A group of 85 economists have expressed their support for the decision made by the Honduran government to withdraw from the World Bank’s arbitration body, adding a new dynamic to the ongoing dispute between Honduras and crypto island-building firm Próspera.
Próspera, the special economic zone on the island of Roatán in Honduras that is known for its affinity for Bitcoin (BTC), has been seeking $10.8 billion in compensation from the Honduran government. This follows a change in legislation in 2022 that revoked the island’s special status.
The conflict has been taking place at the International Centre for Settlement of Investment Disputes (ICSID). However, in an open letter dated March 19, economists from Progressive International, an organization dedicated to uniting and mobilizing progressive forces worldwide, stated that Honduras’ withdrawal from the international court in February was a “critical defense of Honduran democracy.”
Próspera filed its case with the ICSID at the end of 2022, claiming that Honduras owed it billions for breaching a “50-year legal stability guarantee” after the government repealed laws in April 2022 that affected the legal certainty of the crypto island’s special economic zone status and its investments.
In the open letter, the economists argued that there was little evidence to suggest that governments benefit from the arbitration body. “We find little economic evidence to support the claim that mechanisms like ICSID stimulate significant foreign direct investment,” the economists stated.
Since the election of President Xiomara Castro in 2021, Honduras has faced 10 ICSID cases, with the largest claim coming from Próspera, a United States-based company, whose claim amounting to nearly $11 billion represents a third of the country’s GDP.
Castro specifically repealed laws that established Zones of Employment and Economic Development (ZEDEs), which aimed to attract foreign investors in an effort to boost the Honduran economy. In June 2021, the United Nations expressed concerns about the human rights implications of the ZEDE’s legal framework and called for an alternative system. The UN highlighted that approximately 35% of Honduras, primarily areas with indigenous and Afro-descendant populations, was designated for ZEDE use without their informed consent.
Próspera established a ZEDE on the island of Roatán, approximately 40 miles (65 km) off the northern coast of Honduras. At the time, the laws effectively granted Próspera sovereignty over the island, including the authority to enact its own laws, establish its own courts, and impose its own taxes. Próspera made itself appealing to cryptocurrency enthusiasts by adopting Bitcoin as legal tender, establishing a Bitcoin education center, and embracing blockchain technology and decentralized autonomous organizations.
However, Próspera faced opposition from local residents on the island who expressed concerns about the growing size of the project and the potential displacement from their ancestral lands. The UN also claimed that the communities near Próspera were not adequately consulted or informed about the project, an assertion that Próspera denied.
In February, Reuters reported that the former head of Honduras’ financial watchdog, Jose Luis Moncada, stated that the agreement between the country and Próspera still stood. Moncada affirmed that Honduras was obliged to respect the outcome of any arbitration presented before the end of August, when its departure from the ICSID is scheduled.
Overall, the dispute between Honduras and Próspera continues to unfold, with economists weighing in on the matter and expressing their support for the Honduran government’s decision to withdraw from the World Bank’s arbitration body.