The dollarisation of Honduras’s economy; Mexican president discusses trade relations with Brazil; Germany approves free trade agreement with Peru and Colombia
The effect of dollarisation in Honduras
Honduras’s legal currency is the lempira. However, many foreigners and Honduran businesses have substituted the lempira for the United States dollar in order to offer the public a variety of services and products. Up until July 2011, the dollarisation of services like mobile phones, internet, and cable tv, along with the purchase of new and used cars, was treated as normal. For six years, the exchange rate was stable, fixed at 19.02 lempiras to the dollar.
Starting in August of that year, the Honduran Central Bank (BCH) announced that it would reinstitute an exchange rate band. This created a currency devaluation which proceeded to affect the previously-dollarised sectors by increasing the final price paid by consumers.
Between August 2011 and April 2013, the price of a dollar increased from 19.02 to 20.40 lempiras.
The middle class has been most affected by the depreciation of the currency as they receive their salary in lempiras but pay for services and products in dollars.
The ex-president of the Honduran College of Economists (CHE), Gabriela Núñez, asserts that certain economic sectors use the dollar as a means of protecting themselves from rapid devaluations of the domestic currency.
Companies that use the US dollar are contemplating an addendum to contracts which states that the amount due is ‘payable in dollars or the national currency equivalent at the moment of payment.’
According to CHE’s current president Roldán Duarte, dollarisation implies a constant increase in prices for products and services that are dollar-denominated.
‘Businesses are the largest beneficiaries of dollarisation while the consumer is the loser when the dollar is used for the payment of goods and services.’
Mexican president discusses trade relations with Brazil
Mexican President Enrique Peña Nieto told the Brazilian press on Saturday that he hopes his country and Brazil will reach a free trade agreement in the near future.
‘I am not dismissing the fact that we can have a trade agreement with Brazil in the medium term, but before that, we must deepen [bilateral] trade so that both countries are more internationally competitive,’ Peña Nieto told the Brazilian magazine, Veja.
The Mexican president denied that his country would take measures to close trade in retaliation for Brazil’s treatment of Mexican automobile imports. Last year, Brazil imposed a quota on the import of motor vehicles produced in Mexico due to a rapid rise in Mexican auto sales.
‘We do not have plans to close our doors to Brazilian products,’ Peña Nieto stated.
‘I have already spoken with President Dilma Rousseff in order to establish a more cordial political relationship and clear mutual economic goals.’
Peña Nieto asserted that his country and Brazil are the ‘two most important [economic] engines of Latin America,’ and that the ‘best integration’ between the two nations must proceed with ‘gradual steps.’
Germany approves free trade agreement with Peru and Colombia
Last Friday, the German legislature ratified a European Union (EU) free trade agreement with Colombia and Peru. This is a major step in the approval and eventual implementation of the transatlantic commercial pact.
The fear that the social democratic and green parties might oppose the agreement failed to materialise. These parties hold a majority in the Germany’s Bundesrat, one of Germany’s legislative chambers.
The Bundesrat’s economic committee released a report in April supporting the trade agreement but with the important exception that any trade partners must adhere to certain labour and human rights standards.
‘We are hopeful with respect to today’s vote,’ said Juan Mayr Maldonado, Colombia’s ambassador to Germany. ‘Germany is a strategic ally for Colombia, and both countries win with this free trade agreement.’
Normally, trade agreements such as this one are dealt with at the community level in Brussels. In this case, certain clauses of the pact affect national-level issues. Because of this, the agreement must be ratified by all twenty-seven member nations.
Slovakia, Slovenia, and Estonia have approved the treaty, in addition to Germany.
Peru fully approved the agreement in December 2012, while the Colombian legislature is still debating the agreement.