How Honduras built its exports inside enclaves

Why the Rosario silver left so little behind

The colonial economy of Honduras was organised around mining, and after independence the country spent most of the nineteenth century without an export to replace it. Cattle raising and subsistence farming produced nothing the world bought in quantity. What changed that, late in the century, was precious metal mined at scale in the mountains near Tegucigalpa, and the most important mines there belonged to the New York and Honduras Rosario Mining Company.

Silver was the principal metal, and it accounted for about 55% of Honduran exports in the 1880s. The Liberal government had begun in 1876 to grant land and tax exemptions to foreign concerns as well as to local businesses, and mining was particularly important among the sectors it favoured. Mining income stimulated commerce, built some infrastructure and eased the monetary restraints on trade.

The wider effects were thin. The foreign mining companies employed a small workforce, provided little or no government revenue and relied mostly on imported equipment, so the industry was never well integrated into the rest of the Honduran economy. The Rosario company produced 60 million dollars' worth of gold and silver between 1882 and 1954 before it discontinued most of its operations, and by 1992 mining contributed 2% of gross domestic product.

Extraction has not gone away. Mining exports came to 293 million dollars in 2021, and the non-governmental organisation Fosdeh has warned that, with the concessions now under way, the area earmarked for extraction could reach 5% of the national territory in the coming years.

The silver mines set the arrangement this article follows through four later versions. A foreign enterprise receives terms the rest of the economy does not have, it supplies a large share of exports, and what stays in the country is mostly the wages of the people it employs.

Who kept the wealth of the banana coast

Bananas repeated the pattern at far greater scale. Liberal concessions let United States companies into the market first as shipping lines and then as railway and plantation enterprises, and on the north coast the government ceded them 500 hectares of land for every kilometre of railway laid. The lines carried fruit from the interior to the coast. They never gave Tegucigalpa, the capital, a passenger or freight service. The result was an enclave economy centred on the settlements and activities of three companies, Cuyamel Fruit, Standard Fruit and United Fruit, which absorbed Cuyamel in 1930. Honduras: history follows the political side of those concessions.

Agricultural exports rose from 3 million dollars in 1913, 2 million of it from bananas, to 25 million dollars in 1929, of which bananas supplied 21 million. More than 40 million dollars of specialised company investment in Honduran infrastructure stood behind that growth, and so did pressure from the United States government whenever the companies felt threatened. Until it was sharply reduced in the mid-1950s, the banana workforce made up a large part of all the wage earners in the country. Just before the strike of 1954, about 35,000 people worked on the plantations of United Fruit and Standard Fruit.

The land stayed with the companies long after the railways had served their purpose. In 1993 the government and the two successor firms, Chiquita Brands International and Dole Food Company, owned about 60% of the cultivable land in Honduras, and much of the company land lay unused for lack of irrigation. The two firms also invested in breweries, plastics, cement, soap, cans and shoes. Banana workers stayed at the top of the wage scale from the 1970s into the 1990s, while the bulk of the wealth the fruit generated stayed with the international corporations that grew and marketed it.

By 1960 bananas had fallen to 45% of total exports, and coffee overtook them as the leading export earner in the mid-1970s. The 1990s concentrated what remained. An Agricultural Modernization Law of 1992 let cooperative members split their holdings into personal plots that could be sold, and with a larger European quota in prospect some small producers sold to the two large companies. Hurricane Mitch then struck in October 1998 and the banana industry lost some 90% of its plants; a Washington Post headline that November read "Mitch Left Honduras a Republic Without Bananas". Banana production had recovered to 57% of its pre-Mitch level in 2000.

What the free zones on the Caribbean coast make

The third enclave was written into statute. The government-sponsored Puerto Cortés Free Zone opened in 1976, and by 1990 five more were operating at Omoa, Coloma, Tela, La Ceiba and Amapala, with privately run export processing zones competing alongside them on the same import and export incentives. Most of them lay along the Caribbean coast in a newly developing industrial belt. The Temporary Import Law carried the same treatment beyond the zone fences: a company exporting all of its production to countries outside the Central American Common Market could hold a ten-year exemption from corporate income tax and bring in its industrial inputs free of duty.

The plants that filled the zones were maquiladoras assembling garments, mostly for the United States, and their owners were mostly Asian. In 1991 twenty-one South Korean-owned companies operated in export processing zones in the Río Sula valley, the assembly sector employed about 16,000 workers, and nine more firms opened in 1992. The value of clothing exports exceeded that of coffee in 1991, when assembly was worth 195 million dollars to the Honduran economy. By 2000 the maquiladora sector employed over 120,000 people and earned more than 528 million dollars in foreign exchange.

The cost fell on the firms outside the fences. Paying close to 4 dollars a day in the early 1990s, the maquiladoras outbid small Honduran manufacturers for labour, and membership of the Honduran Association of Small and Medium Industry had fallen by 70% by 1991 against its level before the assembly plants arrived. Critics of the shift away from the import substitution policies of the 1960s and 1970s pointed to how little the foreign manufacturers committed to any single site or to permanent employment.

Garment assembly still sets the rhythm of Honduran industry. Honduras signed CAFTA, a free trade agreement with the United States, in 2005, and the BTI country report of 2026 describes a country that has moved since the end of the Cold War from an economy based mainly on agriculture to one based on manufacturing and processing low-cost consumer goods in maquilas. In the second quarter of 2026 manufacturing value added fell 2.2% on the previous quarter, which the central bank put down to lower output of textiles and clothing as shipments to the United States declined.

Why the ZEDE zones were annulled from the start

The fourth enclave went furthest. In 2012 a memorandum of understanding with a group of international investors won government approval to build a zone with its own laws, tax system, judiciary and police, and opponents brought a suit in the Supreme Court calling it a "state within a state". The court had already found an earlier law on special development regions unconstitutional. On 12 June 2013 Congress passed its successor, the law on Zones for Employment and Economic Development, or ZEDEs, by 102 votes to 26, together with reforms to Articles 294, 303, 304 and 329 of the constitution. The government began building the first zones in June 2015.

Three ZEDEs were established: Próspera on Roatán in the Bay Islands, Orquídea at San Marcos de Colón in Choluteca, and Ciudad Morazán at Choloma in Cortés. They held 50-year concessions as tax and customs regimes outside the ordinary law, and a treaty signed with Kuwait sought to protect investments in them for 50 years. Ciudad Morazán, in the industrial north, aimed to employ 10,000 workers and house 15,000 people. Próspera stands in the Bay Islands department, where 502 cruise ships called in 2025, the year the tourism ministry counted 3.1 million visitor arrivals across Honduras.

Congress repealed the ZEDE law in 2022, but the constitutional amendment was not ratified in the following legislative session, so the zones went on operating legally for more than two years. On 20 September 2024 the Supreme Court declared the framework unconstitutional in a resolution signed by all 15 magistrates. A majority ruled to annul it from its inception, taking with it the constitutional reforms, the ten years of guarantees promised to investors in case of repeal, and the court's own resolution of 14 June 2021 that had granted the zones a special jurisdiction.

The two sides read the ruling in opposite terms. The secretary of Ciudad Morazán called it abusive and illegal, and asked how a court that had granted the zones a jurisdiction in 2021 could find them unconstitutional from the beginning. The government's commissioner against the ZEDEs drew the distinction the case turned on, between a concession that cedes near-total sovereignty and one granted for public works, ports, airports or the partial privatisation of state companies. Próspera had filed a claim at the International Centre for Settlement of Investment Disputes after the 2022 repeal, and in 2024 Honduras was in the process of withdrawing from the centre. Honduras: politics covers the constitutional procedure the zones passed through.

Where Honduran household income actually comes from

The money that reaches most households comes through channels no concession created. Coffee is the older one. It became the leading export earner in the mid-1970s, and unlike bananas it is grown mostly by small producers, which gives family farms a part in the export trade that the fruit never offered them. Its price has swung hard, from more than 2.25 dollars a kilogram in the mid-1970s to less than 0.45 dollars in the early 1990s.

In 2025 the swing ran the other way. The IMF credits record-high coffee prices and surging remittances with growth of 3.8% that year, and the central bank recorded higher coffee volumes in the fourth quarter of 2025 from more productive farms, sold into a market where output in Mexico and Brazil had fallen. Exports of goods and services then fell 2.5% in the second quarter of 2026 on the previous quarter, mainly because coffee shipments eased after historically high levels.

Remittances are the larger channel, and they are sent by people. Hondurans living abroad, mostly in the United States, sent home 410 million dollars in 2000, a rise of 28% on the year before. By 2007 they were sending more than 2 billion dollars a year, equal to 28.2% of gross domestic product. In its assessment of April 2026 the World Bank describes the economy as critically reliant on remittances, which represent over a quarter of output, and expects growth to slow to 3.4% in 2026 as remittances drop with changes in migration. The BTI report of 2026 warns that a mass deportation of Hondurans from the United States could have a significant destabilising effect, because it would hit one of the key drivers of the domestic economy.

The household survey shows the same money at a different scale. The National Institute of Statistics surveyed 2,780,759 households in July 2025 and found remittances to be the third source of household income, at 5.5% of the total, behind wages at 59.1% and earnings from self-employment at 25.9%. The two figures measure different things, one a national inflow set against total output and the other a share of income averaged across all the households surveyed.

How growth and household poverty moved apart

Measured output has kept growing. By the central bank's accounts, gross domestic product at constant prices rose 3.6% in 2024 and 3.8% in 2025, and its report on the second quarter of 2026 put year-on-year growth at 2.7%, or 2.5% in the unadjusted series. A large part of that growth is booked in finance. Financial intermediation, insurance and pension funds grew 12.6% in the second quarter of 2026 against the same quarter of 2025 and contributed 3.7 percentage points to that 2.5%, before the accounts deduct the financial services that are measured indirectly. Gross national income per head was 3,020 dollars in 2024 in Britannica's figures.

The household survey moved the other way in 2026. The share of households in poverty fell for four consecutive years, from 73.6% in 2021 to 60.1% in 2025, and rose to 61.1% in the survey of June 2026, when the institute counted 1,702,006 poor households against 1,085,544 that were not. Poor households increased by 76,929 in that year, while those outside poverty increased by 8,437. Extreme poverty rose from 38.3% to 39.7% of households, and unemployment from 4.9% to 7.1%, with 290,314 people out of work in a labour force of 4,085,577.

The institute also counted 2,077,483 people with employment problems in June 2026, a wider category than unemployment. The survey itself does not establish that the rise in unemployment caused the rise in poverty.

Income is unevenly spread across the country. Per capita household income averaged 4,864 lempiras a month in July 2025, with 6,077 in urban areas and 3,172 in rural ones. The poorest fifth of households had per capita income of 710 lempiras a month and the richest fifth 12,967, and the Gini coefficient stood at 0.495 in 2025, on a trend the institute describes as falling since 2022. The World Bank, using international lines, estimated in April 2026 that 47.6% of the population lived on less than 8.3 dollars a day at 2021 prices, and put poverty under the 3 dollar line at 15.3% in 2025. Informality runs through all of it: the BTI report of 2026 cites International Labour Organization estimates that more than half of all Hondurans work informally.

How the lempira came off its dollar peg

The lempira was pegged at two to the United States dollar in 1918, and the peg held into 1990. Because the currency was tied to the dollar, Honduran inflation tracked that of the developed economies, at 3.4% in 1985 and 4.5% at the end of 1986. Exchange controls introduced in 1982 produced a parallel market and several official rates operating at once. In 1990 the rate was adjusted to four lempiras to the dollar, except for debt-equity conversions, which stayed at the old rate, and inflation that year reached 36.4%. The official rate had fallen to 7.26 by December 1993 and it stabilised at 19 in 2005.

The decade before the devaluation was financed from outside. United States military assistance was under 4 million dollars before fiscal year 1980 and stood at 48.3 million in fiscal 1983, and total economic and military aid passed 200 million dollars in 1985. Foreign aid averaged about 4.6% of GDP between 1985 and 1989, and external financing covered 87% of the public deficit in 1985. Total external debt fell from 119% of GDP in 1990 to 112% in 1993, largely through 448.4 million dollars of debt forgiveness by the United States, Switzerland and the Netherlands. After Mitch, Paris Club relief worth over 400 million dollars followed, and in July 2000 Honduras reached its decision point under the Heavily Indebted Poor Countries Initiative.

The current framework is an IMF programme. Arrangements under the Extended Fund Facility and the Extended Credit Facility, totalling about 847 million dollars over 36 months, were approved on 21 September 2023, and about 725 million had been disbursed by June 2026. The fiscal deficit was 0.7% of GDP in 2025 against a programme target of 1.5%, with 1.0% targeted for 2026. Inflation converged on the 4% objective in 2025 and the IMF projects 5.7% at the end of 2026 on higher energy prices. The exchange rate crawl has resumed, and foreign currency is allocated through an auction system. Gross government debt stood at 43.6% of GDP in 2024, against 52% at the height of the pandemic.

Why Honduran electricity runs on imported fuel

Honduras has never produced petroleum. In 1991 it consumed about 16,000 barrels of oil a day and spent about 143 million dollars, 13% of its export earnings, on buying it, and its one small refinery, at Puerto Cortés, closed in 1993. Fuelwood and biomass have traditionally met about 67% of the country's total energy demand. The 292-megawatt hydroelectric plant at El Cajón began producing electricity in 1985 and soon became heavily indebted, because public-sector institutions were not charged for their power and political appointees ran the utility.

Generation still leans on fuel. In the second quarter of 2026 thermal plants supplied 55.0% of the electricity generated, biomass 11.8%, solar 10.1%, hydroelectric plants 8.5%, coal 6.9%, wind 5.4% and geothermal 2.2%, by the central bank's count. About half the electricity sector is privately owned, and the rest of the generating capacity is run by the state utility, ENEE, which receives heavy subsidies against chronic financial problems.

ENEE is also where the IMF programme slipped. The review completed on 29 June 2026 found every quantitative target for end-June 2025 met and one for end-December 2025 missed, the criterion on the stock of domestic arrears at the utility, and the board granted a waiver on the basis of corrective action. The Fund asks for renewed effort to cut electricity losses and arrears, and expects higher global oil prices to slow growth to 3.3% in 2026. Access has widened over the same decades. The World Bank estimated that about 36% of Hondurans had electricity in 1987, and the World Development Indicators of 2024 put the share at 94.4%. Honduras: geography describes what Mitch did to the ground, and Honduras: overview sets the economy beside the rest of the country.