Minimum Wage Increase Bad for Economy

The economic outlook for Honduras this year is far from bright. The government has failed in its attempts to sign a new letter of intent with the IMF, and growth is expected to slow down due to the global financial crisis, according to analysts consulted.

In its three years in office, the government of centre-left President Manuel Zelaya has been unable to negotiate a new agreement with the IMF (International Monetary Fund), which has blocked access to other sources of credit.

Up to now, relations with the international lender had been limited to stand-by loans, which come with conditions attached, such as public spending cuts, deregulation, privatization, and greater transparency and accountability.

The government has not yet announced a plan to curb the impact of the global crisis, although the authorities have said that it will not be “fatal.”

On Dec. 23, Zelaya announced an increase in the minimum monthly wage, from 157 to 289 dollars, as of Jan. 1, except in the “maquiladora” plants that operate in duty-free zones for the assembly of exports, which he left free to negotiate with their workers.

The government increased the minimum wage by decree after it failed to bring about an agreement between workers and business, as stipulated by the country’s labour laws.

According to Zelaya, the hike in the minimum wage “will force the business oligarchy to start paying what is fair.” He added, however, that “I am aware it must be raised even further.”

“This is a government of great social transformations, committed to the poor,” he stated.

Honduras is one of the poorest countries in Latin America, with a poverty rate of 70 percent according to the Inter-American Development Bank (IDB).

While trade unions celebrated the news of the minimum wage increase, the business community was outraged, and announced massive layoffs for 2009, as well as price hikes.

“We are not opposed to a decent wage, but we believe it should have been the product of a negotiated agreement,” Guillermo Matamoros, a financial analyst with the Honduran Council of Private Enterprise (COHEP), stated.

Matamoros complained that the measure was imposed on the business community. “We should have been consulted. It would seem that the government has forgotten that we are on the threshold of a recession, which in fact is already affecting us.

“The sectors hardest hit by this demagogic, populist measure are medium and small companies, which are denied the right to grow and compete,” he said. “This year alone (2008), more than 15,000 people have been laid off, above all in the maquiladoras. Just imagine what lies ahead in 2009. Dismissals are inevitable.”

“This decision is going to hit us hard,” Elmer Sierra, a medium-sized producer of shrimp from southern Honduras, said, “There are no funds to stimulate production. The price of shrimp has fallen, and the only news from the banks is the hikes in the interest rate. I have tried to work out the numbers to avoid laying anyone off, but it seems impossible.”

Ela Ochoa, who owns a small clinic on the southeast side of Tegucigalpa, has three employees, who she pays more than the current minimum wage.

“With the new increase, I just can’t manage it. I’ll have to lay one of them off, and that is really painful because they are single mothers. Every night, I go over the numbers, but the government hasn’t left me any other option, because besides the increase, I’ll have to pay the workers’ rights (such as social security) required by law,” she said.

Private business associations announced on Dec. 29 that they would challenge the government decree in the Supreme Court.

Labor Minister Mayra Mejía called the critics in the business sector “greedy exploiters.”

Trade unions have announced that they will take to the streets to support the wage increase.

The tension over the minimum wage raise is not good “and promises nothing positive for the country,” said economy Professor Julio Raudales. “This is just one more ingredient in a grim outlook we are facing on the economic and financial fronts, the product of erratic internal actions and the global crisis.”

Raudales said the increase in wages and subsidies assigned by the government in 2008 to workers and farmers, among other sectors, lacked a “rational focus.”

“They only reflect how bad our finances are going. Everything indicates that Hondurans have not learned to save up in boom times and continue squandering money madly,” he said.

The Economic Commission for Latin America and the Caribbean (ECLAC) estimates that Honduras’s GDP grew 3.8 percent in 2008 and projects two percent growth for 2009, in contrast with the 6.3 percent growth forecast when the current government took office in 2006.

The regional United Nations agency also predicted a fall in remittances from abroad and a drop in revenues from tourism and non-traditional exports.

The Central American Bank for Economic Integration (BCIE) forecasts an increase in the fiscal deficit, a fall in foreign investment and heavy pressure on the country’s foreign reserves.

Central Bank president Edwin Araque said that these predictions are “a bit fatalistic, and things are not really that bad.”

“The global crisis will not hit us so hard. We are studying countercyclical actions against the crisis,” he said.

But Raudales said the government was “naïve” to talk about countercyclical measures.

According to international reports, he said, “the countries that are prepared to confront the crisis, because they saved up in boom periods, are Chile, Brazil and Mexico, while Honduras, Nicaragua, Argentina, Ecuador and Venezuela will have to pay the consequences” of their spending.

The country’s foreign debt of more than four billion dollars was written off five years ago. But according to Mauricio Díaz, coordinator of the Honduran Social Forum on Foreign Debt and Development, everything indicates that the current government has run the debt back up to above that amount.

The Forum said the current level of debt could be “similar to or greater than what was pardoned.”

“We are in bad shape, and the highest level of debt now is internal,” Díaz stated.

By Thelma Mejía

4 Responses to "Minimum Wage Increase Bad for Economy"

  1. Frank  August 17, 2009 at 6:06 pm

    If anyone studies histories of economic policies of various governments, the conclusion is: raising the minimum wage raises the consumer power of the people.

    In Third World nations, the wage increases translate into a multiplier effect for the local and national economy.

    However, those oligarchs and their buddies in the export businesses will not gain because they don’t produce useful and affordable products for the local population.

    So these groups always fight efforts to increase the wages of their employees. They also ferociously fight other methods workers use to raise their wages such as unionization.

    The fact that the oligarchs and their US corporate friends fight both raising minimum wages and unionization demonstrates they consider their impoverished working force as disposable and not worth developing.

    Thus they also don’t support public libraries, better public schools, appropriate technology distributed to campesinos, land reform, etc., etc.

    As long as the lower classes don’t make trouble, the oligarchs ignore them and their needs. They aren’t a profitable market.

    They aren’t human…according to the oligarchy.

  2. david  July 24, 2009 at 11:03 am

    Yes, the poor should benefit from an increase, but an 85% increase?! this is crazy and straight from a Hugo Chavez recipe. Look at the timeline of the Chavez regime in Venezuela.

  3. John ONeill  July 8, 2009 at 8:40 am

    The people deserve a living wage. Shame on the Oligarchy who hide behind words like : “democracy” – they can’t fool all the people all the time. It is time for national leaders who love the people to take the reins of power. Those who love to help the rich get richer while pissing on the peasants are finished.

  4. scott  July 3, 2009 at 3:14 pm

    The increase is actually good for the economy not bad. It’s good for the people because they’ll have more money. When that happens crime goes down so that’s a bonus. When people have more money they spend more money which is also good for the economy. Of course it’s bad for people who operate sweat shops and export their goods to Walmart in the U.S. but it’s hard to feel bad for them.

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