Panama

Politics:

• Analysis

  Panama politics: Quick View - Juan Carlos Navarro wins the PRD's presidenti

  Event

  At its primary election on March 10th, the opposition Partido Democratico Revolucionario (PRD) selected its secretary-general, Juan Carlos Navarro, to be its presidential candidate at the 2014 election.

  Analysis

  Although 17 candidates took part in the PRD's presidential primary, it came as no surprise that Juan Carlos Navarro captured 94% of the votes. He was followed by Juan Carlos Arosemena, a deputy for the capital, Panama City, with 2.8% of the vote; and by a former minister of agriculture, Alfredo Oranges, with 1%. The PRD demonstrated its formidable electoral machinery with 34.4% members participating in the primary vote, more than double the predicted turnout. Primaries generally attract only between 25% and 30% of party members.

  A former mayor of Panama City (1999-2009), Mr Navarro was elected secretary-general of Panama's largest party last August amid intense infighting between the party's young and old guards. He vowed to run a clean campaign and declined to respond to comments made on the eve of the PRD primary by the president, Ricardo Martinelli, who described him as an idler with no private sector experience.

  Mr Navarro called on his party to look to the future and to rectify the errors and scandals of its past. He also called for a Project for a New Panama that would end confrontations with organised labour, indigenous leaders and rural communities. Mr Navarro, who was the founder of the first ecological organisation in Panama in the 1980s, said that his political platform will include measures to erase the corruption and endless conflicts that Panamanians have suffered in recent years. He also called for a transparent legal system and the creation of a Ministry of Indigenous Affairs to protect the rights of Panama's indigenous populations better. He will have the next ten months to forge alliances with other sectors of the political spectrum.

  March 13, 2013

• Background

  Panama: Key figures

  Martin Torrijos

  Mr Torrijos began a five-year term as president on September 1st 2004. A popular and charismatic leader, he derives considerable support from the reputation enjoyed by his father, the late General Omar Torrijos. His standing was significantly enhanced by the strong public backing given to the proposed expansion of the Panama Canal in a constitutionally mandated national referendum in 2006. However, towards the end of his term he has seen a sharp drop in approval ratings for his government's lack of success in meeting campaign pledges to fight corruption and improve security.

  Balbina Herrera

  A former minister of housing in the Torrijos administration, Ms Herrera was elected the presidential candidate for the Partido Revolucionario Democratico (PRD) for 2009 in the PRD primaries held in September 2008, narrowly defeating Juan Carlos Navarro. She ran a socially progressive primary campaign, stressing the importance of improvements in education and health to extend opportunity, and decentralisation as a means of promoting rural development. Ms Herrera comes from outside the traditional elite that has historically dominated Panamanian politics, having worked her way up through the political ranks from local government. Criticised for her support in the past of the de facto military governments of generals Omar Torrijos and Manuel Noriega, and for being a firebrand politician in her early political career, Ms Herrera is nevertheless a PRD loyalist who enjoys the strong grass-roots support of her party.

  Ricardo Martinelli

  Leader of the small Cambio Democratico (CD) party, and one of Panama's most successful entrepreneurs. In the 2004 elections Mr Martinelli trailed in fourth place with just 5.3% of the vote. CD won just three seats in 2004. In 2008 he emerged as a leading contender for the presidency, with polls towards the end of the year showing him with a five-point lead over Ms Herrera. Among a public increasingly concerned over rising crime rates and shortcomings in public infrastructure, Mr Martinelli's message of "change" from the political status quo proved attractive to voters.

  Juan Carlos Navarro

  Mayor of the capital, Panama City, Mr Navarro is a US-educated former businessman who represents the political right of the PRD. For long regarded as the favourite for the presidency in 2009, Mr Navarro campaigned in the PRD primaries on a traditional platform of a mano dura (iron fist) approach to tackling crime and poverty, hoping to capitalise on growing public concern over rising crime rates. He was fiercely critical of Ms Herrera's socially progressive approach to crime and her leftist political orientation. Following his primary defeat, in a departure from the PRD's usual pre-election discipline and unified front, Mr Navarro became increasingly critical of the Torrijos administration's poor record on crime. With sections of his support base making it clear they would not vote for Ms Herrera if she failed to include him as her vice-president, and facing a second consecutive month of polls showing her trailing Mr Martinelli, in November 2008 Ms Herrera named Mr Navarro as her vice-presidential running-mate.

  December 18, 2008

• Structure

  Panama: Political structure

  Official name

  Republic of Panama

  Form of state

  Presidential democracy with National Assembly and an independent judicial system

  The executive

  The president is the head of state, elected for a five-year term by universal adult suffrage; there is a vice-president and a cabinet appointed by the president

  National legislature

  National Assembly; a 71-member unicameral legislature elected directly by adult suffrage for a five-year term

  Legal system

  The president proposes judges for the Supreme Court; they are approved by the National Assembly and sit for terms of ten years; a system of appeal originates in courts of first instance, rising to the Supreme Court at the apex

  National elections

  May 3rd 2009; next elections (legislative and presidential) due in May 2014

  National government

  Ricardo Martinelli won a landslide victory in the May 3rd 2009 presidential election. His Alianza por el Cambio coalition also won a majority in the National Assembly. The government was sworn in on July 1st 2009

  Main political organisations

  Government: Cambio Democrático (CD). Opposition: Partido Panameñista (PP), Partido Revolucionario Democrático (PRD), Partido Popular, Movimiento Liberal Republicano Nacionalista (Molirena)

  President: Ricardo Martinelli (CD)

  Vice-president: Juan Carlos Varela (Panameñista)

  Key ministers

  Agriculture: Oscar Osorio Casal (CD)

  Canal affairs: Roberto Roy (CD)

  Economy & finance: Frank de Lima (CD)

  Education: Lucinda Molinar (Independent)

  Foreign affairs: Fernando Núñez Fábrega (CD)

  Government & justice: Jorge Ricardo Fábrega (CD)

  Health: Javier Díaz (CD)

  Housing: Yasmina Pimentel (CD)

  Labour: Alma Cortéz (CD)

  Presidency: Roberto Henríquez (CD)

  Public works: Jaime Ford (CD)

  Social development: Guillermo Ferrufino (CD)

  Trade & industry: Ricardo Quijano (CD)

  March 22, 2013

• Outlook

  Panama: Key developments

  Outlook for 2013-14

  • A series of recent policy blunders has damaged the standing of the president, Ricardo Martinelli, but governability should remain sound until the next presidential and legislative elections, which are due in May 2014.
  • The main policy focus will be on accelerating the upgrade of transport and logistics infrastructure, which forms part of wider plans to capitalise on Panama's location and develop it into a regional logistical hub.
  • The fiscal deficit will remain large, at 2.2% of GDP in both 2013 and 2014, as capital spending remains high. Fiscal consolidation is not expected until after the 2014 elections.
  • Although slowing from a stellar 10.1% expansion in 2012, GDP will grow at an annual average of 7.9% in 2013-14-driven by the Panama Canal expansion and several other large investment projects-before moderating in 2015-17.
  • Firm demand-side pressures are expected to sustain inflationary pressures in the short term. Although inflation will trend lower over the next five years, the annual forecast average of 3.9% in 2013-17 is high by historical comparison.
  • The Economist Intelligence Unit expects large current-account deficits (averaging 8.6% of GDP) over the forecast period, but these will be investment-driven and offset by inflows of foreign direct investment (FDI).

  Review

  • Mr Martinelli's appointment of three new members to the board of the Panama Canal Authority (CPA) raised concerns within civil society over the key body's independence from political influence.
  • Three government ministers left the Cabinet to participate in the ruling Cambio Democrático (CD) primary elections on May 10th.
  • The National Assembly approved a bill in late January to reinstate the country in the Parlamento Centroamericano (Parlacen, the Central American parliament).
  • Profits earned by Panama's Centro Bancario Internacional (CBI, international banking centre) jumped by 13% in 2012, boosting profits to above the US$1bn mark for the third consecutive year.
  • The fiscal deficit recorded by the non-financial public sector (NFPS) widened by 8.8% year on year, or US$62m, to US$765m in 2012, despite one of the strongest increases in fiscal revenue on record.
  • Consumer price inflation edged up to 4.7% in January (from 4.6% in December) as rapid economic growth and massive infrastructure spending continued to feed inflationary pressures.

  March 22, 2013

Economy:

• Background

  Panama: Economic background

  Real gross domestic product by sector
  (% share of GDP)
  	2003	2004	2005	2006	2007
  Agriculture	7.2	7.9	7.6	7.2	6.6
  Industry	12.7	17.1	16.3	16.5	16.4
  Services	72.8	74.9	76.0	76.3	77.0
  Source: Economist Intelligence Unit.

  Download text file (csv format)

  December 18, 2008

• Structure

  Panama: Economic structure

  Data and charts: Annual trends charts

  
  

  

  March 22, 2013

• Outlook

  Panama: Country outlook

  Panama: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: Despite corruption scandals and widespread demonstrations--which have reduced the popularity of the right-wing president, Ricardo Martinelli--governability is likely to remain secure until the next general elections, which are scheduled for May 2014. This will, to some extent, be supported by a strong legislative position resulting from the active recruitment by the ruling centre-right Cambio Democrático (CD) of defectors from the opposition centre-left Partido Revolucionario Democrático (PRD), the former governing party, which has suffered from in-fighting since its election defeat in 2009. The CD has also recruited some deputies from the opposition Partido Panameñista (PP), which, until September 2011, was part of the ruling coalition. This strategy has given the CD a solid 40-seat majority in the 71-seat unicameral legislature, which it is likely to hold until the 2014 elections. Nonetheless, the PP is expected to become more vocal in its opposition to the ruling party, following the deterioration in relations between Mr Martinelli and the vice-president, Juan Carlos Varela--the PP leader and the government's harshest critic.

  ELECTION WATCH: The next presidential and legislative elections are scheduled for May 2014. Consecutive re-election is constitutionally barred and there has been speculation that Mr Martinelli may try to amend the constitution to allow for successive presidential terms. This would meet with very strong opposition, and the Economist Intelligence Unit believes it unlikely that he will attempt to do so, partly because of his low approval ratings. Mr Varela has made it clear that he intends to run for the presidency in 2014 on the PP ticket, and he currently has the second-highest opinion poll ratings among the main politicians. The PRD's candidate, Juan Carlos Navarro--who served as mayor of the capital, Panama City, from 1999 to 2009--is leading in opinion polls. Electoral dynamics--including the eventual number of presidential candidates (a larger field of candidates would benefit Mr Navarro) and the way in which alliances are forged between now and the election--make predicting the outcome challenging at this time. The CD's chances of victory will hinge in large part on whether Mr Martinelli manages to revive his administration's approval ratings during his remaining time in office and also on whether the party chooses a candidate with widespread popular appeal to contest the election.

  INTERNATIONAL RELATIONS: Trade and investment flows with the US will be boosted by a bilateral free-trade agreement (FTA), which came into operation in late 2012. The FTA is part of the Panamanian government's strategy to enhance ties with major trading partners (including countries in Asia and the EU--an association agreement was signed with the latter in July 2012). Panama will also remain keen to demonstrate a strong commitment to the exchange of tax information with other jurisdictions, in order to comply with standards set by the OECD's Global Forum on Transparency and Exchange of Information for Tax Purposes. Relations with other Central American economies will remain of secondary importance, but increasing co-operation on policies to combat drug-trafficking in the region will gain greater priority in the foreign policy agenda.

  POLICY TRENDS: Policy priorities will remain focused on a series of large capital investment projects--including the expansion of the Panama Canal and the construction of a metro rail system in Panama City. These infrastructure upgrades form part of wider plans to develop Panama into a regional logistical hub and to expand its capacity for reassembly operations. This will be especially important in 2015-17 to maintain economic growth momentum once the stimulus of the Canal expansion comes to an end. A focus on reassembly operations will also help to sustain employment levels when infrastructure development starts to slow. However, the gap between living standards of residents of the capital and those in the rest of the country will remain significant and could widen even further as the focus on infrastructure spending comes at the expense of investment in agriculture (the main employer outside the capital). This will present an additional policy challenge. Moreover, Panama's business environment will continue to be hampered by a weak investor-protection framework, a complex and burdensome tax regime, and poor contract enforcement.

  ECONOMIC GROWTH: Following estimated real GDP growth of 10.1% in 2012, economic growth will continue to be driven by Canal expansion and other large-scale investment projects in 2013-14. After slowing to 7.7% in 2013, growth will quicken to 8.1% in 2014 as public spending and investment accelerate in the run-up to the presidential and legislative elections, scheduled for May of that year. Thereafter, we expect growth to dip to a six-year low of 4.1% in 2015, before picking up to an average of 5.4% per year in 2016-17. This forecast assumes that the stimulus effect of public construction fades, but that it is partly offset by inward investment in manufacturing.

  INFLATION: Price pressures will ease in 2013--but remain relatively strong by historical standards--with average inflation forecast to fall to 4.7% (from 5.7% in 2012). However, there are international and domestic upside risks to this forecast, including strong domestic demand-side pressures (which could be further buoyed by recent wage increases and stronger public spending in the context of the government's ambitious investment programme) and the latest programme from the Federal Reserve (the US central bank) of quantitative easing (QE3), which could weaken the US dollar. In addition, supply-side shocks resulting from disruptions caused by social unrest could recur. Inflation is expected to remain broadly within a 3-4% range in 2015-17.

  EXCHANGE RATES: Risks to the euro continue to weigh on global market sentiment, and continued weaknesses in Europe will push up the value of the US dollar during the forecast period, from an average of US$1.33:EUR1 in 2013 to US$1.26:EUR1 in 2017. A stronger US dollar will erode the competitiveness of Panama's exports to the EU, but, as less than 20% of domestic exports are sold in this market, the country's trading prospects will not be seriously affected. Shifts in the real exchange rate, in relation to trading partners other than the US, remain of limited significance to trade performance, given the high import content of Panama's re-exports.

  EXTERNAL SECTOR: We expect sizeable current-account deficits in 2013-14--averaging 11.1% of GDP per year--but these will be investment-driven and largely offset by foreign direct investment (FDI) inflows. The large current-account deficits will mainly reflect a temporary jump in import spending related to the Canal expansion and other investment projects; the deficit is forecast to narrow to a (still substantial) 5.3% of GDP by 2017. Weaker global trade growth will slow the expansion of the services surplus in the earlier part of the forecast period, while the income deficit will average 5.3% of GDP, owing to profit repatriation by foreign companies operating in Panama. Inward FDI is expected to fall from an estimated record high of US$3.8bn in 2012 to US$3.2bn in both 2013 and 2014, before easing further to an annual average of US$2.4bn in 2015-17.

  March 25, 2013

• Forecast

  Panama: 5-year forecast summary

  Outlook for 2013-14: Forecast summary

  Forecast summary
  (% unless otherwise indicated)
  	2012a	2013b	2014b	2015b	2016b	2017b
  Real GDP growth	10.1	7.7	8.1	4.1	5.4	5.5
  Industrial production growth	15.7	9.2	9.5	5.3	5.3	5.1
  Gross agricultural production growth	4.3	3.5	2.0	2.5	2.0	2.5
  Unemployment rate (av)	4.4	4.5	4.6	4.7	5.0	6.0
  Consumer price inflation (av)	5.7c	4.7	4.4	3.5	3.5	3.6
  Consumer price inflation (end-period)	4.6c	4.8	4.5	3.4	3.6	3.4
  Lending interest rate	6.9	6.4	6.2	6.1	6.8	7.7
  NFPS balance (% of GDP)	-2.1	-2.2	-2.2	-1.5	-1.4	-1.0
  Exports of goods fob (US$ bn)	19.0	21.9	26.1	30.2	35.0	40.0
  Imports of goods fob (US$ bn)	24.9	28.8	32.8	37.2	42.0	47.5
  Current-account balance (US$ bn)	-4.7	-5.0	-4.6	-4.4	-3.6	-3.1
  Current-account balance (% of GDP)	-12.9	-12.3	-10.0	-8.7	-6.5	-5.3
  External debt (year-end; US$ bn)	14.1	15.2	16.6	17.9	19.1	20.3
  Exchange rate B:US$ (av)	1.00c	1.00	1.00	1.00	1.00	1.00
  Exchange rate B:¥100 (av)	1.25c	1.08	1.06	1.04	1.03	1.04
  Exchange rate B:€ (end-period)	1.31c	1.32	1.31	1.26	1.26	1.26
  Exchange rate B:SDR (end-period)	1.57c	1.57c	1.57	1.57	1.57	1.57
  a The Economist Intelligence Unit estimates. b The Economist Intelligence Unit forecasts. c Actual.

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  March 22, 2013

Country Briefing

Land area

75,517 sq km; mainly mountainous, with lowlands along the Pacific and Atlantic coasts

Population

3.7m (2012, World Gazetteer estimate)

Main towns

Population in '000 (national census, July 2007):

 Panama City (capital): 846

 Colón: 206

 David: 142

Climate

Tropical

Weather in Tocumen (altitude 42 metres)

Hottest month, April, 21-36°C (average daily minimum and maximum); coldest month, January, 20-34°C; driest month, February, 5mm average rainfall; wettest month, November, 375 mm average rainfall

Language

Spanish

Measures

Metric system

Currency

1 balboa (B) = 100 centésimos. The US dollar is used as local currency; locally minted coins with the same denominations as US coins are in circulation

Time

5 hours behind GMT

Public holidays

January 1st; January 9th (Martyrs' Day); (Carnival, moving date); Shrove Tuesday; Ash Wednesday; Good Friday (moving date); May 1st (Labour Day); August 15th (Foundation of Panama City, Panama City only); November 3rd (Independence Day); November 4th (Flag Day); November 5th (Independence Day, Colón only); November 10th (Cry for Independence Day); November 28th (Independence from Spain); December 8th (Mother's Day); December 24th (Christmas Eve); December 25th (Christmas Day)

January 03, 2013