A few days ago Standard & Poor’s improved Panama’s risk rating to BBB – indicating that Panama has shown consistent economic growth and a stable fiscal policy.  This is in line with the rating which Panama has by Fitch. Nevertheless, this rating comes on the heels of news that Panama’s foreign investment dropped by 17% in the first quarter of 2018, compared to the same period in 2017.

A lot of people in Panama are asking themselves – where did the economic growth go?

Shops are closing.
People are getting laid off.
And what about the 30 days of strike by the construction workers and the millions that were lost by construction companies during those days that turned into weeks?

But the cost of living in Panama City is the highest in Latin America.

How do they measure risk?

What many fail to understand regarding this risk rating is that it takes into account global factors such as:  international debt management (with the World Bank), GDP, government fiscal policies, banking and financial transparency, and even private investment in infrastructure projects.

Many of these aspects are out of the reach of the average consumer on the streets in Panama.  They are not seeing in their pockets (no trickle down here), the efforts from the expansion of the Panama Canal and the ports. No one is talking about all the development that is happening on the Caribbean Coast since opening up the third bridge across the Canal in Colon.  And no one believes that corruption is truly being addressed, as mentioned in the S&P report.

But, the S&P takes into account international aspects, such as exchange of information policies, which have changed substantially over the past 5 years.  They also take into account the new regulations for stopping money laundering and the supervision of previously unregulated business areas (real estate, casinos, and even accountants and lawyers).

All these things that the little man on the street has no real interest in.

Addressing poverty:

In formal circles, there is talk about how this government has addressed poverty, and especially criticism of the report that “150,000 have now moved above the poverty line.” But, as many point out, this is simply because of an increase in welfare subsidies – it is not actually because of increased employment!   The poverty line in Panama is a mere $60.00 a month, and so with the subsidies introduced by this government, they have “effectively” moved people out from below this poverty line.

Unfortunately, however, they haven’t actually solved the problem.  They simply moved it to a different place!  While these families are now receiving the welfare subsidy, no new policies, training, education or other measures are being introduced to break the poverty cycle in these communities.  They are simply depending on welfare!

The perception (i.e. the reality of the common man on the street) is that unemployment has increased.

There are more people “camaroneando” – which is basically picking up odd jobs wherever they can!  The Panamanian word “camarón” apparently has it’s origins in “come around” – like “why don’t you come around on Saturday and mow the lawn for me?”

So, while on the one hand you have official government figures saying that they are making headway in addressing poverty, the average worker on the street would disagree.  If unemployment has increased and relying on odd-jobs has become a way of life for many more people, then “how is it that we are better off now than before?”

A more real criticism that I see is that most countries don’t establish an arbitrary figure to calculate their poverty line.  They use their GDP as a measure – anyone that is getting LESS than half of the GDP would be considered to be under the poverty line.  Assuming that Panama’s GDP is still somewhere around $14,000 a year, that means that anyone earning less than $600/month is under the poverty line.  How many people does THIS leave in “poverty”?  In other countries, they will call these the “working poor”.  How are Panama’s “working poor” doing?

And let’s be real: one of the World Bank’s criticisms of Panama in its recent visit was that Government (i.e. size) was growing faster than the economy and the taxable income.  In other words, our government is getting too big for the country – it’s costing more than it receives in taxes!

A $300M injection into the economy

One solution for this situation is a $300 million injection that the Government has requested (taking from Peter to pay Paul), by authorising an increase in the budget deficit.  This is apparently to assist businesses that were hardest hit by the construction strike earlier this year.

The sole purpose of this cash injection (they haven’t actually said what they will spend the money on other than “investment projects”) is to help the struggling economy.  Unfortunately, however, what is true is that the strike did affect two major infrastructure projects – the finishing of the expansion of the Tocumen International Airport and the Metro Line #2.

The government needs to have both of these megaprojects finished by January 2019, because of the World Youth Day celebrations that will take place in Panama!

Looking back over recent years

But, even if we look back at 2015, where Panama was still doing quite well in terms of growth (at least, it hadn’t slowed down as much as we are now seeing in 2018), we are still left with questions.  Where has this economic growth gone? Who is receiving all the money? Where is it going?

If the man on the street is saying we’re in recession – why are official figures still showing national growth?  Car sales have dropped by 9%. Foreign investment drops 17% in the first quarter.  But we’re still fine.  Panama is still growing.

Where?

If we look at 2015, foreign investment was about $5 billion.  For Panama, that means we’re flying! And yet, in 2015 unemployment was already starting to increase and we were already starting to see some shops closing or reducing their sizes.

One reason for this change is the change in ownership of local businesses – Panamanians that owned Café Duran, Cervecería Nacional, the mills, the sugar mills, the milk companies, etc., all sold out for a profit.  They then took those profits and moved to Florida (or wherever).  That’s to say – they cashed out.  Now foreign companies own the production.   Add to that, foreign companies own all the major infrastructure (telephone, electricity, etc.), at least in partnership with the National Government (state owned enterprises).

So, if you took a look at the daily life of Panama – about 95% of the profits of any company in Panama are now headed overseas.  Twenty years ago, although we had none of the infrastructure that we have today (because of all the foreign investment that made this possible), all the profits remained in Panama.

All major infrastructure projects undertaken now in Panama are all foreign investors.  In fact, 45% of all foreign investment into Central America actually comes to Panama – not to the rest of the Central American countries!  But as soon as the project is finished, the company and all its capital leave Panama.  Panama gets the debt and the infrastructure it had built, but all the profits head back overseas.

Let’s blame the Venezuelan crisis

It’s really easy in Panama to fall into the game of just blaming all these woes on those foreigners that come to steal our jobs!  And yes, Panama has received thousands upon thousands of displaced Venezuelans over the past 10 years, and in recent years it has gotten considerably worse.  Yes, there are Venezuelans sending money home every week to their families in Venezuela, trying to keep them alive.  They are working in bars and beauty salons, they are picking up odd jobs anywhere that they can get them. And yes, it is true that violence has increased in Panama, as it has throughout all of Central America!

But really? We’re going to blame it on them?
For me, that fails to address deeper issues!

Panama has so much to offer but at the same time seems to be damned to be just another Latin American country.

So… where is the economic growth in Panama going?  I see it being sent back overseas… the money comes in as foreign investment, bribes are paid, an infrastructure project is built… and the money flows right back out again!

Hopefully I’m wrong!

What now?

I’m no economist and no expert in any of these matters.  I can only speak from where I am seated and what I see.

But I do notice some things that have solution:

• addressing corruption – let’s stop the bleeding! You can’t save the patient on the operating table if you don’t stop the bleeding. It doesn’t matter how much money you pour into Panama, if we don’t stop the bleeding we have going on, the patient will die on the table!  Is this the biggest problem? Yes, probably!  The corrupt politicians.  The corrupt companies that participate with the bribes and kick backs.
• addressing the lack of preparation for the new economy.  Panamanians are not ready for the new economy that is taking over world-wide.  Our education system is not up to date. The very mentality in the schools & universities is out-dated.  They are preparing everyone for an economy that existed 30 years ago, and in my personal opinion, not doing a very good job at that, either.
• agriculture & production – Panama needs a local production and a pride in its own produce. Yes, we want variety & options – but so many countries have established home country brands that its nationals are proud to purchase “made in …”.  That doesn’t seem to exist here in Panama. And we are seeing less and less produced in Panama, and even tradesmen and artisans are shutting down as they cannot compete with the prices of imported goods.
• science and innovation – related to the last two points – one of the things that I worry about the most in Panama is the lack of innovation and entrepreneurship in Panama.  I don’t see any biotech, a whole lot of clean energy, technology based companies – and especially not owned, operated and run by Panamanians.
• Why is everyone so scared of entrepreneurship and dependent on someone else being the employer?  Where are all the entrepreneurs?
• banking and finance – hand in hand with my last question – Panamanians will not change jobs and certainly will not go independent if they haven’t already purchased a home and car, because if they do, they will not qualify for financing from any financial institutions.  The banks will only lend you money if you have a check stub that you can show you receive your fortnightly check from a company and are on payroll.  You are considered “high risk” if you are independent, even if you have your tax returns to show.