Economy limps into the holiday season

By Willy Carrera Loza, The Panama News, November 2001

Problems with unemployment and scant economic growth continue without any quick resolution in sight, despite advances in the economic policy dialogue between the government and the opposition. Only a few weeks from the year-end holidays, the prevailing public mood is one of discouragement, an attitude that's closely related to a belief that the political class has shown nothing in the way of economic solutions. That leaves much of Panama's population in deep despair and in no spirit to celebrate.

According to the experts, we are now living through the worst economic period that the Republic of Panama has ever seen, having experienced more than 30 months of severe slowdown without an end in sight. It was aggravated at the end of last year, when there were some signs of an economic recovery, only to be followed by disappointed expectations and a consequent cycle of unrest and pessimism.

The Panamanian Business Executives Association (APEDE) maintains that the national economy will its decline through the end of the year, which it estimates will close with an annual growth rate of 0.5 to 0.7 percent. According to the business group's report on the country's economic situation, there has been a negative growth in several key sectors, which prevented the 1.5 to 2 percent economic growth that the government had predicted for 2001.

The report also noted a continuing decline in direct foreign investment over the past several years. For the year ending this past June, Panama received $106.6 million in such investments, while in the similar period that ended in June of 1997, the figure was $1.3 billion. APEDE says that to improve this situation the government has to create a more attractive climate for investment.

The government is trying to find bold new policies to get us past this period by reversing the terrible slowdown while maintaining economic stability. To do this it is proposing structural reforms to the government's financial practices and budget, and linking them to a package of legislation that will establish stable guidelines in which short-term economic solutions can be achieved. A plan to get control of public spending is central to the Moscoso administration's strategy, so the advocates of its 2002 budget proposal say.

However, that budget has been rejected by the Legislative Assembly, based upon the argument that its revenue predictions are wildly unrealistic. According to the PRD-led alliance that dominates the legislure, the administration's proposal was out of balance to the tune of about $500 million.

Another part of the administration's strategy, with which the opposition concurs, is to attack unemployment through major public works projects. The public has been clamoring for such initiatives, as unemployment has struck not only the lower end of the social and economic scale, but also the middle classes and many highly educated professionals. The problem appears to be growing day by day, with no easy solution in sight.

A part of the public's disquiet is based upon a mistrust of the economic figures that the administration releases. Based on a 2000 survey of Panamanian households, the Comptroller General is telling us that current unemployment stands at 13.4 percent, but all of the credible statistics coming from business and academic institutions put the figure at around 17 percent. Moreover, the University of Panama's National Studies Institute (IDEN) notes with some alarm an historic tendency for Panamanian unemployment to rise when joblessness increases in the United States, as it is doing now.

In 2001 the government sought to pump some air into the gasping economy, for example by paying cruise ships for disembarking passengers here, while trying to keep public spending from driving deficits sky-high. The tourism sector did improve some, and that may have given the whole economy a little breather, but for the majority of businesses low sales have meant very delicate conditions at best, with many enterprises being forced out of business altogether.

For Felipe Chapman, the vice-president of Panama's stock and bond exchange, the Bolsa de Valores de Panama, if the acquisition of the Cerveceria Nacional by Colombia's Bavaria group is consummated, it would mean a $340 million direct investment in Panama. If only $300 million comes in, we'd be talking about three percent of the Gross Domestic Product entering the economy and affecting consumption, savings and investment, from the most conservative through the most aggressive sectors, he said. According to Chapman, this is a unique opportunity of which the government should take advantage. From at least the period of the Initial Purchase Offer through the time when the sellers receive their benefits, there's plenty of time to act. Chapman said that the administration and the opposition must reach a consensus that will allow the country to talk and act in unison and mobilize resources for the nation's economic recovery.

Businessman Felipe Rodriguez, the former president of APEDE, sounded a more optimistic note than most others. He said that the issuance of CERPAN certificates, which allow current and former public employees to withdraw some of their retirement funds, will jump-start the economy. However, he warned that that this stimulus will only get economic activity started again, but not provide the basis for the country's economic growth.