Looking for an Upturn

Jun 1, 2003

Panama's economy ran out of steam four years ago and it is struggling to meet deficit targets. The country is looking for new sources of economic fuel but it needs a major boost soon.

Panama's economy refuses to budge. GDP growth has averaged barely 1% a year over the past four years and foreign direct investment, which fueled the growth of Panama's financial services industry in 1990s, has slowed to a trickle. The country is struggling to meet budget deficit targets, but a planned expansion of the Panama Canal, further development of the land surrounding it and new trade agreements could give the country the economic boost it needs. Panama passed a fiscal responsibility law last year limiting the country's nonfinancial public sector deficit to 2% of GDP. Domingo Latorraca, Panama's economy vice-minister, says the fiscal responsibility law should curb the country's debt levels, which have topped 72.5% of GDP this year. "We recognize our medium to long-term goal is to reach investment grade with the ratings agencies, but the debt level is a yellow light," says Latorraca. Moody's Investors Service rates Panama's foreign...

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