TORONTO - Although a military coup in Honduras will create instability that could affect its economy for some time to come, Canadian businesses are confident their operations in the Central American country won't be affected.
Toronto-based miner Breakwater Resources Ltd. (TSX:BWR) said Monday there has been no disruption at its Mochito zinc, lead and silver mine, which employs about 850 people, and all production and shipping schedules are intact.
"We're monitoring the situation closely and we'll update on any changes to the current status, but currently there's been no disruption to the operations, nor are we anticipating any," said company spokeswoman Ann Wilkinson.
She said Breakwater is prepared to respond as necessary to any business challenges related to the political situation.
Democratically elected president Manuel Zelaya fled the country Sunday after what he described as a coup. He had pushed to get a constitutional change that would allow him to run for another four-year term, but was ousted by the country's military with support from the congress and high court.
"When you get a government changing hands, you need to be alert and sensitive to the fact that the government has changed," Wilkinson said.
Montreal-based clothing manufacturer Gildan Activewear Inc. (TSX:GIL) also confirmed its facilities in Honduras -- which include textile and sock manufacturing facilities, a sewing facility and a distribution centre and employ more than 10,000 people -- will continue to operate as normal.
Gildan said its sock manufacturing facilities are continuing to operate at full capacity, while its textile and sewing facilities are taking two weeks of scheduled downtime.
"We're monitoring the situation with our local team, but as for now we are operating normally," said Gildan spokeswoman Genevieve Gosselin.
"We continue to be comfortable with the long-term stability of our investments in Honduras, and also the concentration of our assets in the country."
TD Newcrest analyst Jessy Hayem described the coup as "potentially negative" for Gildan, which does the bulk of its manufacturing in Honduras.
"It is clear to us that any political disruptions in Honduras represent a risk factor that has always been a consideration when analyzing Gildan," Hayem wrote in a note to clients.
"Any political instability stemming from the current situation is likely to pressure the stock in the near-term."
Gildan shares were down almost 10 per cent in Monday afternoon trading on the Toronto Stock Exchange.
Canadian companies with operations in the tiny Central American country needn't worry about their operations, although the instability created by the coup may discourage further Canadian investment in the country, according to Albert Berry, an economics professor at the University of Toronto's Centre for International Studies.
Berry described the military takeover as a "right-wing coup" that will likely replace Zelaya with a pro-business president.
Zelaya, who was elected by a narrow margin in 2005, was considered a centre-right candidate but was publicly backed by leftists like Venezuelan President Hugo Chavez, Bolivian President Evo Morales and Cuban leader Fidel Castro in his efforts to move away from the United States, causing him to lose the support of many in his own party.
"In general, companies that have already invested a lot, they certainly don't go out easily because they're going to lose too much," Berry said.
"The logical thing is just to wait it out with the pretty high likelihood that whoever finally settles into the chair of government is not going to be against you."
However, Berry said the coup will inevitably create instability in a country that is a relative newcomer to democracy, and this could frighten off future international investment in Honduras for the time being.
"You're obviously going to wait, in this case you're going to wait a year or whatever it takes for the political situation to unfold to the point where you can now predict, because right now you can't," he said.
"So any Canadian firm that was thinking about coming in is now going to think twice."
Soldiers in Honduras ousted Zelaya on Sunday and named a successor, but Zelaya denounced what he called an illegal coup and vowed to stay in power.
Zelaya was detained Sunday morning, hours before a constitutional referendum many saw as an attempt by him to stay in power beyond the one-term limit. An air force plane flew him into forced exile in Costa Rica as armoured military vehicles with machine guns rolled through the streets of the Honduran capital and soldiers seized the national palace.
Congress voted to accept what it said was Zelaya's letter of resignation, with even Zelaya's former allies turning against him. Congressional leader Roberto Micheletti was sworn in to serve until Jan. 27 when Zelaya's term ends.
Micheletti belongs to Zelaya's Liberal Party, but opposed the president in the referendum.
Zelaya denied resigning and insisted he would serve out his term, even as the Supreme Court backed the military takeover and said it was a defence of democracy.
Some businesses in the capital, Tegucigalpa, closed earlier this week amid the rising tension, and many speculated there would be a coup. Those who opposed the referendum warned against voting, fearing violence at the polls.
Coups were common in Central America for four decades reaching back to the 1950s, but Sunday's ouster was the first military power grab in Latin America since a brief, failed 2002 coup against Chavez. It was the first in Central America since military officials forced President Jorge Serrano of Guatemala to step down in 1993 after he tried to dissolve Congress and suspend the constitution.
Breakwater shares were unchanged at 30 cents in Monday trading on the Toronto Stock Exchange. Gildan shares were down $1.80 or 9.7 per cent to $16.82.
