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Thursday, November 3, 2011

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

Mark P. Sullivan
Specialist in Latin American Affairs

Donald J. Marples
Section Research Manager

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 Antonio 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 with the Panameñista Party (PP) 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.

The CD’s coalition with the PP fell apart at the end of August 2011when President Martinelli sacked PP leader Juan Carlos Varela as Foreign Minister. Varela, however, retains his position as Vice President. Tensions between the CD and the PP had been growing throughout 2011, largely related to which party would head the coalition’s ticket for the 2014 presidential election. The strength of the CD has grown significantly since 2009, and it now has a slim working majority on its own in the legislature. In the aftermath of the break with the PP, President Martinelli’s approval ratings dropped by 20 percentage points to about 46%. While President Martinelli had largely retained high approval ratings in the past, some civil society groups have criticized him for taking a heavy-handed approach toward governing and for not being more consultative. Critics also contend that President Martinelli has undermined the independence of the judiciary.

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 bilateral free trade agreement (FTA) recently approved by Congress. U.S. bilateral assistance amounted to an estimated $3 million for FY2011, and 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 and organized crime.

The United States and Panama signed the bilateral FTA in June 2007, and Panama’s National Assembly approved the agreement in July 2007. After more than four years, the U.S. Congress considered and approved FTA implementing legislation, H.R. 3079, on October 12, 2011, which President Obama signed into law on October 21, 2011 (P.L. 112-43). U.S. Congressional concerns regarding the FTA had included Panama’s labor rights and tax transparency issues, but the Obama Administration had worked with Panama to resolve concerns over these issues.

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 South Korea, Colombia, and Panama; and CRS Report R41731, Central America Regional Security Initiative: Background and Policy Issues for Congress.

Date of Report: October 2
5, 2011
Number of Pages:35
Order Number: RL3
Price: $29.95

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