Economic & Political Stability

Economic

Panama has seen a continuing economic expansion, a high rate of foreign investment, and a steady increase in property values over the last decade since the Americans handed over control of the Canal in 2000.  The economic boom since then has translated to Panama’s Political Stability.

Expect to see Panama’s open and stable political system continue to help promote economic prosperity, success in its real estate investment, and investment by Panama in its infrastructure in the future.

The democratic country of Panama has strong economic assets and is well governed which will exploit these assets to the good of its citizens and those wise enough to invest in Panama’s future.  The Canal expansion will boost growth by an average of 1% in each of the next two years, which should partially offset the effects of a still weak U.S. economy.

Economists predict and expect the economic growth in Panama to be around 4.5% in 2010 and 5.5% in 2011.  Solid economic growth, enhanced tax collection, and spending restraint have helped improve the government’s fiscal position over the past few years.

Fiscal improvements have helped reduce Panama’s public debt (domestic and external) from 70% of GDP in 2004 to an estimated 47% last year. In addition, good debt management has allowed the government to extend the average maturity of its obligations and reduce interest rates.

Over the medium-long term, Panama’s economy will continue to benefit from its position as a major international hub. Further, the Canal expansion is expected to boost growth above potential until 2014. EDC Economics does not expect any radical change in economic policy by the recently elected government.

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Political

Until the May 2009 Presidential election, the fight for political power in Panama had been essentially limited to the Partido Revolucionario Democrática (PRD) and the Partido Panameñista (PP). Both of these parties are on the right of the political spectrum and made up of elites that move smoothly between business and politics depending on the opportunities at hand.

However, for the May 2009 elections, the PP joined forces with the small Democratic Change (CD) party which led to the election of CD’s candidate Ricardo Martinelli as the new President of Panama.

Martinelli, a successful local businessman, centered his presidential campaign on the necessity to bring “radical change” to the country, especially now that the effects of the global economic downturn are being felt in Panama.  Not surprisingly, during his first weeks in power, President Martinelli praised liberal policies as the essential path to prosperity and development.

Panama is firmly within the US sphere of influence, although politicians are careful to outwardly steer a path between the Americans and other countries such as Venezuela.

The impact of the powerful forces of authoritarianism, military dominance, the US presence, and the oligarchy continues to permeate Panamanian politics and, in tandem with the strategic and economic importance of the Panama Canal, are variables that account for current and future political strategies.

Panama is very attractive to investors given its fully dollarized economy with no exchange risk; an absence of barriers to repatriation of funds, low inflation, and its stable and sophisticated banking sector.

Panama faces no threats of hostility either domestically or externally. Street protests and strikes are regularly used to attempt to sway political decisions and demonstrate public dissatisfaction, as it was the case in March 2010 when police clashed with protesters rallying against a recently passed tax reform bill.

These protests however do not pose a threat to the country’s overall security or political stability.

Smuggling and money laundering are issues of concern. Lack of aerial surveillance has made Panama a popular location for illegal runways that serve the drug trade. There is also evidence that powerful Mexican cartels are operating in Panama, and it is believed that fund-raising activities are being conducted in the Free Trade Zone.

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Information credited to a report by Export Development Canada (http://www.edc.ca/english/docs/gpanama_e.pdf)

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