Alex Ugorji: Life in a Honduran Free City Under Threat

Timothy Allen: I am after the truth, and especially I am always asking people for the downsides. We talk a lot about how great free jurisdictions are, how great Free Cities are, how they are great for local people, how they are great for incomers, how they are great for everyone. But obviously there are downsides.

Let us start somewhere else with you, because when we talk about Honduras, and we have done a number of episodes about Honduras, Honduras often comes up in the conversation. Everyone talks about Próspera, obviously, because Próspera has a much more public-facing brand. Often I have been speaking to people and they do not even know about Ciudad Morazán. They do not even realise there are other ZEDEs.

The only other time I have had an in-depth conversation about it was about a year ago, when I spoke to Massimo Mazzone on this show. We had Massimo come to Prague last year and we sat and talked for an hour and a half. That was the deepest dive I had ever had on Ciudad Morazán.

Now you are a resident of Ciudad Morazán, probably one of the oldest residents, are you? I do not know if you are the oldest.

Alex Ugorji: Longest, not oldest.

Timothy Allen: You know what I mean. So go on then, introduce yourself and give me a little bit of a timeline about how you ended up living in Ciudad Morazán.

Alex Ugorji: I am Alex Ugorji, and I am one of what used to be a handful, though the number is increasing slightly now, who lived inside a ZEDE. I have been inside Ciudad Morazán since early 2022. I have been living there almost three years now.

I moved to the ZEDE because I wanted to live someplace free where I could pursue my interests, build things and have fun without having to constantly worry about whether I had broken some regulation. We are getting to the point where you are going to have to ask permission to go to the bathroom pretty soon, so I wanted to mitigate that a little bit and go someplace where you are able to live your life unmolested.

I have been to a lot of places around the world looking for the land of the free and the home of the brave. Unfortunately, it does not seem to be available in America anymore. Honduras seemed to be leading with the ZEDE regime, so I moved to the ZEDE regime and I have been there happily ever since.

Timothy Allen: You are American originally?

Alex Ugorji: Yes.

Timothy Allen: Can you remember what prompted this search? Was it one particular thing, or was it just a general sense of, oh my God, something is going on?

Alex Ugorji: I think I got suckered in by the propaganda. They talk about the land of the free, so I thought freedom was important to people. It should be important to all Americans. Increasingly, I realised that America was not very free.

America is a complex thing. In some areas, it is the freest of any country, but you also have this massive government, the biggest government in the history of the world, that has tentacles extending to almost every inch on Earth, and that will enforce pretty draconian laws on people.

The Julian Assanges and others like that, who theoretically have no ties to America, are essentially jailed for years while America tries to extradite them. Roger Ver, people like that. It is pretty wild. SEC regulations, things like that.

The arm of the American empire reaches very far, and they are pretty ruthless in enforcement of relatively trivial matters that have no victims and are pretty mundane.

You have this big contrast. It is pretty cool that you can build guns and do all these cool things legally, and millions of people are doing this type of home firearms construction and other similar things that are pretty unique. The idea that you have a constitutional right to have a militia is very, very rare. I do not know if there are other countries that have that. That is a type of freedom. The free speech protections in America are quite good. That is a type of freedom.

But in terms of economic freedom, which is the most important to me, I do not need a militia. I do not particularly want a militia. If you live in a safe place and you can have high confidence in rule of law, and some ability to legally defend yourself, that is sufficient for my needs.

I realised that the things I actually want to do and build are heavily regulated inside the United States. The mundane matters are heavily regulated inside the United States, from seat belts to speed limits to things that affect you far more day to day. The potential to get tickets and fines and be arrested over mundane things is far higher in America.

Since I am not going to start a militia or do any of the free speech stuff, and I am not going to say anything too crazy, the normal free speech laws are sufficient for me so far. Maybe that will change. I hear in the UK they arrest people for tweets.

Timothy Allen: Correct.

Alex Ugorji: At that level, it is too much, but the rest of the world has not gone that far for the most part.

So, yes, it was this reckoning with the idea that the land of the free is not so free. Everything is taxed and you need permission for everything. I wanted to go someplace where that was not the case.

Initially I went to the Northern Mariana Islands, which is a U.S. territory in the Pacific near Guam and Japan. I would argue that it is the freest place in America. They have the normal American freedoms, but they lack the presence of the empire. The IRS does not have jurisdiction for most people there because it is a U.S. territory. They have customs autonomy, exemptions from the Jones Act, and many other local autonomies that are unparalleled in the U.S.

My first foray into the jurisdiction space was that I started a project to move a bunch of crypto people to the Northern Mariana Islands with the hope of creating an economic cluster, similar to Detroit for cars or Hollywood for movies. It is a small jurisdiction of 50,000 people, and if we could get a bunch of crypto people there, we could have a big impact and make a pretty cool ecosystem.

I started that project shortly before COVID-19. It was going fairly well. People moved over. We were meeting with the Senate. I met the governor. I met House representatives. There was an openness to attracting crypto people, making some reforms and doing stuff. Theoretically, they could even have made it so crypto spending was not a capital gains event, because the territory was distinct from the IRS.

That autonomy was huge at the time, I thought, because a big issue is that if you are a Bitcoiner, you cannot spend your Bitcoin without having a taxable event in the United States, which means basically no one is going to spend their Bitcoin at scale, because they do not want to deal with all the paperwork later.

I later realised that no one is going to spend their Bitcoin anyway. It is just not a competitive medium of exchange. Credit cards actually work very well. You get paid to use them. You can charge back transactions, so from the buyer perspective they are very good. From the merchant perspective, very few people generally charge back, and you get access to all the consumers, all the people with money. Generally, wealthy people love credit cards. They love the points, the miles, and so on.

As I was trying to build this crypto ecosystem, I realised two things. First, the competitiveness of non-stablecoins is quite low because most people who believe in the future of crypto do not want to spend their money. They want to hold it and spend their bad money. Then there are all the technical and logistical challenges.

Second, I realised that the regulations around finance in the United States are so high. Money-service-business regulations and others have sent people to jail for years because they did not have a licence or they did not properly sell, say, a $100 transaction. You could get five years in prison if you do not do it correctly.

So I was working very hard to be compliant, and it just seemed like I was reading all these regulations and spending my time trying not to get smashed by the boot of the state and its arbitrary laws, which are contradicting constantly.

There is a nice tweet by Brian Armstrong recently where he talks about the classification of Bitcoin over time. You will see that in one month of the year it is not a security, then in another month maybe it is a security, and another agency has a different opinion. He was saying that we, as a billion-dollar company, Coinbase, have no idea what the status of these things is because different agencies have different views and they are constantly changing.

That, plus COVID-19, is what killed the project of Crypto Frontier, as I called it, moving all these people to the Northern Mariana Islands. The COVID-19 restrictions made it much harder to travel, and the events we were going to do, conferences and stuff, had to be cancelled.

Then there was realising that the U.S. government is just so aggressive in enforcing rules that nobody understands, including themselves. You just cannot do anything because if you are risk-averse, which to some degree I think you should be if you are trying to operate a business or just stay out of jail, then that is a wise move.

A lot of crypto people have faced very expensive legal battles, and some have ended up in jail. The Binance guy, Ian Freeman, Roger Ver, Bitcoin Jesus, is facing extradition, Jeremy Kauffman, dozens and dozens of other people for securities-related things. Often there are no victims. Usually no victims, I would even say. They were just unable to comply. Some wanted to, some did not know they were not compliant.

I just did not want to spend most of my time trying to stay compliant. That is not what I wanted. I wanted to be able to build and do things, and I found that in the Honduran ZEDEs, which I discovered in 2021. I first visited Honduras, saw them, and realised that, yes, this seemed like a very good place. I wanted to move there.

Timothy Allen: Quick question about the Northern Mariana Islands. Is it Mariana, M-a-r-i-a-n-a?

Alex Ugorji: Mariana Islands. You have heard of the Mariana Trench, maybe.

Timothy Allen: I have heard of that. So it is nearby.

Alex Ugorji: It is nearby.

Timothy Allen: How is it that they are outside the jurisdiction of the IRS? How does that work?

Alex Ugorji: U.S. territories are not under IRS jurisdiction.

Timothy Allen: What does that mean, U.S. territory? I am not sure.

Alex Ugorji: Puerto Rico is the most famous one. There are states and there are territories. They say no taxation without representation. I do not know if that is the actual legal reason. I think it is more about their status as unincorporated territories, but I prefer no taxation without representation as the basis for why they are outside IRS jurisdiction.

They do not have senators. They have a single non-voting Congressperson, so they have no actual votes on bills in Congress, no senators at all, and they cannot even vote in the presidential election.

Timothy Allen: Historically, though, what makes them different from a state? What was the process by which they did not become a state? Did they come along afterwards? Is it a stepping stone to becoming a state or something like that?

Alex Ugorji: It is a very complex issue. Most states were territories of some sort before they became states. Then it is like, okay, they got big enough, we should consider making them a state. Then you had to balance the status they came in as. During the time of slavery, they would admit a slave and a non-slave state to keep the balance between the two sides.

Now I would say it is more about Republican and Democrat. You would probably want to bring in a Democrat and Republican territory at the same time to not upset the very close balance in the Senate. Essentially, Congress can make them into states if they want to.

Puerto Rico has talked about becoming a state and voted on becoming a state before, so it is the most likely next state, along with Washington, D.C. It is believed they would both be Democratic. After Trump came in, there was talk among the Democrats: we have to add some more states to prevent this from happening again. When Biden was elected, some people were proposing making D.C. and Puerto Rico states to upset the balance in the Senate.

Generally, the territories joined the U.S. in some strange way. Puerto Rico was a spoil of the Spanish-American War, I believe, as was Guam and the Philippines, which used to be part of the U.S. They come in that way and then it is: what do we do with them afterwards?

Right now, they do not want to upset the balance. One hundred senators is a really nice number, and it is about a 50-50 split. There is not much reason to bring them in. Most of the territories are small: around 50,000 in the Northern Mariana Islands, around 100,000 in Guam, and tens of thousands in the U.S. Virgin Islands. Giving them two senators would be a lot of power, and you also upset the balance of Republican versus Democrat. So generally they prefer to leave it as it is.

Timothy Allen: You said that what you wanted to do and what you wanted to build, you could not do in the States or in a U.S. territory. What were you trying to do?

Alex Ugorji: I guess I am a sucker for the propaganda. I thought I was in the land of the free, and that freedom was good and normal. Then I was interested in crypto, and I thought, this is supposed to be peer-to-peer electronic cash, right? That is the title of the white paper. We were trying to build something we could use day to day for spending.

So I was trying to build an ecosystem where you could live your whole life in crypto. With decent success, you could pay your rent in crypto, go to the hardware store and buy things in crypto, go to restaurants in crypto, the liquor store in crypto, the top bar in crypto.

I was able to pretty much single-handedly onboard all of these businesses, help set them up with payment terminals and wallet applications and all these things. It started out with one stablecoin, and ultimately ended with a stablecoin that was almost exclusively used in the Northern Mariana Islands.

The stablecoin was much more successful than using something like Bitcoin or Bitcoin Cash, which had much larger market share and larger communities around the world trying to onboard them. There was just too much friction.

A normal business owner just wants to know that they can receive the money, there is no volatility, there is no anything. Keep in mind this was 2020 and 2021, so crypto was extremely volatile, often moving 10 percent in a day. Business owners do not want to be exposed to that. If they want to buy crypto, they can buy crypto and get exposure. They do not want to have someone buy a large order, not even realise it has come in, and all of a sudden they have this currency exposure they did not know they had. Then it is time to pay payroll and they say, well, we do not have enough to pay payroll because our money went down.

I found businesses were okay with stablecoins. They thought of it as, it is kind of like PayPal. Then they accept it. We would do meetups and bring people there. They would think, I can take this weird payment app, and then I can get people to do meetups and come over to my business. There is not much difficulty in training my staff, so yes, I can do it.

Timothy Allen: Did you continue that idea when you moved to Morazán? Tell me what the process was. What did Morazán look like when you first went there? How much of it was built? Did you find out Massimo’s email address and call him?

Alex Ugorji: I was taken there by Mark Edge, who was also an early mover to Crypto Frontier in Saipan in the Northern Mariana Islands. He said, yes, you will like this place and it might be easier for doing what you do. So he took me there.

Timothy Allen: How did he know about it?

Alex Ugorji: He had been in talk radio for twenty years with a libertarian focus, so he was one of the first to find out about many things, including Bitcoin. He was the first media to discuss Bitcoin, I believe. He told a lot of people through his show, and they learned about Bitcoin, including Roger Ver, Bitcoin Jesus, Erik Voorhees and many others.

He was one of the first people revealing Bitcoin and cypherpunk projects, the Free State Project, and other interesting things. Free Cities as well, in general. He has been at the frontier of things, and this was just another example of it.

He had been to Próspera before things were built, just in the early days, and he had been keeping an eye on it. By 2021, things were progressing pretty well. He said, well, COVID-19 kind of killed Saipan off, and maybe this place will be better.

So I visited with him and thought, wow, this is pretty cool. There were sixty-four houses under construction at the time. The first ones had already been built. The first people had already moved in. I could see it was a place where you could build stuff. That is what I like. Things were being built around me. There was the energy in the air that comes with that, and it was very exciting.

It was also very cheap, which I think is one of the most underestimated freedoms. When your rent is $10,000 a month in Monaco, you have to be very careful not to lose your job. When your rent is $120 a month, you do not really care if you lose your job. You are a lot harder to cancel because with $1,500 you can pay your rent for a year.

They say few people have even a month of savings, never mind six months. When your rent is $120, most people have six months of savings. That gives you a whole new level of freedom.

The same is true for starting a business. If you can rent the space for $120 a month and there is no zoning, then you can easily start a business either in your existing house, with two bedrooms at $120 a month, one bedroom for you to live in and one to operate your business in, or you can rent a separate unit, office or retail business or whatever you want.

I realised you have not just the freedom but the economics as well. That was a freedom in itself, and it is extremely underrated. There are few environments, I would say no environment, with that level of freedom that is that affordable. There are few environments with that level of taxation that are affordable.

Monaco is great, zero tax, but for few people starting out, or even people who are far along, it does not make sense to live in Monaco given the costs. Whereas Morazán is a great place to start out. That is why I call it Bootstrap City. That was my rebranding of Morazán for the Western audience: this is the place where you can bootstrap your business, your family and your life at a very low cost. You can test out freedom.

Freedom is not for everyone, let us be real. Some people benefit under regulations. The people who create the regulations tend to benefit under them, and their allies also benefit. If you are in one of these protected industries, you are probably better off where you are. But if you are trying to enter an industry that is heavily protected, then freedom could be extremely advantageous, especially if you do not have the high cost that normally comes with a free environment.

Timothy Allen: When you first went to Honduras, did you check out Próspera as well at the same time?

Alex Ugorji: I did not visit it on my first trip, but I had done a lot of research about it. I read the Scott Alexander article, which most people who are interested in the ZEDEs read. It was a very influential article about the potential, and I followed it remotely for a fair bit.

I did not actually visit Próspera on my first trip, but I visited many times later. There was a big conference in, I believe, April 2022, maybe the end of March, around that time. I think it was the first public conference in Próspera, where a lot of the early people came: Duncan from the Bitcoin Center, Niklas Anzinger, who created Vitalia and Infinita Fund, and a few others. They call those the OGs of Próspera.

Of course, I was there, and Massimo was there as well. That was actually the first time I had met Massimo in person. We had talked online before. He actually called me. He said, “Alex, why are you living in Morazán? It is not for foreigners. Tell me.”

So I talked to him on the phone before that, and I invited him to that Próspera conference without even knowing him. I said, “There is a conference in the other ZEDE. I am going. It would be cool if you came. We could talk more there.” He actually ended up coming, and I met him.

Timothy Allen: That is interesting. Was it tongue in cheek when he said it is not for foreigners? I know his idea is definitely blue-collar local workers. But he is a nice guy. He is a lovely bloke. I do not think he would necessarily mean that, would he? He was saying that was not the design.

Alex Ugorji: He likes the market and would say, trust the market. If the market is saying that foreigners are interested in living here, then clearly it is providing value for some foreigners. They are not your traditional foreigner, expat or digital nomad, but there is a certain type that appreciates what Morazán offers.

He was curious to learn more about his clients. Every time he comes to Morazán, he does a town hall and gets feedback from his clients. What am I doing well? What am I doing wrong?

It is pretty funny to watch because people who are making a few hundred dollars a month are telling someone who makes orders of magnitude more why he did this, why it does not make sense, what he should do instead, and giving him all this feedback. He is very appreciative to hear directly from his clients what is good and what is bad.

He is a very good entrepreneur, I think, because he is interested in satisfying his clients. He knows that to make money, you have to solve other people’s problems and fulfil their needs. By talking with them, he can better solve their problems and fulfil their needs.

If all of a sudden there were a bunch of foreigners who wanted to live in Morazán and have a nice condo building, then he would be open to building a condo. While the market says we need a different type of housing, he should build a different type of housing. He is very flexible in that regard.

But from a business perspective, he was thinking about what would make Morazán grow and be economically successful, which it was. Remember, I am a huge Morazán fan. I say it is the number one ZEDE, partially because it has the most people. What is a city without people?

I made a Twitter thread about why Morazán is the number one ZEDE, using whichever metrics. Another metric I used was the business model and sustainability. Próspera has the VC business model, so they need to raise investment with the hope of one day becoming profitable. Whereas Morazán was cash-flow positive at both the government and the developer, the real estate developer, level in 2021, shortly after it started.

That is huge and needs to be studied. What can be learned from the ZEDEs? I would say we need to focus on business models and speed. Morazán did well on both. It started after Próspera but had more residents than Próspera almost right away, and continues to have more residents than Próspera.

That is because it said: what is easier, getting people who live nearby to move to the ZEDE, getting companies that are already used to the region to move to the ZEDE, or convincing people who have never heard of Honduras, or have negative connotations with Honduras, that actually Honduras is a pretty nice place and this new jurisdiction that is super innovative is a nice place and worth moving to and investing in?

If you have capital, the people who go to Próspera could go anywhere, so selling them on Próspera is much more difficult. The companies that go to Próspera tend to be doing very innovative things and need to take into account risk, reward, cost, what their investors are going to think, and so on.

Whereas the companies that go to Morazán already are in Honduras, in the industrial heartland of Choloma, where Morazán is. It is like: do you open your company in the old free zone or the new free zone? The new free zone gives you this benefit. Okay, that makes sense for our company. We will open there.

There is no need to convince them on Honduras or anything like that. The residents want a safe place to live that is affordable. Morazán has better quality of life to price than anywhere nearby, so it can easily attract residents. For the companies, same thing. The value proposition to the type of companies that move in makes a lot of sense.

So there is no need for this complex education process. There is no need to advertise. There is no need to go on podcasts or do any of this stuff. That is why Morazán is not well heard of: because it does not need you. That is really powerful. When the business does not need you, it is in a position of strength.

Timothy Allen: I love the fact that Massimo does town halls. I did not know that. He is like the poster example of what governance should be like, having customers.

Alex Ugorji: Yes.

Timothy Allen: He really is doing it. He is a really interesting guy. I really enjoyed talking to him because he is very wealthy, but he really cares about that project massively. You can tell, in that Italian way, he is very deeply emotional about the whole project.

I can just imagine him in the town hall trying to find out whether his customers are happy. That is very funny.

Did you choose between Próspera and Morazán, or had you already decided on Morazán? Obviously they have very distinct personalities.

Alex Ugorji: They are always in competition, and although I am to some degree Mr. Morazán, I am open to Próspera as well. I think their La Ceiba campus would be very attractive. That is their mainland campus.

When people think of Próspera, they think of the island of Roatán, the English-speaking island, former British territory, a million tourists a year, Americans, Canadians, lots of American and Canadian expats. It is kind of Honduras on easy mode. It is not really the real Honduras, quote unquote.

That is where most of their activity has been. But they also have land in La Ceiba, which is on the mainland, maybe an hour’s ferry from Próspera Roatán. I think that would be a lot more like Morazán: more industrial-focused, export-oriented, a more traditional Honduran special economic zone. That would have the more competitive cost.

For me, it is just about quality of life to price. I can get almost all the benefits of Próspera just by going to Próspera every month or two. They have all these conferences and events. That is when I have seen Bryan Johnson, Balaji, Naval and all the famous people who went to Próspera. I was there. I met them. That cool benefit of the ecosystem you can get without actually living there.

It is the same everywhere. You live in the box, you are on your computer. That is most of your day everywhere. Every once in a while there is an event, but even if you are living in the most exciting city with the most events, probably most of your time you are not going to events. Most of the events are open to other people. If there is some concert or something, people travel in from the nearby regions to go to the concert.

I can take a flight for $80 to Roatán and go to whatever event. I did that and do that. I go to Roatán six to ten times per year, and I have found that is sufficient to get my fix of excitement and meet interesting people.

But for day-to-day living, I can have much better quality of life. The cost of cooks, cleaning, driving, rent and everything else is much cheaper. I can live a life not so dissimilar from a very wealthy man like Massimo at a fraction of the cost in Morazán, where I spend zero time worrying about any of those household chores that erode a surprisingly large amount of your time.

I can solve problems very effectively by being in the one percent of Morazán, because everyone wants to make the one percent happy. If you have ever been around a wealthy person, everyone is doing whatever they can to win favour with them. I realised I can have that effect in Morazán, be the big fish in a small pond. That is why I prefer Morazán.

At the time I first moved to Honduras, it was not possible to live in Próspera. You could live around Próspera, but I like to joke that Próspera had two adults, three kids and two dogs, so it had five to seven people, depending on how you define people. That was Erick Brimen, the CEO, and his family, because they incorporated their house individually into Próspera.

But there was no other place where you could live inside the jurisdiction until Duna Tower was complete in around June 2024. So until just a few months ago, it was not possible to live inside the jurisdiction. There was not really a choice.

Even living around the jurisdiction, everything is much more expensive in Roatán. I do not get any benefit from that. Some people do. If you like to go to the beach every day, then it might make sense. But I lived in Saipan, like a ten-minute walk or less from the beach, and I almost never went to the beach. The value there is not there.

I like being near the big city, San Pedro Sula. They have more amenities. They have better airports. There is better access to labour. For me, I have much greater value being near a major metro area, where I can utilise these resources and live for very low cost, and thus have a high savings rate and more money to invest and use usefully.

If Próspera’s La Ceiba campus takes off and is doing well, then I think it may be able to poach me from Morazán, because it is even closer to Próspera. It is potentially even bigger than Morazán and should have a similar price point. At such time, Massimo will have to improve his offering if he wants to retain me.

Timothy Allen: How many other expat people live in Morazán?

Alex Ugorji: I would say generally there are two to three full-time expats in Morazán at a given time. Then there are often people who visit for months at a time as well, who maybe live three to six months of the year in Morazán, but are not full-time expats. Of those, there are another two to three.

So a very small number of expats. It is the people’s ZEDE, as I call it. It is 99 percent Honduran, and it will likely always be in the 90 percent Honduran range. Even if it were to scale to 15,000 or more people like it was hoping to, then it would become much more attractive to everyone. You would have more bars and restaurants and the things most expats care about. But even still, it would be dominated by Hondurans.

Timothy Allen: Do you live a Honduran life there, if you know what I mean? Do you hang out with your neighbours? Do you speak the local language? I have lived all over the world, and there is a very distinct difference between being an expat and embedding yourself in a local community. You basically have to join in, otherwise you travel to meet your expat friends somewhere else. How is it living in Morazán for you day to day?

Alex Ugorji: I am kind of an introverted computer guy, so I do not go outside too much. But yes, I am certainly embedded in the community. Everyone knows who I am. I am involved in various community efforts, from charitable events to building exercise parks and hosting events and things like that.

Timothy Allen: Do you go to the big barbecue when there is a barbecue happening outside?

Alex Ugorji: I go to barbecues. I host barbecues. But I also do not have so much in common with your average Morazán resident. There are a few Hondurans I have more in common with, and I spend a fair amount of time with them. But your typical…

Timothy Allen: I mean, it is like everywhere. How often do you see your neighbours? Where I live, I do a lot. I live in a rural community. Our lives revolve around our neighbours, really. But in cities, it is much harder, for sure. The local community vibe is different. But then again, I guarantee the Hondurans living in Morazán are friends. They are all hanging out together, are they?

Alex Ugorji: Yes and no. Certainly more than in U.S. cities. It is more social, more gossip, more people hanging out. But I think pretty much everywhere we are trending towards atomisation, where everyone has their own box they live in, they do their own thing, they have a couple of people they interact with, but generally most people get home from work tired and want to watch Netflix or TikTok or whatever. Maybe there are one or two neighbours who are their friends and they invite them over.

The sense of community is on a decline everywhere. To me, this suggests market demand. I think a lot of our social customs were out of necessity. When there was no welfare state and it was a hard life, you needed to maintain good relations with your neighbour because you never knew when your house was going to burn down or your crop was going to spoil. If you did not have those relations, then you could potentially die or be destitute.

So I think a lot of these social customs and traditions are the product of necessity more than desire, because now that we have the choice, few people are exercising it.

Timothy Allen: I have never heard that theory before. I would not wholeheartedly agree with you. I am almost certain you can see it yourself, but I have a different experience where I live. It is the opposite, and I would not say it is coming out of necessity. It is because I want to. I want to be part of the community.

If anything, it is because I really enjoy it. For example, I live in a rural community. There are farms, and they are all spaced out quite a long way from each other, maybe a quarter of a mile between each farm. Every morning, I walk my kids to the top of our lane to drop them off at the bus, and my neighbour is doing the same thing. We meet where the bus picks them up for school and we talk for five minutes, sometimes longer if something has happened.

That is very nourishing for me. I would not say it is out of necessity. I would say it is the same thing that would drive me to go and visit my family on the other side of the country, because I want to see them.

But I can see a little bit of what you mean, that social customs are a product of a bygone era. But I do not think they are declining.

Alex Ugorji: There are obviously social preferences and variation. Some people will never leave. They will never move to a Free City because their family will not come. That is a real phenomenon.

But I think the best thing to look at is taking care of your parents as they get older. Before, everyone had to do that. Once it is an option, the amount of people who do it goes way down. So the number of people who naturally want to do it is clearly lower than the number who did it when there was no other option.

That is more my point. The idea that everyone wants to socialise all the time is not true, I do not think. The costs of being antisocial in a resource-scarce world were a lot higher in the past. Now that people are wealthier and no longer need to socialise to survive, it is going to go down.

Timothy Allen: The other interesting thing is that where we live, we deliberately bought the farm we bought because there was the option in the future to develop some buildings on the farm to have our children live close by.

Another thing, and I would not say once again it is out of necessity, is that I think the fact we have lost this multigenerational living arrangement is unfortunate. I think it is a really important aspect of being a human, and I want to bring it back in my case. From my generation onwards, I want to bring it back. I want to give my kids the opportunity to live close to us, whereas my mother and father live a long way away, and so do my wife’s parents. I have watched that not be a good thing, especially in my parents’ case. They are quite isolated.

Part of the farming tradition around where I live is that it is quite common for parents to have a farm, and when they get to a certain age, they move out to one of the barns, convert it into a smaller house, and the kids can then live in the main house. They are still close by. Then when their kids have children, the grandparents are part of their lives.

Grandparents live longer when they are near their grandkids. That is a provable thing. Quality of life is much higher. In return, the parents have help from the grandparents with bringing up the children, and the grandparents then have this safety net where they will not end up isolated or having to pay to live in a home. I have learned over the years that this is what I want to do because I think it needs to come back. I have to make my own attempt at bringing it back, the multigenerational living thing, because we have lost it.

I agree we are compartmentalising. We are getting into smaller and smaller units. Families are separating. It is very natural. Travel, and the ability to travel around the world, has had a massive impact on that. Why would you not want to? I do not think I know anyone these days who does not have someone in their family living on the complete opposite side of the world. It is very rare, among a certain section of society, to find a group of people still living in the same place.

But I am hopeful that it is still possible because I think there is a massive benefit for every generation to multigenerational living. The children interact with parents and grandparents constantly. The parents have help from the grandparents with bringing up the children. The grandparents have this safety net when they get really old and someone is close by to look after them. But that is a whole other thing.

Alex Ugorji: I think we can bring it back. It is the trade-off, basically. There are obviously advantages of a well-functioning family living together, but there is also the trade-off where your well-functioning family lives in a very rural area far away from economic opportunities. Then the next generation has to sacrifice economic opportunities for that.

Often we see people say, I would love to live near my parents, but there are no jobs there, so I am going to move to the big city where I can make a well-paying job and afford to feed a family and buy a house. People have to make those trade-offs between quality of life and the other benefits.

With Morazán, I am interested as well in these multigenerational aspects. Morazán is a place where I could see my dad retiring to and my kids coming back to and being based. It is very easy to make a multigenerational setup.

You remind me of the homestead movement, which I kind of joke is strongly tending towards a subsistence farming movement, where people give up their city jobs to become essentially subsistence farmers.

What I like about Morazán is that you can get all of these benefits because of the freedom and because of the low cost. I have a farm in Morazán. I have my own cows, but I do not interact with them much at all. Maybe once a month I see the cows, but someone takes care of them for a very low cost.

So I can have my grass-fed, unvaccinated meat, where I control the quality. I can have people visit me. Instead of a guest room, I can have a guest house, so people are more likely to visit because we do not have to share all these things. You can have some space while also being near me.

If you have a really competitive environment where there is economic opportunity, you can create some cool business inside the ZEDE. You have a low cost of living inside the ZEDE. You have no zoning or regulations inside the ZEDE. That makes it very competitive for that lifestyle.

If you want natural food, you can easily build your natural food supply. If you want to make it easy for friends and family to visit you, just get a second guest apartment. That is what attracted me to Morazán. I can have unrivalled quality of life while not giving up the things I like. I can still go to supermarkets or fast-food chains or whatever within a ten-minute drive.

To get all of these factors, the ability to have my own cows and control my food supply, easily have space for people to come over, also be next to a major city, and all of this for under $1,000 a month potentially, that is the power of the Free Private City, and in particular Morazán.

Timothy Allen: Going back to generational living, we live in an age now of online work. It has exploded over the last few years, and that does help massively. I agree that if you are not careful, you have to sacrifice some economic benefit by staying close to a multigenerational family but far less now. There are far more opportunities not to.

In the case of my daughters, for example, you look to the local community and see what works there. My oldest daughter wants to be a vet, for example. She can be a vet in the countryside and still live where we live and travel around and work in that area. The other two are almost certainly going to be entrepreneurs, I would imagine, and they can run businesses from Morazán probably. They can run businesses from there if they need to.

As for not interacting with the animals, I think that is obviously a preference. I derive a huge amount of satisfaction from interacting with the animals, from going through that whole process. Raising something and killing it, to be part of it and take responsibility for it myself, is a huge part of it for me.

I want to talk briefly about what is actually happening in Morazán now, because you find yourself in a very unprecedented situation there. I would not say it was unexpected, but there was certainly a possibility that this would not happen. Can you talk a little bit about the current situation? What is actually going on with the Honduran government? We know now that the law has been retracted, is that right? What is the proper legal term?

Alex Ugorji: Nullified. I will say, ask your favourite lawyer about this, but my layman understanding is that the date matters a lot. When you are listening to this, things might have changed.

At the time we are talking, the Supreme Court of Honduras has said that they are going to retroactively repeal the ZEDE regime. They have yet to release the ruling. There is a good argument to be made, and I do not even know if it is an argument, I think it is reality, that until you release the ruling, has the ruling been made? They say they are going to release a ruling, but they have not actually released it.

It should be released quite soon. It has taken a lot longer to release than one would think. Perhaps that is because doing this radical, unprecedented retroactive repeal of a law that has been around for almost twelve years creates a huge legal mess with tons of unintended consequences. Perhaps the court is thinking, why did we do this? How do we do this? They are struggling with what to do next.

For whatever reason, they have not released a decision yet. Whether or not it is official, many have argued that until you release a ruling, it does not exist.

Timothy Allen: There has been a vote on the ruling, is that right?

Alex Ugorji: Yes. The process is first a subcommittee votes, and depending on whether it is unanimous or not, it goes to the larger court. First there was a five-member subcommittee, then a fifteen-member larger court. The fifteen-member larger court said that they voted. They released some statement saying they had voted to retroactively repeal the ZEDEs. There are a few more pending issues, they are going to meet again to discuss those, and they just wanted to let us know that they are going to retroactively repeal these.

Timothy Allen: So nothing is set in stone then?

Alex Ugorji: It depends who you ask. Some people would say, yes, they might not have released it, but they are going to release it. Do not get your hopes up that something is going to change because they have told us what they are going to do. They are going to do something along those lines. It might change by five percent in how they do it, but it does not really matter.

Others will say, well, it is not over until it is over. We have to talk to the court and tell them that what they are doing is going to have massive effects in Honduras, and that they are going to go down in history as people who destroyed Honduras, destroyed the rule of law, violated all social norms, and so on.

Others believe that the Supreme Court will hear reason. There have been lots of people around the world, other courts, governments, local people in Honduras, saying that this is going to have massive effects, both on the damages, because this is expropriation effectively, and on everything else.

People own companies in ZEDEs. Those will not exist anymore. There is land that was transferred to ZEDEs. What happens to that? I do not know. The court is basically saying it was never transferred. That company you have been running for years never existed. That land we helped you transfer never existed. Those tax exemptions that we processed for you, we helped you break the law because we were not allowed to give you tax exemptions.

The whole thing is insane from a legal perspective. There is even the question of whether there is criminal liability for all the government officials who facilitated the ZEDEs. If you were a customs agent and the ZEDEs never existed, and you processed their imports tax-free, then you basically smuggled in those goods without tax. You, as a government person, did that. Are you liable? The judges who said it was legal, if it was not legal, were they also liable? The Congresspeople who passed it, did they commit treason?

The implications of this are extreme. It was expected there would be pushback against the ZEDEs and that they would attack them using whatever means necessary. They failed to get Congress to repeal the constitutional amendment authorising the ZEDEs, so the court was used instead.

The court was appointed in 2023 by the current government, so they have the majority on the court, and they were able to pass it through. That makes sense as the best way to attack if you control the court. At this point, I think it is pretty clear in general that courts are just the third branch of Congress. I guess if you only have one house, it is the second branch of Congress, but it is effectively the other branch of Congress that can pass or reject laws.

The Honduran Supreme Court seems to be on the path to reject the constitutional amendment that was voted for by two sessions of Congress, affirmed by multiple Supreme Courts in the past, and supported by three different presidential administrations. They are going to undo all that decade-plus history and say that the ZEDEs never existed.

That is a super extreme, unprecedented thing even in Honduras, which is not known for having the best rule of law, and internationally it is just a wild legal precedent. It will lead to tons and tons of things that need to be resolved in court.

We discussed property. If you bought a property in Duna Tower in Próspera, your condo never existed, and the land never existed, with the mortgage that never existed. What happens now?

It is a huge deterrent for any future investment or business activity. The recommendation seems to be that every company inside the ZEDE is basically a sole proprietorship, and you should assume you are operating as a sole proprietorship. So no limited liability protection. If you have any kind of licences, those were never valid, so then you are doing illegal activities likely because you are unlicensed.

It is a huge mess. We will see when the ruling is released. Is there a transitionary period where they allow the companies to unwind? Do they absolve any wrongdoing for people who thought they were operating under a real regime? We have no idea what will come next.

The uncertainty is beneficial to the people who want to get rid of the ZEDEs, because who is going to invest or do anything now? Almost nobody. They have really put ZEDEs on pause in terms of investment.

We will see what happens. There is an election next year and things could be undone. The Honduran constitution protects expropriation with a limited statute of limitations, so you can always get your expropriated assets back. This is an example of expropriation. International treaties should protect it. There should be massive damages.

So the situation is in flux and will continue to be in flux for years as all the implications of this come to light. But in terms of investment, very little investment will be coming in the coming years due to this incredible legal uncertainty.

Timothy Allen: When the government rolls back an agreement like that, which is already twelve years old or whatever, does it set a precedent to make that quite easy on all kinds of different constitutional things?

The ZEDE law was written into the constitution, right? If they roll this back, they are basically saying it was invalid, it was never real. In ten years’ time, when there is another government, say it is a right-wing government this time, can they look at something a left-wing government did and say, you know what, that was not real? Does it set that much of a precedent?

Alex Ugorji: It is worse than that. The most concerning and dangerous thing is that they need to address the criminal aspect, because based on it being retroactively repealed, that means all of the government officials engaged in criminal activity, potentially as far-reaching as treason, but certainly facilitating illegal business activity.

If you are a customs agent and you allowed a ZEDE to work, you facilitated smuggling if the ZEDEs never existed. The Congresspeople potentially committed treason or some other similar classification by illegally passing this law and regime.

So the criminal implications are that you can declare a law retroactively unconstitutional and then jail your opponents. The next government gets into power, retroactively declares a different law that the previous government passed unanimously unconstitutional, and then they can go after criminally all the people who passed it. It is open season now. It is extremely dangerous.

That is why the thought was: they would never go this far, because there are people from multiple parties involved. It is not just the National Party, which is attributed to the ZEDEs. It was bipartisan. There were other parties involved. So why would the other parties support this crazy ruling, when some of their members could potentially be jailed or exiled or face serious implications?

Then there are all the government workers who are not even part of party politics. They are just doing their job. Are they liable? The precedent of what you can do, the retaliation potential, this is a wild move. I think that is why the court has, despite telling us they voted in early September, still not released it by the end of October. It is not expected until early November that they release it, and even then they may delay it.

This is a really, really serious, unprecedented legal move. The implications will probably be felt for decades. This will be one of the most important moments in Honduran history because it changed the whole legal system. Precedents and norms have been turned upside down.

What will happen next? Who knows? Maybe the government just jails all the opposition party and they become a dictatorship. That is totally possible in the timeline we are entering because it is so unprecedented.

Timothy Allen: Do you think there is a chance they are in too deep? All of a sudden they feel like they are in a corner and they cannot go back?

Correct me if I am wrong, but the original battle between the government and the ZEDEs was much more of a political thing, was it not? It was a way of having a dig at the other side during elections. The ZEDEs were used as a bit of a punch bag for political gain. Do you think it just got out of control?

Do they honestly care that much about closing these places down, especially when you see what is going on there? Morazán is a great example because it was full of economic activity. It was safe. It was showing that Hondurans could live affordable lives in better conditions, under safer circumstances, than somewhere close by that was not a ZEDE.

What do they get out of it now? If the government gets its way, what do they get out of it, apart from maybe just complete authoritarianism? Is it, “Look, we have just proved we can do whatever we want and now we are a dictatorship”?

Alex Ugorji: From what I heard, the ZEDEs becoming an issue was almost either a mistake or an accident. There was a local VAT equivalent that the ZEDEs should have been exempted from, but the law did not exempt them. So one of the ZEDEs wanted to get itself exempted from the VAT like all the other free zones.

It is normal in a free zone that you are exempted from that if you buy something locally, because it is basically an import if you put something in the free zone. They wanted to pass that law, and that is what brought the ZEDEs to attention. Before that, they were existing and nobody was paying attention. They had just forgotten the ZEDEs even existed.

The VAT exemption happened while the left-wing government was running at the time, and they said, look, the National Party just wants to give away your tax money to the rich free-zone people. That is what made it an issue. They tried to make a slight modification, and that was the mistake or accident that brought the ZEDEs to attention. Nobody was paying attention to them before that.

But the reason I would say they want to get rid of them has to do with incentives. The ZEDEs are a tremendous threat to the swamp, we could say, because they bring in competition.

Morazán is around one of the most dangerous areas in Honduras, and yet there is no crime. My door is unlocked right now and I am in a different country. I did not even bother locking my door when I left. I am not worried. We have very good security and no issues in that regard.

That is a wild contrast with the surrounding region, and it speaks very poorly of the existing government. Why can Massimo create this safe environment that has jobs, safety and everything that people want, but the government cannot? Is it that the government, with far more resources, is unable to do it, or are they just corrupt, incompetent and failing the people?

The ZEDEs bring to light how bad the current government is. That is a big issue.

In addition, there are the power dynamics. I have heard it said that life is a ruthless game of power, and if you are not a player, you are the field. The power players in Honduras realise that the ZEDEs are a potential problem.

If you are a crony capitalist who makes a lot of your money from monopolies or connections to government, you cannot use regulations to pull up the ladder against your competitors in the ZEDE because the ZEDE has autonomy. You cannot use taxes to loot the ZEDE because they have their own tax system. It is isolated from the swamp that is the capital city.

So they have an incentive to destroy it because it makes them look bad. It reduces their power. As the percentage of GDP in Honduras that is inside the ZEDEs grows, the power of the government decreases, because they no longer control that GDP in the same way they control normal GDP. They can no longer just say, we are going to create a new tax on this industry or this business because they are doing really well and we want our cut. Or some crony says, this business is creating a big competition problem, can you pass a new law to get rid of them?

The incentives for the existing elite are to not allow these free zones to be created. When approaching free zones, you need to have allies in the existing elite who either ideologically believe that competition is great, that it helps people, and who want to help their countrymen succeed and development to happen. They do not want 10 percent of Hondurans living in the United States, most of them illegally. They want someone who says, this is terrible, these people have to leave their families and live in a country illegally to get opportunity. The ZEDEs have brought a ton of money to Honduras and I will support them.

You want a situation like that, where you have elite allies who can help support it. In the case of the ZEDEs, they do not have too many elite allies. It was just a bunch of people who understood markets and said, if we introduce competition, we can have better outcomes, attract investment and benefit everyone.

They did not understand or focus enough on the power aspects. What about the people who are the losers? The losers are the swamp: the government workers, the lawyers, the people who are not very productive in the economy and are doing paperwork and stuff like that, the crony capitalists. Those are the losers, but they are a very powerful bloc, and they do not care about other people. They care about their side and their interests.

That is how you have to look at the problem.

In general, I think we are a very naive space. Another pet peeve of mine is the idea that Free Cities are going to be full of a bunch of Westerners. Westerners have a lot of options. You can make a lot of money in most fields as a Westerner. You can easily move to a lot of countries. You can live in many different countries throughout the year.

I think most successful Free Cities will be locally based, like Morazán. Morazán can grow a lot faster than Próspera because its target market is the people of Honduras. In general, if you are building a Free City, the future of Free Cities has to be targeting local markets because that is the most competitive way.

If you are trying to sell a value proposition saying, move ten miles over here and your quality of life increases ten times, that is easy. Morazán builds a house, it is filled. They have no problem filling their houses. Even when they increase the rent, people still come in. They are providing a ton of value.

But if you are trying to compete with all the digital nomad hotspots of the world, all of the cosmopolitan cities around the world, it is going to be pretty hard to compete with San Francisco, Dubai and Singapore as a startup city. These are startup businesses, so you should focus on the markets where you can add the most value.

I think there are a lot of misconceptions. One is about the incentives of Free Cities. It makes sense that the existing elite do not like them. It is competition. They cannot control them. They cannot influence them. There will be hostility there. Also, I think it is unrealistic that a bunch of Westerners will move to these cities. I think they are going to be mostly cities targeting the local market.

Timothy Allen: On the bright side, the response of the government is at least some kind of validation for the projects, because at least they are acknowledging it now. We know all this stuff and it is true. They do add competition in governance. They do all these things that people within the Free Cities movement always say we need: competition, this, that.

In a way, they are validating it because they are acknowledging it now. They are realising, oh yes, this does not make us look good. What is so disappointing is that when the government realises it is being outcompeted, instead of trying harder, they just pull the: right, let us shut it down.

Alex Ugorji: That is how they try harder, though. They are playing a different game. They are the monopoly of violence in the territory. That is the tool they can use. If the court writes a piece of paper that says the ZEDEs go away, then they can send men with guns in to make them go away. When that is the tool you have on the playing field, that is what you use.

Timothy Allen: But using a legal route in this case is completely different, is it not? The legal structure was already set up. That was the whole point of it.

When you are trying to secure a physical location like a Free City, you have only got a few options. One of them is the legal system. One of them is the general sense of the population, because if they love what you are doing, they are also going to protect it. But the legal method is the most important one. You build a legal framework around this thing, and it is the best line of defence, because you do not want to get involved in a physical battle for your territory. You do not want that.

The legal battle is an abstract force which should work, and the main strategy people have is this abstract force of law. If they just say, okay, that law that the previous government passed legally is not real, then why would a new law be real to them? Why would they be able to issue a new decree that says, okay, this is now null and void, we have repealed this through legal ways, which they obviously are not doing? They are repealing it through a quagmire of nonsense that they will have to deal with.

It is almost as if they have reached this point now where they have only two options. One is to completely forget about it because it is so complicated. Who owns all this stuff now? What happens to all the investors? What happens to all the people who are now criminals who were not criminals before? Or they just go full-on, as they have historically done in South America and Central America, and become an authoritarian government and say, what we say goes.

They have backed themselves into a corner in a way. It is almost like they have not thought it through. I know governments are famous for not thinking things through, but when you mention all this new legality, they either go along with it or they just ignore it in the way the best authoritarians do.

It is a terrible situation. I do not see who wins anymore, unless the game plan is to be a proper full-on authoritarian government that does what it wants and ignores the rule of law, like a dictatorship to some degree.

Alex Ugorji: I think this is the nature of government, and the U.S. is just better at indoctrinating its citizens into thinking that democracy makes it okay. If people vote for something, then it is okay. If we had three people in the room and two of us voted to take your money, that is not okay. You would say, who are you to vote to take my money? But if you get thousands of people to do it and they wear uniforms and you have papers and rituals, then it is okay.

Governments, especially in Western countries, have been very good at training their populations to believe in these norms and rule of law and all these things. We do not break the rule of law because we are a civilised country. But almost all of the civilised countries do these types of things when it is convenient for them.

The U.S. will talk about national sovereignty until it is against its interests, and then it will invade and bring all of its friends with it, who claim to support human rights. There are countless examples of countries with rule of law doing this. Most places say they have free speech, but they will arrest you for certain things. You cannot talk about your views on some sensitive issue, like vaccination or elections. You do not have free speech in regard to elections. You have to follow rules for making advertisements for someone you like.

Generally, it has always been an illusion, and in Western countries it is a more well-implemented illusion. In regions that are more prone to these types of things, there is no illusion. The people in Morazán do not believe in government the way that you or I might believe in government. They know these guys are corrupt.

Probably 50 percent or more of Morazán has paid police bribes to be let go because they were pulled over for no reason or given a hard time. Your registration has expired, we could take your car, but if you just give us $5, we will let you go home. These are people who encounter the very brutal nature of government on a regular basis. They do not believe in government.

There was someone in Morazán who was at a protest in the capital, and I thought it was a great example. The interviewer was saying, what do you think will happen in the future? Are not ZEDEs pretty much dead? The person said, well, the next government can just undo what the previous government did. The court can do whatever it wants, clearly. If they can take it away one day, they can put it back another day.

They are not a lawyer. They are just a normal Honduran, and they see how the government works. They do whatever they want. They write some piece of paper that says, look, we are allowed to do this. They stamp it, all good, and now they are allowed to do it.

In Honduras, the people do not believe. That is one of the nice things about living outside the developed world: people do not revere government. It is not, oh, this president, we should respect him, the prestige of the office, the king and queen, they are so great and magical. It is, no, this guy is a corrupt official. Anyone who is a politician is a criminal and a liar. That is not a libertarian position in most third-world countries. It is just common. Your cousin is a low-level council member of the city, and you know he is corrupt because you have seen corruption throughout your life. There is no illusion that these people are more sophisticated or better or wiser.

That is a nice part about living in the third world. I mean, you make it seem like this is some great reveal that the government can do wild things, but governments have been doing wild things. I think COVID-19 was the greatest wake-up call for most people: the government can just say, you are not allowed to go to your parents’ funeral, you cannot visit your family member in the hospital, you cannot go to work. All these things that are not legally justifiable in most countries, they can just do if they write a piece of paper and say there is this emergency, this unprecedented thing where all these people are dying, but actually the death rates are not that high, but they could be really high if we do not do these things. Then they just do whatever they want.

So I guess I am pushing back a little bit on your…

Timothy Allen: That is okay. I have got another question for you along the same lines.

In a few conversations I have had in the last few years, there is an idea floating around that Central America is this new frontier for a lot of good things, especially when you compare it to what we would call the West. You see Argentina, with Milei, a so-called libertarian president. There are other libertarian personalities arising in Central America now.

It is always Westerners who tell me this: wow, Central America is this place that is ready to pop and loads of things can happen. What is your view, as someone who actually lives there on the ground among Hondurans, not among expats? Is that a good or bad representation?

Alex Ugorji: It is all about incentives. The advantage of Central America, and why it has attractive taxes, competitive policies and so on, is because there is so much competition in the region. You have a bunch of small countries competing for us. Basically, they are exporting to the U.S., trying to get U.S. investment, U.S. retirees to come over, U.S. expats to come over.

How do you become more attractive? You need to pass free-zone laws. There are free zones in almost all these countries because you need to attract the capital to create the jobs, and you want favourable export regimes. They work to sign treaties with the U.S.

That is the power of Central America in general: there is tremendous competition. The left-wing government in Honduras right now wants to pass what they call the Tax Justice Law. The idea is they would get rid of territorial taxation, free zones, and all these things. But all the businesses said, you can do this, but then we move to El Salvador tomorrow. Moving to El Salvador is pretty easy when you are in Honduras. You just load everything up in a truck and drive it over.

Even though the Honduran government is radical and wants to pass this, its ability to do so is limited because there is so much competition in the region. That keeps Central America with quite low taxes. The highest tax bracket in Honduras is 25 percent. That is pretty low by Western standards. It is also territorial taxation, so your foreign-source income is untaxed, which does not exist in any Western country.

That is largely due to lack of competition, I would say. These countries do not have the capital and people already. They need to bring them in, and the way to bring them in is to be more attractive. That is what makes the region great.

It is incentives. The same thing applies to keeping the ZEDE regime alive. You need the right incentives. If the Próspera lawsuit damages are large enough, then the next Honduran government will say, okay. This is what we hope will happen. There is a very large damage settlement. A new government comes into power and says: two governments ago, the National Party passed this law that was terrible. The LIBRE party was right not to like this law, but they were wrong in their approach. As a result, we have the biggest damage settlement in Honduran history.

I do not like the law, but we have this choice: either we pay a bunch of money to foreigners and bankrupt Honduras, or we bring back this regime and foreigners can pay us billions of dollars. Although I do not like the regime, I have no choice. I am not going to bankrupt Honduras. Instead, I am going to get the money from the foreigners to help the people of Honduras.

That is what will bring the ZEDEs back. It is not going to be that we convince people on the merits of the free market and competition. It is not going to be an economic argument. It is going to be incentives, where a massive lawsuit results in massive damages and the government of Honduras says, we would rather keep this law we do not like than pay all this money out.

Incentives are extremely important. That is what we should look for in the future of Free Cities and in assessing jurisdictions in general.

Timothy Allen: Do you think there is a resurgence in Central and South America at the moment of libertarianism? A pushback against authoritarians, in the sense that there are libertarian candidates rising to the front? Milei is obviously the most obvious.

Alex Ugorji: I think all politicians are…

Timothy Allen: Political entrepreneurs?

Alex Ugorji: I think there are more political entrepreneurs now than there were before. It is becoming a term, political entrepreneur. I would say Bukele is a political entrepreneur. He realised there is this niche market that is underserved, of being the Lee Kuan Yew, the Singapore-style leader of Central America. That is what he is basically doing.

Singapore is very strict with its rules. They cane people. They execute people for things like minor drug offences from a Western perspective. You can get executed in Singapore. Very strict rule of law, safety, things like that. Bukele realised there is an untapped void here. I can do this. I can attract these Bitcoin people. They want somewhere to do Bitcoin. I can bring rule of law. People want rule of law.

So there are political entrepreneurs pursuing that. Then there is the backlash candidate, the Trump-style populist, whom people do not necessarily agree with. People did not vote for Trump in 2016 because of his policies. They voted for him because he was a middle finger to the system. They were very unsatisfied with all the things going on. There was too much political correctness. There were economic issues. They thought, everyone I dislike does not want me to vote for Trump, so I am going to vote for Trump. Those were the people who swung Trump into victory.

Same for Milei. It was not that Argentina woke up one day and read a bunch of economics books and said, Milei’s policies are what is going to work. It was that everyone in the current system hates Milei. They told me I cannot vote for him. They say he is going to destroy things. Well, I guess I have to vote for Milei now because they told me I cannot vote for him, and he is the radical change candidate.

I do not think there is an ideological shift that is leading to these new interesting candidates in Latin America. I think it is that they have a ton of dysfunctional governments, and people who can distinguish themselves as huge outsiders, Bolsonaro in Brazil, Milei in Argentina, Bukele, all these people who can say, look, I am very different, and then give different propositions depending on what will appeal to their audience.

In El Salvador, security was really important, so Bukele focused on security. In other countries, they focus on other things. But I do not think there has been a big ideological shift in these countries. It is more Trump-style populism or really savvy political entrepreneurs like Bukele, who realise they can tap this international market to get investment and attention.

Timothy Allen: I like the way you describe Bukele as a political entrepreneur. What is your personal opinion on him? Do you trust him? What he is doing is phenomenal, obviously, on one level, but can you trust the leader of a Central American country?

Alex Ugorji: You cannot trust any leader. You can trust incentives.

Bukele should pass a ZEDE law. If he wants to develop El Salvador, attract investment and grow the economy, he should pass something that protects investors. The magic of the ZEDE is that it is isolated from the craziness of the government. Honduras could double its taxes, but the taxes do not change in the ZEDEs. Honduras could pass some crazy labour law, but the labour law does not change in the ZEDEs.

Giving that legal stability and isolation from the arbitrary whims of government, which can just change the environment out from underneath you, is how you innovate and compete and really put yourself ahead.

Yes, Bukele has brought security, but the security situation can change because a new government comes in and does not care about security or has other priorities. Inside the ZEDE, like we said, Morazán is in the most dangerous area, but very safe. Why is it very safe? The incentives. Unless they can provide a better quality of life than the surrounding areas, people will not move. Their incentive is to provide a better quality of life than the surrounding areas.

The same thing would be true with zones in general. Creating the zone is a very different incentive structure than Bukele just passing a law that he can change the next day. He has even hinted at it sometimes. He was talking about shortages, and people increasing prices, and he was mad that they were increasing prices and gouging the good people of El Salvador. He was talking about passing penalties for businesses that do this.

Can you trust a guy who can just retaliate against you all of a sudden for basic normal functions? Supply goes down, price goes up. When the price goes up, more of the supply comes in because people want to sell. That is the basic functioning of the market.

If a country wants to be competitive, including El Salvador, it should create an environment where businesses can get stability, predictability and a very good economic environment. I think Bukele has done some good things for El Salvador, but I definitely do not trust him or any other government.

If you want to get businesses to invest, which is a vote of trust in a good sense, the best thing you can do is create zones where you have little influence. That would be my recommendation to Bukele and all the other places. Government is an extremely dangerous thing for a business because it can arbitrarily destroy the business overnight. A slight regulation change can make a business unviable: tax changes, labour law changes.

If you want to incentivise businesses, just give them predictability. That is what all the rich countries do: they give businesses confidence that they will be able to invest and not have massive changes that negatively affect them, and so it is worthwhile to invest there.

Timothy Allen: It is interesting in El Salvador. I assumed that the Bitcoin City plan would be an economic zone, and I know a few people have been there recently who say it is still an ongoing project, just not really talked about much anymore. It was a bit of a “wow” when they first announced it, like this is going to be amazing.

Do you know anything about El Salvador’s plans to create any zones or free zones or anything like that?

Alex Ugorji: There are a lot of people who are talking to Bukele about it and have had meetings. Próspera, I believe, posted a Twitter photo with Erick Brimen, the CEO, and Bukele having a meeting. I know other people in the space have also had meetings with Bukele, so he is definitely talking to people about it.

But to me, he seems unlikely to do it unless there is competitive pressure. If there is no choice, then he will do it. In general, I think he likes being in control and in power, and these zones take away his power. Right now, he is the man in El Salvador, extremely powerful, extremely liked. He is almost like a king, and very few kings are willing to give up their crown. From what I have seen, he is not willing to give it up so far.

Timothy Allen: That is very true. I suppose I have always felt uneasy about what is going on there because…

Alex Ugorji: You understand the incentives, right? Deep down, you know that he has had good results in security, but it is because he has a ton of power to do things. Power corrupts, and maybe he will use his power differently in the future.

I think most people, especially Westerners who grow up in a system of checks and balances and all this, get a little nervous around Bukele because they think, what is to stop Bukele if some opposition candidate comes up or some critical journalist appears? Maybe they disappear. What is to prevent that from happening? It seems they can just arrest people by the thousands, and if they do a trial, it is like a mass trial. It is a scary incentive structure.

There is no constraint, or only limited constraint, on the executive’s power. You are hoping you are on the good side of the executive. That is the incentive, and it is a murky environment.

Timothy Allen: The other thing to worry about with Bukele is that tomorrow he gets assassinated, because as far as I can tell, at least, he is a massive driving force behind all this stuff. It is obviously a group, the government doing these things, but Bukele is very much a hands-on leader in that sense. I feel that if he was killed…

Alex Ugorji: It is the bus problem. You want to optimise your company so that if someone gets hit by a bus, it does not collapse. If Bukele gets hit by a bus, then there will be chaos in El Salvador over what happens next, because he did not build the incentive structures, the institutions, that will continue the regime. He did not privatise the capital city and put in private police who do not get paid if they do not provide security. He is just in charge of a very powerful military and police, and is doing a good job at his goal of reducing crime.

But if he goes away, that can go away very quickly.

Timothy Allen: Yes. Correct. Okay then, I will round it up pretty soon.

Final question for me: what is your prediction on the ZEDE situation? Based on what you have observed already, and what you know, having lived there. We agreed, did we not, that you are one of the longest, basically probably one of the oldest, and I do not mean in age, residents of a free zone in its modern incarnation ever, right? Were you one of the first there?

Alex Ugorji: I think I have to give it to Erick Brimen, who technically probably has it. Number two is probably Joyce Brand, and then I am probably number three. I will take number three.

Timothy Allen: It is a good accolade, and it should give you a good opinion on where this is going.

Here is my view. The ZEDEs are so on the cutting edge of this wedge that whatever they do, they are going to learn the lessons that will basically be used by all the versions of them that come along in the future. We know this is now a thing. Too many people know about these models of special economic zones with residential parts. It is too ingrained now as a concept for it to ever go away. People are just going to find places where they can do this.

Próspera and Morazán are basically learning lessons for future versions of themselves. Whatever happens, it is part of the process. Obviously, we all hope they will remain, but like you say, if they do not, there is almost certainly someone else in Central America, another country, saying, we like what was going on and we actually feel differently about these things, so come and build it here.

We know that process is happening right now. Everyone who is involved in these kinds of places is reaching out all over the world looking for potential places. But what do you think will actually happen in Honduras with Próspera and Morazán? What is your prediction for the timeline going forward?

Alex Ugorji: The prediction part is very challenging, but I can give you the timeline. A Supreme Court decision should be given in Q4 of 2024, where they release their decision and we know exactly what the official legal implications are. From there, the ZEDEs will have to react to it.

Likely, the ZEDEs will be allowed to continue to exist as real estate entities, but their autonomy will be largely removed. Hopefully there is a transition period, but likely it will be too short. Ideally, we get a transition period to the next government. If the ZEDEs get that, they will be in great shape, and I think all the ZEDEs will be fairly happy with that because the next government is expected to be more reasonable.

But probably the transition period will be much shorter than that, or non-existent, in which case the ZEDEs basically have to navigate this period of extreme legal uncertainty and wait until the election, which is in November 2025, and see who wins.

As soon as the election occurs, the new government will begin negotiating with the ZEDEs to see if they can reach a deal. Hopefully by then the judgment from Próspera has been determined, what the damages will be. If the damages are very high, then the government will have a strong incentive to make a deal rather than pay all of this money to Próspera in damages.

That is the timeline: when will the judgment in Próspera be determined? We do not know, but it should probably be next year or early 2026, when there should be a good idea of what is going on. The current government did a great job delaying the case as long as possible, which was very wise of them, but it is coming to the end, so it should come out soon.

Then the election will be very important. Does the opposition party win as expected? How much do they win by? That will determine their ability to make a deal, as will the damages themselves. Those are the key things to keep an eye on.

Then obviously the deal is important too. Ideally, the deal is that they give back everything the ZEDEs are legally entitled to, and a little bit more in compensation for the rights violations. It is also possible that they say, okay, there is this one tiny issue with the ZEDEs, we would like to amend the constitution again and change this thing. Would you guys agree to the new regime?

Legally, the ZEDEs are grandfathered for at least fifty years under the regime they have now. But the reality is that it is a business, right? If Próspera, Morazán, Orquídea and the others have to make a decision, they will ultimately ask what they want to do from a business perspective. Do we waive our fifty-year rights, take a slightly different regime, and that maximises our profit? Maybe we should do that instead.

Ultimately there will have to be a deal of some sort. We will see what the deal is. Maybe no deal can be reached. The ZEDEs say, we are not going to give up our rights. Your proposal that we just turn into a free zone is ridiculous, or it is not viable for our business, so we cannot proceed like that. We will have to finish the lawsuit and go our separate ways.

There is a lot of uncertainty. I think Massimo is giving a speech at the Prague conference where he will talk about the status and give his probabilities of what will happen. But I would say it is more likely than not that the ZEDE regimes do not survive in their current form.

Timothy Allen: That is what he told me. I think at Próspera they feel slightly more positive, would you say?

Alex Ugorji: I would say, look at the incentives. Próspera needs to raise money, so they always have to be optimistic. It is like companies trying to do fusion, or whichever one is the hard one that gives virtually unlimited energy. All those companies are always a few years away from a breakthrough. For decades they have been a few years from a breakthrough.

That is their incentive. They need to keep raising money, so when you are raising money, you always have to be optimistic and look at things in the best light.

When you are self-funded, in the case of Massimo, you always want to be pessimistic because if you are over-optimistic, you lose a lot of money. So maybe it is somewhere in between the two, because one is slightly favoured towards optimism and the other is slightly favoured towards pessimism.

I would say the odds are a little higher than what Massimo projects, but not that much higher. That is why I say, more likely than not, the ZEDEs do not exist in their current form in the next few years. That is not to say that ten years from now they do not come back even better in some form, or they do not continue to exist in some form. It is just a very precarious position that ZEDEs are in right now, despite their legal guarantees.

We have to be realistic. I do not want people to make big commitments, change their lives, or take big bets when we have no idea what will happen. The people who are buying condos in Duna Tower in Próspera, what will happen to their condos? What will happen to the people with mortgages? There is incredible uncertainty right now.

Although I hope the ZEDEs come back and everything has a happy ending, we have to be realistic. If we were more realistic in the future, and if we had been more realistic in the past, we probably could have avoided all of this.

I think we need to have more realism in the Free Cities movement. We must provide really good incentives. We need to find which countries have the right incentives to install and maintain zones, which key power players in the countries have the incentives to install and maintain zones, build alliances, get things passed. That is how we will be successful.

If we just go in with the naive approach that these zones are going to create a bunch of jobs and help people, therefore they will be popular, then the Honduran situation will be repeated. You have to be very strategic, very smart, build as quickly as possible, and win as many allies as possible, or you will go away.

A one-term approach is what every project is going to think going forward: how do we, in one term, get enough political capital to protect ourselves in case the opposition party wins and wants to destroy us?

Timothy Allen: It is definitely a test case for the whole Free Cities movement. We are all watching it very closely.

There is a tinge of pessimism in what you say, but I think overall I get an optimistic sense from you, if nothing else because there are lessons to be learned here. The experiments in Honduras are the cutting edge of this industry. They are actually doing it, and they are actually living out these problems in real life in front of us all.

I am super grateful for that. I obviously hope the outcome is favourable to all. I do not know how that pans out because it is just a complete mess, is it not? The whole thing is a mess in the sense that nobody wins in one of the outcomes, which is terrible.

Anyway, I am sure the outcome will provide some optimism, even if it means that ZEDEs that come in the future can look and learn. I do not like ending on a negative note, but it is optimistic.

Alex Ugorji: I think it is optimism. Realism is real.

Timothy Allen: Realistic, okay. But overall, this is the realistic approach. This is the reality of doing this. When you create a zone on someone else’s land, which is basically what these zones are, when you create a special zone in someone else’s jurisdiction, you are always in their back garden and you have to deal with that. You will always have to deal with it.

I do not think there is an answer. We use the legal techniques, the PR techniques and the economic incentive techniques to try to keep these zones in existence. But there will always be the option for a government to pull the bigger-bully card, which historically has been pretty common, let us face it.

Alex Ugorji: If you want to end on a positive note, I would say that we should trust the market. The market has given us amazing things. My favourite example is that they cannot keep drugs out of prison. The market demand for drugs is so high that even in prisons they are unable to keep the drugs out.

As long as there is market demand for Free Cities, they will continue to invest and grow. The best thing that can be done is to increase the market demand for these. Thankfully, the governments of the world are our best salesmen. As they continue to destroy their home jurisdictions, the demand for someplace where it is possible to build the future continues to grow. That will lead to more and more market demand, and with all this pent-up demand, we are bound to get something exciting soon.

Timothy Allen: Thanks for turning that one around, Alex. Thanks for coming in. I appreciate your view from the front lines. You really are living it. You are living in a free zone, you are working in a free zone, and you are running your business from a free zone. It is very important to hear your voice. Thanks for sharing it with us today. I have really enjoyed speaking.

Alex Ugorji: Thanks for having me on, and for doing the podcast in general.