Latin Finance - July/August 2012 - 28

Panama

infrastructure,” says Lucila Broide, head of Fitch Ratings’ Latin America Sovereign Group. “Public investment in infrastructure is necessary and positive.” The canal expansion is viewed within a larger logistic or maritime cluster that presents approximately 25% for the $30.6 billion GDP. Government coffers are expected to swell once the canal expansion is completed, providing possibly more than $1 billion annually in revenue to the state. There is also a continuing boom in real estate, with residential, office and hotel construction increasing at a quick pace and contributing, in large measure, to low unemployment. Also growing much faster than expected is tourism, which passed the 2 million visitor mark – and more than $2.5 billion in revenue – in 2011. President Ricardo Martinelli’s administration had forecast reaching a target of 2 million tourists by 2014. Investment has picked up steam in the past few years with Panama’s investmentgrade rating, which was announced in mid-2010, and freetrade agreements with an expanding list of countries, including Canada, which is in force, and the US, which is expected to be enacted in the final quarter of the year. There are FTAs with Chile and Peru in the region, and talks underway with Colombia and Mexico. Mining represents a new and potentially game-changing industry for Panama and the country could soon be a major mineral exporter. Gold Canal expansion: a matter of perspective in the past year has become an important export earner, but it will be dwarfed by copper (and more gold) if Canada’s Inmet Mining remains on track with its Cobre Panama project. Copper production could reach 298,000 tonnes annually starting in early 2016. The mine development is the second largest copper project underway worldwide. Copper reserves are estimated at 9.3 million tonnes and 5.2 million ounces of gold. Total development costs are approximately $6.2 billion.

Warning signs

Despite such positive developments, Panama’s robust outlook is being tempered by an increasingly tense political climate and fears that the Martinelli government may have opened the gates for public spending far too wide, at the risk of stoking economic imbalances down the line.

Meanwhile the president’s popularity has plummeted from 85% two years ago to 43% in June. Criticism of the government has increased across the political spectrum over the past year. Martinelli and vice president Juan Carlos Varela are now political enemies, since ending their coalition in August 2011, and there is loud criticism of a number of laws and proposed changes being pushed by the administration. Among the most contentious issues have been labor and mining laws, which the administration forced through Congress and then had to change. The labor law was modified to satisfy some union demands and the mining law, originally passed in February 2011, was repealed after only one month. It was modified and resubmitted for approval later in the year. The government’s mining and energy policies triggered major protests by indigenous peoples this February, forcing additional concessions from the administration. The government agreed to scrap a large-scale mining project and a hydroelectric dam on territory of the Ngäbe-Buglé people. This June, the administration was forced to withdraw legislation to sell off the state’s remaining shares in public utilities after pitched battles between the police and union protesters outside Congress. Also troubling has been lack of transparency in the appointment of new judges to a Supreme Court chamber that deals with constitutional issues. Opponents claim the administration is angling for the chamber to change the constitution and allow Martinelli to stand for re-election in 2014. Legislation on the chamber was also withdrawn in mid-June. The constitution prohibits re-election. Gloria Rudolf, a US academic who has studied Panama for decades, says Martinelli’s sagging popularity is his own doing. She says the president has been forced to back down on several major legislative initiatives because the laws were pushed without evaluating the consequences. She says his actions have led to an increasing view within Panama that Martinelli could be veering toward authoritarianism. “Concern over Martinelli’s erratic behavior and policies is uniting both the left and right of the political spectrum,” says Rudolf. “He is really the only thing that has brought together the different opposition parties.”

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July/August 2012

Latin Finance - July/August 2012

Table of Contents for the Digital Edition of Latin Finance - July/August 2012