The Foretold and Untold Chronicles of an Unusual Coup

Prompted by the U.S. government, a couple of rounds of negotiations between Mr. Zelaya’s and de facto President Mr. Michelletti’s teams took place in Costa Rica under the auspices of President and former Peace Nobel Laureate, Mr. Arias. The negotiation also failed by the refusal of the two protagonists to meet in person. Ironically, President Obama’s public calls for the restoration of Mr. Zelaya equally disappointed the de facto administration (whose Foreign Ministry doubted Mr. Obama’s knowledge of the situation with clear racist overtones) as well as the previous administration: Zelaya himself and Venezuela’s President Chavez accused him of not doing enough to put him back in office. Part of this U.S. anomie may be explained by the decisive phases undergoing key domestic and foreign issues for the Obama administration, such as health reform, Afghanistan’s election and U.S. involvement in Iraq, to cite a few.

Mr. Zelaya’s behavior since his ousting has not helped, either, increasingly perceived as being orchestrated from Caracas: specifically his repeated calls to supporters for a direct confrontation with the de facto government (initially calling for an insurrection, then for resistance) and his bizarre attempts to enter the country, first by a broadcasted live incursion by plane, then, literally speaking, by momentarily stepping in and out of the border with Nicaragua. In the contexts of the clashes between supporters and security forces, three people have died.

The Untold Story of Elite Greed and Social Contract Rupture

Under the theory of conflict developed by economists such as Grossman, Hirschleifer, Collier and Hoeffler, the Honduran coup can be modeled as one in which the opposition’s greed plays a critical motivating role. In peace, the government has access to fiscal revenues of both supporters and opposition (whether or how successfully the opposition manages to evade their taxes is not considered here, but it will not change the conclusions). This public provision of services may well be the result of the public good nature of most of these services—many universal, others simply ill-targeted in practice—rather than a benevolent nature of the government.

The government receives external resources in the form of investments and aid that in turn can be destined to economic productive development (which in Honduras has led to investments in infrastructure and timid export-led diversification), military activities, and the financing of public transfers, which in Honduras has meant substantive additional resources for the poverty reduction strategy linked to debt-relief. At its peak since the initiative started in the late 1990s, poverty related spending represented 10 percent of the GDP. The opposition carries out its productive activities, is taxed, and receives public transfers as seen above.

This constitutes what some in the context of conflict theory call “social contract”, a formal or informal arrangement that governs the allocation of resources and the peaceful settlement of grievances. Its fissure is frequently responsible for the onset of civil conflict, as has been the case in Africa (along with ethnic and regional dimensions not applicable to Latin America). Interestingly, this notion of social contract intertwines greed and grievances, which have traditionally separated economist and non-economist explanations of conflict outbreak and duration.

There are obviously several degrees of social contract fractures, only some of which should expectedly bring about such dire consequences as to prompt a rebellion or a coup. In the case of Honduras, was the lack of expected economic growth or faster poverty reductions likely seen as a social contract rupture? Unlikely. For that to happen, poor performance must be solely attributed to the government’s decisions, which becomes increasingly difficult to sustain in the globalized era we live. Furthermore, days before his overthrown, a Gallup opinion poll reported Mr. Zelaya’s approval rates at 46 percent, surprisingly intact with respect to those taken four years ago when he was elected. Did he announce draconian economic, trade, taxation or social policy shifts that would dramatically affect investors’ expectations? No. In fact, both net inflows of foreign direct investments and gross capital formation as a proportion of GDP have been moderately increasing since 2005.

What, then, would likely cause a social contract fracture in Honduras? We need to look at politics not economics. The issue of re-election was central in Mr. Zelaya’s announcements of constitutional reform, starting with a process of constitutional overhaul by a new Assembly clearly reminiscent of Venezuela, Bolivia, and Ecuador’s recent reforms. It is unclear, nonetheless, the extent to which the terms of the constitutional overhaul were already drafted or planned, which must only have contributed towards a greater deal of uncertainty and anxiety among the economic, social and political elite in the country.

The social contract at risk was not necessarily that governing the transfers across citizens’ political identities. Instead, it pointed to the accustomed power sharing between the two major parties, Liberal and National, which equates to the share of power among the handful of families dominating the political and economic spheres of the country. In a simulation exercise that models the rupture of social contract for Honduras, I estimated that the feared losses by this elite sector must have exceeded a whopping 11 percent of the GDP in order to green-light the military ousting of Mr. Zelaya. Perceived losses by the elite might have consisted of direct redistributions of wealth to the non-elite as well as indirectly from the empowerment of other groups such as supportive radical civil society organizations. The estimated amount undoubtedly would constitute a massive redistribution of resources within any society large enough to support such drastic measures. Also, it is a mobilization of resources feasible enough in Honduras, which has recently witnessed poverty-related spending within a similar order of magnitude. It is also reassuringly close to Paul Collier’s gross estimates of a 15 percent GDP loss in an average civil war.

The Next Critical Question

Beyond the questions of what motivated Mr. Zelaya and the elite to what they did, the social contract and greed explanation suggests that even in a heavily indebted poor country subject to continuous monitoring by the international community and strongly dependent on aid and debt-relief, the influence of the international community is ineffective in defraying a major crisis when the mechanisms that guarantee the elites’ grip on power are at risk. Regardless of the advocated principle of defending democracy’s legitimacy against a coup or the principle of defending the Constitution against its internal threats, it is the conventional fear—justified or not—of extraordinary economic losses expected under new rules of the game that might explain the lion’s share of motivations for the unusual coup in Honduras. The critical question for the future is whether more deliberate efforts to reform the economy, to tackle daunting levels of poverty and inequality, and to make Honduras’ form of democracy more participatory will meet the same fate as Mr. Zelaya’s purported re-election ambitions.