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Panamas Economy Shows No Signs Of Slowing Down

PUBLICATIONS / Newsletters / 2014 / Newsletter August

Economic Growth Panama. No Sign Of Slowdown.

Eight point four.
That is the percentage of the economic growth of Panama in 2013. And while this year did bring to power a new president, it is business as usual for everyone else in the booming little republic of Central America.
Juan Carlos Varela, Panama’s new president, comes from a entrepreneurial family, who owns among other things the Hermanos Varela distillery, where the Abuelo Rum is made (which, it should be mentioned, is outstanding).
His win over ruling party candidate José Domingo Arias came as somewhat of a surprise. After all, Arias’ Cambio Democratico had delivered many of its promises. Roads, airports, harbours, a brand new metro system for Panama City. But it had neglected a large part of the constituency.
Over the past five years, (food) prices increased dramatically. Many common food items saw price rises of more than 25%. Panama, by using the US dollar, has been importing inflation from the United States. And being in the periphery of the American empire, it does not receive any benefit of additional money printed in the central bank of the United States.
While inflation is far from dramatic, it hits hardest those that are on fixed or limited incomes: the elderly, day labourers in the countryside, single income families. Varela promised people lower prices on 22 basic food items, a message that resonated well with many voters. After inauguration, it was time for Varela to deliver his impossible promise.*
Latin America and price controls, the negative international response was to be expected. In Venezuela, people are scrambling to get toilet paper, and Argentina is in default again. However, what has happened in Panama can hardly be compared with the idiocy of aforementioned countries.
First off, Varela is well aware of the stupidity of price controls. The mandate stipulates a period of only 6 months.
Secondly, this is hardly the first flirt with socialism. Under dictator Omar Torijos, who ruled from 1968 until his assassination in 1981, the country took a course far left of what is happening today. Yet in spite of this, Panama never defaulted.
The absence of a central bank has kept Panama in check throughout its history. Without a printing press, the Panamanian government cannot go full retard. Being dependent on foreign credit the economy has to remain open, and the government cannot grow unchecked. The inflation caused by the Federal Reserve is worrisome, but it is still preferable to a Latino president with a printing press.
And although price controls sounds radical, many western countries have agricultural policies that favour large corporate farms that are about as independent as collective farms in the Soviet Union.
Heavy subsidies, heavy regulations and trade barriers have distorted the market for agricultural products for many decades. With prolific use of pesticides and dubious technologies as nasty side effects. Panama is merely following a bad policy that is already a reality in the EU and the US.
Small independent Panama can change course quickly. Only time will tell whether Varela is as good at politics as he is at making rum.
And let us see that the economic growth Panama has achieved can be continued.
*Of course, he could have promised to lower the VAT rate that was increased from 5% to 7% by the previous administration, but somehow giving tax money back is not perceived as ‘social’ as keeping it to buy the electorate something else.
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