HIGH INTEREST RATES IN HONDURAS PUT BRAKES ON PRIVATE INVESTMENT

HIGH INTEREST RATES IN HONDURAS PUT BRAKES ON PRIVATE INVESTMENT

Private investment in Honduras is stagnating despite government efforts to boost economic growth.

The stagnation comes as banks have more cash on hand but interest rates remain out of reach for most borrowers. The government's limited success in stabilizing the economy, coupled with high reserve requirements set by the Central Bank for bank deposits, is behind the jump in interest rates to 24 percent and up."We have a lot of money on our hands that we can't place," said Carlos Canizales Solano, general manager of Banco Hondureno del Cafe SA in Tegucigalpa, Honduras. "People can't afford to borrow to start new projects."

Bankers are complaining about the 35 percent legal reserve requirement for bank deposits, which is among the highest in Latin America.

"Our requirement is 35 percent while Guatemala's is just 20 percent," Mr. Canizales said. "We have been talking to the government and they are looking at lowering it."

Officials at the Central Bank said banks should lower their interest rates, no matter what the reserve requirement, because of the excessive amount of

funds on hand.

Economic observers such as the Honduran Economists' Association disagree, contending that the economic outlook for Honduras will remain grim as long as high reserve requirements prevent banks from charging rates that new investors can afford, and as long as public investment is cut back in order to pay off large foreign debts as requested by international lenders.

"A drop in private investment coincided with a reduction in public investment, which limits the potential of future economic growth," said the economists' association in a report released in late 1991.

The United Nations Economic Commission for Latin America and the Caribbean (ECLA) reported that the Honduran economy grew 1 percent in 1991. But when inflation is considered, the economy declined 2 percent.

Inflation in 1991 was 22 percent and the value of exports declined for the second year in a row, resulting in a trade deficit of $70 million.

"We, as bankers, do feel things will improve," Mr. Canizales. "We expect the interest rate to be going down to 21 percent in the next two months."

However, the ECLA reported that a "climate of uncertainty" surrounds the economy as indicated by a jump in unemployment from 7.1 percent in 1990 to 8.4 percent in 1991.

Meanwhile, the government says its continued implementation of an economic structural adjustment program, which promotes more privatization and less government intervention, will work to get the economy back on its feet.

As part of the plan, the Honduran Congress passed a law on March 4 modernizing the agricultural sector by removing state control. The law gradually will eliminate taxes on non-traditional export products, eliminate government-set price controls and give priority to private businesses, rather than state entities, in the transfer and development of agricultural technology.

The law also will free up more land for agricultural development and create incentives for foreign businesses to invest in the sector.

The changes make it likely that poor Hondurans will have even less access to land than before. The law is just one more thorn in the side of health and social workers, and union activists who say the country's structural adjustment reforms have caused a decline in the standard of living for Honduras' poorest sectors.

According to labor leaders, more than 60,000 Honduran workers lost their jobs in small and medium-sized industries in 1990 and 1991 as a result of the government's economic adjustment measures.

"I hope that the president realizes that concerns over foreign debt are not nearly as important when compared to the social welfare of the people," said Honduran Health Minister Cesar Castellanos.