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

More documents

Recommendations

Info

TRADE AND COMMERCIAL LAW ASSESSMENT DECEMBER 2004 HONDURAS 3 months to a year, but with the assistance of the chamber’s help desk, the wait can be reduced to 7 days. The Honduran Council of Private Enterprise, Consejo Hondureño de la Empresa Privada (COHEP), is an essential organization for fostering business growth. COHEP makes proposals for policy reform, specifically lobbying for reforms of the Property Law and the Law on Administrative Simplification. COHEP has $200,000 available for SME financing. With these funds, provided by the Government of Taiwan, the organization grants loans of up to $5,000 to SMEs under flexible terms. The National Association of Industry, Asociación Nacional de Industriales de Honduras (ANDI), an organization of manufacturing companies, has played an important role in economic and political changes, such as the transition from dictatorship to democracy. ANDI also has extended its influence to promote growth of SMEs. For example, the organization promoted the creation of the Fundación Covelo, a foundation for financing SMEs, which has accumulated almost $25 million to assist small businesses. Fundación Covelo provides SMEs with credit lines of up to $16,000.00 on favorable terms (monthly interest rates of 3 percent versus the 10-percent daily rates that some microfinance institutions charge). The foundation seeks loan guarantees, but guarantees are not required. Fundación Covelo is about to launch a bank specializing in SMEs in which credits of more than $16,000 can be obtained. Currently, the foundation is raising capital to set up the bank. In Honduras, there are two stock markets: one in Tegucigalpa and one in San Pedro Sula. Neither stock market has the capacity necessary to meet the demands of the private sector in Honduras. The Tegucigalpa market is the larger of the two but is not automated and mostly trades government bonds. Issuance of bonds is expensive and highly regulated. To date, there have not been any equity-based issuances, although a bank recently announced intentions to make such an issuance in the future. It was reported that there are only 144 stockholders in the Tegucigalpa stock market, most of which are banks. In 1999 there was a major financial crisis after hurricane Mitch caused extensive damage to Honduras. The hurricane caused bond holders to liquidate to pay costs associated with the damage. This mass selling caused a liquidity crisis in banks, and the government was forced to bail out many of these financial institutions, spending what amounts to half of the country’s gross domestic product (GDP). A new Law on Stock Market was passed as a result of the 1999 crisis, but the market remains in poor condition. Officials interviewed for this assessment estimated that there are approximately 700 CPAs and 30,000 registered bookkeepers in Honduras. There is an association of CPAs, which certifies and sets the standards for CPAs. This association is drafting a law on accounting and auditing that will create a board to establish standards in those two areas. Currently, accountants nominally follow Generally Accepted Accounting Principles (GAAP), but there is no uniformity in GAAP application and use is not mandatory. The association of CPAs has issued resolutions urging members to follow the international rules of accounting, International Accounting Standards (IAS) and International Standards on Auditing (ISA), but these standards are rarely used. The Comisión Nacional de Bancos y Seguros (CNBS) has supervisory authority over banks, insurance companies, and the stock market. It requires banks, insurance companies, and stock markets to submit audited financial statements. However, not just any accounting firm may audit III-7
TRADE AND COMMERCIAL LAW ASSESSMENT DECEMBER 2004 HONDURAS statements; only CNBS-certified firms are allowed to do so. In addition CNBS requires that financial statements audited by CPAs be presented for a bank to grant a credit. E. SOCIAL DYNAMICS The Tegucigalpa Chamber of Commerce has expressed concern about the Commercial Code. It has asked the national government at the executive and legislative level for a new Commercial Code that would not require companies to submit evidence of equity capital, would allow divestiture and wholly owned subsidiaries, and would provide stricter corporate governance principles. A group of lawyers has made the same demand and has proposed that instead of an overall reform of the Commercial Code, a law on companies be passed to address these issues. The Commercial Registry requires reform and automation. The Law on Administrative Simplification has helped but does not address all salient issues. The World Bank–Inter- American Development Bank project on competitiveness will be of some help in reducing regulatory hurdles, but the project does not direct sufficient attention to the Commercial Registry to drive the comprehensive changes that are necessary. Honduran firms need access to capital, and the current stock market does not provide such means. To create a mechanism to fill this gap, the stock market should be modernized and properly regulated. The pending law on the stock market would increase corporate governance principles for participating firms, and the CNBS would maintain regulatory responsibilities; however, there will still be a need to automate securities transactions. Illustrating the continuing problems, Transportes Aéreos Centroamericanos (TACA), the Salvadoran airline, tried to issue bonds in Honduras guaranteed with credit cards and accounts receivable. In the end, TACA was unable to issue the bonds because of excessive regulations and the unsophisticated market and instead made the issuance in Panama. SMEs hold the potential to be an enormous engine of growth but are currently limited by various factors. Bureaucratic requirements, low access to credit, and heavy tax burdens now limit SME growth. There are roughly 64 entities devoted to financing SMEs, but high interest rates, guarantee requirements, and lack of coordination among these organizations have limited their ability to provide SMEs with needed assistance. The tax system also is in need of reform. The tax burden is scattered among many different taxes, and collection rates are low. The government has attempted to compensate for this low collection rate by creating new taxes, which only serve to increase the complexity of the tax system, thus making collection more difficult and encouraging further evasion. In an effort to increase revenue, the government has increased easily enforceable direct taxes, which tend to increase the burden on low income groups who traditionally consume a larger percentage of their income than higher income groups. Finally, the judicial system must be reformed to make it faster, automated, reliable, and independent. All Hondurans, even members of the judiciary, demand a better judicial system and quicker judicial procedures. But nothing is happening. ADR mechanisms need to be accessible to all Hondurans and well known by the whole business community, regardless of the size of the business. III-8
Page 1 and 2: TRADE AND COMMERCIAL LAW ASSESSMENT
Page 25: TRADE AND COMMERCIAL LAW ASSESSMENT
Page 77 and 78:
TRADE AND COMMERCIAL LAW ASSESSMENT
Page 79 and 80:
Page 81 and 82:
Page 83 and 84:
Page 85 and 86:
Page 87 and 88:
Page 89 and 90:
Page 91 and 92:
Page 93 and 94:
Page 95 and 96:
Page 97 and 98:
Page 99 and 100:
Page 101 and 102:
Page 103 and 104:
Page 105 and 106:
Page 107 and 108:
Page 109 and 110:
Page 111 and 112:
Page 113 and 114:
Page 115 and 116:
Page 117 and 118:
Page 119 and 120:
Page 121 and 122:
Page 123 and 124:
Page 125 and 126:
Page 127 and 128:
Page 129 and 130:
Page 131 and 132:
Page 133 and 134:
Page 135 and 136:
Page 137 and 138:
Page 139 and 140:
Page 141 and 142:
Page 143 and 144:
Page 145 and 146:
Page 147 and 148:
Page 149 and 150:
Page 151 and 152:
Page 153 and 154:
Page 155 and 156:
Page 157 and 158:
Page 159 and 160:
Page 161 and 162:
T H RADE AND COMMERCIAL LAW ASSESSM
Page 163 and 164:
Page 165 and 166:
Page 167 and 168:
show all

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

Create successful ePaper yourself

Delete template?

Save as template?