No matter the time of day or night, morticians stand guard by the gate of the city morgue, waiting for the next body to be released so they can offer their services to grieving families. In the most violent city in the most violent country in the world, they never have to wait for long.

"Satan himself lives here in San Pedro," says one nervous mortician who asks to be identified only as Lucas. "People here kill people like they're nothing more than chickens."

Last year, an average of 20 people were murdered every day in Honduras, a country of just 8 million inhabitants, according to the Violence Observatory at the National Autonomous University of Honduras (NAUH). That's a murder rate of 85.5 per 100,000 residents, compared with 56 in Venezuela, 4.78 in the US and 1.2 in the UK.

In San Pedro Sula, the rate is 173, reportedly the highest in the world outside a war zone. The city is the country's manufacturing and commercial hub. Dozens of maquiladoras – export assembly plants – churn out New Balance T-shirts and Fruit of the Loom boxer shorts for markets abroad. It should be a bustling place, but there is little movement on the streets and the air is tense. At newsstands, headlines cry out details of the previous day's grisly crimes. Few cars have number plates; most have black-tinted windows.

The small number of police patrolling the streets breed more fear than security among residents, given the extreme levels of corruption within the national force that reportedly go all the way to the top.

Honduras is caught in a vortex of crime – drug trafficking, gang wars, political upheaval and fierce land disputes matched by equal doses of impunity and corruption.

The same mix of factors has helped make Latin America the world's deadliest region. Although it is home to just 8% of the world's population, UN figures show that it accounts for 42% of all homicides worldwide. According to the Mexican thinktank Citizen Council on Public Safety and Criminal Justice, all but one of the 20 cities with the highest homicide rates in the world are in Latin America. The exception is New Orleans.

But nowhere does the violence seem as out of control as in Honduras.

People at the crime scene of a man shot by gang members in San Pedro Sula. Photograph: Jorge Cabrera/Reuters

Violence began to flare in the early 2000s and has risen steadily since the country took on a bigger role in the drug routes from South America to the US. About 80% of the cocaine headed for America passes through Honduras, according to the US state department. An already frail state has been further weakened by the infiltration of organised crime and a 2009 coup, after which reports of human rights abuses against supporters of the deposed president rocketed. At the same time rival street gangs known as maras – many of whose members were deported from US jails – battle to control local drug markets and extortion rackets.

Lucas has been preparing cadavers for burial since he was 15 and remembers when most of the people he worked on had died naturally. "Today that's rare. We see people with six to 10 bullet wounds, dismembered, decapitated," he says.

Victims are mechanics, students, farmers, journalists, bus drivers and business people. On 19 April, the top money laundering prosecutor was shot dead; on 2 May, a leading criminal investigator of car thefts was murdered. "There seems to be no one who is off limits," says Steven Dudley, co-director of Insight Crime, a thinktank dedicated to security and organised crime in Latin America.

The first line of defence for officials questioned about high murder rates is to dispute the numbers. "It's a smear campaign," says José Amilcar Mejía, the police chief of San Pedro Sula. He claims the census numbers are wrong, that murder figures for the city include bodies brought from elsewhere, even though the Violence Observatory gets its information from official figures. The security ministry has since prohibited police from giving interviews and spokesmen can only divulge information about arrests, raids and other police operations. Crime reports are to be kept under wraps.

One root of the problem is police corruption, from soliciting bribes to theft, extortion and murder. In at least five cases, police officers have been implicated in death-squad style killings of gang members, according to the Associated Press. Public outrage over the alleged participation of several officers in the 2011 murder of the son of the rector at the NAUH led to an attempt to purge the police. But some officials who failed the tests were later promoted.

The national police chief, Juan Carlos "El Tigre" Bonilla, has been accused of three extrajudicial killings and implicated in 11 other deaths and disappearances. Despite the allegations and the fact that the US – a big donor in the fight against drug trafficking – has refused to work with Bonilla, President Porfirio Lobo confirmed him in his post.

A body is taken to the morgue in San Pedro Sula. Photograph: Jorge Cabrera/Reuters

But the police are trying to clean up their image. Bonilla will be one of 400-plus officers subjected to "confidence tests", including drug testing and polygraphs, and on Tuesday the security ministry announced a shuffle of top police posts.

A lack of confidence in the police and other authorities, and the fact that only a fraction of crimes are investigated and the perpetrators punished, leads people to take matters into their own hands. "There is zero institutionality here, the police and investigators are useless," says Gustavo Irias, of the Tegucigalpa-based Democracy Studies Centre. "And impunity generates new violence."

Motives were determined in just 41% of murders last year; of those nearly a quarter were attributed to a settling of scores, the Violence Observatory says.

"When people have no recourse, the answer becomes, 'Can I get a bigger gun?'" says Dudley.

For Lucas at the morgue in San Pedro, bigger guns keep him busy, but he is considering trying his luck in another country, like hundreds of thousands of other Hondurans who emigrate every year to Mexico, the US and beyond. He's confident his skills will be put to use, wherever he ends up: "There are dead people everywhere, right?"