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Panama - Economy (Notes)

ECONOMY Panama's economy is based primarily on a well-developed services sector that accounts for nearly 80% of GDP. Services include the Panama Canal, banking, the Colon Free Zone, insurance, container ports, flagship registry, and medical and health. A major challenge facing the government under former President Mireya Moscoso was turning to productive use the 70,000 acres of former U.S. military land and the more than 5,000 buildings that reverted to Panama at the end of 1999. In October 2006, Panamanians voted in favor of a $5.25 billion Canal expansion project to construct a third set of locks, which is expected to take eight to ten years to complete. The Government of Panama expects the project to be a transforming event for Panama that will provide 7,000-9,000 direct new jobs during the peak construction period of 2009-2011 and set the tone economically for years to come. The expansion is expected to be financed through a combination of increased tolls and debt. GDP growth in the first three quarters of 2006 topped 8%, surpassing the robust growth seen in 2005, which was 6.9%, and 7.6% in 2004. Though Panama has the highest GDP per capita in Central America, about 40% of its population remains mired in poverty. Panama has bilateral free trade agreements with El Salvador, Taiwan, and Singapore. Panama is exploring free trade negotiations with Mexico and other Latin American countries. In December 2006 the U.S. and Panama concluded negotiations of a Trade Promotion Agreement with the understanding that it is subject to further discussions regarding labor. This agreement will promote economic opportunity by eliminating tariffs and other barriers to trade of goods and services. To enter into force, the agreement needs to be approved by both nations' congresses. As President Bush's Trade Promotion Authority ('fast track') is due to expire June 30, 2007, the agreement would need to be submitted to the U.S. Congress by then to be eligible for congressional consideration under the 'fast track' provisions. Also in December 2006 the Panamanian National Assembly ratified unanimously the Panama-Chile Free Trade Agreement.