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Tuesday, March 15, 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 Alliance for Change coalition also captured a majority of seats in Panama’s National Assembly. Panama’s service-based economy has been booming in recent years, largely because of the ongoing Panama Canal expansion project (slated for completion in 2014), but economic growth slowed in 2009 because of the global financial crisis and U.S. economic recession. Nevertheless, the economy rebounded in 2010, with a growth rate approaching 7%, and strong growth is continuing in 2011.

President Martinelli still retains high approval ratings, but he has been criticized by some civil society groups for taking a heavy-handed approach toward governing and for not being more consultative. The country experienced labor unrest in July 2010 after the government approved legislation that would have allowed companies to suspend contracts of striking workers and hire replacement workers during strikes, but the government ultimately agreed to repeal the provisions. In February 2011, the government amended the country’s mining law to allow foreign investment. Indigenous groups have protested the change even though President Martinelli has vowed that his administration would not approve any mining concessions in indigenous areas.

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 $7.6 million in FY2009 and $7.3 million in FY2010. The FY2011 request is for $10.6 million, while the FY2012 request is for $2.6 million. This funding does not include assistance in FY2008 and FY2009 under the Mérida Initiative to assist Central American countries in their efforts to combat drug trafficking, gangs, and organized crime; beginning in FY2010, Panama has been receiving assistance under the successor Central America Regional Security Initiative.

The United States and Panama signed a 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 tax transparency. 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, several measures have been introduced that would express support for the FTA with Panama: S.Res. 20 (Johanns) and S. 98 (Portman), both introduced January 25, 2011; and H.Res. 86 (Frelinghuysen), introduced February 11, 2011. 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: March 1, 2011
Number of Pages: 31
Order Number: RL30981
Price: $29.95

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