A Lawsuit From Backers of a 'Startup City' Could Bankrupt Honduras

Sep 28, 2024 7:00 AM

The country faces a wave of claims after it repealed a law allowing for special economic zones. Chief among them is an American company looking to build a semi-autonomous “startup city” called Próspera.



Summer City Architecture Building Condo Housing Hotel Resort Urban and High Rise
A 14-story mixed-use tower built by Honduras Próspera on the island of Roatán.Photograph: Nicholas Kusnetz; Inside Climate News


This story originally appeared on Inside Climate News and is part of the Climate Desk collaboration.

Years later, Luisa Connor and Vanessa Cárdenas would look back ruefully on the day foreigners visited their beachfront village with plans for a development next door. They had no idea the effort was backed by Silicon Valley billionaires who wanted to build a “startup city” or that a relatively new Honduran law would allow them to establish this semiautonomous enclave. They could not foresee they would lead a fight against it that would launch their village into national politics and prompt an international legal dispute, threatening to bankrupt the country. They thought it was just another hotel.

Crawfish Rock is a fishing village of a few hundred people on the island of Roatán. It is the kind of place where children roam free, scouring the forest for iguanas or catching crabs under the Caribbean’s glassy waters.

It is also the site of Próspera ZEDE, a libertarian experiment in market-driven governance whose backers are suing Honduras for up to $10.775 billion. Prospera’s Delaware-based creator, Honduras Próspera Inc., argues its project has a right to continue operating even though the law that enabled it was repealed two years ago, and that it should retain that right for 50 years. To make this claim, Honduras Próspera cited a trade agreement Honduras signed with the United States, where the investors are based, and an unrelated treaty with Kuwait.

Honduras Próspera’s is just one of 15 similar claims against the Honduran government, nearly all of which have been filed since February 2023. Collectively, investors who brought four of the claims are seeking up to $12.3 billion, nearly twice as much as Honduras’ entire public expenditures in 2022. The amount sought in the other 11 claims has not been made public. Should Honduras be ordered to pay any of those judgments, it will have no right of appeal.

. . .

Dozens of Democrats in Congress have been calling on the Biden administration to intervene in the Próspera case and to remove ISDS from the trade agreement on which the claim is based.

“The ISDS system is a scam snuck into trade deals to allow large multinational corporations to bypass domestic courts and challenge legitimate public policies,” with Honduras Próspera’s claim as a prominent example, US senator Elizabeth Warren, a Massachusetts Democrat, told Inside Climate News in a statement.

. . .

The law allowed private investors to create their own, largely self-governing zones, with authorities far beyond other economic zones in Honduras and around the world that offer incentives for foreign investment. ZEDEs were empowered to write their own civil laws, enact their own regulations and building codes and create their own courts. Businesses would pay taxes not to municipal or national governments but to the ZEDE, which could set its own rates. Only a small portion of the revenue collected would be passed on to the central government.

The ZEDEs were overseen not directly by the government but by a committee appointed by Honduras’ president, and the initial members were stocked with foreigners, many American conservatives, including the son of former US President Ronald Reagan and the anti-tax crusader Grover Norquist.

More:
https://www.wired.com/story/a-lawsuit-from-backers-of-a-startup-city-could-bankrupt-honduras/

Of course, they intend to have their own police officers, answerable only to the charter city.

(The Ronald Reagan son is the foaming-at-the-mouth adopted son of Reagan, the raging former radio host & conservative blow-hard, Michael Reagan.)