A generation after Panama shed a tradition of military rule, canny fiscal management and good stewardship of its emblematic canal have made the tiny country a model of success for today’s frontier markets.
An investor darling that has grown rapidly over the last decade and even managed to dodge recession during the recent global downturn, Panama’s government debt has received a coveted investment grade rating by Fitch and S&P.
Panama will not realize its ambition of joining the world’s most developed nations until it cleans up its murky banking system and narrows a wealth gap that leaves a third of its people in poverty, but economists say it is well-positioned for steady growth.
PHOTO: REUTERS
“What’s striking is that this is such a broad-based economy,” said Boris Segura, an economist with the Royal Bank of Scotland. “Yes, they have the canal, but there is also tourism, construction and a growing financial services sector.”
With a population of just 3.4 million, Panama will never be a China or a Japan, but local leaders say it can aspire to become like Singapore, an affluent and diverse crossroads for international finance and trade.
“Nobody is going to come to Panama to sell to the domestic market. We tell investors ‘Come to Panama and sell to the world,’” Panamian Trade Minister Roberto Henriquez said. He sees the small isthmus nation’s future as a boutique exporter of high-margin goods and services.
Dozens of multinational companies such as Caterpillar, Hewlett Packard and Dell have been drawn to Panama in recent years as the country has thrown its doors open to foreign investment and Panamian President Ricardo Martinelli, in power since July last year, hopes to attract more.
While foreign investors put only about US$500 million a year into Panama in the 1990s, the country attracted US$8.6 billion between 2006 and last year, government and UN data show.
Low taxes, easy immigration and flexible labor laws have been among the attractions, along with an abundance of available land.
“A multinational company takes baby steps and we have room to grow,” said Henry Kardonski, who is directing the conversion of a former US Air Force base into 14km² of mixed-use development near the Panama Canal that will combine light industry and a residential community.
Investors have been impressed with Panama’s tight fiscal balances and pro-business policies, but much of its growth stems from the canal which is a transit point for about 4 percent of global trade.
Storage and distribution centers are expanding along the canal beltway while the transport and finance sectors continue to grow. The government is tapping those industries for tax revenue and drawing from international creditors to expand its infrastructure.
A US$5.25 billion expansion of the canal should be complete in 2014 and the government plans to spend another US$13.6 billion on infrastructure and social programs in the next four years.
“The numbers tell us that we can continue stepping on the pedal without going into profound financial problems in the country,” Henriquez said.
However, with a capital skyline that resembles Dubai of yesteryear and politicians promising to pour even more concrete in a building spree, some fret that spending or growth could spin out of control.
There are also worries Panama has not put to rest the uglier parts of its recent past.
“Are they going to squander these gains? The jury is still out,” said Segura, who is bullish on Panama but uneasy with a recent edict by Martinelli against street protests and his attempts to centralize authority.
It has been more than 20 years since General Manuel Noriega was frog-marched from power after US Marines invaded and extradited the military strongman on drug trafficking charges.
Some worry, though, that Panamanians have uneven memories of the Noriega era and might be too willing to accept another authoritarian figure who promises wealth, stability and more social programs for the poor.
“Back then, there was a lot of money, people say. There was a lot of money in the street,” said vendor Fidelio Chocho, ladling out pineapple juice to customers by the Vatican embassy.
Much has changed in Panama City since that standoff, with luxury condos and a highway overpass now crowding the Vatican Nunciature.
The strong economy reflected in growth figures is also seen on the streets of Panama City, where Noriega’s former officers’ club is being turned into a boutique hotel and the faded colonial quarter is getting a spruce-up.
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