Honduras to build three 'city states' from scratch

How about this for some radical free-marketeering? Honduras has unveiled plans to build three cities from scratch early next year complete with their own governments, laws, courts, police forces and tax systems.

The government in the violence-plagued Central American nation has now signed an agreement with the American developers MKG group to establish the three "charter cities".

The plan's backers say it is the only way to kick-start development in Honduras, which has the world's worst murder rate – 68 times higher than the UK's – and where 65 per cent of the country's eight million people lives below the poverty line.

But critics warn that it could mark a return to the dark days in Honduras when US companies controlled the government, owned vast tracts of territory and ordered police to massacre striking workers – an era that prompted political scientists to coin the term "banana republic".

MKG says it will initially invest $14m (£9m) for construction of the first phase of the first city, near Puerto Castilla on the Caribbean coast, and immediately create 5,000 jobs. In total, the company predicts the three cities will lead to 200,000 new jobs.

"The future will remember this day as the day that Honduras began developing," the MKG Group chief executive Mark Strong said at the signing ceremony.

Carlos Piñeda, who chairs the Commission to Promote Public-Private Partnerships, said the deal was a "development instrument typical of first-world countries" and marked the largest direct foreign investment in Honduras in 50 years. The signing follows a constitutional reform last year to permit "Special Administrative Regions" that will attempt to emulate the economic success of Asian city states such as Hong Kong and Singapore.

In recent years, Honduras has attempted to diversify its economy away from bananas and coffee, to include exports of clothing and car parts. But a massive wave of violent crime, triggered by drug cartels and savage street gangs known as maras, has stunted economic growth and even prompted analysts to talk of the country as a failing state.

Opponents claim outsourcing the government's responsibilities to the private sector will only further undermine the rule of law and weaken Honduras' democracy, which remains fragile following a 2009 coup. Edmundo Orellana, a former Attorney General and member of Congress, has warned that the charter cities would allow "multinational corporations" to establish "protectorates" by stealing sovereignty from citizens.

"We are going to see long, eternal queues like we see in Palestine [for people] to go to work in Israel, or queues just to move around," he told the Honduran newspaper La Prensa.

That allegation is likely to strike a nerve in Honduras, which, along with neighbouring Guatemala, was dominated by the Standard Fruit Company and United Fruit Company for much of the 20th century. The two corporate rivals built much of Honduras's modest infrastructure, including railways to transport banana harvests to Caribbean ports.

But they have also been lambasted for interfering in national politics – including pushing the Eisenhower administration to orchestrate the infamous 1954 coup against Guatemala's social democratic government, which led to decades of brutal civil war.