The Zones for Employment and Economic Development (ZEDEs), once holding the promise of bold innovation for Honduras, have succumbed to another nail in their coffin. Originally promoted by Nobel laureate Paul Romer’s vision, the ZEDE regime promised to boost investment, entrepreneurship, and job creation.
However, the socialist incumbent administration has put an end to that. Under the argument of “defending national sovereignty,” leftist President Xiomara Castro called for the abolition of the ZEDEs, and, in April 2022, Congress repealed them. On September 20, 2024, the Supreme Court declared the ZEDEs Act and its associated constitutional reforms unconstitutional with retroactive effect, arguing they violated “unalterable” constitutional articles.
When Congress first opposed the ZEDEs, the Impunity Observer reported on their origins, evolution, achievements, and risks. The negative consequences were clear: reduced investment and employment, increased emigration, and billion-dollar international arbitration claims. A US actuary estimated the legal fallout could cost $10 billion—more than 10 times the country’s annual foreign direct investment.
The ZEDEs’ repeal erases one of Honduras’s most promising public policies for economic development. In 2022, I spoke with talented young Honduran women, leaders of Honduran chapters of Students of Liberty and the Ladies of Liberty Alliance. They saw the ZEDE as a reason to stay in Honduras. If Castro’s government dismantled the ZEDE, they would have little choice but to leave.
1. Policy innovation needs less ideology, more pragmatic unity.
The ZEDE regime gained traction during the administrations of Porfirio Lobo (2010–2014) and Juan Orlando Hernández (2014–2022), who is now imprisoned in the United States on drug trafficking charges. Both supported private capital but with a crony flavor.
Despite evident shortcomings, prominent international scholars, including Romer, backed the ZEDE framework. The law passed in 2013, but it was not until 2020 that the initiative started operating, delayed by ongoing controversies. In 2014, Romer—back-then the ZEDEs’ main advisor—distanced himself from the project. In 2017, the coastal community of Amapala resisted eviction orders linked to a ZEDE development.
From the start, the ZEDEs’ existence was unstable, with the opposition focusing on concerns over national sovereignty. This happened despite clear examples of ZEDE-like enterprise cities demonstrating their development potential, such as Green Valley. If ZEDEs had a stronger constitutional foundation and enjoyed more cohesive support, they might have stood a better chance. However, bold initiatives that pursue alternative solutions and challenge the status quo are likely to fail in nations where political institutions are weak.
2. Fragile institutions struggle to support long-term development.
Developing nations like Honduras struggle with weak political institutions and instability. Unsatisfied economic needs erode public trust and breed dissatisfaction, creating instability.
While political institutions take years, if not decades, to stabilize, immediate crises demand urgent solutions. In Latin America, legal insecurity (a clear sign of weak institutions) stifles private-sector growth and foreign investment, pushing citizens to rely on the government for quick fixes.
Governments, in response, produce short-term policies that appease the population. During electoral periods, populism drives this dynamic further as leaders seek votes by delivering quick solutions. As a result, citizens expect immediate results and approve constant state intervention.
3. Latin American identity is often attached to an unhealthy sense of defiance.
Alongside the recent suspension of the Cobre Panama mine, the ZEDEs’ repeal represents another example of Latin American governments making decisions “in the interest of national sovereignty.” This is part of the socialist strategy of cultural marxism, which has awakened nationalism through indignation. Instead of accepting and moving on from history, the left has promoted division via a narrative of violent conquest that has suppressed indigenous traditions.
This narrative has become a cornerstone of leftist movements, leading to a rejection of anything resembling “violent conquest.” Capitalism, particularly embodied by capital from the United States and Western powers, is viewed as a threat seeking to impose its lifestyle, exploit resources, and profit from local labor.
In reality, this strategy helps socialist leaders gain approval and justify protectionism. Ironically, those that claim to defend national resources often exploit them for their own gain. Unlike foreign investors, officials aligned with the São Paulo Forum or Puebla Group focus on institutionalizing corruption or channeling investments to their allies: China, Russia, and Iran. Genuine economic growth—creating businesses, jobs, and wealth—is secondary.
The ZEDEs exemplify the immense challenge of promoting innovative development opportunities through free markets in Latin America. Leftist movements have entrenched themselves in government institutions, manipulating political systems to serve their own interests, not the people’s.
Honduras, like much of Latin America, needs voters to elect leaders who will strengthen the rule of law and support policies that reinforce political and democratic institutions. The private sector must also step up, pressuring governments to embrace initiatives that create opportunities for all and rejecting crony arrangements—often confused in Latin America with free enterprise and capitalism. Fostering long-term development requires strong institutions, forward-thinking leadership, and the courage to pursue policies that challenge the status quo.
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