POLITICAL AND ECONOMIC STABILITY

With the Noriega problem solved, the Government of Panama once again welcomes foreign investment and holding companies. In the past, it has gone out of its way to assist overseas investors. Foreign businessmen receive the same treatment as Panamanians. A series of major Constitutional reforms became effective in August 1992, designed to strengthen the democratic process. These included abolition of the Armed Forces, one of the most significant changes in Panama's political history.

First Woman President

In 1999 voters broke precedent and elected a woman President, Mireya Moscoso, widow of a well-known political figure, Arnaulto Arias, who had also been elected President but was deposed by the military before he could take the oath of office. President Moscoso's term in office expires in 2004, and after that she cannot succeed herself according to current Panamanian law. One international problem to be faced is a series of border attacks by Colombian guerillas, who heretofore have been curbed by the United States Army. Troubles have already started as Colombian citizens, frightened by warfare between guerrillas and paramilitary forces, have fled out of their country into the Panamanian province of Darién. The border has been described by a Darién bishop as "the most dangerous, conflicted and vulnerable" in Latin America. Fearful of reviving Noriega days, the present Government does not want to reintroduce an Army and is not eager for help from foreign forces. After withdrawal of the Army when the Canal handover occurred on December 31, 1999, Panama is basically protected only by a police force, having disbanded its army. However, if necessary, Washington reserves the right to return to Panama to protect the Canal. Domestic tranquility is threatened by triads, criminal gangs said to be active in drug and weapons smuggling in conjunction with the Russian Mafia and Cuban intelligence.

Despite the previous turbulent conditions, the economy in this country of 2,400,000 persons has remained far stronger than most observers had predicted. Tourism continues to recover, with more than 400,000 visitors in annually generating $3000 million of income. Inflation is only 2%, the lowest in all of Latin America.

Hoping to attract foreign investment, the Government is putting customs duty cuts into effect on a group of more than 100 products required by the bread baking and construction industries. Complaints from domestic cement manufacturers are being met with the reminder that the tariff cuts were part of a well-publicized growth plan. Official sources say that the reductions exceed the levels for lowered duties Panama negotiated with the World Trade Organization.

Other Panamanian measures envision expanded trade in the Canal's new era. In its continuing campaign to enter commercial alliances with the rest of the Western Hemisphere, Chile has negotiated a free-trade pact with Panama while Panama and Mexico have issued a joint statement promising a free trade accord between them shortly. An agreement with Taiwan also is aimed at promoting trade. Under its terms, Panamanian companies will receive management consulting services from Taiwan. A leading Taiwanese steamship company is constructing a $200 million port terminal in Panama.

In spite of the once strained political climate, an average of 114 new companies have been registering daily in Panama. Gross national product is growing by 3% annually while new employment remains at 5%. The unemployment rate has dropped from 31% to 14% and per capita income at $2,075 is still one of the highest in Latin America. Tourism earnings now surpass banking profits, rising to $550 million. In an effort to attract foreign investors in tourism, the Government has outlined a $700 million development plan for investment over the next five years to improve resort facilities on the Atlantic and Pacific coasts. Total trade passing through the Colon Free Zone now exceeds that reached during the Noriega regime; traffic has recovered and now exceeds $17 billion. The Colon Free Zone, which accounts for 5% of gross domestic product, enjoys steady growth while Panama Canal traffic, representing 10% of GDP, is climbing at 2%. To make up for the reduced expansion in Canal traffic, tolls have been increased by 9%. The agricultural, fishing, and livestock sectors are experiencing problems, including banana quotas by the European Community, a weakening of coffee prices, a cut in the United States sugar quota, and ecological problems in the shrimp industry.

Exports have risen steadily since 1988, reaching 700 million balboas ($700 million) while imports have skyrocketed to 2.7 billion balboas ($2 billion), registering a trade deficit of approximately 2 billion balboas ($2 billion) annually. Imports arrive chiefly from the United States, Japan and Taiwan, while two-thirds of re-exports go to the Caribbean and Latin America, especially the Netherlands Antilles, Colombia, Ecuador and Venezuela. Transit through the Panama Canal has declined by 14% since completion of an oil pipeline connecting Puerto Armuelles on the Pacific Coast near the Costa Rican border with Chiriqui Grande on the Atlantic Side.

GEOGRAPHY, COMMUNICATIONS AND TRANSPORTATION FACILITIES

Situated on the isthmus between North and South America, the Republic of Panama covers 29,700 square miles, including the Colon Free Zone at the Atlantic entrance to the Panama Canal. Transportation facilities are excellent, with sea, air and land routes easily available. Panama City and Colon Free Zone are connected by the Trans-Isthmian Highway. The Inter-American Highway bisects Panama while busy Tocumen International Airport 15 miles from the capital, Panama City, is linked with nearly two dozen airlines. Modern port facilities are available throughout the country, with Cristobal and Balboa, at opposite ends of the 51-mile Panama Canal, long-established as shipping centers. Drydock facilities in Panama are regarded as one of the best in Latin America.

Panama Canal Handover

When the United States surrendered joint ownership of the Panama Canal on the last day of the 20th century, control of the strategic waterway shifted to the independent 11-member Panama Canal Authority. Whereas previously the Canal operated on a non-profit basis, the Authority hopes to attract more foreign investors to 525 square miles of land adjacent to the Canal, valued at $4 billion, by privatizing and offering 20-year concessions extendable to 40 years. Spanish and Hong Kong investors are already active in the area. Container port projects at Balboa and Cristobal awarded to Hutchison Port Holdings of Hong Kong led United States opponents of the handover to warn that Chinese activity in Panama would endanger the United States; however, the prevailing opinion is that fears are unwarranted, especially since the container terminals have nothing to do with Canal operations. Responding to skeptics who have questioned whether the Canal will be efficiently run and not overwhelmed by politics, Fernando Manfredo, who negotiated the 1977 treaty ceding the Canal to Panama, has stated: "The Canal is and will continue to be the main link of Latin America to the rest of the world and the world's premier shipping lane."

The future of the Canal had become a volatile issue in Panama, with political opponents of former President Ernesto Pérez Balladeres charging that he packed the Canal Authority with relations, business associates, and members of his Democratic Revolutionary Party. Outrage over Belladares' actions caused voters to reject a Constitutional amendment allowing him to succeed himself.

The Canal Authority faces the daunting job of replacing jobs and income earned from the American bases and transforming former United States facilities in the ex-American Canal Zone into industrial parks, housing, a university, hotels, sports facilities, casinos, and shopping centers. At the Canal's mid-point, a former military radar tower has been converted into a unique hotel topped by a dome containing an eco-lodge, while nearby a $25 million rainforest resort is being developed. A 50-mile water passageway, the canal has been earning $545 million a year in tolls.

Improving the Canal

Although 92% of world shipping can still fit into the canal, about 18% of ships under construction are too large to maneuver through because they exceed 105 feet in width or have a draft of greater than 39.5 feet. The Government therefore is sponsoring a $1 billion program to broaden and otherwise improve the Canal in the hope of increasing traffic by 20%. Projects include: widening of the Gaillard cut (to be completed in 2002); introducing new locomotives; replacing ancient electric motors with hydraulic systems to open the gates; and enlarging the water supply five-fold by creating three new reservoirs to the west of the Canal. The latter improvement could lead the way to a third and wider lane of locks in the Miraflores area. The Government has already turned Albrook Field into a civil aviation airport and will develop Howard Air Force Base into either a regional transportation hub or an aircraft maintenance center. A research center, the City of Knowledge, is planned for Fort Clayton.

Canal Administration

To avoid corruption, patronage, and diversion of Canal revenues to cover Government spending, the Panama Canal Authority is independently administered, with its own labor laws, procurement procedures and fiscal controls. An advisory board formed to safeguard the Canal's future includes several shipping line presidents, as well as representative of the Port of New York and New Jersey, International Maritime Organization, Industrial Labor Organization and United States-Panama Business Council.

Because of their strategic location as a gateway to the Atlantic and Pacific Oceans, Panama and its Colon Free Zone have become a unique center of combined sea-air transportation. Lower transportation costs frequently are available by combining air shipment of individual orders direct from warehouse shelves after normal ocean delivery. For example, air shipment is feasible in a matter of hours since the airport at Tocumen is highly accessible. An improved road system covering more than 5,000 miles facilitates shipments across the isthmus.

Low-cost air freight services recently have become a major advantage for companies using the zone as a sales trading base. For example, foreign firms operating in the zone ship a larger volume of goods by air than by sea. As a result of the increasing volume of cargo originating in the zone, the outgoing carriers have reduced tariffs through application of standard commodity classifications and rates. Combined with economical importation by steamer, the delivery cost at final destination makes the sea-air combination an attractive method of serving customers throughout Latin America, in Africa and in the Far East.

Panama is linked with Latin America and the rest of the world by one of the best telephone and telegraph systems in the Western Hemisphere and is hooked into the satellite system. Postal services are excellent.

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