The dilemma of economic policy in Honduras to solve the high level of unemployment

Abstract

The cause of the high level of unemployment in Honduras is the deficiency in aggregate demand, which affects the economic growth of the country, and at the same time leads to a deflationary process. The solution to this problem is found in the application of the Keynesian Model by stimulating aggregate demand, through an expansive economic policy, lowering taxes and interest rates, increasing public investment expenditure and devaluing the national currency. However, the current economic context of Honduran economy does not allow applying these instruments, because, first, it is necessary to solve the great macroeconomic imbalances caused by the excessive current public expenditure and corruption. Currently, the contractive economic policy being implemented - with the support of the IMF - is based on the neoliberal model, stimulating the aggregate supply but not the aggregate demand. The paradox is that the contractionary policies that are being implemented, rather than contributing to the reduction of unemployment are increasing it, worsening the problem. But the great dilemma of the Honduran economic policy is that, in the short term, there is no choice. As soon as the economy stabilizes, the Keynesian Model could be applied, based on expansionary policies that would favor a drastic decrease in the unemployment rate.