Country Report Panama March 1998 Main report

Summary--Panama 1st quarter 1998.

Outlook for 1998-99: Politics are increasingly focused on the presidential election in May 1999, with continued uncertainty about a possible constitutional amendment to allow President Balladares to stand for a second term. The administration will meanwhile press on with the next stage of structural economic reform. GDP growth, while now on a higher plain, will slacken slightly this year and next because of the impact of the Asian crisis on Latin American demand and the current drought generated by El Nino. The rate is forecast at 4% in 1998 and 3.7% in 1999. The current account will move into the red in 1998, but improve slightly in 1999.

The political scene: The 1999 election campaign is starting up with presidential primaries scheduled for late March. The opposition Arnulfista leader is being challenged for his party's nomination, and MOLIRENA has been hit by defections. The agreement has still not been signed for the planned multilateral anti-drug centre. Another US facility has reverted to Panama. The government has put forward proposals for penal reform.

Economic policy: The IMF has approved a $162m EFF for 1998-2000. The current budget remained in surplus in 1997. The privatisation of the electricity and water utilities is scheduled to begin this year.

The economy: GDP grew by 4.4% in 1997, driven by investment in infrastructure. Construction recovered to 5% growth last year. Unemployment fell to 13.2%, and inflation ended the year at 1.2%.

Money and finance: The cabinet has approved legislation for banking reform. Domestic credit to the private sector rose by 11% in 1997. Stock exchange transactions rose by 59% last year.

Sector trends: Banana export volumes have fallen for the third year in succession. Shrimp fishing has been suspended for two months. Thermal capacity made up for the fall in hydroelectric generation last year. Cable & Wireless is implementing its investment programme at INTEL. Activity at the Colon Free Zone (CFZ) rebounded strongly in 1997. Drought has forced draught restrictions in the canal. The land dispute with Hutchison has been settled. Tourist numbers rose by only 9% in 1997.

Foreign trade and payments: Non-CFZ exports rose by 14.6% in 1997, while imports picked up after an initial decline. A free trade agreement has been negotiated with Chile. Panama has secured a $85m credit from CAF.

© 1998 The Economist lntelligence Unit Ltd. All rights reserved
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