Panama: the challenges ahead.

Author:Martinez, Angel Ricardo
Position::COUNTRY REPORT: PANAMA - Statistical data

Panama is one of the rising stars of Latin Americas economy. The construction of large infrastructure projects, such as the $5.2-billion Panama Canal expansion and a $1.8-billion subway in the capital city, have boosted the country's economy to 10.5 percent growth in 2012, slightly less than the 10.6 percent in 2010, and reduced unemployment to 4.8 percent in 2012.

But as these mega-projects--most of them turnkey--tome-online, some analysts fear that the huge burden they will place on the country's debt, and an eventual increase in unemployment, could have severe economic consequences. While the creation of a wealth fund sounds somewhat reassuring, it seems that the real challenge for Panama will be to position itself as a world-class logistics hub if it wants to consolidate its recent economic success. The inauguration of the new locks in early 2015 may give Panama a boost towards creating the kind of infrastructure it needs to truly take advantage of its strategic location.

In economic terms, the last decade in Central America and the Caribbean may well be dubbed "the rise of Panama." Between 2001 and 2011, this country of 3.6 million doubled its GDP, and commanded a 45 percent employment expansion. This outstanding evolution has naturally been accompanied by several double-digit growth figures, the latest being 10.4 percent in the second quarter of 2012, and low unemployment levels, currently at 4.2 percent.

In the midst of the last few years' global economic hardship, Panama's achievements might sound like a great feat. But speaking with former President Nicolas Ardito Barletta (1984-85), one of the country's top economists, one gets the sense that it was somehow meant to be. "Panama's economy has been transformed over time. The handover of the Canal boosted our services-based economy, enabling the further development of a conglomerate of interconnected activities that revolves around the Canal and that generates 62 percent of our exports," he says.

That conglomerate, according to Barletta, "includes the ports, which moved more than 6.6 million containers last year; the Colon Free Zone (CFZ), with yearly activity topping $25 billion; and Tocumen International Airport, which connects Panama with more than 30 countries and through which 24 percent of the CFZ's exports leave." All that, moreover, "is complemented by a dollarized, world-class banking system and the best telecommunications infrastructure in Latin America. If I have to sum up...

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