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

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TRADE AND COMMERCIAL LAW ASSESSMENT DECEMBER 2004HONDURASservice quality, ultimately hurting the nation’s overall competitiveness. In contrast,installed infrastructure in the Puerto Cortez/San Pedro Sula consumption/production zonebenefits from more thoughtful planning and targeted investment and provides acomparatively solid competitive environment. That said, it is important to note that thenation’s overall stock of trade infrastructure experiences organizational issues that areprevalent across the nation. These issues include a high level of direct governmentinvolvement in implementing and operating many of the nation’s key infrastructurecomponents.I-9
TRADE AND COMMERCIAL LAW ASSESSMENT DECEMBER 2004HONDURASII.CLIR AND TRADE: CROSS-CUTTING THEMESAlong with the specific findings in the 13 subject matter areas (which are detailed in SectionsIII–XV), certain cross-cutting themes emerged with respect to CLIR and trade in Honduras. It isimportant to consider and incorporate these themes in any reform efforts, but not necessarilythrough stand-alone initiatives. Rather, it would be prudent to address these themes within thecontext of any reforms undertaken, as described further below.A. MONITORING AND SUPPORTING CURRENT PROPERTY INITIATIVESThe crucial role that property plays in the ability of businesses to grow and expand has been ofenormous interest since Hernando de Soto published his groundbreaking work The Other Path,in 1986. As summarized in an article published by the Center for International Private Enterprise,Mr. de Soto identified the barriers to private sector growth that had been invisible toothers. The key barrier, he argued, has long been weak institutions . . .Perhaps the most important—and least noted—of these institutions is property rights.Owners of land, corporate shares, and even intellectual property are loathe to invest in theupkeep and improvement of their property if their rights as owners are insecure. Just asimportantly, if property cannot be bought and sold with the confidence that the authoritieswill uphold the transaction, the market itself will fail to generate dynamic growth. Indeed,the absence of property rights is one factor that drives people out of formal markets intothe informal sector. 7Clear property rights represent a fundamental precondition for market-based economic activity.The grant of ownership rights in real property to rural or urban residents makes it possible torealize the full value of the property, both in its primary role (housing, infrastructure forbusiness, garden plots, crop cultivation, etc.) and in its secondary role as collateral for consumeror commercial credit. Similarly, the registration of movable collateral in a state-sponsoredinstitution reduces the risk of issuing credit, leading to increased availability of credit onimproved terms.In Honduras, only about 14 percent of the population occupies property legally. 8 The remaining86 percent holds property outside the scope of the law, amounting to $12.4 billion in extralegalland possession. 9 Of properties held legally, only 30 percent are registered. 10 Indicative of thevast gap in property registration is one department where, out of 146,000 lots, 45,000 areregistered, and only 15,000 are registered correctly. 11 Thus, only a very small percentage of thepopulation in Honduras currently has access to credit through formal channels, since in mostcases credit is only available to those individuals holding valid title to real property.7Center for International Private Enterprise, An Interview with Hernando de Soto, Economic Reform Today(1996) available at http://www.cipe.org/publications/fs/ert/e19/desoto.htm.8 Based upon local interviews. See also the Honduras Country Diagnosis report, Instituto Libertad y Democraciaavailable at http://www.ild.org.pe/eng/hon_post_en.htm.9 Id.10 Id.11 Id.II-1
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