a group of Leading international economists have praised Honduran President Xiomara Castro's latest move to strike back at US cryptocurrency investors trying to seize billions of dollars in public funds from the Central American country.
The crypto crew is exploiting a dispute mechanism within the World Bank, which was created under an obscure provision in the Central American Free Trade Agreement. Castro viewed the forum, which he called the World Bank's International Center for Settlement of Investment Disputes, as an illegal usurpation of Honduran sovereignty, and came up with an elegant solution: steps were taken to withdraw Honduras from the International Center for Settlement of Investment Disputes. The crypto crowd is crying out loud.
The incredible battle taking place in Honduras and within global financial institutions blends the American legacy of gunboat diplomacy and the 19th-century banana republic with a contemporary twist: the leading group of investors fighting Honduras by exploiting international financial institutions consists of a set of cryptocurrencies. -Liberals.
The battle presents a scenario that is almost impossible to believe: A group of libertarian investors has teamed up with the former Honduran government — which was linked to drug traffickers and came to power after a U.S.-backed military coup — for the sake of order. To implement the most radical liberal policy in the world, which handed over large parts of the country to these investors through so-called special economic zones. In a violent reaction, the Honduran people overthrew the drug-fueled regime, and the new government repealed liberal legislation. Cryptocurrency investors are now using the World Bank to force Honduras to respect the drug government's policies.
Since Castro took office in 2021, the World Bank's International Center for Settlement of Investment Disputes has seen investors file at least 10 cases targeting its government. The larger case, brought by US company Prospera, seeks compensation of more than $10 billion, equivalent to roughly a third of the country's gross domestic product. Prospera, which is rooted in the world of crypto finance, describes itself as a “platform.” [that] Promotes the development of new cities into special economic zones that maximize public prosperity and wealth creation. A city established by the company in Honduras accepts Bitcoin as an official tender.
In an open letter published Tuesday, economists said Castro's decision was a smart move. “We view the withdrawal as a decisive defense of democracy in Honduras and an important step towards its sustainable development,” said the letter, organized by Progress International, a left-leaning coalition.
“For decades, international arbitration tribunals such as the International Center for Settlement of Investment Disputes have allowed companies to sue states and restrict their freedom to regulate for the benefit of consumers, workers and the environment. Since 1996, governments in Latin America alone have been forced to compensate foreign companies in excess of $30 billion, resulting in to intimidate regulators from raising the minimum wage, protecting vulnerable ecosystems, and introducing climate protection measures, among other domestic policy priorities. We find little economic evidence that mechanisms such as the International Center for Settlement of Investment Disputes, in return, stimulate meaningful foreign direct investment. .
In the case it is The so-called ZEDEs created by previous governments in Honduras. The law that created the ZEDEs — short for Zone of Employment and Economic Development — effectively carved out parts of Honduras and handed them over to American investors, who function as effectively sovereign governments. The ZEDE group could one day control 35% of Honduras' territory, according to the United Nations, which has said such areas raise human rights concerns.
It took massive political force more than a decade ago to force ZEDEs into law. These things only became possible after Castro's husband, Manuel Zelaya, was overthrown in a US-backed coup in 2009.
After Zelaya's ouster, new elections brought about President Porfirio Lobo Sosa, who moved quickly to undo Zelaya's social reforms, attack workers' rights and roll back land reform efforts. The Supreme Court struck down the first version of the ZEDE law as unconstitutional, but after amending the constitution and adding four new justices to the Supreme Court, the law remained stuck in 2013.
Lobo Sosa's rise was driven not only by US support, but also by the money of drug traffickers, according to US prosecutors who convicted Tony Hernandez, the brother of former President Juan Orlando Hernandez, of smuggling “huge” quantities of cocaine. Lobo Sosa's successor was Juan Orlando Hernandez, who was himself convicted of drug trafficking earlier this month in a US federal court. He was president of the National Congress, Honduras' legislature, from 2010 to 2013, and was the main driver of ZEDEs legislation. He also led the overnight takeover of the Supreme Court that enabled its implementation.
Prosecutors in the Tony Hernandez case linked the Lupo Sosa brothers in a sentencing memorandum. “Between 2004 and 2019, the defendant secured and distributed millions of dollars in drug-derived bribes to Juan Orlando Hernandez, former Honduran President Porfirio Lobo Sosa, and other politicians associated with the National Party of Honduras,” prosecutors wrote.
So, to put the ZEDEs in context: Radical “free market” intervention was only obfuscated into law as a result of a military coup and the stacking of the Supreme Court. The ZEDEs were then enacted and implemented for the benefit of US investors by two drug governors. On March 8, during the celebration of the conviction of the former Honduran president who brought the law into being and then oversaw its implementation, Attorney General Merrick Garland said that Hernandez — a man whose allies at the State Department supported him throughout his tenure — oversaw its implementation. “A narco-state where violent drug traffickers are allowed to operate with virtual impunity.”
Zelaya was ostensibly ousted because of his attempt to extend his presidency to what was deemed an unconstitutional second term. Nevertheless, Hernandez ran for re-election in 2017, and declared victory amid a ridiculous amount of irregularities, all of which were ignored by a supportive Trump administration. Years of chaos and violence led to a wave of migration towards the American border.
The United States had no apparent problem with this freewheeling drug state while Hernandez was in office and remained useful, but once Castro came to power in a violent reaction to US-fueled corruption, the United States suddenly rediscovered its respect for the rule of law and public order. Sanctity of contracts with American investors.
Castro moved quickly and successfully to repeal the ZEDE law in the face of intense US bipartisan pressure to keep it in place. The American response was to reject the idea of democracy and sovereignty in Honduras, as investors used the World Bank's International Center for Settlement of Investment Disputes to force the new Honduran government to respect the policies implemented by the former president, who is now sitting behind federal bars.
Among dozens Signatories to Progress International applauding Castro's decision to withdraw from the arbitration court include prominent South Korean economist Ha Joon Chang; Chilean Gabriel Palma, from “Palma Inequality Ratio”; American economist Jeffrey Sachs; Former Greek Finance Minister Yanis Varoufakis; British economist Anne Pettifor; And Indian development expert Jayati Ghosh.
Melinda St. Louis, director of Public Citizen's global trade watchdog, has been fighting the crypto crew for years and welcomed Castro's move. “The people of Honduras overwhelmingly opposed the ZEDE law, and when the Honduran legislature unanimously repealed that law, that should have been the end of the story,” she said. “This is just the latest example of companies abusing the investor-state dispute settlement mechanism to challenge environmental, health, land use and other public interest policies across the hemisphere. Honduras was wise to withdraw from the World Bank headquarters where many of these are on display.” Issues as an important first step.
In its case before the International Center for Settlement of Investment Disputes, Prospera used a top lobbying firm, which employed former Democratic lawmaker Kendrick Meek, to pressure Honduras to pay up.
Last year, Sen. Elizabeth Warren, D-Mass., and Rep. Lloyd Doggett, D-Texas, opposed efforts by Prospera to exploit the dispute resolution system to undermine Honduras' sovereignty. They write: “In the case of Prospera, a ZEDE company located largely on the Honduran island of Roatan, investors set up a board of directors where 44 percent of the members are appointed by the private company and 22 percent are elected by landowners in a system where the number of “Their votes are proportional to the size of their possessions.”
The Prospera conference held in Roatan last year pointed to the company's ethics. “Prospera aims to be the best crypto/Web3 jurisdiction in the world, and we welcome the best ideas on how to achieve this through a sound legal framework,” Prospera's Chris Wilson said in promotional materials describing the conference. Designed specifically for legal hackers, cryptocurrency lawyers, judicial educators, and companies that want to create better laws under which to do business.
The company's response to a request for comment on the economists' letter was representative of the unusual corporate structure it has been able to implement. The response to our questions will be provided by Jorge Colindres, a representative of the Office of the Technical Secretary, the company's communications director told The Intercept.
Colindres' email signature indicates the public and private nature of the company, reading:
Jorge Constantino Colindres
Technical Secretary – Prospera Zaidi
Employment and Economic Development District
Republic of Honduras
Manager – Public Service Provider
Colindres responded as a government official. “Attached is my office’s statement regarding the unconstitutional withdrawal from the International Center for Settlement of Investment Disputes by the Honduran government,” he said. He confirmed his statement:
Prospera Z is [a] Local Government and Special Economic Zone of the Republic of Honduras. It is managed by the Technical Secretary, a natural-born Honduran citizen, appointed by the Government of Honduras and empowered by Article 329 of the Honduran Constitution and the ZEDE Organic Law to supervise the implementation of new policies and rules designed to promote and facilitate economic development. Create jobs, attract national and foreign direct investment, and protect the fundamental rights of workers and residents of this special jurisdiction. Both national and foreign companies are obligated to comply with the Próspera ZEDE, Honduran rules, as they have been adopted by the local Honduran government with the legal blessing of the country's executive, the National Congress, and the Supreme Court of Justice.
Colindres claimed that the ZEDEs have resulted in more than $100 million in foreign investments to date, and that Castro has not received approval from the National Congress to withdraw from the World Bank's dispute body. “We are proud of our achievements in job creation and investment attraction, which stand in stark contrast to the job-killing policies of the national government, and we continue undeterred on our mission to transform the Honduran economy and stimulate prosperity through an oasis of economic freedom. The rule of law offered by Próspera ZEDE,” said Colindres. For the people of Honduras.”
Fernando Garcia, the presidential commissioner appointed by Castro to oppose the ZEDEs, said that while the Honduran constitution requires the National Congress to ratify new international treaties, it does not require the executive to notify the legislature before withdrawing.
“The ICSID agreement provides for the possibility of a sovereign state to withdraw from its agreement,” Garcia told The Intercept. He added that the arbitration court had already accepted Honduras' withdrawal as legal, as of August. He said that this does not “prevent those who request arbitration from acting in accordance with it.”
