A group of 85 economists have backed the Honduran government's decision to leave the World Bank's arbitration panel, adding a new twist to the ongoing battle between Honduras and disgruntled crypto-island company Próspera Inc.
Próspera, with a special economic zone on the Honduran island of Roatán, named after the U.S. company that built it, is demanding $10.8 billion in compensation from the government following a 2022 legislative change that nullified the island's special status.
The fight is taking place at the International Center for Settlement of Investment Disputes (ICSID).
However, in a March 19 open letter, the economists said Honduran's February withdrawal from the international tribunal is a "critical defense of democracy in Honduras."
Próspera brought the case before ICSID in late 2022, claiming that Honduras owes it billions for violating the "50-year guarantee of legal stability it gave" after the government repealed legislation affecting the legal certainty of the cryptocurrency island's special economic zone status and its investments in April 2022.
In their open letter, the economists said there is little evidence to suggest that governments benefit from the arbitration panel.
"We found scant economic evidence that mechanisms such as ICSID stimulate significant foreign direct investment," the economists' letter, organized by the leftist organization Progressive International, said.
"For decades, international arbitration courts like ICSID have allowed corporations to sue states and limit their freedom to regulate in favor of consumers, workers and the environment."
Since the election of President Xiomara Castro in 2021. Honduras has faced ten ICSID cases, the largest of which involved the U.S. company Próspera, which has a claim of nearly $11 billion, about a third of the country's gross domestic product.
Notably, Castro repealed legislation creating ZEDEs - Zones of Employment and Economic Development - aimed at attracting foreign investors to revitalize the Honduran economy.
In June 2021. The United Nations expressed human rights concerns about the ZEDE legal framework and called for an alternative system.
It pointed out that some 35% of Honduras - mostly areas inhabited by indigenous and Afro-descendant peoples who lacked "informed consultation" about the program - was slated for ZEDE.
Próspera carved out ZEDE on the Honduran island of Roatán, about 65 kilometers off the country's northern coast, and the laws at the time effectively gave it sovereignty over the island, including the ability to make its own laws, courts, police and taxes.
