The American Embassy-Tegucigalpa has issued its latest report on the investment climate in Honduras. Excerpts follow:

Openness to foreign investment

The Honduran economy has, by May 2001, recovered from Hurricane Mitch, which devastated the country in late October 1998. Following the hurricane, Honduras entered an economic recession that lasted until early 2000. Nonetheless, in 2001, the performance of the Honduran economy is returning to pre-Mitch levels. GDP growth was 6.3%; inflation was 10.1% (predicted 10-11%); and international reserves climbed to US$1.02 billion. The growth figure is attributed to a US$293 million investment of reconstruction projects that will continue until December of 2001. Exports in the mining sector totaled about US$62 million between zinc, lead, gold and silver. By December 2000, total foreign investment in the maquila sector amounted to an estimated US$646.9 million, of which US$368.7 million was U.S. in origin.

With an approved 2000 budget of USS$1.7 billion, Government spending will focus on economic, social and productive infrastructure construction projects, sustainable economic development, human development, and poverty reduction. best prospects for foreign investment during 2001 will include mining, manufacturing, tourism, agriculture, public works and energy. the management of Honduras' four international airports was awarded in March 2000 to a U.S.-led consortium, and the operational control was assumed in October 2000. The state-owned telephone company should be privatized in 2000 and the electricity distribution system is scheduled to be privatized within the next two years;

Honduras welcomes foreign investors and can offer them a range of benefits. the ratification of the 1992 investment law, free trade zones, low labor costs, proximity to theU.S. market, Central America's best Caribbean port, macroeconomic and political stability, and the reduction of trade barriers have made Honduras' increasingly attractive to investors. on the other hand, juridical insecurity, a low educational level among the population, an antiquated labor code, corruption, inconsistency in the application of certain legal benefits for investors, bureaucratic red tape, inadequate financial supervision, increasing levels of crime, and an insufficiently developed infrastructure need to be addressed in order to improve the country's investment climate and attract even greater foreign investment;

The 1992 investment law guarantees national treatment to foreign private firms in Honduras, with only a few exceptions. The law does not limit foreign ownership of businesses, except for those specifically reserved for Honduran investors, i.e., small firms with capital less than 150,000 lempiras (US$11,000). additionally, government authorization is required for both foreign and domestic investors in the following areas: health services; telecom; generation, transmission, and distribution of electricity; air transport; fishing, hunting and aquaculture; exploitation of forestry resources; investigation, exploration, and exploitation of mines, quarries, petroleum and related substances; agricultural and agro-industrial activities exceeding land tenancy limits established by the agricultural modernization law of 1992 and the land reform law of 1974; insurance and financial services; and, private education services;

According to the 1992 investment law, all local and foreign direct investment must be registered with the investment office of the Ministry of Industry & Trade (formerly the Ministry of Economy). registration is to be carried out immediately and the investor is to be issued an investment certificate within 24 hours of presenting the request. The certificate provides investment protection under the law and guarantees investors international arbitration rights. If the activity requires special government approval, the Ministry submits the case to the appropriate agency, which must recommend approval or disapproval of the registration within 60 days. If the opinion is favorable, the investment is to be registered immediately. in practice, registration can take much longer, and the office has not functioned well. In recognition of the bureaucratic delays in registering a new company, the executive submitted a bill to congress in July 2000 to streamline procedures;

Foreign investors face some discriminatory treatment in Honduras. to participate in public tenders, foreign firms are required to act through a local agent. by law, local agency firms must be at least 51% Honduran-owned. Dividends paid to foreign investors are taxed at 15%, while local investors pay only 10%. additionally, Honduran law requires majority Honduran ownership in the following areas: commercial fishing, local transportation, those areas benefiting directly from the national agrarian reform law, and insurance companies. finally, Honduran professional bodies heavily regulate the licensing of foreigners to practice law, medicine, engineering, accounting, and other professions;

While the law does not permit discriminatory or preferential export and import policies affecting foreign investors, some do exist. The 1992 investment law guarantees freedom to export and import to all foreign investors, and eliminates the requirement of prior administrative permits and licenses, except for statistical registries or customs procedures. In practice, however, the government of Honduras has used phyto-sanitary and zoosanitary requirements to prevent import of u.s. poultry, feed grains and rice to Honduras;

Although there is a clear preference on the part of the Government of Honduras for new foreign investment in export industries, there are no officially mandated requirements that foreign investors must satisfy as a condition for investing in Honduras. there is a requirement that a privately-operated industrial park must generate 5,000 new jobs within five years of start up, but this rule applies to all owners, foreign or national. By February 2001, these industrial parks had generated over 125,000 jobs, an increase of 4% over 2000. as a result of enhanced Caribbean Basin Initiative benefits authorized by the U.S. Beginning October 1, 2000, employment in the maquila sector was expected to double in the next five years. However, due to economic recession in the U.S. this estimate has been lowered to 50,000 extra positions. In the last few months of 1998, Congress passed a series of laws designed to promote investment in renewable energy, tourism, agro-industry, and mining. The Government has been slow to implement these laws. In the view of many senior Honduran officials, the country's natural resource base, labor costs, freedom of entry, competitive exchange rate and political stability are the country's best incentives;

Right to private ownership

The investment law guarantees both local and foreign investors the right to own property without limitations, other than those established by the Honduran Constitution and several laws relating to property rights. This guarantee includes the right to free acquisition, profit, use, disposition and any other right attributable to property ownership. The major exception is the constitutional prohibition of foreign ownership of land within 40 kilometers of land borders and shorelines. A proposed constitutional amendment waiving this prohibition for tourism development purposes was abandoned in 1999 due to opposition from Garifuna (black Carib) groups living along the north coast. In addition, owners -- foreign or national -- of large tracts of agricultural land face certain restrictions in the sale of the land imposed by the agrarian reform law. Decree Law 90/90, passed by the Honduran congress in 1990 and its implementing regulations published in October 1991, now allow foreign individuals to purchase properties in designated "tourism zones" in order to construct permanent or vacation homes. In addition, foreign citizens and corporations may now buy coastal properties for approved tourism development projects.

Access to credit by private enterprises has been limited as a result of the Central Bank's high legal reserve requirement on commercial bank deposits which, in part, is being used to finance the Government's fiscal deficit. This high reserve requirement, currently 17%, makes loans relatively expensive;

Protection of property rights

Potential investors are urged to seek legal advice and use caution when contemplating setting up operations or buying property, especially along the north coast, in the Bay Islands or outside of major metropolitan areas. Laws and regulations pertaining to property titles in Honduras are unclear and even contradictory. For instance, even though the Honduran Congress passed laws authorizing the purchase of coastal property and tourism zones, there are constitutional restrictions prohibiting the foreign ownership of coastal property;

In the past eight years, over 150 property dispute cases involving U.S. citizens and companies have been registered with the U.S. Embassy. Some have been resolved, while others are at various levels of settlement, some dating back many years. The Embassy recommends that Americans interested in purchasing property obtain the services of a reputable real estate agent and consult a competent, reliable Honduran Attorney;

In 1998, Honduras was placed on the "watch list" category of the U.S. Government's annual special 301 review. The International Intellectual Property Alliance (IIPA) estimated that copyright infringements in Honduras cost U.S. firms US$8.3 million in 1997. There is widespread piracy of many forms of copyrighted works, including movies, sound recordings, and software. The illegitimate registration of well-known trademarks has also been a problem. Honduras saw a portion of its trade preferences under the generalized system of preferences (GSP) and the Caribbean Basin Initiative (CBI) suspended on April 20, 1998 because of its failure to control broadcast television piracy. However, these benefits were restored on June 30, 1998 following governmental action to suspend and fine the offending stations;

Honduras and the U.S. initialed a bilateral IPR agreement in March 1999. Signing is still pending. Honduras became a member of the World Intellectual Property Organization (WIPO) in 1983 and ratified the TRIPS agreement in 1994. The patent law, enacted in September 1993, provides patent protection for pharmaceuticals, and modifications to the law have extended the term from 17 to 20 years to meet international standards. The illegitimate registration of well-known trademarks is still a problem in Honduras, despite the 1993 modifications to the trademark law;

Foreign trade zones/free ports

A company, either local or foreign, that locates in one of these specially designated areas enjoys the following benefits:

- duty-free import of machinery, equipment (except vehicles), fixtures, parts, raw materials and supplies needed for operations;

- exemption from all income, export, sales, or consumer taxes;

- unrestricted repatriation of profits and capital, and on-site customs facilities.

The principal free trade zone (FTZ) in Honduras is located in Puerto Cortes and is operated by the Government through the National Port Authority. In 1998, the Government extended FTZ benefits to the entire country. Privately-owned FTZs are legal extensions of official FTZs. I terms of operations and incentives, they are identical to the privately operated industrial parks. Individual companies may obtain the benefits of FTZ status if they are located in specially designated areas;

36 industrial parks are now operating in the country and the number is expected to grow in the coming years. Over 80% of the parks are located in the north coast region, with close access to the nation's major port and transportation facilities. A company that locates in one of these parks can benefit from management services offered by the operators. These parks and zones are treated as if they were offshore operations; if products manufactured in them are sold in Honduras, customs duties must be paid on them. If Honduran raw materials are used to produce the products, these materials are treated as exports and must be paid for in dollars. Ninety percent of the companies in these parks are involved in apparel assembly; however, park operators are seeking to attract other types of light industry, such as footwear, automotive parts, electronics assembly and data processing

services.

Privately-owned tourism free zones may be established to promote tourism development in Honduras. The law allows the free importation of equipment, supplies, and vehicles to the exclusive benefit of the zones;

Foreign direct investment statistics

Detailed foreign direct investment figures for Honduras are unavailable. However, preliminary figures obtained from Central Bank sources have estimated foreign direct investment made during 2000 to be US$282 million, vs. US$230 million in 1999. The following data is an estimate of foreign investment, based on data from local firms and publicity available documents, in millions of US$: U.S. $840; Japan, $41.3; El Salvador, $96.8; Korea, $113.1; Hong Kong, $32; Taiwan, $30; Spain,$13.1; United Kingdom, $19.2; Germany, $12.9; Guatemala, $14.2; Venezuela, $5.0; Costa Rica, $8.9; Mexico, $27.3; Canada, $42.5; Other, $30; Total $1,326.3. There are no records kept on Honduran investment abroad.

Textiles and apparel production continues to be a growing industry in Honduras, which now ranks second in the world in apparel export production, first among CBI countries, and first in Central America. According to the Honduran Apparel Manufacturing Association, cumulative investment -- both foreign and national -- in the apparel industry at the end of 2000 amounted to US$1.24 billion. Of this amount, US$646.9 million represents foreign investment. Total U.S. investment in this sector was an estimated US$452.8 million. The national origin of these companies, their number and percentage of the total is as follows; U.S. (94, 43%); Honduras (64, 30%); Korea (30, 14%); Taiwan (4, 2%); others, including joint ventures (24, 11%). Total: 214, 100%. A list of U.S. companies in Honduras apparel industry is available from the U.S. Embassy-Tegucigalpa;

Major foreign investments

The following is a partial list of foreign firms and franchises of foreign firms operating in Honduras, with a description of the type of investment and country of origin: Agro Internacional de U.S. ( agricultural products); Alberti Food Co. (U.S.. food products); Alimentos Concentrados (U.S. veterinary food); American Airlines (U.S. air services); Americar (U.S. car distributors); America's Favorite Chicken (U.S. fast food); American Home Assurance Co. (U.S. insurance services); American International Group (U.S. insurance services); Americatel (U.S.. telecom); Antonino's Pizza (U.S. fast food); Applewoods (U.K. cosmetics); Applebee's u.s. restaurant; Arthur Andersen (U.S. general business consulting); Astaldi (Italy, engineering services); Azucarera "la grecia" (Guatemala, sugar mill); BAT industries (U.K., tobacco products); Bay Island Fish Co. (U.S., seafood); Bayer (Germany pharmaceutical); Benneton (Italy, clothing); Bennigan's (U.S., restaurant); Best Western (U.S., hotels); Bojangles (U.S., restaurant); Breakwater Resources (Canada/U.S., mining); Bristol Myers Squibb (U.S., beauty products); Budget (U.S., car rental); Burger King (U.S., fast food); Candy Bouquet (U.S., candy store); Cargill (U.S., animal feed; poultry & meat processing); Castle & Cooke (U.S., bananas and other agricultural products; bottling and brewing); Caterpillar Tractors (U.S., spare parts, accessories); Cerveceria Hondurena (U.S., soft drinks, beers); Chestnut Hill Farms (U.S., agricultural products); Chiquita Brands (U.S. bananas & other agricultural products; plastic products manufacturing); Church's Chicken (U.S., fast food); Cinemark (U.S., entertainment); Citibank (U.S., banking, financial services); Citrus Development Corp (U.S. citrus production, processing); Colgate-Palmolive (U.S., personal care); Productos Congelados Holanda (Mexico, ice cream); Continental Airlines (U.S., air services); CPC International (U.S., corn starch); Crowley American (U.S., ocean freight services); Crowne Plaza Plaza (U.S. hotel); Cultivos Marinos (U.S., shrimp farm); Cybex (U.S., health & fitness); Daimler Chrysler (U.S., cars); Demahsa (Mexico, corn flour); DHL (U.S., air freight); Domino's Pizza (U.S., fast food); Dos Pinos (Costa Rica, ice cream & milk products); Dry Cleaning USA (U.S., dry cleaning services); Empacadora Cortes (U.S., meat production and packing); Electrical&Consulting (U.S., engineering); Elektra (Mexico, household goods/appliances); Ernst & Young (U.S., accounting & auditing services); Espresso Americano (U.S. fast food); Exxon (U.S., petroleum products marketing); Federal Express (U.S. air freight); Five Star (U.S., mining exploration); Glamis Gold, Ltd. (U.S., gold mining); Global One Communication (U.S., telecom); Gold's Gym (U.S., health & fitness); Grey Advertising (U.S., advertising); Grupo Granjas Marinas (U.S., shrimp farms) Hertz (U.S., car rental); Holiday Inn (U.S., hotel); H.B. Fuller (U.S., adhesives & paints); Hotel Princess (Guatemala, hotel); IBM (U.S., business machines & computer software); Industrial Engineers (U.S., repair & construction naval vessels); Kimberly-Clark (U.S., paper products); KPMG Peat Marwick (U.S., general business consultants); La Costena (Mexico, canned foods); Little Caesar's Pizza (U.S., fast food); Lloyd's Bank (U.K., banking services); Lucent Technologies (U.S., telecommunications); Mail Boxes (U.S. courier services and copy center); Martinizing (U.S. dry cleaning services); McDonald's (U.S., fast food); McCann Erickson (U.S., advertising/publicity); Midas Intl (U.S., automotive parts & services); Motorola (U.S., telecom); Moore Business Forms (U.S. business firms); Multiplaza Malls (El Salvador, shopping center); Nestle Products (Switzerland, food products); Butler (U.S., oil change); Oracle (U.S., software); Pakmail (U.S., packaging and courier services); Pan Bimbo (Mexico, bread products); Pan American Life (U.S., life insurance); Papa Johns (U.S., fast food); Parker Tobacco (U.S., cigars); Paysen (Germany, pharmaceutical products; Peat, Marwick, & Mitchell (U.S., accounting and auditing services); Phelps-Dodge (U.S., electric wire & cable manufacturing); Pizza Hut (U.S., fast food); Pollo Campero (Guatemala, animal feed, poultry processing; fast food restaurants); Popeye (U.S., fast food); Price Smart (U.S., warehouse stores); Price Waterhouse (U.S., accounting & auditing services); Quick Internet (U.S., telecom, internet services); R. Rodriguez y Asociados (U.S., general business consulting); Radio Shack (U.S., electrical appliances); RJR-Nabisco (U.S., food products); Rochez Brothers Entertainment (U.S., entertainment); Ruby Tuesday's (U.S., restaurant); Sabritas (Mexico, snacks); Scott Paper (U.S., paper products); Seaboard Marine (U.S., winter fruits & vegetables; aquaculture; ocean freight service); Sealand Service (U.S., ocean freight services); Select (U.K., convenience store); Shell (U.K./Netherlands, petroleum products marketing); Siemens (Germany, telecom); Smith-Kline Beecham (U.K., pharmaceuticals); Sprint (U.S., telecom); Standard Fruit (U.S., tropical fruits); Star Mart (U.S. convenience store); Stewart & Stevenson (U.S., electricity generation); Subway (U.S., fast food); Tahsa (U.K., tobacco); Taca (El Salvador, air services); TCBY (U.S., fast food); Technology Research Corp. (U.S., electrical supplies); Texaco (U.S., petroleum products marketing); TGI Friday's (U.S., restaurant); The House of Windsor (U.S., tobacco); 3 M (U.S., office supplies); Tony Roma's (U.S., restaurant); Tropical Gas (U.S., appliances & other equipment; Truly Int'l (U.S., pest control); Unilever (U.K./Holland cleaning products; beverages, food); United Marketing (U.S., marketing services); UPS (U.S. int'l courier); United Technologies Automotive (U.S., automobile, electronics assembly); U.S. Tobacco (U.S., cigars); Van Ommeren-Ceteco (Netherlands, trading/retailing); Wellington Hall Caribbean (U.S., furniture); Wendy's (U.S., fast food); Witten Int'l (U.S., apparel); Xerox Corp. (U.S., business machine sales & services);

Performance requirements/incentives

With the 1997 reform of the temporary import law, free zone exporters are now allowed to export their products to other Central American countries. Other incentives of this law include duty-free introduction of equipment and materials and a 10-year income tax holiday;

Export processing zones (EPZs) must generate at least 5,000 new permanent jobs within five years after start up. Firms that operate under this regime must also comply with all Honduran labor and social security laws. While firms in these zones pay no income taxes and enjoy free repatriation of profits, they are now required to purchase the lempiras needed for their local operations from Honduran commercial banks or from foreign exchange trading houses registered with the Central Bank. In the past, they were allowed to obtain those funds on the open market;

Transparency of regulatory system

Most Honduran laws dealing with business, trade, and labor are outdated. The country lacks a basic/indexed legal code; laws are published in periodically circulated gazettes that lawyers and judges must maintain and index on their own. The Government often lacks the resources to implement or enforce laws already on the books (or, more accurately, in the gazettes.). Property registration often is not up to date, nor can the results of title searches be relied upon. There is no title insurance in Honduras. Procedural red tape to obtain Government approval for investment activities is very common.

But progress has been made. The passage of the Investment Law in May 1992 is one of the best examples. As a result of this law, the Ministry of Industry & Trade created a one-stop export and investment registration window to deal with procedures related to the registration of exports and investment in the country. Unfortunately, this office is under-staffed and under-funded. On February 20, 2001, Congress passed the Stock Market Law to regulate the stock market institution that had originally been created under very flexible regulation. The Financial Institution Deposit Law was passed by Congress on May 7, 2001.

Corruption

In a landmark reform, the National Congress approved a new Criminal Procedures Code (CPC) in February of 2000, which will come fully into effect in February of 2002. The delay in the CPC's implementation is necessary to provide training for judicial system officials, permitting them to adjust from a traditional written inquisitorial trial system to an adversarial, oral, and public trial system. Once in effect, the new CPC should improve justice and accountability in a number of ways, including increased transparency in the criminal process;

Historically, U.S. firms and private citizens have found corruption to be a problem and a constraint to foreign direct investment. Corruption appears to be most pervasive in Government procurement and in the buying and selling of real estate (land titling). With considerable U.S. help, the Government is reforming Honduras' archaic judicial system and reducing elite immunity and corruption, though serious problems remain. The U.S. and other donors, as part of the hurricane reconstruction effort, have contributed significant funding to strengthen those institutions involved in the oversight of Government expenditures.

Labor

Honduras has a significant availability of labor for industries with a demand for relatively low skilled workers, given the low level of education of a significant portion of its population. There is a shortage of skilled workers in all technological fields dependent on computer skills, as well as in medical and high technology industries;

Union officials remain critical of what they perceive as inadequate enforcement by the Ministry of Labor (MOL) of workers' rights, particularly the right to form a union. In November 1995, the MOL signed a memorandum of understanding with the U.S. Trade Representative's office to implement 11 recommendations for enforcement of the Honduran Labor code and the resolution of disputes. The MOL has made positive changes implementing several of these recommendations, particularly as they relate to inspection and monitoring of assembly-for-export factories (maquilas). Also, the Honduran Maquiladora Association sponsored several meetings between its membership and major labor organizations, culminating in the signing of a code of conduct in July 1998 for the Association and its constituent companies. Through cooperation within the tripartite commission (unions, MOL, private sector) and other venues, MOL inspectors' access to maquila plants to enforce the labor code has improved, and MOL has increased its effectiveness in enforcing worker rights and child labor laws;

The labor law prescribes a maximum 8-hour workday and 44-hour week. There is a requirement for at least one 24-hour rest period every week. The labor code provides for a paid vacation of 10 workdays after one year, and of 20 workdays after four years. The Constitution and labor code prohibit the employment of persons under the age of 16, except that a person of 15 years may be permitted to work with the written permission of parents and the MOL;

The Children's Code (September 10, 1996) prohibits a person of 14 years of age or less from working, even with parental permission, and establishes prison sentences of 3 to 5 years for individuals who allow children to work illegally. An employer who legally hires a 15-year-old must certify that the young person has finished or is finishing compulsory schooling. The MOL grants a number of work permits to 15-year-olds each year. It is common, however, for younger children to purchase forged permits that use the MOL's letterhead in order to earn a salary.

Capital markets & portfolio investment

There are no Government restrictions on foreign investors' access to local credit markets. However, the local banking system is conservative and generally extends only limited amounts of credit. High legal reserve requirements on commercial bank deposits decreased to 17% from 22% last year in a gradual form since June until its last decrease in September 2000. While decreasing the risk of bank insolvency, this high requirement also restrict the availability of credit. Consequently, local banks should not be considered a significant source of start-up capital for new foreign ventures, unless they use specific business development credit lines made available by bilateral or multilateral financial institutions, such as the Central American Bank for Economic integration. Otherwise, loans from banks tend to be short-term (one year or less), with substantial collateral and/or guarantee requirements;

There is a limited number of credit instruments available in the local market. two stock exchanges operate in the country: the Honduran Stock Exchange (BHV), in San Pedro Sula and the Central American Stock Exchange, Tegucigalpa. Both are supervised by the Central Bank of Honduras. The instruments traded in these exchanges include bankers acceptances, reposition agreements, short-term promissory notes, and Government private debt conversion bonds and land reform repayment bonds;

In theory, any private business is eligible to trade on the stock exchanges, but firms are subject to a rigorous screening process. Also, traded firms generally have economic ties to the different business/financial groups represented as either shareholders of the stock exchanges or exchange trading houses. Investors should exercise extreme caution before putting money into the Honduran Stock Exchange. Supervision of the Exchange has been inadequate. Several companies within the last year have failed and been unable to repay investors. A bill regulating capital markets was recently passed in Congress.

The Honduran Commercial Code, the main legislation that regulates the operations of businesses in the country, is almost 50 years old, and local lawyers often argue that much of it needs to be updated. A general revision is pending before the Congress;

There is no regulatory body for the accounting profession in Honduras. The Association of Public Accountants, however, is responsible for certifying practicing professionals. In general, Honduran businesses adhere to international generally accepted accounting principles (GAAP);

The Honduran financial system is made up of 21 banks, most of which are associated with powerful economic groups. Most of these banks lend primarily to businesses owned by the economic group of which they are a part. The system has been criticized for permitting excessive amounts of unsecured lending to major stockholders or bank principals. In 1999, one major bank, Bancorp, collapsed due to fraud and mismanagement. Though slow to take preventive action, supervisors and the Government acted quickly once the bank's problems reached a critical stage. The bank was closed and a deposit insurance fund was created to partially pay off depositors and preserve the financial system's stability;

A new financial system law was passed in 1995. It restricts lending to stockholders and bank officers, permits more control by the Superintendent of Banks over the financial system and favors increased financing for industrial reconversion;

As of December 2000, the country's commercial banks held an estimated US$3.4 billion in total assets. About 7% of the total asset base of all banks is classified as non-performing;

Public ownership of business is almost non-existent in Honduras. The largest corporations in the country are owned by small groups of families. Admission of new stockholders to the firms must first be approved by the existing shareholders, since the commercial code allows a company's incorporation charter to indicate how new owners will be admitted. Likewise, any mergers or acquisitions must also be approved following the same procedure;

Conversion and transfer policies

The 1992 Investment Law guarantees foreign investors access to foreign currency needed to transfer funds associated with their investments in Honduras. This includes: (1) imports of goods and services necessary to operate; (2) payment of royalty fees, rents, annuities and technical assistance; and (3) remittance of dividends and capital repatriation;

The Central Bank has established an auction system to regulate the allocation of foreign exchange. Dollar purchases are conducted at 7% above or below the base price established every five days. During recent auctions, the Central Bank has adjudicated an average of US$10.8 million daily. All individuals, foreign residents or national, can participate in auction system dollar purchases. Foreign exchange demand in 2000 was 99.5% covered;

Expropriation and compensation

The Embassy is aware of numerous cases involving possible expropriation claims by U.S. citizens. Most involve the Honduran National Agrarian Institute (INA, are complex in nature, long-standing and involve invasions by squatters. The Government accepts its responsibilities with respect to indemnifying property owners; however, timely compensation was not received in two of these cases;

Dispute settlement

Dispute resolution within the Honduran legal system is slow and generally unsatisfactory. U.S. investors are strongly encouraged to hire competent Honduran legal counsel before taking any significant steps toward investing or otherwise doing business in Honduras. When entering into legal contracts, investors may wish to discuss with their lawyer the possibility of including language providing for arbitration or other forms of alternative dispute resolution. Honduras is a member of the International Center for the Settlement of Investment Disputes (ICSID);

Political violence

Although violent crime is common in Honduras, politically motivated violence remains rare. Drive-by shootings have occurred within the last year and the numbers of violent assaults, bank robberies and kidnappings of Hondurans are on the rise. Unfortunately, economic conditions in the wake of Hurricane Mitch also have created incentives for an increase in criminal behavior, and the relatively small number of police officers and investigators are largely ineffective in putting an end to these acts of violence;

Public demonstrations are common in Honduras; violent clashes between protesters and police, however, are rare. On numerous occasions, the police have stood by and watched as protesters conducted peaceful demonstrations. One violent encounter did occur, in October of 1999, when several protesters were shot with rubber bullets while outside the presidential palace. No one was killed, but several individuals were seriously injured;

There are no nascent insurrections in Honduras. Tensions between Honduras and Nicaragua were heightened in November of 1999, when Honduras ratified a maritime boundary demarcation treaty with Colombia. This issue is being addressed peacefully, however, and should eventually be resolved by the International Court of Justice. Incidents involving fishing boats in the Gulf of Fonseca continue to be a source of tension among Honduras, Nicaragua, and El Salvador;

Bilateral investment agreements

The U.S.-Honduras Treaty of Friendship, Commerce and Consular rights (1928) provides for most favored nation treatment for investors of either country. The U.S. and Honduras also signed an agreement for the guarantee of private investments in 1955 and an agreement on investment guarantees in 1966. An exchange of tax information agreement was signed with the U.S. in 1992. On July 1, 1995, Honduras and the U.S. signed the Bilateral Investment Treaty (BIT) at the Hemispheric Trade Ministerial in Denver, Colorado. This treaty has been ratified by the Honduran Congress and was transmitted from the White House to the Senate in May 2000. In October 2000, the U.S. Senate approved the treaty and on Feb. 17, 2001 President Bush ratified the treaty. The exchange of the instruments of ratification took place in June 2001;

Provisions for bilateral investment are included in the commercial treaties Honduras has signed with Costa Rica, El Salvador, Guatemala, Panama, and the Dominican Republic. In addition, Honduras, Guatemala and El Salvador (the northern triangle) recently signed a free trade agreement with Mexico, after six years of negotiations. The treaty will eliminate duties on most manufactured products over a period of 11 years, and most agricultural goods over 12 years. Various products were excluded for a variety of protectionist and fiscal reasons. In 1993 Honduras signed bilateral investment agreements with Great Britain and Spain, and is in the final stages of completing a free trade agreement with the Dominican Republic. Central American countries are negotiating free trade agreements with Chile and Panama and are exploring negotiations with the Andean community and Taiwan;

OPIC & other insurance programs

The U.S. Overseas Private Investment Corp. (OPIC) currently offers financing for u.s. citizens who invest in Honduras, as well as insurance against risks of war and expropriation. Other countries, including Germany, The United Kingdom, Taiwan, Spain, Italy, Switzerland, and Japan provide insurance and guarantees for their companies doing business in Honduras. In addition, Honduras is a party to the World Bank's Multilateral Investment Guarantee Agency (MIGA);

OPIC signed an investment insurance program agreement with Banco de Honduras (Citibank) in February 1999 as part of a US$200 million investment facility for Central America and the Caribbean that has helped meet the demand for medium- and long-term financing. Since the devastation of Hurricane Mitch, OPIC has focused a great deal of attention on marketing this facility and other investment projects in the region, in order to stimulate economic growth.

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Copyright 2001