Economists Back Honduras' Exit from World Bank's Dispute Body Amid Crypto Island Controversy
Summary:
Eighty-five economists have voiced support for the Honduran government's decision to withdraw from the World Bank's International Centre for Settlement of Investment Disputes (ICSID), amid the ongoing legal dispute with crypto island-building company Próspera Inc. The $10.8 billion claim by Prospera, following a 2022 law change that negated the special status of its Bitcoin economic zone, marks the largest of ten disputes faced by Honduras since electing President Xiomara Castro in 2021. Despite opposition from local communities and the UN, Próspera maintains its claim on Roatán Island, earmarked as a crypto-friendly special economic area.
Eighty-five economic experts have voiced their support for the Honduran government's decision to terminate its membership with the World Bank's International Centre for Settlement of Investment Disputes (ICSID). This decision has fueled the ongoing dispute between Honduras and Próspera Inc, a U.S. based crypto company that has plans to build an island dedicated to cryptocurrencies. Próspera, which is constructing a Bitcoin-friendly special economic zone on Roatán Island, is demanding $10.8 billion from the Honduran government following a change in legislation in 2022 which nullified the island's special status.
In a legal battle held at the ICSID, Próspera made claims late in 2022 that Honduras owes billions due to the violation of a "50-year legal stability guarantee." The claim arises as a result of the government's decision in April 2022 to revoke laws impacting the legal security of the special economic zone status and investments of the proposed crypto island.
In an open letter dated March 19, the economists touted Honduras's departure from the international court in February as being a "critical defense of Honduran democracy", adding that there is little evidence to suggest ICSID benefits governments. They echoed the sentiments of Progressive International, a left-leaning organization, in their letter stating, "For decades, international arbitration courts like ICSID have allowed corporations to sue states and restrict their freedom to regulate in favor of consumers, workers and the environment."
Since electing President Xiomara Castro in 2021, Honduras has been embroiled in ten ICSID cases, the largest of which is the nearly $11 billion claim from Próspera, which equals almost a third of Honduras's GDP. Castro overturned the laws that established the Zones of Employment and Economic Development (ZEDEs), whose purpose was to magnetize foreign investment to improve the Honduran economy.
In 2021, the United Nations aired their worry over the legal framework of ZEDEs and advised implementing an alternative system due to human rights issues. In particular, they noted the lack of "informed consultation" for indigenous and Afro-descendant populations in zones earmarked for ZEDE use, which comprise about 35% of Honduras.
Próspera obtained a ZEDE on Roatán Island, situated approximately 40 miles off the country's northern coast, where it attained quasi-sovereignty which includes the permission to legislate, establish courts, police and taxes. The island also legalized Bitcoin hoping it would appeal to cryptocurrency supporters by building a Bitcoin education center and being open to blockchain technology and decentralized autonomous organizations (DAOs).
However, Próspera's claim to the island met opposition from local inhabitants, afraid that their ancestral lands would be encroached upon due to the project's expanding size. This project also received criticism from the UN for the lack of consultation and information offered to nearby communities- an allegation that Próspera denies.
Jose Luis Moncada, the previous head of Honduras's financial watchdog, informed Reuters in February, that the contract between Honduras and Próspera still stands. Moncada stated that Honduras was required to "respect the result" of any arbitration submitted before the termination of the agreement in late August, when it is expected to depart from ICSID.
Published At
3/21/2024 6:56:24 AM
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