Economy of Panama - AbsoluteAstronomy.com

The economy
Economy
An economy consists of the economic system of a country or other area; the labor, capital and land resources; and the manufacturing, trade, distribution, and consumption of goods and services of that area...

of Panama
Panama
Panama , officially the Republic of Panama , is the southernmost country of Central America. Situated on the isthmus connecting North and South America, it is bordered by Costa Rica to the northwest, Colombia to the southeast, the Caribbean Sea to the north and the Pacific Ocean to the south. The...

is a fully dollarized free market economy with a history of low inflation. It is based mainly on the services industry, heavily weighted toward banking, commerce, and tourism. The hand-over of the canal

Panama Canal

The Panama Canal is a ship canal in Panama that joins the Atlantic Ocean and the Pacific Ocean and is a key conduit for international maritime trade. Built from 1904 to 1914, the canal has seen annual traffic rise from about 1,000 ships early on to 14,702 vessels measuring a total of 309.6...

and military installations by the US

United States

The United States of America is a federal constitutional republic comprising fifty states and a federal district...

has given rise to new construction projects.

Panama's economy is based primarily on a well-developed services sector that accounts for nearly 80% of its GDP. Services include the Panama Canal

Panama Canal

, banking, the Colón Free Trade Zone

Colón Free Trade Zone

The Colón Free Trade Zone is a gigantic entity at the Atlantic gateway to the Panamá Canal, dedicated to re-export an enormous variety of merchandise to Latin America and the Caribbean. It is also the largest free zone in the Americas and second largest in the world.It started operations in 1948...

, insurance, container ports, and flagship registry, medical and health, and other business. The country's industry includes, manufacturing of aircraft spare parts, cements, drinks, adhesives, textiles and more recently, handmade artisan creation of Bush plane

Bush plane

A bush airplane is a general aviation aircraft serving remote, undeveloped areas of a country, usually the African bush, Alaskan and Canadian tundra or the Australian Outback...

s. Also the leading exports for Panama are bananas, shrimp, sugar, coffee, and clothing.

Panama Government and UN Stats

Nominal GDP in Panama was (in million of balboa or US dollar) 11,691 in 2002, 13,099 in 2004, 14,004 in 2005 (Prelim), 15,141.9 in 2006 (est), as reported by Office of Statistics and Census, Government of Panama. Growth from 2002 to 2006 was especially strong in the transport and communications sector, which became the biggest component of GDP, although many sectors also saw strong growth. Real GDP rose 7.5% (03-04), 6.9% (04-05), 8.1% (05-06).

GDP growth in 2008 was 9.2%, reflecting a slowing of the robust growth of 11.5% seen in 2007. Although growth slowed to 2.4% in the first half of 2009, due to the global economic downturn, it is expected to improve in 2010 and is still one of the most positive growth rates in the region. Growth has been fueled by the construction sector, transportation, port and Panama Canal-related activities, and tourism. As a result of this growth, government deficit as a percentage of GDP dropped to 43% in 2009, and government-issued debt achieved investment grade in February 2010. A recent United Nations report highlighted progress in poverty reduction from 2001 to 2007—overall poverty fell from 37% to 29%, and extreme poverty fell from 19% to 12%. However, Panama still has the second-most unequal income distribution in Latin America.

Economic history

Since the early 16th century, Panamanians have relied on the country's comparative advantage—its geography. Exploitation of this advantage began soon after the Spanish arrived, when the conquistadors used Panama to transport gold and silver from Peru to Spain. Ports on each coast and a trail between them handled much of Spain's colonial trade from which the inhabitants of the port cities prospered. This was the beginning of the country's historical dependence on world commerce for prosperity and imports. Agriculture received little attention until the twentieth century, and by the 1980s had—for much of the population—barely developed beyond indigenous Indian techniques. Industry developed slowly because the flow of goods from Europe and later from North America created a disincentive for local production.

Panama has been affected by the cyclical nature of international trade. The economy stagnated in the 18th century as colonial exchange via the isthmus declined. In the mid-19th century, Panama's economy boomed as a result of increased cargo and passengers associated with the California gold rush. A railroad across the isthmus, completed in 1855, prolonged economic growth for about fifteen years until completion of the first transcontinental railroad in the United States caused trans-isthmian traffic to decline. France's efforts to construct a canal across the isthmus in the 1880s and efforts by the United States in the early 20th century stimulated the Panamanian economy.

Macroeconomic indicators

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! style="background:#f0f0f0;" align="left" valign="top"|GDP (PPP

Purchasing power parity

In economics, purchasing power parity is a condition between countries where an amount of money has the same purchasing power in different countries. The prices of the goods between the countries would only reflect the exchange rates...

GNP

Gross National Product is the market value of all products and services produced in one year by labor and property supplied by the residents of a country...

Inflation

In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...

(CPI

Consumer price index

A consumer price index measures changes in the price level of consumer goods and services purchased by households. The CPI, in the United States is defined by the Bureau of Labor Statistics as "a measure of the average change over time in the prices paid by urban consumers for a market basket of...

Unemployment

Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...

| style="background:#f0f0f0;" valign="top"| 5.1% (2007)
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!align="left" valign="top"|HDI

Human Development Index

The Human Development Index is a composite statistic used to rank countries by level of "human development" and separate "very high human development", "high human development", "medium human development", and "low human development" countries...

|valign="top"|0.840
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! style="background:#f0f0f0;" align="left" valign="top"|Labour force
| style="background:#f0f0f0;" valign="top"| 1.392 million
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Year	Gross domestic product	US dollar exchange	Growth
2007	39.605	1	11.5%
2008	42.446	1	9.2%
2009	43.719	1	2.4%(July,2009)

The United States completed the canal in 1914, and canal traffic expanded by an average of 15 percent a year between 1915 and 1930. The stimulus was strongly felt in Panama City and Colón, the terminal cities of the canal. The world depression of the 1930s reduced international trade and canal traffic, however, causing extensive unemployment in the terminal cities and generating a flow of workers to subsistence farming. During World War II, canal traffic did not increase, but the economy boomed as the convoy system and the presence of United States forces, sent to defend the canal, increased foreign spending in the canal cities. The end of the war was followed by an economic depression and another exodus of unemployed people into agriculture. The government initiated a modest public works program, instituted price supports for major crops, and increased protection for selected agricultural and industrial products.

The postwar depression gave way to rapid economic expansion between 1950 and 1970, when GDP increased by an average of 6.4 percent a year, one of the highest sustained growth rates in the world. All sectors contributed to the growth. Agricultural output rose, boosted by greater fishing activities (especially shrimp), the development of high-value fruit and vegetable production, and the rapid growth of banana exports after disease-resistant trees were planted. Commerce evolved into a relatively sophisticated wholesale and retail system. Banking, tourism, and the export of services to the Canal Zone grew rapidly. Most importantly, an increase in world trade provided a major stimulus to use of the canal and to the economy.

In the 1970s and 1980s, Panama's growth fluctuated with the vagaries of the world economy. After 1973, economic expansion slowed considerably as the result of a number of international and domestic factors (see Recent Economic Performance , this ch.). Real GDP growth averaged 3.5 percent a year between 1973 and 1979. In the early 1980s, the economy rebounded with GDP growth rates of 15.4 percent in 1980, 4.2 percent in 1981, and 5.6 percent in 1982. The acute recession in Latin America after 1982, however, wreaked havoc on Panama's economy. GDP growth in 1983 was a mere 0.4 percent; in 1984 it was negative 0.4 percent. In 1985 Panama experienced economic recovery with 4.1-percent GDP growth; the corresponding figure for 1986 was estimated to be 2.8 percent.

After taking office in 1994 President Ernesto Perez Balladares

Ernesto Pérez Balladares

Ernesto Pérez Balladares González-Revilla was the President of Panama between 1994 and 1999. Nicknamed "El Toro" , Ernesto Pérez Balladares is married to Dora Boyd Preciado, with 3 daughters.-Studies :...

set forth an economic liberalization program designed to liberalize the trade regime, attract foreign investment, privatize state-owned enterprises, institute fiscal discipline and privatized its two ports in 1997 and approved the sale of the railroad in early assets. Panama joined the World Trade Organization

World Trade Organization

The World Trade Organization is an organization that intends to supervise and liberalize international trade. The organization officially commenced on January 1, 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade , which commenced in 1948...

(WTO) and a banking reform law was approved by the legislature in early 1998 and dismantled the Central bank

Central bank

A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...

. After two years of near stagnation the reforms began to take root; GDP grew by 3.6% in 1997 and grew by more than 6% in 1998. The most important sectors which drove growth were the Panama Canal and the shipping and port activities of The Colon Free Zone which also rebounded from a slow year in 1996.

On September 1, 1999, Mireya Moscoso

Mireya Moscoso

Mireya Elisa Moscoso Rodríguez de Arias is a Panamanian political figure. She was the President of Panama from 1999 to 2004, representing the Arnulfista Party...

, the widow of former President Arnulfo Arias

Arnulfo Arias

Dr. Arnulfo Arias Madrid was president of Panama on three occasions: 1940–41, 1949–51, and for two weeks in October 1968.- Origins :...

Madrid, took office. During her administration, Moscoso attempted to strengthen social programs, especially for child and youth development, protection, and general welfare. Moscoso's administration successfully handled the Panama Canal transfer and was effective in the administration of the Canal.

The PRD's Martin Torrijos

Martín Torrijos

Martín Erasto Torrijos Espino is a Panamanian politician and the former President of the Republic of Panama.Torrijos was elected President on May 2, 2004...

won the presidency and a legislative majority in the National Assembly in 2004. Under Torrijos, Panama continued strong economic growth and initiated the Panama Canal expansion project that began in 2007 and is scheduled to be completed by 2014 at a cost of $5.3 billion - about 25% of current GDP. The expansion project will more than double the Canal's capacity, enabling it to accommodate ships that are now too large to transverse the transoceanic crossway, and should help to reduce the high unemployment rate. Strong economic performance had reduced the national poverty level to 29% in 2008; however, Panama had the second most unequal income distribution in Latin America. The Torrijos government implemented tax reforms, as well as social security reforms, and backed regional trade agreements and development of tourism. Not a CAFTA signatory, Panama in December 2006 independently negotiated a free trade agreement with the US, which, when implemented, should help promote the country's economic growth.

In May 2009, Panama held its general elections and selected Ricardo Martinelli

Ricardo Martinelli

Ricardo Alberto Martinelli Berrocal is a Panamanian politician and businessman who was elected the 49th President of Panama in 2009. He is a Panamanian of Italian descent from his father's side.- Early life :...

as president. President Martinelli assumed the presidency on July 1 and has promised to promote free trade, establish a Panama City metro system

Panama Metro

The Panamá metro is a transport project in Panama City, in Panama, planned to open in January 2014.-Project:The government of Panama invited tenders for a contract to build the metro system. The Línea Uno consortium, which includes the Spanish FCC group, won the contract. The government of Brazil...

at an approximate cost of $1.0 billion
, reform the health care system, and complete the expansion plan for the Panama Canal. President Martinelli also emphasized the importance of transforming Panama into a “safer, modern and supportive” nation devoted to improving the living conditions of its population through efficient and accountable governance.

Agriculture

For centuries, agriculture was the dominant economic activity for most of Panama's population. After construction of the Panama Canal, agriculture declined; its share of GDP fell from 29 percent in 1950 to just over 9 percent in 1985.[1] Currently, agriculture and fisheries comprise 7.4% of the country's GDP.[2] Panama is a net food importer and the U.S. by far, is its main supplier. Though for many years, Panamanian agriculture remained poorly conditioned, after the 1970s, agriculture became mechanized as industrialization became more intensified.

Taxation

Taxation in Panama, which is governed by the Fiscal Code, is on a territorial basis; this is to say, that taxes apply only to income or gains derived through business carried on in Panama itself. The existence of a sales or administration office in Panama, or the re-invoicing of external transactions at a profit, does not of itself give rise to taxation if the underlying transactions take place outside Panama. Dividends paid out of such earnings are free of taxation.

In February, 2005, Panama’s unicameral legislature approved a major fiscal reform package in order to raise revenues from new business taxes, and increases the country’s level of debt. The legislature voted 46 to 28 in favour of the measures, which include a new 1.4% tax on companies’ gross revenues, and a 1% levy on firms operating in the Colon Free Trade Zone – the largest free port in the Americas.

Further reforms

President

A president is a leader of an organization, company, trade union, university, or country.Etymologically, a president is one who presides, who sits in leadership...

Ricardo Martinelli

has promised to implement a flat tax

Flat tax

A flat tax is a tax system with a constant marginal tax rate. Typically the term flat tax is applied in the context of an individual or corporate income that will be taxed at one marginal rate...

system with a flat tax of 10% and which promises to raise revenues, put inflation under control and which will allow enormous real wage

Real wage

The term real wages refers to wages that have been adjusted for inflation. This term is used in contrast to nominal wages or unadjusted wages. Real wages provide a clearer representation of an individual's wages....

gains.

Transportation

Highways are well-developed for Latin America. In Panama City there are six highways: the Panama-Arraijan Bridge of the Americas

Bridge of the Americas

The Bridge of the Americas is a road bridge in Panama, which spans the Pacific entrance to the Panama Canal. Completed in 1962, at a cost of US$20 million, it was the only non-swinging bridge connecting the north and south American land masses until the opening of the Centennial Bridge in 2004...

, Panama-Arraijan Centennial Bridge

Centennial Bridge

- Canada :* Centennial Bridge, in Chatham, New Brunswick- United States of America :* Rock Island Centennial Bridge, which connects Rock Island, Illinois and Davenport, Iowa...

, Arraijan-Chorrera, Corredor Norte, Corredor Sur, and Autopista Alberto Motta.

Panama's roads, traffic and transportation systems are generally safe, with traffic lights having undergone a recent overhaul and most have been replaced by intelligent traffic lights, even at busy intersections where they are not needed. Driving during the midday is usually slow and demanding due to dense traffic, frequent traffic jams, and street renovation programs. On roads where poor lighting and driving conditions prevail, night driving is difficult and in many cases, restricted by local authorities, this usually occurs in informal settlements. Night driving is particularly hazardous in these areas. Traffic in Panama moves on the right, and Panamanian law requires that drivers and passengers wear seat belts.

Currently, Panama has an extensive and efficient, yet confusing to tourists, form of public transportation consisting of colorful painted buses colloquially known as . A is usually "customized" or painted with bright colors, usually depicting famous actors, politicians or singers. It is now popular all over the city (and also in neighboring towns) for bus drivers to personally customize the interior and exterior of their . Panama City's streets experience frequent traffic jams due to poor planning for the now extensive private vehicle fleet.

Economic growth

Panama economy grew 3%, 2.2% and 1.1% in the first, second and third quarter of 2009 respectively. Panama remains one of the few countries in Latin America that grew in 2009. However, the economic growth plummeted from 12.1% and 10.7% in 2007 and 2008 respectively. The local web site Panama Economy Insight estimates that Panama economy grew only by 1.6% in 2009 because economic growth continued slowing in the fourth quarter. Economic Commission for Latin America and Caribbean was very optimistic and forecast that Panama economy will grow by 4%, but on July 15 change its forecast by 2.5%.
JP Morgan forecast only 1.5%. International Monetary Fund, Indesa, Delloite and Standard & Poor forecast 1.8%, 1.8%, 3.5% and 2.5% respectively.

Forecast (last updated: Janunary 21st 2011)

Panama Economy Insight published in its blog www.panamaeconomyinsight.blogspot.com that Panama economy will grow by 9.2% in 2011, meanwhile INDESA, another consulting entrerprise, forecast only 5.9%.

PANAMA'S ECONOMIC GROWTH FORECAST, YEARS 2009-2014
(% change of real GDP)

Forecaster	2011	2012	2013	2014
Ministry of Economy and Finance
Panama Economy Insight	9,2	13,0	11,0	4,9
Indesa	5,9	6,3	6,0	6,0
International Monetary Fund	6,1	7,0
World Bank	5,2
ECLAC

Last updated: January 21, 2011.

External links

Panama Economy Insight Ministry of Economics and Finance Bolsa de Valores (Panama Stock Exchange) Comisión Nacional de Valores (Panama SEC)

American Chamber of Commerce & Industry of Panama

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