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Panama strives to be 'Latin Singapore'

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PANAMA CITY, Panama -- On a humid stretch of Pacific coast in one of the poorest parts of the Americas, somebody seems to have misplaced a chunk of Manhattan.

The 50-storey skyscrapers of Panama City jut out of the jungle like nowhere else in low-rise Central America. Panama's smart banks, open economy and long lines of boats at its ports have caused many to compare it to Singapore, another steamy success story.

Panama's president, Ricardo Martinelli, made his country's first state visit to Singapore in 2010 and later said, "We copy a lot from Singapore, and we need to copy more."

Panama is not even one-fifth as rich as its Asian model on a per-person basis. But Singapore would envy its growth: From 2005 to 2010, its economy expanded by more than eight per cent a year, the fastest rate in the Americas.

The International Monetary Fund expects it to grow by more than six per cent a year during the next five years. Panama will soon overtake Costa Rica and Venezuela in gross domestic product per head. Accounting for purchasing power, it is one of the five richest countries in mainland Latin America.

An 80-kilometre channel of water has played a big part. In 2010, the Panama Canal's revenues were $2 billion (7.5 per cent of GDP). This year, they are up by a quarter, thanks to more traffic and higher tolls.

The canal and Panama's business-friendly regulations have spawned big insurance, financial and legal industries and endowed Panama with the world's biggest merchant navy, at least on paper.

A free-trade zone in Colon, at the canal's Atlantic end, has lured the regional bases of firms such as Procter & Gamble. Last year, Colon and Balboa, Panama's Pacific gateway, became Latin America's two busiest ports.

Panama's import tariffs are among the lowest in Latin America, and the country has received foreign direct investment worth nearly nine per cent of GDP, the largest share on the continent. A $5.3 billion expansion of the canal for bigger ships is due to be completed in 2014.

Separately, the government has begun a five-year, $13.6-billion investment plan, focusing on schools, hospitals, sewer systems, roads and a subway for the congested capital. Pensions for the poor and a universal scholarship will help to reduce inequality, which is among the worst in the Americas. In indigenous areas, 85 per cent of people cannot afford enough calories for an adequate diet -- even as the champagne flows in the capital's casinos.

And the "Latin Singapore" remains deeply un-Singaporean in two more ways. One is education, where Panama's spending has not yielded good results. The Program for International Student Assessment study, a test of 15-year-olds, places Panama 63rd out of 65 economies, behind the likes of Albania. Singapore comes in fourth.

Bad schools are common in Latin America. But in a country of 3.5 million, the shortage of skilled workers is acute, discouraging foreign firms from investing and slowing growth.

Mario Cuevas, an economist at the Inter-American Development Bank, says that Panama's Singaporean plan is "a realistic goal, not just a hope." But he notes that whereas Singapore's success rests on high productivity, Panama's growth has come from accumulating capital in the form of infrastructure.

More serious are weak institutions. Singapore is thought to be one of the world's least corrupt countries. Panama, in contrast, is not even the cleanest in Central America, according to Transparency International, a pressure group. The World Economic Forum, a business-minded think tank, scolds Panama for its corruptible public officials and lack of judicial independence.

Martinelli, a supermarket magnate, is not helping. Leaked cables from the U.S. Embassy warned that he "may be willing to set aside the rule of law in order to achieve his political and developmental goals," and said he had asked for American help in bugging his opponents.

The popular president is accused of meddling with the Supreme Court and conspiring to oust the attorney general. He now wants to introduce a presidential runoff and reduce the time before being eligible to stand for re-election, which would suit his own political interests.

Doubts about the rule of law have already hurt the country. Some foreign construction firms did not bid for the Panama City subway contract, fearing the bidding was rigged. (A free-trade deal with the United States, expected to be approved soon by the U.S. Congress, will make procurement more transparent.)

In June, a posh part of Panama City, where Donald Trump is building a 70-storey hotel and residential complex, was flooded with sewage because planning laws had been ignored.

The biggest long-term worry is that the Panama Canal Authority, an autonomous state agency admired for its efficient operation, could be captured by the government and run as a short-term cash cow.

Pemex, Mexico's creaking state-owned oil monopoly, is sometimes cited as a cautionary tale. Unless Panama cleans up its government, it runs the risk of becoming the next Mexico rather than the next Singapore.

Republished from the Winnipeg Free Press print edition July 19, 2011 A10

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