent of the budget and the Ministry's capital expenditures (inr luding in-service training) are about 4 35. Harvard Institute for International Development, 1992. Honduras - Country Economic Memorandum 77 percent. There is a need to develop permanent mechanisms to protect non-wage expenditures, since these expenditures are crucial to improve the quality of education. Expenditures in public education are channeled through the Education Ministry, which finances public schools and central administration, and through FHIS, which has been responsible for most of the investment in school infrastructure and maintenance since 1990. The Ministry's budget is mainly used to pay the wage bill. In this context, FHIS has played the important role of creating an institutional barrier to protect capital expenditures from being absorbed by wage increases. The remarkable increase of 260 percent of capital expenditures in education during 1991-92 would have been difficult to implement using regular Ministry of Education conduits (Annex Table D-8). Teacher Quality and Salaries 6.14 Real wages have fallen in recent years in the Ministry of Education, and there is currently an expectation of very large wage increases. A large proportion of personnel in the sector are in non- teaching positions, but very few have the skills for administrative jobs. There is clearly potential to achieve savings in this area. The main challenge, however, will be to reform the system for hiring and training teachers and to link salary increases to improved performance.' Also, the Government must realize that if it intei,ds to raise tea:hers' salaries, it will have to find innovative ways to finance its plans to expand the programs in the modernization strategy, since the cost of increasing salaries while simultaneously implementing the modernization strategy could add 2-3 percent of GDP to the education budget. 6.15 A critical shortcoming of the educational sector emerges from the political nature of recruitment in the sector and the lack of evaluation systems and incentive mechanisms for teachers. Although in theory there are technical criteria for recruitment, these are seldom used, and politics is often the overriding criterion for selecting new teachers, while candidates with the better credentials are left out. Also, the system continues to neglect the quality of performance, and teachers have no incentive to improve their skills and teaching. Extra effort is not assessed or rewarded; wages and promotions are not responsive to performance. According to Ministry of Education officials, most in-training efforts have been unproductive; teachers do not apply what they have been taught. Under these circumstances, it is doubtful that the massive investments contained in the Modernization Plan will succeed in making a difference in the quality of primary education unless the system of recruitment, monitoring, and incentives can be changed. 36. In spite of a 15 percent reduction in real wages since 1988-89, the position of teachers in the national distribution of income is not unfavorable compared with the position of teachers in other Latin American countries. The starting primary teacher earns four times the average per capita GDP, and an experienced teacher earns twice this amount. Honduran primary teachers with only secondary education earn higher relative incomes than teachers in all other Latin American countries except Nicaragua. Average teacher salaries as a multiple of GDP per capita are as follows: Bolivia 2.6, Jamaica 3.4, Nicaragua 4.5, Guatemala 1.7, Peru 1.3, Ecuador 2.0, Colombia 2.2 Chile 2.0, Costa Rica 3.2, Brazil 3.2, Mexico 0.9, Uruguay 1.0, Argentina 1.8, and Venezuela 1.5. (Lockheed and Verspoor, 1991). In addition, Honduran teachers are given attractive benefits, including the possibility of retiring at age 50 with 75 percent of the last 3 years average nominal wage, and they are exempt from income tax. 78 Social Policy Inequity in Public Expenditures for Education 6.16 The current regional allocation of public resources for primary education is not guided by poverty considerations. To analyze the pattern of regional allocation, this report classified Honduras' 18 administrative departments into three groups according to poverty levels. For each group, average per student expenditures in education and other related variables were computed. This exercise demonstrated that: (i) the poorer regions have lower primary coverage and higher illiteracy rates, higher dropout rates, and higher student/teacher ratios; (ii) the Education Ministry's current expenditures per student are lower in the poorer areas, where educational needs are highest, and the regional allocation of resources favors the more affluent regions; and (iii) FHIS's investments in education are not an exception to the regressive allocation of resources, since per student expenditures by FHIS have also been higher in the better-off departments (Table 6.3). Table 6.3: Public Expenditures in Education by Region, 1992 Per Student Spending (lempiras) Regions Poverty Illiteracy Students/ Dropout Coverage Index Teacher Rate (%) (%) FHIS Min. Ed. Better-off 15.3 20.4 39.40 57.2 97.0 16.29 57.28 Intermediate 35.6 37.1 41.70 72.8 78.3 12.51 49.70 Poorest 50.7 41.0 42.20 75.7 69.7 14.44 47.72 Source: Table A-17. 6.17 Public expenditures are biased in favor of higher education. According to a constitutional amendment introduced in 1982, the national university, UNAH, is entitled to 6 percent of Government revenues as earmarked resources. In practice, the Government bypasses this rule but transfers to UNAH are very high, equivalent to 3 percent of Central Government spending in 1988-92. There is no private financing of public education, which is free in Honduras at all levels except for small nominal fees charged to university students. While primary education, with 80 percent of the student population, receives less than half of the budget, higher education with 3 percent of the student population receives 18 percent of the public budget (Table 6.4). 6.18 The heavy transfers to university students are inappropriate for several reasons. First, the transfers are difficult to justify for equity reasons, since most students belong to middle- and high-income Honduras - Country Economic Memorandum 79 families." Second, research is almost nonexistent at UNAH, so there Table 6.4: Ministry of Education Expenditures and are no research externalities to be Enrollment by Program, 1988-92 (%) publicly financed. Third, there are serious inefficiencies at UNAH. 1988-89 1990-92 Distribution of Despite a significant increase in Enrollment transfers to the university during the Primary education 49 49 80 1980s, coverage has remained Secondary education 17 17 17 stagnant at 6.5 percent of the 18-24 Higher education 18 18 3 Central administration 16 17- age group, and graduation rates are very low. Only 1.4 percent of the Total 100.0 100.0 100 1981 cohort graduated in the expected Source. Annex Table D-9. 5 year period; only 15 percent in the 10 years after entrance. The stagnant coverage and low efficiency partly reflect the low coverage and quality of secondary education; redistributing part of the budget to secondary education could help loosen this bottleneck. Finally, subsidizing primary education is justified because of the large discrepancy between private and public returns -- society at large benefits from this kind of education more than the individuals involved. For higher education this gap is smaller, and most of the benefits accruing to society reach the individuals concerned -- hence they should be willing to finance this investment. C. Main Issues in Health 6.19 A remarkable feature of Honduras' primary health care system (PHC) has been the continuity of PHC policy since its inception in 1973, regardless of political changes during this period. The Government's objectives for the health sector38 consist of strengthening the existing strategy rather than changing it. In spite of past achievements, more needs to be done to strengthen PHC. 6.20 The Ministry of Health is responsible for national health policy, and for planning, financing, and providing health services. Its service system is composed of 8 health regions and 36 administrative areas. Services are delivered at three levels: primary, secondary, and tertiary. Estimated coverage is 60 percent of the total population. In addition, the Honduran Institute of Social Security (IHSS) covers approximately 19 percent of the population, and the private sector 3-5 percent (Table 6.1). Total coverage is less than the sum of these figures, since some overlap occurs among sectors. Family planning 37. Four out of five UNAH students come from middle-class and rich families. All of them are exempt from tuition except for small nominal payments. Anecdotally, relatively well-off Honduran families living in the USA are said to send their children to study at UNAH because of its free tuition policy. 38. Plan for the Modernization of Health Services, 1993. 80 Social Policy coverage is rather low; only an estimated 31 percent of sexually active women use some form of modern contraception. Family planning services are provided by the Ministry of Health and an NGO, the Honduran Association for Planned Parenthood (ASHONPLAFA). 6.21 The Ministry of Health provides financial resources to primary health centers and hospitals, and transfers resources to the Water and Sewerage Service (SANAA). In addition, since 1990, FHIS has financed investment and maintenance in primary health centers and sanitation infrastructure. During the 1990-92 reform period, average annual real spending by the Ministry of Health increased by 2 percent compared to 1988-89. Including FHIS spending in health and sanitation, total spending in the health sector increased by 11 percent between these periods. However, much of this gain is due to a surge in external financing to support SANAA infrastructure. Excluding the investment in sanitation (both SANAA and FHIS), annual spending in health fell by 4 percent in real terms during the adjustment period. Real wages in the sector declined by almost 25 percent. The devaluation of the lempira put a heavy burden on health costs, since many inputs are imported; annual expenditures in materials, medical supplies, and equipment increased on average by 20 percent in real terms during adjustment. Table 6.5: Ministry of Health Spending by Program, 1988-91 (%) 1988 1989 1990 1991 1988-89 1990-91 Hospitals" 60.8 63.1 61.1 53.0 61.9 57.1 Primary health centers 39.2 36.9 38.9 47.0 38.1 42.9 Total 100.0 100.0 100.0 100.0 100.0 100.0 1/ Includi econdery and teriary aUenfion levels. Soae; Mimisry of Heah. 6.22 Primary health care takes place at three levels: community health workers, including midwives and health guardians; rural health centers (CESAR), which are entry-level health facilities usually staffed by an auxiliary nurse and a health promoter; and health centers with physicians (CESAMOS), which provide preventive and some curative ambulatory services. In 1991 there were about 8,500 community health workers, 552 CESARs, and 177 CESAMOS. Secondary and tertiary attention takes place in the hospital system, which comprises 10 district, 5 area, and 7 national hospitals. 6.23 Recently there have been some impressive results in the area of preventive activities. In 1992, immunization coverage for children under one year was over 94 percent for smallpox, polio, DPT, and BGG. This is remarkable for a poor country with 57 percent of the population living in rural and sometimes isolated areas. There have been no cases of polio in the last four years or smallpox in the last two. There have been only a few cases of cholera, dengue, typhoid, and other transmittable diseases. 6.24 Another important achievement is the progressivity of PHC expenditures. Per capita spending in primary health favors the poorest departments (Table 6.6). These departments suffer from lower Honduras - Country Econotic Memorandum 81 sanitation coverage, lower access to safe water, and higher malnutrition rates. FHIS per capita spending in health and sanitation infrastructure follows a similar pattern. In contrast, per capita spending in hospitals is biased toward the least poor departments. Table 6.6: The Incidence of Public Spending in Health Care, 1992 Per Capita Spending Poverty Access to Access to (lempiras) Regions Index Excr. Disposal Safe Water Malnutrition (%) (%) (50) FHIS Hospitals Primary Health Least poor 23 75 66 26 5 54 7 Intermediate 39 65 43 26 10 9 8 Poorest 45 62 46 32 14 19 9 Source: Amnex Table D-U2. 6.25 In spite of past achievements and good targeting, more needs to be done at the PHC level. Coverage is still low; infant mortality continues to be high due to preventible diseases like diarrhea and acute respiratory infections; the maternal mortality rate is high even by low-income country standards, and more than half of maternal deaths could be prevented by opportune health attention; nutritional deficiencies are a significant factor in most infant deaths; and ignorance about hygiene and other household health related activities compounds the problems associated with lack of excreta disposal and access to safe water. 6.26 More resources need to be allocated to the PHC system. In particular, there is a need to increase and upgrade personnel at the CESARs, where an auxiliary nurse often single-handedly performs administrative, training, and outreach activities, as well as providing PHC services to an average population of about 3,000. Other PHC activities in need of reinforcement are in-service training, supervision, the referral system, and maintenance and supplies at PHC facilities. Thus, new resources should be directed mostly to primary health centers. Spending in hospitals accounted for about 60 percent of the Health Ministry's budget (excluding transfers to SANAA) during the 1988-91 period, while public health and primary health centers accounted for the remaining 40 percent (Table 5.4). In recent years, the proportion of the health budget assigned to hospitals has fallen -- not because of a change in priorities, but because of the temporary reduction in doctors' real wages that took place as part of the overall decrease in real salaries of the public sector. However, in 1993 doctors received a substantial wage increase, which again raised the financial weight of hospitals as a proportion of the total. 6.27 Prioritizing the PHC system does not imply neglecting hospitals, which face serious financial problems regarding infrastructure, equipment, and medical supplies. An integrated health system also requires secondary and tertiary attention. The non-wage budget needs to be protected from pressures to raise wages. Also, hospitals can do much better in terms of raising revenues from private sources. Both the kinds of services provided and the population attended in hospitals call for a more balanced mix in financing hospital costs. On the one hand, there is ample scope to increase cost recovery in order to 82 Social Policy reach the Government's goal of recovering 25 percent of operative non-wage cost. On the other hand, widespread financing of curative care through social insurance appears to be an alternative way to channel private resources into hospitals, which would release fiscal resources to the PHC system. 6.28 The non-wage budget (for investment, equipment, and medical supplies) needs institutional barriers to protect it against the increase in the wage bill (Table D-10). Wages represented 57 percent of the 1988-92 average Ministry of Health budget, net of transfers to SANAA. The institutional barriers protecting investment were provided by FHIS, SANAA, and the requirements of donors active in the sector. Including FHIS and SANAA, investments in the sector represented a third of total expenditures in 1991-92. Equipment and supplies, accounting for 36 percent of the health budget, were also protected by donors. External sources provided one fifth of Health Ministry's financing in 1990-92 period, including financing for SANAA. About 75 percent of these funds in 1992 went to build sanitation infrastructure.39 The remaining 25 percent was evenly shared by institutional development, construction of health centers, and medical supplies. PRAF also served as an institutional barrier to protect spending in nutrition (see Chapter VII). 6.29 In 1989, the Ministry of Health introduced a pilot program for cost recovery in PHCs and hospitals. Hospitals and PHCs were allowed to retain most of the revenues from user fees to finance the purchase of material inputs. The financing of personnel expenditures out of cost recovery was explicitly prohibited. At present, hospitals recover about 8 percent of non-wage operating costs. While the search for new forms of financing for the health sector should be encouraged, the effect of introducing fees on the demand for services by the poor is not known. This important matter will be analyzed by the Government in collaboration with the World Bank as part of a wider study on financing the health sector. 6.30 The Modernization Program for the health sector proposes the introduction of compulsory contributions proportional to income for all people above some minimum income level. It also proposes extending IHSS coverage to all those legally entitled to it. Low-income groups should be provided free access to a minimum clinical package in this network. To expand available choices and create competition, an option regarding private health care should be available for insurers willing to pay an additional fee. This option is being examined by the study on health sector financing mentioned above. D. Conclusions and Recommendations 6.31 While there has been important progress in social policy, much more needs to be done in the social sectors. The main shortcomings are: the low quality of education and the high repetition rates in primary schools, the system of recruitment and incentives for teachers, the high proportion of unskilled administrative staff in the Ministry of Education, the inefficiency of UNAH and the inequity implicit in the large public transfer to the universities, insufficient coverage and lack of human resources in the 39. This figure is even higher if FHIS is included. Honduras - Country Economic Memorandum 83 primary health system, several public health problems related to inadequate sanitation, the low coverage of social security, and the still insufficient coverage of the social safety net. 6.32 Some of these shortcomings are currently being addressed by actual and planned policies. The Modernization Plan for Education contains a set of projects aimed at improving the quality of public education. The Modernization Plan for Health attempts to extend social insurance as a means of increasing private financing to the public health system (cost recovery in hospitals and PHC is already performing the same function); and to confront public health problems with large investments in sanitation infrastructure. 6.33 In spite of these advances, there are some important matters that deserve closer attention. The Modernization Plan for Education needs to be strengthened and its investment program prioritized using rigorous evaluation criteria. A comprehensive recruitment and evaluation/incentive mechanism for teachers must be introduced and rigorously enforced to eliminate political recruitment and enforce the use of professional criteria for recruitment and promotion. The regional allocation of current and investment resources needs to be redirected toward the poorer regions with more urgent educational needs. Public financing for UNAH should be partially replaced by tuition fees, and the remaining public subsidy should be linked to explicit outputs (e.g., implementation of new curricula, specified research programs). 6.34 Government intervention in health should focus on public health programs. Externalities and equity considerations support this choice. Public health programs address health problems of the entire population. They deliver immunizations; they promote healthy behavior in issues such as nutrition, drug abuse, fertility, and AIDS prevention; and they promote a healthy environment by controlling insect vectors of disease. High population growth needs to be addressed through the development and implementation of population policies. The Government must ensure universal access to a package of clinical services characterized by highly cost-effectiveness interventions. These should be implemented under the planned unified network of social security and public health centers. The study underway on the financing of the health system should provide the basis for designing the reforms required to achieve this aim. Honduras - Country Economic Memorandum 85 VII. INTERVENTIONS TARGETED AT THE POOR A. Introduction 7.1 Targeted interventions are intended to directly benefit groups who have specific needs that are not adequately addressed by traditional programs and policies. Targeted interventions can be short-term projects and programs that respond to a temporary hardship suffered by a particular group, or long-term programs and policies that address more structural disparities. 7.2 In 1990, several new programs were introduced to provide a social safety net; the two most important were FHIS and PRAF. Both of these programs were supported by IDA credits. FHIS is designed to generate emergency employment and build social infrastructure. PRAF's main objective is to deliver monetary subsidies in the form of food coupons to poor primary school children of women- headed households, low-income children under five, and pregnant and nursing mothers. Both programs are run by autonomous institutions, employ qualified and motivated personnel, and are relatively free of bureaucratic controls and political influences. 7.3 Expenditures for FHIS and PRAF were about I percent of GDP during 1991 and 1992. FHIS is the largest of the social safety net programs, representing two thirds of expenditures. Financing is mostly external. 7.4 This chapter covers the principal programs targeted at the poor. These include programs to: (i) develop small-scale infrastructure in poor areas; (ii) transfer income or food to the poor; and (iii) directly support small-scale productive activities (micro-enterprises and small-scale farming activities). For each program, the chapter evaluates the institutional setup, targeting procedures, and -- as data permit -- the program's impact. The final section makes recommendations for future actions. B. Development of Small-Scale Infrastructure - FMIS 7.5 The Honduran Social Investment Fund, FHIS, is a rapid response social and physical investment program instituted in 1990 to direct government investments and social programs toward the poorest groups. FHIS has spent 90 percent of its total budget on infrastructure: 53 percent on educational infrastructure including school desks and school repairs, 20 percent on water and sanitation, 10 percent on urban infrastructure such as streets and drainage, and 4 percent on health care infrastructure. The remaining 10 percent of its budget has gone to nutritional and health training (5 percent), and the micro- enterprise program (5 percent). 86 Targeted Interventions 7.6 FHIS is not an executing agency; it is mainly a system of procurement, disbursement, and supervision. Eighty percent of all funds have been channeled through direct contracting arrangements with private sector firms, primarily construction firms. Some of these firms subcontract a portion of their budgets to NGOs, which execute specialized functions such as community mobilization. The remaining 20 percent of FHIS funds have been channeled through municipalities, larger constructive firms through competitive bidding processes, and NGOs. Total funds channeled through NGOs -- including competitive bidding and subcontracting to construction firms and municipalities -- is 36 percent of all expenditures. Efficiency 7.7 FHIS has proven to be a highly efficient institution. It managed to complete 5,474 civil works during the first 3 years of its existence with the relatively low cost of US$2.20 per beneficiary, compared to an average of US$4.90 for other municipal development funds in developing countries.' FHIS has produced and repaired much more physical infrastructure and equipment in the social sectors than the line ministries. Its capacity is clearest in the case of education. While the Ministry of Education has constructed almost no new schools over the past five years, FHIS has either created or repaired 5,921 schools, kindergartens, and classrooms. FHIS' administrative costs, at around 10 percent of its total budget, are on the high end for social investment funds, which range from 3.5 percent to 10 percent.4" FHIS' direct contracting arrangements and its frequent use of NGOs to execute projects have resulted in programmatic agility, and have avoided favoring the few municipalities that have in-house staff capable of developing proposals (currently only 80 of the 291 municipalities have such staff). 7.8 FHIS' agility depends on its procurement procedures. Instead of relying on specialized promoters to help communities develop funding proposals which then are tendered for competitive bidding, FHIS uses direct contracting. The contractors, who are knowledgeable in FHIS procedures, have an incentive to act as promoters, helping the communities to identify and prepare projects. The incentive for the contractors is their expectation of being chosen to execute the project -- which is usually the case. Although the use of contractors is efficient, it undermines community participation in the projects (see para. 7.16). Efficacy of Targeting 7.9 While FHIS' mandate is to concentrate on the poor, the actual distribution of investments does not significantly benefit the poorest municipalities. A poverty map based on malnutrition rates and water and sanitation service levels was developed at the beginning of the program to direct resources toward municipalities with the worst indicators. But investment over the 1990-93 period was not guided by the 40. Davey, 1988. Figure based on planned expenditures per beneficiary. These figures need to be interpreted cautiously, since they combine beneficiaries who benefit significantly from a project with those who benefit only marginally. Also, there is significant double counting of beneficiaries, because individuals in a village might benefit from a number of different projects, such as schools, roads, and latrines. The total number of "beneficiaries" is much higher than the population of Honduras. 41. Grosh, 1992. Honduras - Country Economic Memorandum 87 poverty map; FHIS has distributed resources evenly among the municipalities according to their population and not according to their poverty levels. During the three years of execution, FHIS did significantly improve its targeting, overcoming logistical difficulties in the poorest regions, but there is still scope for further improvement. Targeting particularly needs to be improved for educational investments (Table 6.3). Unless better and stricter targeting criteria are developed and implemented, there is a risk that political interference could divert resources from the poorer areas. Benefits 7.10 As described above, FHIS had a significant positive impact on the development of small-scale infrastructure. Here we discuss its institutional achievements and its impact on employment generation. 7.11 Capacity Building. FHIS operations have increased the implementation capacity of small private construction firms and NGOs and developed the procurement capacity of the Government. Private contractors have received extensive training in submitting project proposals, organizing small projects, and coordinating with other implementing entities, especially NGOs. An extensive array of small, skilled contractors now exists throughout the country, providing a significant resource for implementing decentralized infrastructure programs. Prior to FHIS, NGOs and the Government had little experience with collaboration. FHIS has helped develop new NGOs and has strengthened many existing ones. Although the administrative and implementing capacity of NGOs is varied, in general they have a greater capacity than the state to establish direct links with the beneficiary population, develop programs that respond to their needs, and mobilize community involvement in projects. This participatory approach is often a more appropriate way to implement Government programs that require intensive beneficiary contact, and to develop locally appropriate projects. There are currently some 150 to 200 NGOs operating in Honduras. Finally, FHIS initiated development of the Government's procurement procedures for small-scale civil works, but, as explained above, this has been based on the use of direct contracting. More competitive forms of contracting need to be developed. 7.12 Employment. Although FHIS was originally conceived as a jobs creation program, it has generated only a small amount of employment. From 1990 to March 1993, FHIS projects hired 119,141 individuals, creating 18,167 person-years of employment, or 5,590 full-time jobs.42 Also, there has been a trend within FHIS toward larger, less labor-intensive projects over the past three years. While FHIS spending increased six fold between 1990 and 1992, the total employment generated by projects was reduced by 50 percent during the period as less labor-intensive techniques were applied. The Informal Sector Support Program (PASI) represents 12,635 jobs, or 10 percent of all employment generated by FHIS.43 Of PASI employment, 55 percent has been female, which contrasts favorably with 42. The number of person-years is based on FHIS person-month data; 218,009 person-months of employment were generated during 39 months. Dividing person-months by project months gives the annualized figure for full-time employment; i.e., 5,590. 43. PASI is a training and credit program for micro-entrepreneurs. If one assumes that all PASI jobs are half-time and permanent, then this figure (6,182 full-time jobs) actually represents half of all FHIS full-time employment. 88 Targeted Interventions the 29.3 percent share of women in the labor force. The multiplier effects of FHIS probably have been significant in the industries supplying materials for construction and consumption goods. However, even assuming that the additional employment generated in those sectors was twice the direct employment generated by FHIS, each permanent job generated would have cost almost US$7,000. Clearly, at this cost the Government is not capable of generating a large number of jobs. Hence, FHIS should not be regarded as a job creation program. The justification for continuing the program comes from its impact on the development of infrastructure, its capacity to work with NGOs, and its potential for targeting, not from its impact on employment. Incentives 7.13 Mobilization of Local Resources. Municipalities and local communities need to become more involved in the design, execution, financing, and maintenance of FHIS projects. Although program execution was initially the responsibility of the municipalities, FHIS changed project initiation mechanisms early on to focus more on private contractors in order to improve the speed quality of execution. Municipalities tended to propose small beautification projects with large non-skilled labor inputs but with little lasting social benefit. With few exceptions, such as San Pedro Sula, the vast majority of municipalities have not participated in any significant way in the financing, design, or oversight of investments. There are no explicit municipal operation and maintenance requirements for completed infrastructure. As discussed above, the 1992 Municipalities Law provides for the transfer of 5 percent of the national budget to municipalities. As yet there have been no expenditure responsibilities attached to this new source of municipal revenue. FHIS represents a good opportunity to direct some of these revenues toward counterpart funding of local projects, especially for maintenance. 7.14 Community Participation. Closely linked with the lack of municipal involvement is the insufficient involvement of the local population. Consultation with the community is a requirement according to the FHIS Operational Manual, but this requirement often is not enforced, and when it is, the process is often purely ceremonial. Community involvement entails several issues. First, since some programs require cost sharing in the form of voluntary labor and some do not (FHIS works without community participation and pays a contractor to hire labor, while non-FHIS programs require voluntary labor), a community can perceive the requirement to provide voluntary labor as unfair. This issue is highlighted mostly in the sanitation sector, where FHIS projects operate alongside non-FHIS projects that rely on extensive community participation, causing non-FHIS beneficiaries to question why they are not also receiving infrastructure "for free." Second, when a beneficiary community does not share the cost of building a project, it will not develop the institutional mechanisms to provide for its maintenance. Hence, in some projects, the lack of community involvement can have a negative impact on long-term operational sustainability. FHIS has improved its performance in this area, hiring NGOs to train beneficiaries in proper facility use, and several recent projects have established local water communities and parents' committees to improve school maintenance. This approach needs to be strengthened, since it has been shown to be crucial to the success of maintenance-intensive infrastructure projects in developing countries. Honduras - Country Economic Memorandum 89 C. Direct Transfer Programs - PRAF and Food Aid Food Aid 7.15 Nutritional programs in Honduras have a long history in Honduras dating back to the 1950s, with many programs and wide coverage. These programs are largely based on the use of commodity food aid provided to the country. In 1991, donors spent an estimated US$21 million on food aid for Honduras. There are four large nutrition programs, all of them mostly externally financed. The school feeding program is executed by Ministry of Education and benefits around half a million primary students; the food for work program provides food and other benefits to about 85,600 subsistence farming households; the supplementary food program covers approximately 173,000 women and children who exhibit symptoms of malnutrition in primary health centers; and the PRAF food coupon programs benefitted about 180,000 women and children in 1992. Assuming an average family size of 5.7, and that no overlapping occurs among programs, coverage of the nutrition programs is 26 percent of the total population (Table 6.1). 7.16 The nutritional results of 40 years of food aid in Honduras are unsatisfactory given the importance of the problem and the substantial amounts invested in trying to solve it. According to available studies," nutritional status is more closely related to overall economic conditions than to food aid programs. While food aid to Honduras increased dramatically during the 1980s, the poor economic performance leveled off the trends of improving health and nutrition indicators, and malnutrition rates nearly doubled in the departments most affected by the economic crisis of the 1980s. 7.17 The traditional food aid programs are being criticized for three main reasons, and the evidence suggests that many of them should be replaced by programs that distribute coupons -- such as PRAF. The main criticisms are: First, balance of payments support in the form of commodity food aid creates distortions by increasing preferences for imported agricultural products, and by shifting consumption patterns and demand away from local products. Second, direct food aid to beneficiaries as compared to coupons has relatively high costs, since it requires the financing of distribution channels that run parallel to commercial channels. Third, targeting seems more accurate with coupons than with direct food aid. 7.18 In the past, food aid was conceived strictly as nutritional assistance, but this concept is giving way to incentive programs that aim also to improve access to basic services for the target population. This shift is in response to the new understanding that feeding programs have a minimal impact on nutritional status, but can help increase school enrollment (through school snacks) and health care (through rations distributed at clinics). In addition to the new focus on incentives in food aid, there is an increasing trend toward monetizing food aid. This new thinking was the basis for the design of programs such as PRAF, discussed below. 44. e.g., PAHO/INCAP, 1993a. 90 Targeted Interventions 7.19 Efriciency. The logistics of the physical distribution of food are complex, costly, and subject to substantial leakage. For example, USAID currently spends about 50 percent of its total food aid budget on administrative costs, including transportation and CARE program administration costs, as compared to 15 percent for PRAF.45 On the positive side, costs per beneficiary for food aid programs in Honduras are low relative to other feeding programs, at US$16.2 per beneficiary for school snacks and rations distributed at clinics, compared to an average of US$45 for other Latin American feeding programs.' 7.20 Efficacy of Targeting. Maternal/infant supplement and school feeding programs rely on geographic targeting to reach the beneficiary population. All children in participating schools receive supplemental feeding, regardless of family economic status. School feeding programs operate in all municipalities within 9 of the 18 departments, including Francisco Morazan and Cortes, and maternal/ infant feeding programs operate in 16 of the 18. A significant proportion of program beneficiaries, particularly in school feeding programs, are non-poor, although the magnitude of errors of inclusion is not known. Some program implementers argue that geographical targeting could be greatly improved by restricting program operation to only those departments and municipalities with the highest rates of malnutrition and low birth weight. Beneficiary and geographic selection is controlled by implementing ministries and agencies, not CARE or USAID. 7.21 Because of these considerations and to address the problems of duplication, overlap, and lack of coordination among different nutrition programs, the Government is undertaking a study to provide a new policy framework for nutrition programs. This framework is likely to recommend that a larger proportion of the food aid be monetized and that the coupon programs be expanded. The Family Assistance Program (PRAF) 7.22 Background. PRAF consists of two food coupon programs administered through public schools and health clinics (88 percent of the total program budget), a program to distribute basic school supplies to children in three departments (9 percent), and a program providing training and credit to women for micro-enterprise development (3 percent). The micro-enterprise program is discussed in Section D. The two food stamp programs are designed to improve nutritional status and access to health and educational services during the critical prenatal, neo-natal, and early schooling phases of children's lives. PRAF's budget was US$8 million in 1992, and covered 13 of the 18 departments with one of the four programs, but only 9 departments with food stamps.47 All clinics and schools within the selected departments are 45. The comparison is not completely appropriate, since the task of food distribution is qualitatively different from fond stamp distribution. Nevertheless, the comparison gives a sense of the order of magnitude of administrative program costs when comparing the two approaches. 46. Grosh, 1992. 47. Both the school- and the clinic-based food stamp programs exist in 3 of the 9 departments: Cortes, Francisco MorazAn, and CopAn. The two food stamp programs do not overlap in the other departments. Program overlap does not result in double coverage, in the sense that in addition to providing a direct subsidy to the family, the programs are intended to increase two (continued ... ) Honduras - Country Economic Memorandum 91 included in the program. PRAF serves the poorest population within the selected departments, based on individual eligibility criteria. School-based food stamps are destined for school age children of poor families in the first through third grades, and are distributed three times a year. Clinic-based food stamps are destined for pregnant and nursing mothers and children five and younger, and are distributed once a month. Both programs are designed to increase service provision by increasing school enrollment and attendance, and appointments at health clinics. 7.23 The food stamps are an income transfer rather than a direct food transfer. Coupons in L20 denominations (about US$2.30) are distributed to the mothers of program beneficiaries and can be redeemed in any store or bank. Increasingly, mothers are exchanging coupons for cash in banks because store owners exchange them at less than their face value. Monthly per family benefits currently represent approximately 5 percent of the minimum wage (for a 40 hour week) and 12 percent of the basic food basket for the clinic-based program, and 14 percent of the minimum wage and 38 percent of the basic food basket for the school-based program, according to a detailed study of PRAF by the Panamerican Health Organization (PAHO).48 Because there has been no correction for inflation since 1990, the value of the stamps has fallen by approximately 30 percent of their original value. 7.24 Efficiency. PRAF's internal administrative costs, at 9 percent, are on par with other food stamp and direct subsidy programs in developing countries. This includes overall program planning, coupon preparation, bulk distribution, and accounting. Actual distribution to beneficiaries, which is carried out by the staff at clinics and schools, has been estimated to raise administrative costs to 15 percent and 12 percent, respectively.49 The administrative costs incurred by teachers and clinic staff, who are not paid for their extra labor, are likely to be compensated by increased productivity in staff time -- and increased service delivery -- stimulated by the increased use of schools and clinics. School teachers and administrators see the program as increasing parental appreciation of schools as an important community institution, and view it positively. The thrice-yearly distribution schedule in schools does not interfere with normal school functions. Clinic staff and users, on the other hand, reported frustration with the cumbersome administration of monthly food stamp distribution in the clinics, which they claim absorb approximately 5 percent of clinic staff time. The trade-offs between increased administrative work load and increased productivity should be examined more closely, particularly in the clinic-based program. 7.25 Efricacy of Targeting. Beneficiary selection for the school-based food stamps was initially based on teacher assessment of household economic conditions. In 1992, a child weight-to-age criterion was 47( ... continued) distinct forms of social service coverage: health and education. PRAF's clinic-based food stamp program was initiated before FHIS' poverty map was available; and department selection for the first pilot program was based on proximity to Tegucigalpa and relied on means testing within program areas for targeting. When the school-based program was introduced a few months later, the FHIS poverty map was available, and three of the poorest departments were added to the program. 48. PAHO/INCAP, 1993b. Based on a basic food basket of 2,138 Kels. No information is given on the minimum wage used to calculate percentages. 49. Grosh, 1992. Distribution costs are hard to estimate; the figures in the text are tentative. 92 Targeted Interventions introduced, making selection less subjective and improving targeting. The school-based program is intended for children in grades one through three, because they are at the highest risk of dropping out and of suffering from malnutrition. In practice, children who were initially enrolled in the program have continued to receive stamps until they complete the sixth grade. At the same time, teachers are not signing up new incoming students in the first through third grades because they have a limited number of food stamps allotted to their schools. 7.26 This selection criterion has made the program well targeted where it operates, even though some poorer departments are not included in the program, and some better-off departments are. For example, the departments of Francisco Morazan and Cortes receive 55 percent of all program expenditures, although they fall into the best-off and second best-off categories according to the poverty map. Yet participation rates' in the school-based food stamp program are low in these departments, at 15 percent and 10 percent respectively, while their absolute numbers are large because of the higher population concentrations there. In the very poor departments of Lempira and Intibuca, participation rates are 80.4 percent and 73.7 percent, indicating that the beneficiary selection process reflects the higher proportion of poor in these areas. 7.27 Impact. The PAHO study shows that during PRAF's first year of operation, school enrollment in participating schools increased by 15 percent, compared to 2.4 percent in non-participating schools. Since that time, the higher level of enrollment has been maintained, but increases in the number of students are similar to those of non-participating schools. This was largely due to the expansion of beneficiary eligibility to the upper grades, and the reduction in program enrollment of new incoming students. No impact was found on dropout rates. 7.28 In the clinic-based program, PAHO found the most significant impact in the number of well-baby visits in participating clinics in rural, poor areas, with a 310 percent increase, compared to a 35 percent increase in non-participating clinics. From the point of view of increasing demand for services, the PAHO results for both clinic- and school-based programs argue for increased geographical targeting to rural, poor areas. 7.29 A number of program design issues have been raised, and not fully addressed to date. First, there is fear that PRAF will have the effect of encouraging women to have more children in order to benefit more from the program, especially if it is made permanent. There is no empirical evidence to support or refute this concern, but research on this question is being planned. Second, program leakage is a concern, but less for corruption than for targeting reasons. There has been little evidence of benefit leakage through either improper beneficiary selection by teachers or outright theft of coupons. Many school administrators in poorer areas reported frustration that they were not able to provide benefits to 50. Participation rates are aggregate calculations based on the number of students receiving food stamps throughout the department divided by the total student population. In any given school, if the number of qualified students exceeds 60 percent, all students receive food stamps, because the general level of poverty is presumed to be quite high. This policy has the effect of providing proportionately more benefits to poorer departments than to better-off departments, a progressive targeting mechanism. Honduras - Country Economic Memorandum 93 all children and their families. Although universal coverage in participating schools might reduce parental confusion over why some children are included in the program and others are not, providing benefits to all students would reduce the efficacy of individual needs-based targeting, which at present compensates for the less than ideal geographical targeting and could exceed currently available financing. D. Micro-enterprise Programs in FMIS and PRAF 7.30 Background. FHIS' and PRAF's micro-enterprise programs represent a small portion of their respective budgets, at 5 percent and 3 percent. PRAF's Occupational Training Project (PFO) trains beneficiaries who have little or no previous micro-enterprise experience, and provides them with in-depth theoretical and practical micro-enterprise orientation, including discussions of gender relations, bookkeeping, and basic market research. Training sessions take six to eight hours a week over a six month period, a significant time requirement for many mothers. The NGO group promoters guide beneficiaries in exploring financially and commercially viable projects. NGO beneficiary training is monitored by PRAF supervisors, who provide effective technical support and encouraging mid-course adjustments when appropriate. The most common rural projects are egg and chicken production, or opening a small store, while urban projects tend to be personal service-oriented, such as beauty salons or tailoring. Some of the PFO beneficiaries receive loans at 3 percent -- conditioned on whether they develop a viable micro-enterprise scheme by the end of the six month training period. 7.31 FHIS' Support to the Informal Sector Program (PASI) is primarily a micro-enterprise lending program, with a complementary training program whose objective is to introduce small entrepreneurs to the formal credit system and the increased bookkeeping discipline this requires. PASI has distributed 7,171 loans to date, all at the market rate of 18 to 19 percent." Most PASI loan recipients (61 percent) participate in joint-responsibility credit groups where each member guarantees the loans made to other members. The remaining beneficiaries access credit through special credit lines established in commercial banks by NGOs with wide national coverage. FHIS has established a guarantor relationship with these banks to facilitate loan approval. The repayment rate is over 99 percent, an extremely high rate even for similar lending schemes. PASI is heavily weighted in favor of urban areas; 83 percent of program expenditures are urban. 7.32 Efriciency. Both the FHIS and the PRAF micro-enterprise programs have relatively high per capita costs, when compared to other forms of targeted interventions. Per capita training costs are US$47 for FHIS and US$39 for PRAF. Loan amounts vary; the average FHIS loan is US$450, and PRAF loans average less than US$250. 51. Micro-enterprises normally only have access to informal credit, at rates of 10 to 20 percent per month in Honduras, so market rates represent a marked improvement in credit terns for beneficiaries. 94 Targeted Interventions 7.33 Efficacy of Targeting. PRAF's PFO is somewhat better targeted than FHIS' PASI, reaching more women in rural areas. While PFO is in theory directed at PRAF food stamp recipients, in practice it serves all women in a community who are willing and able to participate in the numerous weekly training meetings. This selection process might in fact weed out the poorest potential beneficiaries, who are too busy with household and subsistence work to participate. The effect is to select beneficiaries who are better-off and more likely to perform well within the program. The FHIS solidarity group scheme also presents selection problems, because beneficiaries must demonstrate an established ability to repay loans, and because of the time demands of group activities and program meetings. Successful outcomes in community group-based programs often hinge on the solidarity established within groups, thus forcing a trade-off between the amount of time spent in the group activities and the desire to include poorer beneficiaries. Since both of these programs are new and experimental, it is important for them to have initial successes in order to establish momentum. This justifies a certain amount of selection at this stage. 7.34 Benefits. Both programs are too new for more than preliminary observations. The FHIS project reports a 1.6 to I ratio between jobs and loans given out. This is a relatively low multiplier effect, indicating that the program is working mostly with one and two person micro-enterprises. Not enough time has elapsed to know whether these operations will grow and employ more people over time, but incomes are expected to increase for project beneficiaries. By contrast, the impact of PRAF is much more difficult to measure because of the longer training period (6 months) and less emphasis on actual loans. PRAF's linkage of food stamps with productive investment replicates a number of successful spontaneous solidarity experiences observed by program staff in some service areas, where women pool their coupons to start a small store or purchase vegetables at bulk rates. There is long-term potential for developing local economic and productive practices that could persist independently of the food stamp program and increase the nutritional impact of PRAF. The principle incentive of PRAF is for women to establish the community-based organizations described above, through which they can organize a more efficient use of their food stamps. These groups provide a parallel structure to traditionally male-dominated community organizations such as the patronato, or local development committee attached to the municipality. As women become more involved in productive activities, their position within their households and the community tend to be strengthened. E. Recommendations 7.35 Small-scale Infrastructure * The efficiency, speed, and agility of FHIS should be preserved, without adding complexity to its procedures on the sub-projects it finances. * Phase in a more competitive bidding system to further increase FHIS' responsiveness to beneficiary needs and preferences and to control costs. The phasing-in should start in the more developed departments and where greater competition between contractors already exist. Honduras - Country Economic Memorandum 95 * Continue to improve targeting to poorer municipalities, and to rural areas within municipalities, by imposing poverty map-based geographical quotas and a minimum number of projects and spending in villages outside of the municipal seat. * Develop a mechanism for municipal counterpart funding of project costs, possibly tied to the recently instituted municipal transfers from the Central Government. Counterpart funding should include specific municipal responsibility for ongoing operation and maintenance of infrastructure. * Continue to improve centralized program supervision linked with an increased role for municipal supervision, based on municipal financial contributions. Ideally, some checks and balances should exist between municipal and centralized supervision to avoid local favoritism and a tendency toward beautification projects, while minimizing the inflation of program costs associated with the lack of centralized supervision. This will require strengthening the capacity of municipalities. * In projects involving community-based operation and maintenance, encourage NGO involvement as project promoters. * Eliminate duplication of infrastructure production functions within line ministries, which might require closing down or down-sizing departments in line ministries currently in charge of construction of infrastructure. * gDevelop stronger normative functions in line ministries for coordination between investments in infrastructure and operation of education and health facilities, to ensure compatibility of infrastructure investments with the long-range goals of the social sectors. 7.36 Direct Transfer Programs * PRAF is one of many nutritional/incentive programs including school feeding, maternal/infant supplement distribution, and food-for-work. The current trend toward increased monetization of program commodities allows for more flexibility in the types of food aid programs and increased efficacy in targeting. The relative impact and comparative advantages of the different approaches should be analyzed, and a unified program considered. * PRAF should fine tune its targeting mechanisms through geographical selection of beneficiary communities based on the poverty map and nutritional census. * Administrative costs imposed on schools and particularly on health centers should be examined, bearing in mind the trade-offs between administrative costs and productivity. Reducing the administrative burden of the program is desirable, but this should not come 96 Targeted Interventions at the expense of the increased productivity the program has fostered (i.e., attracting users to schools and clinics). * Potential incentives such as increased birth rate, corruption, and other possible negative effects should be studied and addressed. 7.37 Targeted Productive Programs * Both micro-enterprise programs reviewed here have characteristics that make them promising, especially the development of new training programs targeted at women and of new institutional forms of organization, such as the joint-responsibility credit groups where each member guarantees the loans made to other members. These programs should be carefully monitored, and should be enlarged only when there is evidence of their effectiveness. Ultimately, the success of these schemes has to be the graduation of borrowers into the commercial banking system. 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Technical Annexes Annex A Macro/Public Sector A-1: Inflation Tax Revenues 1988 1989 1990 1991 1992 (current laMpiras) Money base 593.6 688.2 858.4 1055.0 1339.3 Bonds held by BANTRAL 696.6 777.0 913.6 1064.2 1166.9 Nominal GDP 9251.0 10334.0 12537.0 16314.0 18772.0 (parcentage) CPI Inflation 4.5 9.9 23.3 34.0 8.8 Adjusted CPI Inflation 0.5 5.9 19.3 30.0 4.8 (ratios) Base/GDP 0.06 0.07 0.07 0.06 0.07 Bonds/GDP 0.08 0.08 0.07 0.07 0.06 (percentage) Inflation Tax/ GDP 0.33 1.10 3.00 4.16 0.93 Source: BANTRAL, pprd by T Word Bak m A-2: Required Primary Surplus (percent of GDP) At Selected Rates of Real At Selected Real Rates of Debt Target Growth (r=5%, Inf.=6%) Interest (g=4%, Inf.=6%) (in 10 years) g=5% g-4% g=3% r=3% r=4% r=5% (As % of GDP) Constant -0.7 0.5 1.6 -1.8 -0.7 0.3 100% of GDP 1.4 2.5 3.6 0.4 1.4 2.5 90% of GDP 3.4 4.5 5.6 2.5 3.5 4.5 80% of GDP 5.7 6.7 7.8 4.8 5.8 6.7 70% of GDP 8.3 9.3 10.2 7.4 8.4 9.3 Notes: r - reul rm2e of irtret; g - rate of growth of real GDP; Inf = inflation rate Source: BANTRAL; World Bank faff estimates. A-3: Honduras Public Sector Employment" June Variation 1993/1984 1984 1992 1993 Number Percent Central Administration 47313 67268 68302 20989 44.4 Office of the President 651 241 241 -410 -63.0 Interior and Justice 1648 1732 1682 34 2.1 External Relations 339 453 496 157 46.3 Economy and Commerce 592 456 481 -111 -18.8 Finance and Public Credit 2714 3257 3315 601 22.1 Attorney General's Office 36 61 61 25 69.4 Public Education 24043 38010 38792 14749 61.3 In-post teachers 21335 31666 32386 11051 51.8 Other 2708 6344 6406 3698 136.6 Public Health 8842 12951 14102 5260 59.5 Culture and Tourism 439 374 357 -82 -18.7 Labor and Social Security 888 884 894 6 0.7 Comm., Public Works, and Transport 4450 6206 5251 801 18.0 Natural Resources 2671 2276 2263 -408 -15.3 Planning, Coordination & Budget n.a. 367 367 367 Dcentralized Administration 30816 38170 35721 4905 15.9 Autonomous Institutions 24328 30613 28289 3961 16.3 Municipalities 6488 7557 7432 944 14.5 Total 78129 105438 104023 25894 33.1 Notes: 11 Does not include the military or military police, which are estiiated at about 1-000 5w l respectively. Sourcer: Statistics Department, SHCP; Superintendenci dce Itituciones Descentalizadas, SHCP; and Direcci6n Genenl de Aesorfl y Asixtencia T6cnica Municipal, Ministries of Interior and Justice (June 1993); prepared by the World Bank staff in charge of the Public Sector Moderaization operation for Honduras. A4: Employment in the Autonomous Istitutions Permanent Contract Daily Total Public Institutes 12099 774 221 13094 EDUCREDrTO 91 0 0 91 PANI 302 20 0 322 UNAH 4943 0 0 4943 JNBS 834 387 0 1221 IHSS 2611 55 0 2666 Sports Institutes 246 67 10 323 IHAH 113 71 211 395 IHADFA 42 4 0 46 INJUPEMP 249 18 0 267 INFOP 851 91 0 942 INA 886 0 0 886 IHRM 14 8 0 22 UPNFM 575 20 0 595 INPREMA 260 31 0 291 IHDECOOP 82 2 0 84 Public Enterprises 11165 1280 738 13183 ENP 1135 160 40 1335 COHDEFOR 1418 5 200 1623 IHMA 88 4 20 112 ENEE 2184 605 368 3157 FNH 354 5 0 359 SANAA 1055 471 0 1526 IHCAFE 336 30 110 476 HONDUTEL 4402 0 0 4402 BANASUPRO 193 0 0 193 Financial Enterprises 1962 38 12 2012 BANTRAL 953 18 0 971 BANADESA 687 12 12 711 BANMA 191 0 0 191 CPP 67 0 0 67 CONADI 64 8 0 72 Total 25226 2092 971 28289 Source: Superintendencia de Instiuciones De,centmlizadas, SHCP (June 1993). A-5: Average Wages in the Public and Private Sector by Educational Level (in 1988 Lempiras, per month) 1989 1990 1991 1992 1993 Educational Level Public Private Public Private Public Private Public Private Public Private None 221.2 158.6 246 7 140.3 204.9 152.7 209.1 169.8 251.6 174.7 Primary 349.5 237.9 315.6 204.3 280.1 208.5 286.3 231.9 341.9 252.2 Secondary 594.6 447.0 526.7 385.5 440.6 366.9 490.0 378.5 524.4 410.5 Higher 1332.1 1206.6 1038.7 1078.2 858.1 988.7 962.3 872.8 965.2 1026.0 Total 636.43 299.63 533.39 257.56 449.62 262.81 483.64 284.85 540.86 307.38 Source: DGEC Houwcholds Survey. A-6: Pnvatized Public Enterprises (between January 1990 and August 1993) Enterprise Activity Date Price Paid by Buyer (L) (US S) 1. Locomapa Aserradero 2/90 1,530,000 379,653 2. Indeco Bloques de concreto 10/90 793,300 143,195 3. Imprenta del IHSS Servicios de imprenta 12/90 150,000 28,090 4. Proinco Equipo de Triturar rocas 1/91 400,000 74,906 5. Incehsa Planta cementera 7/91 110,000,000 20,599,251 6. Tan Airlines Aerolinea 10/91 2,500,000 468,165 7. Finca Sta. Rosa Plantaci6n de mel6n 10/91 4,000,000 749,064 8. Desatur Complejo hotelero 1/92 6,514,592 1,197,535 9. Planta Sula Planta lechera 2/92 17,000,000 3,125,000 10. Plahsa Plantalechera 2/92 33,200 6,103 1/ 11. Aisa Fabrica de estruc. metal. 2/92 9,300,000 1,709,559 12. Hotel Posadas Complejo hotelero 3/92 3,025,000 556,066 13. Hotel Brisas del Lago Complejo hotelero 6/92 3,000,000 543,478 14. Inacero Fabrica de laminas 6/92 12,006,000 2,175,000 15. Imprenta M.S.P. Servicios graf. de impre. 7/92 167,371 30,211 16. Programa de Semilla Plantel semillero 9/92 174,000 30,796 17. Cementos de Hondura Planta cementera 9/92 408,274,510 72,260,975 18. Isletas Lote habitacional 10/92 1,300,000 224,138 19. Conrad Planta/lab. proces. de zAbila 10/92 1,750,000 301,724 2/ 20. Ence-L. Medidores Lectura de medidores 11/92 3/ 21. Grainsa Planta semillas 1/93 575,000 97,956 22. Enfe-Roatan Energia el&ctrica 1/93 65,000,000 11,073,254 23. Fanalco Bloque de acciones 2/93 121,600 20,610 24. Imprenta Ina Servicios de impresi6n 3/93 54,880 9,286 25. Acensa Ingenio azucarero 5/93 55,000,000 9,016,393 26. Ihma (P.R) Danli Silo 5/93 4,434,660 726,993 27. Ihna (P.R.) La Entrada Silo 5/93 5,048,834 827,678 28. Ihma (P.R) Juticalpa Silo 5/93 4,877,241 799,548 29. Ihma (G.R.) Tocoa Granero 5/93 1,012,812 166,035 30. Ihma (G.R.) Granero 5/93 379,406 62,198 TOTAL 718,422,406 127,402,860 Notes: 1/ Leased 2/ Leased between 1990 and Nov. 1992 3/ Operation contract for L. 40,000.00 per month. (P.R.) = UDAPE (G.R.) = Granero Rural Source: UDAPE A-7: The Tax Structure in Honduras, 1993 Type of Tax Good or Service Levied Tax Rates Exemptions Share in Tax Rev. 1990-1992 % Income Personal income 6 rates (1240%), surcharges Usual deductions 8.3 of 10 and 15%. Corporate income 2 rates (15, 3 5%), surcharges Firms under the RIT, ZL and export promotion regimes. 17.5 of 10 and 15%. Lottery income 3 rates (2, 4 and 6%). None 0.0 Property Bequests and donations Rates from I to 20%. Those below L. 10,000, to the State and to Charities. 0.1 Real estate transactions 3 rates (2, 3 and 4%). Purchases by the State and Public Housing Programs 0.7 Consumption and Production General sales tax 7%, 10% for liquor & tobacco Food, medicine, fertilizers, agric. inputs & machinery, Oil products, automobiles and other. 18.5 Beer 33% Exports 3.7 Sofl drinks 8% Exports 1.5 Cigarettes 65% Exports 2.8 Oil products 15% None 3.9 Liquor 2 rates (158% and 44%) Exports 0.8 Matches 12.5% Exports 0.0 Sugar 3% Exports 0.3 Automobiles (new) 5% None 0.5 Various goods 3 rates (10, 20 & 30%) None 0.3 Insurance 10% of the premium None 0.2 Air transport 2 rates (2.5 & 10%) Diplomatic corp and the state 0.7 Public Shows 20% of the value of the ticket None 0.1 Foreign Trade Import taxes Import tariffs Range: 5-20% Imports under export promotion regimes. 10.1 Tariff surcharges 2 surcharges (5,10%) 5.1 Consular taxes Various fees 0.9 Customs tax 5% 5.6 Other import duties 5.2 Export taxes Specific taxes for banana and coffee. Varying ad valorem rates for 8.5 Other Taxes exports of minerals, fish, cattle, meat, sugar, and other. Automobiles, airport taxes, sealed paper, timbres, gambling, tourism and other 4.5 Source: Chong Wong, WiDiam 'Caractwristicas y Resultadoa de Refomaa Tnbutanras-EI Caso Ilondumrno.' Inter-Amencan Devclopment Bank, La Tnbutacion en America Latina y el Caribe: Lopos y Pe=pectivas,' July 26-27, 1993. A-8: Sectoral Distribution of Central Government Expenditures 1985 1986 1987 1988 1989 1990 1991 1992 "1 Average Average Government Branch or Ministry 195-99 199092 (in millions of 1988 Lempiras) Legislative Branch 17.6 23.9 25.6 28.1 28.3 23.2 24.2 32.5 24.7 26.6 Judiciary Branch 14.8 18.6 22.4 22.3 24.6 18.9 18.4 23.6 20.5 20.3 Electoral Body 46.2 18.1 17.0 22.6 39.4 13.9 14.3 22.3 28.7 16.8 Presidency of the Republic 58.9 30.1 33.9 22.9 31.4 16.2 24.4 26.3 35.4 22.3 Interior and Justice 24.3 20.2 33.5 29.8 35.7 26.2 40.8 83.9 28.7 50.3 Foreign Affairs 18.0 18.2 23.5 22.0 22.9 24.8 30.0 32.5 20.9 29.1 Defense 227.8 230.8 261.1 264.6 259.8 195.9 166.1 145.7 248.8 169.2 EconomyandTrade 33.4 25.0 28.9 31.1 21.8 29.0 12.2 14.4 28.0 18.6 Finance andPublic Credit 49.6 52.7 52.1 60.2 65.7 45.9 41.2 41.6 56.1 42.9 Attorney General 1.5 1.5 1.7 2.0 3.5 1.5 1.5 1.5 2.0 1.5 Public Education 363.5 401.5 424.0 427.1 445.4 409.8 410.5 454.9 412.3 425.1 Public Health and Social Assistency 168.6 214.6 215.3 221.9 232.9 265.9 280.6 324.7 210.7 290.4 Other Social Spending 67.6 71.0 78.0 83.1 73.3 74.0 53.8 66.5 74.6 64.8 Culture and Tourism 6.9 7.7 6.5 6.6 8.1 5.6 4.6 6.9 7.2 5.7 Labor and Social Security 28.1 31.4 28.2 28.5 28.6 24.7 25.6 27.3 29.0 25.9 Comunications, Infraestructure and Transp. 457.9 241.8 240.3 236.3 325.1 262.6 224.7 444.2 300.3 310.5 Natural Resources 146.2 179.8 131.6 124.6 124.2 126.7 72.2 85.7 141.3 94.8 Public Debt 2' 262.4 301.5 339.1 402.4 400.1 1,287.2 748.0 795.3 341.1 943.5 Centralized Services 105.6 109.2 103.5 95.8 101.7 252.6 258.6 208.3 103.2 239.8 Planning, Coordination and Budget 0.0 0.0 17.6 24.8 16.7 13.1 14.8 12.5 11.8 13.5 Memo: (as a % of GDP) Social Services 7.24 8.24 8.11 7.91 7.79 7.76 7.50 8.00 7.86 7.75 Defense 2.75 2.77 2.95 2.86 2.69 2.03 1.67 1.38 2.80 1.69 Debt 3.17 3.61 3.84 4.35 4.15 13.32 6.96 7.55 3.82 9.28 (as a % of Total Spending) Social Services 30.70 35.90 37.31 37.73 36.48 33.72 33.73 34.60 35.62 34.02 Defense 11.66 12.06 13.59 13.64 12.61 8.81 7.52 5.96 12.71 7.43 Debt 13.44 15.76 17.65 20.74 18.29 56.39 34.32 32.03 17.17 40.91 Notes: 1/ Preliminary. 2/ Public debt is defined as interest payments plus amortizations Source: SHCP. A-9: HONDURAS - EXTERNAL DEBT 1980 1985 1989 1990 1991 1992 1993/p Debt Outstanding & Disbursed (DOD) (millions of USS) Public & Publicly Guar. LT 975.3 2138 2866.2 3400.4 3060.2 3192 3280 Official Creditors 696.8 1666.2 2406.3 2989.7 2742.7 2968 3095 Multilateral 458.5 1046.3 1483.5 1581.4 1657.8 1801.4 1861 Bilateral 238.3 619.9 922.8 1408.3 10S4.9 1166.6 1234 Private Creditors 278.5 471.8 459.9 410.7 317.5 224 185 Private Non-Guaenteed LT 191.1 141.4 84 66.4 74.8 90.2 109 Total LT DOD 1166.4 2279.4 2950.2 3466.8 3135 3282.2 3389 Total Extermal Debt 1471.4 2729.1 3385.1 3697.8 3360.1 3572.5 3685 Memo items: TotalLTDODas%ofGDP(Atlas) 47.0 63.5 71.0 99.6 96.3 100.7 98.6 Total LTDODas%ofExports G&S 120.6 246.6 271.9 329.2 296.2 296.8 296.1 Debt Service" (millions of USS) Public & Publicly Guar. LT 97.6 159.2 107.6 306.6 275.9 346.6 340 Official Creditors 53.8 116.2 98.3 292.8 242.6 293 319 Multilateral 44.7 81.1 41.1 278.3 185.6 229.6 232 Bilateral 9.1 35.1 57.2 14.5 57 63.4 87 Private Creditors 43.8 43 9.3 13.8 33.3 53.6 21 Private Non-Guaranteed LT 72.9 23.2 11 26.5 18.6 15.7 19 Total LT Debt Service DUE 170.5 182.4 184.6 356.1 320.7 362.3 359 Total Debt Service Due 207.6 228.2 208.3 411.9 335.3 374.4 374 Memo items: Total LT Debt Service as % of GDP (Atlas) 6.9 5.1 4.4 10.2 9.9 11.1 10.4 Total LT Debt Sevice as % of Exports G&S 17.6 19.7 17.0 33.8 30.3 32.8 31.4 TotalPublicLTDebtServ.as%ofTotalFiscalExpenditures 12.9 14.3 10.6 35.8 29.8 31.1 28.1 1/ 1980 & 1985 debt service is on cash basis. 1989-93 is on accual basis. Source: World Bank DRS. Annex B Agriculture B-1: Yields of Grains in Central America, 1985-90 (MT/ha.) Costa Rica El Salvador Guatemala Honduras Nicaragua Panama Corn 1.62 2.04 1.83 1.43 1.40 1.18 Rice 3.30 3.92 2.67 2.72 1.95 2.03 Beans 0.57 0.78 0.69 0.60 0.95 0.38 Sorghum 1 2.32 1.22 1.63 0.87 1.77 2.34 Sources: For Honduras, from the Bureau of Census and Statistics, SECPLAN; for other countries, "El Comercio Inturegionall de Granos Basicos en CentroAmerica," by D. Herrera and M. Jimenez. B-2: Domestic Resource Cost Coefricients Crop and Level of Technology 1984-85 1985-86 1986-87 1987-88 1988-89 1990-91 (LIUS$) Corn: Advanced 1.76 2.24 3.08 2.35 2.37 3.61 Medium 1.74 2.16 2.82 2.27 2.27 3.49 Basic 2.37 2.91 3.71 3.08 3.08 4.71 Beans: Advanced 1.17 1.26 1.68 1.16 0.88 1.25 Medium 1.50 1.60 2.04 1.48 1.14 1.65 Basic 1.54 1.66 2.11 1.58 1.25 1.80 Rice: Advanced 0.97 1.22 1.11 0.73 0.73 1.18 Medium 2.19 2.53 2.55 1.81 1.80 2.66 Sorghum: Advanced 1.88 2.44 3.01 2.29 1.94 2.97 Medium 3.02 3.92 4.74 3.61 3.06 4.56 Basic 4.02 5.06 5.90 4.86 4.22 6.33 Pineapple 0.76 1.74 0.99 1.00 2.28 Plantain 0.72 0.80 0.73 0.75 3.70 Cocoa 0.51 0.59 0.62 0.83 1.25 1.84 Coffee 0.88 0.47 1.03 1.01 0.92 2.05 Cantaloupe 0.62 0.62 0.45 0.56 0.52 0.84 Beef 2.47 2.64 2.23 2.36 2.59 3.59 Cotton 1.51 1.80 1.45 1.70 1.59 1.77 Sugar: World market 17.34 8.10 3.77 4.04 6.09 U.S. market 0.96 1.02 0.95 1.01 1.22 1.59 Exchange Rates Official 2.00 2.00 2.00 2.34 2.99 5.32 Parity 2.53 2.53 2.46 2.38 2.55 5.60 rource: 'Tasa de Pro4ecci6n Efectiva de los Prncipales Productos Agricolas, R. Norton and M. Garcla, APAH/Abt, Honduras, May 1992. B-3: Effective Protection for Grains Crop and level of technology 1984-85 1985-86 1986-87 1987-88 1988-89 1990-91 1. Effective Protection Coefficients Corn: Advanced 0.56 1.01 1.57 1.02 0.96 0.98 Medium 0.59 0.99 1.44 1.01 0.95 0.99 Basic 0.62 0.98 1.37 1.01 0.95 1 Beans: Advanced 0.49 0.48 0.52 0.66 0.54 0.44 Medium 0.54 0.53 0.59 0.69 0.57 0.47 Basic 0.56 0.55 0.61 0.71 0.59 0.49 Rice: Advanced 1.15 1.31 1.38 1.03 0.96 0.97 Mediun 1.13 1.28 1.34 1.03 0.96 0.97 Sorghum: Advanced 1.03 1.35 1.89 1.29 0.75 0.51 Medium 0.97 1.18 1.52 1.18 0.76 0.57 Basic 1.03 1.28 1.64 1.25 0.80 0.60 II. Effective Protection Rates (%) Corn: Advanced -44 1 57 2 -4 -2 Medium -41 -1 44 1 -5 -1 Basic -38 -2 37 1 -5 0 Beans: Advanced -51 -52 -48 -34 -46 -56 Medium -46 -47 -41 -31 -43 -53 Basic -44 45 -39 -29 -41 -51 Rice: Advanced 15 31 38 3 -4 -3 Medium 13 28 34 3 -4 -3 Sorghum: Advanced 3 35 89 29 -25 -49 Medium -3 18 52 18 -24 -43 Basic 3 28 64 25 -20 -40 Note: Thbee coefficients were estinm ed using parity exchnge rates, with 1978 as bae year. Source: Tasas de Proteccion Efectiva de los Principales Productos Agricolas", R Norton and M. Garcia, APAFVAbt Associates, May 1992, Honduras. I B-4: Nominal Protection Rates for Corn and Rice 1989-1992 Concept Units 1989 1990 1991 1992 Corn: Import FOB price USSvMT 111.4 109.4 107.2 104.2 Import border price L/qq 22.2 36.9 45.1 45.8 Domestic wholesale price L/qq 28.9 32.6 57.7 45.7 Implicit nominal protection % 30.2 -11.7 27.9 -0.2 Rice: Import FOB price USS/MT 368.4 350.0 375.8 361.9 Importborderprice Llqq 41.7 81.9 114.7 115.5 Domestic wholesale price L/qq 67.1 85.3 149.5 147.2 Implicit nominal protection % 60.9 4.2 30.3 27.4 Nooas: Tue aw estito at wihole8ube l1.el B-5: Size Distribution of Rural Land Holdings, 1966 and 1989 From the 1966 A2ricultural Census % Distribution Farm size No. of Average class (mz.) farms Area Farms Area (mz.) 1 < 5 84,032 187,460 47.1 5.4 2.2 5 < 10 36,371 239,695 20.4 6.9 6.6 10 < 20 27,115 359,650 15.2 10.4 13.3 > 20 30,832 2,674,723 17.3 77.3 86.8 Total 178,350 3,461,528 100.0 100.0 19.4 From the 1989 National Anricultural Survey % Distribution Farm size No. of Average class (mz.) fanns Area Farmssize (mz.) I < 5 178,250 401,160 54.7 7.7 2.3 5 < 10 52,770 356,210 16.2 6.8 6.8 10 < 20 38,770 528,190 11.9 10.2 13.6 > 20 55,960 3,916,020 17.2 75.3 70.0 Total 325,750 5,201,580 100.0 100.0 16.0 B-6: Output of Principal Agricultural Products, 1980-1992 Annual Growth Rates (%) Sector/Product 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1980-S7 1987-92 1980-92 1970-92 Coffee 69.9 80.6 77.2 90.5 69.3 88.5 76.2 80.0 94.0 99.0 118.4 100.7 134.9 1.9 11.0 5.6 6.5 Bananas 1098.9 1004.8 1052.9 876.9 992.6 1091.5 1020.4 1152.8 1109.0 1079.0 1033.3 961.0 1085.9 0.7 -1.2 -0.1 0.6 Corn 388.2 481.7 366.5 459.2 507.9 424.0 484.1 523.3 441.4 510.7 559.1 563.8 617.0 4.4 3.3 3.9 2.9 Sugarcane 178.3 190.2 209.2 205.7 215.6 224.8 226.1 200.0 18.3 199.9 217.5 235.1 225.5 1.7 2.4 2.0 6.9 Beans 35.9 42.3 30.7 30.6 32.9 38.7 40.1 36.0 52.5 57.2 62.1 79.1 87.0 0.0 19.3 7.7 4.2 Oil palm 85.9 108.0 159.6 200.5 260.2 312.3 326.0 294.1 310.6 299.5 340.1 361.3 370.0 19.2 4.7 12.9 11.6 Plantain 110.7 112.5 116.2 118.4 123.1 134.1 147.3 158.0 154.3 154.4 162.6 177.7 176.7 5.2 2.3 4.0 3.5 Rice (unhulled) 35.9 36.7 22.0 46.4 48.7 45.8 34.3 59.4 32.0 46.7 45.0 54.3 81.8 7.5 6.6 7.1 7.1 Sorghum 52.2 58.1 32.3 46.6 52.5 12.2 19.1 31.1 53.6 61.9 81.3 87.7 83.3 -7.1 21.8 4.0 3.0 Tobacco 7.3 7.3 6.5 6.6 5.4 5.3 4.7 4.2 4.6 6.3 5.1 6.8 5.5 -7.6 5.5 -2.3 1.6 Cotton (raw) 21.2 18.6 8.2 12.9 18.0 14.6 9.0 8.0 8.5 4.4 4.5 4.9 0.0 -13.0 -100.0 -100.0 -100.0 Pineapple 141.5 160.8 195.3 171.2 182.3 198.0 207.7 210.2 212.7 215.2 217.8 220.3 222.9 5.8 1.2 3.9 18.5 Cantaloupe 4.1 4.9 5.0 5.3 5.8 6.2 17.0 33.0 31.1 48.6 45.8 71.6 67.5 34.7 15.4 26.3 24.2 Potatoes 8.1 8.3 8.9 9.8 10.6 11.2 11.8 12.4 12.5 13.6 13.7 14.9 15.0 6.3 3.9 5.3 6.4 Milk 33.2 22.4 33.8 34.9 35.7 36.9 38.5 40.4 42.7 45.3 48.5 51.7 55.1 2.8 6.4 4.3 3.6 Beef 64.6 61.8 62.4 59.5 59.3 63.8 70.5 73.8 80.6 87.1 96.6 100.0 103.5 1.9 7.0 4.0 3.7 Poultry 15.8 14.4 14.2 15.8 18.3 20.2 20.0 22.3 28.6 30.0 30.3 33.0 36.0 5.0 10.1 7.1 11.0 Eggs 23.7 26.3 26.4 27.1 28.5 29.0 30.3 31.4 32.6 33.6 34.5 35.8 37.1 4.1 3.4 3.8 6.1 Pork 8.3 8.5 9.0 9.4 9.7 10.0 10.3 10.7 11.0 11.4 11.8 12.1 12.5 3.7 3.2 3.5 4.7 Sources: BANTRAL, Bureau of Statistics and Censuscs, APAH. B-7: Real Agricultural Gross Domestic Product, 1980-1992 (million lempiras at constant 1978 prices) Annual Growth Rates (%) Sector/Product 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991(p) 1992(c) 1980-87 1987-92 1980-92 Coffee 252 255 282 247 270 261 257 293 318 367 346 396 385 2.2 5.6 3.6 Bananas 161 143 152 119 140 158 144 168 159 153 144 131 149 0.6 -2.4 -0.6 Com 61 77 74 71 79 78 74 73 79 91 103 103 113 2.6 9.1 5.3 Sugarcane 38 38 40 41 40 39 39 35 33 35 38 41 42 -1.2 3.7 0.8 Beans 21 25 25 20 23 23 23 21 11 27 28 36 37 0.0 12.0 4.8 Oil palm 6 8 12 15 19 23 24 23 25 25 25 26 28 21.2 4.0 13.7 Plantain 14 14 14 15 15 17 18 20 19 19 20 21 22 5.2 1.9 3.8 Rice (unhulled) 12 12 14 17 16 14 17 15 13 18 17 23 25 3.2 10.8 6.3 Sorghum 11 9 9 10 11 8 7 8 10 12 15 18 21 -4.4 21.3 5.5 Tobacco 13 14 11 10 9 10 9 8 7 9 9 9 11 -6.7 6.6 -1.4 Cotton (raw) 11 5 2 8 8 3 4 3 3 2 2 1 0 -16.9 -100.0 -100.0 Pineapple 10 11 12 12 13 13 13 15 11 13 14 15 15 6.0 0.0 3.4 Citrus 6 7 6 6 6 6 7 7 8 8 8 9 10 2.2 7.4 4.3 Cacao 2 2 3 3 5 5 6 7 5 6 12 15 15 19.6 16.5 18.3 Cantaloupe I I I I I 1 2 3 3 3 5 6 6 17.0 14.9 16.1 Other crops 29 28 28 28 30 31 31 34 32 41 44 38 37 2.3 1.7 2.1 CROP AGRICULTURE 648 649 685 623 685 690 675 733 736 829 830 888 916 1.8 4.6 2.9 LIVESTOCK 131 135 146 138 144 156 162 166 144 162 167 172 179 3.4 1.5 2.6 FORESTRY 114 116 112 111 111 113 114 122 122 120 118 113 121 1.0 -0.2 0.5 POULTRY 33 34 34 36 39 42 42 46 53 55 56 60 62 4.9 6.2 5.4 HUNTING, FISHING, BEEKEEPING 31 36 37 42 39 39 38 45 51 53 61 70 80 5.5 12.2 8.2 ALLAGRICULTURE* 957 970 1014 950 1016 1072 1062 1150 1144 1259 1275 1349 1407 2.7 4.1 3.3 * Not including agricultural services or investments in long-cycle crops, which belong to other categories of the national accounts. Source: BANTRAL. estimates of Aug. 10, 1993. B-8: Index of Constant Producer Prices of the Main Agricultural Commodity Groups (lempiras per MT) Other Vegetables Other Basic Traditional Export and Meat Year Total Grains Exports Crops Roots Fruits Beef Products 1970 93.5 118.0 79.1 104.0 97.0 90.0 103.5 121.7 1971 91.1 117.5 72.7 124.5 104.0 93.6 101.2 121.3 1972 92.7 114.0 76.2 132.9 111.3 93.4 99.4 118.2 1973 96.2 117.8 79.7 148.6 101.9 90.0 98.1 119.7 1974 94.7 113.0 78.0 135.1 92.9 82.8 109.8 120.9 1975 100.2 119.4 87.9 129.1 91.1 79.1 111.0 118.2 1976 106.1 119.0 99.6 118.2 96.2 80.8 113.7 116.1 1977 123.2 127.0 128.0 129.7 101.7 78.3 120.7 108.0 1978 119.2 121.7 120.1 127.0 95.5 101.6 123.8 111.8 1979 106.6 107.9 105.9 111.4 102.2 99.5 111.3 104.7 1980 103.7 101.5 105.5 101.7 98.9 101.3 99.0 102.1 1981 89.8 90.6 88.6 86.9 98.9 99.2 89.7 93.1 1982 84.0 94.5 78.8 88.8 80.6 109.6 84.8 91.1 1983 82.0 93.5 77.1 88.7 76.3 117.9 80.4 86.3 1984 78.6 81.4 75.4 85.7 73.3 114.4 79.2 81.0 1985 77.0 86.7 74.7 69.5 66.1 110.2 75.2 79.8 1986 82.8 88.8 86.7 67.6 62.1 95.9 71.9 76.7 1987 76.2 88.4 75.2 66.0 60.6 92.4 74.2 76.0 1988 77.6 91.6 78.4 63.5 58.0 95.2 71.3 74.0 1989 75.5 85.7 75.5 60.2 45.3 115.1 65.4 77.9 1990 103.8 118.8 116.0 67.0 53.2 105.7 76.9 81.9 1991 102.6 109.9 116.9 55.3 54.2 106.2 71.7 84.5 1992 109.8 91.0 122.1 87.2 68.2 123.0 82.5 103.1 (Average Annual Growth Rates) 1970-1992 0.73 -1.17 1.99 -0.80 -1.59 1.43 -1.03 -0.75 1970-1980 1.03 -1.50 2.92 -0.22 0.19 1.19 -0.44 -1.74 1980-1990 0.02 1.59 0.95 -4.10 -6.00 0.42 -2.50 -2.18 1980-1987 -4.31 -1.96 -4.72 -5.99 -6.76 -1.30 -4.04 -4.14 1987-1992 7.59 0.59 10.17 5.72 2.40 5.88 2.14 6.29 Source: Schreiner and Garcia (1993). B-9: Area Cultivated with the Main Agricultural Products (hectares) Total Year Corn Beans Rice Sorghum Grains 1970 315,162 68,333 12,436 59,354 455,285 1971 320,822 69,029 13,219 59,701 462,771 1972 326,483 69,725 14,002 60,047 470,257 1973 287,022 62,077 13,550 52,804 415,453 1974 337,803 71,117 15,568 60,740 485,228 1975 331,528 73,747 20,754 55,773 481,802 1976 381,778 75,337 18,052 60,885 536,052 1977 432,027 76,927 17,032 65,997 591,983 1978 419,505 81,548 16,973 73,773 591,799 1979 332,868 72,549 19,176 63,206 487,799 1980 339,243 68,236 19,658 61,819 488,956 1981 338,648 76,362 21,191 58,281 494,482 1982 271,839 51,002 15,033 25,270 363,144 1983 308,497 50,650 21,735 50,984 431,866 1984 366,886 58,771 17,880 59,500 503,037 1985 288,384 67,519 14,632 13,747 384,282 1986 345,034 74,700 13,697 43,325 476,756 1987 342,789 66,146 20,733 27,068 456,736 1988 333,885 78,915 13,528 59,807 486,135 1989 350,871 81,228 16,899 65,291 514,289 1990 367,367 92,792 17,570 78,834 556,563 1991 429,394 109,760 20,909 73,542 633,605 1992 430,556 111,951 20,348 73,542 636,397 (Average Annual Growth Rates) 1970-1992 1.43 2.27 2.26 0.98 1.53 1970-1980 0.74 -0.01 4.69 0.41 0.72 1980-1990 0.80 3.12 -1.12 2.46 1.30 1990-1992 8.26 9.84 7.62 -3.41 6.93 1989-1991 10.63 16.24 11.23 6.13 11.00 1988-1992 6.56 9.14 10.74 5.30 6.97 Source: Schreiner and Garcia (1993), based on data from the Direcci6n General de Estadisticas y Censos, SECPLAN. B-10: Agricultural Exports (volume in MT except where noted and value in millions of dollars) 1990 1991P 1992' Volume Value Volume Value Volume Value 1. Traditional exports Bananas' (boxes 40 lbs.) 42,321 357.9 38,325 314.4 40,933 286.5 Coffee' (bags 60 kg.) 1,735 180.9 1,444 145.9 1,959 147.6 Sub-total 538.8 459.3 433.1 2. Other main exports Shrimp' 4,134 36.1 5,862 54.2 6,869 62.7 Lobsters' 1,792 29.6 2,231 38.7 1,804 34.1 Sugar' 27,111 12.4 20,053 8.4 13,185 5.8 Molasses 18,900" 3.8d 12,300" 1 d 31,300" 35d Sawnwood' (b.f.) 36,868 16.1 30,627 15.3 33,690 15.8 Beet' 11,463 25.3 14,154 31.4 16,100 34.0 Tobacco' 1,221 2.5 1,188 2.1 1,900 4.8 Pineapple 36,848' 6.4" 39,823' 7.9" 43,037' 8.0' Cantaloupe" 40,700 8.1 47,300 10.4 58,000 12.7 Sub-total 140.3 169.7 181.4 3. Other exports Grapefruit' 13,800 1.7 12,700 2.2 16,900 2.7 Oranges 20,000 32 Lemons' 600 0.25 400 0.3 600 0.3 Cucumbers 9,709c 1.9d Other vegetables 4,700c.d.gd Cocoa' 2.700 2.7 1,500 2.8 1,500 3.4 Plantains' 1.1" 0.7" 13,400' 2.3" Watermelons 200b 1,900" 7,265c 1.6 Ornamental plants 1,800" 2,700" 3,400b 8.5d Squashes" 0.1 0.2 0.4 Coconuts' 1,600 0.2 1,400 0.2 500 0.2 Sesame seeds 400" 2,100" 900" 0.5d Palm oil' 4,500 4.9 1,423 3.5 10,647 25.8 Manigoes loob 300b 100" Pickles" 0.1 0.4 1.0 Dried fruits 9 0d Sub-total 61.8 TOTAL 676.4 Note: This table does not include a number of minor processed and unprocessed agricultural exports, such as cashews, cassava, spices, juices, jams and jellies, minor fresh fruits, tanned leather, natural rubber, starch, and other vegetable oils. A blank in the table indicates data not available. Sources of data: 'BANTRAL Notes: Ppreliminary " FPX. Cestimate Direcci6n General de Estadisticas y Censos, SECPLAN d APAH. B-li: Exports of Selected Agricultural Products L Principal Agricultural Exports (in millions of 1980 dollars) Subtotal: Prin. Agric. Principal Total as % of Year Bananas Coffee Lumber Beef Sugar Shrimp Tobacco Agric. Exp. Exports Tot. Exports 1980 228.0 204.1 36.2 60.7 29.3 23.4 13.7 595.4 850.3 70.0 1981 202.9 244.5 39.3 50.5 29.9 26.1 13.5 606.7 842.3 72.0 1982 215.0 206.3 40.5 34.4 31.5 25.8 9.5 563.0 745.8 75.5 1983 168.6 267.1 35.2 32.9 38.2 30.5 9.4 581.9 800.1 72.7 1984 198.2 243.8 31.1 20.2 32.3 28.2 7.5 561.3 783.7 71.6 1985 223.6 257.2 28.7 18.4 42.9 24.9 7.0 602.7 846.8 71.2 1986 204.4 285.8 29.5 23.1 22.7 24.8 4.5 594.8 789.9 75.3 1987 237.5 313.1 30.6 20.6 34.4 32.2 3.8 672.2 830.1 81.0 1988 225.2 272.5 24.3 21.1 24.7 43.1 3.8 614.7 753.3 81.6 1989 216.3 306.4 19.5 19.7 7.5 38.0 3.5 610.9 769.2 79.4 1990 203.4 374.6 11.7 24.3 1.0 42.4 3.7 661.1 789.7 83.7 1991 184.2 311.6 9.7 30.0 7.2 57.9 3.6 604.2 751.0 80.5 1992 196.7 422.7 10.7 35.9 4.7 62.0 5.7 738.4 908.4 81.3 Averages: 1980-87 211.5 254.9 32.8 31.3 31.8 28.8 8.1 599.2 804.7 71.0 1988-92 200.2 353.8 12.9 27.5 5.1 50.1 4.1 653.7 804.6 80.9 % Change -5.4 38.8 -60.7 -12.3 -83.9 74.0 -48.9 9.1 0.0 13.9 IL Selected Other Agricultural Exports (thousand metric tons) Cantaloupe, Ornamental Year Watermel Grapefr Pineappl Plantain Plants Cocoa Vegetable Sesame Molasses 1987 20.9 23.0 38.3 11.9 28.2 1988 22.4 12.7 25.7 8.5 4.3 1.5 4.3 0.8 16.2 1989 38.3 17.4 31.4 5.0 4.3 1.9 6.4 0.5 16.6 1990 40.9 13.8 38.7 2.5 1.8 2.7 11.6 0.4 18.9 1991 49.2 12.7 49.4 1.3 2.7 1.5 11.0 2.1 12.3 1992 62.0 16.9 48.5 13.4 3.4 1.5 14.4 0.9 31.3 Annual growth rate (%), 1988-92: 29.0 7.4 17.2 12.1 -5.7 0.0 35.3 3.0 17.9 Sourocs: Mission estimates, based on data from the BANTRAL and FPX Note: In 1992, the value of exports of lobster was greater than of any of the products in this table except bananas, coffee and shrimp. Palm oil exports were greater in value than any except bananas, coffee, shrimp and beef. However, time series are not available for lobster, palm oil, and many other export products. B-12: Inports of Basic Grains Year Corn Beans Rice Wheat 1980 64,179 2,771 3,900 71,162 1981 20,140 10 1,760 68,537 1982 5,713 57 2,752 86,035 1983 13,752 6 151 87,726 1984 15,112 1,208 226 101,609 1985 201 3 864 97,886 1986 14,051 313 665 103,897 1987 32,463 90 4,558 n.a. 1988 34,767 10,591 26 n.a. 1989 42,810 2,386 5,P99 n.a. 1990 68,238 3,909 4,692 n.a. 1991 95,524 3,045 32,814 n.a. 1992 22,304 0 1,909 n.a. Sources: a) SECPLAN, Direccion Gum-al de Estadistica y Cens, NAUCA lists; b) listiwuto Hondureo de Mercadeo Agricola. c) Roger D. Norton and Carlos A. Benito. "An EvaluaLion of the PL4SO Title I Progran in Honduras," reporl prepared for USAID/Hondura, 1987. B-13: Volume of Sawnwood Production, 1980-1991 (thousands of m3) Year Total Coniferous Broadleaf 1980 545.0 543.4 10.6 1981 543.0 534.7 8.3 1982 475.0 472.6 2.4 1983 453.0 450.2 2.8 1984 412.0 409.2 2.8 1985 421.2 418.6 2.6 1986 389.2 386.8 2.4 1987 449.3 446.2 3.1 1988 419.6 417.2 2.4 1989 397.7 493.4 3.3 1990 328.1 326.9 1.2 1991 302.6 299.8 2.8 Average: 1980-81 544.0 534.6 9.5 1990-91 315.4 313.4 2.0 % Change: -42.0 -41.4 -78.8 Source: Esadisticas Forestl COHDEFOR, 1991. B-14: Exports of Sawnwood and Processed Wood Products 1980-1991 (US$ FOB thousands) Processed Year Total Sawnwood Wood Products 1980 #N/A 36,455 #N/A 1981 60,297 43,135 17,162 1982 58,572 45,811 12,761 1983 52,407 40,700 11,707 1984 45,878 31,679 14,199 1985 40,208 30,196 10,012 1986 38,477 27,743 10,734 1987 52,624 34,250 18,374 1988 49,248 28,413 20,835 1989 42,683 24,784 17,899 1990 31,456 16,140 15,316 1991 31,180 14,235 16,945 Source: Estadfstica Forestales, COHDEFOR, 1991. Annex C Poverty C-1: Honduras: Demographic Data, 1950-1995 (per thousand) Birth Death Natural Migration Population Years Rates Rates Rates Rates Growth Rates 1950-1955 52.76 22.80 29.96 0.86 30.82 1955-1960 52.28 20.63 31.65 0.73 32.38 1960-1965 50.78 17.83 32.95 0.85 33.80 1965-1970 49.76 15.56 34.20 -5.28 28.92 1970-1975 46.92 13.36 33.56 -3.23 30.23 1975-1980 44.87 11.03 33.84 -0.30 33.54 1980-1985 42.31 8.88 33.43 -1.55 31.88 1985-1990 39.37 7.03 32.34 -1.76 30.58 1990-1995 37.08 6.13 30.95 -1.52 29.43 Source: CELADE (1993), Table 1.2. C-2: Poverty Indicators Used by FLS Department Basic Water Total Normalizud Number Department Households Sanitation Supply Malnutrition Poverty Poverty Department (20%) (50%) (30%) (100%) Index Rating 9 Gracias a Dios 6,000 44.60 93.47 21.95 62.24 100.00 Very bad 10 Intibuca 20,127 42.71 67.44 37.26 53.44 77.95 Very bad 13 Lempira 29,162 41.24 63.57 38.21 51.50 73.07 Very bad 17 Valle 20,363 42.51 70.39 25.71 51.41 72.86 Very bad 6 Choluteca 49,076 39.02 63.58 27.35 47.80 63.81 Bad 15 Olancho 45,315 38.66 59.19 27.43 45.56 58.19 Bad 12 La Paz 17,278 39.59 53.06 34.68 44.85 56.42 Bad 7 El Paraiso 41,117 37.86 56.31 29.06 44.45 55.40 Bad 4 Copan 38,149 34.30 50.66 35.32 42.79 51.24 Bad 2 Colon 26,115 35.53 46.38 28.72 38.91 41.54 Deficient 16 Santa Barbara 47,646 35.77 39.67 36.18 37.84 38.86 Deficient 3 Comayagua 39,999 34.15 41.15 31.67 36.91 36.51 Deficient 14 Ocotepeque 12,977 32.59 37.30 32.42 34.89 31.47 Deficient 18 Yoro 55,565 29.34 37.75 28.68 33.35 27.59 Deficient 1 Atlantida 42,810 26.24 39.23 26.14 32.71 25.98 Deficient 8 Francisco Morazan 144,999 19.93 32.16 23.09 26.99 11.66 Regular 11 Islas de la Bahia 4,803 26.85 28.86 10.79 23.04 1.75 Regular 5 Cortes 120,619 17.54 22.68 24.97 22.34 0.00 Regular Source: FHIS, Piojects Division. C-3: Indicators by Geographic Area According to Main Characteristics of Households and Population, 1992 Geographic Areas and Main Cities Main Characteristics Total Total Total Central San Pedro National Rural Urban District Sula Total households 916434 507643 408791 134383 68639 Total population 4889784 2845016 2044768 682779 332176 Men 2404108 1447472 956636 312219 154180 Women 2486676 1397544 1088132 370560 177996 Persons per household 5.3 5.6 5.0 5.1 4.8 Age group 10 and above 3422224 1922511 1499713 506249 248248 Men 1646606 969707 676899 224229 110889 Women 1775618 952804 822814 282020 137359 Active population 1652348 910488 741860 262226 130803 Men 1150756 702157 448599 145455 76264 Women 501592 208331 293261 116771 54539 Total non-active 1769876 1012023 757853 244023 117445 Rate of participation: Overall 48.3 47.4 49.5 51.8 52.7 Men 69.9 72.4 66.3 64.9 68.8 Women 28.2 21.9 35.6 41.4 39.7 Total employed 1578116 886823 691293 239900 122761 Wage earners 802838 335591 467247 172238 88673 Non-wage earners 775278 551232 224046 67662 34088 Total unemployed 74232 23665 50567 22326 8042 Rate of unemployment Open 4.5 2.6 6.8 8.5 6.1 Visible 2.1 2.2 2.0 2.9 1.1 Invisible 29.2 33.6 23.8 24.8 23.3 Notes: Employment rates were obtainod fom tabic published in every survey. Source: Encuesat Permanente de Hogares, March 199.2 C-4: Evolution of Average Nominal Wages 1989 1990 1991 1992 1993 (current lempiras) National Wage 322.7 377.4 467.0 549.5 630.2 Public Wage 673.3 692.3 738.4 858.1 1036.4 Private Wage 315.8 334.3 431.6 505.4 589.0 Urban Wage 490.3 478.7 573.8 672.5 783.1 Rural Wage 217.6 223.4 324.5 380.4 433.5 Minimum Legal Wage 158.0 220.0 253.0 329.0 375.0 GDP per Capita 2 2403.0 2336.0 2343.0 2404.0 2420.0 Unemployment Rate (percentage) Open 4.8 5.0 4.6 4.5 4.7 Visible 2.5 4.0 2.4 2.4 2.5 Invisible 31.7 31.2 27.7 29.2 28.1 (real lempiras 3/) National Wage 322.7 306.0 282.7 305.7 312.7 Public Wage 673.3 561.3 447.0 477.4 514.3 Private Wage 315.8 271.0 261.3 281.2 292.3 Urban Wage 490.3 388.1 347.3 374.2 388.6 Rural Wage 217.6 181.1 196.4 211.6 215.1 MinimumLegal Wage 158.0 178.4 153.1 183.0 186.1 GDP per Capita 2403.0 2336.0 2343.0 2404.0 2420.0 (index 1989=100) National Wage 100.0 94.8 87.6 94.7 96.9 Public Wage 100.0 83.4 66.4 70.9 76.4 Private Wage 100.0 85.8 82.7 89.0 92.5 Urban Wage 100.0 79.2 70.8 76.3 79.3 Rural Wage 100.0 83.2 90.3 97.2 98.9 MinimumLegal Wage 100.0 112.9 96.9 115.8 117.8 1/ Weighted aveage of minimum wages by region and economic activity. 2/ Population figures from CELADE. 3/ In 1989 lenpiras, Source: EncueAs Penmaenmt de Hogares, 1989-1993. C-5: Honduras: Wage Rates by Gender, Education Level, and Rural Urban Areas, 992 =~~~~~~~~~~~~~~~~~~~~~~~~ Male Female Total Persons Mean Persons Mean Persons Mean Rura Education Illiterate 69,091 292 8,876 159 77,967 277 Primary 159,680 380 51,179 270 210,859 354 Secondary 24,458 684 17,110 647 41,568 669 Superior 2,133 1,181 379 655 2,512 1,101 ILUkn Education Illiterate 22,070 373 9,539 226 31,609 328 Primary 137,655 503 74,029 311 211,684 436 Secondary 89,248 809 77,148 697 166,396 757 Superior 30,397 1,880 17,977 1,239 48,374 1,642 Total 534,732 574 256,237 498 790,969 550 Notes: Mean wage rates are measured in lempiras/month. Source: Tabulations from Encuesa Permanentc de Hogares, March 1992. C-6: Honduras: Mean Wages by Education Level, 1992 Public Private Domestic Servants Total Persons Mean Persons Mean Persons Mean Persons Education Illiterate 7,846 371 92,854 301 8,876 123 109,576 Primary 45,745 508 330,835 411 45,963 162 422,543 Secondary 80,354 869 122,605 671 5,005 306 207,964 Superior 22,307 1,707 28,476 1,548 103 200 50,886 Total 156,252 858 574,770 505 59,947 168 790,969 Notcr: Mean wage rates are measured in lempiras/month. Source: Tabulations firom Encuesta Pennanente de Hogares, March 1992. C-7: Honduras: Workers Earning Less than Legal M'niinimum Wage, 1992 (persons) Tegucigalpa & Sula Rest Urban Rural National Workers earninz less than minimum waye Wage earners 69,920 73,457 187,391 330,768 (Public sector) (3,991) (3,416) (9,538) (16,945) (Private sector) (42,243) (56,331) (158,166) (256,740) (Household maids) (23,686) (13,710) (19,687) (57,083) Self-employment 33,033 46,403 225,062 304,498 Cooperative member 68 598 4,648 5,314 Employer 850 0 311 1,161 Total workers Wage earners 260,911 206,336 335,591 802,838 Self-employment 84,474 99,694 391,983 576,151 Cooperative members & employers 6,918 4,502 9,754 21,174 Source: Tabulations from Encuesta Premanente de Hogares, March 1992. C4: Average Income by Sector Sector 1990 1991 1992 1993 (per capita, lempiras/year) National 1212 1692 2004 2736 Tegucigalpa and SPS 2556 3120 3420 4488 Rest Urban 1452 1836 2532 3240 Rural 696 1140 1320 1896 (per household, lempiras/year) National 6828 9396 10992 14832 Tegucigalpa and SPS 13152 16032 17484 22704 Rest Urban 8052 10068 13008 17400 Rural 4104 6552 7572 10620 (per capita, dollarslyear) " National 298.52 318.64 363.70 466.10 Tegucigalpa and SPS 629.56 587.57 620.69 764.57 Rest Urban 357.64 345.76 459.53 551.96 Rural 171.43 214.69 239.56 323.00 (per household, dollars/year) " National 1681.77 1769.49 1994.92 2526.75 TegucigalpaandSPS 3239.41 3019.21 3173.14 3867.80 Rest Urban 1983.25 1896.05 2360.80 2964.22 Rural 1010.84 1233.90 1374.23 1809.20 1/ weighted noninal ER for March of each year. Source: Encuenla Pennunt de Hogares, March of each year. C-9: Distribution of Income, 1992 Mean Per No. of Per Capita Income Capita Income Household Persons Total Income Category per Year Size (accum. %) (accum. %) 1 - 36 294.36 7 12.1 1.8 37 - S0 529.68 6 23.7 4.8 51 - 71 739.68 6 34.9 9.0 72 - 90 977.04 6 45.8 14.3 91 - 116 1239.96 6 56.7 21.0 117 - 143 1544.28 6 66.9 28.9 144 - 188 1959.60 5 76.5 38.3 189 - 254 2634.36 5 84.9 49.2 255 - 417 3888.36 4 92.9 64.9 418 and more 9981.36 4 100.0 100.0 Total 2005.92 5 Source: Encuenta Pennanente de Hogues. 1992. C-10: Gini Coefficient by Sector and Year Tegucigalpa & Year San Pedro Sula Rest Urban Rural Total 1989 0.48 0.45 0.48 0.54 1990 0.51 0.47 0.46 0.54 1991 0.52 0.45 0.44 0.50 1992 0.45 0.48 0.42 0.49 1993 0.49 0.53 0.51 0.54 Source: Encuesta Pemnanente de Hogares, March of every year, 1989-1993. C-1l: Cut-Off Points for the Measurement of Poverty 1988 1989 1990 1991 1992 1993 v SECPLAN's Methodology (lempiras per day per person) Cost of the Basic Food Basket Urban 2.59 2.86 3.65 5.56 5.00 6.50 Rural 1.82 1.98 2.43 4.02 3.46 4.59 (lempiras per month per person) Cut-Off Point for the Very Poor National 64 70 88 139 122 161 Urban 78 86 110 167 150 195 Rural 55 59 73 121 104 138 (lempiras per month per person) Cut-Off Point for the Poor National 106 116 146 230 203 266 Urban 155 172 219 334 300 390 Rural 73 79 97 161 138 184 1988 1989 1990 1991 1992 1993 Revised Methodology (lempiras per day per person) Cost of the Basic Food Basket Urban 1.72 1.89 2.37 3.52 3.21 4.19 Rural 1.05 1.17 1.42 2.20 1.90 2.54 (lempiras per month per person) Cut-Off Point for the Very Poor National 40 44 54 82 73 96 Urban 52 57 71 106 96 126 Rural 32 35 43 66 57 76 (lempiras per month per person) Cut-Off Point for the Poor National 66 73 91 137 123 162 Urban 103 113 142 211 193 251 Rural 42 47 57 88 76 102 1/ The cost of the 1992 and 1993 basket was calculated withthe cost of SECPLAN's 1991 basket. Source: SECPLAN ard World Bank- C-12: Trends in Poverty 1989-1993 1989 1990 1991 1992 1993 SECPLAN Estimates (percentage) National Very Poor 55 63 66 55 57 Poor 72 78 82 72 74 (index 1989=100) National VeryPoor 100 115 120 100 104 Poor 100 108 114 100 103 World Bank Estimates (percentage) National Very Poor 36 43 43 31 32 Rural 47 51 45 34 36 Urban 22 33 39 27 26 Poor 55 62 63 50 53 Rural 58 63 60 46 51 Urban 51 60 67 56 57 (index 1989=100) National Very Poor 100 119 119 86 89 Rural 100 109 96 72 77 Urban 100 150 177 123 118 Poor 100 113 115 91 96 Rural 100 109 103 79 88 Urban 100 118 131 110 112 Memo item: real GDP per capita 2403 2336 2343 2404 2420 1/ World Bank niission etimnates uwing EPH data and SECPLANs methodology (SECPLAN has not published resuls for 1992 and 1993.) Source: Encuest Permanente de Hogares 1989-93, estimnes by World Bank. Annex D Social Sectors D-1: Social Indicators in Honduras 1953m/ 1963*' 1972b/ 1983" 1992d' Lifeexpectancyatbirth 41.8 48 53.1 61 66.7 Infant mortality (per 1,000) 169.3 135.5 117 78.6 49 General mortality (per 1,000) 22.8 17.8 14.2 9.5 6.8 Source: at Projedion, CELADE. b/ I Encusga Dmnif= Nacional-Hondurs (EDENH-72) c/I Encucaa Demopica Nacional-Hondura (EDENH-83) dt Baed an Popullion Cams 1988 (SECPLAN). D-2: Literacy Rates (%) Overall Overall Ages Overall Men Women Accumulated Accumulated (Ascendent) (Descendent) 10 - 14 77.45 75.37 79.26 77.45 68.04 15 - 19 79.15 76.9 81.35 78.2 65.66 20 - 24 77.15 75.97 78.21 77.94 62.33 25 - 29 73.72 73.4 74.01 77.17 58.82 30 - 34 71.99 72.49 71.53 76.5 54.98 35 - 39 66.46 67.89 65.09 75.39 50.37 40 - 44 58.45 60.83 56.16 74.35 45.75 45 - 49 51.35 54.46 48.33 73.08 42.13 50 - 54 44.91 48.8 41.13 71.83 39.23 55 - 59 39.61 44.17 35.26 70.72 37.22 60 - 64 36.14 39.98 32.37 69.81 36.23 65 - + 36.27 38.91 33.73 68.04 36.27 Source: B1ed on poputltion cenus, 1988. D-3: Demographic and Social Indicators: Urban vs Rural, 1988 (1) (2) (3) (4) (5) (6) (7) Total 5.36 28.00 51.80 15.20 40.60 55.40 2.90 Urban 3.72 14.40 51.80 30.50 57.90 46.20 4.90 Rural 6.79 40.00 51.80 3.70 29.90 61.10 2.10 Variables: (1) Total fettility rate. (2) Illiteray rate. (3) Peroentage with some primary education (4) Percentage with more thn 7 years of schooling. (5) Percentage of women using contraceptives. (6) Infant mon lity rate per 1,000. (7) Population growth rate, 1974-88. Souroe: Population census, 1988. D4: Demographic Indicators 1980-85 1985-90 1990-95 1995-2000 Birth rate (per thousand) 42.31 39.37 37.08 33.46 Total fertility rate 6 5.37 4.92 4.3 Reproduction rate 2.93 2.62 2.4 2.1 Mortality rate (per thousand) 8.88 7.03 6.13 5.38 Life expectancy at birth 61.56 65.42 67.69 69.84 Infant mortality (per thousand) 65 53 43 35 Natural growth rate (per thousand) 33.43 32.34 30.95 28.08 Migration rate (per thousand) -1.55 -1.76 -1.52 -0.66 Global growth rate (per thousand) 31.88 30.58 29.43 27.42 Souroe: CELADE, 1993. D-5: Fiscal Social Program Expenditure 1985 1986 1987 1988 1989 1990 1991 1992 85-89 90-92 85-92 (in current lempiras) Education " 319.5 366.6 398.1 427.1 477.0 531.9 674.0 807.0 397.7 671.0 500.1 Health " 148.2 195.9 202.2 221.9 249.4 345.2 460.7 576.0 203.5 460.6 299.9 Others 3 59.4 64.8 73.2 83.1 78.5 96.1 88.3 118.0 71.8 100.8 82.7 Total CG Social Spending 527.1 627.3 673.4 732.1 804.9 973.2 1,222.9 1,501.0 673.0 1,232.4 882.7 Total CG Spending 1,717.1 1,747.5 1,804.9 1,940.5 2,342.0 2,962.3 3,579.2 4,406.3 1,910.4 3,649.3 2,562.5 (percent of central government spending) Education ' 18.6 21.0 22.1 22.0 20.4 18.0 18.8 18.3 20.8 18.4 19.9 Health " 8.6 11.2 11.2 11.4 10.6 11.7 12.9 13.1 10.6 12.5 11.3 Others r3 3.5 3.7 4.1 4.3 3.4 3.2 2.5 2.7 3.8 2.8 3.4 Total CG Social Spending 30.7 35.9 37.3 37.7 34.4 32.9 34.2 34.1 35.2 33.7 34.6 Total CG Spending 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 (as percent of GDP) Education "1 4.4 4.8 4.8 4.6 4.6 4.2 4.1 4.3 4.6 4.2 4.5 Health " 2.0 2.6 2.4 2.4 2.4 2.8 2.8 3.1 2.4 2.9 2.6 Others n3 0.8 0.9 0.9 0.9 0.8 0.8 0.5 0.6 0.8 0.6 0.8 Total CGSocial Spending 7.2 8.2 8.1 7.9 7.8 7.8 7.5 8.0 7.9 7.8 7.8 TotalCGSpending 23.6 22.9 21.7 21.0 22.7 23.6 21.9 23.5 22.4 23.0 22.6 Memo: GDP(M.oflempiras) 7,279 7,617 8,305 9,251 10,334 12,537 16,314 18,772 8,557 15,874 11,301 (millions of lempiras 1988)/4 Education 357.162 392.625 415.929 427.074 434.167 392.625 371.347 408.836 405.4 390.9 400.0 Health '2 165.662 209.738 211.257 221.896 226.962 254.826 253.813 291.809 207.1 266.8 229.5 others /3 66.3663 69.4059 76.4985 83.0845 71.4324 70.9258 48.6348 59.7803 73.4 59.8 68.3 Total CG Social Spending 589.191 671.768 703.685 732.055 732.562 718.377 673.795 760.426 685.9 717.5 697.7 Total CG Spending 1919.36 1871.35 1885.97 1940.47 2131.6 2186.68 1972.07 2232.29 1,949.7 2,130.3 2,017.5 (1988=100) Education 83.6 91.9 97.4 100.0 101.7 91.9 87.0 95.7 94.9 91.5 93.7 Health n 74.7 94.5 95.2 100.0 102.3 114.8 114.4 131.5 93.3 120.2 103.4 Others t3 79.9 83.5 92.1 100.0 86.0 85.4 58.5 72.0 88.3 72.0 82.2 Total CG Social Spending 80.5 91.8 96.1 100.0 100.1 98.1 92.0 103.9 93.7 98.0 95.3 (Real Growth in percent) Education " 9.9 5.9 2.7 1.7 -9.6 -5.4 10.1 5.0 2.0 1.9 Health " 26.6 0.7 5.0 2.3 12.3 -0.4 15.0 8.2 7.0 8.4 Others '3 4.6 10.2 8.6 -14.0 -0.7 -31.4 22.9 1.9 -8.2 -1.5 Total CG Social Spending 14.0 4.8 4.0 0.1 -1.9 -6.2 12.9 5.6 2.9 3.7 Note: 1/ Includes transfers to UNAH, UNPFM, and FHIS funds targeted for education (1990-92). 2/ Includes transfers to SANAA and FHIS and PRAF funds designated for health (1990-92). 3/ Includes expenditures to labor, social assistance, and housing sectors and transfers to INFOP, INJUPEMP, IHSS, JNBS, INVA, and from 1990-92 FOSOVI. 4/ Values deflated by CPI. Source: BANTRAL and UNICEF, 1993. D-6: International Comparisons of Expenditure and Efficiency in Health and Education Dependent Independent Variables N R2 Variable C GDP GDP2 Africa America Dummy Dummy Spending in 0.37 0.01 -1.36E-06 3.91 -0.70 30 0.44 Education (0.21) (1.63) (1.33) (3.78) (0.88) Spending in 2.75 0.00 1.07E-06 0.15 1.02 46 0.21 Health (3.31) (1.56) (2.06) (0.29) (2.27) Literacy 54.92 0.01 -13.28 14.48 44 0.49 (7.18) (2.18) (2.15) (2.63) Primary 84.67 0.00 -30.27 -4.23 32 0.56 Enrollment (12.18) (0.94) (4.54) (0.78) Life Expectancy 58.90 0.01 -9.55 1.80 52 0.74 (35.22) (5.06) (5.90) (1.24) Note: T tests are shown between parenthesis. Source: World Development Report, 1993; World Bank mission estimates. D-7: Social Spending and Indicators: Honduras and Neighbors 1991 (1) (2) (3) (4) (5) (6) Honduras 7.5 4.1 2.8 27 86 65 Costa Rica 16.68 4.95 8.29 7 87 76 Nicaragua n.a. n.a. n.a. n.a. 75 66 Panani 18.6 5.18 6.21 12 92 73 Guatemala 4.46 2.34 1.19 45 n.a 64 Salvador 2.44 1.5 0.8 27 70 66 Variables: (1) Public social spending s peroentage of GDP. (2) Public spmding in education a paventage of GDP. D4: Spending in Public Education (millions of 1992 lempiras) 1988 1989 1990 1991 1992 Wages 628.3 632.8 559.4 482.0 544.3 Materials 9.9 9.4 6.5 8.8 21.3 Higher education 150.6 156.9 136.0 118.1 130.0 Other transfers 27.5 27.7 36.3 35.8 29.6 Capital spending 26.8 30.4 20.5 29.2 27.9 Total Min.ofEduc. 843.0 857.0 758.5 673.5 753.0 FHIS 0.0 0.0 16.5 59.5 54.0 Total education 843.0 857.0 775.0 733.0 807.0 Source: UNIS-DWECAUNICEF-PNUD. D-10: Fiscal Spending in Health Programs (Ministry of Health = 100) 1988 1989 1990 1991 1992 1988-89 1990-92 Current spending 82.7 80.6 70.9 73.3 75.4 81.6 73.2 Wages 54.3 52.9 40.5 40.6 39.9 53.6 40.4 Materials 26.4 25.9 28.3 30.6 33.4 26.1 30.8 Transfers 2.1 1.8 2.1 2.1 2.0 1.9 2.1 Capital spending 17.3 19.4 29.1 26.7 24.6 18.3 26.8 Direct investment 4.1 4.3 5.5 6.2 7.1 4.2 6.3 SANAA 13.1 15.1 23.6 20.6 17.6 14.1 20.6 Total MOH 100.0 100.0 100.0 100.0 100.0 100.0 100.0 FHIS & PRAAF 0.0 0.0 2.7 21.3 26.8 0.0 16.9 Total 100.0 100.0 102.7 121.3 126.8 100.0 116.9 Source: UNIS-DGEC/UNICEF-PNUD. D-11: Regional Statistics in Education Iliteracy Students/ Rural Current Poverty Desertion Primary FHIS teacher enrolment spending index coverage spending Department (1) (2) (3) (4) (5) (6) (7) (8) Atlantida 25.80 38.02 0.58 0.46 22.00 63.60 96.00 0.10 Col6n 32.00 50.18 0.79 0.39 31.00 73.40 87.00 0.10 Comayagua 30.10 37.12 0.60 0.51 35.00 70.90 87.00 0.14 Copan 47.20 43.98 0.68 0.45 41.00 77.90 63.00 0.19 Cortes 25.70 51.85 0.50 0.42 13.00 56.20 93.00 0.09 Choluteca 36.50 43.90 0.74 0.42 41.00 74.10 79.00 (.11 El Paraiso 39.50 39.58 0.74 0.48 45.00 73.30 74.00 0.15 Francisco Morazan 18.80 35.25 0.26 0.54 21.00 56.60 103.00 0.12 Gracias a Dios 34.70 46.02 0.95 0.66 38.00 67.80 88.00 0.11 Intibuca 40.70 45.25 0.78 0.46 60.00 77.40 64.00 0.12 Isla de la Bahia 11.30 32.48 0.60 0.87 5.00 52.40 96.00 0.35 La Paz 36.00 34.70 0.72 0.59 48.00 77.60 69.00 0.15 Lempira 54.60 53.71 0.85 0.38 57.00 84.40 51.00 0.19 Ocotopeque 42.00 31.41 0.65 0.66 35.00 72.70 66.00 0.15 Olancho 40.60 40.75 0.74 0.43 46.00 73.30 71.00 0.13 Santa BArbara 44.20 36.55 0.75 0.47 36.00 75.00 72.00 0.10 Valle 34.70 39.20 0.79 0.53 48.00 68.00 89.00 0.11 Yoro 30.10 44.47 0.66 0.40 28.00 70.50 84.00 0.11 Sources: (1) Population census 1988. (2) Ministry of Education, Programa de Informaci6n Estadistica. (3) Ministry of Education, Programa de Infornaci6n Estadistica. (4) Ministry of Education, Planning Division. (5) Household with 3 or more non-satisfied basic needs. SECPLAN, Navarro, 1992. (6) Percentage of entrants not completing primary school. (7) SECPLAN in Navarro, 1992. (8) FHIS, 1993. D-12: Regional Statistics in Health Health Sanitation Safe water Malnutri- Spending Spending FIIS Poverty Region non covered non covered tion in hospitals in PHC spending index (1) (2) (3) (4) (5) (6) (7) (8) RM 19.930 32.180 23.090 0.109 0.006 7.139 21.000 1 31.640 50.050 15.980 0.006 0.007 9.405 35.475 2 37.670 50.800 33.830 0.020 0.008 11.559 44.550 3 24.520 30.100 28.350 0.028 0.005 5.114 21.730 4 38.670 63.300 26.630 0.012 0.009 11.511 41.540 5 36.460 52.160 35.870 0.022 0.008 21.976 45.000 6 29.630 40.640 27.650 0.024 0.012 2.968 25.030 7 38.660 59.190 27.430 0.014 0.010 7.917 46.000 Note: (I) RM = Francisco Morazan (Distrito Central) Region I = El Paraiso, Francisco Morazan and Gracias a Dios. Region 2= Comayagua, La Paz and Intibuci. Region 3= Cortes, Santa Barbara, Yoro, and 3 counties in Lempira. Region 4= Choluteca, Valle and 4 counties in Francisco Morazan. Region 5-= Ocotepeque, Copan, Lempira, and 2 counties in Santa Barbara. Region 6= Atlantida, Col6n, Islas de la Bahia, and 3 counties in Yoro. Region 8= Olancho. (2) SANAA/ UNICEF 1992. (3) SANAA/ UNICEF 1992. (4) SECPLAN, Navarro 1993. (5) Thousands of lempiras per capita Ministry of Health, Planning Division. (6) Thousands of lempiras per capita, Ministry of Health, Planning Division. (7) Per capita, FHIS 1993. (8) SECPLAN, Navarno 1993. Source: Ministry of Health, SECPLAN (poverty). D-13: Cross Section Correlation in Education Variables 1 2 3 4 5 6 7 8 I Literacy 1 2 Rural enrollment -0.63 1 3 Current spending 0.27 0.08 1 4 FHIS spending 0.2 -0.05 0.64 1 5 Studentlteacher -0.04 0.11 -0.59 -0.3 1 6 Poverty -0.83 0.65 -0.39 -0.22 0.24 l 7 Desertion -0.92 0.66 -0.49 -0.18 0.29 0.87 1 8 Coverage 0.91 -0.55 0.29 -0.11 -0.22 -0.77 -0.88 1 Source: World Bank mission calculations. D-14: Cross Section Correlations in Health Variables 1 2 3 4 5 6 7 1 Sanitation coverage I 2 Access to water 0.93 1 3 Malnutrition -0.39 -0.13 1 4 Spending in hospitals 0.76 0.63 -0.14 1 5 Primary health spending -0.53 -0.52 0.20 -0.34 1 6 FHIS spending -0.51 -0.48 0.49 -0.20 -0.04 1 7 Poverty -0.95 -0.90 0.39 -0.60 0.35 0.67 1 Source: World Bank mission calculations. Statistical Annex BONDURAS .15Y RCONOUIC InDICATORE 3960 1931 1111 1933 19'4 I9SY 193 1957 91W 19i 191 1I 9 m 9 3 REAL GROWTH RATES: 0- D _.Aw Product(ODP) 0.7 2.5 -1.4 .09 4.3 4.2 0,7 60 4 6 4 3 01 3.3 5.6 37 O,..Donw inro(ODY) 0.6 -29 -2.3 -24 5.7 3.6 5.7 35 7.4 2.7 0.3 6.1 0.5 57 REAL PER CAPITA GROWTH RATER Oro@4Dww. Product(ODP) -2.6 -0.S 4.7 -42 1.0 0.9 .26 27 1.3 1.4 .29 0.3 27 0.7 Tow l Copo-. 5.1 -3.1 .3.S -4.6 3.7 -2.2 3.0 .1.2 -0.2 1. -4.9 -02 .1.S 2.0 Pr-t oomu,,, 4.5 .26 -1.3 .4.1 4.1 -3.0 2.6 .1.1 -1.2 2.3 .26 2.0 -3.6 2.1 DEBT INDICATOR5 T.uDOD(Milli U3S)/SI 1.471.4 1,704.0 1,S427 2.125.3 2.234.7 2.729.1 2.974.1 3,2992 3306.7 3.385 1 3,697.S 3.360.1 3.572.5 3.6850 To.l DOD/E.¶.0A13 /. 1)2.1 13.6 235.2 260.9 264.7 295.3 290.2 341.7 3156 311.9 351.1 3175 323.0 3239 TowIDOD&C-ot GDP(%)/L 59.3 60.3 622 70.0 69.3 76.0 79.3 79.6 76.5 *1.4 106.2 1032 1096 1072 D.bt -LT-00+3 T Mu.QO 0Alio USt3)A. 2076 235.3 243.7 203.2 1974 22S.2 291.7 341.5 321 206.3 411.9 3446 3744 3740 D.bt - /EpO U O&5 (%) 21.5 26.0 311 24.9 239 247 291 354 36.5 192 391 326 339 329 D.bt -_/C..OA GD3 (%) .4 3.3 3.2 6.7 6.0 6.4 3.0 32 I.3 5.0 31.3 10.6 11.5 109 kA~ (LT+.D+Sl2)(M.i3U3S) /b. 120.2 138.1 151.3 119.3 1123 1273 141.7 1262 170.0 111.1 177.7 165.3 1703 1610 h.g(LT+.D +MYaqwb O&.(%) 12.4 13.3 19.3 146 13.0 13.8 13.S 13.t 16.2 10.2 16.9 15.6 154 14.2 I-(-(LT+W-+STIYC .O DP(%) 4.3 4.9 3.1 3.9 3.4 3.5 3.3 3.0 3.9 2.7 5.1 5.1 32 4.1 NATIONAL ACCOUNTS ( GDP) TotW LwntrmK 24.3 21.1 14.1 134 174 173 139 1i4 21.0 191 230 24.7 26.0 26.7 Publo so.d 93 S .1 9.1 10.0 11.1 S.9 5.9 5.1 50 5.7 66 72 10.4 9.9 Pn510 fid J. '13 13.0 5.0 3.3 6.3 14 80 12.3 139 13.4 16.4 175 156 167 Na.-s1mw 11.9 9.7 56 5.6 5.3 76 70 95 12.8 93 12.8 14.1 122 11.1 Pubie 2.7 1.6 07 0.1 1.5 1.3 0.7 1.0 0.9 .0.6 2.3 4.9 4.2 1 4 Pr,n 9.2 3.0 4.9 5.5 43 6.3 6.2 3.5 11.9 9.9 10.4 9.2 3.0 105 F-wi ^ S.-w12.9 11.4 3.3 6.2 11.6 97 6.9 79 6.2 9.8 102 10.5 13S 14.8 ICOR( .W 1..np) 33.6 9 2 -127 -17 1 3 7 4.2 227 2.2 2.9 3.6 14 0 5.2 29 417 NON FT4ANC7CAL PtlLIC SECrOR (. * . GDP) Toud Cu-m Rq- 201 190 19.2 193 209 2_0 20 2''6 2234 230 24.6 27.5 26.1 249 TozaIQaw C-MA F - 174 173 13.5 192 194 20.7 21.3 21.6 21.5 226 223 22.5 21.9 236 Publi. S.vW 2.7 1.6 0.7 0.1 1.5 1.3 0.7 1.0 0.9 0.6 2.3 49 4.2 1.4 C.ptu.lEp.AdAN.tLmd /d. 11.7 10.1 12.1 12.0 12.3 9.1 69 5.3 6.0 6.9 72 t.0 91 130 Ov.1I11o nc -90 4.5 -11.4 -12.0 .101 -7.8 -6.2 -4.8 -52 -7.5 -49 -3.1 -4.9 -107 NALANCE OF PAYMENIS E.prNGMS(, osr-thbu) -.53 -4.2 45 0.6 28 6.4 .64 2.6 -4.0 1 9 0.2 -30 193 00 Evwu GNF7C.4FY GDP /* 37.9 31.3 25.9 26.4 25.7 25.3 27 0 22.9 23.7 25.5 29.7 31.2 31 9 31 2 1uGon.GNF3 (r.W p-.h u) 7.4 -5.9 -27.0 1.1 13.2 4.4 -5.9 *7.7 0.9 21 -97 4.1 7.0 90 knypG.9uOF3Cwi.AtODP 1/. 45.4 376 27.7 30.1 324 30.3 2S.7 25.9 264 23.6 32.3 35.0 37S 389 R_o..Uw.CO.u GODP/ -7.5 -6.3 -I.S -3.7 -67 -4.9 -15 -30 -2.7 -3.1 -2.6 .3S -59 .76 Cur A." B3....oWcrmm GDP (b.oofaoc1ruh.)/ec -13.4 -11 4 4.3 4.4 -118 .9 9 -7 1 4.0 -7 4 40 4. -97 -12.5 .144 Cw .A-.xit Bw..I/CwruOGDP(ar o*lclZ 6 &u) /.E -121 -10S .76 .73 .93 -62 -3.2 .5 -2.7 -46 -1.3 .4,7 .78 -11 4 T- ofTr& LA- (19S9-100) 94.7 91 U4.3 90.3 94 8 99 0 113.3 94.5 100.3 100.0 91.* 90.7 74.7 74 5 PRICES AND EXCCHANGE RATE. Co.Pnr- bKd (A I A__)(1939-100) 58.3 63.3 69.5 75.3 73.3 33.4 35.0 871 91.0 100.0 123.3 1652 179.7 191.9 Cr_ Prw3zkE(.w ofb_) I1.1 9.4 9.0 3.3 4.7 3.4 4.4 2.5 4.5 9.9 23.3 34.0 3.3 10.7 NoE _ R Edmw R- (AW) 2.0 2.0 20 2.0 2.0 2.0 2.0 2.0 23 3.0 4.3 5.4 5.6 6.5 R..l E_w R4 b1'd. (1969-100) 7.3 30.6 72.9 65.7 61.5 59.9 67.7 72.6 74.5 100.0 1229 119.3 1191 1236 GDP(null-nUSS): 2.4S2 2327 2962 3.036 3.297 3.589 3.750 4,146 4.320 4,137 3,481 3.253 3.260 3.436 / Htonl d dor.a 1992 - boa Wcr Bl* DR3I Proma y.n b..dan DR0 pqW.In plm _ hb In ---l b..; 'Lr-. um t< d.bg '3r-. t ti 6.b. /c Lld- h nm .In y Id CaposI p -. not of(ctl r /.. GDP uond L. SUS wW Al_. _hadob'. /lr. _ y b.r_.. -. VWODP * G _ _ - _ u 7w . *U la *.t 4. rOP i/.. d. AA. _R M .Wt Ab . .ai. 2L Somr,er 3ANTIRAL and World 0.nbn enunn,. I IONDLURAS: Balance of Payments (Millions of US$) 1980 1981 1982, - 1983 1994 1985 1986 1987 1988 1989 1990 1991 1992 1993/p CURRENTACCOUNT -332.3 -322.9 -247.3 -256.3 -388.1 -355.6 -264.5 -333.1 -320.6 -334.3 *281.9 -315.8 -408.7 -495.7 ExportsofGNFS 941.7 883.6 767.0 801.0 847.4 909.4 1,011.7 950.2 1,025.9 1,060.9 1,032.5 1,016.0 1,039.9 1,073.4 Merchandise (FOB) 850.3 783.8 676.5 698.6 737.0 795.8 894.0 821.8 881.1 903.2 886.9 834.7 833.1 846.0 Non-factor Services 91.4 99.8 90.5 102.4 110.4 113.6 117.7 128.4 144.8 157.7 145.6 181.3 206.8 227.4 ImportsofGNFS 1,128.1 1,062.3 821.1 914.6 1,068.0 1,087.0 1,078.1 1,074.6 1,140.9 1,189.3 1,123.4 1,139.2 1,233.4 1,336.1 Merchandise (FOB) 954.1 898.6 680.7 756.3 884.8 891.7 879.5 871.4 923.4 955.7 907.0 912.5 990.2 1,079.5 Non-factor Services 174.0 163.7 140.4 158.3 183.2 195.3 198.6 203.2 217.5 233.6 216.4 226.7 243.2 256.6 Resource Balance -186.4 -178.7 -54.1 -113.6 -220.6 -177.6 -66.4 -124.4 -115.0 -128.4 -90.9 -123.2 -193.5 -262.7 NetFactorlncome -153.4 -153.1 -202.2 -152.4 -177.8 -190.4 -211.1 -234.7 -233.6 -240.1 -239.8 -245.6 -276.3 -264.4 Factor Receipts 25.8 19.7 16.6 13.95 15.8 14.8 13.1 15.2 21.9 24.3 20.7 42.3 66.1 71 FactorPayments 179.2 172.8 218.8 166.3 193.6 205.2 224.2 249.9 255.5 264.4 260.5 287.9 342.4 335.4 Total interest 120.1 138.2 151.3 119.3 112.2 127.3 141.7 126.2 169.9 111.1 177.8 156 170.3 194.3 Other 59.1 34.6 67.5 47 81.4 77.9 82.5 123.7 85.6 153.3 82.7 131.9 172.1 141.1 CurrenlPrivateTransfers(Net) 7.5 8.9 9.0 9.7 10.3 12.4 13.0 26.0 28.0 34.2 48.8 53.0 61.1 31.4 CAPITALACCOUNT 295.6 259.1 118.0 228.8 391.3 388.1 311.5 358.6 422.8 413.2 454.1 307.5 355.8 345.5 OfficialTransfers 14.0 18.6 21.0 34.8 79.9 133.1 145.4 f15.3 203.5 141.3 236.4 163.3 155.0 102.5 Ofwhich: US UN/A #N/A UN/A UN/A 68.0 111.0 107.5 81.3 156.7 81.8 192.0 102.9 88.0 52.0 Direct Investment 5.8 -3.6 13.8 17.5 20.4 27.5 30.0 38.7 48.3 51.0 43.5 44.7 56.5 50.0 NetLTBorrowing 245.4 238.0 115.2 129.4 229.2 235.8 40.9 54.9 41.9 -64.7 33.6 -60.1 44.8 163.6 Net Short Termn 11.0 13.6 -37.5 41.7 47.4 -0.3 97.8 151.0 131.3 198.8 116.1 126.2 81.3 27.1 Other 19.4 -7.5 5.5 5.4 14.4 -8.0 -2.6 -1.3 -2.2 86.8 24.5 33.4 182 2.3 Errofs and Omissions -21.4 1.8 11.6 23.9 -43.4 -36.7 -37.9 22.4 -76.1 -80.6 -134.5 56.1 108.0 7.9 OVERALL BALANCE -58.1 -62.0 -117.7 -3.5 40.2 4.2 9.1 47.9 26.1 -1.7 37.7 47.8 55.1 -142.3 FINANCING 58.1 62.0 117.7 3.5 40.2 4.2 -9.1 47.9 -26.1 1.7 -37.7 47.8 -55.1 142.3 ChangeinNetOfficialReservea4/ 58.1 62.0 117.7 3.5 40.2 4.2 -9.1 -47.9 -26.1 1.7 -56.2 -89.5 -76.8 101.8 Changein Armars - - - - - - - - - - 52.7 122.4 61.9 79.5 Reschedulings - - - - - - - - - - -34.2 -80.7 40.2 -39.0 Offstting Entry for Debt Relicf - - - - - - - - - - - 448.4 6.6 42.5 Debt Relief - - -448.4 -6.6 42.5 Source: Esmudios Econ6micos BANTRAL. HONDURAS. Value. Volue. ead Prke of Mvdchaadise r1pet (vas is Us. wdano 6S Wmw , id vit Dwi In US$) 59s5 1gn 18 5963 19S4 -9"5 1956 in? 19 199 1"9 1"91 191 1-- I9 Traditionel E xports, (vaie) 647.2 593.2 535.5 543.1 594.3 630. 739.3 675.9 734.8 734.0 7161 654.3 616.3 536.0 Baena 22S.0 3334 2153 ,03.1 232.1 2735 256. S 3150. 34 3t.7 317.9 314.4 256.3 231.7 Volume (40 lib. boxes) 47,450 42.234 44,736 35.095 41,250 46.540 42.547 49,426 46,59 45.022 42,321 38,325 40.933 34,588 Umit Value 4.5I 5.05 4.SS 5.79 5.63 5.S9 6.03 6.29 7 61 7.S1 8.46 S.20 6.26 6.70 Cohec 204.1 172* I53.t 151,2 I6n.3 1U82 I 221 1999 192. 190.9 350.9 1459 147.6 1340 Volume(60Kg, Bg) 946 1.133 956 1.238 1,130 1.192 1.325 1.451 1.263 1.420 1,736 1.444 1.96] 1.71 UNit Value 2135. 1352.6 160.1 122.1 1496 1355.4 243.1 137.8 IS2.1 134.4 1042 1010 753 71 6 Lumibe 36.2 43.2 44.1 40.4 34.9 34.1 32) 3.4 29.V 24.1 1641 33 15.6 17.5 Volume (m3) 269 292 301 262 231 213 219 227 IS0 145 S7 72 so 83 Unt VOLUe 134.5 147.3 1454 154.2 U33.0 160.1 147.3 1529 165.1 166.6 1550 211.7 196.2 209.3 MAtt .0I 463 33.9. 339', .3 3.5,. ,,-I .20. 22.3 - t19. 214 3314 37.l 40.4 VolumeNot.) 2S.605 23.00 16.195 15.474 9,519 *,643 10.S74 9.681 9,919 9,261 11.460 143150 16523 17.3C0 Unit Value 2.12 1.95 2.09 2.03 2.23 2.10 1.63 2.33 2.05 2.14 2.21 2.22 2.25 2.34 Suga 29.3 444 215 27x :a.7 213.5! 312S .5614.4 ' .3 5I4 54 $AS 4.3 Volune(Kip) 31.473 53,0S3 S7.479 106.165 59,632 119,V2 63,133 95.577 6S,662 20.763 27,111 20,053 12.,29 11.325 UrutVaiue 0.36 0.56 0.23 0.26 0.29 0.15 0.20 0.19 0.21 0.40 0.46 0.42 0.42 0.43 Shrimp adebet_er 23.4 2.2 2*,0 -36,0 40.- 41.0 4 33. 7 6.2 45. 929 301.5 Ii2.7 Volwne (Kp ) 3.23 3.645 3,600 4.266 3,944 3.473 3,456 4.500 6C020 5.310 5.920 5.090 9,420 30,174 unit Value 7.16 7.20 7.77 s.43 12.63 11.79 13.14 3300 11.71 11.53 11.10 11.45 10.77 11.07 Tobacco 37 .513,) 10- 103. 0,3 . 5 5. 4. .3. 2. 2. I .0 ' 45 Volume(Kg&) 4.566 4.49S 3,170 3,125 2.506 2.319 1,49S 1.260 1.2S0 13170 1.220 1.190 1.69 2,056 UImt Vlue 3.00 2.97 3.40 3.46 3.33 3.73 3.34 3.29 3.25 2.74 2.OS 1.76 2.14 2.19 Sliver 31$ 55.7 9 1. s.$ 13.0 t5.6 , ' - 7L991 ,4 .7! 4^3 5 4.3 Volume(TroyOunces) 1.624 1.576 1,211 629 =022 2.10t 2.253 3,146 1.599 1,345 1,030 1,120 13,74 1,176 UnitValue 19.56 9.9 7.68 10.7 7.67 6.17 5.57 6.63 6.19 5.24 4.56 35U 3.7S 366 Lead .eo9 5S4. 4 4.6 63. 3.0. 62 - ,1 7. . :,6.0 462 .3 t.9 35 Volume (Pounds) 26.803 26,256 19.034 25.531 30,361 34,34S 36.372 13,516 24.6S0 19,435 12340 12.740 29,749 15,321 UnltValue 0.37 0.32 0.22 0.18 0.21 0.17 0.17 0.27 0.30 0.31 0.34 026 0.27 025 ziec 10.0 12$' 12.0 20 31.7 2939 24$ 153 l9.S 60.7 464 363 35.7 32.2 Volume (Poundr) 32.347 33,177 32.390 51,114 6S,902 77.022 S1,276 39.967 56,194 55,360 69,230 74.160 70,272 69.358 Unut Value 0.31 0.37 0.37 0.39 0.46 0.39 0.32 038 0.53 0.71 0.67 0.49 051 0.46 No,trdcuti.tau i FzperQt1rf 174.9 155,4 II": 1'C27 030.5 134.4 t22.3 100.1 107.1 124.5 1}4 S 131.I I5.5 2473 (value ancun bas. FOB) Mclhaad3oeIzporF t U 2i 7J3.6 654.6 671J : 13 : 765.1 5. 371.6 9 41.9 5S S 31.0 7914 I 01I. 5333 (value cutoms boas, FOB) Mwchendls lxperts (BOP benk) 55.3 1SS. 676.5 - ,6.6 72.7.0 193, 596.20t.J 1l*13 90a WV4t34. 11 3.3 S46.0 Adjusmerls 2/ 25.2 30.2 21.9 26.5 11.7 306 32.5 40.2 39.2 44.7 55.9 4Q3 31.3 12.7 Memo: Fnpni o(GNFS 941.7 Inc6. 767.0 B03.0 . 345. 9073 1009.6 M523 1023.) t09.0 1023 I016.0 1039.J 1073.4 (PreIChomp) .6.2 -13.2 4.4 5.6 7.5 3 I.3 . 4.7 7.6 3S .2.5 A i.,6 3 332 Nows 11 'Mwh-m. EpiS -com took I992. 'Nwdi-oost' -Mird . E-Pi.- 'T Mlli. hA- "Wu SOP 6e Ish, os," of &.U _d eWlb_ sho aa.b awrit. Eiou sod dai - ,d by tbh Go H- t- fr t. f. p4 d o199592. y/ haIrdos s4. fo eo dod suposl_, goldW ad * tabeny S-a: E.rAo Eoioad BANTRAL. HONDUtRAS: V.Itune Indieu o(TrdltoaIl Eip@U 98U 1931 1933 53 1134 IS 1934 1937 1: 9 Im a,,. a,t am 33/ (Volom.n&o 1988-100) Baiw 1013 90.1 953 749 Sao 99.3 90.8 0 100.0 36 IO3f 9.03 81.S 7.4 73. Coffec 74.9 397 75.7 93.0 89.5 94.4 '04.9 114.9 1000 1124 137.3 114.3 155.3 148.1 Lumber 149.1 161.3 166.8 145.2 120, I3S1O 11.3 125.9 100.0 sO's 48.2 40.1 44.1 46.3 Beef 2W94 239.9 163.3 1560 6.0 87.1 109.6 97.6 100.0 93.4 113.5 1427 166.6 174.4 Sugp IIS7 121.0 127.4 154.6 130.5 3737 91.9 139:2 100.0 30.2 39.5 29.2 It? 163 Sunnp and Lobsler 544 60.5 59.3 709 655 57.7 57.4 74.8 100.0 88.2 96.3 134.4 156.5 169.0 Tob>o 356.7 359.6 247.7 244.1 395.3 11.2 137.0 93.4 10.D 9.4 953 9;.0 t46.0 160J Silver 101.6 9116 75.7 101.9 126.5 131.3 141.0 71.7 100.0 96.6 64.4 70.0 33.9 73,5 Lead 1OiJ 106.4 77.1 103.4 ID23.0 139.2 147.4 54.6 100.0 73.7 50.0 3t.4 120.5 62.1 Zi=c 576 59.0 57.6 91 0 122.6 137.1 144.6 71.1 100.0 151.9 123.2 1320 125A 1234 (Vo&um lalicee Annu3l Ca-W) Ba-3xSX-15% .I.O0 5.9% 41:6% 17.5% 123% 46% 16.2% ..2% ;39% 40% .94K% 5.% -15.5% Coffee -14.1% 193% -15.6% 295% 4.7% 5.5% 11.1% 9.5% -13.0% 12.4% 22.3% -16.8% 35.8% -46% Luwbe -19,9% 86% 3 1% -130% -11.3% -7,3% 2.3%K 5% -206% -19.9% -39X.% -169% 10.I% 5.0% Beef -.6% .16.3% -32.0% -4.5% .38.5% -9.2% 25.8% -11.0% 2.5% -6.6% 23.7% 23.5% 16.3% 4.7% SW 47.5% 2.0% 5.3% 7134% -56% 31% -47.% 51.4% -23.7% 49,8% 3)6% -26.0% -36.0% -11.7% SFuinpaadLolbs1 2139% 11.4% -1.2% la.5% -75% -11.9% -0.5% 30.2% 33.3% -11.8% 11.5% 36.7% 16.4% 3.0% Tobao 1.6% -1,7% .29.4% -L4% -193% -7.5% -33.4% -159% 1.6% -64 43K% -0.5% 57.1% lD0% Silver -337% -30% -232% 3.45% 24.1% 4.3% 7.0% -492% 39.5% .3.4% -33.3% 8.7% 22.7% -14.5% Lead -316% -2.0% -27%5 34.1% 18.9% 13.1% .39% *62.8% 33.6% -21,3% -34.5% 3.7% 133.5% &45% Zirc -118% 2.6% .2.4% 573 % 348% 11.8% 5.5% -50.3% 40.6% 51.9% -189% 7.1% -5.2% -1.3% HONDURAS: Price lade.. of Tradoal epwlrt 131 : 1931 lm t193 1934 I3s5 it" 3197 m1933 33 099 1I9n am 1143 V (UjA Valw Irdc. 198l.100) BARnd 632 0 66.4 64.2 76. 1 70 77.3 79.1 3.7 10t0.0 502.7 111.2 507. at; m0l Coffee 141.9 200.3 105.3 803 93.4 102.2 159.9 906 100.0 34 615 66.4 49.3 47.1 11mw ski5 89.3 39.9 934 9d.4 97. 89.3 31.6 1000 JMt00 121.2 I1 1 :t267 Beef 103.3 95.4 102.3 99.0 30.9 3026 89.6 114.1 100.0 104.5 107.9 103.4 109.7 114.2 3 M71.7 267.1 117.7 125.0 1366 35.7 .94.4t 36 3000i e 1I90 2131 309.7r 20t 7 2003 SharimpdLolbser 61.3 61.5 664 72.0 1073 100.7 112.2 111.0 100.0 914 94.3 91 92.0 94.6 Tobre 93 9 013 90.5 .103.5 105.3 101. 1 1337 107.8 I 004W 3! 00 4 625 3. 412 6S7 Silver 316.0 161.2 124.3 174.2 124.0 99.6 19.9 107.1 1000 U4.7 73.7 62.0 61.1 59.1 Lted 123* 106.5 74.4 606 69.0 57.3 64 93: 100 530 11'DU.M 3 M.4 3 1 A6 i3l Zirc 58.1 69.6 69.6 745 869 732 61.0 72.2 100.0 134.1 126.4 923 9.5 37.5 BM Vl% o A .)2.0 270 2% 0 BUMIA2 £1iNi 4*%0 1 86% 0. 34 2A W : 2t.0X 02.7% 4 4% 2.7% 4.2% 0 020. X0 Coffee 20.7% -29.3% 5.0% -23.7% 22.5% 3.8% 56.5% .43.3% 10.4% -11.6% -25.5% -3.0% .25.5% 4.3% ta ?%7.5% 9.9% 0.494 39% -2.1% 60% 07i .% 1 0% 0.9K 011,1% 14% -7.3% V7% Beef 4.3% 40% 7.3% -3.3% 10.0% -5.8% -12.6% 27.2% -123% 4.5% 3.3% 0.5% 1.2% 4 1% Sager 49.5% 53.6% -55.9% 6.3% S.2% -37% IO.I% .1.7% 7.% 9M6O% 1.4.*4 .14 0.5% 1.6% S hrnindLa3et -20.8% 0.6% 80% 8.3% 49.7% -6.6% 11.4% -1.0% -99% -1.6% -3.7% 3.5% -6.2% 2.3% Tol I.L2% .0.9% 14.4% 1.7% .3.7% 32.0% -5.1% 4.9% 44% .166% -25.5% -13.9% 21.3% 23% Salver 179.5% *490% -23.0% 40.3% -2Z.8% -19.6% -9.8% 19.2% -6.6% -I.3% -13.0% -15.9% -1.4% -3.3% Laid .1.6% *14.1% -30.2% -185% 14.0% -17.0% -1.6% 61.9Y% .5% 3.0% 10,2% -23.9% 2.5% .5.6% Zinc 33% 19.9% -0.1% 70% 16.7% 3157% -16.6% 18.3% 38.3% 34.1% -5.7% -27.0% 3.8% 4.6% Source~ Estudios Econ6micos BANTRAL. HONDURAS: Real MorchandLas Kzpoala, FOR ( mniO or 191S USS) 19_ 19n 193 1133 1954 1s 1936 9 6 i7 1911 9- it"1 91 199 1 p Bn 3609 321.2 3403 266.9 313.7 354.0 323.6 375.9 356.4 342.4 3219 2915 311.3 2631 Coffee 143.9 172.3 1454 18.3 171 9 181.3 201.5 220.7 192.1 2160 264.0 219.6 298.3 2S4.5 Lainber 444 4S2 49.7 433 30.1 35.2 36.2 37.S 29.8 23.9 14.4 11.9 13.1 13.8 Bee 5385 417 33.1 31.7 19.5 17.7 22.3 19.3 20.3 190 23.5 29.0 33.3 35.4 Sug7. 17.1 74 13.3 22.3 138 25.0 13.2 20.0 14.4 4 4 5.7 4.2 2.7 2.4 Sbriip and Lobae 38.3 427 42.2 50.0 46.2 40.7 40.3 527 70.5 622 69.3 94.7 110.3 119.1 Tobaco 15.0 14.7 10.4 10.3 3.2 7.6 4.9 4.1 4.2 3.1 4.0 3.9 6.1 6.7 SlIvea 10.1 9.3 7.5 10.1 12.5 13.1 14.0 7.1 9.9 9.6 6.4 6.9 3.5 73 Lead S.0 7.9 57 7.7 9.1 10.3 10.9 4.1 7.4 5S 3.7 3.1 39 4.6 Zinc 17.2 17.6 17.2 27.1 36.5 406 43.1 21.2 29.3 45.3 36.7 39.3 37.3 36.8 Nontsdiuonl &Othee l/ 2317 2049 159.1 1765 12 136.7 144.0 113.4 107.1 121.4 109.5 123 165.3 224 Toti Mrcc.Excpouia, (FOB. custm) 945.1 905.5 V3.9 034.0 157.4 912.4 334.1 876.6 840.9 t57.7 359.1 333.7 996.2 996.1 Memo: To1a.IitpoaofGNFS IM1A4 1076.9 979.4 10t1.1 1025. 1109J 1Q2&6 1059.1 1M024 ll59," 10*4.t )9634 19P 12W120 ExpnwePriccbi(9lSt100) 37.0 P2 79.0 W4 $4.6 59 tO.9 S9.2 '00.0 1G0t ff.t .9M.0 - 1.7 (Per- tChx) 1a -4.43 -3.1 2.0 50 4.9 20.3 -t.6 12.2 O. -.69 -1.1 -15. 39 HONDURASI RAWl GCwth Rals of M dbardudndlae poN 1909 931 0m 19 1934 19"5 393 1967 19-11 1969 J!1 11, 19n 1M3P Bna -3.5 -11.0 5.9 -21.6 17.5 12.3 -8.6 16.2 -5.2 -3.9 -6.0 -9.4 6.4 -15.5 Coffee -14.1 191 -15.6 29.5 4.7 5.5 11.1 95 -13.0 124 22.3 -16.3 35.3 -4.6 Lumber -19.9 3.6 31 -13.0 -11.3 -7.3 2.3 3.3 -20.6 -19.9 -39.8 -16.9 10.0 5.0 Bed -4.6 -16.3 .320 -4.5 .38.5 -9.2 25.3 -11.0 2.5 -6.6 23.7 23.5 16.3 47 SU3. 47.5 2.0 5.3 21.4 -156 33.1 -47.1 51.4 -28.2 -498 30.6 -26.0 -36.0 -117 ShrinpandLobsla 21.9 114 -1.2 13.5 -7.5 -11.9 -0.5 302 33.8 -11.3 11.5 36.7 16.4 8.0 Tobacco 1.6 -1.7 -29.4 -1.4 -19.3 -7.5 -35.4 -15.9 1.6 4-.6 4.3 -25 57.1 10.0 Sdlver -33.7 -3.0 -23.2 34.5 24 1 4.3 7.0 -49.2 39 5 -3.4 -33.3 37 22.7 -14.5 Lead -3t.6 -2.0 -27.5 34.1 139 13.1 5.9 -623 26 -21.3 -36.5 3.2 133.5 48.5 Zinc -118 2.6 -2.4 57.3 34.8 11.8 3.5 -50.3 40.6 51.9 .139 7.1 -5.2 -1.3 Noentdiraia1 & 01hcr / -2.0 *11.5 .22.4 10.9 3.6 2.1 -22.9 -21.3 -5.6 17.1 -12.6 17.6 213 34.1 Total M hdiandi Ecorti FOB I/ -5 5 -4.2 -65 0.6 2I 6.4 -6.4 2.6 4.0 1.9 0.2 -3.0 19.5 0.0 Tola Epou ofGNFS (BOP buA) JIOA -34%. 4.1K% 3%2 % 1.5% 1.2 7t- 3.09* -$38 . 349. . .4* 4% 1*.091 0.3% Volune lrxex(1929t 0DO) 1123 107.6 - 93.5 99. 101.3 103.4 1015 104.1 '0.0 :pj ItoMO M to -- tta3 1)1 (Peaeat cCange) -5K -4.2% 4.5% G 16% 28% 6.4% -6.4% 16% -4.0% 1.9% o0. .D -* 19% D.0% HONDURAS: Kipwt Compoesitle (u% oftotaL tchomcbm e r) 0935 18 im 1 91 94 185 13 19817 09981 096 1891 199 1991 M 19W Baaa 27.7% 2a3% 33.4% 30.2% 32.0% 35.7% 29.3% 39.8% 42.3% 41.0% 43.1% 39.7% 32.0% 27.3% Coffee 24.3% 22.9% 23.4% 22.5% 23.3% 24.2% 37.4% 25.6% 22.3% 222% 21.% 1t4% 113.4% 16.1% Lumnbe 4.4% 5.7% 6.8% 6.0% 4.3% 4.5% 3.7% 4.4% 3.5% 2.8% 1.9% 1.9% 1.9% 2I1% Beef 7.4% 6 2% 5 2% 4.7% 2.9% 2.4% 213% 2.9% 2.4% 2.3% 3.0% 4.0% 4 6% 4.9% Sugpr 3.6% 6.2% 3.3% 4.1% 3.5% 2.8% 1.5% 2.4% 1.7% 1.0% 1.5% 1.1% 0 7% 0.6% Sheunp and Loba 2J3% 3.5% 4.3% 5.4% 6.9% 3.4% 5.3% 7.5% t.4% 7.1% 7.9% 11.7% 12.7% 13.5% Tobaco 1 7% 1.6% 1.6% 1.6% 1.2% 1 1% 0 6% 0.5% 0.5% 0.4% 0.3% 0.3% 0.3% 0 5% Silvac 3.9% 2.1% 1.4% 2.6% 2.1% 17% 1.5% 1.0% 1.2% 0.9% 0.6% 0.5% 0.6% 05% Lead 1.2% 1.1% 0.6% 0.7% 0.9% 0.3% 0.7% 0.5% 0.9% 0 7% 0.5% 0.4% 1.0% 0 5% Zuic 1.2% 1.6% 1.t% 30% 44% 3.9% 3.1% 2.0% 3.5% 7.1% 5.6% 46% 4.5% 3.9% NonresdilsonalaOllw 21.3% 20.6% 13.1% 19.2% IS0% 17.6% 14.2% 13.5% 12.7% 14.5% 13.3% 17.4% 23.1% 297% Tobi MerchandisExpeats 100 0% 1000% tOo 0% 100 0% 100 0% 100.0% 100.0% 100.0% 100 0% 100.0% 100.0% 100.0% 100.0% 100l0% I/Use MLUV tu d.flaa 'N-sdi.I + de.la. Sio: Wor-ld B sff -s-as HONDURAS: lmwp, CU (.lkw eruws) 18 191 1983 1 - - 1984 1I5 1nU I197 i rn i- 1 s i, 1i1 1"3 9, Cor G oods 237.6 237.3 159.1 173.0 19.6 217.0 245.5 218.0 247.7 225.1 200.1 2037 219.9 239.1 Non Durble Consumer Goods 154.9 139.7 103.t 122.8 129.0 140.7 130.6 138.7 189.9 171.6 144.7 1W5.7 14.5 198.0 DwL ble Coumwne Good. 527 77.6 553 50.2 69.6 76.3 95.2 79.3 57t8 535 55.4 48.0 6S.4 71.1 Petole-n Oil nd Lubricwl 1711 1632 167.1 163.t 179.7 1S8.6 97.4 119.3 116.9 145.7 168.2 172.4 1608 1779 Otha InomcdicaL Goods 347.0 341.8 2645 337.7 342.2 341.9 357.8 341.7 353.1 367.3 357.1 576.7 394.6 42 9 Capil Goods 262.1 215.5 114.8 125.5 170.9 181.8 172.0 192.8 215.1 220.3 200.2 159.1 241.9 2630 AiVriJlle 22.3 17.1 8.4 10.1 14.0 16.4 15.1 176 8.3 78 6.7 t.1 10.1 110 Induiy 178.8 157.2 83.0 96.2 130.5 134.7 123.4 123.8 100.6 1263 113.2 1090 134.0 1457 Transpoctation 61.0 41.2 23.4 19.2 26.4 30.7 33.5 51.4 106.2 86.2 80.3 710 97.8 106.3 Otha 1.3 2.2 34 2.6 20 7.4 21.2 13.7 7.3 10.2 92 14.2 19.4 21 1 TotalM adiscleIporta,CIF 1019.1 960.0 70t9 6026 895.4 906.7 594.2 M5.5 940.1 98f6 934.4 915.1 1036.6 11300 Uarordod Import 20.4 15.5 29.8 20.1 66.1 68.S 67.9 67.1 70.2 76.7 58.6 45.7 49.4 54.0 Total Mc-h.Iimports, CIF (BOP buas) 1039.5 975.5 73&7 =7 959.5 975.5 962.1 952.6 1010.3 10453. 9934 1000.8 1096.0 1I14.0 (As % oTol Conie hqpmt) Coracr Goods 23.3% 24.7% 22.4% 21.6% 22.2% 23.9% 27.5% 24.6% 263% 23.2% 21.4% 21.3% 21.2% 21.2% Non Durable Conurcs Goods 152% 16.6% 14.6% 15.3K 14.4% 15.5% 16.8% 15.7% 20.2% 17.7% 15.5% 16.3% 14.9% 14.9% DurableConsumanuGoods &I% 8.1% 7.8% 6.3% 7.8% K 4% 10.6% 9.0% 6.1% 5.5% 5.9% 5.0% 6.3% 6.3% Pedolcun. Oil md Lubricanl. 16.8% 17.0% 23.6% 20.4% 20.1% 17.5% 10.9% 13.5% 12.4% 13.0% 180% 1t[1% 1U.S% 15.7% Oer Intermediate Goods 340% 35.6% 37.3% 42.1K 363% 37.7% 40.0% 386% 37.6% 37.9% 382% 39.4% 361% 38.0% Capi, Goods 25.7% 22.4 16.2% 15.6% 19.1% 20.1% 19.2% 21.8% 22.9% 22.7% 21.4% 19.7% 23.3% 23.3% AU1cwazo 2.2% 1.8% 1.2% 1.3% 1.6% 1.8% 1.7% 2.0% 0.9% 0.8% 0e7% 0.% 1K0% l.(% IoSusty 17 5% 164% 11.7% 12.0% 14.6% 14.9% 13.5% 14.0% 10.7% 13.0% 12.1% 114% 12.9% 12.9% Tranponstion 6.0% 4.3% 3.3% 2.4% 3.0% 3.4% 3.7% 5.8% 11.3% 89% t.6% 7.4% 9.4% 9.4% Othne 0.1% 0.2% 0.5% 0.3% 0.2% 0.8% 2.4% 1.5% 08% 1.1% 1.0% 1.5% 1.9% 1.9% Total Mrchuadi. Imots CIF 100.0% 100%OK 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 1009% 100.0% 100.0% 100.0% 100.0% Memo: Totxl MwAe op^t8cFBhP)M 9541 8986 603. 756. 59145 391J 87.v71 ±A 91i97. . 990. 10795 CIF/FOs H WR coovns0 lrc 1. .I. .. 11 . .. 11 53 L . I 11 . To1alIirpmor1acG1 11281 M306. 821.1. 9144 16.010 097.0)V~V 30781 104.6 1040. 11W92 11254~ 11918.2 234 123x 1336. (P-tenap Chaimp) . 5 227 I1.A 56.51 1.1 8 4 6.8 4.2 .5 IA . 8.3 8.3 Source: Egtudios Econ6miicos BANTRAkL. HONDURAS: Raeo Imprle (.10k. of 1933 US$) - 8 - 193 0s 1930 1 I 9 m4 19S 19ff 91 9 M9 1 t 19 991 - 1M9 . m s P Consuma Goods 235.0 2S0. 4 13.0 190.3 217.4 234.3 262.4 249.2 247.7 236.2 219.3 223. 233.5 274.7 Non DurblcConsriGoods 125.5 1430 10.9 121.3 120.0 143S 150.2 164.2 139.9 1l3 167.0 133.3 195.1 210.7 Durable Coosurnr Goods 109.5 1024 74.1 63.3 97.3 106.0 1122 3.1 37.3 Ss.9 52.3 44.3 s3. 63.9 Pewolcur Oil wndLubsicants 76.2 64.7 73.3 792 uS. 30.7 930 94.2 116.9 121.5 107.3 134.3 126.3 Is3 Other Intlmediale Goods 459.5 450.3 354.3 462.9 479.3 473.0 421.6 366.6 353.1 369.9 340.4 351.2 352.7 385.6 Capitla Goods 347.1 234.2 153.3 172.0 239.4 252.6 2027 206.3 215.1 221.1 190.1 175.4 216.2 2361 Agncuitre 29.5 22.6 11.3 13.3 19.6 22.3 17.3 13.9 3.3 7.9 6.4 7.5 9.0 9. indusy 236.3 207.3 111.2 131.9 l13a 137.1 145.4 132.3 100.6 127.2 107.9 101.6 4 119 131.0 TruVls O.D 54.3 31.3 26.3 37.0 42.7 39.5 3.1 106.2 46.3 76.5 66.2 87.4 91.6 OthaT 1.7 2 9 4.6 3.6 2.3 10.3 25.0 14.7 7.3 10.3 3.8 13.2 17.3 19.0 Total Merhaise mort CEF 1119.6 1053.0 763.9 90. 1 1027.7 1073.4 1009.6 931.6 940. 939.7 47.0 902.9 96. 1 1073.8 (RcL 1 Annu Growth RaI4s) Conssa Goods 34.3% 65% -26.9% 4.0% 14.2% 17.2% 3.0% -30% -0.6% -4.6% .7.0% 3.9% 11.1% 33% NoenLbcCorauneGoods #/A 17.9% -26.4% 11.6% -1.3% 24.1% 0.9% 9.3% 15.7% -4.0% -34% 99% 6.3% 8.0% Durable Coitnier Goods *A .65% .27.6% -7.1% 41.7% 3.7% 1.9% -24.2% -32.1% -6.% -2.0% -11.2% 30.6% 9.4% Perolcum, OildLubicons -7.7% -15.2% 13.3% 31% 11% *9.1% 21.5% -39% 24.1% 3.9% -11.7% 256% -6.3% 25.1% OtbeT ilamediate Goods -5 8% .1.9% -21.4% 30.6% 3.5% -0.9% -11.2% -13.0% -3.7% 4.7% -3o% 3.2% 0.4% 9.3% CqpI Goods 17.4% -131% -45.9% M1.9% 39.1% 5.5% -19.8% 2.1% 4.0% 3.1% -14.0% -L1% 23.3% 9.4% A.icullxe *4/A -23.6% -50. % 23.0% 41.6% 16.2% -21.9% 6.1% -56.0% -..4% .137% 133% 19.5% 9.6% ndszry #A -12.4% -46.4% 16% 31.6% 2.4% -22.3% -7% -24.3% 26.4% -1I.2% -5.9% 17.9% 9.4% Trnotion *4/A .32.7% -42.3% -16.0% 40.5% 15.4% -7.3% 39.7% n6% -133% -11.3% .13.3% 32.1% 9.3% oGha -13.3% 6.6% 57.0% -21.7% -21.4% 267.0% 143.0% -41.2% -50.3% 40.7% -14.6% 51.0% 31.0% 9.4% Toal Machsndie Imports CIF 7.4% .-.9% -27.0% 18.1% 13.2% 4.4% -S.9% -7,7% _09% 2.1% -9.7% 4.1% 7.0% 11.2% (Volmw nidex 1983- 1 00) cccmk Goods 94.9 101.1 73.9 76.3 87.3 1029 103.9 100.6 100.0 9.4 337 n2 1023 110,9 NcsDwabIclCmaman Goods 66.1 780 57.3 64.0 63.2 734 79.1 86.4 100.0 96.0 3.9 966 102.7 111.0 Dwable CooorA Goods 139.5 177.1 123.2 119.1 168.7 133.4 194.1 147.2 100.0 93.2 91.4 77.4 103.1 110.4 PcOolcur. Oi and Lubscag 63.2 55.3 42.7 67.3 76.0 69.0 33.3 30.6 100.0 103.9 91.3 113,3 1OL.1 135.2 OthaIntacrea4 e Goods 130.1 127.7 100.3 131.1 135.7 134.5 119.4 103.3 100.0 104.7 94.4 99.3 99.9 109.2 CapilalGoods 161.4 132 1 71.5 90.0 111.3 117.4 94.2 96.2 100.0 103.1 387 31.3 100.5 109.9 A.pcultum 355.8 271.7 135.6 166.3 236.2 274.3 214.4 227.3 100.0 94.6 76.9 91.0 Io0S 119.2 Indsy 235.4 206.1 110.1 131.1 111.7 186.0 144.5 132.0 100.0 126.4 107.2 101.0 119.0 130.2 Trvnpoa ion 76.1 51.2 29.3 24.3 34.3 40.2 37.2 51.9 100.0 81.7 721 42 3 33 96.0 Othw 23.6 39.3 62.4 4a6 3IL4 140.9 342.2 201.3 100.0 140.7 120.1 131.4 237.3 239. TotaiMudiniseln crta.CF 119.1 112.0 B1. 96.6 109.3 114.2 107.4 99.1 100.0 1021 92.2 96.0 102.3 1142 To1aIbrfmtsoC1.S. - - 1264. 1t=3. ,919.2 1061.6 22. I3D9 12261: 1134.4: :1140tA.9: 1 1043 3w074o I142.0 12S9.1 (Puo_qe Cb:) ............., , ',. ;'., ;01% -22.4% 1S.49% 19.U#.' 4.04% .7J7%. .7.VK ... 0.57% , :3t.% AA,S% 24757 6139 40.26% 3*01mpo~Thoe l1 l9A100} " : 910 . " 91.21: 922' ' 84 *69 84.3 4. 6 9#.1 e10 09 300* - ma 105.8 14173 IW s2 (Pu -qsOi.. 14*, '4.2 11 .4U .-1.6 -1.4 .2 , 4.9 7.3 .2 O. 6 IS.9 IA4 -1.9 Tur-*[TII_*ns otTlad 4h3 - 994 9I.~ :,7- 91.1 9S7. 99.3 11)39 :93* .; 992 .2' -: , .75.0 79.5 (Paenbgt ) .2 .4.3 4.2 6.4 638 2.0 14.7 .17.6 6 6 -'3. .3 0.1 -13. 6 0 Swo,: Wokid Bak f.N e-sd..-- Honduras - Various Price Indices (1960 - 1993) (1988=100) CPI Implicit: Annual Percent GDP Percent Year Average;i0: Change - Defaltor Change- 1960 24.8 #N!A ifN/A #N/A 1961 25.1 1.4% #N/A #N/A 1962 25.6 1.9% #1/XAI M#A 1963 25.8 0.8% #N/A #N/A 1964 26.1 1.3% #N1A I- #N/A 1965 26.9 2.8% #N/A #NMA 1966 ; 27.5 2.3% I11K #iAI #14t /:MA. 1967 28.0 1.9% #N/A #N/A 1968 28.5 1.71%11 #14A #1/A 1969 28.8 1.2% #N/A #N/A 1970 30.0 3.9% . 30.8 .. #NUA 1971 30.6 2.1% 31.3 1.7% 1972 31.5 3.2% 32.5 3.9% 1973 33.0 4.6% 34.2 5.3% 1974 37.2 12.8% 39.3 14.8% 1975 40.2 8.1% 41.8 6.4% 1976 42.2. 5.1% 45.4 8.5% 1977 45.8 8.4% 50.9 12.2% 1978 48.4 5.7% 53.5 5.1% 1979 54.2 12.1% 59.6 11.5% 1980 64.1 18.1% 6135 13.2% 1981 70.1 9.4% 72.3 7.2% 1982 76.4 9.0% I 755- 4.4_% 1983 82.7 8.3% 80.8 7.0% 1984 86.6 4.1% 83.5 3.4% 1985 89.5 3.4% 87.9 5.2% 1986 93.4 4.4% 91.3 3.9% 1987 95.7 2.5% 93.9 2.8% 1988 100.0 4.5% 100.0 6.5% 1989 109.9 9.9% 107.1 7.1% 1990 135.5 23.3% I29.8 21.2% 1991 181.5 34.0% 164.2 26.6% 1992 197.4 8.8% 177.4 8.0% 1993 218.6 10.7% 196.1 10.5% Source: BANTRAL Hondurs - Nominal and Real Exchange Rates Nominal Nominal Prcentag ilon. US Rel Exch. Percentage Nominul Nominal Pernnlage Hon. Us Real extk Percentage Exchange Exchange Chanel CPI WPI Index Change2 Exchange' Exchange Changel CPI WPI lUdeC Change 19835100 (Nonm Exch) 1988-109 1983-100 1988-100 (Real E1c9) 39-100 (Noan Exch) 1981-100 1988-100 1983-100 (Renl Etc 19338 1991 Jan 2.9120 111.93 MN/A 97.01 97.t1 112.25 SN#A JaL 5.302t 203.12 -1.50% 163.93 111.1 131.23 -5.12% Feb. 2.5700 9t.7t -11.74% 97.30 93.00 99.49 -11.14% Feb. 5.3025 203.31 -0.01% 169.69 109.59 131.63 -4.71% Marh 2.5700 93.73 0.00% 97.64 93.09 99.23 -0.25% Marh 5.3054 203.92 0.05% 171.96 103.56 123.74 -2.19% Apil 2.5700 93.78 0.00% 93.13 93.93 99.59 0.36% April 5.3066 203.97 0.02% 177.57 103.47 124.59 -3.22% MAy 2.5130 96.59 -2.22% 91.75 99.59 97.40 -2.20% May 5.3000 203.72 -0.12% 179.65 103.94 123.52 -0.36% June 2.5130 96.59 0.00% 99.43 100.24 97.31 4.03% June 5.3000 203.72 0.00% 132.15 103.41 120.73 -2.22% July 2.5130 96.59 0.00% 101.08 100.90 96.42 4.93% July 5.3000 203.72 0.00% 135.75 105.51 119.00 -1.43% Aug, 2.4940 95.t6 -0.76% 99.5S 100.99 97.22 0.13% Aug. 5.3000 203.72 0.00% 133.07 103.70 117.74 -1.06% SepL 2.4560 94.40 -1.52% 101.46 101.03 94.04 -3.27% Sept 5.3000 203.72 O.00% 137.35 102.51 117.99 0.21% OCL 2.4560 94.40 0.00% 102.77 101.13 92.93 -1.12% Oc. 5.3000 203.72 0.00% 129.19 103.50 117.15 4.71% Nov. 2.7253 104.75 10.97% 103.21 101.27 102.79 10.60% Nov. 5.4000 207.56 I.t9% 190.73 103.30 113.39 1.06% Dec. 2.9277 112.53 7.43% 103.64 101.92 110.67 7.67% Dee. 5.4000 207.56 0.00% 191.17 103.41 117.71 -0.5t% Avpe 2.6017 100.00 M/A 100.00 100.00 300.00 MN/A Avage 5.3111 204.41 2269% 131.49 l0.91 122.96 . 7.77% 199 1992 JAIL 2.6327 101.19 .10.03% 104.66 103.11 99.69 -9.92% Jan. 5.4000 207.56 0.00% 191.46 103.13 117.21 4.42% Feb. 2.8562 109.73 t.49% 105.92 103.61 107.39 7.72% Feb. 5.4000 207.56 0.00% 193.59 103.61 116.44 4.66% Marh 2.6673 102.52 -6.61% 106.21 104.26 100.64 46.2S% Marh 5.4000 207.56 0.00% 194.02 103.61 116.13 4.22% Apri 2.7643 106.27 3.66% 106.74 105.01 104.55 3.tl% April 5.4000 207.56 0.00% 195.96 103.70 115.13 4.90% MAy 2.8404 109.13 2.74% 107.56 105.35 107.44 2.77% May 5.4000 207.56 0.00% 196.73 109.48 115.47 0.29% June 2.t225 103.49 4.63% 103.77 105.57 105.29 -2.00% June 5.4400 209.10 0.74% 196.93 110.34 117.16 1.46% July 2.3765 110.56 1.91% 110.66 105.43 105.39 0.09% July 5.4900 211.02 0.92% 198.04 110.15 117.37 0.11% Aug, 3.0191 116.04 4.96% 111.43 104.73 109.06 3.49% Aug. 5.5400 212.94 0.91% 198.43 109.96 113.00 0.54% SCPL 3.3052 127.04 9.4g% 112.11 105.10 119.10 9.20% Sept 5.6000 215.25 I.0t% 193.62 110.15 119.37 1.16% Oct 3.2745 125.36 4.93% 113.90 105.41 116.55 -2.14% OcL 5.7400 220.63 2.50% 199.44 110.44 122.17 2.35% Nov. 3.5003 134.56 6.91% 114.32 105.33 123.50 5.96% Nov. 5.t200 223.70 1.39% 201.77 110.15 122.12 4.04% Dec. 3.5371 135.96 1.04% 115.45 105.66 124.43 0.75% Dec. 5.t400 224.47 0.34% 203.60 109.96 121.22 4.74% Avra 3.0031 115.62 15.62% 109.35 104.94 110.25 10.25% Averag 5.5392- 212.91 4.16% 197.39 109.56 IILIS .3.91% 2.9959 Annual Avaa Weiled by Mixly bipala 1990 1993 Jan 3.2425 124.36 4.16% 117.37 107.44 113.31 -3.53% JAL 5.1200 223.70 -0.34% 204.67 110.34 120.60 4.51% Feb. 3.7130 142.72 14.30% 121.45 106.97 125.71 10.45% Feb. 5.t500 224.36 0.52% 206.65 110.54 120.27 4.2S% Marh 4.0605 156.07 9.36% 122.66 106.79 135.t7 1.09% March 5.1600 225.24 0.17% 203.25 111.02 120.07 4.16% Apni 4.1309 153.73 1.73% 127.64 106.60 132.60 -2.41% Apri 5.9000 226.73 0.6t% 212.27 111.50 119.12 4.79% May 4.1751 160.41 1.07% 129.29 107.07 132.39 0.22% May 6.0500 232.54 2.54% 213.36 111.29 121.66 2.13% June 4.3465 167.07 4.11% 132.23 106.33 134.93 1.57% hune 6.2500 240.23 3.31% 217.25 111.79 123.61 1.61% July 4.3821 168.43 0.32% 136.54 106.33 131.84 -2.32% July 6.8100 261.75 3.96% 223.73 111.60 130.53 5.60% Aug 4.3412 167.13 4.77% 133.62 103.94 131.34 4.32% Aug 6.3300 264.45 1.03% 226.25 111.12 129.t7 4.51% ScpL 4.3932 169.05 1.15% 140.61 110.62 133.00 1.26% Sept. 6.9000 265.21 0.29% 224.94 111.02 130.19 0.79% OcL 4.3632 167.90 -0.6t% 143.16 112.96 123.01 -3.75% OcL 6.9200 265.93 0.29% 226.49 111.40 130.33 4.05% Nov. 5.4596 209.15 24.99% 153.04 312.30 153.99 20.29% Nov. 7.1100 273.29 2.75% 222.72 111.21 132.33 1.57% Dce. 5.3933 206.92 -1.40% 157.49 110.90 145.70 -5.3S% Dec. 7.2900 230.20 2.53% 230.17 110.73 134.30 1.44% Avege 4.3345 166 60 . 44. 130,47' , 191.70 1 t.3.31 2 0.91% Avpq. 6,4709 243,69 16 . 216111.13 1262 6 6t6% 4.3120 Annua Aveage Weigd by Miardilyb h 5 Nc: 19iS - C.L de .reishI bY -.-I -W fnpca ae,. A. 1990. pp.21 a 24. I/ Trade weighld average (sher in IOa mnch. inpceta) of dte offiCa ce and pale padrah Fa Nov. 33 - Dec. 3t mqpmu dLam baed an lIt Qt. 39. Ft May 1991 - Aug 93 the naminal exrJ e rale, What apprUopiate. - ec is he mk rxchme rexcitange ate die thc h rae 2/ The poentage chuWae hon n die asdago ie hne d ce dhthp beewa die Aumu avuagr. RER = c ' US WPVI/ Ha CPLI whe e - mat ex-hoe ratc. So..t: Wodd Bak akulta fr BAfNTRAL dat. U.S. Wak,k PeA ha is fa IFS. Honduras: National Accounts by Expenditures (millions of current lempiras) 1960 9 1969 1964 1965 1906: 19 196 169 9: :99t 1m99 199_3p Gros Domestic ExpcAdixu 5,533.0 6,031.0 5,931.0 6,397.0 7,123.0 7,685.0 7,796.0 1,628.0 9,638.0 10,393.0 13,13520 16,975.1 20,144.7 23,331.5 COion 4,262.0 4,843.0 5,1120 5,545.0 5,967.0 6,424.0 6.741.0 7,132.0 7,696.0 8,915.0 10,271.0 12,953.1 15,263.7 17,563.5 Pnvue 3,6120 4,122.0 4,354.0 4,738.0 5.091.0 5,471.0 5,654.0 6.001.0 6,388.0 7,440.0 8.650.0 11,134.1 13.0927 15.045.5 Public 650.0 721.0 758.0 307.0 876.0 953.0 1,08.0 1.181.0 1,306.0 1,475.0 1,621.0 1,769.0 2,171.0 2,518.0 G nm Dmtie InvedmeA 1.271.0 1,138.0 819.0 3520 1,156.0 1,261.0 1,055.0 1.446.0 1,942.0 1,9730 2,381.0 4.022.0 4,381.0 5,768.0 Fixed Inavetan 1,258.0 1,088.0 1,009.0 1,028.0 1,251.0 1,234.0 1,045.0 1,132.0 1,429.0 1.84.0 2.533.0 3,096.0 4,202.0 4.945.0 Pivue 781.0 634.0 473.0 411.0 514.0 537.0 598.0 707.0 962.0 1,295.0 1.710.0 1,928.0 2,254.0 2,799.0 Public 477.0 454.0 531.0 617.0 737.0 647.0 447.0 425.0 467.0 539.0 323.0 1,168.0 1,948.0 2,146.0 angeinStocks 13.0 100.0 -190.0 -176.0 -95.0 27.0 10.0 314.0 513.0 94.0 348.0 926.0 679.0 n3.0 Resourc Balm=c (401.0) (392.0) (124.0) (243.0) (485.0) (406.0) (179.0) (323.0) (3t7.0) (559.0) (615.0) (661.1) (1,372.7) (1,696.5) ExportfGoods ANFS 1.,60.0 1,734.0 1,505.0 1,556.0 1,641.0 1,768.0 1,977.0 1.826.0 2,294.0 2,997.0 4,407.0 5,468.9 5,447.3 6,956.5 InpotafGoods&NFS 2,261.0 2,126.0 1,629.0 1,799.0 2,126.0 2.174.0 2,156.0 2,149.0 2,681.0 3,556.0 5,022.0 6,130.0 6,820.0 3,653.0 GDPatMkdP Bum 5,132.0 5,639.0 5,807.0 6,154.0 6,638.0 7,279.0 7,617.0 3,305.0 9,251.0 10,334.0 12,537.0 16,314.0 13,7720 21,635.0 GDS 370.0 796.0 695.0 609.0 671.0 355.0 376.0 1,123.0 1,555.0 1,419.0 2,266.0 3,360.9 3,508.3 4,071.5 Cwrant Trifms/I 15.0 17.8 18.0 19.4 20.0 24.8 26.0 52.0 56.0 68.4 200.7 281.8 335.9 204.1 Nct Fadn Savic -275.0 -269.0 -385.0 -214.0 -308.0 -325.0 -372.0 -389.0 -427.0 -526.0 -65.0 -1,335.9 -1,558.0 -1,718.5 GNP (excLCI) 4,857.0 5,370.0 5,422.0 5,370.0 6,330.0 6,954,0 7,245.0 7.916.0 8,24.0 9,808.0 11,672.0 14,978.1 17,214.0 19,916.5 GNS 610.0 544.8 328.0 344.4 383.0 554.8 530.0 786.0 1,1,4.0 961.4 1,601.7 2,306.1 2,216.2 2,557.1 (% ofGDP) GDP at Muiru P1ies 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% CaManpt 83.0% 35.9% t8.0% 90.1% 89.9% 88.3% 88.5% 36.5% 83.2% 86.3% t1.9% 79.4% 81.3% 81.2% Pnvte 70.4% 73.1% 75.0% 77.0% 76.7% 75.2% 74.2% 72.3% 69.1% 720% 69.0% 68.6% 69.7% 69.5% PubLic 12.7% 12.3% 13.1% 13.1% 13.2% 13.1% 14.3% 14.2% 14.1% 14.3% 12.9% 10.8% 11.6% 11.6% Invat 24.8% 21.1% 14.1% 13.% 17.4% 17.3% 13.9% 17.4% 21.0% 19.1% 23.0% 24.7% 26.0% 26.7% FixedIno 24.5% 19.3% 17.4% 167% 18.1% 17.0% 13.7% 13.6% 15.4% 18.2% 20.2% 19.0% 22.4% 22.9% Pivate 15.2% 11.2% 8.2% 6.7% 7.7% 3.1% 7.9% 3.5% 10.4% 12.5% 13.6% 118.% 12.0% 12.9% Public 9.3% 3.1% 9.1% 10.0% 11.1% 3.9% 5.9% 5.1% 5.0% 5.7% 6.6% 7.2% 10.4% 9.9% Rwuce Bal -7.3% -7.0% -2.1% -3.9% -7.3% -5.6% -2.4% -3.9% -4.2% -5.4% -4.9% -4.1% -7.3% -7.3% EqxsVmu 36.2% 30.8% 25.9% 25.3% 24.7% 24.3% 26.0% 22 0% 24.3% 29.0% 35.2% 33.5% 29.0% 32.2% Impcns 44.1% 37.7% 28.1% 29.2% 32.0% 29.9% 28.3% 25.9% 29.0% 34.4% 40.1% 37.6% 36.3% 40.0% GDS 17.0% 141% 12.0% 9.9% 10.1% 11.7% 11.5% 13.5% 16.t% 13.7% 1I.1% 20.6% 13.7% 13.8% Cwrdt Tzmfas 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.6% 0.6% 0.7% 1.6% 1.7% 18.% 0.9% NctFackSacram -5.4% -4.t% 4.6% -4.6% -4.6% -4.5% -4.9% -4.7% -4.6% -5.1% -6.9% 482% -8.3% -7.9% ONS 11.9% 9.7% 5.6% 5.6% 5.1% 7.6% 7.0% 9.5% 12.8% 9.3% 1218% 14.1% 12.2% 11.8% Now: 1/ NsN 0w,. Tn.m&t m _m frah BDAITRAL, Sop u xcIi _, *_d h h 1 ame. a pblie _tda1 Sgm. Not Faewr s&ul.. W hea H.nun aui .. e So: BANDTRAL 19-3 BANTlAL w at of Feb. 1994. Honduras: Savings - Investment (millions of current lempiras) -1980 ' 1 9 821 - 1981 . 3. . 1944:: 1986 3 . - 1987 -198 1989- 19.0 19 39 9 1993/p Orn DwnesticInveanat 1.271.0 3.1t3.0 319.0 352.0 1,156.0 1,261.0 1,055.0 1,446.0 1.942.0 1,973.0 2,381.0 4,022.0 4,831.0 5,768.0 Privt (inc. o Stk.) 794.0 734.0 288.0 235.0 419.0 614.0 608.0 1,021.0 1,475.0 1.339.0 2,053.0 2,854.0 2,933.0 3.622.0 Public 477.0 454.0 531.0 617.0 737.0 647.0 447.0 425.0 467.0 539.0 323.0 1,168.0 1,948.0 2,146.0 Total Samio 1,271.0 3.I13.0 319.0 3520 1,156.0 1,261.0 1,055.0 1,446.0 1,942.0 1,973.0 2,333.0 4,0220 4,331.0 5,763.0 Forag tSviap 661.0 643.2 491.0 507.6 m.0 706.2 525.0 660.0 75s.0 1,016.6 1,279.3 1,715.2 2,594.3 3,210.9 GOfasN Iati SAtir 610.0 544.3 328.0 344.4 333.0 554.3 530.0 736.0 1.134.0 961.4 1.601.7 2,306.8 2,286.2 2,557.1 Private 470.7 452.6 286.0 338.9 282.2 462.1 475.3 705.0 1.098.7 1,023.0 1,244.9 1.521.5 1,457.2 2,427.3 Pubic J 139.3 92.2 420 5.5 100.S 92.7 54.7 1.0 835.3 -61.6 356.3 785.3 329.0 129.3 (As % of CtxrA GDP) GCa sDaoesticInvwsbna 24.3% 21.1% 14.1% 13.r% 17.4% 17.3% 13.9% 17.4% 21.0% 19.1% 23.0% 24.7% 26.0% 26.7% Private (inc. O StiL) 15.5% 13.0% 5.0% 3.3% 6.3% 8.4% 3.0% 12.3% 15.9% 13.4% 16.4% 17.5% 15.6% 16.7% Public 9.3% 3.1% 9.1% 10.0% 11.1% 3.9% 5.9% 5.1% 5.0% 5.7% 6.6% 7.2% 10.4% 9.9% ToWa Savn 24.3% 21.1% 14.1% 13.3% 17.4% 17.3% 13.9% 17.4% 21.0% 19.1% 23.0% 247% 26.0% 26.7% FC-PS-VD4 12.9% 11.4% 3.5% S.2% 11.6% 9.7% 6.9% 7.9% 3.2% 9.B% 10.2% 10.5% 13.S% 14.3% GrossNatitmalSxvinp 11.9% 9.7% 5.6% 5.6% 5.S% 7.6% 7.0% 9.5% 12.t% 9.3% 12t% 14.1% 12.2% 11.8% Private 9.2% 3.0% 4.9% 5.5% 4.3% 6.3% 6.2% 35% 11.9% 9.9% 9.9% 9.3% 7.S% 11.2% PubliclJ 2.7% 1.6% 0.7 o.1% 15% 1.3% 07% 10% 0.9% .06% 2. 3 4.S% 4.4% 0.6% Mermo ODS (T oe(Ti Adj.) 668, 3.4OA 4449 404.2 397.9 494.2 406 563A4 7736 714.0 041 9933 986.1i073.0 GTS(Trd Mi..--) 451. . 384A' 21.S 257.2 239.6 330.9 265.0 3541. 5771 54.9 643-. 6629 651.3 695.1 I1 FPwep grbu we cwluded firm the CrmLt rmeva cf fthe no inuEial public sectmw Honduras: National Accounts by Expenditures (millions of 1978 lempiras) 1980 3961 l963 1963 1964 19S5 1966 1967 1986 :919 1990 3I99 192 1993/p GrmanDcaesticExpmditurc 4,191.0 4,066.0 3,s25.0 3,03-0 4,1660 4,244.0 4,323.0 4.586,0 4,924.0 5.0750 5,031.0 5,322.0 5,511.0 5,S2220 Couflption 3.2330 3,259.0 3,296-0 3,246.0 3,469.0 3,504.0 3,727.0 3,309.0 3,930.0 4,121.0 4,043.0 4,157.0 4,201.0 4,413.0 Pnv,t 2.742.0 2,762.0 2,816.0 2,774.0 2,920.0 2,939.0 3,164.0 3,212.0 3,279.0 3,452.0 3,464.0 3,637.0 3.614.0 3,795.0 Public 491.0 4970 480.0 472.0 489.0 515.0 563.0 597.0 651.0 669.0 579.0 520.0 5S87.0 618.0 Gro Domeic Invcdmcnt 952.0 807,0 529.0 557.0 697.0 740.0 596.0 m.0 994.0 957.0 922.0 1,165.0 1,310.0 1,409.0 FixedInvesncmt 948.0 7380 649.0 660.0 750.0 726.0 591.0 630.0 764.0 920.0 877.0 879.0 1,116.0 1,199.0 PrvMc 57S 0 423.0 293.0 272.0 225.0 328.0 326.0 379.0 503.0 622 0 570.0 553.0 599.0 689.0 Public 370.0 315.0 351.0 38.0 465.0 393.0 265.0 251.0 261.0 298.0 307.0 326.0 5S7.0 510.0 dc3i in Stoh 10.0 69.0 -120.0 -103.0 .53.0 14.0 5.0 147.0 230.0 37.0 111.0 286.0 194.0 210.0 Resource Balmice -125.0 103.0 216.0 270.0 84.0 154.0 137.0 143.0 23.0 83.0 135.0 12.0 123.0 18.0 Exuato(Goods&NFS 1,506.0 1,549.0 1,391.0 1,401.0 1,395.0 1,500.0 1,527.0 1.564.0 1,550.0 1,629.0 1,637,0 1,604.0 ,732.0 1,732.0 1ncgofGoodsANFS 1,631.0 1,446.0 1,105.0 1,131.0 1,311.0 1,316.0 1,390.0 1,421.0 1,527.0 3,546.0 1.502.0 1,592.0 1,609.0 1,714.0 Capcitytalmpcat 1,341.7 1,179.4 I.0209 978.2 1.011.9 1,070.2 1,274.6 1,207.4 1,306.6 1,303.0 1,318.1 1,420.3 1,285.1 1,378.0 GDP at MAt Prices 4,066.0 4,169.0 4,111.0 4,073.0 4,250.0 4,428.0 4,460.0 4,729.0 4,947.0 5,161.0 5,166.0 5,334.0 5,634.0 5,540.0 Term of Tade Adjutuat -164.3 -369.6 -370.1 -422.8 -383.1 -429.8 -2524 -356.6 -243.4 -326.0 -318.9 -123.7 -446.9 -354.0 GDY 3,901.7 3,799.4 3,740.9 3,650.2 3,266.9 3,992.2 4,207.6 4,372.4 4,703.6 4,835.0 4,847.1 5,150.3 5,187.1 5,486.0 GNY 3,672.7 3,631.4 3,494.9 3,492.2 3,696.9 3,821.2 3,977.6 4,135.4 4,478.6 4,633.0 4,610.1 4,731.5 4,760.9 5,057.2 GDS 833.0 910.0 815.0 827.0 781.0 924.0 733.0 920.0 1.017.0 1,040.0 1,123.0 1,177.0 1,433.0 1,427.0 Nct Faecr Savices -229.0 -168.0 -246.0 -358.0 -170.0 -177.0 -230.0 .237.0 -225.0 -202.0 -237.0 -412.3 -426.2 -428.8 Nct OxmntTrafasll A1.4 12.0 11.6 33.5 31.7 13.7 14.4 27.6 28.6 31.9 76.8 88.3 91.9 50.9 GNS 615.4 754.0 580.6 680.5 622.7 760.7 517.4 710.6 320.6 369.9 962.8 86.5 1,098.7 1,049.1 GNP 3,837.0 4,00L.0 3,865.0 3,935.0 4,080.0 4,251.0 4,230.0 4,492.0 4,722.0 4,959.0 4,929.0 4,935.2 5,207.: 5,411.2 (Rbios) ICOR(uuwslsvg) 33.6 9.2 -12.7 -17.1 37 4.2 22.7 2.2 29 3.6 184.0 5.2 2.9 54 ImptE Eltity 3.4 -4.5 17.0 -2.5 3.7 0.1 7.2 0.4 1.6 0.3 -29.4 1.2 0.2 1.8 MDSR(ODS.GDY) -5.3 .0.8 1.6 -0.1 -0.2 1.1 -0.9 1.1 0.3 0.2 6.9 0.2 6.9 0.0 MNSR(GNS,GNY) -10.6 -3.4 1.3 -37.6 .0.3 1.1 -1.6 1.2 0.3 0.3 4.1 -3.0 8.6 -0.2 (Real Anal Growth Rota) GDP 0.7% 25% -1.4% -09% 43% 4.2% 0.7% 6.0% 4.6% 4.3% 0.1% 3.3% 5.6% 3.7% Cwiosan 1.4% 0.8% 131% -15% 6.9% 3.0% 6.4% 2.2% 3.2% 4.9% -1.9% 2.% 1.1% 5.0% Pnvate 7.8% 0.7% 2.0% -1.5% 7.4% 0.3% 5.9% 1.5% 21% 5.3% 0.3% 5.0% -0.6% 5.0% Pubi.c 11.6% 1.2% -3.4% -1.7% 3.6% 5.3% 9.3% 6.0% 90% 2.3% -13.5% -10.2% 12.9% 5.3% Gro Dandmic1za Ind -9.6% -15.8% -34.4% 5.3% 251.% 6.2% -19.5% 30.4% 27.9% -3.7% 3.2% 17.9% 12.4% 7.6% Fixed InvcscrA 4.4% -22.2% -32.1% 1.7% 13.6% -3.2% -18.6% 6.6% 21.3% 20.4% -4.7% 0.2% 27.0% 7.4% Pnvate 0.5% -26.8% -29.6% 4.7% 4.% 15.1% -0.6% 16.3% 32.r% 23.7% 4.4% -3.0% 8.3% 15.0% Public 11.1% .14.9% 11.4% 105% 198% -14.4% -33.4% *5.3% 4.0% 14.2% 3.0% 6.2% 58.6% -1.4% ExpcrtfGods A NFS -5.3% 2.9% -10.2% 0.7% -44% 7.5% 1.8% 14% -0.9% 51% 05% -20% 80% 0.0% ImportofGoodshNFS 2.3% -11.3% -23.6% 24% 15.9% 0.4% 5.6% 2.2% 7.5% 1.2% -2.8% 6.0% 131% 6.5% Mano: Popula( m(millica) /2 3.452 3.566 3.684 3.305 3.931 4.060 4.194 4.333 4.476 4.608 4.744 4884 5028 5176 Popultimn aGwth Rae 3.3% 3.3% 3.3% 3.3% 3.3% 3.3% 3.3% 3.3% 3.3% 3.0% 3.0% 3 0% 3.0% 3.0% Rea GDPpcrapita 1,77.9 1,169.2 1,116.3 1,070.4 1,081.3 1,090.5 1,063.3 1,091.5 1,105.3 1,120.1 1,089.0 1,092.2 1,120.6 1,128.3 Rcal GDPprcapitswlgt raie -2.6% -0.8% -4.7% -4.2% 1.0% 0.9% -2.6% 27% 1.3% 1.4% -z9% 0.3% 2.7% 0.7% Consricaipe capita 936.6 914.0 394.8 853.1 882.6 863.0 388.6 379.1 578.1 39.4 352.3 851.2 835.6 852.6 Growthiofpercapitaczzytion 5.1% -2.5% -2.2% -48% 3.6% -Z.3% 3.1% -1.1% -0.1% 1.9% *4.% -01% -3.9% 231% Domestic xpaiditwesde1atd 132.0 14813 155.3 168.2 171.0 181.1 1803 188.1 195.7 214.5 261A4 3190 3655 400.7 !/ Real Not Cura Tamuin . t*n fean pias ad delae ing ft dmudc cxpdzuv dfab, 2/ I1988 a * ur poadtic figwi. prir to I1 ic c in *li td .a bas r' 3.3 % gn-.h z.. P,,. 19 w* atimaluM wkg * 2.95% reR. Scsxve: Eatidim FaiO.6w BANTRtAL 1978-93 BANTRAL wohle f Fb. 1994. Honduras: National Accounts by Sector (millions of lempiras) 19S0 1981 1982 1983 1984 1985 1986 1987 . im 19S9 1990 M199 1992 1993/p PrimayP hdctn 1.1830 1,222.0 1,241.0 1,288.0 1,367.0 1,546.0 1,514.0 1,622.0 1,68.0 2,109.0 2,64.0 3,3U4.0 3,566.0 4,041.0 AUiculU- 1,087.0 1,129.0 1,132.0 1,171.0 1,236.0 1,407.0 1,400.0 1.539.0 1,742.0 1,951.0 X503.0 3,178.0 3,253.0 3,661.0 Minin 96.0 930 109.0 117.0 131.0 139.0 114.0 83.0 126.0 158.0 191.0 206.0 308.0 380.0 SecbrdayProductin 1.021.0 1,063.0 1,170.0 1,2870 1,403.0 1,404.0 1,417.0 1,609.0 1,S50.0 2,129.0 2,750.0 3,609.0 4,466.0 5,252.0 Mmud&dwrig 687.0 727.0 768.0 834.0 91S.0 935.0 972.0 1,070.0 1,244.0 1,339.0 1,823.0 2367.0 2,875.0 3,300.0 Coadnxtica 2700 263.0 321.0 364.0 384.0 356.0 286.0 303.0 365.0 464.0 574.0 745.0 1,061.0 1,257.0 PubLhcUtilgcs 640 73.0 31.0 89.0 104.0 113.0 229.0 236.0 241.0 276.0 353.0 497.0 530.0 695,0 Servicas 2,389.0 2,757.0 2,821.0 2,962.0 3,166.0 3,488.0 3,805.0 4,131.0 4,500.0 5,013.0 5,712.0 6,982.0 8,071.0 9,261.0 Trspixt Ca i amcatiom 313.0 359.0 365.0 373.0 333.0 408.0 462.0 509.0 567.0 648.0 703.0 909.0 1,048.0 1,134.0 Conunace 730.0 845.0 t21.0 309.0 812.0 854.0 915.0 961.0 1,027.0 1,089.0 1,289.0 1,567.0 1,762.0 2,083.0 BankinInw. & Real Edatc 297.0 321.0 320.0 353.0 393.0 443.0 475.0 517.0 597.0 712.0 826.0 1,109.0 1,328.0 1,536.0 Homing 250.0 273.0 315.0 373.0 445.0 504.0 558.0 612.0 662.0 721.0 790.0 906.0 1,042.0 1,162.0 Pub.Ahni &Ddeufc 346.0 417.0 440.0 453.0 483.0 534.0 608.0 652.0 684.0 773.0 814.0 1,050.0 1,187.0 1,375.0 Peatmal SavicS 453.0 537.0 560.0 591.0 635.0 695.0 787.0 330.0 963.0 1,075.0 1,290.0 1,441.0 1,704.0 1,971.0 GDPaFacuw Cad 4,593.0 5,042.0 5,2320 5,537.0 5,936.0 6,438.0 6,306.0 7,362.0 3,213.0 9,256.0 11,156.0 13,975.0 16,103.0 13,554.0 Nct IndirertTa 539.0 597.0 576.0 617.0 702.0 841.0 311.0 944.0 1,033.0 1,073.0 1,331.0 2,339.0 2,669.0 3,081.0 GDP at Mrket Pces 5,132.0 5,639.0 5,308.0 6,154.0 6,638.0 7,279.0 7,617.0 3,306.0 9,251.0 10,334.0 12,537.0 16,314.0 13,772.0 21,635.0 (As % of Cuaret GDP) PrimazyryPdum 23.1% 21.7% 21.4% 20.9% 20.6% 21.2% 19.9% 19.5% 20.2% 20.4% 21.5% 20.7% 19.0% 18.7% Agincule 21.2% 20.0% 195% 19.0% 18.6% 19.3% 13.4% 18.5% 13.3% 13.9% 20.0% 19.5% 17.4% 16.9% S ycaduyPrOdwticn 19.9% 18.9% 20.1% 20.9%/ 21.1% 19.3% 19.5% 19.4% 20.0% 20.6% 21.9% 22.1% 23.8% 24.3% Mdturimng 13.4% 12.9% 13.2% 13.6% 13.8% 12.8% 12.3% 12.9% 13.4% 13.4% 14.5% 14.5% 1.3% 15.3% Servics 46.6% 48S9% 48.6% 48.1% 47.7% 47.9h 50.0% 49.7% 48.6% 4t6% 45.6% 42t% 43.0% 42t8% Net Indi,d Taes 10.5% 10.6% 9.9% 10.0% 10.6% 11.6% 10.6% 11.4% 11.2% 10.4% 11.0% 14.3% 14.2% 14.2% (Prk-e Indices 1978-100) PiunmyPtoductitm 112.6 114.5 110.4 121.4 119.6 132.2 131.1 133.8 152.6 156.3 198.5 235.2 233.4 266.7 Agricula 110.4 1121 107.6 119.1 117.0 130.3 130.6 132.6 150.8 153.5 194.8 233.0 230.6 256.4 Mining 145.5 155.0 151.4 150.0 150.6 156.2 137.3 162.7 1326 202.6 265.3 274.7 371.1 436.8 SamdayProhucicn 130.4 140.2 151.9 155.3 159.1 159.5 171.9 173.8 185.6 201.0 260.7 339.3 373.8 427.0 Muidacog 129.9 138.2 153.0 156.2 159.1 160.7 160.4 165.6 183.5 197.3 257.1 32U.3 375.8 416.1 Cwisauxti 133.7 149.4 154.3 159.6 160.0 161.1 161.6 164.7 173.0 191.7 263.3 351.4 373.6 423.2 Public Uilities 123.1 130.4 135.0 139.1 155.2 146.8 279.3 245.3 223.1 244.2 275.8 385.3 407.7 496.4 Savic 130.9 142.7 1523 162.3 172.9 181.4 138.4 195.4 202.1 220.2 2529 305.3 335.9 368.2 Trapat & Cmnmumcanis 125.7 130.1 122.9 122.3 1224 124.0 133.3 146.3 152.4 163.6 171.0 214.9 237.6 249.2 C4n.ace 130.4 144.2 158.5 168.5 175.8 184.4 130.5 135.9 193.4 214.3 256.3 304.9 333.1 368.7 Bank)i& ,L.&RrAaEsLte 142.1 145.9 154.6 169.7 173.0 133.5 192.3 195.3 199.7 219.1 246.6 302.2 330.3 364.0 Houwn 119.6 126.4 135.1 154.9 138.6 193.4 216.3 225.0 229.9 240.3 252.4 280.5 3120 334.9 Pub. AAmnin. &Defcic 132.1 144.3 153.3 170.3 173.3 184.8 193.6 198.2 206.6 226.7 279.7 375.0 407.9 452.3 PCaasaviceS 134.8 157.5 175.0 135.3 202.9 213.2 218.6 229.2 237.2 262.2 317.7 379.2 419.7 467.1 gDPEg1dg 125.5 134.2 139.7 149.2 153.9 162.1 168.5 173.1 184.3 197.5 233.3 291.9 317.1 352.7 Net Indired Tax 132.4 144.9 157.3 170.9 17S.2 184.4 193.1 197.9 207.0 227.4 279.0 428.4 480.0 531.2 GDP tMwkd Ptice 126.2 135.3 141.3 151.1 156.2 164.4 170.3 175.6 137.0 200.2 242.7 305.3 3332 370.5 Sour. Esadki EFio BANTRAL 197I 93 BANTRAL b o Fob. 1994. Ilonduras: National Accounts by Sector (millions of 1978 lempiras) 19S0 1961 1962 1963 1984 1985 1966 1967 1988 1989 1990 199 1992 I993MP PrimayProducuon 1,051.0 1,067 0 1,1240 1,061 0 1,143.0 1,169.0 1,155.0 1,212.0 1,224.0 1,3490 1,357.0 1,439.0 1,496.0 1,515.0 Agrincte 985.0 1.0070 1,0520 9630 1,056.0 1,080.0 1,07.0 1,161.0 1,1550 1,271.0 1,285.0 1,3640 1,413.0 1,42&0 MIng 660 600 72.0 780 87.0 9s0 83.0 51.0 69.0 78o 72.0 750 830 87.0 SecondryProducton 7830 7580 7700 8260 8820 8600 865.0 926.0 997.0 1,059.0 1,055.0 1,062.0 1,1790 1,230.0 Manuadug 529.0 526 0 502.0 534,0 575.0 5820 606.0 646 0 678.0 7040 709.0 72LO 765.0 793.0 C4nstrin 202.0 1760 208.0 228.0 240.0 221.0 177O 184.0 211.0 2420 216.0 212.0 284.0 297.0 Public Utilities 52.0 560 60.0 640 67.0 77.0 82.0 96.0 108.0 113,0 128.0 129.0 130.0 140.0 Seivices 1,825.0 1,932.0 1,852.0 1,825.0 1,8310 1,9230 2,020.0 2,114.0 2,227.0 2,279.0 2,259.0 2,287.0 2,403.0 2,515.0 TrtazLVs&Corninumucations 2490 2760 2970 305.0 3170 329.0 3340 3480 372.0 3960 411.0 4230 4410 4550 Ccznerc 560.0 586.0 516.0 480.0 462.0 463.0 507.0 517.0 531.0 507.0 503.0 514.0 529.0 565.0 Bankin%L 1nx. A Real Eatatc 2090 220.0 207.0 211.0 230.0 235.0 247.0 264.0 299.0 325.0 335.0 367.0 402 0 422.0 Housing 209.0 220.0 232.0 244.0 236.0 254.0 253.0 272.0 288 0 300.0 313.0 323.0 334.0 347.0 Pub. Admi & Dfcensc 262.0 2s9.0 278.0 266.0 273.0 316.0 314.0 329.0 331.0 341.0 291.0 210.0 291.0 304.0 Pm U1 S =vices 336.0 341.0 320.0 319.0 313.0 326.0 360.0 384.0 406.0 410.0 406.0 380.0 406.0 422.0 GDP at FCaa 3,659.0 3,757.0 3.746.0 3,712.0 3,656.0 3,972.0 4,040.0 4,252.0 4.441.0 4,687.0 4,671.0 4,788.0 5,078.0 5,260.0 Net Indiw TTxo 407.0 412.0 365.0 361.0 394.0 456.0 420.0 477.0 499.0 474.0 495.0 546.0 556.0 580.0 GDP at MmiLkPric 4,066.0 4,169.0 4,111.0 4,073.0 4.2500 4.428.0 4.460.0 4.729.0 4,947.0 5,161.0 5,166.0 5,3340 5,634.0 5,640.0 (Annua Growth Rats) PrinuyPriou8 lcm 0.9% 1.5% 5.3% -5.6% 7.7% 23% -1.2% 4.9% 1.0% 10.2% 0.6% 60% 40% 1.3% Agniul,t 2.1% 2.2% 4.5% -6.6% 7.4% 2.3% -0.7% 8.3% -0.5% 10.0% 1.1% 6.1% 3.6% 1.1% Mining -14.3% -9.1% 20.0% 8.3% 11.5% 2.3% -6.7A -38.6% 353% 13.0% .7.7% 4.2% 10.7% 4.8% SecoaryPnPrduciam 0.5% -3.2% 1.6% 7.3% 6.3% -0.2% -1.7% 7.1% 7.7% 6.2% -0.4% 0.7% 11.0% 4.3% MA&C" -4.5% -0.6% -4.6% 6.4% 7.7% 1.2% 4.1% 6.6% 5.0% 3.8% 0.7% 1.7% 6.1% 3.7% Contuc8a 13.5% -12.9A 1t.2% 9.6%A 5.3% -7.9% -19.9% 4.0% 14.7% 14.7% -9-9% -239% 340% 4.6% PLblicUtilitis 10.6% 7.7% 7.1% 6.7% 4.7% 14.9% 6.5% 17.1% 125% 4.6% 13.3% 03.% 03% 7.7% Meno: Indwry -0.3% -3.7% 2.9% 7.4% 7.Tr 0.0% .2.2% 3.1% 9.1% 6.7% -.9%A 0.9% 11.0% 4.4% Servico 2.3% 5.9% -4.1% .1.5% 0.3% 5.0% 5.0% 4.7% 5.3% 2.3% -0.9% 1.2% 5.1% 4.7% Trnmspat &camnic1icas 2.9% 10.s % 7.6% 2,7% 3.9% 3.3% 1.5% 4.2% 6.9% 6.5% 3.1% 2.9% 4.3% 3.2% Connu= 0.7r% 4.6% -11.6% -7.3% -3. M 0.2% 9.5% 2.0% 2.7% -4.5% -0.3% 22% 2.9%A 6.8% Banking, Insr. & ReAl Estate -2.r 5.3% -5.9% 1.9% 9.0o 2.2% 5.1% 69% 133% 8.7% 3.1% 9.6% 9.5% 5.0% Houig 3.3% 5.3% 5.5% 5.2r -3.3% 7.6% 1.6% 5.4% 5.9% 4.2% 4.3% 3.2% 3.4% 3.9% Pub. Akni'n & Defaeni 4.0% 10.3% -3.3% .4.3% 2.6% 15.3% .06% 4.3% 0.6% 3.0% -14.7% -3.8% 3.9% 4.5% Personal Sevices 5.7% 1.5% -6.2% -0.3% -1.9% 4.2% 10.4% 6.7% 5.7% 1.0% -1.0% -6.4% 6.3% 3.9% GDP atFarCost 1.7r% 2.7% -0.3% -0.9% 3-9% 3.0% 1.7% 5.2% 4.6% 5.4% -0.3% 2.5% 6.1% 3.6% NcIndiredTaes -79% 1.2% -11.4% .1.1% 9.1% 15.7% -7.9% 13.6% 46% -5.0% 4.4% 10.3% 1.6% 43% GDPatgMMrkePrice 0.7% 25% -1.4% -0.9% 4.3% 4.2% 0.7% 60% 4.6% 4.3% 0.1% 3.3% 5.6% 3.7% SOUROD E QW Eo Kdmicc BANTRAL I19-93 BANTRAL worbIEc of Feb. 1994. H8ndun - Hktorical Cooadis of the No&-JlmdaI Pubhc Sedor (million of lempiras) -98 111 3m3 - 3 14 3i9W 1 9: 19197 391 19MI 199. 1V91: 39. 15S3 ICu.ntRin. 1,030.4 1,069.5 1.117.2 1,116.9 1,38A.4 1,602.6 1.675.0 1,874.3 2.06.17 2,269.6 3,085.3 4,481.6 4.293.4 5,393.0 1. T- R- 721.0 725.1 747.9 339.4 1,02O9 1,124.7 1,127.0 125338 1.372,8 1.515.2 2,123.3 2.94.2 3,149.I 3.613,7 . D-a Tr 260.2 216.6 237.5 325.7 381.t 389.3 336.4 440.5 543.7 601.8 718.5 1.096.2 1,034.7 1,243.7 b. kid-Ta . 460.2 508.5 510.4 513.7 639.1 735.4 740.6 313.3 329.1 913.4 1,405.3 1,1.80 2,115.1 2,4400 2. NoT- 216.3 251.8 260.J 171.0 176.1 210.1 305.4 352.3 386.2 409.7 418.5 545.4 610.3 597 6 . CiO0Gam i 55.6 51.6 461 55.0 51.0 59.4 1385 155.3 191.5 173.3 147.4 1723 71.4 1265 b.R-tof fGiw1 161.2 200.2 214.0 116.0 125.1 150.7 1669 197.0 194,7 235.9 271.1 3731 538.9 471 1 3. 0p..ta-S .pmuo4aNF0 . 37.4 39.5 97.2 167.0 1720 2520 242.3 2678 309.1 334.3 537.4 938.3 1,064.5 1,158a 4. Cwg Tod.. 5.2 3.1 11.2 9.5 19.4 15.9 0.3 0.4 0.6 10.4 9.6 13.7 68.8 -471 .FrooPma. S.&" 5.2 3.1 10.0 9.5 19.4 15.9 0.3 0.3 0.6 10.2 9.4 13.5 63.5 17 1 b.Fnu winE idSa 0.0 0.0 1.2 0.0 0.0 0.0 0.0 0.1 0.0 0.2 0.2 0.2 0.3 0.0 IL Cum t tB 191.1 977.3 1,075.2 1,131.4 ,2ti7.6 1,510.0 1,620.3 1,791.7 1,9I6.2 2,331.2 2,760.6 3,663.5 3,915.4 5,031,9 I. Opa; BxpqMMnz n 741.7 311.5 da.6 924.2 1,010.8 1,113.0 1.137.3 1.29t.7 1.429.2 1.648.0 1,933.7 2,215.0 2.153.5 2.606.0 2 itaoo t2 122.1 120.2 166.4 135.3 214.2 291.1 332.5 4229 47t.5 592.2 622.1 1,263.3 1,2490 1,467.7 L InitnD 367 41.3 58.6 91.3 101.2 112.9 134.5 2752 199.4 271.5 325.7 400.9 365.7 4302 b. Extn. D.bt 74.4 79.0 107.9 94.0 113.0 173.3 198.0 1477 279.1 320.7 3024 862.9 33.3 1,0375 3. Cun Tn.f.n 37.5 45.6 38.7 70.7 60.6 100.9 98.7 63.3 77.2 39.5 198.8 294. 512.9 958.2 4. Cthw 0.2 0.0 2.5 1.1 2.0 4.9 1.9 1.1 1.3 1.5 0.0 0.0 00 0.0 F-Wo%Adj..Lfix a.TuT.=nf 0.0 0.0 0.0 0.0 0.0 .o 0.0 .1.6 2.7 0.0 32.1 13t .191.5 -65.9 1iL Cu-m Aooo-8(I-ILAdj.) 139.3 922 42.0 5.5 100.3 92.7 54.7 841 79.3 (61.6) 292,6 304.3 736.5 295.2 IV CqpiwiRis 129 7.9 17.6 16.5 13.2 50.5 44.9 230 193 143 1t.0 35.4 139.1 2193 I C.pW Traf. 23.2 4.5 S.0 12.0 5.9 7.2 7.2 7.0 9.1 0.0 7.0 0.0 .4.5 0.0 2 Oth.Capitel.Rvn 0.7 3.5 9.6 4.5 123 43.3 37.7 16.0 10.7 14.3 11.0 35.4 143.9 2198 V Cap,ExpeiEtw 530.7 470.1 546.6 6568 7475 645.8 504.9 422.6 510.2 5895 894.5 1,312.3 1,738.2 2,718.4 I Fiod 1olmant 489.7 453.1 506.9 610.3 725.1 6339 467.0 4002 455.6 573.2 383.9 1.2402 1,730.4 2.664.0 2 Cpi. Trnaf 16.2 12.2 21.9 27.1 0.6 1.9 37.7 20.9 54.5 11.3 6.2 71.1 4.3 15.7 3. 072 24 8 4.9 17 9 19.4 21.9 10.0 0.2 1.5 0.0 0.0 4.4 1.0 53.5 3t.7 VlNat L-ding U.5 208i2 1754 101.2 37.2 644 62.3 2s 63.0 137.6 30.3 292 55.1 1049 ViIM O- D.fi (Ai.IBm) 461.0 -478.3 -662.5 -735.9 .715.3 -5670 -473.3 -396.3 -478.6 -773.9 4614.7 -501 .917.7 -2,308.3 ViM. 0vll D.fi (CIhm B ) -461.0 -478.3 -662.5 -735.9 -715.3 -5670 -4733 -37:2 .423.6 -6099 -614.7 -501 8 .91727 -2,308.3 M.oo. InA n 0.0 0.0 26.1 53.0 164.0 0.0 0.0 0.0 0.0 DX Fiansn 4610 473.3 662.5 7359 715.3 567.0 473.3 372.2 423.6 609.9 614.7 5012 9177 2.303.3 1. O0ic- 2b0n 1.5 1.5 3.1 372 72.6 107.7 126.4 1067 117.3 60.3 270.0 148.2 231 t 126.5 2. NooHxiwFinm,o1 23.9 336.2 391.2 3i36 551.2 3944 213.1 221.9 2614 137.7 226.5 772.4 700.3 1.810.6 . Db..a-d *0/A *0/A *0A 445.5 623.1 491.3 336 0 323.3 463.6 321.1 1,744.6 1.320 4 1,306.2 2,403.1 b. Axung- S*0A 0/A *0A -61.9 -76.9 -96.9 -117.9 -101.4 -2022 -133.4 -1.513.2 .548.0 .05.9 -592.5 3.N .Dom.DnaFin 170.7 140.6 263.2 315.1 92.0 64.9 1293 -73.5 -1.1 211.4 300.2 J41.7 .64.4 371.2 . NBk-gSy.n 1072 184.4 2903 2090 87.0 40.0 69.0 139.2 201.5 201.5 312.9 312.9 -1900 2055 b Bn& 22.9 -69.7 -125.9 56.0 59.0 24.6 395 44.9 31.5 31.5 -690 490 51.5 -30.3 c Ot7 406 259 103.3 501 -54.0 03 -292 -262.6 -234.1 -21.6 2503 -6636 74.1 196.0 4. ?tDDbt S3nceAmn /3 0.0 00 0.0 0.0 00 0o0 0.0 1220 46.0 200.0 -332.0 0.0 0.0 0.0 I L-chod -V. 3.3 e. _p.h.. of -d -d 21 Id- m.9fi pd byNFPEI. 3/ To z --A-y q d. F.. -Ai,.U do i ar b _. d. f it. PA-d.W -0- Sa - _: BANTRAI, Mki.uy o Fi- .d iYF (1976.93). 2833-93 dc. IN f- 06/94 DAF RFED. Honduru - Historical ConaoIdsUO of th Non-FImancil Public Sector (percent of GDP) 190 1981 1982 192 :1Vfl4 1W 298 19 67 : 1: -: 19W 1t 1b990 1999 1"91 IV3t/ L Cu-m R- _ 201 190 19.2 19.3 20.9 220 22.0 226 224 22.0 24.6 27.5 26.1 249 I T- R.venue 140 129 12.9 13.6 15.4 15.5 14.S 15.1 14.S 14.7 16.9 13.3 16.3 170 2. Nea-TReR 4.2 4 " 4.5 2.8 2.7 29 4.0 4.2 4.2 4.0 3.3 3.3 3.3 2S * CG.IO4 o,.-A 1.1 0.9 0.8 0.9 0.S 0.1 1.3 1.9 2.1 1.7 12 1.1 0.4 0.6 b R- of Gl.J1oAt 3.1 3.6 3.7 1.9 1.9 2.1 2.2 2.4 2.1 2.3 22 2.3 2.9 2.2 3. Opac Surpl u of(NFPEr. 1.7 1.6 1.7 2.7 Z6 3.5 3.2 3.2 3.3 3.2 4.3 5.1 5.7 5.4 4. Ci.TrnTfln 0.1 0.1 02 0.2 0.3 0.2 0.0 0.0 0.0 0.1 0.1 0.1 0.4 -0.2 II Cw rEp E_ 174 17.3 1. 19.2 19.4 20.7 21.3 21.6 21.5 22.6 22.0 22.5 20.9 2.3 I P Opwmg EqWi-tw 11/ 14.5 14.4 15.0 15.0 15.2 15.3 15.6 15.6 15.4 15.9 15.4 130 11.5 12.0 2. ILa 222 2 21 29 3.0 3.2 4.0 4.4 5.1 5.2 5.7 5.0 77 6.7 6.2 * Inln.1D.bl 07 0.7 1.0 1.5 I.5 1.6 I.8 3.3 2.2 26 26 25 1.9 20 b Eot..1 D.b 1 4 1.4 1.9 1.5 1.7 2.4 26 1.3 3.0 31 24 5.3 4.7 4S 3. Cu,tT_Aufa 07 0S 0.7 1.3 0.9 1.4 1 3 0. 03 0.9 1 6 1.7 2.7 4.4 4.C¶3, 00 00 0.0 0 0 000 0 0 0 0 00 0.0 0.0 0.0 00 0.0 0.0 ItL C--n Ao t (I-L. .dj.) /1 2.7 1 6 0.7 0.1 I 5 1.3 0.7 1.0 0.9 .0 6 2.3 4 9 4 2 1 4 IV Cpd.1 R. X 04 0.1 03 03 03 0.7 06 03 0.2 01 0.1 0.2 0,7 10 1 CqpolT-_- 04 02 01 0.2 0.3 0.1 0.3 01 0.1 0.0 0.1 0.0 0.0 0.0 2 OC C iWRu 0.0 0.1 02 0.1 0.2 0.6 0.5 0.2 0.1 0.1 o.1 0.2 0.S 1.0 V CoPosI R1Eq t- 10.3 8.3 94 10.7 11.3 2.9 66 5.1 5.5 5.7 7.1 2.0 9.5 12.6 I Fn.d 1or- 4 9.5 8.0 2.7 99 10.9 3.7 6. 4.8 4.9 56 7.1 7.6 92 123 2 Cpml T- u 0.3 0.2 0.4 04 0.0 0.0 0.5 0.3 0.6 0.1 0.0 0.4 0.0 0.1 3 0 0.5 0.1 0.3 03 0.3 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.3 0.2 V. Net LA. 1.7 1.9 3.0 1.6 1.3 0.9 0.9 1.0 07 1.3 02 0.2 03 05 VII O.dl D.ctt (A c B..) -9 0 4.5 -11.4 -12 0 *10.S .7 S 4 2 -4. -5.2 .7 5 -4.9 -3.1 -4.9 -10.7 V.4ILt>-_1IDf6cn (C-h B-) -9o0 -S5 -11 4 -120 -IO.S .71 42 J61- 5 4.6 -5.9 4.9 *3.1 4.49 -10.7 Men .L..Amcn 0.0 00 00 0.0 0.0 0.0 00 0.3 0.6 1.6 0.0 0.0 0.0 0.0 DC F.-g4 9.0 .5 11.4 120 10.8 7.1 62 4.5 4.6 59 4.9 3.1 4.9 10.7 I Offiw .- 0.0 0,0 0.1 0.6 1 1 1.5 1.7 1.3 1 3 0.6 22 09 15 0.6 2.N a E x.lFn4 ug 56 6.0 6.7 62 1.3 5.4 2.9 2.7 2.9 1.3 1.3 4.7 3.7 1.4 v Db.,.m3t hll/A *0/A #VA 7.2 9.5 6.7 4.4 3 9 5 0 31 13.9 3.1 7.0 11.1 b. Aotozj AI/A #/A #N/A .1.0 -1 2 .1.3 -1.5 -1 2 -22 -I.S -121 .3.4 .3.2 .2.7 3 N D.m. F-emg 3.3 2.5 4.6 5.1 1.4 0.9 1.7 -09 0.0 20 4.0 -2.6 -0.3 1.7 *3 B-k sS y- 2.1 3.3 50 3.4 1.3 0.5 0.9 17 22 19 2.5 20 .1,0 09 b B-,& 0.4 -1.2 -2.2 0.9 0.9 0.3 1.2 0.5 0.3 0.3 -0.6 -0.4 0.3 -01 t. Ot OS 0.5 I'S 0. -0.2 0.0 -0.4 -32 -2.5 -02 2.0 -41 0.4 0.9 4 2Et1 Db4 S A-n 00 0.0 0.0 0.0 00 0.0 0.0 0.0 0.2 0.7 0.0 - .6 .- 1 0.0 1/ In % CA do- ntx qW R. mt Exp. du to aduft a. A Im -t o=uLu Hondura - Htorical Consobdadon or the Non-Flnnncial Public Sector (millions of 1988 lempiras) 1969 3981 198 39C 1 13#41398 198 198? iM 98 1Me 199 192 19.3/p L.C Rn 1,326.6 1,472.6 1,4790 1,4690 1,662.3 1.23.1 1,834.1 1,995.8 2068.7 2,1196 2377.4 2728S 2,7576 2,750.1 I T R 1,068.2 1.0025 9902 1,038.9 1.224 1,2794 1,234.0 1,335.0 1,3728 1,4151 1.6365 1,817.0 1,7750 1.878.5 2 NowCT.X R 321.2 348.1 345.3 211.6 210.S 239.0 334.4 375 1 386.2 3826 322.5 332.1 343 9 304.7 *C t md 324 71.3 62.0 681 61 1 67.6 151.7 165.4 191.5 162.3 113.6 104.9 40.2 645 b R.o(Odo,d 2388. 276.8 283.3 143.6 149.8 171.4 1r227 209.3 194.7 220.3 208.9 2272 303.7 2402 3 Op.nt8Su.pIu.ofNFPEI 129.5 123.7 128.7 2067 2059 2867 265.3 285.2 309.1 312.2 4110 571.3 5999 590.9 4 CwrnTnnbruu 7.7 4.3 149 113 23.2 ISI 03 0.4 0.6 97 74 8.3 38.8 -24.0 IL Cw r.'EVpd.t 1,3203 1,351.2 1.423.5 1,462.2 1,5416 1.717.7 1.774.2 1,907.S 1,966.2 2.177.2 2,127.2 2,2306 22065 2.566.0 I Op._.,ngEp.nift. 1/ 3,098,9 1,121.9 1,149 9 1.143.9 1,210.3 1,266.2 1,306.0 3,38i29 1,429.2 1,539.1 1,4900 13287.8 1,213.6 1.328 9 Z nt..U 164.5 166.2 2203 229.4 256.5 331.2 3641 450.3 478.5 5531 484.0 7695 703.9 748.4 . 1wnal D.bt 5434 57.0 77.5 113.0 121.2 128.4 1473 293.0 1994 2536 251.0 244.1 206.1 219.4 b Etx.Dk 1102 1092 142.8 116.4 1353 2021. 2168 1573 2791 29975 233.0 525.4 497.S 5291 3 Cum-T,.-dm 556 63.3 51 3 87.5 72.5 114.8 109.0 72.7 772 83.6 1532 1733 2890 4886 4 Olth 12 0.0 1.9 1.3 23 5.5 20 1.9 1.3 1.4 0.0 0.0 0.0 00 aII C..r Ac.m (0-31) 206.3 1274 355 6.8 120.7 105.4 59.9 89.6 798 -575 225.5 4S97 443.2 3505 rVC pI Rc1az 280 13.0 23.3 205 217 575 492 245 1968 13 139 21.6 7S4 112. I C.p.W Trmic 2?0 6.2 10.7 14.8 71 8.2 79 7.5 91 00 5.4 00 -17 0.0 2.OthwC.piW R 1.0 4.8 12.6 5.6 147 493 412 170 10.7 138 85 216 81.1 112.1 V Cp.w R.dizWA 786.3 6500 7236 9129 S950 734.7 55Z9 450.0 510.2 5505 6893 799.0 1,007.7 1,3862 1.F,Id 725.5 6264 6710 7553 368.3 721 1 511.3 4262 455.6 540.0 683.1 7551 9752 1.333.5 ' C.pW.I Trf- 24.1 16 9 28.9 33 6 0 7 2 2 41.3 22.3 54.5 30.6 4 8 43.3 2.4 8 0 3 OthI 36.7 67 237 240 262 113 0.2 1.6 00 00 34 06 301 197 V1N.t L-.4 131 1 149.6 2322 1252 1044 732 750 S82 6a0 12S5 237 178 31 1 535 VIL 0-11 r-fi-t (A-.1 Br) -6831 -661 2 477.0 .910 8 .8570 645.0 -512. -424.1 -478.6 72- S -473 6 .305 6 .517 2 .1,1'7.1 V3L TO.. ] Dl..t (C-h B..) -6S3.1 -661 2 48770 .910.8 -8570 .6450 .5138 .396.3 .4236 -569.6 -473.6 -3056 .5172 -1,1771 M- mo a.h.An_n 00 0.0 00 0.0 00 0.0 00 27.8 53.0 1532 0.0 00 0.0 00 M FIX g 683.1 661.2 377.0 910S 857.0 645.0 518.8 396.3 4236 5696 473.6 305.6 5172 1,177.1 I Odic- G.Us Z2 Z0 4.1 461 86.9 1225 138.4 113.6 117.3 56.8 208.1 90.2 1598 645 I Nt Exta3 Fmv=g OONiA W/A *W/A 474.7 6599 448.7 2398 236.3 261.4 128.6 174.5 4703 394.6 923.3 ~ Db-wnr #*;rA *VA *WA 551.4 752.0 553 9 367.9 344.3 463.6 299 1344.3 804.0 7361 1.225.4 b Awuzwan #N/A #/A *V4A .76.7 .92.0 -110.2 -129.1 .109.0 -2022 -171.3 .1,169.8 -333.7 -341.4 -302.1 3 N tlcFinS #3A #N/A #14A 390.0 110.1 733 141.5 463 44.9 384.2 91.1 -254.9 -36.3 189.3 -.a E Sy.n 3588 2549 384.3 2587 104.2 455 75.6 148.2 201 5 188.2 245.7 194.2 -107.1 104.8 b B-Gd 339 .96.4 -1667 693 706 280 98.0 47.8 31.5 294 .53.2 -4Z.0 290 -155 OCh #4N/A #4A #3/A 62.0 .64.7 0.3 .32.0 -279.6 -234.1 -20.2 1929 -407.1 418 999 4 Faon.1Dbt Sm An. 00 0.0 0.0 0.0 0.0 0.0 0.0 00 170 691 0.0 .154.7 -221.9 0.0 Mnno GDP 5.132 5,639 5,837 6.154 6,633 7.279 7.617 8,305 9.25 130,34 12.537 16,314 18.772 25.635 GDPDO. (1928-100) 67 72 76 31 84 aS 91 94 300 107 130 164 I71 196 (P.-.a oCh3) 3121% 7.16% 4.43% 6.96% 3.37% 5.25% 3,19% 2.3% 6.48% 7.07% 21.20% 26.55% Ss 051% Do-cm qz.dg ddatm 67 76 79 86 S7 93 92 96 100 110 134 170 IS5 ,r lcCh ) t316% 12.35% 454% t.4SY. 1.65% 591% .0.41% 4.33% 404% 959K 23.37% 27.35% 8599% NSM F V._ ddNl. M d4 S.i: EAWIRL&L 14i.i.u d Fin .u.i OAF (It97693). 1988-93 n i- r.f 06/94 LM,F RED3. Honduras - Consolidate Noc-Plnandial Public Sector Rlevenues IL@o 198 398 3961 1984 198 3986 137 I'so 1M1 z9m 1"I 1991 IM5/ P~~~~~cnwm by T ~ ~ ~ ~ ~ ~ ~ 333m. L.i.. T- R--- ~~~~721.0 7251 747.9 839. 4 1,020.9 1.124.7 1,127.0 1.Z53.3 1,372.8 1,513,2 2,123.8 2Z984 2 3.3933 3.837 3 lonoo. T.- 229 179.3 191.0 190 3 234.2 240 6 250.3 251.3 340.S 3.670 4307 623.7 8632 959 0 Propn¶ T.. 6.1 6.8 7.0 7 0 8.0 a'8 8.5 10.4 12.1 14.4 15.7 20.1 23.7 3-4.9 U.1 T- 187 396.4 239.4 23.4.4 293.0 326 3 334.1 370.2 415.6 451.7 690.2 95Z3 1.160.6 1.383.8 E.p,on T. 128.4 313.6 93.0 77.8 87.3 92.5 302.0 94.3 65.2 65.7 217.2 244.6 150,9 70.0 3.pom T-.. 149.7 191.3 179.0 201.S 258.8 316.6 304.5 348.1 348.3 38990 497.9 691.1 803.6 986.2 Othm ~~~~~24.2 30.5 32.3 123.4 139.6 139.9 127.6 131.8 390.8 2204 272.1 452.4 391.3 423.4 N~~T- R~~~~ 216.8 251.3 260.8 171.0 176.1 210.1 305.4 352.3 386.2 409.7 411.3 5.45.4 610.3 397.6 COA.d a.-O.Umd 05.6 51.6 46.8 55.0 53.0 59.4 138.5 155.3 191.5 173.8 147.4 172.3 71.4 126.5 R.A of O.VAC Gov't 181.2 200.2 214.0 116.0 125.1 15.7 366.9 397.0 194.7 235.9 271.3 373.1 538.9 47&.l Op--M '43..phorN7PE'3 87.4 89.5 97.2 167.0 172.0 252.0 242.3 267.8 309.3 334.3 533.4 938.3 1,064.5 1.1 58.8 CU-U ,Tr..f 52 3.1 11.2 95 19.4 15.9 0.3 0.4 0.6 10.4 9.6 13.7 68.8 -47.1 Toad CU-L R---, 1.030 4 1.069 S 1.117 2 1.1864 9 1.381.4 1.6012.6 -1.675 0 1,874.3 2.061.7 2.269 6 3.033.3 4.481 6 5,136.9 33566.6 69.917% 67890% 66.95% 70.72% 73.533% 70.18% 67.28% 66.89% 66.36% 66.76% 61.84% 66.59% 66.06% 69.29% kr~ooT.z 23.31% 16.76% 17.72% 16.03% 16.87% 15.01% 14.94% 13.92% 16.47% 16.17% 13.96% 13.92% 16.80% 17.23% P-.ony Tn 0.59% 0.64% 0.63% 0.59% 0.58% 0335% 0.51% 0.53% 0.58% 0.63% 051% 0.45% 0.46% 0.63% 3.1.T.. 17.73% 13836% 21.43% 19.75% 21.10% 20.36% 19.95% 19.75% 20.09% 20.21% 22.37% 21.25% 22.59% 24.86% Elpo.tT-.. 12.46% 10.62% 3.32% 6.35% 6.291% 5.77% 6.09% 5.03% 3.15% 2.89% 7.04% 5.46% 2.94% 1.26% b.port T-~. 14.33% 13.56% 15.93% 16.98% 18.64% 19 75% 18.18% 33.61% 16.84% 17.14% 16.14% 15.42% 15.64% 17.72% odhe 2.34% 2.86% 2.91% 10.82 10.06% 8.73% 7.62% 7.03% 9.22% 9.71% 8.32 10.09% 7.62% 7.61% N-uR~n 21.04% 23.54% 23.35% 14.41% 132.6% 13.11% 15.23% 18.80% 18.67% 18.05% 13.56% 12.17% I11.88% 10.74% CIGomn 5.40% 4.82 4.19% 4.63% 3.67% 3.71% 8.27% 8.29% 9.26% 7.66% 4.78% 3.34% 1.39% 2.27% Rw of Gn~.IOo,G't 15.64% 18.72% 1916% 9.77% 9.01% 9.40% 9.96% 10.31% 9.41% 10.39% 8.79% 8.33% 10.49% 8.46% Op.Wai.gSpl- C3JFPE. 8.49% 8.37% 8.70% 14.07% 12.39% 15.72% 14.47% 14.29% 14.94% 14.73% 17.29% 20.94% 20.72% 20892% C~ent Tru~f.. 0 50% 0 29% 3.00% 080% 1.39% 0.99% 0.02% 0.02% 0.03% 0.46% 0.31% 0.31% 1.34% -0895% (A. . P.rt. *. GDP) T- R~~~m- ~14,05% 12 86% 12.88% 13364% 15.38%. 15.43% 14.80Y 135.10% 148.4% 14.66% 16.94% 18.29% 18.06% 17.83% Bnow Tao 4.48% 3.18% 3.41% 3.09% 3.53% 3.31% 3.29% 3.59% 3.68% 3.55% 3,44% 3.82% 4.60% 4.43% P-oPoo Tao 0 12% 0.12% 0,32% 0.13% 0.12% 0321% 0.11% 0.13% 0.33% 0.14% 0.13% 0.12% 0.13% 016% S.J. Tao 3356% 3.48%A 4.12% 3.81% 4.41% 4.48% 4.39% 4.46% 4.49% 4.44% 3351% 5894% 6.18% 6.40% Eq.pT.t o T2.50% 2.01% 3.60% 1.26% 3.32%A 3.27% 1.3.4% 1.14% 0.70% 0.64% 1.73% 1.30% 0.80% 0.32% 1Lapoet T- .912% 3.52% 3.07% 3.27% 3.90% 4.35% 4.OD% 4.20% 3.76% 3.76% 3 97% 4.24% 4.28% 4356% Ot1w 0.47% 0.54% 0.56% 2.09% 2.30% 1.92% 1.61% 1.59% 2.06% 2.13% 2.17% 2.77% 2.08% 3.96% 1 ~ ~ ~ ~ ~ ~~2% 44% 4.49% 27% 2.65% 2.39 4.01% 42% 41% 3.96% 3.3.4% 3.34% 3.25% 2.6 C-b~~l C- -t 1.06% 0.91% 0.31% 0319% 0.77% 0.82% 1.82% 1837% 2.07% 3.6N% 1.18% 1.06% 0.38% 0.58% k..cofO...1 G-1 3.14% 3.55% 3.69% 1.88% 3.38% 2.07% 2139% 2.37% 2.10% 2.28% 2.16% 2.29% 2.87% 2.18% CV.a.ng3fl- .o(NFPV. 1.7O% 1.59% 1.67% 2.73% 2.59%A 3.46% 3.18% 3.22% 3.34% 3.23% 4.25% 5.75% 5.67% 5.36% C~ow T-f 010% 0.03% 0.19% 0.16% 0, 29%K 0.22% 0.00% 0.00% 0.01% 0310% 0.08% 0.08% 0.37% .0.22% Tao R..ou 77.8 73.0 72.3 75.7 89. 93.2 89.9 97.3 100.0 103.1 119.2 132.4 339.3 143.3 Lnoo~~~ T- ~99.9 72.7 76.9 69.1 82.3 80.3 30.4 93.2 100,0 100.6 97.4 113.4 142.7 143.5 Prop9ty Tao 74.7 77.7 76.6 71.6 79 2 82. 76.9 91.5 300.0 11I1.1 300.0 103.1 110.4 147.1 S.I. Ta 63.3 6533 76.3 698s 84.4 89.3 38.0 94.8 100.0 303.1 128.0 139.5 157.4 169.8 E.pom T--. 291.9 240.9 388.8 147.7 3603 161.4 171.3 354.0 100.0 94.1 256.7 222.4 130.4 54 7 U.Po,t T-. ~~63.7 78.8 67.7 716 89.0 303.4 95.7 306.6 100.0 104.3 110.2 120.8 330.0 144.4 Oth~ 38.8 22.1 22.6 83.3 87.6 .83.4 73.2 73.5 100.0 107.9 109.9 144.4 115.6 113.2 Nc.~Ta Rwoc 83.2 90. 1 89 4 5.4.8 54.6 63.9 36.6 97 1 100.0 99.3 83.5 36.0 89.3 78.9 CwL,1 Go,.ninu 43.0 37.2 32.4 35.3 539 35 3 79.2 36.4 300.0 34.8 59.3 54.8 21.0 33.7 R~ of C-mml O.Y1122.7 342.2 143.5 73.7 76.9 88.31 93.9 107.7 300.0 113.2 307.3 116 7 136.0 123.4 Op-" S-..pIa ofNFPE. 41.9 40 0 41.6 66.9 66.6 92.7 35.8 92.3 100.0 303.0 133.0 384.8 1914.3 193 2 C- T-Cw. 1.280 6 713.8 2.475.6 I.9619 3,861.9 3,012.1 34.7 73.0 100.0 3.613.8 1,232.9 1.390.3 6,461.9 .4.00331 To.a1 Rc"wo 73.8 71.5 71.5 73 0 80 4 88 88937 96.5 300. 102.5 3149 131.9 13599 137.2 1- . 9 ,.~ -" GOP 40aW Honduras - Consolidated Nou-Flnan ' Pubic Sector Expendltum 198 1981 1912 13 98 1985 1986 1987 198 W 19 99i I99 1 1993/p ExKndir,c by TYDC fMillio. af Carta LIzpfr..) W.gm. S.- &S contnb i1 510 6 601 4 649 1 607.4 645 9 08 0 850.7 929 6 19020.1 1,153.3 1,333 6 1.421 4 1,868.2 1,837.6 C-d~4a Soe. A fl 231 1 2101 219.5 316.9 3649 4051 3365 3691 4091 494.7 600.1 693.6 7709 7813 nLCU I 1111 120.2 1664 1853 2142 291 1 332.5 422.9 478.5 597Z2 628.1 1,263.8 1,249.0 1,4677 I.tn.. Debt 367 41 3 586 913 101 2 1129 134 5 2752 1994 271.5 325.7 4009 365.7 430.2 E,t.na.l Debt 74 4 79 0 107 9 94.0 113 0 1 78 3 198.0 147 7 279 1 320.7 302.4 862.9 S83.3 1,031.5 OtherE.Vp&a- 0.8 0.0 1.5 1.1 2.0 4 9 1 9 1 8 1.3 1.5 0.0 00 00 0 0 Cnt Iran.( 37 5 45.6 38 7 70.7 60 6 100 9 987 6S 3 77 2 89.5 198 8 284.7 512.9 958 2 Tole C.ant EN&Ux_ 891 1 977.3 1.075 2 1.181 4 1.287 6 1,510.0 1.620 3 1,791.7 1.96 2 2,331.2 2760 6 3.663 5 4,401 .0 5.044 8 C.paIEd 5307 4701 546 6 6368 7475 6458 5049 422.6 510.2 589.3 894.5 1,3113 1.7882 2718.4 ToWi Expeodrft 1,421 8 1.4475 1.621 8 1.838 2 2.035 1 2.155 8 2,125 3 2.214 3 2,496 3 2,920.7 3.655 1 4.975 8 6,189 2 7,763 2 (As P.e..t oi Total C-nr,.t Expo-ditom) W.4em Salnc & &S .3orb 5730% 61.53% 6037% 51 41% 5017% 4689% 52.50-4 51 89%* 51.36% 49.47% 48.31% 38.80% 42.45% 3643% Good. A S9 25 93% 21.50% 20.42% 26S2"4 28 34% 26 83% 20.77% 20.60% 20 60% 21.22h/. 21 74% 18.93X 17.52% 15 49% bamroU 12.46% 1230% 15.48% 1569% 1664% 1928% 2052% 23.60% 24.09% 2540X 22175% 34.50% 2838% 2909% Infl Debt 4.12% 4 22= 5 45% 7 73% 7.86% 7.47% 8.30% 15.36% 10.04% 11.65% 11 80% 10.94% 8.31% 8.53% ast-r.i Dbt 835X% 80% 1003% 796% 8.77%. 11 91% 1222% S24% 14.05% 13.76% 1095% 2356% 20.07% 20.57% Oth. Eg,n,oot. 0 09. 0.00% 0.14% 0.09% 0 15%h 0 32% 0. 12% 0 10% 0 07% 0.06% 0.00% 0.00% 0.00% 0 00% Ct t Tn-ure 421% 467% 360% 599% 470% 669% 609% 381% 3SS% 3.84% 7.20% 7.77% 11.65% 18.99% (A. Pwe.wt ot GDP) Wa.. S.an"a&SS oonutib 995% 10.66% 11.18% 987% 973% 9.73% 1 117% 11.19% 11.03% 11.16% 10.64% 8.71% 9.95% 8.49% COod& Sen 450% 3.73% 378% 515% 550% 5.56% 4.42% 4.44% 4.42% 4.79% 4.79% 4.25% 4.11% 3.61% Intereat. 12.16% 2.13% 2.87% 3.01% 3.23% 4.00% 4317% 5 09% 5.17% 5.73% 501% 7 75% 6 65% 6.78% OtherEa xodziDm 0.02% 0.00% 003% 0.02% 003% 0.07% 002% 0.02% 0.01% 0.01% 0.00% 0.00% 000% 000% CtrrTrnslfm 073% 0.S1% 067% 1 15% 0.91 % 1.39% 1.30-/ 082% 0.83% 0.87% 1.59% 1.75% 2.73% 443% To.a1 -UrL EExprew& 17 36% 17 33% 18 52% 19 20% 19 40% 20 '4% 21 27% 21 57% 21.47% 2.56% Z2Z02% 22.46% 23 44% 23 32%' C.- plLwi Eqmu penditic10 34% 8 34% 9 41% 10 67% 11 26% 8 S7% 6.63% 5.09% 5.51% 5.70% 7.13% 8.04% 9.S3% 12.56% Tou,d E ndnL 27.71% 25 67% 27 93% 29 87% 30 66% 29 62% 27 90% 26.66% 26 98% 28 26% 29.15% 30.50% 3297% 35 S8h fR_i 1988 IAmpir... 1taax 1988 1Wi) Wag Sai & S S. oontrib. 74 2 81 5 84.2 737 75 8 79 0 91.3 97 0 100.0 105.6 100.7 84 S 103 2 91 9 G.od. Sc 837 71.0 71.0 959 1068 112.6 90.1 96.1 100.0 112.9 113.0 1032 1062 97.4 Iniereau 344 34.7 460 479 536 692 761 94.1 100.0 115.6 101.1 160.8 1471 156.4 Im i Debt 27 3 28.6 38.9 56.7 608 64.4 73 9 146.9 100.0 127.2 125.9 1224 1033 110.0 External Debt 39 5 39 1 512 41 7 48 5 72.7 77.7 56 4 100.0 107.3 83.5 188.3 178 4 189 6 Cth- E,A,dxtw 92.0 3.2 1499 102.6 1797 4252 157.0 147.4 100.0 107.8 0.0 0.0 00 00 CtL nT ICm 72 1 81.7 664 1135 94.0 1488 140.0 94.2 1000 108.3 198.6 2247 3746 6333 Tota1C-oEn urExpandm 665 680 717 736 776 865 893 96.1 1000 1096 1071 112.3 1249 1295 CapwsEzxpdimD 154.1 127.4 1418 1593 175.4 144.0 108.4 882 1000 107.9 133.1 156.6 1975 271 7 Tot.WExpandte 844 80.2 860 91 1 976 982 932 94.5 1000 1093 12ZS 121 4 1397 1586 N1 R1 re d o1 GDPW7l 1/ oe e .k. ( wIh. Honduras - Consoldatted Non-Financial PubUc Sector (summary balance sheet) 1i8l 19i 1982 198 t9 1985 1986 1987 19N 1989 1990 1998 1992 l993p Od _I C-.& L..pL-) Tov.l. Ro- 1,0493 1.077 5 1.134S 1,2034 1.406.6 1,653.2 1.719.9 1,8973 2,088.5 2,2B44 3,103.3 4.5170 5,0325 5,612.S Cun Revon 1.030 4 1,069 5 1,117 2 1,186 9 1.3S8.4 1,602.6 1,675 0 1,874 3 2,068.7 2.269.6 3.085.3 4.481 6 4,893.4 5,393.0 T. Ronuos 721 0 7251 747 9 839 4 1.020.9 1,124 7 1.127 0 1,253 8 1,372.8 1,5152 2,123.8 2,984.2 3,149.8 3,683.7 Otht- R-e-n /1 309 4 3.44 4 369 2 347.5 367 5 478 0 548,0 620.5 695 9 754.4 961 5 1.497 4 1,743.6 1,709.3 C.pW Rcene 18.9 79 176 16.5 182 505 44.9 23.0 198 14.8 18.0 35.4 139.1 219.8 Tot.W E.dzpc 1.5103 1,555 7 1,797.3 1,939.3 2,1223 2.2202 2,193.7 2,271.0 2_5093 2,894.3 3.6859 5.005.0 5,75S.7 7,8S5.2 C tmE.p indu-s 891 1 977 3 1,075 2 1,181.4 1.287 6 1,510.0 1,620 3 1,765.6 1,931.2 2,167.2 2,760.6 3,663.5 3,915.4 5,031.9 CV.osigExpeod&tora 741.7 S115 8686 924.2 1,0108 1,113.0 1,187.3 1_,98.7 1,429.2 1.648.0 1933.7 2,115.0 2,153.5 2,606.0 int P.ymb. 111.1 120.2 166.4 185.3 2142 291.1 332.5 396S 423.5 428.2 628.1 1,2638 1,249.0 1,467.7 Othts CuTent 38.3 45,6 40 2 71.9 62.5 105 8 100.5 70 1 78.5 91.0 198.8 284.7 512,9 958.2 C.putsi Ep.-it 619 2 5794 722.0 758.0 834.8 710.2 573.4 505.4 579.2 727.1 925 3 1,341.5 1,843.3 2,823.3 Fo.d IZn-s 489.7 453 1 506 9 610.3 725 1 633.9 467 0 400.2 455.6 578.2 883 9 1,240.2 1,730.4 2,664.0 Otl:o C.pK.t 2 129.5 1253 2152 147.7 1097 76.3 1064 1052 1225 148.9 41.4 101.3 1129 159.3 O-v1Da 1.60 (& - *-pi-) 461 0 4783 6625 7359 7158 5670 4738 375.3 418.1 609.9 550.5 474.2 917.7 2,308.3 PT-,,-. Do6c,t (neg - nwpl-al 350 0 358 0 496 1 550 6 501 6 275 9 141 3 -21 5 -5 4 181 7 -776 -789 6 -331 3 840.6 1980 1981 1982 193 t.984 19SS 19S6 1997 19s 1989 t990 1991 9 1993P (A. P.ro. of GDP) T.t.1 R-mu 20.45% 1911% 1954% 1956% 21 19Y. 2'11% 258% 22SS5% 22.58% 22.11% 2475% 2769% 2681% 2594% Curent Rcve 20.08% 18.97% 1924% 19 29% 20.92% 2202% 21 99%. 22.57% 22.36% 21.96% 24 61% 2' 47*2. 2607% 24 93% T. Rono 14.05% 12.86% 12.88% 1364% 1538% 1545% 1480% 151O. 14.84% 14.66% 1694" is29'. i6 '8% 1' 03% Othos Roonue /1 6.03% 6 11% 6 36% 5 65% 5 54% 6 57% 7 19Y. 7.47% 7 52% 7.309/. 7 67% 9 18". 9 29% 7 90'. C.pAN ./ @ \ j SECONDARY ROADS EL SALVADOR > > g r -P ~ RAILROADS loT.or S. lirrdor t _ f / ) , _ +4 MAIN AIRPORTS " 8 C ONACAOME d, MAIN PORTS t 86 82 78e > J q RIVERS -EXICd-~ s _ _ EL' IZE_ . CHOLU _ To Mo togo f O CITIES AND TOWNS GMATEslC O, fBELIZE - \ ^ O raa a(5,000 AND GREATER POPULATION) LUATENtALA,--o NICARAGUA ®) DEPARTMENT CAPITALS The do,-,o, EL T. Ch5CAR A NATIONAL CAPITAL do,ioo,.rn,on or. SALVADOR -NICAAGUAfOOOSO ho, 0 25 50 75 100 K,lomcters DEPARTMENT BOUNDARIES tply o 00P do o-p 0 "-O B-k~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~TrVodBo COSTARICA PANAMA - I I I I - - INTERNATIONAL BOUNDARIES O/lmcOc0 ho , o 0 0 25 50 75 100 MIes of =cc ef oQ, 00 86 82 A 84 dor ocoept-.oooS Of 0 95) 90~ ~~~ 62 CCXOMBAI 1 8 booS4sioco.