group of Prominent international economists are praising Honduran President Xiomara Castro's recent move to push back against US crypto investors seeking to seize billions of dollars in public funds from the Central American country. .
The Cryptocurrency team is exploiting a dispute mechanism nested within the World Bank, created by an ambiguous clause in the Central American Free Trade Agreement. Castro believed that this forum, called the World Bank's International Center for Settlement of Investment Disputes (ICSID), was an unwarranted violation of Honduras' sovereignty, and he came up with an elegant solution. She took steps to withdraw Honduras from ICSID. The crypto crowd is screaming.
The epic battle between Honduras and global financial institutions is a modern twist on America's 19th-century legacy of gunboat diplomacy and banana republicanism: The leading investor group is made up of crypto collectives – liberals.
This battle presents an almost unbelievable scenario. A group of libertarian investors has teamed up with the former Honduran government, which has close ties to drug traffickers and seized power after a U.S.-backed military coup. To implement the world's most radical liberal policy: handing over large parts of the country to investors through so-called special economic zones. The Honduran people rebelled and overthrew the drug-backed regime, and the new government repealed libertarian laws. Cryptocurrency investors are currently using the World Bank to force Honduras to comply with drug government policies.
Since Castro took office in 2021, investors have filed at least 10 lawsuits targeting the government at the World Bank's ICSID. The largest lawsuit, filed by US company Prospera, seeks more than $10 billion in damages, about a third of the country's GDP. Prospera is rooted in the world of crypto finance and describes itself as a “platform.” [that] Promote the development of new cities in special economic zones that maximize general prosperity and wealth creation. ” The city the company founded in Honduras accepts Bitcoin as an official bid.
In an open letter published Tuesday, economists argued that Mr. Castro's decision was a wise one. “We see secession as an important defense of Honduran democracy and an important step towards its sustainable development,” the letter, sponsored by the leftist coalition Progressive International, said. ing.
“For decades, international arbitration tribunals like ICSID have allowed companies to sue states and limit regulatory freedoms that favor consumers, workers, and the environment. The government alone has forced foreign companies to pay more than $30 billion in compensation and intimidated regulators away from domestic policy priorities such as raising minimum wages, protecting fragile ecosystems, and implementing climate protection. We find little economic evidence that such mechanisms stimulate meaningful foreign direct investment in return.”
The problem is that The so-called ZEDE was created by the previous government of Honduras. The law that established ZEDE, short for Employment and Economic Development Zone, effectively carved out parts of Honduras and handed them over to American investors, who functioned as a de facto sovereign government. The United Nations says ZEDE could one day control 35 percent of Honduran territory, and that these zones raise human rights concerns.
More than a decade ago, it took a great deal of political power to force ZEDE into law. These became possible only after Castro's husband, Manuel Zelaya, was ousted in a U.S.-backed coup in 2009.
After Mr. Zelaya's ouster, new elections installed President Porfirio Lobo Sosa. The president quickly moved to undo Zelaya's social reforms, attack workers' rights, and reverse land reform efforts. The Supreme Court struck down the first version of the ZEDEs law as unconstitutional, but the law stalled in 2013 after the constitution was amended and four new justices were added to the Supreme Court.
Lobo Sosa's rise was fueled by more than just U.S. support, according to U.S. prosecutors who convicted Tony Hernández, the brother of former President Juan Orlando Hernández, of trafficking in “huge” amounts of cocaine. It was also fueled by cash from drug traffickers. Juan Orlando Hernández, Lobo Sosa's successor, was himself convicted of drug trafficking in a US federal court earlier this month. From 2010 to 2013, he served as president of Honduras' legislative body, the National Congress, and was the author of the ZEDEs bill. He also led the overnight occupation of the Supreme Court that enabled its implementation.
Prosecutors in the Tony Hernandez case linked the brothers to Lobo Sosa in their sentencing memorandum. “From 2004 to 2019, the defendant secured millions of dollars in drug bribes and distributed them to Juan Orlando Hernández, former Honduran President Porfirio Lobo Sosa, and other politicians affiliated with the Honduran National Party. ,” prosecutors wrote.
To put ZEDE into context, radical “free market” interventions only entered the law as a result of military coups and Supreme Court build-ups. ZEDE was then enacted and enforced by his two drug governors for the benefit of US investors. On March 8, in celebration of the conviction of the former Honduran president who spearheaded the law's enactment and oversaw its implementation, Attorney General Merrick Garland, supported by Mr. Hernández, allies in the Chinese State Department, (person) was the director. “A drug state where violent drug traffickers are allowed to operate with virtual impunity.”
Zelaya was ostensibly overthrown for trying to extend his presidential term to a second term, which was deemed unconstitutional. But Mr. Hernández ran for re-election in 2017 with vigor and declared victory despite an outrageous amount of fraud, all of which was ignored by the supportive Trump administration. Years of unrest and violence have led to a surge of migrants at the U.S. border.
During President Hernandez's tenure, the United States remained useful to the freewheeling narco-state with no apparent problems, but when Castro came to power in response to U.S.-fueled corruption, the U.S. suddenly became lawless. rediscovered control and respect for the nation. The sanctity of contracts with US investors.
Castro moved quickly and successfully to repeal the ZEDEs Act in the face of intense bipartisan pressure in the United States to keep it in place. The U.S. response negates the very idea of democracy and sovereignty in Honduras, with investors using the World Bank's ICSID to challenge the new government of Honduras, which was carried out by a former president who is being held in federal court. It forces people to respect policies.
among dozens Among the Progressive International signatories praising Mr. Castro's decision to recuse himself from the arbitral tribunal is prominent South Korean economist Ha Jun Chang. Chilean Gabriel Palma, “The Palma Ratio of Inequality.'' American economist Jeffrey Sachs. Yanis Varoufakis, former Greek finance minister. British economist Anne Pettifor. and Indian development economist Jayati Ghosh.
Melinda St. Louis, director of Global Trade Watch at Public Citizen, who has been fighting crypto teams for years, welcomed Castro’s move. “The Honduran people overwhelmingly opposed the ZEDE law, and if the Honduran Congress unanimously repealed the law, that would have been the end of the story,” she says. “This is just the latest example of companies abusing this ISDS mechanism to challenge environmental, health, land use, and other public policy in the hemisphere. Honduras is taking this as an important first step. It was wise to withdraw from the World Bank venue, where many of these cases are brought.”
In the pre-ICSID case, Prospera retained a top lobbying firm that employed former Democratic Congressman Kendrick Meek to pressure Honduras to pay reparations.
Last year, Sen. Elizabeth Warren (D-Mass.) and Rep. Lloyd Doggett (D-Texas) spoke out against Prospera's efforts to abuse the dispute resolution system to undermine Honduras' sovereignty. . “In the case of Prospera, a ZEDE located mostly on the island of Roatan in Honduras, the investors established a governing council, with 44 percent of its members appointed by private companies and 22 percent elected by the landowners in a system. ” they wrote. Their number of votes is proportional to the size of their wealth. ”
A conference Prospera held in Roatan last year demonstrated the company's ethics. “Prospera aims to be the world's premier jurisdiction for the crypto/Web3 industry and welcomes the best ideas on how to achieve that with a sound legal framework,” said Chris Wilson of Prospera. stated in their publicity materials and described the meeting as follows: Designed specifically for legal hackers, cryptocurrency lawyers, legal knowledge professionals, and businesses looking to create better laws for doing business. ”
The company's response to a request for comment on the letter from economists was emblematic of the unusual corporate structure it was able to implement. The company's communications director told The Intercept that answers to our questions would be submitted by Jorge Colindres, a representative of the Office of the Secretary of State for Technology.
Colindres' email signature alludes to the public-private nature of the company, reading:
Jorge Constantino Colindres
Technical Secretary – Prospera ZEDE
Zona de Empreo y Desarrollo Economy
republic of honduras
Manager – General Service Provider
Mr. Colindres responded as a government official. “I am attaching a statement from my office regarding the Honduran government's unconstitutional withdrawal from ICSID,” he said. His statement claimed:
Prospera ZEDE is [a] Local governments and special economic zones in the Republic of Honduras. Appointed by the Government of Honduras, in accordance with Article 329 of the Constitution of Honduras and the ZEDE Organization Law, to promote economic development, create jobs, attract foreign and domestic direct investment, and protect the fundamental rights of workers and residents of this special jurisdiction. protect. Domestic and foreign companies alike are obliged to follow Honduran regulations, the Prospera ZEDE Regulations. This regulation has been adopted by Honduras' local governments with the legal approval of the Honduras Executive Branch, the National Assembly, and the Supreme Court.
Mr. Colindres claimed that ZEDE has brought in more than $100 million in foreign investment so far and that Mr. Castro has not received National Assembly approval to withdraw from the World Bank's conflict agency. “We are proud of our achievements in job creation and investment attraction, which stand in stark contrast to the central government's job-destroying policies, and we are committed to our mission to transform the Honduran economy and foster prosperity through an oasis of economic freedom. and the rule of law that Prospera ZEDE provides to the people of Honduras,” Colindres said.
Fernando García, a presidential commissioner appointed by Castro to oppose ZEDE, said the Honduran constitution requires the National Assembly to ratify new international treaties, but the executive branch must notify Congress before withdrawing. He said there was no need.
“The ICSID Convention establishes the possibility for sovereign states to withdraw from the treaty,” Garcia told The Intercept. He added that the arbitral tribunal had already legally recognized Honduras' withdrawal from August. This “does not preclude those who have applied for arbitration from proceeding accordingly,” he said.
