Panama: Political and Economic Conditions and U.S. Relations

Publication Date: March 2009

Publisher: Library of Congress. Congressional Research Service

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Coverage: Panama

Abstract:

With four successive elected civilian governments, the Central American nation of Panama has made notable political and economic progress since the 1989 U.S. military intervention that ousted the regime of General Manuel Noriega from power. The current President, Martin Torrijos of the Democratic Revolutionary Party (PRD), was elected in May 2004 and inaugurated to a four-year term on September 1, 2004. Torrijos, the son of former populist leader General Omar Torrijos, won a decisive electoral victory with almost 48% of the vote in a four-man race. He succeeded President Mireya Moscoso of the Arnulfist Party (PA), elected in 1999, whose administration was tainted by several high-profile corruption scandals. Torrijos' electoral alliance also won a majority of seats in the unicameral Legislative Assembly.

The most significant challenges facing the Torrijos government have included dealing with the funding deficits of the country's social security fund; developing plans for the expansion of the Panama Canal; and combating unemployment and poverty. After protests and a protracted strike by construction workers, doctors, and teachers in 2005, the Torrijos government was forced to modify its plans for reforming the social security fund. In April 2006, the government unveiled its ambitious plans to build a third lane and new set of locks that will double the Canal's capacity. A constitutionally required referendum on the expansion project was held on October 22, 2006, with 78% of voters supporting the project.

The United States has close relations with Panama, stemming in large part from the extensive linkages developed when the Panama Canal was under U.S. control and Panama hosted major U.S. military installations. The current bilateral relationship is characterized by extensive cooperation on counternarcotics efforts, assistance to help Panama assure the security of the Canal and its border with Colombia, and negotiations for a bilateral free trade agreement. The United States provided Panama with $19 million in foreign aid in FY2005, and an estimated $14.4 million in FY2006. The FY2007 request is for $17.4 million, with $4 million under the Andean Counterdrug Initiative and $3.2 million in development assistance.

U.S.-Panamanian negotiations for a bilateral free trade agreement began in late April 2004. A ninth round held in Washington ended in mid-January 2006, with disagreement on sanitary control systems for U.S. products and animals to enter the Panamanian market. Panama is seeking an FTA as a means of increasing U.S. investment in the country, while the Bush Administration has stressed that an FTA, in addition to enhancing trade, would further U.S. efforts to strengthen support for democracy and the rule of law. FTA negotiations had been suspended in the lead up to the Canal expansion referendum, but some observers believe that an agreement still could be finalized by the end of 2006.

For additional information, see CRS Report RL32540, The Proposed U.S.Panama Free Trade Agreement, by J.F. Hornbeck.