Audio Transcript:

MARCO WERMAN: The economy of Honduras is also at the breaking point. The Central American nation was already hurting from the Global Economic Slowdown. Then in June the Honduran Army ousted the President, Manuel Zelaya. The political unrest has scared away tourists and foreign investors, and it's driven up unemployment. Hondurans are set to choose a new president on Sunday. Many of them hope the election will diffuse the crisis and get the country's economy back on track. Reporter John Otis sets the scene.

JOHN OTIS: American businessman Chris Haughey is trying to set up a toy factory on the outskirts of the capital, Tegucigalpa.

CHRIS HAUGHEY: So what you see in the factory here is roughly 50% of the machines were purchased here in country and the rest were, you know, have been brought in from the U.S.

OTIS: But shortly after Haughey broke ground, a military coup ousted President Zelaya. Street protests led to curfews, and that caused construction delays at Haughey's plant, pushing back the start-up date for toy production.

HAUGHEY: The impact for us has mostly been with delays. You know, providers not showing up because there's a curfew for all or part of the day and so they're not going to come out to the factory.

OTIS: Haughey is determined to stick it out, but most new business ventures in Honduras have been put on hold. Now the Honduran economy is expected to contract by 4% this year. But the economic problems began even before Zelaya was forced out of office. Most Honduran exports go to the United States, but the U.S. financial crisis depressed demand for the country's coffee, bananas and apparel. Remittances from Hondurans living in the U.S. also plummeted. Last January, President Zelaya boosted the monthly minimum wage to about $300. He also decreed that domestic workers are entitled to Social Security Pensions. Those moves prompted a wave of layoffs and turned the Honduran business community against Zelaya. Then came the military coup. Reductions in foreign aid to the de facto government of Roberto Micheletti soon followed. Now, many Hondurans are buying only buying essential items. Alaba Castaneda runs a printing press that turns out books, envelopes, and calendars. But since the political crisis began, Castaneda has laid off 5 of her 18 workers. Sales have dropped by 40%.

ALBA CASTANEDA: [Interpreted] There were curfews. We couldn't leave home. It seemed like war could breakout. So people only bought the bare essentials, like food, because people have to eat.

OTIS: Hotel owners claim the coup has been even worse for business than Hurricane Mitch, which laid waste to much of Honduras in 1998. Ana Maria Maradiaga runs the Hotel Escuela Madrid, a training school for future hotel and restaurant employees. She says aid workers flooded into Honduras after Hurricane Mitch and stayed in hotels for months. But the coup led to an exodus of tourists and a wave of cancellations.

ANA MARIA MARADIAGA: Tegucigalpa was completely empty. Big hotels, small hotels, restaurants. I mean, everywhere, the tourism in Tegucigalpa was dead.

OTIS: Honduras is the third poorest country in Latin America with nearly 70% of the population living below the poverty line. But the ongoing political crisis has put much needed aid projects on hold, says the American toymaker Chris Haughey.

HAUGHEY: There are constantly groups coming down from the U.S., from Canada, from other developed nations to assist with social project; water projects, health, you know, poverty alleviation. And those groups have basically put their plans on hold as well."

OTIS: President Zelaya remains holed up in the heavily guarded Brazilian Embassy in Tegucigalpa and it's unclear whether he will be reinstated before his term ends in January. Unlike the left-wing Zelaya, the two leading candidates in Sunday's presidential election are mainstream politicians with close ties to business and to the United States. U.S. Ambassador Hugo Llorens has pushed for Zelaya's return. But he also maintains that the swearing in of a democratically elected president to replace the de facto government could go a long way towards stabilizing the economy.

HUGO LLORENS: Our hope is that democracy can be restored, the country's situation can be normalized, its relations with the international community so that Honduras can again become a place for growth and investment.

OTIS: For The World, I'm John Otis, Tegucigalpa, Honduras.