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Devaluation Harms the Poor

Devaluation Harms the Poor

Saturday, 13 March 2010 00:00

Honduras' relative lack of competitiveness is not owed to an overvalued lempira. Rather, it is due to the fact that the society has never invested what it should in its most precious commodity... it's people.

By Marco Cáceres
I can think of few things more economically damaging and demoralizing to the vast majority of Hondurans than the idea of devaluing the lempira. While you can reasonably argue that reducing the value of the Honduran currency would stimulate foreign private investment because foreigners would get more bang for their buck in Honduras, thus raising the potential for creating jobs, the immediate impact would be to create more poverty and insecurity among the three-quarters of the Honduran population that already has to survive on less than US$3 per day... in many cases, on less than US$1. The prospect of future jobs growth severely diminishes in its attraction if the bargain calls for punishing even further those millions of Hondurans who already live on the margin.

With the annual inflation rate in Honduras running at about 3 percent (according the Central Bank of Honduras), there exists relative stability in the price of goods and services in the country at the moment. There have been noticeable price increases of late on items such as fuel, avocados, black beans, eggs, canteloupes, and watermelons. But this has been offset by price drops on cabbage, chicken, corn, meat, oranges, plantains, potatoes, rice, sweet chiles, tomatoes, and yuca. Low inflation is one of the few conditions that we know for sure helps the poor in real time. The promise of future jobs in industries that we do not know or cannot guarantee will pay and treat their workers fairly offers an unsettling kind of hope.

In a country like Honduras where relations between labor and business owners tend to be confrontational, and where labor is usually at a disadvantage because workers are often poorly educated and trained and there does not exist a wide range of opportunities for employment in the country, the primary argument in favor of devaluing the lempira -- jobs creation -- leaves you wondering whom it is really designed to help the most. Given that the main motivation behind business is profit, I suspect that creating well-paying jobs within environments that are safe, friendly, and offer opportunities for growth and advancement to Honduran workers would not be among the highest of priorities.

I believe that devaluing the lempira is looked upon as a "quick fix" to the problem of scarcity of foreign investment, particularly during the past year with the political crisis making Honduras at least a question mark for many investors. But quick fixes usually do not exist in life. They often makes things worse. Honduras' relative lack of competitiveness is not owed to an overvalued lempira. Rather, it is due to the fact that the society has never invested what it should in its most precious commodity... it's people. That's where the mature fix lies. (3/13/10)