Próspera is a privately run city on the island of Roatán, Honduras. It allows its citizens and businesses to escape government oversight and taxation.

Managed by a private company, the special economic zone was granted the right to exist under a controversial law scorned by the Honduran people and now considered unconstitutional by the Honduran Supreme Court.

As the future of this economic special zone is on the line, its investors are pulling all political strings and legal stunts to allow the city to remain operational.

Their efforts included filing an almost $11 billion lawsuit in the World Bank's International Center for Settlement of Investment Disputes (ICSID) against a Central American country where more than half of the population lives below the poverty line.

Which interests will come out on top?

Próspera Comes From Prosperity

Founded in 2017, Próspera is a "private, for-profit city" on Roatán, a Caribbean island about 65 kilometers off the coast of Honduras. It is home to over 200 businesses and more than 2,000 residents.

The city's creation is owed to the approval of the ZEDE law (ZEDE is a Spanish acronym for Zones for Employment and Economic Development) in 2013. Meant to attract foreign investment to Honduras, the legislation allowed private investors to create special economic zones with laws, regulations, and courts of their own.

Próspera founders subscribe to the libertarian ideal that the government works better if privatized. Rather than a city councilor, the city is managed by CEO Erick Brieman of Honduras Próspera Inc.

As a financial and independent economic zone, the city also doesn't have a central bank. Instead, it uses Bitcoin and other cryptos as legal tender. In January, Próspera made Bitcoin the official unit of account, allowing companies to denominate their obligations in BTC rather than U.S. dollars or Honduran Lempiras.

Its "regulatory system designed for entrepreneurs to build better, cheaper, and faster than anywhere else in the world" has attracted investment from some of the most sounding names of Silicon Valley - Peter Thiel, Sam Altman, and Marc Andreessen - and secured the support of the family descendants of some of the most prominent figures of the political and intellectual spheres in the United States and abroad - the grandson of Milton Freeman, the son of former U.S. President Ronald Reagan, amongst others.

Since its establishment, it has become the home of scores of experimental medical centers that perform procedures not approved by health authorities in other parts of the world. Its taxation scheme is quite appealing as it applies only 1% income tax, 5% personal income tax, and 1% land value tax.

The ZEDE Law and The Backlash

Among other privileges, the ZEDE law guaranteed 50 years of legal stability to the special economic zones it created, regardless of any changes that took place after they were founded.

It was approved by the government of former president Juan Orlando Hernández, who, according to prosecutors in New York, ran Honduras as a "narco-state" and is currently serving a 45-year jail sentence for narco-trafficking in the United States.

He was replaced as president in 2022 by Xiomara Castro. The wife of former president Manuel Zelaya ran on a platform of ending the corruption of the Hernández government and putting an end to the systemic violence that, for some years, made Honduras one of the most violent countries in the world.

Overturning the ZEDE laws was a crucial topic that led to Castro's victory. By 2021, at the height of the pandemic, neighbors of Próspera on a fishing island called Crawfish Rock, had begun a public fight against the startup city, which turned into country-wide protests against the ZEDE laws.

They feared that these new economic special zones would do nothing good for ordinary people. Instead, they would swallow their villages up as they developed.

The support of the recently elected present for the residents' cause scared Próspera, and by the end of 2022, the company running the semi-autonomous city filed an investor-state dispute settlement (ISDS) claim of $10.775 billion in the International Center for Settlement of Investment Disputes (ICSID)—a World Bank tribunal that arbitrates disputes between international investors and countries.

In the same year, Honduras's GDP was $31.72 billion, meaning that Próspera Inc. demanded over a third of the country's total income to settle the issue. The enormous claim has put pressure on those who oppose the original law, given that the ICSID has a track record of deciding in favor of private interests.

Since filing the ISDS claim, Próspera has been pulling all political strings to ensure the city enjoys the 50 years of unbothered prosperity promised by the Hernández government's law. This includes talking to the U.S. embassy in Honduras to defend their business interests.

Their efforts have resulted in a greater climate of uncertainty for the Central American republic as United States public officials have issued statements, sent letters, and even introduced bills to pressure the Honduran government to do right by international investors.

Fernando Garcia, the Honduran presidential commissioner against the ZEDEs, told Inside Climate News: "We are up against the greatest economic power in the world."

Honduras has not backed down and continues to fight. It withdrew from a World Bank treaty that helps sustain the ISDS claims, and it is working to attract public support to its cause by highlighting the unfairness of the international legal system.

On September 20, 2024, the Honduran Supreme Court declared the ZEDE laws unconstitutional. This defiant move prohibits the creation of new special economic zones and implies the illegalization of the existing ones.

Share this article
The link has been copied!