Meaningful foreign direct investment or a global geometry of economic coercion? (2024) I Andrzej Rostek / Shutterstock
Off the coast of Honduras, a group of Silicon Valley investors has poured hundreds of millions of dollars into what they hope to become a deregulated techno-utopia—a place called Próspera, where visionary entrepreneurs can innovate and forge a better future, unburdened by the constraints of a typical nation-state.
The goal? To model “the future of human governance: privately run and for profit.”
Próspera was founded in 2017 in Honduras, on the small island of Roatán, about 40 miles off the mainland coast. Its utopian goal has attracted all sorts of marginal characters—from “biohackers” seeking to elude death through gene editing to roboticists themselves aspiring to be cyborgs—and, of course, cryptocurrency zealots. It has also received significant attention from mainstream media, and it is easy to see why: investments from big names like Peter Thiel, Sam Altman, and Marc Andreessen, as well as interesting quirks, like promoting experimental medical procedures.
At the same time, Próspera is part of a contentious economic practice that has begun to appear in nearly every corner of the developing world—the creation by nation-states of specific areas within their territories that have different governance and legal systems from the rest of the country, to attract different kinds of foreign investment to spur economic growth. These areas are known as Special Economic Zones (SEZs). These zones represent a certain vision for the future—one in which government is replaced by an array of corporations and private organizations that can craft local rules of the game with virtually no mechanisms of accountability.
The World Bank classifies several types of these SEZs—such as free-trade zones or export processing zones—each with a complicated history of being implemented in various national contexts with various incentives.
But Próspera represents an especially striking iteration of SEZ: what is known as a “charter city,” a “startup city,” or a “free private city.”
Próspera can operate as it does as a “Zone for Employment and Economic Development” (ZEDE) under the special provision of a Honduran law passed only in 2013. The founder of the zone is the private company Honduras Próspera LLC, registered in Delaware. The company is a key decision-maker, along with the zone’s “Technical Secretary” and “Council of Trustees.” These bodies, primarily made up of representatives from the US business community, construct a corporatized governance model that largely allows for business interests to determine how the zone is run. The result is an independent legal system, tax code, security system, and arbitration center.
As a full-fledged charter city, Próspera does not aspire to be merely an isolated haven for US capital; it’s meant to be an independent center of economic activity, which means that it will have a much more direct impact on people’s lives than most other SEZs.
Yet Próspera should not be seen as a unique dystopia, or a lamentable historical detour; it’s rather just the latest example of how external strategies of economic coercion have kept nations in the region perpetually underdeveloped.
Honduras emerged as a postcolonial state in the nineteenth century, immediately in debt, and its government desperate for investment from former colonial powers. In the twentieth century, US companies like Cuyamel and United Fruit came to dominate the country’s economy and acquire large swathes of its land, extracting their resources and exporting surpluses abroad. Economic dependence has since taken new forms in the neoliberal era: International Monetary Fund loans and structural adjustment policies continue the dominance of foreign capital, restricting any attempts at sovereign state-directed development.
Throughout these evolutions of economic imperialism, Honduras, and other nations caught in the same system, have not simply been passive victims. Elected governments have needed to become complicit in exploiting the country’s resources. At the same time, a variety of political and social countermovements have appeared, ready to fight for a different future for Honduras.
Public discontent against ZEDEs has coalesced into organizations like the National Movement Against the ZEDEs and in Defense of Sovereignty. One of the core issues of this organization is land dispossession, as the Honduran ZEDE law gives the state the right to expropriate land into the territory of any given ZEDE, giving citizens compensation but no legal recourse. Indeed, the current president, Xiomara Castro, was elected after a successful campaign against the ZEDE law. Shortly after she took office in 2022, the Honduran Congress voted to repeal the law that had allowed for the development of Próspera.
In any just democratic system, this would have resulted in the dismantling of the ZEDE that the original law had permitted. What happened instead was that Próspera Inc. sued the Honduran government in an international arbitration body called the International Court for Settlement of Investment Disputes (ICSID), an organization run by the World Bank. The purpose of ICSID is to protect the interests of foreign investors operating in a given nation, allowing them to sue the state directly for threatening the viability or profitability of their investment.
The business community and the World Bank rhetorically justify this by claiming that ICSID encourages foreign investment and, therefore, increases economic prosperity by reassuring investors that their interests will be protected under international law. But in reality, investment does not increase, and investors gain rights to exploit land and labor against a state’s best efforts to exercise its sovereignty.
It is worth recalling how the law that enabled Próspera to be created as a ZEDE came into existence—after a 2009 military coup forced the then-president President Manuel Zelaya—husband of Xiomara Castro—into exile. The next government, led by President Porfirio Lobo Sosa, won elections considered to be fraudulent and was eventually exposed to have extensive links to criminal networks—so much so that it, along with the subsequent Hernández administration, has been called the “narco-dictatorship period.”
This government made Honduras the most violent country in the world in terms of intentional homicides, opening the country to foreign investment, and—among much else—fighting to pass the ZEDE laws. Their first effort to do so was struck down as unconstitutional by the Supreme Court. However, after four amendments and four new justices were added to the court, the law was passed in 2013. (The Castro government has referred to this ceding of state sovereignty by the previous administration as “an act of public-private corruption.”)
There are two processes here, one being infiltration and the other being inoculation. Capital first infiltrates a country like Honduras and has a friendly government to create a new Special Economic Zone. It then uses structures like ICSID to inoculate itself against any efforts by a subsequent government to reassert its sovereignty by revoking an SEZ. The former process is experienced from below—investors entering individual spaces created by the desperation for foreign investment. In contrast, the latter is experienced from above—by a global geometry of economic coercion.
Honduras did not roll over when confronted with this system of control. In addition to her campaign against ZEDEs, President Castro announced, in February 2024, her intention to formally withdraw from ICSID—a process completed in August of that year. Investors then brought 14 cases against the government in 2023 and 2024 alone, making the small nation the second most sued state in all of Latin America, after Mexico. Clearly, President Castro saw the system as a roadblock to formulating an independent economic path for the nation.
A group of 85 leading economists from around the world signed a letter praising Castro’s decision, underlining the court’s deleterious effects and underscoring the “scant economic evidence that mechanisms like ICSID stimulate meaningful foreign direct investment.”
While Honduras’s withdrawal will prevent future cases from being filed, they still have to face arbitration for all pending cases. This explains why a flurry of claims were filed right before August 25, 2024, when the withdrawal was scheduled to occur.
The irony of Próspera as a project is that while it is being carried out by a faction of crypto tech capital that seeks an exceptional existence untethered from state power, it depends upon this large-scale international apparatus of state control and coercion. But beyond exposing the rhetorical hypocrisy of Próspera, SEZs, and the ICSID system, this story serves as a severe rebuke of a supposedly democratic framework of international law.
The reality of ‘democracy’ for Latin American nations is not just a question of winning elections but of unraveling the international systems of state-level coercion. In the case of Honduras, battling foreign capital within the nation’s borders also means fighting against the global institutions that insulate this capital against smaller, less powerful governments.
President Castro has shown a refreshing willingness to look beyond rooting out foreign capital’s influence within Honduras’ borders and toward the international system itself.
Meanwhile, the ICSID court is still adjudicating the Próspera case, and nobody knows yet what the final outcome will be for Honduras.
