July 11, 2013
Should Struggling Countries Let Investors Run Their Cities?

Last month, the Honduran Congress approved the creation of independent commercial cities called Employment and Economic Development zones (or “ZEDE” for their Spanish acronym). Supporters of the ZEDEs, including Honduran President Porfirio Lobo Sosa, hope they will offer an alternative to the corruption and governance challenges that hamstring Honduras’s economy. They believe that replacing parts of Honduras’s ineffective regulations with new rules and institutions overseen by international experts will stimulate much-needed competition, economic growth, and foreign investment.
Striving to create sort of a Hong Kong on the Caribbean is controversial, however, and detractors fear that the ZEDEs will fail, undermine the country’s already weak institutions, and also hurt the land rights of marginalized indigenous groups.
Honduras is one of the poorest and most insecure countries in Latin America: an estimated 60 percent of the population lives below the poverty line, and it has the highest per-capita homicide rate in the world, according to the UN. Income inequality, broken institutions and corruption are the norm. Honduras also suffers from political instability and a culture of impunity, which were reinforced by a recent military coup. Past reform efforts have failed in large part because of opposition from a small group of entrenched elite families that control key state institutions and entire sectors of the economy.
Against this backdrop, the government has sought out new approaches to tackling Honduras’ problems. It started to explore the concept of charter cities in 2009 after the president’s chief of staff viewed a TED talk by the famous economist Paul Romer on the subject.
Read more. [Image: Jorge Cabrera/Reuters]

Should Struggling Countries Let Investors Run Their Cities?

Last month, the Honduran Congress approved the creation of independent commercial cities called Employment and Economic Development zones (or “ZEDE” for their Spanish acronym). Supporters of the ZEDEs, including Honduran President Porfirio Lobo Sosa, hope they will offer an alternative to the corruption and governance challenges that hamstring Honduras’s economy. They believe that replacing parts of Honduras’s ineffective regulations with new rules and institutions overseen by international experts will stimulate much-needed competition, economic growth, and foreign investment.

Striving to create sort of a Hong Kong on the Caribbean is controversial, however, and detractors fear that the ZEDEs will fail, undermine the country’s already weak institutions, and also hurt the land rights of marginalized indigenous groups.

Honduras is one of the poorest and most insecure countries in Latin America: an estimated 60 percent of the population lives below the poverty line, and it has the highest per-capita homicide rate in the world, according to the UN. Income inequality, broken institutions and corruption are the norm. Honduras also suffers from political instability and a culture of impunity, which were reinforced by a recent military coup. Past reform efforts have failed in large part because of opposition from a small group of entrenched elite families that control key state institutions and entire sectors of the economy.

Against this backdrop, the government has sought out new approaches to tackling Honduras’ problems. It started to explore the concept of charter cities in 2009 after the president’s chief of staff viewed a TED talk by the famous economist Paul Romer on the subject.

Read more. [Image: Jorge Cabrera/Reuters]

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