Getting the Edge

Competitive economic growth

Panama's new administration wants to make the country's economic climate fairer and more competitive.

ll things considered, the Panamanian economy has experienced unprecedented growth over the last 10 years, though the GDP growth began to slow down toward the end of the last administration, falling below 4% in 2018.

This slowdown, however, is not the economy’s most pressing problem at the moment. According to Luis Alberto Moreno, the president of the Inter-American Development Bank, the country will definitely continue to grow in the foreseeable future.
Inequality in the distribution of wealth and lack of transparency in certain financial procedures, which run deep in the country’s organizational structure, are far bigger challenges for the next administration.

As promised during his campaign, Nito Cortizo and his economic team will have to make the gap between the lower and upper classes smaller. Therefore, structural economic reforms will be a top priority for the new government. Along with the future Minister of Economy, Hector Alexander, Cortizo will probably make certain adjustments to Panama’s economic institutions, namely by launching the Institute of Planning for Development and perhaps also a new ministry.

Before embarking on major reforms, however, the new administration will have to sort out unfinished business handed over by the previous government. The government, for instance, will have to settle its accumulated debt to the state’s contractors, said Cortizo at a press conference just before officially receiving the news of his victory. This, on the plus side, will pump new blood in the veins of Panama’s economy. At the same time—and in order to solve the problem in a systemic rather than symptomatic manner—Cortizo’s government will try to reform the public procurement law to reassure the Panamanian and foreign contractors that their investments will not be in vain.

Cortizo has, on more than one occasion, expressed his belief that the absence of transparency in the process of tenders and bids may have discouraged certain companies from participating, while stating that his administration will address this problem.
A new round of tenders promised by the new administration for infrastructure projects such as roads and bridges will be an opportunity for the government to raise the bar with regard to transparency. The Chamber of Commerce, Industries, and Agriculture of Panama (CCIAP) has also been calling for a new legal framework to encourage the competitive participation of contractors in government projects. However, a new contract law will not solve all problems. Severo Sousa, the president of National Council of Private Enterprise (CONEP) says that Panamanian businesspeople and entrepreneurs are now asking for more dialogue between the government and different sectors.

Public-private partnerships are one possible way to encourage cooperation between the public and private sectors, particularly as the PPP framework has produced great results elsewhere in the developing world. Some CONEP members are now suggesting that a new PPP law is on the cards.

Fighting corruption has been one of the battle cries of Cortizo’s presidential campaign. Cortizo declared on May 10, 2019, that no single group or individual will have an easy access to Panama’s public resources, promising that his government will proceed with honesty and transparency on the anti-corruption front.

All that said, many may still wonder whether Cortizo’s presidency can have any game-changing impact on the economy and business ecosystem of Panama between 2019 and 2024. The new administration will, arguably, have the power to steer the Central American economy in a new direction. And, Cortizo, himself a former businessman and a PhD holder in business and marketing, will quite probably have a wide array of plans for Panama’s service-based business climate.
A large number of Panamanian business are in some way or another linked to either maritime transportation or banking: two sectors that thrive on integration in the global open market. And, many are eager to find out how the new administration will set the tone in this regard. Cortizo has already spoken about some pro-free market measures that his government will take, including the elimination of price controls that were introduced by Varela. This is expected to lead to more competition between businesses.

In terms of diplomacy, striking a balance in Panama’s relationships with China, the US, and the rest of the Latin American world will undoubtedly be helpful.

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