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Friday, February 11, 2011

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.

The United States and Panama signed a proposed bilateral FTA in June 2007, and Panama’s National Assembly overwhelmingly approved the agreement in July 2007. Neither the 110
th nor the 111th Congress considered the agreement. Issues that have raised congressional concern relate to worker rights and to Panama’s bank secrecy laws. On November 30, 2010, Panama and the United States signed a Tax Information Exchange Agreement that had been a prerequisite of some Members of Congress for the consideration of the FTA. In the 112th Congress, S.Res. 20 would express the sense of the Senate that the United States should immediately approve FTAs with Panama, Colombia, and South Korea.

For additional information, 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 RL34112, Gangs in Central America, and CRS Report R41215, Latin America and the Caribbean: Illicit Drug Trafficking and U.S. Counterdrug Programs.

Date of Report:
February 2, 2011
Number of Pages: 30
Order Number: RL30981
Price: $29.95

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