Honduras: Facing the Budget Challenges?

By ICEFI and CLALS*

Honduran Lempiras

Honduran Lempiras/ Alex Steffler/ Flickr/ Creative Commons

Honduras’ proposed budget for 2020 reduces support to the country’s most needy – while protecting the military and security agencies – and, particularly if the debate on priorities is not made more inclusive, risks exacerbating already high political tensions and chronic economic mismanagement. On the revenue side, the draft budget shows a drop in tax revenues from 18 percent of GDP in 2019 to 16.5 percent – which, ICEFI has found, is not justified by technical analysis of the circumstances. Government spending – excluding payment on the national debt but including transfers to funds and trusts – equaled 19.7 percent of GDP, compared to 21.5 percent in 2019. (ICEFI estimates that the average government spending in Central America in 2019 will be 18.5 percent.) This drop will affect most public entities, particularly in social spending.

  • Education faces deep cuts. The budget of the Secretariat of Education, for example, will drop from 4.85 percent of GDP in 2019 to 4.49 in 2020. Transfers to public universities are slated to be reduced 23.1 percent from 2019 levels, and scholarships are also on the chopping block – cut 27.5 percent for national and 37.5 percent for international scholarships.
  • Health spending in Honduras – the country with the highest poverty rates in Central America – will decline from 2.39 percent to 2.37 percent at a time that inflation is more than 4 percent. The budget for Infrastructure and Public Services will be hit hardest – cut from 0.82 percent of GDP to 0.40 percent. Capital expenditures or investment will decline 33.5 percent year on year, including 38.5 percent from machinery and equipment and 34.6 percent for construction.
  • One of the only government sectors seeing increases is in the military and security, according to ICEFI. The 2020 budget proposes a 39.6 percent increase from 2019 on military and security equipment.

At first glance, the budget would appear to produce a surplus in 2020 of about 0.4 percent of GDP, which is double that ICEFI estimates for 2019. But factoring in the transfer of resources to the funds and trusts – a more reliable way of tracking fiscal behavior – the deficit will actually be 1.5 percent of GDP. That’s lower than ICEFI’s estimate of the deficit this year (1.9 percent), but it is achieved at the expense of the wellbeing of a majority of the Honduran population.

If approved and implemented as proposed, the budget will set back several strategic goals that the Honduran government itself has set. The budget confirms the government’s desire to reduce the public deficit principally through cuts to social spending and some capital expenditures – even though the approach contravenes commitments made under the UN Convention of the Rights of the Child and General Comment No. 19 (2016) on public budgeting for the promotion of children’s rights, which establishes that states should not deliberately adopt regressive measures that undermine child’s rights.

  • Although some provisions of the budget in principle could expand production of goods and services, they do not clearly point to either social inclusion, especially in terms of gender, age, and ethnicity. Budget allocations dedicated to attention to women are very low, equaling barely 0.19 percent of all spending. Neither does the budget focus on achieving any particular Sustainable Development Goals (SDGs).

The transparency and inclusiveness of the budget debate in the Honduran Congress will be crucial to determining the longer-term impact of this budget on human rights and the provision of public goods and services to the most vulnerable Hondurans, including children, adolescents, and women. Executive and Congressional decisions on the budget will shift the country’s path toward prosperity and governance – or continue down a path of instability and tension. More breaks for those capable of paying taxes, while cutting essential services to those who cannot, will be a step in the wrong direction. At a minimum, Honduran leaders should demonstrate the benefits of such moves will outweigh the costs. The legitimacy and effectiveness of the Honduran budget will depend on a broad, inclusive, and honest debate.

November 26, 2019

* The Instituto Centroamericano de Estudios Fiscales conducts in-depth research and analysis on the region’s economies. This is the second in a series of summaries of its analyses on Central American countries.

Venezuela: When Will the Military Flip?

By Fulton Armstrong

venezuelan military marching

A military exercise in Caracas, Venezuela. / Cancilleria del Ecuador / Flickr / Creative Commons

Venezuelan leader Juan Guaidó and his backers, including the Trump administration, are increasingly focused on swaying the country’s security forces to switch allegiance from Nicolás Maduro to the National Assembly President.  Guaidó has appealed to the military to support his efforts to “restore constitutional order” and is pushing through the legislature a law giving amnesty to cooperating officers for certain crimes committed since President Chávez took office in early 1999.  U.S. officials, apparently to shake up the armed forces, continue to say that “all options are on the table”; National Security Advisor John Bolton held a notepad at a press briefing referring to “5,000 troops to Colombia.”  Maduro, for his part, continues to orchestrate loyalty pledges from senior officers and preside over military exercises.

  • Several small units of the military have flipped, and Maduro’s military attaché in Washington – serving there for a number of years to get medical treatment – has declared loyalty to Guaidó. The vast majority of the officer corps, however, still maintain an appearance of commitment to Maduro.

The most common explanation for the military’s apparent loyalty cited by Maduro’s opponents is that the high command has been bought off by opportunities to engage in corruption.  Other factors, however, may better explain why the institution has stuck with him this long.

  • Ideological reasons? Most available information suggests that Madurismo – with its gross, incompetent mismanagement of the economy, corruption, and thuggery – is not attractive to the officer corps.  But they appear to know that Chavismo has deep roots; that the elites, including the more hardline opposition, don’t understand the significance of change since 1999; and that efforts to return to the pre-Chávez era would be destabilizing and bloody.
  • Financial reasons? Although historically and perennially corrupt, senior officers arguably have been able to do more corruption under Maduro than under another regime.  That said, in their heart of hearts, they probably know a lot of their activities will continue under any government.
  • Distrust of the opposition? The military traditionally has communicated better with opposition moderates, such as Henrique Capriles, and in recent years has shown no trust in the faction that Guaidó comes from and its leader, Leopoldo López.  Information is very limited, of course, but many officers may believe that this group’s obsession with overthrowing Maduro and its no-negotiation stance has contributed to the crisis.  Senior officers’ confidence in Maduro’s ability to hold the country together seems to have evaporated, but the opposition have not presented a viable, comprehensive alternative.
  • Concern about the López-Guaidó faction’s ties with Colombia and the U.S.? Good information is elusive, but senior officers’ posture suggests that they see Bogotá’s strategic objective to keep Venezuela weak and Washington’s objective to purge the country of Chavismo and themselves.
  • Concern that the “international community” will not give them a fair deal? Distrust of Washington seems obvious, but – within their logic – senior officers almost certainly are suspicious of OAS Secretary General Luis Almagro, the Lima Group, Brazilian President Jair Bolsonaro, and others as intolerant and biased.
  • Belief that, in the face of total chaos and widespread bloodshed, they can force a last-minute peaceful solution onto Maduro? Senior officers presumably have good enough intelligence to know when and how to intervene – and persuade Maduro to accept a peaceful solution and fly into exile.  The bigger problem at this point is that they do not see a viable alternative to sticking it out.
  • Fear that Maduro’s people have deeply penetrated officer ranks, and their lives will be at stake if they move against him? As the scope of the crisis grows and the credibility of Maduro’s power begins to slip, this would appear now to be less important.  Officers talk among themselves more than outsiders think.

The Venezuelan military’s threshold for intervening against civilian governments of any stripe has always been high, amplified by the embarrassment of the reversed coup against Chávez in 2002.  None of the factors that, on balance, still appear to favor sticking with Maduro is unmovable.  Distrust of the United States, OAS, and the Lima Group – the outside forces that legitimized Guaidó’s claim to power – leave the military with no reliable allies; Cuban, Russian, and Chinese friends can provide no solace.  A credible negotiation proposal from someone like Mexican and Uruguayan Presidents López Obrador and Vázquez, especially if backed by Pope Francis, could conceivably give them a credible direction in which to push Maduro.  But at this moment – subject to rapid change – the balance still argues in favor of the military fearing a new course.

Chile: Between Stability and Uncertainty

By Eduardo Silva and Kenneth Roberts*

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Students protest in Santiago, May 2016. A highly-mobilized Chilean civil society has beset Michelle Bachelet’s second term as president. / Francisco Osorio / Flickr / Creative Commons

With national elections looming at the end of 2017, President Michelle Bachelet’s startling reversal of fortune raises the question of whether the traditional parties’ failure to win broad popular support could give rise to an anti-establishment populist leader.  At the end of her first government in 2010, Bachelet was the most popular president in post-democratic transition Chile.  This go-around, high-profile corruption scandals involving party financing and real estate deals implicating her family (along with both governing and opposition parties) have cut into her support.  Irregularities in the electoral registry before the 2016 municipal elections, an ineffective response to devastating forest fires, concessions over major reforms, and a slowing economy have also hurt her approval ratings, which are hovering near 20 percent, the lowest of any president since 1990.  Her administration has been beset by protests over education reform, labor relations reform, and the private pension system that the military government established in the 1980s.  Tensions and violence flare up continuously over land rights in the south between Mapuche communities and extractive industries.  All of this is occurring in a context of marked secular decline in voter participation and political party identification.

The trend of volatile approval ratings and a mobilized civil society now spans three administrations – Bachelet, Sebastián Piñera (2010-2014), and Bachelet again – from 2006 to 2017.  Unlike in Brazil and Argentina, where “middle class” revolts demanding clean, efficient government and economic growth signified a rightward turn after prolonged center-left rule, most of the protests in Chile come from the left flank, rather than the right.  Moreover, the mainstream parties appear seriously detached from the most active groups in civil society and, as seen in declining levels of party identification, from the citizenry at large.  This raises questions about the future of Chile’s party system, whether its center-left and center-right coalitions can hold together, and the chances for outsider populists.

All things considered, Chile has been a case of exceptional partisan and electoral stability in Latin America since 1990.  The dominant parties and coalitions have won all the elections, without the rise of a major “outsider” populist or a major new “movement party.”  But the next elections may provide a sort of “in between” outcome.  Ex-President Piñera, who has independent tendencies on the right, and a center-left alternative, Alejandro Guillier, are the current frontrunners in presidential primaries scheduled for July.  Guillier is a type of insider, nominated by a small party in a large coalition, with outsider credentials who does not really belong to Chile’s traditional casta política.  At this early point, if Piñera and Guillier win their respective primaries, both would appear to have a shot at winning in November or in December’s runoff – with neither outcome representing a breakdown of the system, nor a widespread electoral protest against mainstream parties.  This suggests, for now, the continuation of a system that is on the surface highly stable in institutional terms, but in reality highly detached from society at large and in particular from youth and the more active, mobilized sectors of civil society.  Neither political coalition shows many signs of significant internal renovation, although Guillier represents at least some change in leadership of the Nueva Mayoría.  However, political systems have been known to limp along under these conditions in the absence of major economic meltdowns, and that may be the most likely outcome of the next electoral cycle in Chile.

February 13, 2017

*Eduardo Silva is Professor of Political Science at Tulane University, and Kenneth Roberts is Professor of Government at Cornell University.