Annual Report on Exchange Arrangements and Exchange Restrictions, 2007
Chapter

HONDURAS

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
October 2007
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(Position as of January 31, 2007)

Status under IMF Articles of Agreement
Article VIIIDate of acceptance: July 1, 1950.
Exchange Measures
Restrictions and/or multiple currency practicesNo restrictions as reported in the latest staff report as of December 31, 2006.
International security restrictionsNo.
References to legal instruments and hyperlinksn.a.
Exchange Arrangement
CurrencyThe currency of Honduras is the Honduran lempira.
Exchange rate structureUnitary.
Classification
Conventional pegged arrangementThe exchange rate of the lempira is determined in foreign exchange auctions. Banks and exchange houses are required to sell all of their daily foreign exchange purchases to the Central Bank of Honduras (CBH). When purchasing foreign exchange, participants in auctions (banks, exchange houses, and private individuals) bid at a price that may not differ from the base price set by the CBH by more than ±7%. The base exchange rate is adjusted every five auctions by the CBH in accordance with the inflation differential between Honduras and its main trading partners, the exchange rates of its main trading partners’ currencies vis-à-vis the dollar, and the level of the CBH’s net international reserves. The amount of foreign exchange offered at each auction must be at least 60% of the CBH’s purchase of foreign exchange from its agents. The minimum amount of foreign exchange to be offered and the base price are announced before the auction. The maximum daily amounts that may be acquired at auction are the equivalent of $300,000 for individuals and $600,000 for legal entities. Foreign exchange agents may make purchases for their own accounts to meet private demands of less than the equivalent of $10,000; the maximum amount of foreign exchange that may be purchased by commercial banks for this purpose is $300,000, savings and loan associations may purchase up to $100,000 daily, and exchange bureaus may purchase up to $30,000. Foreign exchange agents may charge up to 0.7% commission on sales to the public.
Because the authorities maintain a policy of satisfying every admissible bid within the band, the exchange rate is effectively pegged at the most appreciated side of the band.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketNo.
References to legal instruments and hyperlinksn.a.
Arrangements for Payments and Receipts
Prescription of currency requirements
Use of foreign exchange among residentsAll payment obligations to be made in Honduras must be settled in lempiras, except those contracted and documented in a foreign currency.
Payments arrangements
Bilateral payments arrangements
InoperativeThe Clearing and Credit Reciprocal Agreement between Honduras and Costa Rica, El Salvador, and Guatemala functioned until 1995.
Regional arrangementsEffective April 1, 2006, Honduras became a member of the CAFTA-DR Trade Agreement. Honduras is a member of the CACM. Trade transactions with the rest of Central America may be carried out in local currencies or in dollars.
Administration of controlNo.
Payments arrearsNo.
Controls on trade in gold (coins and/or bullion)No.
Controls on exports and imports of banknotesNo.
References to legal instruments and hyperlinksn.a.
Resident Accounts
Foreign exchange accounts permittedBanks must hold these deposits in (1) foreign currency notes in their vaults, (2) deposits at the CBH, (3) special accounts at correspondent banks abroad, (4) investments in high-liquidity foreign instruments, or (5) export or import financing instruments.
Held domesticallyYes.
Held abroadBanks may hold accounts with correspondent banks in dollars, euros, Swiss francs, yen, and pounds sterling.
Accounts in domestic currency held abroadNo.
Accounts in domestic currency convertible into foreign currencyNo.
References to legal instruments and hyperlinksRegulation for the Management of Foreign Currency Deposit Accounts.
Nonresident Accounts
Foreign exchange accounts permittedBanks must hold these deposits in (1) foreign currency notes in their vaults, (2) deposits at the CBH, (3) special accounts at correspondent banks abroad, (4) investments in high-liquidity foreign instruments, or (5) export or import financing instruments.
Domestic currency accountsYes.
Convertible into foreign currencyNo.
Blocked accountsNo.
References to legal instruments and hyperlinksRegulation for the Management of Foreign Currency Deposit Accounts.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsNo.
Documentation requirements for release of foreign exchange for importsNo.
Import licenses and other nontariff measuresNo.
Import taxes and/or tariffsThe tariff rates are zero for capital goods and raw materials; 5%–10% for intermediate products; and 15% for finished goods, with some exceptions (e.g., beef, cigarettes, fertilizers, and medicines). The tariff rate on goods produced in the CACM area is zero. There are industrial and agricultural processing zones that benefit from tariff exemptions. The tourism industry also benefits from temporary tariff exemptions. As a provision of the CAFTA-DR agreement signed April 1, 2006, duties on most tariff lines corresponding to industrial and consumer goods will be removed once this agreement enters into force. Duties on other goods will be phased out over periods of up to 10 years. Some agricultural goods will have longer periods for elimination of duties or be subject to other provisions, including, in some cases, the application of specific tariffs or quotas.
State import monopolyNo.
References to legal instruments and hyperlinksn.a.
Exports and Export Proceeds
Repatriation requirementsYes.
Surrender requirementsAll export earnings, except those from trade with other Central American countries, must be surrendered to banks or exchange houses within a period of 20 to 85 days. Commercial banks and exchange houses are required to sell all purchased foreign exchange to the CBH. Exporters are allowed to retain up to 30% of their foreign exchange proceeds to finance their own imports, as well as to pay for their authorized external obligations.
Surrender to authorized dealersYes.
Financing requirementsNo.
Documentation requirements
DomiciliationYes.
Preshipment inspectionYes.
Export licensesLicenses are not required, but exports must be registered for statistical purposes.
Export taxesNo.
References to legal instruments and hyperlinksn.a.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersThere are no controls on these payments, but all buyers of foreign exchange are required to fill out a form for statistical purposes. There are no limits on the amount purchased, except for daily limits on participation in auctions.
References to legal instruments and hyperlinksn.a.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsYes.
Surrender requirements
Surrender to the central bankn.a.
Surrender to authorized dealersn.a.
Restrictions on use of fundsNo.
References to legal instruments and hyperlinksn.a.
Capital Transactions
Controls on capital transactionsYes.
Repatriation requirementsYes.
Controls on capital and money market instruments
On capital market securities
Shares or other securities of a participating nature
Purchase locally by nonresidentsPurchases of shares in existing domestic firms are permitted, with the exception of industries that produce defense-related or hazardous materials.
On collective investment securities
Sale or issue locally by nonresidentsForeign mutual fund companies and similar financial institutions must have permission to collect funds in Honduras for deposit or investment abroad.
Controls on derivatives and other instrumentsNo.
Controls on credit operations
Commercial credits
To residents from nonresidentsAll public sector foreign borrowing, except for borrowing designated for investment in Honduras, must be approved by the congress.
Financial credits
By residents to nonresidentsLending by commercial banks to nonresidents, excluding loans designated for investments in Honduras, requires CBH authorization.
To residents from nonresidentsFinancial institutions are authorized to contract external borrowing in the form of loans, endorsements, and negotiated LCs for imports, without prior CBH approval. The previous limit on these loans (two times the capital) was eliminated and substituted by prudential regulation issued by the National Banks and Insurance Commission (CNBS).
Guarantees, sureties, and financial backup facilities
By residents to nonresidentsFinancing by commercial banks for nonresidents, excluding loans earmarked for investments in Honduras, requires CBH authorization.
Controls on direct investment
Inward direct investmentInvestments are permitted in all sectors, with the exception of defense-related industries. Investments in industries producing hazardous materials require prior approval. All foreign investments must be registered with the Secretariat of Industry and Trade.
Controls on liquidation of direct investmentNo.
Controls on real estate transactions
Purchase locally by nonresidentsThere are location and size limitations.
Controls on personal capital transactionsNo.
References to legal instruments and hyperlinksRegulation of December 27, 2005, issued by the CNBS: “Rules That Financial System Institutions Must Comply with When Granting Foreign Currency Loans” (www.cnbs.gov.hn).
Provisions Specific to the Financial Sector
Provisions specific to commercial banks and other credit institutions
Maintenance of accounts abroadAccounts abroad must be with Tier I banks.
Lending to nonresidents (financial or commercial credits)CBH authorization is required.
Lending locally in foreign exchangePrudential norms apply on lending in foreign currency based on risk-weighted criteria and on a liquidity requirement for short-term foreign liabilities.
Purchase of locally issued securities denominated in foreign exchangeYes.
Differential treatment of deposit accounts in foreign exchange
Reserve requirementsBanks, nonbank financial institutions, and savings and loan associations are subject to an unremunerated reserve requirement of 12% on all deposits denominated in domestic or foreign currency.
Liquid asset requirementsEffective January 20, 2007, financial institutions are required to deposit 24% (previously, 25%) of their liquid assets in a Tier I financial institution abroad.
Provisions specific to institutional investors
Insurance companiesEffective December 14, 2006, new regulations on investments by insurance institutions have been approved.
Limits (max.) on securities issued by nonresidentsInsurance institutions may invest a maximum of 25% of their investment abroad.
Limits (max.) on investment portfolio held abroadInsurance institutions may maintain a maximum of 20% of their investment resources in investments held abroad. Furthermore, investments in one particular country may not account for more than 10% of such resources.
Pension funds
Limits (max.) on securities issued by nonresidentsn.a.
Limits (max.) on investment portfolio held abroadn.a.
Limits (min.) on investment portfolio held locallyn.a.
Currency-matching regulations on assets/liabilities compositionCurrency-matching regulations on assets and liabilities composition for financial system institutions are issued by the CNBS. Effective December 31, 2006, prudential norms limit financial institutions’ short position in foreign currency to 5% of own resources and the long position in foreign currency to 50% of own resources.
Investment firms and collective investment fundsn.a.
References to legal instruments and hyperlinksRegulations on Investments by Insurance Institutions; CNBS Rules (www.cnbs.gov.hn); Rule on Asset/Liability Composition for Financial System Institutions; Rules that must be observed by institutions when granting foreign currency loans.
Changes during 2006
Exchange arrangementMarch 16. The limits on purchase of foreign exchange at each public currency auction were increased as follows: (1) for legal entities, to $1.2 million from $600,000; (2) for commercial banks, to $300,000 from $150,000; and (3) for savings and loan associations, to $100,000 from $75,000.
Arrangements for payments and receiptsApril 1. Honduras became a member of the CAFTA-DR trade agreement.
Provisions specific to the financial sector
Provisions specific to institutional investorsDecember 14. New regulations on investment by insurance institutions were approved.
December 31. Prudential norms placed a limit on financial institutions’ short position in foreign currency at 5% of own resources and the long position in foreign currency at 50% of own resources.
Changes during 2007
Provisions specific to the financial sector
Provisions specific to commercial banks and other credit institutionsJanuary 20. The liquid asset requirement for foreign currency liabilities was reduced to 24% from 25%.

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