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Panama Closing In On Other Latin American Economic Power Houses

Money MattersBy DON WINNER for - It's hard to compare the economies of the countries of Latin America side-by-side, because obviously each country is different. Some countries are much larger than others geographically speaking. For example Mexico has 1,972,550 square kilometers of land area, compared to just 78,200 square kilometers for relatively tiny Panama. Mexico has a population of more than 109 million people, compared to just 3.3 million for Panama. So how can you compare the two economies? My favorite comparison tool for this application is the measure - GDP per capita (PPP) - defined as "the value of all final goods and services produced within a country in a given year divided by the average (or mid-year) population for the same year." It's useful to a certain extent because "when comparing generalized differences in living standards on the whole between nations, PPP takes into account the relative cost of living and the inflation rates of the countries, rather than using just exchange rates which may distort the real differences in income." So, it's the size of the economy divided by the population, but this measure also adds in the adjustment of Purchasing Power Parity (PPP) to balance out differences in currency fluctuations. This is the one indicator I use to track how well the Panamanian economy is really doing, compared to the others of Latin America.

Panama Is Still In Fifth Place: There are only four countries in Latin America ranked higher than Panama on this scale - Mexico, Uruguay, Argentina, and Chile. I plotted the data from 2010 (most recent available) on a chart above. You can see how Panama's position as improved over the past eight years, and is how the gap continues to close. In this period there have been three "leaders" - first Uruguay, then Argentina, and now Chile. Most dramatically, you can see how Panama's overall position has improved dramatically since the start of the economic "boom" in 2003 or so. You can also see how the other economies were either flat or took dips during the 2008 - 2009 global economic crisis, while Panama continued to grow steadily. There is now a gap of only $2,400 between Panama (at $13,000) and Chile (at $15,400) in 2010. And while Chile's economy grew at 6% in 2011, Panama's economy grew at 9.2% during the year, so this gap shrank even more last year.

Panama Is Now Above The World Average: According to data from the International Monetary Fund (IMF), the world average for GDP per capita (PPP) in 2010 was $10,700 dollars. You can see in the graphic above - the countries shaded in blue are above that average, while the countries shaded in yellow are below. Much of Latin America is below the world average, and in Central America only Costa Rica and Panama are above. And you can easily see how most of Africa and Asia are still below the world average as well.

Before Too Long - Panama Will Lead Latin America: There seems to be no stopping Panama's economy. I've been watching these kinds of fundamental economic indicators for years, literally decades. To me it's absolutely delightful to see how Panama's economy is finally coming out of the doldrums. Panama was artificially held back due to the US ownership of the Panama Canal and 21 years of an inefficient military dictatorship (1968 - 1989). Once the Torrijos-Carter treaty of 1977 was fully implemented at 12:00 noon on 31 December 1999, Panama's economy was finally free to set sail. The horrendously corrupt government of Mireya Moscoso (1999 - 2004) basically pissed away their chance to do good things for the country, and they instead focused on stealing as much money as they could while in office. I consider this to be a sort of "spoiled brat" phase. Then the PRD administration of Martin Torrijos did a better job and things got moving. They made some very responsible moves and set the economic engine on the right track. This was sort of a "coming of age" for the Panamanian economy. Now with the hard-nosed veteran businessman Ricardo Martinelli running the show, politics and economic policy are fully merged - and the great majority of his political decisions are based on the economic fundamentals. In other words, he's doing what's good for the economy, first and foremost. Sure, the day-to-day political infighting are a factor, but over the long haul if the economy is strong and growing, then you make more jobs, and the government gets more tax revenue, and with more money you can do more things to help the poorest people in the country. That's the strategy, and it's working. Before too long Panama will take over as the #1 economy in Latin America - measured by GPD per capita (PPP). It's simply a matter of time. Barring some sort of massive natural disaster - and I mean it would take something like an earthquake that destroys Panama City or something similar - I don't see anything on the horizon that will change the fundamental path and future.

Copyright 2012 by Don Winner for Go ahead and use whatever you like as long as you credit the source. Salud.

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Panama Closing In On Other Latin American Economic Power Houses | 2 comments | Create New Account
The following comments are owned by whomever posted them. This site is not responsible for what they say.
Panama Closing In On Other Latin American Economic Power Houses
Authored by: Ivan Perez on Sunday, January 15 2012 @ 07:18 am EST

Hey Don, you´re on the right track....I´m a tongue in cheek economist and what you say is the honest truth. Good show, Carry on

Panama Closing In On Other Latin American Economic Power Houses
Authored by: Anonymous on Monday, January 16 2012 @ 08:53 am EST

Imagination is a wonderful thing. Did you ever think Panama might be in a bubble? Read Michael Lewis' latest book: Boomerang. Too many skyscrapers went up way too fast.