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ECONOMY
   Main Service Exports Form the Panama Canal Cluster
*In Millions of Dollars
 Tourism Canal Services
2262 1871
Free Trade Zone
1491
Air Cargo
994
Bunker Port Fuel Services
700 550
Telecommunications
486
Banking Services
Maritime Services
              430 391
  TPanama’s growth potential
he boom does not rest solely on foreign investment. Panama is contributing from within, too. Dr. Ardito Barletta points out, “We are expanding the canal, the ports, and services to
passing ships, and improving logistics, the airport hub, tourism, the banking and financial center.” Another potential growth industryforPanamaisagriculture.“Agribusinesshasthepotential to increase exports. Fruit exports from 2003 to 2008 grew 25 percent per year.” Dr. Ardito Barletta notes that Panama has the best gourmet coffee in the world. Another example is the recent production of peppers for export.
In his opinion, there are ways to further develop the Canal Zone. “Industry has an export potential beyond what they have done. In my opinion, with all the free trade agreements, connectivity, and logistics, export assembly lines can be built around the canal.” Singapore has found ways to maximize the profit potential of its transportation hub, and Ardito Barletta thinks Panama can do more in this area.
“To summarize, you have at least seven sources of export growth, the engines of growth for Panama: maritime and air logistics, tourism, international commerce, banking, agribusiness, mining, fisheries, industry. Of course, technology also represents an attractive opportunity. I think we may have a source of growth as a location for technology companies.”
LThe challenges
ack of infrastructure creates problems, especially in a country that’s growing so rapidly. “The emphasis of this government on infrastructure has been good, but we
will need more. The country is currently expanding highways and airports.” However, Panama has the best communication connectivity in Latin America, with six large fiber optic submarine cables going across the isthmus.
services,” Dr. Ardito Barletta says. “If you look at the international trade data, service values change much less than commodity prices.” In commodities, fluctuations are massive, but a service economy enjoys a reasonably predictable income. “Demand for services tends to be stable and fluctuates less in the international business cycle than commodity prices.”
Panama also puts a high value on fiscal responsibility. “One of the most important things the past administration did was to pass a fiscal responsibility law.”The new law is quite conservative regarding the deficit. “It limits the annual deficit to 1 percent of GDP, except in special occasions.” And the bottom line is improving. “Public investment grew from 12 percent to 45 percent of the budget. Debt- to-GDP was 70 percent in 2004, but now it is down to 39 percent.”
Tying its currency to the dollar has given Panama monetary stability. “With a dollarized system, no central bank, and the banking center integrated to the dollar market, we do not devalue. The dollar itself devalues, but very slowly.” Panama avoids the problems that having its own currency would create, such as speculative attacks and foreign exchange risk.The international banks mediate between the local and international financial systems, creating good financial integration.As Dr.Ardito Barletta points out,“There are no interest rate differentials that might trigger sudden inflows or outflows of capital.”
The presence of international bankers in Panama and their ability to evaluate and manage local risk has prevented financial distortions andvolatility.“Therearenoeconomicincentivesforbankdeposits to rush in or out, so if these factors are stable, everything works.” Everything works? Today that would be the last thing you’d say about many economies, but somehow Panama is managing to pull it off.
Direct Foreign Investment
MAIN SECTORS
• Energy • Construction • Banking • Telecommunications
   Unfortunately, poverty is also a problem, with 25 percent of the population classified as poor, although this number has improved
from 40 percent in 2000. Dr. Ardito Barletta considers programs addressing the needs of the indigenous population to be particularly 3500 lacking. “We need to provide better health, education, nutrition,
electricity. The basics.” Among the country’s poor, 57 percent are 3000 younger than age 20, and Dr. Ardito Barletta believes they could
benefit from significant improvements. “If we can provide these 2500 young people with better education and opportunities, that’s what 2000 it’s all about. Singapore, Taiwan, Korea—they’ve all done a great
• Ports
• Tourism
*In Millions of Dollars
• Mining
2407
    2497
   1907
2734
1259
3132
2887
 job at that.”
1500
PFiscal responsibility pays off
anama may yet be able to provide the kind of job possibilities
for its young people that Dr.Ardito Barletta envisions.As a 500 service-based economy, Panama has done well compared
   to countries whose fortunes rise and fall with wildly fluctuating commodity prices. “Why is Panama stable? Our exports are
2004 2005 2006 2007 2008 2009 2010 2011 2012
1019
917
1000
0
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