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Panama ROLE OF GOVERNMENT
The government has played a limited role in economic matters
throughout most of Panama's history, restricting its activities to
infrastructural development and creating a climate conducive to
private investment. The government's role expanded dramatically
after 1968, when the National Guard, now called the Panama Defense
Forces (Fuerzas de Defensa de Panamá--FDP), took control of the
government under Torrijos's leadership. Members of the National
Guard tended to be provincial, racially mixed, and lower- or
middle-class in background and thus provided an outlook different
from that of the urban-oriented elite that had dominated Panamanian
politics in the twentieth century
(see The Government of Torrijos and the National Guard
, ch. 1).
The National Guard implemented policies that attempted to
reduce the most glaring discrepancies between the urban and rural
economies. In 1968 economic activity was heavily concentrated in
the two provinces of Panamá and Colón, which accounted for over
two-thirds of GDP, and an even larger share of the country's
manufacturing, construction, trade, transport, and communications
(see
fig. 1). Residents of the metropolitan areas had access to
relatively well-developed education, health, and other services.
Their consumption pattern was closer to that of affluent developed
countries; they owned most of the country's cars, refrigerators,
telephones, and television sets. Their tastes and aspirations were
patterned on those of United States citizens in the Canal Zone and
the many international visitors. In contrast, rural residents had
access to far fewer services, and their living conditions were
substantially below those of urbanites
(see Rural Society
, ch. 2).
The majority of the population in the countryside had incomes of
less than one-third of those in Panama City and Colón, and many had
little more than one-tenth. The economic policies of the military
leaders aimed at continued high growth of the urban economy, from
which resources could be channeled to the poorer elements of the
society to bring about greater economic and social integration.
High growth of service industries in the terminal cities was
considered essential because of several constraints: canal-related
activities were not expected to provide much of a growth stimulus;
import substitution opportunities in manufacturing had been largely
exhausted; and expansion of banana exports appeared limited by
international conditions. Panama became a regional financial center
after 1970, when the government created the International Financial
Center. Tourism was bolstered by construction of additional
airports, a convention center, new hotels, and resorts. The CFZ was
upgraded, and transportation and warehousing facilities were also
improved.
Under Torrijos the government became more active in the goods
sectors. In agriculture, land reform was accelerated, and
cooperative farming was promoted. In industry, state-owned
companies expanded, most notably in sugar refining, cement
production, and electric power. Torrijos intervened more forcefully
in other areas of the economy, such as in the setting of wages and
prices; a 1972 labor code increased job security and promoted union
organization.
These measures created a more equitable society, but often at
the expense of efficiency and overall growth. Government
expenditure rose sharply, and the public sector became bloated with
a proliferation of new government agencies. In the service sector,
construction declined in the mid-1970s, in part because of the
disincentive created by rent controls. In agriculture, considerable
improvements in social conditions were not accompanied by increased
incomes. Moreover, greater government participation and prolonged
canal negotiations created difficulties and uncertainties for
private investors, and private investment declined precipitously.
After 1975 the government became more pragmatic and modified
its programs to stimulate economic activity. Incentives to
investors were increased. The 1972 labor code was modified in 1976
to meet some of the objections by employers. A freeze on collective
bargaining agreements was established that in effect prohibited
wage increases. Government-set prices were raised to encourage
production.
Under a structural adjustment program in 1983 and 1984, Panama
reduced the scope of the public sector in the economy. In March
1986, and as preconditions for two structural adjustment loans from
the World Bank, the government passed several major laws that
revised its labor code, removed protective tariffs, changed the
price structure for agricultural goods, and encouraged foreign
investment. In August 1986 the government launched a privatization
program and proposed the sale of state assets worth US$13 million.
Data as of December 1987
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