Honduran President-elect Juan Orlando Hernandez takes office today with a fragmented Congress after vowing to rely more on the military to help stem the highest homicide rate in the world.
Hernandez, 45, will oversee an $18.4 billion economy that has struggled under violence fueled by drug gangs with ties to Mexican cartels and an agricultural virus that cut coffee output in Central America’s biggest producer. The economy will expand 2.8 percent this year, up from a four-year low of 2.6 percent in 2013, according to the International Monetary Fund.
Hernandez defeated Xiomara Castro, wife of deposed former President Manuel Zelaya, to win the Nov. 24 vote. Yet with his National Party holding just 47 seats in the 128-member Congress, down from 71 under outgoing President Porfirio Lobo, Hernandez will have to build alliances to rein in a widening deficit, fight crime and boost growth. Castro’s Libre Party has 39 seats, while the Liberal Party holds 26.
“It’s clear that looking at the new composition of Congress he’s going to have to work with other parties,” said Miguel Gandolfo, an emerging-market analyst at F&C Asset Management Plc in London.
Hernandez last week signaled he is willing to negotiate changes to an $800 million package of tax increases and spending cuts put in place following the election, including a 15 percent tax on basic food items. The legislation was meant to help stem a deficit projected to reach 6 percent of gross domestic product last year, up from 3.9 percent in 2011.
Investors betting that Hernandez will hold down the budget deficit and seek aid from the IMF helped the country’s debut dollar bonds return 6.3 percent since the vote, compared with a 1 percent loss for Latin America debt over the same period, according to data compiled by Bloomberg and JPMorgan Chase & Co.
“A swift dialog with the IMF, which doesn’t have to be rushed, but to reassure his commitment to open a program with the fund would be a positive signal,” Gandolfo said.
Economic progress may depend on the government’s ability to control drug violence in the nation bordered by Guatemala, El Salvador and Nicaragua. Hernandez backed Lobo’s strategy of deploying 4,000 military policemen to the streets to lower the homicide rate of 83 per 100,000 inhabitants, according to data from the Honduras National Autonomous University.
“Honduras remains exposed to the threat of well-armed, well-funded transnational criminal organizations,” the U.S. State Department said in a 2013 report.
The country of 8.4 million people has become a transit point for drug shipments, with 87 percent of all cocaine smuggling flights departing South America for the U.S. stopping in Honduras in 2012, according to the State Department.