By 1907, Honduras had endured seven revolutions in fifteen years and was stricken with a foreign debt of $124 million. By the 1920s the all-powerful United Fruit Company (UFCO) had begun to exert strong influence in Honduras and by 1924 owned 88,000 acres of land. In 1929, UFCO paid $32 million to buy out its Honduran competitor, thus completing its takeover of fruit production in Honduras.
By the start of the Cold War, Honduras was the archetypal banana republic, the entire economy of which was controlled by large American fruit companies. In 1954, however, the political landscape in Honduras began to change. UFCO's workers went on strike, marking a significant change in Honduran labor practices. The series of coups and countercoups that followed the strike led to the rise to power of Dr. Villeda Morales in 1957. Modeling himself on Guatemalan President Jacobo Arbenz and Costa Rican leader José Figueres Ferrer, Morales introduced a labor code, social security, and agrarian reforms. However, the high level of control that U.S. investors held in Honduras stymied many of his reforms.
Honduras was critical to the United States in both geostrategic and financial terms, as its location served as an ideal base from which to influence other Central American nations. As such, Honduras was used as a base for the U.S.-armed and -trained forces that would march into Guatemala and overthrow the leftist Arbenz in 1954.
By the time President John F. Kennedy introduced the Alliance for Progress in 1961, Honduras was a key strategic U.S. ally. In 1963 Morales was overthrown and replaced by an army junta, causing great consternation in Washington. Kennedy severed all ties with Honduras, seeking to deter other ambitious militaries in Latin America. Ironically, however, Washington was largely responsible for creating the Honduran Army through a 1954 agreement and was forced to recognize that without the support of the Honduran junta, the Alliance for Progress had little chance of success. The net result in Honduras was to instigate a class war, which was further compounded in 1969 when El Salvador invaded Honduras in the infamous Soccer War, which broke out during a soccer match between the two countries.
By the end of the 1970s, Honduras had become a vast U.S. military base. Consequentially, the Honduran Army became even more powerful, while mounting social and economic ills were overlooked. Honduras had its place in the U.S. world order spelled out when President Gerald Ford's administration offered little help to Hondurans after a 1975 hurricane in retaliation for a proposed land redistribution policy. By the end of the decade, as Washington's policies in Central American began to disintegrate, Honduras again became a critical U.S. ally.
Deteriorating U.S.-Nicaraguan relations only heightened the importance of Honduras in Central America, especially during Ronald Reagan's presidency. During 1980–1984, U.S. military aid to Honduras jumped from $4 million annually to $77.5 million. Washington's focus on short-term strategic and military objectives backfired, however, when political instability in Honduras threatened to plunge the nation into a civil conflict. By the mid-1980s, Honduras was struck by an economic depression, with some observers fearing that Hondurans were being pushed toward leftist radicalization, similar to what had transpired in neighboring El Salvador.
Nevertheless, Hondurans were compelled to stay loyal to the United States because of its overwhelming dependence on American aid. Throughout the 1980s, the American military presence in Honduras grew exponentially, as Honduras had become a key component in Washington's efforts to overthrow the Nicaraguan Sandinistas. By the early 1990s and the end of the Cold War, with the Sandinista regime gone, U.S. aid to Honduras dropped dramatically, leaving the nation again in precarious economic straits.
Anderson, Thomas P. Politics in Central America: Guatemala, El Salvador, Honduras, and Nicaragua. New York: Praeger, 1988.; Lafeber, Walter. Inevitable Revolutions: The United States in Central America. New York: Norton, 1993.