Prompted by the breakdown of the second round of negotiations in Costa Rica, the European Union has suspended development aid to Honduras, valued at $90 million (US), until the current political crisis is resolved. The figure represents aid for the period 2007-10.

Benita Ferrero-Waldner, the EU’s External Relations Commissioner, said that this had been a “difficult decision” based on exceptional circumstances, but added that she strongly urged all parties to avoid any action that might increase tension in Honduras.

This is the latest in a series of similar retractions by the international community, who have been unanimous in their support of former President Manuel Zelaya. The withdrawal of financial aid is a symbolic gesture, which demonstrates the EU’s refusal to acknowledge the legitimacy of the interim government headed by Roberto Micheletti. Agreements on a new trade treaty between the European Union and Central America have also been put on hold.

Zelaya was flown out of the country by the military on June 28. Since then, Micheletti´s interim government has failed to garner any significant international support.

In the days following Zelaya’s ousting, the World Bank placed subsidies to Honduras on hold. Oil shipments from Venezuela ceased almost immediately. And with Honduras’ suspension from the Organization of American States, all member countries were advised to “review their relations” with the country.

Several countries have now withdrawn their ambassadors, demonstrating their condemnation of the current government. In a move that has exacerbated tensions with Venezuela, top Venezuelan envoys have now been ordered out of Honduras, accused of meddling in governmental processes. In a July 21 speech, interim President Micheletti gave a 72-hour deadline for diplomatic staff to leave. He also cited Venezuelan aggression, through repeated threats of military action, as a reason for the expulsion order.

The announcement by the European Union has further increased Honduras’ diplomatic isolation. Yet it is feared that those who will feel the brunt of these methods will be the country’s poorest communities – ironically many of whom support calls for Zelaya to be reinstated.

Zelaya has now urged his supporters to impose targeted sanctions against the leaders of the interim government – a list of whom he has provided. Economists have warned that such sanctions would be difficult to enforce.

Honduras is the third-poorest country in Latin America, behind Paraguay and Haiti. A large proportion of development loans from the West is spent on medical care; it is estimated that 50,000 children under the age of five die each year from drinking unclean water.

The nation is also still feeling the effects of Hurricane Mitch, which struck in 1998, crippling an already-fragile infrastructure. Micheletti’s government may have enough residual funds to last until the planned November elections, but the impact of the withdrawal of aid is likely to last a lot longer.

The U.S. is the largest individual lender to Honduras, with an estimated total of $200 million each year. Although the U.S. government acted quickly to suspend development aid, with an estimated value of $20 million, the bulk of U.S. subsidies, for essentials such as clothing and shelter, are continuing until further notice. But U.S. Secretary of State Hillary Clinton has hinted that Washington could impose more severe sanctions if the interim government does not acknowledge Zelaya’s right to return.

In a speech held at the Presidential Residence on July 20, Micheletti said that he would not back down over the issue, adding that by failing to recognize his government, President Obama was betraying one of the U.S.’s closest allies. A delegation has now been sent to Washington to lobby against international opinion that the events in Honduras have constituted a coup.

Historically, Honduras has been a key regional ally for the US. During the 1980s, the then-government allowed Honduran territory to be used as a springboard for operations against the Sandinista movement in neighboring Nicaragua. In more recent times, Honduran troops have fought alongside the U.S. military in Afghanistan and Iraq.

The current round of tough talk comes just months after several high-profile development agencies, including the U.S. Millennium Challenge Account for Honduras, were considering imposing restrictions on aid to Zelaya’s own government. The Swedish International Development Cooperation Agency made similar announcements.

An independent report, compiled by over 33 non-profit-making bodies in 2007, raised serious concerns over the lack of transparency in the application of international aid in Honduras. Government spokespeople claimed this was part of a conspiracy to undermine Zelaya’s leadership.

Numerous allegations of corruption within the Zelaya administration served further to undermine international perceptions. Past scandals have included contracting government advisers for non-existent jobs, and the abuse of resources in the government-owned telephone company, Hondutel.

Supporters of the former President argue that members of Micheletti’s government are using the current political crisis to protect their own interests in the business sector. It is too early, as yet, to confirm these allegations.

Should he return to Honduras, Zelaya faces arrest on charges of corruption, as well as 17 other criminal counts. Despite this, he remains determined to come back.