$Unique_ID{COW01579}
$Pretitle{351}
$Title{Honduras
Chapter 1C.   The Restoration of Order, 1925-31}
$Subtitle{}
$Author{Richard L. Millett}
$Affiliation{HQ, Department of the Army}
$Subject{honduras
government
carias
president
military
united
honduran
fruit
labor
percent}
$Date{1983}
$Log{}
Country:     Honduras
Book:        Honduras, A Country Study
Author:      Richard L. Millett
Affiliation: HQ, Department of the Army
Date:        1983

Chapter 1C.   The Restoration of Order, 1925-31

     Despite another minor uprising by Ferrera in 1925, Paz Barahona's
administration was, by Honduran standards, rather tranquil. The banana
companies continued to expand, the government's budgetary situation improved,
and there was even an increase in labor organizing. On the international
front, the Honduran government, after years of negotiations, finally concluded
an agreement with the British bondholders to liquidate most of the immense
national debt. The bonds were to be redeemed for 20 percent of their face
value over a 30-year period. Back interest was forgiven, and new interest
accrued only over the last 15 years of this arrangement. Under the terms of
this agreement Honduras, at last, seemed on the road to fiscal solvency.

     Fears of disturbances increased again in 1928 as the scheduled
presidential elections approached. The ruling PNH nominated General Carias
while the PLH, united again following the death of Policarpo Bonilla in
1926, nominated Vicente Mejia Colindres. To the surprise of most observers,
both the campaign and the election were conducted with a minimum of violence
and intimidation, and Mejia Colindres won a decisive victory, obtaining
62,000 votes to 47,000 for Carias. Even more surprising was Carias' public
acceptance of defeat and his urging of his supporters to accept the new
government.

     Mejia Colindres took office in 1929 with high hopes for his
administration and his nation. Honduras seemed on the road to political and
economic progress. Banana exports, now accounting for 80 percent of all
exports, continued to expand. By 1930 Honduras had become the world's leading
producer of the fruit, accounting for one-third of the world's supply of
bananas. United Fruit had come increasingly to dominate the trade, and in
1929 it bought out one of its two principal remaining rivals, the Cuyamel
Fruit Company. Because conflicts between these companies had frequently led
to support for rival groups in Honduran politics, produced a border
controversy with Guatemala, and may have even contributed to revolutionary
disturbances, this merger seemed to promise greater domestic tranquility.
Another step toward tranquility was taken in 1931 when Ferrera was killed
while leading one last unsuccessful effort to overthrow the government.

     Many of Mejia Colindres' hopes, however, were dashed with the onset of
the world depression. Banana exports peaked in 1930, then declined rapidly.
Thousands of workers were laid off, and the wages of those remaining on
the job were reduced, as were the prices paid to independent banana
producers by the giant fruit companies. Strikes and other labor disturbances
began to break out in response to these conditions, but most were quickly
suppressed with the aid of government troops. As the depression deepened, the
government's financial situation deteriorated, and in 1931 Mejia Colindres
was forced to borrow US$250,000 from the fruit companies to ensure that
the army continued to be paid.

The Era of Tiburcio Carias Andino, 1932-54

     The onset of the depression led to the overthrow of governments
throughout Latin America-in nations with much stronger economic traditions
than that of Honduras. But despite growing unrest and severe economic strains,
the 1932 presidential elections in Honduras were relatively peaceful and
fair. Mejia Colindres resisted pressure from his own party to manipulate the
results to favor the Liberal candidate, Angel Zuniga Huete. As a result, the
National Party candidate, Carias, won the election by a margin of some 20,000
votes. On November 16, 1932, he assumed office, beginning what was to be the
longest period of continuous rule by an individual in Honduran history.

     When Carias became president, Honduras was still suffering from most
of the conditions that had afflicted its development in the nineteenth
century. The bulk of the population was rural, isolated, uneducated, and
frequently in poor health. Over 80 percent of Hondurans were illiterate, and
in 1935 only about 6 percent of the school-age population was actually
attending classes. That same year there were only 2,674 secondary and 157
university students in the entire nation. Transportation remained the great
bottleneck in efforts to overcome economic and social underdevelopment.
Tegucigalpa was now linked by road to the Pacific coast, but not to the better
ports on the Caribbean or to the emerging commercial center of San Pedro Sula.
It also remained the only capital city in Central America without rail
service. The banana companies had continued to build lines for their own needs
but had failed to fulfill their contracts to provide service to the major
cities. Standard Fruit had promised for years to build a line to the
departmental capital of Yoro but had never complied, and it continued to
benefit from all the privileges of its generous government railroad
concession. In 1932 the government altered the contract to reduce the amount
of track that Standard Fruit was supposed to build toward Yoro from 26.7 to 12
kilometers annually. Standard Fruit, however, was required to post a
US$50,000 bond to guarantee completion of the work. In 1935 the company chose
to forfeit the bond rather than continue construction, leaving Yoro without
a railroad. United Fruit was making no greater progress on its promised line
from Trujillo and Puerto Castilla to Tegucigalpa.

     There were some notable changes from the Honduras of 1900 to the Honduras
of the 1930s. The debt situation was not as unmanageable; exports and
government revenues were greater, although the depression was causing rapid
deterioration in both areas; and the major cities had begun to acquire
electricity, water, sewage systems, some paved roads and, in the case of
Tegucigalpa, even a streetcar system. The population had also increased
considerably, reaching a total of 854,000 in 1930. Over 81 percent of the
economically active sector of this population was still engaged in
agriculture, but a few small consumer industries had begun to develop. Even
the military was becoming a bit more modernized, and a small air force had
been established.

     There was no immediate indication that the Carias administration was
destined to survive any longer than most of its predecessors. Shortly before
his inauguration, dissident Liberals, despite the opposition of Mejia
Colindres, rose in revolt. Carias took command of the government forces,
obtained arms from El Salvador, and crushed the uprising in short order.

     Most of Carias' first term in office was devoted to efforts to avoid
financial collapse, improve the military, engage in a limited program of
road building, and lay the foundations for prolonging his own hold on power.
The economic situation remained extremely bad throughout the period. In
addition to the dramatic drop in banana exports caused by the depression, the
fruit industry was further threatened by the outbreak in 1935 of epidemics
of Panama disease (a debilitating fungus) and sigatoka (leaf blight) in the
banana-producing areas. Within a year most of the country's production was
threatened. Large areas, including most of those around Trujillo, were
abandoned, and thousands of Hondurans were thrown out of work. By 1937 a means
of controlling the disease had been found, but many of the affected areas were
not brought back into production, and a significant share of the market
formerly held by Honduras had been shifted to other nations.

     Carias had made efforts to improve the military even before he became
president. Once in office, both his capacity and his motivation to continue
and to expand such improvements were further increased. He gave special
attention to the fledgling air force, founding the Military Aviation School
in 1934 and arranging for a United States colonel to serve as its commandant
(see Historical Background, ch. 5).

     As months passed, Carias moved slowly but steadily to strengthen his
hold on power. He gained the support of the banana companies by his
opposition to strikes and other labor disturbances. He strengthened his
position with domestic and foreign financial circles by his conservative
economic policies. Even in the height of the depression he continued to make
regular payments on the Honduran debt, adhering strictly to the terms of the
arrangement with the British bondholders and also satisfying other creditors.
Two small loans were paid off completely in 1935.

     Political controls were instituted slowly. The Communist Party of
Honduras (Partido Comunista de Honduras-PCH) was outlawed, but the Liberals
continued to function, and even the leaders of a small uprising in 1935 were
later offered free air transportation should they wish to return to Honduras
from their exile abroad. But at the end of 1935, stressing the need for
peace and internal order, Carias began to crack down on the opposition press
and political activities. Meanwhile, the PNH, at the president's direction,
began a propaganda campaign stressing that only the continuance of Carias
in office could give the nation continued peace and order.

     The method chosen by Carias to extend his term of office was to call a
constituent assembly that would write a new constitution and select the
individual to serve for the first presidential term under this document.
Except for the president's desire to perpetuate himself in office, there
seemed little reason to alter the nation's basic charter. Honduras had
already had 13 constitutions (three of which had never entered into force),
and the latest had been adopted in 1924. The handpicked Constituent Assembly
of 1936 incorporated 30 of the articles of the 1924 document into the 1936
Constitution. The major change was the elimination of the prohibition on
immediate reelection of a president and vice president and the extension of
the presidential term from four to six years. Other changes included
restoration of the death penalty, some reductions in the powers of Congress,
and a clause denying citizenship, and therefore the right to vote, to women.
Finally, the new constitution included an article specifying that the
incumbent president and vice president would remain in office until 1943. Even
this did not satisfy the Honduran dictator, so in 1939 the Congress, now
reduced to a puppet body completely controlled by the PNH, obediently extended
his term in office by another six years.

     As might be expected, the PLH and other opponents of the government
reacted to these changes by attempting to overthrow Carias. Numerous efforts
were made in 1936 and 1937, but all were unsuccessful and succeeded only in
further weakening the opposition. By the end of the 1930s the PNH was the only
organized functioning political party in the nation. Numerous opposition
leaders were imprisoned, some were reportedly even chained and put to work
in the streets of Tegucigalpa. Others, including the leader of the Liberals,
Zuniga Huete, fled into exile.

     Despite such actions, the dictator retained considerable popularity,
especially in rural areas. This may have been owing in part to a 1935 law
that gave small farmers the right to colonize up to 20 hectares of government
lands. He was less popular on the North Coast, where his continued repression
of labor produced growing resentment. Unemployment was also high in this area,
a situation that was aggravated when the government allowed the United Fruit
Company first to abandon its operations on many of its railroad lines and
then, in return for a small cash payment and the surrender of some abandoned
lands to the government, to tear up the track and bridges that had been
constructed linking Trujillo with the interior and to sell the rails abroad
for scrap steel.

     After the Japanese bombing of Pearl Harbor, Honduras wasted no time in
aligning itself with the United States, declaring war on Japan on December 8,
1941, and on Germany a few days later. In February 1942 the United States
signed a Lend-Lease agreement with Honduras, providing a few additional
aircraft and other equipment. There was also some increase in United States
training of the military during World War II. In return, Honduras allowed
the United States to operate a small naval base at Trujillo and furnished some
additional exports for the war effort (see Foreign Military Assistance and
Training, ch. 5).

     The onset of the war dealt a severe blow to the Honduran economy, which
had just begun to recover from the effects of the depression and of the banana
diseases. Because of wartime demands for shipping, importation of bananas to
the United States was drastically curtailed, declining from 52 million stems
in 1941 to 27 million in 1942 and less than 25 million in 1943. In 1943 the
United States sent another financial mission to Honduras, which recommended
several changes in monetary and banking policy and an increase in the supply
of agricultural credit. Despite the problems revealed by the mission's study
and the decline in the banana trade, the nation's overall fiscal situation
remained much better under Carias than under his predecessors. In 1943-44 the
government actually produced a budget surplus.

     During his presidency, Carias cultivated close relations with his fellow
Central American dictators, generals Jorge Ubico in Guatemala, Maximiliano
Hernandez Martinez in El Salvador, and Anastasio Somoza Garcia in Nicaragua.
Relations were particularly close with Ubico, who helped Carias reorganize
his secret police and also captured and shot the leader of a Honduran uprising
who made the mistake of crossing into Guatemalan territory. Relations with
Nicaragua were somewhat more strained as a result of the continuing border
dispute, but Carias and Somoza managed to keep this under control throughout
the 1930s and 1940s.

     The value of these ties became somewhat questionable in 1944 when
popular revolts in Guatemala and El Salvador deposed Ubico and Hernandez
Martinez. For a time it seemed as if revolutionary contagion might spread
to Honduras as well. A plot, involving some military officers as well as
opposition civilians, had already been discovered and crushed in late 1943.
In May 1944 a group of women began demonstrating outside the presidential
palace in Tegucigalpa, demanding the release of political prisoners. Despite
strong government measures, tension continued to grow, and Carias was
ultimately forced to release some prisoners. This failed to satisfy the
opposition, and antigovernment demonstrations continued to spread. In July
several demonstrators were killed by troops in San Pedro Sula. In October
a group of exiles invaded Honduras from El Salvador but were unsuccessful
in their efforts to topple the government. The military remained loyal,
and Carias continued in office.

     Anxious to curb further disorders in the region, the United States began
to urge Carias to step aside and allow free elections when his current term
in office expired. Carias, who by then would be in his early seventies,
ultimately yielded to these pressures and announced elections, in which he
would not be a candidate, for October 1948. He was not, however, about to
give up all power. The National Party nominated his choice for president,
Juan Manuel Galvez, who had been minister of war since 1933. Exiled opposition
figures were allowed to return to Honduras, and the Liberal Party, trying to
overcome years of inactivity and divisions, nominated Zuniga Huete, the same
individual whom Carias had defeated in 1932. The PLH rapidly became convinced
that it had no chance to win and, charging the government with manipulation of
the electoral process, boycotted the elections. This gave Galvez a virtually
unopposed victory, and in January 1949 he assumed the presidency.

     Evaluating the Carias presidency is a difficult task. It provided the
nation with a badly needed period of relative peace and order. The fiscal
situation improved steadily, the road network was expanded, the armed forces
were modernized, and education improved slightly. At the same time, nascent
democratic institutions withered, opposition and labor activities were
suppressed, and national interests at times were sacrificed to benefit
supporters and relatives of Carias or major foreign interests.

     Once in office Galvez demonstrated more independence than had generally
been anticipated. Some policies of the Carias administration, such as road
building and the development of coffee exports, were continued and expanded.
By 1953 nearly one-quarter of the government's budget was devoted to road
construction. Galvez also continued most of the prior administration's fiscal
policies, reducing the external debt and ultimately paying off the last of
the British bonds. The fruit companies continued to receive favorable
treatment at the hands of the Galvez administration, for example, United Fruit
received a highly favorable 25-year contract in 1949.

     There were, however, some notable alterations from the preceding 15
years. Education received increased attention and began to receive a larger
share of the national budget. Congress actually passed an income tax law,
although enforcement was sporadic at best. The most obvious change was in the
political arena. A considerable degree of press freedom was restored, the
Liberals and other groups were allowed to organize, and even some labor
organization was permitted. Labor also benefited from legislation during this
period. Congress passed, and the president signed, legislation establishing
the eight-hour workday, paid holidays for workers, limited employer
responsibility for work-related injuries, and regulations for the employment
of women and children.

Aborted Reform, 1954-63

     The relative peace that Honduras had enjoyed for nearly two decades
was shattered by a series of events during Galvez' last year in office.
Tension throughout the region had been increasing steadily as a confrontation
developed between the left-leaning government of President Jacobo Arbenz
Guzman in Guatemala and the United States. Part of the confrontation involved
the expropriation of United Fruit Company lands and charges that the
Guatemalan government was encouraging agitation among the banana workers.

     The United States began considering actions to overthrow the Guatemalan
government in 1952. Honduras had given asylum to several exiled opponents
of Arbenz, including Colonel Carlos Castillo Armas, but Galvez was reluctant
to cooperate in direct actions against Guatemala, and the plans were not
activated. By early 1954, however, a major covert operation against Guatemala
was being organized, this time with greater Honduran cooperation. One reason
for the changed attitude was the Honduran government's concern over increased
labor tensions in the banana-producing areas, tensions that the fruit
companies blamed, in part, on Guatemalan influence.

     In early May 1954 a series of strikes broke out against United Fruit
Company operations on Honduras' North Coast. Within a few days the strike
spread to include the Standard Fruit Company operations, bringing the
banana industry in the country to a near standstill. The strikers presented
a wide range of grievances, involving wages, working conditions, the right
to collective bargaining, medical benefits, and overtime pay. Initial
government efforts to end the strike failed, and work stoppages began to
spread into other industries. By May 21 the number of strikers was approaching
30,000, and the nation's economy was under severe strain.

     While the strike was spreading, Honduras was also becoming more deeply
involved in the movement to topple the Arbenz government in Guatemala. In late
May a military assistance agreement was concluded between the United States
and Honduras, and large quantities of United States arms were quickly shipped
to the Honduras. Much of this was passed on to anti-Arbenz rebels commanded by
Castillo Armas. In June these forces crossed into Guatemala, and after several
days of political maneuvering, but little actual fighting, Arbenz fled into
exile and Castillo Armas became president. With the specter of foreign
influence over the strike thus removed, negotiations began, and the strike
ended in early July. Labor leaders who had been accused of having ties with
Guatemala had previously been jailed, and the final settlement, which met few
of the original demands, was signed with elements more acceptable to the
government and the fruit companies. Despite the limited gains, however, the
strike did mark a major step toward greater influence for organized labor in
Honduras and a decline in the power of the fruit companies.

     In the midst of these conflicts, the campaign for the 1954 elections
continued. Unhappy with some of Galvez' gestures toward liberalization,
Carias, despite his advanced age, decided to run for president and secured
the PNH nomination. This, however, split the party, and more moderate members
broke away to form the National Revolutionary Movement (Movimiento Nacional
Revolucionario-MNR). Their nominee was former vice president Abraham Williams
Calderon. The split in the ruling party encouraged the Liberals, who united
behind Ramon Villeda Morales, a Tegucigalpa physician who was seen as
somewhat to the left of center in the party's internal spectrum.

     Both the campaign and the election were remarkably free and honest. On
October 10, 1954, approximately 260,000 out of over 400,000 eligible voters
went to the polls. Villeda Morales won a large plurality with 121,213 votes,
Carias received 77,041, and Williams 53,041. The Liberals also gained a
plurality in the Congress. But under Honduran law it took a majority of the
total votes to be elected president; this Villeda Morales lacked by just
over 8,000 votes. The stage was set for a repeat of the confusing paralysis
of 1924 because the constitution required that two-thirds of the members of
the new Congress must be present and vote to determine the winner of such a
contest and that the victor must receive two-thirds of the congressional
vote. To complicate matters further, Galvez suffered a heart attack and was
rushed to Miami, leaving the government in the hands of Vice President Julio
Lozano Diaz.

     Unable to reconcile their differences and unwilling to see Villeda
Morales as president, the PNH and MNR deputies boycotted Congress,
producing a national crisis. In such a case the constitution provided that
the Supreme Court of Justice, dominated by Carias appointees, would make the
selection, a course of action the PLH opposed. At this juncture, Lozano Diaz
suddenly suspended Congress and announced that he would act as president
until new elections could be held. He declared that he would form a national
government with cabinet members taken from all major parties and received
pledges of support from all three candidates in the 1954 election. A Council
of State, headed by a Liberal but including members of all three major
parties, was appointed to replace the suspended Congress until a constituent
assembly could be chosen to write yet another constitution.

     Lozano Diaz began his period as president with a broad base of support,
but this eroded rapidly. He unveiled an ambitious development plan to be
financed by international loans and increased taxes and also introduced the
nation's first labor code. This document guaranteed workers the right to
organize and strike but gave employers the right of lockout and forbade
strikes in public services. The code also embodied some social welfare and
minimum-wage provisions and regulated hours and working conditions. All this
gained him some labor support, but in later months relations between the
president and labor began to sour.

     As time passed, it became clear that Lozano Diaz had ambitions to
replace the traditional parties with one that he controlled and that would
help prolong his hold on power. The Council of State was reduced to a
consultative body, elections were postponed, and the president set about
forming his own party, the National Unity Party. The activities of other
parties were limited, and in July 1956 Villeda Morales and other Liberal
leaders were suddenly arrested and flown into exile. A few weeks later the
government crushed an uprising by 400 troops in the capital, but public
opinion was becoming increasingly hostile to the president, and rumors of
his imminent fall had begun to circulate.

     Following the August uprising, Lozano Diaz health began to deteriorate,
but he clung stubbornly to power. Elections for the Constituent Assembly in
October were boycotted by most of the opposition, which charged that the
process was openly rigged to favor the president's supporters. The results
seemed to confirm this, as National Unity Party candidates were declared
the winners of all 56 seats in the Assembly. They did not, however, have
long to enjoy their victories. On October 21 the armed forces, led by the
commanders of the army and air force academies and by Major Roberto Galvez,
the son of the former president, ousted Lozano Diaz and set up a military
junta to rule the country.

     This coup marked a turning point in Honduran history. For the first
time the armed forces had acted as an institution rather than as the
instrument of a political party or of an individual leader. The new rulers
represented younger, more nationalist, and reform-minded elements in the
military. They were products of the increased professionalization of the
1940s and 1950s. Most had received some training by United States military
advisers, either in Honduras or abroad. For decades to come, the military
would act as the final arbiter of Honduran politics (see The Military, ch.
4; Development of an Independent Military Identity, 1922-63, ch. 5).

     During its 14 months in power, the military junta was generally
successful in confronting three major challenges. First was the
reorganization of the military itself. Older political officers were removed
or assigned to positions that lacked power, and key troop commands were given
to younger, better trained officers. They also ensured that the new
constitution, written in 1957, established the autonomy of the military.
Presidents had to issue all orders through the chief of the armed forces, who
in turn took an oath to defend the constitution and not to obey orders that
violated either the spirit or the letter of that document. Disputes between
the president and his armed forces commander were to be referred to Congress
for resolution (see Patterns of Civil-Military Relations, ch. 4).

     The second task was to deal with a renewed border conflict with
Nicaragua. Rumors of possible petroleum deposits in the disputed territory
led the junta to incorporate the region into an administrative department and
then to dispatch troops to defend the Honduran claim. Nicaragua responded in
kind, and both sides appealed to the Organization of American States (OAS). In
May 1957, while the OAS was considering the problem, there were brief military
clashes. An OAS team rushed to the area and arranged a cease-fire. Eventually,
both nations were persuaded to submit the dispute to the International Court
of Justice, which in 1960 upheld the 1906 award of King Alfonso XIII, a
decision that favored Honduras. After some hesitation and renewed tension,
Nicaragua accepted the decision, and the dispute was finally resolved in 1963
(see Nicaragua, ch. 5).

     The final problem was the holding of elections for a constituent
assembly and the selection of a new president. A system of proportional
representation was agreed upon, and elections were held in October. The
Liberals won a majority and in November, by a vote of 37 to 20, the Assembly
selected Villeda Morales as president for a six-year term beginning January
1, 1958.

     The Liberals assumed power with high hopes for developing their nation,
but they faced formidable obstacles. In 1957 the population had reached 1.7
million, twice what it had been in 1930. Urban population had grown even more
rapidly. Tegucigalpa now had approximately 100,000 inhabitants, and San Pedro
Sula, which was entering a boom cycle, had 55,000. But in 1960 Honduras was
still 78 percent rural, the highest percentage in Central America. In 1958
about 48 percent of the gross national product (GNP-see Glossary) was
generated by agriculture, forestry, hunting, and fishing-the highest
percentage of GNP related to rural activities in Central America.
Manufacturing was increasing, providing about 12 percent of GNP in 1957, but
the mining sector was severely depressed, providing only 1 percent that same
year (see Growth and Structure of the Economy, ch. 3).

     Numerous other factors hindered development. Communications remained a
major problem. At the end of 1955 Honduras had only 40 kilometers of paved
road. Half of the 2,300 kilometers of unpaved roads were not passable during
the rainy season. Rail service had actually deteriorated since the 1930s,
and what remained continued to serve the interests of the fruit companies.
Air service was perhaps the most advanced sector of transportation, but of
the 30 existing airports, only the one at Tegucigalpa met international
standards. Honduras also lacked electric power, having less available in
1958 than any other Latin American country except Haiti. Telephone and
telegraph service covered most of the nation but, especially in the case of
the telephone system, was severely overburdened.

     Human resources were also limited. Nearly two-thirds of all adults were
still illiterate, despite a government literacy program. There were 1,879
rural schools, most offering only three years of instruction, and 437 urban
primary schools in 1957. An estimated 39 percent of school-age children
were enrolled in these institutions, but average attendance was much lower.
Only 48 percent of those enrolled in first grade made it to second grade,
and only 9 percent made it to sixth grade. In rural areas the percentages
were 33 percent for second grade and 1 percent for fourth grade. In the
entire nation only 7,000 students were enrolled in secondary schools and
1,000 in higher institutions. To serve the agricultural sector of the
economy, Honduras had two individuals with master's degrees in agriculture.
Health conditions added to the problems caused by lack of education. In
1956 malaria was still the leading cause of death, followed by influenza
and pneumonia, intestinal infections, and infestation by parasites. Only 30
percent of the population wore shoes. One compensating factor was that the
Honduran diet was somewhat better than the average for Central America.

     Government resources for dealing with these problems were quite limited.
In 1960 central government revenue totaled only US$16 per capita. Only 0.8
percent of the population paid any income tax, and the average property
tax collected was US$0.16 per capita. Honduras still derived 48.3 percent of
government revenues from import duties. Prices for basic exports, notably
coffee and bananas, were down, as were banana shipments. As a result, the
nation had acquired a US$5 million budgetary deficit in 1957.

     The new Liberal administration undertook several major initiatives in
its efforts to improve and modernize Honduran life. Funds were obtained
from the International Monetary Fund (IMF-see Glossary) to stabilize the
currency and from the World Bank (see Glossary) to begin paving a highway
from the Caribbean coast to the capital. Efforts were undertaken to expand
education. But the greatest attention was devoted to passing a new labor
code, establishing a social security system, and beginning a program of
agrarian reform.

     The new labor code was adopted in 1958. It restated most of the benefits
that were included, but frequently not enforced, in the earlier code and
added several new provisions covering items such as paid vacations and
severance pay. At the same time, the government was given broad powers to
resolve labor conflicts. The major cost of financing workers' insurance
was placed on employers and on the newly created Honduran Social Security
Institute (Instituto Hondureno de Seguro Social-IHSS). The first social
security legislation had been passed in 1957 but only came into effect in
July 1959. Contributions to the IHSS were to be divided among employers,
workers, and the government and were to cover unemployment insurance,
retirement and disability benefits, and even benefits for illness or maternity
leave. While coverage and enforcement were sporadic at best, the code did
represent a notable step forward for Honduras, giving it the most advanced
legislation of this kind in Central America.

     Since World War II, increasing areas of Honduran agricultural land had
been converted to the commercial production of coffee, cattle, cotton, and
other crops. As a result of this and of the steady increase in population,
the number of rural families without land or working inadequate plots of land
had increased greatly by the late 1950s, reaching up to 50 percent of the
rural population by some estimates.

     The new administration first tried to deal with this problem by
distributing government lands, including some recently returned by the fruit
companies as compensation for not fulfilling their railroad contracts. Some
30,000 hectares were redistributed in this manner, but this made only a
small dent in the problem. The National Agrarian Institute (Instituto
Nacional Agrario-INA) was set up in 1961 to coordinate colonization and
agrarian reform programs and to settle disputes over land but had a limited
impact. In 1962, in accordance with the goals of President John F. Kennedy's
Alliance for Progress, President Villeda Morales proposed, and Congress
passed, the Agrarian Reform Law. The law provided for nationalization with
compensation of undeveloped agricultural land and also provided for an
escalating tax on such land. Land taken over by the government was to be
redistributed to landless peasants in plots not smaller than two hectares
(see land Tenure and Agrarian Reform, ch. 3).

     While the agrarian reform program was being established, various
organizations of Honduran peasants began to form in rural areas. The first
federations of such groups were the National Federation of Honduran Peasants
(Federacion Nacional de Campesinos de Honduras-FENACH) and the National
Association of Honduran Peasants (Asociacion Nacional de Campesinos de
Honduras-ANACH) (see Business, Labor, and Peasant Organizations, ch. 4).
FENACH was considerably more radical while ANACH, linked with the National
Federation of Honduran Workers (the nation's largest labor confederation),
was more moderate and had ties to the United States-based American Federation
of Labor and Congress of Industrial Organizations (AFL-CIO). Both, however,
became involved in land invasions by peasants in the early 1960s, invasions
that INA, on occasion, later helped legalize.

     The reform program produced increasing opposition among the more
conservative elements in Honduran society. There were scattered uprisings
during Villeda Morales' initial years in power, but the military remained
loyal and quickly crushed the disturbances. Military support began to
evaporate in the early 1960s, however. This was in part due to rising
criticism of the government by conservative organizations such as the
National Federation of Agriculturists and Stockraisers of Honduras
(Federacion Nacional de Agricultores y Ganaderos de Honduras-FENAGH), which
represented the large landowners. It also reflected concern over what was
viewed as increased rural disorders and growing radical influence in labor
and peasant groups. Deteriorating relations with neighboring states, notably
Nicaragua, also contributed to the tension. But the major causes were the
president's creation of the Civil Guard in 1957, a militarized police
commanded directly by the president rather than the chief of the armed forces,
and the prospect of another Liberal victory in the 1963 elections.

     The elections were scheduled for October 1963 and, as in 1954, the PLH
was confronting a divided opposition. The PNH nominated Ramon Ernesto Cruz,
but a faction split off and ran the son of ex-president Carias. The Liberals
ignored the wishes of their president and nominated Modesto Rodas Alvarado,
a charismatic, highly partisan figure believed to be to the left of Villeda
Morales. All signs pointed to an overwhelming victory for the Liberals, an
outcome that the military found increasingly unpalatable.

     Rumors of a coup began circulating in late summer. The United States
endeavored to make clear its opposition to such action, even dispatching a
high-ranking officer from the United States Southern Command in the Panama
Canal Zone to try to convince the chief of the armed forces, Air Force
Colonel Oswaldo Lopez Arellano, to call off the coup. Villeda Morales also
tried to calm military fears, taking the carbines away from the Civil Guard
and opposing plans for a constitutional amendment to restore direct command
of the military to the president. But all these efforts proved unavailing.
Before dawn on October 3, 1963, the military moved to seize power. The
president and the Liberal Party's 1963 presidential candidate were flown into
exile, Congress was dissolved, the constitution was suspended, and the
planned elections were cancelled. Colonel Lopez Arellano proclaimed himself
president, and the United States promptly broke diplomatic relations.