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COUNTRY OVERVIEW
order to achieve leverage and, surprisingly, rather than breeding disruption, the system has fostered stability. It is standard for opposing parties to band together forming coalition governments and voting blocks.The relatively even balance across many parties has yielded a blend of policies and helped encourage the business- friendly ecosystem to which the republic aspires. Currently there are two major political coalitions—the right-leaning Alliance for Change and the left-leaning One Country for All.
A new administration
On May 4, 2014, incumbent Vice President Juan Carlos Varela of the Panameñista Party won the presidential election, succeeding former President Ricardo Martinelli. In that election, Alliance for Change parties also captured 44 of 71 seats in the Legislative Assembly, giving the coalition both the presidency and a 62 percent majority in the legislature for the next five years.
Policies of the Alliance for Change (AFC) are a mix of conservative and liberal-progressive. The coalition is business-friendly and has advanced the causes of mining, dam building, the free trade zones, and infrastructure upgrades to roads, the Metro, buses, the canal expansion, and coastal parks. Their policies also include additions to the welfare state and education systems aimed at addressing poverty and illiteracy among the nation’s poorest and indigenous peoples. The AFC’s most recent political decisions disfavor unions and support fiscal responsibility.
The next five years
President Varela ran on a pro-business platform with campaign rhetoric highlighting the need to improve living conditions for all citizens amid the economic and financial prosperity of recent years, which has benefited many Panamanians, yet has also bypassed a significant portion of the population.Varela promised to prioritize education, public health, and Panamanians’ purchasing power. He faces a mandate to clean up government by cutting red tape, increasing bureaucratic transparency, and strengthening
accountability in the use of state resources after falling out with former President Martinelli over these issues while serving as Martinelli’s Vice President.
Clearly Varela has heard the criticisms of Panama’s government. The World Economic Forum’s report on global competiveness shows that corruption is viewed by business executives as the biggest problem for doing business in Panama. According to the report, while Panama has improved its overall competitiveness, public trust in politicians is low and judicial independence is judged among the lowest in the region.
Bright business outlook
These challenges notwithstanding, Panama will remain the fastest- growing economy in the developing Americas over the next 18 months, though the pace of expansion will decelerate, with real gross domestic product projected to increase by only 6.5 percent in 2015 (compared with an 8.6 percent average annual growth rate over the past decade). Growth is driven by a number of factors. For one, Panama has a fully dollarized monetary regime, and the economy is strongly influenced by the direction of the U.S. dollar, which is steadily appreciating against most major currencies.
In addition, Panama has developed into a regional logistics services hub, a structural factor that will be further accentuated once the expanded canal begins operations in early 2016. Finally, the government is investing heavily in infrastructure projects aimed at improving transportation, power, education, and health in addition to the canal expansion project. Over the next decade, as these construction ventures are completed, drivers of expansion will evolve, yielding a more diversified economic structure based on canal traffic, mining, tourism, and logistical services.
What lies ahead for this nation that stands sentry between two continents and two oceans, overseeing one of the seven wonders of the modern world? One thing is certain—Panama is committed to a path toward stability, modernity, and global integration.
16 STRATEGY