Finance Minister Marlon Ochoa and BCH President Rebeca Santos
They will consider devaluing the lempira, raising the TPM and reviewing the auction system, warns
Economist Roberto Lagos reported, in his X account, that the Minister of Finance, Marlon Ochoa and the President of the Central Bank of Honduras, Rebeca Santos made a trip “in silence” to Washington DC, United States to meet with the IMF.
A technical mission from the International Monetary Fund visited the country at the end of August and left without referring to the review of the three-year agreement signed with the government in August of last year.
The economist, Roberto Lagos
According to Lagos, in order to pass the evaluation, the government will have to approve measures that were recommended last year, such as devaluation, the increase in the Monetary Policy Rate (TPM) and the currency auction system, without guarantees of their current effects.
“IMF DEAL. After lunch at Founding Farmers this weekend I was able to learn that the Finance Minister and the President of the Central Bank made a quiet trip to Washington DC to meet with the IMF,” he wrote.
“Everything indicates that in order to maintain the agreement with the IMF, the Government has committed to the following: 1. Correct the exchange rate lag – Devalue the currency 2. Continue increasing the reference interest rate 3. Review the currency auction system since the current mechanism turned out to be a disaster. With this negotiation, the first two revisions of the agreement would be achieved in the coming weeks.”
“My question is this: why did they refuse to comply with measures that would have had a greater/better impact at the beginning of 2023? This is a clear example of inconsistency and lack of timing. Regarding the issue of lack of timing: The effects of applying measures that were necessary a year ago and that are now being carried out at the wrong time will have to be evaluated – let us remember that there is no free lunch – someone always pays the price for applying measures at the wrong time,” he added.
“That is why it would be interesting to measure what the population thinks about the decisions that the government has committed to before the elections are called,” said the US-based economist.
Honduras currency to USD
Table of Contents
The Lempira: A Currency with a History of Devaluation
The lempira, the official currency of Honduras, has a long history of devaluation, which has had significant impacts on the country’s economy. In recent years, the government has been considering devaluing the lempira again, raising concerns about the potential effects on the economy and the people of Honduras.
A Brief History of the Lempira
The lempira was introduced in 1931, replacing the peso as the official currency of Honduras. At the time, the lempira was pegged to the US dollar at a rate of 0.444335 grams of pure gold [1]. However, the lempira has not always maintained its value. In 1996, the exchange rate for the lempira was around L8.60 per US$1.00, but by the end of that year, it had reached L14.00 per US$1.00 [2]. This rapid devaluation led to concerns about the stability of the currency and the country’s economy.
Devaluation and its Effects
Devaluation can have both positive and negative effects on an economy. On the one hand, devaluation can make exports cheaper and more competitive, which can lead to an increase in foreign investment and economic growth. On the other hand, devaluation can lead to inflation, reduce the purchasing power of citizens, and make imports more expensive. In the case of Honduras, devaluation could iron out economic distortions, stimulate exports, and make the country more attractive to foreign investors [3].
Recent Developments
Recently, the Minister of Finance, Marlon Ochoa, and the President of the Central Bank of Honduras, Rebeca Santos, made a “quiet trip” to Washington DC to meet with the International Monetary Fund (IMF). According to economist Roberto Lagos, the government has committed to implementing measures recommended by the IMF, including devaluing the lempira, raising the Monetary Policy Rate (TPM), and reviewing the currency auction system. These measures are seen as necessary to pass the IMF’s evaluation and maintain the country’s agreement with the organization.
Concerns and Uncertainties
The proposed devaluation of the lempira has raised concerns about the potential effects on the economy and the people of Honduras. Many are worried about the impact on inflation, exports, and foreign investment. Additionally, there are concerns about the government’s ability to implement these measures effectively and ensure a stable economy.
Conclusion
The lempira has a long history of devaluation, and the recent proposal to devalue the currency again has raised concerns about the potential effects on the economy and the people of Honduras. While devaluation can have positive effects, it is crucial to carefully consider the potential consequences and implement measures to mitigate any negative impacts. As the government moves forward with these plans, it is essential to prioritize the well-being of the people of Honduras and ensure a stable and prosperous economy.
References:
[1] https://www.elibrary.imf.org/view/journals/024/1951/001/article-A006-en.xml
[2] https://digitalrepository.unm.edu/cgi/viewcontent.cgi?article=9162&context=noticen
[3] https://www.joc.com/article/honduras-may-be-forced-devalue-lempira_19880712.html
Honduras’ Financial Outlook: Challenges and Opportunities
Honduras, a country located in Central America, has been facing economic challenges in recent years. The country’s economy has been impacted by various factors, including the international financial crisis and political crisis, which has led to a decline in its GDP. According to a report by the Economic Commission for Latin America and the Caribbean (ECLAC) [2], Honduras’ GDP is estimated to have contracted by 3% in 2023, with a 5% decline in per capita GDP.
In an effort to address these challenges, the Honduran government has been working with the International Monetary Fund (IMF) to implement reforms and stabilize the economy. Recently, Finance Minister Marlon Ochoa and Central Bank President Rebeca Santos made a trip to Washington DC to meet with IMF officials to discuss the country’s economic situation and the implementation of measures to address its challenges.
Devaluation, TPM, and Auction System Review
According to economist Roberto Lagos, the Honduran government will need to approve measures recommended by the IMF, including devaluing the lempira, increasing the Monetary Policy Rate (TPM), and reviewing the currency auction system. These measures are aimed at correcting the exchange rate lag, controlling inflation, and stabilizing the currency.
However, Lagos raises concerns about the timing of these measures, pointing out that they were necessary a year ago and are now being implemented at the wrong time. He questions why the government refused to comply with these measures earlier, citing inconsistency and lack of timing.
Investment Climate
Despite the challenges, Honduras has made efforts to improve its investment climate. The 2011 Law guarantees national treatment and most favored nation treatment for U.S. investments in most sectors of the Honduran economy, and includes enhanced protections for investors [3].
In the 2024 Index of Economic Freedom, Honduras’ economic freedom score is 58.6, making its economy the 89th freest in the world [1]. While there is still room for improvement, Honduras has made progress in recent years, and the government’s efforts to implement reforms and stabilize the economy are expected to contribute to its economic growth.
Conclusion
Honduras’ financial outlook is complex, with challenges including a declining GDP, high inflation, and a depreciating currency. However, the government’s efforts to work with the IMF and implement reforms are expected to contribute to the country’s economic growth and stability. While there are concerns about the timing and impact of these measures, Honduras’ investment climate is expected to improve, attracting foreign investment and driving economic growth.
References:
[1]
[2]
[3]
