The Prósperaty Gospel

What's happening with charter cities in Honduras?

One of the biggest dilemmas I faced while writing The Hidden Globe was whether/how much/how the heck to write about Próspera, a semi-autonomous “charter city” or ZEDE on the Honduran island of Roatan.

The story was (and is) legitimately interesting to me: while it didn’t strike me as being as groundbreaking as boosters hoped and critics feared, it still hinted at the shape of new cities to come: carveouts within a state with their own rules, currency, and political culture. It was the most significant (and, arguably, only) development in the charter city universe: the enclave was about as devolved from national laws as you could get, and it had buy-in from the state, big-name Silicon Valley investors, and a cast of lesser-known but colorful characters. I’d certainly been covering it for long enough—it had been almost a decade—and I’d conducted more interviews than I can count.

But even in the best circumstances, it’s tricky to write about a fast-changing situation in a book that won’t be published for months and will (hopefully) be read for years to come. Próspera was made even more unpredictable due to the pandemic and the controversial political nature of the project.

I’d initially planned to travel to Roatan in late 2021, do my reporting, and write a relatively straightforward chapter on the ideas and people shaping Próspera—you know, the kind of thing you’d read in a mainstream magazine that contrasts foreign ideological masterminds with unhappy locals trying to maintain control over their land and way of life. I was six months pregnant with a toddler at home and the pall of Covid all around, but I’d pulled off a trip to Dubai the month prior and I figured this would probably be my last chance before I was too huge, too tired, and too busy to travel. Besides, what East Coaster can turn down a Caribbean beach in dreary December? Not me! So I found a translator, booked a hotel, and even bought plane tickets to fly there via Miami and Tegucigalpa.

Sadly, my beach trip was not to be, because in quick succession, two things happened. The Omicron variant of Covid-19 swept through the world, making travel and testing an annoying, risky ordeal. Then, the leftist Xiomara Castro won the presidential election in Honduras after having campaigned on an overtly anti-charter-city platform.

A week before my planned departure, I got in touch with my contacts at the Charter Cities Institute, whom I’d planned on shadowing with while they filmed a documentary. They confirmed that the trip was off. The pandemic was dicey—but the politics were downright hostile.

Since then, I’ve had to follow the charter city from afar (the actual chapter ended up taking another direction: to find out, you should pre-order my book). And although the Honduran Congress voted to partially nix the law allowing for this sort of free zone in late 2022, Próspera has hung in there, most visibly by getting a little weird and courting bio-hackers seeking experimental treatments they can’t get in the U.S.

Some medical tourists, including seasteading impresario Patri Friedman, got injections of follistatin, a gene therapy meant to enhance athletic performance (Friedman stopped the treatment to help test its reversability, but had only good things to say about it and plans on restarting when he can.) This led to the jurisdiction launching Vitalia, a “decentralized permanent city focused on accelerating the development of life extension technologies” (there is a joke, here, about death and taxes.)

Is this the Ayn Rand-worshipping, tax-evading, regulation-avoiding worse case scenario that some of us feared back in 2012, when the Honduran government approved the creation of semi-autonomous jurisdictions on the country’s soil? Not quite, though there is a lot of crypto (there is always a lot of crypto.) For now, it’s more of a playground than a snakepit, and it’s coasting on the appeal of these little perks and its beachside location. I expect more parties, experiments, and weirdness to come.

This isn’t to say it won’t get more serious. The jurisdiction says it’s raised $100 million, which in real estate terms is not a lot, though it is understandably upsetting to people who live there and don’t want any part in the project. Próspera is developing a bunch of possibly more significant things, too, like a commercial court, outside the national system, staffed with arbiters imported (perhaps via Zoom!) from Arizona. It still accepts Bitcoin as currency and it still says it wants to be like Singapore or Hong Kong to attract residents and businesses and commerce with its good rules and laws (spend enough time in this space and you’ll know how common, and indeed how ideological these statements really are.)

So Prospera is alive and well, free markets and all. But for how long? That is the $11 billion dollar question.

In 2022, Próspera’s Delaware-registered parent company filed an $10.7 billion lawsuit with the International Centre for Settlement of Investment Disputes (ICSID), a tribunal overseen by the World Bank, against the state of Honduras, accusing it of failing to respect international investment treaties.

These treaties, and the tribunals that settle their disputes, have always been controversial. The basic argument in favor of the treaties (of which there are hundreds) is that they help poor countries make money by appealing to outside investors who wouldn’t otherwise trust their domestic laws (the data suggest they don’t really move the needle, economically). Advocates think of them as an extra layer of security against, say, expropriation: what foreign entrepreneur would open a factory if they thought it could be taken away at a moment’s notice?

The argument against this system is that it puts investors’ financial interests before states’ by design, encroaching on national sovereignty and democracy and allowing shell corporations to sue entire countries for absurd sums of money.

That view seems to be gaining ground: in 2023, Elizabeth Warren and her allies criticized the Próspera lawsuit in a letter, and urged the U.S to support Honduras over the American plaintiffs “to ensure that such egregious cases can no longer disrupt democratic policymaking by working to eliminate ISDS liability in preexisting agreements in our hemisphere,” she wrote.

Then, in early 2024, Honduras went even bigger, announcing it would pull out of the ICSID convention altogether.

Importantly, this does not retroactively kill Prospera’s claim against Honduras. But it’s not a great sign for charter cities and the investors funding them, either: not in Honduras nor elsewhere.

And from where I’m sitting, the situation is pretty ironic.

Foreign businessmen lobbied a previous Honduran government to grant them a bespoke free-market jurisdiction with the rules and laws and regulations they liked best—a system they thought they could work with to spread their particular vision of a just society, and also, of course, make money. They pulled it off, but when the government challenged them, they went on the defensive and hired fancy lawyers at White & Case to sue the state.

Honduras kept fighting back. It moved to end the charter city concession, and made a global political statement by denouncing the rules that favor foreign investors in the first place. That means one less state onboard with the favorable-to-capitalists status quo. And not just that: it’s pitted American politicians, and international progressive groups against Próspera, when they might have otherwise ignored them.

So while we will be hearing from Próspera Honduras (or is it Próspera Delaware?) for many years to come, I’m starting to think that the Roatan saga is going to have repercussions beyond the confines of the little beachfront free zone. This result may well have been the plan all along: it’s certainly making a splash. But for the true believers, that might not end up being such a good thing.