Trade and Commercial Law Assessment - Honduras - Economic ...

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TRADE AND COMMERCIAL LAW ASSESSMENT DECEMBER 2004 HONDURAS XIV. FLOW OF MONEY A. INTRODUCTION A significant amount of monetary exchange is involved in cross-border goods and services transactions—more than $6 billion in goods and services in 2003. Of this amount, exported goo services accounted for $1.09 billion; and imported services, for $687 million. Free zones acc are a va ent) of the services xports. Remittances also represent a major trade-related financial flow. In 2003 an estimated 600 million to $800 million poured into Honduras through the remittances of Honduras workers and families abroad. 175 ds accounted for $1.37 billion, while imported goods accounted for $2.80 billion. Exported ounted for $560 million (51 percent) of the services exports, which are included because they lue-added category. Tourism constitutes another $291 million (27 perc e $ Overall, Honduran laws, public institutions, and private institutions support these trade-related money flows. Basic trade finance products are available to all traders. Foreign currency is widely available and easily exchanged for all traders. However, anything but the shortest term credit can be very difficult to obtain because of high-risk premiums that reflect serious structural issues, such as the recovery from the recent bank crisis, little real competition in the financial services market, a poor judicial system, and little private production capacity. As are other CAFTA members, Honduras is challenged by illegal money flows. However, recently, the country has succeeded in pursuing and prosecuting money launderers. B. LEGAL FRAMEWORK In Honduras, the basic legal framework related to efficiency and security of basic trade-related financial flows (i.e., letters of credit, currency exchange) is generally sufficient. However, the legal framework for credit to assist importing and exporting is inadequate. 1. Legal Operations That Support Trade Facilitation ♦ The Trade Finance Guidelines of the International Chamber of Commerce (ICC) are generally applied, and the laws are in conformity with the Uniform Customs and practice for documentary credits. ♦ The legal structure for trade-related finance allows for payment through wire transfers, foreign checks, commercial letters of credit, standby letters of credit, documentary collections, and open accounts. ♦ Importers and exporters do not find the legal framework for exchanging payments to be overly cumbersome or complicated. There are no government restrictions on the exchange of lempira (Honduras’s official currency). ♦ The legal framework for currency exchange also provides suitable flexibility for traders. Under the law, traders have the freedom to exchange currency at financial institutions and non-bank institutions alike. 175 Economic Intelligence Unit (2004), Country Profile for Honduras. XIV-1
TRADE AND COMMERCIAL LAW ASSESSMENT DECEMBER 2004 HONDURAS ♦ There are no restrictions on repatriation of profits by foreign businesspeople. ♦ Laws are in place to address illegitimate financial flows. Honduras has enacted and implemented a law criminalizing the laundering of proceeds of crime. a. Trade Facilitation Legal Issues to Address Credit, beyond short-term credit, can be difficult for traders to access, and the legal system is part of this problem. Credit is scarce for multiple reasons, among which are the banking legal framework, high reserve requirements, and a judicial system where enforcement has a level of uncertainty. C. IMPLEMENTING INSTITUTIONS 1. Banks Honduras has a good-sized banking sector that includes six foreign banks. Domestic private banks operate throughout the country. Among the largest are Banco Atlántida, Bancahsa, Banco de Occidente, and Ficensa. Foreign banks, which operate primarily in Tegucigalpa and San Pedro Sula, include Citibank (U.S.), Credomatic (Costa Rica), Banco del Istmo (El Salvador), Banco Agricola Comercial (El Salvador), Banco America Central (Costa Rica), and Banco Cuscatlan (El Salvador). a. Bank Operations That Support Trade Facilitation b. ♦ Although basic trade finance products are available at almost all banks, five banks are primarily responsible for financing trade. The banks maintain correspondent relations with U.S. and other international banks. ♦ Trade finance offerings include basic letters of credit and foreign exchange. ♦ A second-tier institution, the Central American Bank for Economic Integration (BCIE), has created special programs for export financing through local banks. ♦ The U.S. Export-Import Bank provides short- and medium-term guarantees for sales to the private sector, and Honduras participates in the U.S. Department of Agriculture's programs for import credit guarantees of U.S.-origin agricultural products. Bank Trade Facilitation Issues to Address ♦ Although financial institutions offer short-term trade finance payment methods, such as letters of credit, to domestic importers and exporters, qualifying for credit beyond shortterm payment is extremely difficult for small and medium-sized traders. Most credit in Honduras currently goes to home mortgages, cars, and credit cards. ♦ New methods of expanding credit are essential. There are few alternative facilities in place to assist would-be traders (e.g., export finance lines of credit). High interest rates that lead to poor credit access are attributable to a number of factors, including those cited in the legal framework section, the legacy of bank problems in the wake of Hurricane Mitch, lack of credit information (i.e., few traders with firm credit history), and XIV-2
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