Regaining Confidence and Growth

Feb 1, 2002

Panama is struggling to convince the credit rating agencies and investors that it is correcting weaknesses in its fiscal and economic policies. But long-term investment opportunities are strong.

Panama enjoys a reputation as a haven from political and economic troubles in more volatile parts of Latin America. But that is not helping the country avoid the current downdraft. The country's economy probably grew only about 1% last year, according to Domingo Latorraca, vice-minister of economy, and for 2002 he predicts growth of 1% to 1.5%. "There is uncertainty about the world economy. The effects of September 11 are still to be seen clearly. It is prudent to be cautious," he says.

The bursting of the consumer credit bubble of the late 1990s has left domestic demand depressed. Lower-than-expected growth in 2001 hit tax revenues and forced Panama's economic team to revise its original zero-deficit budget target. Latorraca says the non-financial public sector deficit in 2001 will amount to around 2%.

Fiscal policy has been a political battleground. By the end of 2001 there was still no...

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