Roberto Micheletti, who took power in Honduras following the June 28 coup, has come under intense criticism from the international community for rejecting a compromise, negotiated by Costa Rican President Oscar Arias, that would allow Manuel Zelaya, the democratically elected president forced into exile by the military, to return as head of a reconciliation government. But Micheletti’s obstinacy is encouraged by those who see the crisis as a chance to halt the advance of the Latin American left. A month and a half after Zelaya’s overthrow, the small, desperately poor Central American country has become the site of a larger battle that could shape hemispheric politics, including Barack Obama’s foreign policy, for years to come.

In the 1980s Honduras served as a staging ground for Ronald Reagan’s anticommunist operations in neighboring Nicaragua, El Salvador and Guatemala and as a portal for New Right Christians to roll back liberation theology. Central America’s anticommunist crusade became something of a death-squad Da Vinci Code, pulling together a carnivalesque cast that included first-generation neocons, Latin American torturers, local oligarchs, anti-Castro Cubans, mercenaries, Opus Dei ideologues and pulpit-thumping evangelicals.

The campaign to oust Zelaya and prevent his restoration has reunited old comrades from that struggle, including shadowy figures like Fernando “Billy” Joya (who in the 1980s was a member of Battalion 316, a Honduran paramilitary unit responsible for the disappearance of hundreds, and who now works as Micheletti’s security adviser) and Iran/Contra veterans like Otto Reich (who ran Reagan’s Office of Public Diplomacy, which misused public money to manipulate public opinion to support the Contra war against Nicaragua). The Honduran generals who deposed Zelaya received their military training at the height of the region’s dirty wars, including courses at the notorious School of the Americas. And the current crisis reveals a familiar schism between conservative Catholic hierarchs and evangelical Protestants who back the coup, on the one hand, and progressive Christians who are being hounded by security forces, on the other.

Joining the coup coalition are new actors like Venezuelan Robert Carmona-Borjas, who was involved in the 2002 attempt to overthrow Venezuelan President Hugo Chávez. According to Latin American analyst Laura Carlsen, Carmona, working closely with Reich, turned his attentions to Honduras after having failed to halt the electoral success of the left in Venezuela. Starting in 2007, Carmona’s Arcadia Foundation launched a press campaign to discredit Zelaya by accusing his government of widespread graft. As Carlsen writes, the “politicized nature of Arcadia’s anti-corruption offensive was clear from the start. Carmona, along with Otto Reich, charged President Zelaya of complicity” in assorted misdeeds. The crusade was similar to the way International Republican Institute-linked “democracy promotion” groups destabilized the government of Haitian president Jean-Bertrand Aristide, resulting in his overthrow in 2004.

Also fresh to the fight is Lanny Davis, a former Hillary Clinton adviser turned lobbyist, who was hired by business backers of the coup to push the Clinton State Department to recognize the Micheletti government. The Clinton wing of the Democratic Party has deep ties to Latin American neoliberals who presided over ruinous policies of market liberalization in the 1990s, now largely displaced from office by the region’s new leftists. Clinton pollsters and consultants, such as Stanley Greenberg and Doug Schoen, have worked on a number of their presidential campaigns, often on the losing side.

Three years ago the region, locked into the US sphere of influence by the Central American Free Trade Agreement, seemed immune to the changes taking place in South America, which had brought leftists to power in a majority of countries. But then the Sandinistas returned to office in Nicaragua in 2006. Recently, the FMLN won the presidency in El Salvador, and Guatemala, led by center-left President Álvaro Colom, is witnessing a resurgence of peasant activism, much of it against transnational mining and biofuel corporations.

In Honduras, Zelaya shook things up by raising the minimum wage and apologizing for the executions of street children and gang members carried out by security forces in the 1990s. He moved to reduce the US military presence and refused to privatize Hondutel, the state-owned telecommunications firm, a deal that Micheletti, as president of Congress, pushed. Zelaya also vetoed legislation, likewise supported by Micheletti, that would have banned sale of the morning-after pill. Considering Nicaraguan President Daniel Ortega’s shameful support of the Catholic Church’s position on abortion, which resulted in legislation mandating up to thirty-year jail terms for women who receive them, this was perhaps Zelaya’s most courageous move. He also accepted foreign aid, in the form of low-cost petroleum, from Venezuela. It would be impossible to overstate the Central American ruling class’s hatred of Chávez, whose hand is seen behind every peasant protest and every call to democratize the region’s politics and economics. The president of a Honduran business council recently said Chávez “had Honduras in his mouth. He was a cat with a mouse that got away.”

The fixation on Chávez usefully diverts attention from the gnawing poverty in the region, as well as from the failure of the neoliberal economic model promoted by Washington in recent decades. Forty percent of Central Americans, and more than 50 percent of Hondurans, live in poverty. The Chávez mania also distracts from the fact that under Washington’s equally disastrous “war on drugs,” crime cartels, deeply rooted in the military and traditional oligarchic families, have rendered much of Central America into what the Washington Office on Latin America calls “captive states.”

For the White House, Honduras is proving to be an unexpectedly difficult foreign-policy test. After condemning the coup, Obama handed the crisis to the State Department. Rather than working with the Organization of American States (OAS), Secretary of State Clinton unilaterally charged Oscar Arias with brokering a compromise, ignoring the concerns of most other Latin American governments that negotiations would grant too much legitimacy to the coup. Clinton has so far been unwilling to apply a range of possible sanctions, including freezing the bank accounts of those who carried out the coup, to force Micheletti to accept the Arias plan. And for those who see Micheletti as the last line against the spread of Chavismo–be it in Honduras, Guatemala, El Salvador or elsewhere in the Americas–the return of Zelaya, even just to finish the few months left in his term, is unacceptable.

In the late 1970s the Sandinista revolution revealed the limits of Jimmy Carter’s tolerance of Third World nationalism. The more Carter tried to appease hawks in his administration, the more he was accused of vacillating, thus paving the way for neoconservatives, under Reagan, to use Central America to showcase their hard line.

A similar dynamic is taking place today. Republicans have rallied around Micheletti, sending a Congressional delegation led by Connie Mack to visit Tegucigalpa. Taking a page out of the Latin American right’s playbook, they have redbaited Obama by associating him with Chávez. Obama, said Texas Senator John Cornyn, “must stand with the Honduran people, not with Hugo Chávez.” It’s the kind of grandstanding that Republicans, absent a domestic agenda, have come to rely on. Venezuela’s position on Honduras is identical to that of Brazil and Chile–and, for that matter, the European Union. But the right-wing attacks are effective, largely because self-described liberals repeatedly indulge in the demonization not just of Chávez, as Lanny Davis recently did, but of leftists like Evo Morales in Bolivia and Rafael Correa in Ecuador.

In early August the State Department seemed to give ground to Republicans, stating in a letter to Republican Senator Richard Lugar that Zelaya’s “provocative actions…unleashed the events that led to his removal.” This statement, as well as other tepid efforts to pressure Micheletti, bodes ill for the Obama administration’s willingness to stand up to right-wing pressure.

Obama himself continues to send mixed signals. At an August summit in Guadalajara of the presidents of Mexico, Canada and the United States, he complained that “critics who say that the United States has not intervened enough in Honduras are the same people who say that we’re always intervening and the Yankees need to get out of Latin America. You can’t have it both ways.” However, no one in Latin America is asking for unilateral US intervention but rather for Washington to work multilaterally with the OAS. By deputizing Oscar Arias, the United States effectively undermined the OAS. On the same day Obama made these remarks, South American presidents, meeting in Quito, Ecuador, reaffirmed their condemnation of the coup and said they will not recognize any president elected under the current regime–a step Clinton’s State Department has refused to take.

The failure to restore Zelaya to power will send a clear message to Latin American conservatives that Washington will tolerate coups, provided they are carried out under a democratic guise. As historian Miguel Tinker Salas recently observed in an essay published on Common Dreams, they already sense that Honduras might be a turning point. A conservative businessman recently won the presidency in Panama. In June in Argentina, Cristina Fernández’s center-left Peronist party suffered a midterm electoral defeat and lost control of Congress. And polls show that presidential elections coming up in Chile and Brazil will be close, possibly dealing further losses to the left.

In the meantime, Zelaya is rallying supporters from abroad to press for his return. In Honduras, protests continue and the body count climbs. At least eleven Zelaya supporters have been killed since the coup took place. The latest, Martín Florencio Rivera, was stabbed to death as he left a wake held for another victim. Micheletti, for his part, is hunkered down in Tegucigalpa, betting he can leverage international support to last until regularly scheduled presidential elections in November. The future course of Latin American politics may hang in the balance.