¡Quel Panamá!

Foto tomada de la Biblioteca del Congreso
de los Estados Unidos.

The Country in Numbers
by the Editors

Panama has had a busy news year. In early April, the International Consortium of Investigative Journalists (ICIJ) published one of the biggest leaks of classified data ever revealed. The leak, named the Panama Papers, exposed the inner workings of Mossack Fonseca, a Panamanian law firm that employed a system of corporate structures by which the world’s very rich could hide their assets from tax collectors, and by which criminals — such as child pornographers and arms traffickers — could move, use, and hide their money, too.

The exposé was a hard hit for Panama, not just because the name implied that the entire country was complicit in criminal activity, but because it came at a time when the country had almost successfully shed the image of being a criminal safe-haven it garnered in the 80s through the narco-dictatorship of Manuel Antonio Noriega.

Imagen de Google Trends que muestra
interés en el término “Panamá” posterior
a la revelación de los Panama Papers.

Panama’s government scrambled, and decided to create a committee integrated by several financial, economic, and corruption experts — including Nobel Laureate Joseph Stiglitz and corruption expert Mark Pieth, who brought the world’s soccer federation, FIFA, to its knees — to analyze what went wrong and how to move forward.

And then, in June, came another blow to the country. A month before the Panama Canal inaugurated its new set of locks, The New York Times ran an investigative piece that highlighted the deficiencies and risks that plague the new structure, which was originally slated to serve as a silver bullet for Panama’s economy and social welfare. In basic terms, the report contradicted much of the $8 million worth of propaganda the Panama Canal Authority (PCA) had churned out in anticipation of the project’s inauguration.

At the center of the Times’ piece was the fact that the PCA had used such a poor design for the locks that the risk of ships crashing against the walls was high. To the PCA’s veiled chagrin, one of the first transiting ships tore its hull while entering one of the new locks about a month after the structures’ opening. Not only that — by the time the accident happened, over 100 of the protection fenders placed along the locks’ walls to prevent damages to the ships had already fallen off.

And just when the PR catastrophe for Panama couldn’t get any worse, it did. In August, roughly four months after the Panama Papers came out, Stiglitz and Pieth publicly broke up with the Panamanian government. They cited Panama’s lack of commitment in making the committee’s findings public. How absurd, they said, to have a committee on transparency be anything less than fully transparent.

Juan Carlos Varela, Panama’s president, said that there had been miscommunication with Stiglitz and Pieth, and that they were clear from the onset about having the committee’s findings be at the discretion of the government before being made public. Stiglitz denies this was ever the case.

The rest of the committee’s members are still working on their own report, while Pieth and Stiglitz will publish their findings separately.

This is not the first time Panama has been barraged by the international press. When Ferdinand de Lesseps —lead engineer of the Suez Canal— failed spectacularly at building a sea-level canal across the 78 kilometer wide isthmus, it was in vogue in France to refer to any sort of disaster as “Quel Panama!” —“What a Panama!”

Eventually, the country overcame that challenge when the Americans took over the Canal’s construction, but was then plagued with new hurdles with which it has had to grapple over the subsequent 120 years.

All that is to say: Panama is more than a Canal and more than its international scandals, and its numbers provide the nuance necessary to approach a more robust understanding of what makes the country so unique, troubled, messy, yet full of potential.

Money-making Context

On July 4, 1968, the Montreal Gazette published an article titled: ‘Panama’s copper find may be largest ever.’ It was the first time Panama was thought to have a resource that could energize its economy. Until then, the country had had to figure out other ways of keeping its economy afloat — without the help of a stable resource upon which it could rely continuously — as was the case with oil in Venezuela and Brazil.

“A gigantic copper deposit discovered in the inaccessible rain forests of Panama could revolutionize the country’s economy,” the article read.

But there was pushback, and it hasn’t been until recent years that the copper mining project has been taken seriously. Until December 31, 1999, the Canal wasn’t a nest egg for the country, either. Up to that date, the United States had owned and run the canal, seeing most of the benefits of the passageway. Between 1914 and 1999, Panama only received about a quarter of a million dollars annually from the U.S. Government for the use of the Canal Zone.

Panama had to figure out what to do to stay afloat independently, and to do so, it greatly turned to banking, port activity, construction, and imports and exports through its free trade zone.

In 1999, banking assets for Panama were $36,985,000 –with a GDP $7,152,000,000. In 2005, $38,641,000, with a GDP of $13,939,000,000. By June of this year, banking assets totaled just shy of $119 billion, roughly 220% of the estimated GDP for 2016. All this, in a country of almost 4 million people. In contrast, though, the foreign legal services platform that furnished the shell companies involved in the Panama Papers scandal, represents less that 1% of Panama’s GDP.

Most of the banks that requested Mossack Fonseca corporations for tax sheltering purposes were located in Luxembourg, Guernsey, Monaco and Switzerland, while local Panamanian banking powerhouses like Banco General and Global Bank have mainly tended to the local deposits market. Furthermore, most of the corporations created for these purposes were not from Panama, but from the British Virgin Islands, given that Mossack Fonseca franchised its brand to foreign jurisdictions.

In spite of this, the numbers show that Panama has seen a great influx of liquidity — even if their provenance can’t be traced to the legal services platform.

In terms of the construction sector, numbers are similarly staggering. In 2006, construction represented $700,000,000 of a $15.1 billion GDP. By last year, construction represented $5.28 billion of a $35.7 billion GDP.

Defying the Odds &
The Growing Economy

In the midst of the economic crisis, between 2008 and 2009, Panama sustained a steady growth rate of over 6% while the US saw a contraction of around 3%. And to put it in the boldest terms, between 2009 and 2015, Panama’s economy grew a whopping 96%.

In the recovery era, between 2010 and 2011, Panama grew about 10.6%, while Latin America grew 4.3%. This year, that disparity is still noticeable: Panama will close the year with 6% growth, while the region will experience a technical recession for its second year. In comparison, the United States grew 2.4%.

Panama’s fast pace of growth makes sense. During the bulk of the aughts, China’s middle class experienced effervescent growth, and Panama was poised to benefit from the trade expansion. GDP per capita in China grew 367% and the ravenous new consumer class produced heavy trade with resource providers in the Atlantic Coast of Latin America, favoring the growth of Colombia, Venezuela, Brazil. Argentina was still stuck in economic troubles of the past century, which prevented them from seizing the Chinese opportunity, a fairly frequent theme in the region.

Panama had received the control of the Canal on the last day of 1999, and the waterway became the principal route between Brazilian and Chinese ports, which contributed to the country’s logistical sector boom, although in spurts.

The economy is relatively small, too, so any bump in GDP is sure to be noticed. Panama’s current nominal GDP is somewhere around $50 billion divvied up amongst some 4 million people (exact numbers for the population are hard to get).

To put it in more jarring terms, between 2005 and 2015, Panama’s GDP grew 244%, and the Panamanian state generated 202% more income. The country’s public debt jumped by 100% and the government’s payroll also grew: by a staggering 56.31%. But, in spite of these large numbers, the economically active population only grew by 25%, even though unemployment rate decreased from 10% to 5%.

The Panama Canal Myth

The perception is that the Panama Canal is a robust contributor of the economy, but that isn’t really the case. With each year that has gone by, the Canal’s contributions have represented less and less of the country’s GDP. Its revenue hasn’t seen much of an uptick, either, in part because of global trade’s recent downturns and stagnations.

From 2012 to 2013, for example the Canal’s revenue went from $1.032 billion to $981,800,000. In 2015, it only generated $1.043 billion — slightly above its 2012 number. This -4.9% contraction only allowed the Canal revenue to represent 2.19% of Panama’s nominal GDP for the year.

Moreover, the Canal’s revenues have grown a little over 5% since 2013, up to $1,043,400,000 last year, but now, given the economy’s growth, this contribution only represents 1.3% of Panama’s nominal GDP.

No trumped-up trickle-down

Panama can be considered a sort of tale of two cities. While its economic numbers prove to be impressive, and while the media storm makes it seem like a place where illicit money abounds, it is truly riddled with deep social issues that haven’t been fixed by the seeming bounty. An under-educated workforce that is incapable of providing the country with the international level of expertise necessary to secure the constant flow of services and goods through the country is an example of one of the many major issues the country faces.

Poverty levels remain high in Panama. Nationwide, according to 2008 data from the Economic Commission for Latin America and the Caribbean (ECLAC), 28.6% of the population is poor and 11.7% is extremely poor.


Panama’s Achilles’ Heel has been weak institutionality from the onset, which has led to rampant corruption. The arguments for the existence of weak institutionality are vast and varied but, in basic terms, it comes down to a 21-year military dictatorship that implemented a presidentialist constitution that governs the country — even now, in democracy. This centralization and disproportionate concentration of power has allowed for transparency efforts to falter, and for checks-and-balances systems to be less than effective.

It is clear that Panama’s numbers have the ability to show the disparity of development in the nation, despite the confusion brought upon its government system. For instance, it’s a country where public works investments represent 2.36% of its GDP, while education investment only represents 1.27%. That illustrates where the government’s priorities lie, at least in terms of executed policy.

It has a long way to go in figuring out its future and path, but it is clear that perception isn’t always reality for a country, and Panama will have to find a way to shed its new less-than-favorable reputation, in order to show the world its nuance and to pave the way for a better and brighter future.