Government and Economy

Panama [1] is a constitutional democracy. The chief executive is the president, traditionally assisted by two vice presidents, all of whom are elected to a single five-year term. A change to the constitution in 2004 reduced the number of vice presidents to one, starting with the 2009 election.

The popularly elected Asamblea Nacional, formerly the Asamblea Legislativa, is the national legislature. It’s a unicameral (one house) body. The number of legislators has fluctuated in the past, but the constitutional reforms of 2004 fixed the number at 71, starting with the 2009 election.

Legislators serve five-year terms that run concurrently with the presidential term. There is also a supreme court consisting of nine justices who serve 10-year terms, along with several superior courts and courts of appeal.

For much of Panama’s history, however, the government was essentially controlled by the oligarchy, the military, or both. Especially during the military dictatorship that lasted from the 1968 coup to the 1989 U.S. invasion that removed Noriega from power, the president was often a figurehead, and neither the legislature nor the courts held much independent power.

Every election from 1994 on has been widely considered free and fair, with less controversy surrounding them than, for instance, recent U.S. elections. Though corruption and influence peddling are still acknowledged to be problems, Panama’s democracy appears healthier and more firmly entrenched than ever before. Suffrage is “universal and compulsory”—that is, everyone 18 years and older is required to vote in all national elections.

Panama either adopted a new constitution or amended an existing one several times during its first 100 years, usually motivated by expanding or contracting the government’s power and citizens’ rights or realigning its relationship with the United States, particularly concerning U.S. intervention in Panama’s affairs and its rights in the Canal Zone. In 2004, it amended the constitution again, making a total of 67 changes. Significant changes included approving the expansion of the Panama Canal [2].

The central government loosened its control over large sections of the country through the creation of comarcas, or semiautonomous reservations for the country’s indigenous peoples.

Panama’s nominal gross domestic product (GDP) in 2009 was US$24.75 billion. Unlike its Central American neighbors, Panama’s economy depends mainly on an extensive services sector, not agriculture. About three-quarters of its GDP comes from the Colón Free Zone, international banking, the Panama Canal, ports, ship registry, tourism, and related services. Agriculture comprises less than 7 percent of GDP. The main agricultural exports are bananas, rice, coffee, sugarcane, and shrimp. Panama’s largest trading partner, by far, is the United States.

Panama [1] has always been a “dollarized” economy, meaning its currency is tied to the U.S. dollar. In fact, Panama’s paper currency, officially known as the balboa, is the dollar.

The economy took a major hit toward the end of the 1990s with the departure of U.S. military personnel and their dependents (and dollars), but Panama Canal profits have helped soften the blow since 2000. Canal revenues in fiscal 2009 were US$1.96 billion.

Panama has experienced impressive economic growth in recent years, driven in large part by a boom in construction. This in turn has been fueled in part by an influx of foreigners, especially North American retirees, tourists, and affluent Colombians and Venezuelans fleeing instability and social upheaval in their home countries.

Panama has had one the fastest-growing economies in the Americas in recent years, for several years posting GDP growth greater than 7 percent and sometimes in the double figures. In 2009, GDP growth dropped to 2.4 percent as a result of the worldwide recession, which Panama was weathering better than most Latin American economies thanks to a stable and cautious financial sector that did not take the same risks as some of its neighbors, coupled with a construction boom that just kept on booming.

A healthy economy has also cut the unemployment rate in recent years. The official rate was estimated at 701 percent in 2009. Canal construction is expected to create thousands of new jobs.

Panama historically has had quite low inflation, estimated at 2.9 percent in 2009. It fluctuated a bit more in recent years, but remains lower than most other Latin American countries.

Though one of the region’s most affluent countries, Panama has one of the most unequal distributions of wealth in the world. Despite the strong economy, nearly 40 percent of the population still live in poverty. Half of these people live in extreme poverty, trying to get by on less than US$1 a day. At the other extreme, a widely quoted study claimed in 2004 that just 80 individuals accounted for half of Panama’s total GDP.