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Will Controversial "Charter Cities" Help or Hurt Struggling Honduras?

You can tell you’re in Palermo by the names of the streets: Guatemala, El Salvador, Costa Rica — every one of them running parallel to the Rio de la Plata a different Central American country. Together with the bright pastels and fluorescents of the buildings that line them, these calles give the Buenos Aires barrio a sort of carefree party vibe that transports you from sometimes grey, blustery, near-Antarctic Argentina to the tropics.

The wealthy district has also, like so many acronymed corners of New York, been subdivided by real estate neologisms: “Palermo Chico,” “Palermo Soho,” “Palermo Hollywood”. Calle Honduras runs between two of them — Palermo Hollywood, a sort of laid-back hangout for media types, and Palermo Viejo, the old heart of the neighborhood and center of its nightlife. When I wandered through in October 2010, I found signs at both ends of the street were not only plastered with an endless variety of stickers advertising local clubs and galleries, but hacked using a graffiti-like scrawl: “Honduras” (the signs omit “Calle”) had been changed to read “Honduras Resiste”.

At the time, it was clear to what the altered signs referred. For the past year, Honduras had been in crisis. Its populist president, Manuel Zelaya, attempted to hold a referendum on amending the constitution; opponents claimed it was an attempt to extend his term limits. But siding with many members of the government and Zelaya’s own party, the Supreme Court issued an injunction against the attempt for violating the constitution itself. On June 28, 2009, soldiers raided the presidential palace, seized the president, and flew him to exile in Costa Rica. Honduras immediately erupted in protest.

The 2009 Honduran constitutional crisis thrust the small country into the international spotlight. Zelaya’s removal was immediately decried by the UN, OAS, and EU — and the US. But despite its earlier stance, championed by President Obama, both US government lawyers and Congress were less convinced Zelaya’s removal was actually illegal, complicating efforts to effectuate a diplomatic compromise between him and the new president. Other Latin American populist leaders saw that they could gain from the US stance, with Venezuela’s Hugo Chávez offering the most forceful accusations — that Zelaya’s democratic rule was being suppressed by a US-backed judicial coup.

The debates that ensued, invoking the region’s long history of American interventions and its tradition of branding these imperialism, could have been held in 1976 — or 1916. Honduras, the original “banana republic,” was long under the sway of American fruit companies, which were given large, semi-autonomous fiefs. When the fruit companies’ interests were threatened, the US Army was on call; marines landed in Honduras no fewer than five times between 1905 and 1925. Honduras was coerced into supporting the US in other conflicts as well; the country was used as a staging ground for operations in Nicaragua on more than one occasion.

But the region had grown increasingly independent over the course of the Cold War, as US influence was challenged, and after, as its direct national security interest waned. There was no drastic need to resolve the Honduran coup with CIA intrigue or violent conflict. Washington had little to gain from continuing involvement in the country’s affairs, but a lot of potential ammunition to hand Chávez. When the talks it was pushing fell apart, the US washed its hands of the outcome. In the end, Brazil, which had gained credibility by harboring Zelaya in its embassy, was left to persuade the ex-president to leave after his successor was elected, allowing it to prove its mettle as a rising power.

The roots of the crisis were not hard to understand, though they were lost in narratives that largely passed over small and geopolitically insignificant Honduras. It’s too convenient to see Latin America as a whole: usually either as the nightmare of American border vigilantes, on the one hand, or the structural theory of the region’s solidaristic leftists — a group of poverty-stricken victims of domination by El Norte — on the other. In recent years, the common view has been that Latin America is gaining ground economically; even Mexico’s economy has made significant gains, in spite of its violent drug wars.

But the kind of prosperity one now encounters in Chile, Brazil — or Palermo — has not been felt in Honduras. Two thirds of Hondurans live below the poverty line, and the country’s GDP per capita is 125th in the world according to the IMF. Honduras is even more unequal; its Gini coefficient, which measures a country’s wealth distribution, is the world’s fifth highest. Nicaragua is poorer, but the election of its Sandinista government, under Daniel Ortega, has at last brought hope that its wealth might be distributed more broadly.

Zelaya was awarded the presidency with similar expectations. His subsequent fall appeared to have empowered his conservative opponents and stifled further plans for reform. But some new direction was badly needed. Honduras is plagued not only by poverty, but by crime; it has Earth’s highest homicide rates. And like many countries plagued by serious problems with violent crime — including the US — Honduras has gained what safety it does enjoy through mass imprisonment. There are limits to that approach for any country; for Honduras, they’re especially acute.

A fire in February killed 355 inmates in one of Honduras’ prisons. It wasn’t the first prison fire in the country to result in over 100 deaths — two others had occurred in the last 20 years — but it was the deadliest so far. Journalists who studied the prison system since found it dangerously overcrowded and rife with gang violence in which dozens have died in single incidents. A report for the Latin American crime website InSight asserted that gang bosses ran one Honduran prison as a “micro-state“. The AP visited another and described it as a “free-market bazaar” overshadowed by a “line of death” manned by guards. Honduras has neither the money to improve conditions nor the political will to grant amnesty to criminals hardened by lives lived under them.

Improving Honduras’ prison system — or alleviating the conditions underlying its runaway crime rate — would take money; the country badly needs new sources of revenue. Enter Paul Romer. The NYU economist has proposed a controversial economic development theory that would involve drawing capital to special economic zones — what he calls “charter cities” — by giving them autonomy to create laws that incentivize investment.

Romer has cited precedents in China, like Shenzhen, site of the mainland’s first experiments with free market capitalism, as examples of how the approach might work. But, to him, the most enviable model is undeniably Hong Kong, where the legal system is not only investor-friendly but seen as more robust and fair than in mainland China. Romer’s charter cities would not only be governed by such a sturdy framework; the scheme also contemplates foreign guidance and oversight. (For a thorough discussion of the Charter City concept, it’s worth reading journalist Greg Lindsay’s recent investigation in Next American City, available in three parts here.) The inevitable criticism is that Romer wants to replicate Hong Kong’s prosperity by reprising its history — that he’s advocating colonialism.

Honduras’ post-coup governments have shown the most serious interest in charter cities, setting up special zones known as Regiónes Especiales de Desarrollo (or REDs) to host them. And, as of September 5th, it’s the first country to announce, formally, a charter city’s creation. The first such city will be developed by the private MKG Group on the Caribbean coast; details about two others that the government has announced — and questions about whether Romer will remain directly involved — remain unclear.

Days after the MKG deal was reported, Romer asked Honduras’ president to release him from his position as an adviser to the Honduran government on the administration of the REDs. The reasons for his intended departure are somewhat mysterious; in his resignation letter, he mentioned that the Supreme Court might mount a constitutional challenge to the REDs. Legal questions were brewing as to how the land for the cities could be handed over to outsiders; the constitution, assuming it isn’t circumvented, may forbid its expropriation expropriation or abnegation of sovereignty to its new owners.

The extent of that abnegation might be key, both to the REDs’ legality and their success. Charter cities have been called a “radical neoliberal experiment” for potentially undermining national labor laws, though, according to Romer’s colleagues, at least, they would not necessarily be anarcho-libertarian: they are committed to the idea that a government must provide public goods, like roads and ports (though they’ve been less clear on how Honduras will be able to afford them). When he was still involved in the project, Romer was also committed to the idea of foreign management: he was reported to have sought management from a number of countries, inviting Canada, for example, to “set up the rule of law” in and “participate in governance” of the territories.

Romer has stated that he continues to support and encourage Honduras’ development of charter cities in the REDs, which makes it seem likely that his framework won’t be abandoned entirely if he goes absent. But however charter cities are organized in detail, or however technically legal, Honduras’ long history of submission to the US — especially the somewhat similar concessions granted to the fruit companies — probably guarantees some circles will view them with deep hostility and suspicion. Anti-globalization activist Naomi Klein is not alone in tying the constitutional crisis and charter cities together explicitly. “What can a coup buy? Fully privatized cities,” she tweeted after Honduras’ charter cities plan was formalized.

Conspiracy-minded as such an accusation may be, it does beg the question: why did Honduras choose charter cities over other tested economic development models? Beginning with South Korea in the 1980s, dozens of countries have lifted themselves out of poverty without resorting to neocolonial urban management or the neoliberal concessions made in China’s special economic zones. Not even the strong legal systems that Romer believes are critical to attracting investors appear to be indispensible; mainland China has one of the world’s most opaque and arbitrary judiciaries. It’s hard, for that reason, to find authentic luxury goods there (its market is flooded by knockoffs violating unenforced patents and copyrights) but it hasn’t prevented the basic standard of living from taking off.

The irony of economic success is that it is often self-justifying. China’s rise has caused too many people who should know better to question democracy’s effectiveness; if Honduras’ charter cities make the country better off, other concerns may fall by the wayside. But if, before they do so, they become a symbol for the country’s naked inequality, historical exploitation, even for the misery of its prisons — for which they may serve as complete opposites, fencing out the country’s problems while the country fences them in — Honduras’ charter cities may stir up even deeper conflict than the 2009 coup. In that case, if the graffiti on Palermo’s street signs remains, it will have taken on new meaning, even as it fades.

From Urban Photo. Follow Szabla on Twitter.

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