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Thursday, May 13, 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. 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 challenge 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. President Martinelli has called for a number of large public infrastructure projects, including a subway for Panama City, and the government has begun to move ahead on some of these projects. In March 2010, President Martinelli secured legislative approval of a tax reform measure that reduces corporate and individual income taxes while raising sales and other taxes that overall is expected to increase government revenue. 

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 a $3.7 million in FY2008, $7.6 million in FY2009, and an estimated $8.7 million in FY2010. The FY2011 request is for $10.6 million. This funding does not include an estimated $11 million Panama received in FY2008 and FY2009 under the Mérida Initiative to assist Mexico and Central American countries in their efforts to combat drug trafficking, gangs, and organized crime; beginning in FY2010, Panama will receive assistance under the successor 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. While the 111th Congress could consider implementing legislation for the FTA, a number of observers believe that it is unlikely that it will be considered this year. Final issues being worked out relate to worker rights and to Panama's bank secrecy laws. H.Res. 987 (Frelinghuysen), introduced in December 2009, would express the sense of the House that the FTA with Panama should be implemented immediately, and H.Res. 1124 (Mack), introduced in February 2010, would call on President Obama to submit the Panama FTA to Congress and work to ensure that it is approved. 

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: May 5, 2010
Number of Pages:28
Order Number:RL30981
Price: $29.95

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