Economic history of Panama

Last updated

This article describes the economic history of Panama.

Contents

Early history

Since the early 16th century, Panama's geographic location gave the country a comparative advantage. From the earliest Spanish times, gold and silver from Peru would be transported to Spain via the Panama isthmus. [1] Ports on each coast and a trail between them handled much of Spain's colonial trade to the benefit of the inhabitants of the port cities. The country has always been dependent on world commerce for its prosperity and imports. Agriculture received little attention until the 20th century, and by the 1980s had for most 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. [2]

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. [3] A railroad across the isthmus, completed in 1855, extended economic growth for about fifteen years until completion of the first transcontinental railroad in the United States led to a decline in trans-isthmian traffic.

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. [4] In 1903 Panama separated from Colombia and the United States took control of the Panama Canal Zone, and soon afterwards a constitutional ruling adopted the US dollar as legal tender for the country. [5]

The United States completed the canal in 1914, [6] and canal traffic expanded by an average of 15% a year between 1915 and 1930. The stimulus was strongly felt in Panama City and Colón, the terminal cities of the canal.

However, the world depression of the 1930s reduced international trade and canal traffic, causing widespread 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 movement of unemployed people into agriculture. The government initiated a modest public works program, instituted price support for major crops, and increased protection for selected agricultural and industrial products. [4]

The postwar depression gave way to rapid economic expansion between 1950 and 1970, when GDP increased by an average of 6.4% 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. [4]

1970s-present

In the 1970s and 1980s, Panama's growth fluctuated with the vagaries of the world economy. After 1973, economic expansion slowed considerably as a result of a number of international and domestic factors. Real GDP growth averaged 3.5% a year between 1973 and 1979. In the early 1980s, the economy rebounded with GDP growth rates of 15.4% in 1980, 4.2% in 1981, and 5.6% 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%, but -0.4% in 1984. [4]

This period coincided with the rise to power of General Manuel Noriega during which Panama became increasingly indebted, by 1986 owing SDR284m (US$360m) to the IMF alone, 278% of their quota. [7] This led to the IMF imposing an adjustment program supported by an IMF stand-by arrangement in 1985–87 [7] whilst the economy recovered somewhat. In 1985 Panama experienced economic recovery with 4.1% GDP growth. The corresponding figure for 1986 was estimated to be 2.8%. [4]

The United States started to pursue Noriega for fostering a narco-state in Panama, culminating in sanctions that froze Panama's assets in the United States, and because Panama used the US dollar it was forced to default on its IMF debt on 28 December 1987. [7] Economic turmoil in the country included a general strike and the banking system closing down for two months. [7] Panama made a token payment the day before the IMF meeting in November 1988, but the situation did not resolve until 1989. [7] Presidential elections in May 1989 were condemned by the international community as fraudulent and the IMF began to become impatient with Panama's increasing arrears which had now reached SDR121m (US$150m). [7]

The United States and Germany forced through a resolution on 30 June 1989 declaring Panama ineligible for further support from the IMF. [7] The United States invaded Panama in December 1989 and forced the surrender of Noriega. [7] SDR181.5m (~$US230m) was still owed to the IMF in April 1990, but the country regained access to IMF funds on 2 May 1992. [8]

After taking office in 1994, President Ernesto Perez Balladares instituted an economic liberalization program designed to liberalize the trade regime, attract foreign investment, privatize state-owned enterprises, institute fiscal discipline and privatize its two ports in 1997 and approve the sale of the railroad in early assets. Panama joined the World Trade Organization (WTO) and a banking reform law was approved by the legislature in early 1998 and dismantled the central bank. After two years of near stagnation the reforms began to take root, with GDP growing by 3.6% in 1997 and more than 6% in 1998. The most important sectors which drove growth were the Panama Canal and the shipping and port activities of the Colón Free Trade Zone which also rebounded from a slow year in 1996.

On 1 September 1999, Mireya Moscoso, the widow of former President Arnulfo Arias 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 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 was opened to commercial traffic on 26 June 2016, at a cost of US$5.25 billion - about 25% of current GDP. [9] The canal expansion doubled the waterway capacity, enabling it to accommodate Post-Panamax ships that were too large to transverse the transoceanic crossway, [9] and expected to help reduce the high unemployment rate. Strong economic performance had reduced the national poverty level to 29% in 2008.

In 2008, 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, Ricardo Martinelli was elected president, and promised to promote free trade, establish a metro system at an approximate cost of $1.0 billion, [10] reform the health care system, and complete the expansion plan for the Panama Canal. 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.

Related Research Articles

<span class="mw-page-title-main">Economy of Kenya</span> National economy

The economy of Kenya is market-based with a few state enterprises. Kenya has an emerging market and is an averagely industrialised nation ahead of its East African peers. Currently a lower middle income nation, it plans to be a newly industrialised nation by 2030. Major industries include agriculture, forestry, fishing, mining, manufacturing, energy, tourism and financial services. As of 2020, Kenya had the third largest economy in Sub-Saharan Africa, behind Nigeria and South Africa.

<span class="mw-page-title-main">Economy of Nicaragua</span> National economy

The economy of Nicaragua is focused primarily on the agricultural sector. Nicaragua itself is the least developed country in Central America, and the second poorest in the Americas by nominal GDP. In recent years, under the administrations of Daniel Ortega, the Nicaraguan economy has expanded somewhat, following the Great Recession, when the country's economy actually contracted by 1.5%, due to decreased export demand in the American and Central American markets, lower commodity prices for key agricultural exports, and low remittance growth. The economy saw 4.5% growth in 2010 thanks to a recovery in export demand and growth in its tourism industry. Nicaragua's economy continues to post growth, with preliminary indicators showing the Nicaraguan economy growing an additional 5% in 2011. Consumer Price inflation have also curtailed since 2008, when Nicaragua's inflation rate hovered at 19.82%. In 2009 and 2010, the country posted lower inflation rates, 3.68% and 5.45%, respectively. Remittances are a major source of income, equivalent to 15% of the country's GDP, which originate primarily from Costa Rica, the United States, and European Union member states. Approximately one million Nicaraguans contribute to the remittance sector of the economy.

<span class="mw-page-title-main">Panama</span> Country spanning North and South America

Panama, officially the Republic of Panama, is a transcontinental country in Central America, spanning the southern tip of North America into the northern part of South America. It is bordered by Costa Rica to the west, Colombia to the southeast, the Caribbean Sea to the north, and the Pacific Ocean to the south. Its capital and largest city is Panama City, whose metropolitan area is home to nearly half the country's over 4 million inhabitants.

<span class="mw-page-title-main">History of Panama</span> Aspect of history

The history of Panama includes the history of the Isthmus of Panama prior to European colonization.

<span class="mw-page-title-main">Economy of Panama</span>

The economy of Panama is based mainly on the services sector, which accounts for nearly 80% of its GDP and accounts for most of its foreign income. Services include banking, commerce, insurance, container ports, and flagship registry, medical and health and tourism. The Panama Canal and the nearby Colón Free Trade Zone make an important economic contribution. The country's industry includes manufacturing of aircraft spare parts, cement, drinks, adhesives and textiles. Additionally, exports from Panama include bananas, shrimp, sugar, coffee, and clothing. Panama's economy is fully dollarized, with the US dollar being legal tender in the country. Panama was the first foreign country to adopt the U.S. dollar as its legal currency (1903) after its secession from Colombia temporarily deprived it of a local currency. Panama is a high income economy with a history of low inflation.

<span class="mw-page-title-main">Economy of Senegal</span> National economy

The economy of Senegal is driven by mining, construction, tourism, fishing and agriculture, which are the main sources of employment in rural areas, despite abundant natural resources in iron, zircon, gas, gold, phosphates, and numerous oil discoveries recently. Senegal's economy gains most of its foreign exchange from fish, phosphates, groundnuts, tourism, and services. As one of the dominant parts of the economy, the agricultural sector of Senegal is highly vulnerable to environmental conditions, such as variations in rainfall and climate change, and changes in world commodity prices.

<span class="mw-page-title-main">Economy of Togo</span> National economy

The economy of Togo has struggled greatly. The International Monetary Fund (IMF) ranks it as the tenth poorest country in the world, with development undercut by political instability, lowered commodity prices, and external debts. While industry and services play a role, the economy is dependent on subsistence agriculture, with industrialization and regional banking suffering major setbacks.

<span class="mw-page-title-main">Economy of Yemen</span> National economy of Yemen

The economy of Yemen has significantly weakened since the breakout of the Yemeni Civil War and the humanitarian crisis, which has caused instability, escalating hostilities, and flooding in the region. At the time of unification, South Yemen and North Yemen had vastly different but equally struggling underdeveloped economic systems. Since unification, the economy has been forced to sustain the consequences of Yemen's support for Iraq during the 1990–91 Persian Gulf War: Saudi Arabia expelled almost 1 million Yemeni workers, and both Saudi Arabia and Kuwait significantly reduced economic aid to Yemen. The 1994 civil war further drained Yemen's economy. As a consequence, Yemen has relied heavily on aid from multilateral agencies to sustain its economy for the past 24 years. In return, it has pledged to implement significant economic reforms. In 1997 the International Monetary Fund (IMF) approved two programs to increase Yemen's credit significantly: the enhanced structural adjustment facility and the extended funding facility (EFF). In the ensuing years, Yemen's government attempted to implement recommended reforms: reducing the civil service payroll, eliminating diesel and other subsidies, lowering defense spending, introducing a general sales tax, and privatizing state-run industries. However, limited progress led the IMF to suspend funding between 1999 and 2001.

<span class="mw-page-title-main">Economy of Belgium</span>

The economy of Belgium is a highly developed, high-income, mixed economy.

<span class="mw-page-title-main">Manuel Noriega</span> Military dictator of Panama from 1983 to 1989

Manuel Antonio Noriega Moreno was a Panamanian dictator, politician and military officer who was the de facto ruler of Panama from 1983 to 1989. An authoritarian ruler who amassed a personal fortune through drug trafficking operations, he had longstanding ties to United States intelligence agencies before the U.S. invasion of Panama removed him from power.

<span class="mw-page-title-main">Omar Torrijos</span> Military leader of Panama from 1968 to 1981

Omar Efraín Torrijos Herrera was a dictator, as well as the Commander of the Panamanian National Guard and military leader of Panama from 1968 to his death in 1981. Torrijos was never officially the president of Panama, but instead held titles including "Maximum Leader of the Panamanian Revolution". Torrijos took power in a coup d'état and instituted a number of social reforms.

<span class="mw-page-title-main">Mireya Moscoso</span> 34th President of Panama (1999–2004)

Mireya Elisa Moscoso Rodríguez de Arias is a Panamanian politician who served as the President of Panama from 1999 to 2004. She is the country's first and to date only female president.

<span class="mw-page-title-main">Martín Torrijos</span> 35th president of Panama (2004–09)

Martín Erasto Torrijos Espino is a Panamanian politician who was President of Panama from 2004 to 2009.

<span class="mw-page-title-main">Democratic Revolutionary Party</span> Political party in Panama

The Democratic Revolutionary Party is a political party in Panama founded in 1979 by General Omar Torrijos. It is generally described as being positioned on the centre to centre-left.

<span class="mw-page-title-main">Economy of North America</span> Overview of the economy of North America

The economy of North America comprises more than 596 million people in its 24 sovereign states and 15 dependent territories. It is marked by a sharp division between the predominantly English speaking countries of Canada and the United States, which are among the wealthiest and most developed nations in the world, and countries of Central America and the Caribbean in the former Latin America that are less developed. Mexico and Caribbean nations of the Commonwealth of Nations are between the economic extremes of the development of North America.

<span class="mw-page-title-main">Panameñista Party</span> Political party in Panama

The Panameñista Party is a nationalist political party in Panama. It was the third largest party by number of adherents with 256,138 members.

<span class="mw-page-title-main">Economy of the Middle East</span> Overview of the economy of the Middle East

The economy of the Middle East is very diverse, with national economies ranging from hydrocarbon-exporting rentiers to centralized socialist economies and free-market economies. The region is best known for oil production and export, which significantly impacts the entire region through the wealth it generates and through labor utilization. In recent years, many of the countries in the region have undertaken efforts to diversify their economies.

<span class="mw-page-title-main">2006 Panama Canal expansion referendum</span> Panamanian referendum which expanded the Panama Canal

The Panama Canal expansion referendum was held on October 22, 2006, when the citizens of Panama approved the Panama Canal expansion project by a wide margin.

Panama is a transcontinental country spanning the southern part of North America and the northern part of South America.

The Panama Truth Commission was appointed by Panamanian president Mireya Moscoso in 2000 to investigate crimes committed under the military rule of Omar Torrijos and Manuel Noriega.

References

  1. Dept, International Monetary Fund Western Hemisphere (2023-03-30). "Panama's Growth Story". IMF Staff Country Reports. 2023 (129). doi:10.5089/9798400236662.002.A002.
  2. "Panama - GROWTH AND STRUCTURE OF THE ECONOMY". countrystudies.us. Retrieved 2023-09-02.
  3. Club, Laughing (2013-12-05). "MARXIST: Rank and Economy of Panama". MARXIST. Retrieved 2023-09-02.
  4. 1 2 3 4 5 PD-icon.svg This article incorporates text from this source, which is in the public domain .Scott D. Tollefson (December 1987). Sandra W. Meditz & Dennis M. Hanratty (ed.). Panama: A Country Study. Federal Research Division. Growth and Structure of the Economy.
  5. Savastano, Miguel (1996). "Dollarization in Latin America: Recent Evidence and Some Policy Issues". IMF Working Paper. WP/96/4. SSRN   882905.
  6. "Building the Panama Canal, 1903–2030". history@state.gov. Office of the Historian, Bureau of Public Affairs.
  7. 1 2 3 4 5 6 7 8 Boughton, James M. (1 October 2001). Silent Revolution - The International Monetary Fund 1979–1989 (PDF). IMF. pp. 799–803.
  8. Boughton (2001), p763
  9. 1 2 The Associated Press (2016-06-26). "Panama Canal Opens $5B Locks, Bullish Despite Shipping Woes". The New York Times . Retrieved 2016-06-26.
  10. "Route for Panama City's Metro rail system unveiled". Archived from the original on 2010-01-19. Retrieved 2010-07-25.