CENTRAL AMERICA

 

Panama Hopes to Beat The Global Financial Crisis
By Jeremy Schwartz

Panama -  Cranes hover over the skyline like futuristic insects, buzzing around half-finished skyscrapers that make Panama City look like Miami or Hong Kong.

If any country is poised to withstand the ravages of the global financial crisis, it just might be tiny Panama, which has quietly become a regional economic powerhouse in the past five years.

Fueled by a superheated real estate market, windfalls from the Panama Canal and a burgeoning banking system, economic growth hit 9.2 percent in 2008 after soaring to 11.5 percent the year before.

As nations from the United States to Japan confront shrinking economies in 2009, officials in Panama are predicting relatively robust growth of 4 or 5 percent this year.

"This global crisis arrived in a moment in which we find ourselves stronger than we have been in the past," Minister of the Economy Hector Alexander said. "In Panama, the dominant topic isn't the recession."

While unemployment has soared in the United States, the unemployment rate in Panama fell from about 14 percent in 2004 to 6.5 percent last year. And as the U.S. is adjusting to life with 12-digit budget deficits, Alexander said Panama is hoping 2009 will be its third consecutive year with a budget surplus.

But the nation hasn't been immune to the global recession. Its real estate market might be heading for a sharp downturn.

Matt Landau, a New Jersey native and Panama City investment consultant, said real estate sales have declined precipitously in recent months, especially among the U.S. and European buyers who largely fueled the boom.

"When I first got here (about four years ago), people were buying (properties) for $200,000 and then flipping them for double or more in six to 12 months," he said. "That was happening even up to a year and a half ago."

Now, Landau said, Panama City is bracing for a glut of high-priced condominiums.

And as global trade is pummeled by the recession, Panama Canal officials expect the number of cargo ships passing through the waterway — and the tolls they pay to the Panamanian government — to fall almost 6 percent this year.

Even there, Panama has an ace up its sleeve in the form of a $5.2 billion Panama Canal expansion, which will widen the canal's locks to allow larger ships to pass through.

Although recession wasn't on the minds of Panamanian voters when they approved the expansion in 2006, officials see the megaproject as a perfectly timed stimulus that will directly create nearly 7,000 jobs in a country of 3 million and spark the creation of thousands of secondary jobs, just as the economy begins to sag.

"It's as if we are increasing public sector spending by 35 to 40 percent," Alexander said. "Today it works as a fiscal stimulus."

Percentagewise, the canal expansion dwarfs any stimulus project the United States is planning. The project represents nearly a quarter of Panama's $23 billion gross domestic product. By comparison, the $787 billion stimulus package in the U.S. represents about 5 percent of America's $14 trillion gross domestic product.

Counternarcotics officials have long suspected that Panama's boom has also been aided by an influx of money from criminal organizations. According to the U.S. State Department's 2008 International Narcotics Control Strategy Report, the country's construction and offshore banking sectors are particularly susceptible to money laundering.

But Panama's economy has been helped by a stable and peaceful political scene, which the nation has enjoyed since the 1989 ouster of dictator Manuel Noriega.

When Noriega was captured by U.S. troops, Panama's economy was in shambles, paralyzed by an economic embargo of Noriega's regime. Successive democratically elected administrations have focused on economic recovery, enacting reforms and privatizing sectors such as telecommunications and electricity.

But some critics say Panama's spectacular economic growth in the past five years has left out the majority of its people.

"The problem is that the growth has stayed in a few hands," said Rolando Gordon, a University of Panama economics professor. "The economic boom hasn't been able to resolve any of the great social problems of the country."

Gordon said government statistics obscure the fact that even as the country's economy exploded, the percentage of Panamanians laboring precariously in the nation's informal sector — doing things such as selling fruit at intersections — has risen from 33 percent in 2001 to 44 percent today.

Gordon added that public schools are underfinanced, and access to drinking water remains problematic for many Panamanians. At the same time, the price of basic foodstuffs has increased.

"This boom we're having is tremendous," taxi driver Jose Cano said. "But for the poor, the humble, we aren't seeing the boom. The price of food is going up. I have my own taxi, so I'm doing pretty well, but there are a lot of people who are recycling cans and stealing scrap metal."