ANDI Recommends Devaluation of Lempira

Honduras' National Association of Industrials (ANDI), headed by Adolfo Facussé, has recommended to the Lobo administration that its should propose a devaluation of Honduras' currency when it meets with representatives of the International Monetary Fund (IMF) next week in Tegucigalpa. Mr. Facussé wants to see the lempira devalued gradually by half a percentage point per month so that by the end of one year the lempira exchange rate with the US dollar would be 20 to 1, rather than the current 19 to 1.

Mr. Facussé has repeatedly stated that he believes the lempira is overvalued and noted that the situation contributes to Honduras' trade deficit (US$3.8 billion in 2008). "When the currency is overvalued, it becomes easier to import items and harder to export". Mr. Facussé argues that a controlled and gradual devaluation of the lempira would make Honduran goods more competitive in overseas markets and thus stimulate private investment in Honduras in certain industries, thus fueling jobs creation. Mr.Facussé's view is not shared by all economists, including Raúl Reina who points out that other factors such as worker productivity and a better transportation infrastructure may play a larger role in determining competitiveness.

The downside of a devaluation is that imported goods suddenly become more expensive for people in Honduras. This particularly hurts the poor when it involves items such as imported fuels that are needed for cooking and transportation, as well as imported foods and construction materials. President Porfirio Lobo has consistently stated that he recognizes the economic difficulties facing Honduras but has promised to seek the elimination of wasteful government spending rather than sacrifice the interests of the poor and the middle class by devaluating the currency.

From 1919 until 1990, the Honduran currency was artificially pegged at 2:1 with the US dollar. Since 1990, the value of the lempira has consistently declined. (3/13/10) (photo of Adolfo Facussé courtesy La Tribuna)