True, Mel Didn't Raise Taxes...

  • Written by  Marco Cáceres

In response to the passage of a new package of tax increases by the lame duck National Congress in December, former President Manuel Zelaya on Friday sought to remind everyone that during his three and a half years in power (2006 to mid-2009), his government was able to achieve unparalleled economic growth without imposing any new taxes. "I governed without placing any taxes and I had the highest rates of economic growth in the history of Honduras and the highest poverty reduction rates without a single tax," he said. Okay, I'll take Mr. Zelaya at his word on the taxes. It's also true that economic growth was significant. 

Honduras' Gross Domestic Product (GDP) grew by 6.7 percent in 2006, 6.2 percent in 2007, and 4.1 percent in 2008 -- the three full years Mr. Zelaya was in office prior to his overthrow on June 28, 2009. The growth rates under Mr. Zelaya continued the trend established under the preceding administration of President Ricardo Maduro: 3.8 percent in 2002, 4.5 percent in 2003, 6.2 percent in 2004, and 6.1 percent in 2005.


But a major reason Mr. Zelaya did not have to come up with new revenue was due to the fact that the International Monetary Fund (IMF) and World Bank had forgiven US$2 billion of Honduras' foreign debt during the last year of the Maduro administration under the Initiative for Highly Indebted Poor Countries (IPPAE). That was 42 percent of the country's foreign debt at the time... gone, due to... charity. When Mr. Zelaya assumed power in January 2006, Honduras had a foreign debt of US$2.8 billion. In March 2007, the Inter-American Development Bank (IDB) further eased the country's fiscal stress by forgiving an additional US$1.5 billion of its foreign debt.


Just a little over a year into the Zelaya administration, Honduras' foreign debt was down to only US$1.3 billion. Mr. Zelaya had the luxury of not having to pass new taxes, because the IMF, the World Bank, and the IDB had left him with a nice gift of US$3.5 billion. It was precisely with that "cushion" of pardoned debt that Mr. Zelaya was then able to spend liberally. And it was that public spending spree, along with the sudden upward spike in remittances (US$2.359 billion in 2006, US$2.512 billion in 2007, and US$2.707 billion in 2008) from Honduran nationals living abroad that fueled the economic growth for which Mr. Zelaya loves to take personal credit.


It's easy for a country to create economic growth. All you have to do is pull out the credit card and begin charging -- which is exactly what Mr. Zelaya did. What's hard is creating economic growth by encouraging the creation of new industries and services that people need -- growth that doesn't add to the public debt but actually contributes to the national treasury. It's also easy not to have to raise revenue, when someone else has already given you a ton of money. What apparently is also not so easy is knowing when to be humble, particularly when you've done nothing to deserve praise. (1/3/14) (photo courtesy Internet)



Note: The author is the editor and cofounder of Honduras Weekly. He is an aerospace market analyst by profession. He was born in Tegucigalpa. He is the author of "The Good Coup: The Overthrow of Manuel Zelaya in Honduras".

Follow Us

Who's Online

We have 191 guests and no members online

Copyright © 2014 Honduras Weekly. All Rights Reserved.