Panama Needs to Clean Up Its Act

Friday, January 31 2014 @ 11:26 PM UTC

Contributed by: Don Winner

(A Bloomberg Editorial) With the world’s second-largest free-trade zone, Latin America’s fourth-busiest airport, four container-vessel seaports, the Pan-American Highway and numerous free-trade agreements, Panama is on its way to becoming the Singapore of the Americas.

And as Eric Sabo reports in the March issue of Bloomberg Markets magazine, the expansion of the Panama Canal now under way “is only part of the massive infrastructure spending that is propelling the Panamanian economy.”

Yet to reap the full benefits of such investment, and to address one of the hemisphere’s worst cases of economic inequality, Panama needs to follow Singapore’s lead in fighting corruption.

Singapore ranked fifth out of 177 countries in last year’s Corruption Perceptions Index compiled by Transparency International (the higher the rating, the less corruption); Panama was 102nd -- a drop of almost 20 places from the previous year’s index.

Executives surveyed by the World Economic Forum have pegged corruption as Panama’s biggest problem for business.

Many of the qualities that have made Panama a hub for global trade and finance also attract malefactors. Drug cartels from Mexico and Colombia take advantage of its location, dollarized economy and free-trade zones to move their products and launder their proceeds.

Panama’s low tax rates (including no wealth or foreign income taxes) make it a haven for those seeking to shelter or hide assets.

Revenues from the canal and huge investments in infrastructure -- a five-year public investment program of as much as $15 billion amounted to more than 50 percent of Panama’s 2010 gross domestic product -- feed temptations for misappropriation, bid-rigging and bribery.

And notwithstanding five successive elected civilian governments since the 1989 U.S. intervention that toppled General Manuel Antonio Noriega, Panama’s civil institutions and democratic culture remain weak.

Its judiciary is seen as lacking political independence: In 2012, the World Economic Forum placed it 132nd out of 144 countries in that regard.

The news media faces intimidation and harassment.

And President Ricardo Martinelli’s administration has been marked by scandals and efforts to amass executive power. As one U.S. diplomatic cable put it, the president “may be willing to set aside the rule of law in order to achieve his political and developmental goals.”

This May’s presidential elections offer Panamanians a chance to bring in a new administration that would attack corruption with greater urgency.

It could start with transparency -- for example, by posting online more details on corporate ownership and taking other steps recommended by the Organization for Economic Cooperation and Development.

Panama also has yet to sign on to the World Trade Organization’s government procurement agreement, which would ease concerns about underhanded dealings on billions of dollars in contracts.

Strengthening Panama’s judiciary and building up anti-corruption institutions will take time; in the interim, a few aggressive prosecutions of cases involving corruption and abuses of authority would be a good down payment on reforms to follow.

What has made tiny Singapore such a success is not just its freedom of commerce, after all, but also its outsized commitment to following the rules.

Editor's Comment: Nice thoughts, but it's not going to happen. The problem is that all three of the main presidential candidates are basically equal when it comes to corruption. Panamanians have already tried the Panameñista (Arnulfista) party in Mireya Moscoso - and her administration was seen as one of the most corrupt in the countries history (and, that's saying something.)

The PRD had their turn in office - twice - from 1994 to 1999 with Ernesto Perez Balladares and from 2004 to 2009 with Martin Torrijos. They proved to be no better than the Panameñistas. The news headlines over the past several years have been filled with a steady stream of complaints and legal actions against the corruption activities of these past PRD administrations.

That left the door open to the Democratic Change party and Ricardo Martinelli. His strategy has been simple. They decided early on they would simply build more and get more done in five years in office than in the previous 40 - and then they actually pulled it off. The list of completed infrastructure projects is impressive - and so is the amount of money they've been making off of those contracts.

So the bottom line remains the same. Corruption in Panama among politicians becomes a common denominator, so therefore it gets zeroed out in the political calculus. Panamanian voters already know all politicians are corrupt, so they can stop wasting their time trying to hire someone who is not.

Jose Domingo Arias is now poised to win the election in 2014 and for the first time since the end of the dictatorship era, a political party will "repeat" in office or stay in power after a five year term. That means the CD will end up having appointed each and every judge on the Supreme Court. They will own every judge on the Electoral Tribunal. They will own the Attorney General, and Electoral prosecutor. In fact they already have control of practically every position of power worth having, and those they don't hold now, they will have after the 2014 elections. Their span of control over the Judicial system continues to strengthen every day.

So, clean up corruption in Panama? Dude, what are you smoking? Why shut down the party right after the first round of tequila shooters? Things are just getting warmed up, and it's only going to get worse.

It's a great time to be a CD party loyalist, and a really (really) bad time for anyone with a PRD tattoo. The Panameñista party will continue its amazing shrinking act and will eventually contract down to meaninglessness underscored by insignificance. The CD's allies the MOLIRENA party will continue to grow and prosper as their wingman. The new FAD party and Independent candidates will suck up the left wing radical fringe voters, and will never have a chance of assuming power.

But I agree with the basic premise of this editorial. Corruption is bad in Panama. Cases are investigated and tried selectively as political weapons against opponents - so what little anti-corruption action you do see, even that is tainted. I've been chanting for years that "there's no judicial security in Panama" so don't expect to be able to take your case to the courts and win, because you won't win. The Panamanian on the other side has more money and connections than you do, so you're going to lose. It's a problem, but external pressure isn't going to make it go away. It's not going to be significantly reduced any time soon.

Expect corruption in Panama to get worse, before it gets better. And that's also saying something...

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