A group of 85 economists have expressed their support for the Honduran government’s decision to withdraw from the World Bank’s arbitration body, adding a new development to the ongoing dispute between Honduras and the crypto island-building company Próspera. Próspera, a special economic zone on the island of Roatán in Honduras, has been seeking $10.8 billion in compensation from the government after a change in legislation in 2022 revoked the island’s special status. The dispute has been brought before 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 was a “critical defense of Honduran democracy.” Próspera filed its case with the ICSID in late 2022, claiming that Honduras owes it billions for breaking a “50-year legal stability guarantee” after the government repealed laws affecting the legal certainty of the crypto island’s special economic zone status and investments. The economists argue in their letter that there is little evidence to support the idea that governments benefit from arbitration bodies like the ICSID. They state, “We find scant economic evidence that mechanisms like ICSID stimulate meaningful foreign direct investment.” Since the election of President Xiomara Castro in 2021, Honduras has faced 10 ICSID cases, with Próspera’s nearly $11 billion claim amounting to a third of the country’s gross domestic product. Castro specifically repealed laws that created Zones of Employment and Economic Development (ZEDEs) in an effort to attract foreign investors and boost the Honduran economy. The United Nations expressed concerns about human rights in relation to the legal frameworks of the ZEDEs and called for an alternative system. The UN highlighted that approximately 35% of Honduras, mostly areas with indigenous and Afro-descendant populations, was designated for ZEDE use without “informed consultation” on the project. Próspera established a ZEDE on the island of Roatán, granting it sovereignty over the island and the ability to enact its own laws, courts, authorities, and taxes. The autonomous charter city appealed to crypto enthusiasts by making Bitcoin 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 were concerned about its expansion and the potential displacement from their ancestral lands. The UN also claimed that the communities near Próspera lacked consultation and information about the project, an allegation that Próspera denies. In February, Reuters reported comments from the former head of Honduras’ financial watchdog, Jose Luis Moncada, who stated that the agreement between the country and Próspera remains intact. Moncada emphasized that Honduras is obligated to respect the outcome of any arbitration presented before the end of August, when it is scheduled to leave the ICSID.
Crypto island Próspera faces setback as Honduras secures additional backing in $11B dispute