Panama The Economy
Cuna Indian mola design of a San Blas interisland oat at dock
SEVERAL DISTINCTIVE FEATURES characterized Panama's economy in
the late 1980s; the most striking was its internationally oriented
services sector, which in 1985 accounted for over 73 percent of the
gross domestic product
(GDP--see Glossary),
the highest such
percentage in the world. That distinctiveness was best symbolized
by the Panama Canal, which has dominated the country's economy in
the twentieth century. The scope of the services sector has
expanded and broadened through increased government services and
initiatives such as the Colón Free Zone
(CFZ--see Glossary), a
trans-isthmian oil pipeline, and the International Financial
Center.
Another distinguishing feature was Panama's paper currency, the
United States dollar. The local currency, the balboa, was tied to
the United States dollar but was available only in coins. Panama's
money supply was determined by the United States Federal Reserve
System; therefore, the country could neither print money nor
devalue the currency. Because its monetary instruments are limited,
Panama has avoided the cycle of exchange-rate devaluations and the
accelerating inflation that have typified most Latin American
economies. The balboa has remained on par with the United States
dollar, and Panama has enjoyed the lowest average annual rate of
inflation in Latin America--7.1 percent in the 1970s, and only 3.7
percent between 1980 and 1985.
The third economic distinction is that the Panamanians have one
of the highest levels of per capita income in the developing world.
Construction of the Panama Canal across the isthmus in the early
1900s and expanding world commerce have combined to foster rapid
economic growth in the country throughout the twentieth century. By
1985, per capita gross national product
(GNP--see Glossary) reached
US$2,100, twice the average in Central American countries, greater
than all South American countries except for Venezuela (US$3,080)
and Argentina (US$2,130), and on a level with Mexico (US$2,080).
Panamanians, however, have not shared equally in the rising living
standards, because the distribution of income has been highly
skewed.
The military leaders who seized control of the government in
1968 under the leadership of General Omar Torrijos Herrera
instituted economic policies that aimed at greater equity as well
as integration of various facets of the country's fragmented
economy. By the time of Torrijos's death in July 1981, they had
achieved some remarkable results, but at the expense of a low rate
of private investment, increased urban unemployment, continued
rural poverty, and growing external public debt. A document
entitled Towards a More Human Economy was published in 1985
by Panama's Archbishop Marcos Gregorio McGrath, revealing a society
in which 38 percent of the families lived in poverty and in which
22 percent of the population failed to earn at least US$200 a
month--the minimum amount considered necessary to purchase a basic
basket of goods. The document went on to criticize many measures
taken by the Torrijos government in the 1970s. At the same time,
however, the publication recognized that remarkable progress had
been made in other areas, such as a decline in infant mortality
rates, a rise in the literacy rate, and social security coverage
for 60 percent of the population as compared with only 12 percent
in 1960. Indeed, the economic policies instituted by the Torrijos
regime (1968-81) were pivotal in Panama's history, but the results
were mixed.
Data as of December 1987
|