Reform Program Unlocks US Aid

TAKING advantage of the fading conflict in Nicaragua, neighboring Honduras has embarked on a program to reform its economy, one of Latin America's poorest. Washington, where two Honduran officials explained their plan last week, has already unblocked $120 million in aid. President Rafael Leonardo Callejas will bring an economic agenda to meetings beginning April 16 with the Bush administration, Congressional appropriations committees, and multilateral lenders.

The 10-year, United States-backed contra war against Sandinista rule took a heavy toll on Honduras. Some 50,000 Nicaraguan contras, family members, and supporters on Honduran soil displaced subsistence farmers, upsetting agricultural output and causing homelessness.

Currently, 55 percent of the ``economically active'' population is underemployed or unemployed. According to government statistics, the per capita annual income is $580 per year. The government considers 54 percent of the population to be ``indigent.''

City dwellers and migrants to urban centers suffer from a shortage of 535,000 dwellings. Only 19 percent of existing homes have electricity and running water.

At $3.3 billion, Honduran external debt is ``120 percent of our gross domestic product,'' says Honduran Finance Minister Benjamin Villanueva. The debt is larger per capita than Brazil's and Argentina's. The population of 4.7 million is ill-prepared for austerity measures.

Seeking US and international development assistance, Mr. Villanueva and Central Bank President Ricardo Maduro promoted their ``export-oriented economic plan'' in Washington last week. It features liberalized exchange rates and tariffs, an increase in the sales tax to 7 percent from 5 percent, and an 8 percent reduction in public spending.

But Honduras won't lift basic subsidies. Instead, $25 million in price supports for food and transportation will be allocated under the new Honduran Fund for Social Investment - a safety net for economic reform.

The government also plans to employ 10,000 workers to build roads, wells, and other infrastructure projects. An additional 2,000 permanent jobs will be created this year by financing small industries and helping the informal sector to secure credit, says Villanueva.

Last week's unveiling of the Honduran plan ``caught the US by surprise,'' Villanueva says.

``We went to the Agency for International Development and said, `OK, here is our plan - where is our assistance?' '' he says. AID agreed to disburse $70 million in 1989 allocations that the Bush Administration had held up, pending Honduran economic reforms. That's in addition to $50 million for 1990. A first $40 million check will arrive in Honduras March 28.

This will free Honduran economic planners to try to regain the country's reputation in the international financial community. In November 1989, Honduras, already $40 million in arrears, became ineligible to borrow funds from the International Monetary Fund (IMF).

Honduras owes another $40 million to the Inter-American Development Bank. Its biggest official international creditor is the World Bank, owed $150 million. According to a ``gentlemen's agreement,'' as long as a country is in arrears to one such multilateral institution, no others loan to it.

Villanueva says he was received warmly by IMF officials last week. The IMF even welcomed the continuation of basic subsidies. ``We have the blessing of the Fund, which has learned it's lessons from [tough austerity measures that caused] last year's riots in Venezuela.'' (IMF officials insist that the Fund always takes social consequences into consideration when it advises austerity measures.)

``We intend to sign a letter of intent with the IMF,'' says Villanueva. US Treasury officials are working with World Bank and IMF officials as leaders of a bridge loan to Honduras so that the country can start paying off its mounting arrears.

``The US wants Mexico, Venezuela and Japan to participate in the loan. We hope to see progress by May 1,'' he says.