The Economist February 26th 2022 The Americas 35I
t was aswift public humiliation. On
February 15th, just 19 days after he left
office as his country’s all-powerful presi-
dent, Juan Orlando Hernández was ar-
rested at his mansion in Tegucigalpa and
taken away in handcuffs. The arrest was
in response to an extradition request
from prosecutors in New York who have
charged him with taking part in a violent
conspiracy to export 500 tonnes of co-
caine to the United States since 2004. He
says he is innocent. His arrest holds out
the possibility of a new dawn in a coun-
try benighted by corruption, violence,
poverty and natural disasters.
Mr Hernández’s rise followed the
ousting in 2009 of Manuel Zelaya, a
Liberal-turned-populist who allied with
Venezuela’s Hugo Chávez and sought to
change the constitution in order to run
for a second consecutive term. Mr Her-
nández, a conservative, at first presented
himself as a reformer. He promised to
crack down on drug-trafficking and
purged the police. He allowed the Orga-
nisation of American States (oas) to set
up a unit to investigate corruption.
He then persuaded Honduras’s Su-
preme Court, stuffed with nominees of
his National Party, to allow him to run for
a second term in 2017. The oasand others
denounced his victory as fraudulent. But
the United States blessed it. Mr Hernán-
dez played the administration of Donald
Trump as sweetly as a marimba. Hondu-
ras became only the fourth country to
move its embassy in Israel to Jerusalem,
as Mr Trump wanted. When scores of
migrant caravans began leaving for the
border with the United States, Mr Her-
nández agreed to stop them.
American prosecutors had another
view. They secured the arrest and in 2021
the conviction for drug-trafficking of
Tony Hernández, the president’s brother.Witnesses told of bribes from drug lords,
paid to the National Party to persuade the
government to look the other way. The
president said he wanted to “stuff drugs
up the gringos’ noses”, a witness state-
ment claims. He shut down the oasunit
because it did its job too well. The admin-
istration of Joe Biden has published a list
of 21 Honduran officials it says are “cor-
rupt and undemocratic”, including Mr
Hernández’s predecessor, Porfirio Lobo
(who denies the accusation).
Hondurans have had enough, too. In
November they elected as president Xiom-
ara Castro, the wife of Mr Zelaya. At her
inauguration she pledged to fight corrup-
tion. She brought back a police chief fired
by Mr Hernández, who promptly arrested
him. She wants the unto set up an anti-
corruption commission.
Mr Hernández says the case against
him is based on the testimony of convict-
ed drug-traffickers seeking revenge. The
pressure to extradite him is strong. His
arrest was celebrated with fireworks in
Tegucigalpa. Ms Castro seems to have a
different agenda from the one her hus-band had when he was president. She
won in part because she allied with an
anti-corruption party of the centre-right
whose legislative backing she needs. She
seems to have dropped a campaign pro-
mise to recognise China’s claim on Tai-
wan. “She clearly has opted to go with the
United States,” says David Holiday, an
analyst of Central America. Her first
meeting as president was with Kamala
Harris, America’s vice-president.
Mr Hernández is not the first Latin
American head of state to be accused of
drug-trafficking. The case merely high-
lights the continuing penetration of drug
money in the region. Luis García Meza, a
Bolivian dictator of the early 1980s,
placed his government at the service of
the industry. Manuel Noriega, Panama’s
former strongman, was convicted of
trafficking by an American court. Ernesto
Samper, a Colombian president in the
1990s, admitted that his campaign took
money from the Cali drug gang, though
he insists he was unaware of it. Gangs
have bribed politicians, police and offi-
cials from Argentina to Mexico.
But the rot goes particularly deep in
Honduras. Its business and political
elites, safe in their gated communities,
have allowed the capture of the state by
organised crime even as hundreds of
thousands of ordinary Hondurans flee.
Remittances of nearly $6bn in 2020,
equal to almost 70% of exports and a
quarter of gdp, keep an unreformed
country going.
Ms Castro could change this. Her first
test is to try to ensure that a new Su-
preme Court and attorney-general are
politically independent. If they are, that
may persuade the unto get involved. Mr
Biden’s team will be supportive. But it
will take many years of hard work for
Honduras to police itself.Can Honduras clean up its act?BelloThe fall of Juan Orlando Hernández
2022, projects Credit Suisse, a bank—above
the central bank’s target of 3.5%.
Similar structural problems belie the
numbers on government spending. On the
surface they are pretty good, notes Marco
Bonomo of Insper, a business school in São
Paulo. Last year the government’s debts fell
from 89% of gdpto around 80%. This was
mostly the result of growth and inflation,
though the budget deficit was also smaller
than expected.
But by weakening the spending cap Mr
Bolsonaro has not only drawn his own cre-
dentials as a fiscal hawk into question, but
also shown how easy it would be for a
spendthrift president to get around rules
intended to constrain spending. That de-
bases all future promises of thrift.
The concern about future fiscal inconti-
nence may explain the depreciation of the
real. Since Mr Bolsonaro took office in 2019
it has fallen by over 30%, although it has
recovered a little recently. This is unusual:
when commodity prices are high and Bra-
zil is running a trade surplus, as it is today,
the exchange rate tends to appreciate. The
falling exchange rate, in turn, fuels infla-
tion, as imported goods become dearer.In an election year, however, it is the
presidential candidates who are the great-
est source of uncertainty. The two main
contenders are both fiscal chameleons. In
2002 Lula’s win spooked the markets, but
he was reasonably responsible in his
spending in his first term, at least. Mr Bol-
sonaro, in contrast, has seemed ever less in
accord with Paulo Guedes, his orthodox fi-
nance minister, as his term has pro-
gressed. For now investors seem to expect
Lula, who is leading in the polls, togovern
moderately. But as with rising prices,they
may be in for an unpleasant surprise.