A group of 85 economists has backed the Honduran government’s decision to exit the World Bank’s arbitration body — adding a new twist to an ongoing battle between Honduras and the disgruntled crypto island-building firm Próspera Inc.
Próspera, the Bitcoin (BTC)-loving special economic zone on the Honduran island Roatán, named after the United States company building it, has been seeking $10.8 billion in compensation from the government after a legislation change in 2022 that killed the island’s special status.
The fight has been taking place in the International Centre for Settlement of Investment Disputes (ICSID).
However, in a March 19 open letter, the economists said Honduras’ February withdrawal from the international court was a “critical defense of Honduran democracy.”
Próspera brought its case before ICSID in late 2022 claiming Honduras owes it billions for breaking a “50-year legal stability guarantee it made” after the government repealed laws in April 2022 affecting the legal certainty of the crypto island’s special economic zone status and its investments.
In their open letter, the economists said there was little evidence to show that governments benefit from the arbitration body.
“We find scant economic evidence that mechanisms like ICSID stimulate meaningful foreign direct investment,” said the economists’ letter, organized by the left-wing organizational body Progressive International.
“For decades, international arbitration courts like ICSID have allowed corporations to sue states and restrict their freedom to regulate in favor of consumers, workers and the environment.”
Since the 2021 election of President Xiomara Castro, Honduras has faced ten ICSID cases, the largest from the United States-based Próspera with its nearly $11 billion claim — about a third of the country’s gross domestic product.
Specifically, Castro repealed laws that created ZEDEs — Zones of Employment and Economic Development — aimed to attract overseas investors in a bid to boost the Honduran economy.
In June 2021, the United Nations expressed human rights concerns over ZEDE’s legal frameworks and called for an alternative system.
It highlighted around 35% of Honduras — mostly areas with indigenous and Afro-descendant populations who lacked “informed consultation” on the scheme — was earmarked for ZEDE use.
Próspera carved out a ZEDE on the Honduran island of Roatán, about 40 miles (65 km) off the country’s north coast, and the laws at the time effectively gave it sovereignty over the island, including the ability to make its own laws, courts, cops and taxes.
Related: Honduras regulator bans banks from holding, transacting with crypto
The autonomous charter city made itself attractive to crypto enthusiasts by making Bitcoin a legal tender, creating a Bitcoin education center and opening its internal framework to accept blockchain technology and decentralized autonomous organizations (DAOs).
Próspera saw pushback from island locals concerned over its growing size and worried they’d be displaced from their ancestral lands.
The UN also had also noted the communities near Próspera lacked consultation and information on the project — a claim that Próspera has denied.
Reuters reported in February that the former head of Honduras’ financial watchdog, Jose Luis Moncada, said the agreement between the country and Próspera still stands.
Moncada said Honduras is “obliged to respect the result” of any arbitration presented before the end of August — when it’s slated to leave ICSID.
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