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Friday, September 16, 2011

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

Mark P. Sullivan
Specialist in Latin American Affairs

Donald J. Marples
Section Research Manager

Eliana M. Wilk
Analyst in Foreign 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 of 7.5%, and strong growth is continuing in 2011.

President Martinelli 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 weakened labor laws, but the government ultimately agreed to repeal the provisions. In February 2011, the government amended the country’s mining code to facilitate foreign investment. Indigenous groups protested the law even though President Martinelli vowed that his administration would not approve any mining concessions in indigenous areas. Ultimately, in early March 2011, President Martinelli called for the repeal of the law.

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; support to promote Panama’s economic, political, and social development; and a proposed bilateral free trade agreement (FTA). U.S. bilateral assistance amounted to $7.3 million in FY2010 and an estimated $3 million for FY2011, while the FY2012 request is for $2.8 million. This funding does not include additional assistance to Panama allocated under the Central America Regional Security Initiative, a successor to the Mérida Initiative in Central America that assists countries in their efforts to combat drug trafficking, gangs, and organized crime.

The United States and Panama signed a bilateral FTA in June 2007, and Panama’s National Assembly approved the agreement in July 2007. Neither the 110th nor the 111th Congress considered the agreement. In the 112th Congress, congressional concerns regarding the FTA have included Panama’s labor rights and tax transparency, but the Administration’s efforts to resolve these issues with Panama resulted in the Administration moving forward to work with Congress on draft implementing legislation for the agreement. Both the House Ways and Means Committee and Senate Finance Committee approved draft implementing legislation in “mock markups” held on July 7, 2011. Introduction of the official bill awaits congressional agreement on how to deal with consideration of trade adjustment assistance (TAA) legislation. Early in the 112th Congress, several measures were introduced that would express support for the FTA: S.Res. 20, S. 98, and H.Res. 86. 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; and CRS Report R41731, Central America Regional Security Initiative: Background and Policy Issues for Congress.

Date of Report: August 17, 2011
Number of Pages: 34
Order Number: RL30981
Price: $29.95

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