September 2015, Stephan Lefebvre
This paper examines the December 2014 agreement between Honduras and the International Monetary Fund, which gives the country access to a total of $189 million in financing over three years. Under the IMF program, Honduran authorities agreed to implement fiscal consolidation amounting to 6.5 percent of GDP over four years, in addition to so-called “structural reforms” including privatizations and public sector layoffs. This paper finds that the IMF is supporting an austerity program for Honduras in a context of high poverty and a weak labor market. In addition, the paper shows how the IMF program relies on Honduras maintaining large foreign direct investment inflows, a high risk strategy that helps fuel unprecedented, imprudent policies in order to attract foreign capital.