Panama: First-World Convenience at Third-World Prices.

The Economy in Panama

Panama’s dollarized economy rests primarily on a well-developed services sector that accounts for three-quarters of GDP. Services include operating the Panama Canal and one of the world’s largest banking districts, as well as the Colon Free Zone (the second largest duty-free zone in the world after Hong Kong), insurance, container ports, flagship registry, and tourism. Economic growth will be bolstered by the Panama Canal expansion project that began in 2007 and is scheduled to be completed by 2014 at a cost of over $5 billion—about 25% of current GDP.

Panama has also begun work on the first ever metro line in Panama City, valued at $1.2 billion and scheduled to be completed by 2014.

Panama’s aggressive infrastructure development projects will likely lead the economy to continued growth through 2015. Strong economic performance has not translated into broadly shared prosperity as about 30% of the population lives in poverty. However, recent efforts have been marked with poverty dropping from 40% to 30% during the 2004-2009 period. Unemployment dropped from 12% to 6% % during the same period, and 2010 estimates put the figure at just over 4%.

Not a CAFTA signatory, Panama in December 2006 independently negotiated a free trade agreement with the US, which, when implemented, will help promote the country’s economic growth. Panama has also recently signed various double taxation treaties with other nations, effectively removing it from the OECD (Organization of Economic Development) “gray-list” of tax havens.

Labor force: 1.49 million (2010 est.)

Exports: $12.52 billion (2010est.)

Export commodities: Bananas, shrimp, sugar, coffee, clothing.

Imports: $16.05 billion. Note: includes the Colon Free Zone (2010est.)

Import commodities: Capital goods, foodstuffs, consumer goods, chemicals.

The Panama Canal: The Panama Canal project began in 1904. It was completed in 1914 and used 61 million pounds of dynamite, a “greater amount of explosive energy than had been expended in all the nations’ wars,” according to historian David McCullough in his book, The Path Between the Seas. This nine-mile waterway is one of the man-made wonders of the world, and the primary reason for the strategic importance of Panama in world trade.

In October 2006, the people of Panama approved the Panama Canal expansion mega-project via referendum. The immense undertaking is easily the nation’s biggest project since the canal was completed in 1914. The $5 billion modernization—already underway—is adding a third lane and set of locks to the canal. The project will open the waterway to a host of new vessels that have been dubbed “Post-Panamax” size because they are too large to fit through the current canal system. The inauguration of the project took place on Monday, September 3, 2007 and is set for completion by 2014 (the 100th anniversary of the original Panama Canal’s completion).

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