Wednesday, April 09 2014 @ 10:52 AM EDT
Contributed by: Don Winner
IMF forecasts estimate Panama's gross domestic product (GDP) will grow 7.2 % in 2014 and 6.9 % in 2015. This represents an increase of 0.3 percentage points from the last report in October 2013.
For the former president of the National Association of Economists Adolfo Quintero, this projection is too optimistic.
'I think the Panamanian economy will grow 6.25 % this year," Quintero said. 'The public finances are not in the best condition and the next administration will face strong legacy commitments,' he said.
Panama maintains a fiscal deficit of 3.1 %, the limit allowed by the Fiscal Responsibility Act, and debt in the non-financial public sector exceeds 16 billion dollars, according to the Ministry of Economy and Finance.
The figure does not include the more than 4 billion dollars necessary to pay for turnkey projects that have already been contracted.
'Whoever says investment in public works guarantees growth, is not familiar with the Panamanian economy," Quintero said.
'70% of the investment in the construction sector it belongs to the private sector, and 90% of the economy is linked to the international markets," he explained.
It is why, according to the economist, the economic slowdown in China (from 7.7% to 7.5 % in 2014, according to the IMF) will have a strong impact on the local economy.
The former minister of the Economy Domingo Latorraca agrees that changes in China will have effects for the country.
'The Panamanian economy must be kept well mixed. We should not have all our eggs in one basket,' he said.
Latorraca matches the IMF projections, noting that the economic slowdown will help to keep rising consumer prices under control, which according to the IMF paper will be 3.8 % per annum. (Estrella)
Editor's Comment: Leave it to the Estrella to take a report saying that the growth in the Panamanian economy will lead Latin America (again) at 7.2 or more in 2014, and try to turn it into a negative article. The Estrella newspaper is anti-CD and anti-Martinelli, so they don't want to say anything good, especially in the weeks leading up to an election.
The Panamanian economy has already demonstrated it's resiliency during the global economic slowdown of 2008 - 2010. When everyone else was tanking, Panama posted growth of 10.1% in 2008, 3.9% in 2009 at the height of the recession, and then quickly recovered to 7.5% in 2010 and 10.8 in 2011.
What's more, I see these economic prediction articles every year, and they are always wrong (low), every time. I don't think I have ever seen anyone - either in the Panamanian government or from international organizations like the IMF - that have been too optimistic or enthusiastic regarding the Panamanian economy. I personally think 2014 will come in well over 7% and more like 7.5% or higher. And once again, the best in Latin America.
Domingo Latorraca was the Minister of Economy and Finance under Mireya Moscoso, which probably makes him a Panameñista, a supporter of Juan Carlos Varela, and a likely enemy of Ricardo Martinelli. I don't disagree with anything he says in this article, but rather I'm simply pointing out that you need to consider the source.
With regards to inflation in Panama - if you will take a look at this chart below, you will see that in fact inflation has been trending down nicely over the past couple of years...
Jose Domingo Arias will win the election in May. The CD will continue the same economic policies which have worked very well over the past five years. They will build Line 2 and Line 3 of the Metro. The expansion of the Panama Canal will be completed during Arias' term in office and delivered. The Panama Canal - which is basically just a toll road - will start seeing the additional income from the newly expanded Panama Canal. New sectors of the economy will see unprecedented growth, especially in the mining sector where more than 6 billion dollars will be spent just to build a new copper mine.
So overall, I see none (zero) indications of any sort of significant problems for the Panamanian economy. And if having to deal with the impacts of yet another year of region-leading growth can be seen as a "problem" - then those are the sorts of problems you really want to have.
And here are those "problems." Unemployment is now at a practical level of 0% (full employment). It's really hard to get down past 4% because in any economy about that many people are either lazy or simply unemployable due to health issues, addition, or geographic location. Panama will continue to face a shortage of manpower, and they will slowly expand programs designed to let a trickle of foreign workers in to fill those positions.
A hot economy and zero unemployment puts upward pressure on both wages and prices. Inflation will be an issue, although it's been kept relatively low recently.
Most people don't understand that Panama's debt is limited by law. The government can only borrow so much money, but as the economy expands then they can borrow more (because the limits are tied to GDP or the overall size of the economy.) Every administration has run their economic policies right up against those limits, and Martinelli has done the same thing. However for the first time all of the major rating agencies have given Panama's debt "investor" status - and it's improved since then. So, continued government spending on large infrastructure projects only adds more fuel to the fire, and it's enough to keep things hot and churning.
So sure, 7.2% or more for 2014? I'll take it...