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Thursday, February 4, 2010

Panama: Political and Economic Conditions and U.S. Relations

Mark P. Sullivan
Specialist in Latin American Affairs

With five successive elected civilian governments, the Central American nation of Panama has made notable political and economic progress since the 1989 U.S. military intervention that ousted the regime of General Manuel Noriega from power. The current President, Ricardo Martinelli of the center-right Democratic Change (CD) party was elected in May 2009, defeating the ruling center-left Democratic Revolutionary Party (PRD) in a landslide. Martinelli was inaugurated to a five-year term on July 1, 2009. Martinelli's s Alliance for Change coalition also captured a majority of seats in Panama's National Assembly that will increase the chances that the President will be able to secure enough votes to enact his legislative agenda. 

A significant challenges facing the Martinelli government has been dealing with the economic fallout stemming from the global economic recession, but while the growth of Panama's servicebased economy has slowed, it has avoided the economic contraction experienced by many Latin American economies. The Panama Canal expansion project has played a large role in stimulating economic growth. During the presidential campaign, Martinelli pledged to simplify the tax system by the introduction of a flat tax in order to discourage tax evasion. He also has called for a number of large public infrastructure projects, but these and other expenditures could prove difficult as the country continues to feel the impact of the global economic recession. 

The United States has close relations with Panama, stemming in large part from the extensive linkages developed when the canal was under U.S. control and Panama hosted major U.S. military installations. The current relationship is characterized by extensive counternarcotics cooperation, assistance to help Panama assure the security of the Canal, and a proposed bilateral free trade agreement (FTA). U.S. bilateral assistance amounted to an estimated $6.5 million in FY2009, and an estimated $9.6 million in FY2010. This does not include additional FY2008 and FY2009 assistance that Panama is receiving under the Mérida Initiative to assist Mexico and Central American countries in their efforts to combat drug trafficking, gangs, and organized crime; in addition, for FY2010 Panama will receive assistance under a new Central America Regional Security Initiative (CARSI) instead of under the Mérida Initiative. 

In June 2007, the United States and Panama signed a proposed bilateral FTA, and Panama's National Assembly overwhelmingly approved the agreement in July 2007. The U.S. Congress had been likely to consider implementing legislation in the fall of 2007, but the September 1, 2007 election of Pedro Miguel González to head Panama's legislature for one year delayed consideration. González is wanted in the United States for his alleged role in the murder of a U.S. serviceman in Panama in 1992. His term expired September 1, 2008, and González did not stand for re-election. As a result, the 111th Congress may turn to consideration of implementing legislation for the FTA. Final issues being worked out relate to worker rights and to Panama's bank secrecy laws. H.Res. 987, introduced in December 2009, would express the sense of the House that the FTA with Panama should be implemented immediately. 

For more, see CRS Report RL32540, The Proposed U.S.-Panama Free Trade Agreement, CRS Report R40622, Agriculture in Pending U.S. Free Trade Agreements with Colombia, Panama, and South Korea, CRS Report R40135, Mérida Initiative for Mexico and Central America: Funding and Policy Issues, and CRS Report RL34112, Gangs in Central America.

Date of Report: January 22, 2010
Number of Pages: 29
Order Number: RL30981
Price: $29.95

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