Rural Development Policies and Sustainable Land Use in the ...

CHAPTER 2
Macroeconomic Policies and
Rural Development in Honduras
In the previous chapter we argued that fostering sustainable rural development and making
a significant dent in rural poverty in Honduras require increased attention to the hillside
areas, a clear prioritization of the rural investment portfolio and available resources, and
improved policy targeting. However, the past performance, current situation, and future
prospects of the rural sector cannot be analyzed in isolation from the past and current macroeconomic
policy environment and sector policies. Therefore, to better understand the main
limitations and challenges to increasing the pace of rural development in Honduras, this chapter
contains a brief history of past macroeconomic policies and reforms, analyzes past reforms
in the agricultural sector, and links these to the performance of the agricultural sector.
Macroeconomic Policies and Reforms
Honduras experienced relatively steady economic growth in the 1960s and 1970s (per capita
income grew by 1.8 percent per year on average during this period), but during the 1980s per
capita GDP decreased by an average of 0.5 percent per year, resulting from an average annual
rate of GDP growth of only 2.7 percent and an average annual population growth of 3.2 percent
(World Bank 2004b). Like most other Central American countries, Honduras reacted by
adopting a range of structural adjustment and macroeconomic stabilization programs that still
continue today. Beginning in the early 1990s, the country gradually replaced the traditional
import substitution model by a model led by export growth that focused on trade and market
liberalization. Major elements of the reform process included reduction of trade barriers and
protection of domestic manufacturers, more flexible exchange rate arrangements, financial
market liberalization, adjustments of public utility tariffs, and the development of a legal framework
to strengthen property rights (Pino, Jiménez, and Thorpe 1994; ASIES 1996; Thorpe
et al. 1995; UNDP 1998; Walker and Medina Oviedo 2000).
The structural adjustment measures resulted in a slight increase in economic growth (to an
average of 1 percent per capita per year during 1994–99) and a concomitant decrease in the
poverty rate. 11 However, recovery suffered a serious setback as a result of Hurricane Mitch in
11
Based on the traditional measure of the proportion of people below a certain minimum income level, official
estimates indicate a reduction in overall poverty levels between 1991 and 1998, from 75 to 63 percent of all
households (Government of Honduras 2001). However, besides the income-based poverty measure, there exist a
number of other indicators that are closely associated with poverty (Narayan et al. 2000; Sauma 2002). An indicator
used frequently by nutritionists is height-for-age, that is, the proportion of school-aged children whose
9