A group of 85 economists has voiced their support for the Honduran government’s decision to exit the World Bank’s arbitration body amid an ongoing dispute with the crypto island-building firm Próspera. The move, they argue, is a crucial defense of Honduran democracy.
Background of the Dispute
Próspera, a special economic zone on the island of Roatán in Honduras, has been embroiled in a legal battle with the Honduran government since a legislation change in 2022 revoked the island’s special status. Próspera is seeking $10.8 billion in compensation from Honduras for breaching a 50-year legal stability guarantee.
In an open letter, economists from Progressive International expressed their belief that Honduras’ withdrawal from the international court was justified and emphasized the lack of evidence showing that arbitration bodies like ICSID stimulate meaningful foreign direct investment.
Próspera filed its case with ICSID, alleging that Honduras violated its legal stability guarantee. This claim represents a significant portion of Honduras’ GDP, with Próspera’s $11 billion claim being one-third of the country’s GDP.
President Xiomara Castro repealed laws related to Zones of Employment and Economic Development (ZEDEs), which aimed to attract overseas investors. The United Nations raised human rights concerns over ZEDEs’ legal frameworks, particularly regarding indigenous and Afro-descendant populations’ lack of consultation.
Próspera attracted crypto enthusiasts by making Bitcoin legal tender and embracing blockchain technology. However, it faced pushback from locals concerned about displacement and the lack of consultation on the project.
Despite Honduras’ withdrawal from ICSID, the former head of Honduras’ financial watchdog stated that the country is obligated to respect the arbitration’s result if presented before August, when it plans to leave ICSID.
The dispute between Honduras and Próspera highlights the complexities surrounding special economic zones and foreign investment. The support from economists for Honduras’ withdrawal underscores the broader implications of the case for democracy and economic development in the region.
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