Honduras Receives Further Backing in $11 Billion Dispute with Crypto Island Próspera

Honduras Receives Further Backing in $11 Billion Dispute with Crypto Island Próspera

Cryptocurrency
March 21, 2024 by Diana Ambolis
274
Economists Laud Honduras’ Move to Withdraw from International Court Battle Against U.S.-Based Firm Over Crypto Próspera A collective of 85 economists has thrown their support behind the Honduran government’s recent decision to withdraw from the World Bank’s arbitration body, adding a fresh twist to the ongoing dispute between Honduras and the crypto island development firm,
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Economists Laud Honduras’ Move to Withdraw from International Court Battle Against U.S.-Based Firm Over Crypto Próspera

A collective of 85 economists has thrown their support behind the Honduran government’s recent decision to withdraw from the World Bank’s arbitration body, adding a fresh twist to the ongoing dispute between Honduras and the crypto island development firm, Próspera.

Próspera, the Bitcoin-friendly special economic zone situated on the Honduran island of Roatán and named after the U.S.-based company leading its construction, has been seeking $10.8 billion in compensation from the Honduran government following a legislative alteration in 2022 that revoked the island’s special status.

The conflict has unfolded within the International Centre for Settlement of Investment Disputes (ICSID). However, in a letter dated March 19, economists associated with Progressive International, an organization dedicated to uniting progressive forces worldwide, hailed Honduras’ withdrawal from the international court as a “vital defense of Honduran democracy.”

Próspera lodged its claim with ICSID in late 2022, alleging that Honduras breached a “50-year legal stability guarantee” by repealing laws in April 2022 that undermined the legal certainty of the crypto island’s special economic zone status and its associated investments.

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In their open letter, the economists contended that there is minimal evidence to support the notion that governments benefit from mechanisms such as ICSID in terms of stimulating substantial foreign direct investment.

Since President Xiomara Castro’s election in 2021, Honduras has faced ten ICSID cases, the most significant being from the U.S.-based Próspera, whose nearly $11 billion claim amounts to a third of the country’s gross domestic product.

President Castro repealed laws that established Zones of Employment and Economic Development (ZEDEs), aimed at attracting foreign investors to bolster the Honduran economy.

In June 2021, the United Nations raised human rights concerns regarding the legal frameworks of ZEDEs and advocated for an alternative system. It highlighted that approximately 35% of Honduras—primarily regions inhabited by indigenous and Afro-descendant populations—was designated for ZEDE use without sufficient consultation.

Próspera established a ZEDE on Roatán, effectively granting it sovereignty over the island, including jurisdiction over its laws, courts, authorities, and taxes. The autonomous charter city attracted crypto enthusiasts by adopting Bitcoin as legal tender, establishing a Bitcoin education center, and integrating blockchain technology and decentralized autonomous organizations into its internal framework.

However, Próspera faced resistance from local islanders concerned about its expanding footprint and apprehensive about potential displacement from their ancestral lands.

The UN asserted that communities neighboring Próspera lacked adequate consultation and information about the project—a claim Próspera refuted.

According to Reuters, former head of Honduras’ financial watchdog, Jose Luis Moncada, stated that the agreement between Honduras and Próspera remains in effect. Moncada emphasized that Honduras is obligated to abide by the outcome of any arbitration presented before the end of August when its departure from ICSID is scheduled.