Updated November 7, 2018
Panama
Panama’s central location in the Americas (linking North
offshore tax haven by a wide range of celebrities, leaders,
and South America) and its transportation infrastructure—
public officials, and criminals worldwide. In May 2016, the
especially the Panama Canal, which connects the Atlantic
U.S. Treasury Department imposed sanctions on an alleged
and Pacific Oceans—make the country a global trade hub
trade-based money-laundering network associated with the
and a strategic partner for the United States.
prominent Waked family of Panama. The action highlighted
long-standing concerns regarding Panama’s efforts to
Political and Economic Environment
combat tax evasion and money laundering. A third scandal
President Juan Carlos Varela was inaugurated in July 2014
that emerged in late 2016 touching 12 countries worldwide,
to a five-year term after winning the May 2014 presidential
including Panama, involved the Brazilian construction firm
election with 39% of the vote in a three-candidate race.
Odebrecht. According to U.S. court documents, Odebrecht
President Varela hails from the center-right Panameñista
reportedly paid more than $59 million in bribe payments in
Party (PPa) and succeeded Ricardo Martinelli of the center-
Panama to secure public works contracts between 2010 and
right Democratic Change (CD) party, who governed from
2014. In August 2017, Odebrecht agreed to pay the
2009 to 2014. During his term, Martinelli was criticized at
Panamanian government $220 million in fines.
various junctures for his combative style of governing,
although he remained broadly popular in large part because
Panama at a Glance
of the strong performance of the Panamanian economy.
Population: 4.1 million (2017, IMF).
The Varela Administration is the sixth successive civilian
Area: 29,120 square miles, slightly smaller than South Carolina.
government since the December 1989 U.S. military
GDP: $62 billion (2017, current prices, IMF).
intervention that ousted the military regime of General
Manuel Antonio Noriega. The endurance of elected civilian
Real GDP Growth: 5.4% (2017, IMF); 4.6% (2018, IMF est.)
democracy in Panama for almost 30 years is a significant
Per Capita GDP: $15,089 (2017, current prices, IMF).
departure from the country’s previous history of military
U.S. Trade: U.S. imports, $443 million (2017); U.S. exports
rule, including the populist rule of General Omar Torrijos
$6.3 billion (2017) (U.S. Department of Commerce)
(1968-1981) and the increasingly repressive rule of Noriega
Legislature: Unicameral 71-member National Assembly.
(1983-1989). Noriega died in May 2017; after the U.S.
intervention, he served prison time on drug charges in the
Sources: International Monetary Fund (IMF); World Bank (WB).
United States and France and then returned to Panama in
2011 to serve time related to charges for political killings.

Because President Varela’s PPa has had a minority of 16
President Varela served as vice president under the
seats in the 71-member National Assembly, the president
Martinelli government and also as minister of foreign
has had to forge working coalitions with other parties to
relations for two years until Martinelli sacked him in 2011.
secure support for his legislative agenda. He initially
The break in relations involved allegations by Varela of
worked with the center-left Democratic Revolutionary Party
governmental corruption in the Martinelli Administration.
(PRD), but after that pact fell apart, the president worked
The Varela Administration has pursued numerous
with a portion of legislators from both the PRD and the CD
corruption cases against public officials from the previous
to secure a working majority.
government, including former President Martinelli, who has
Panama’s next presidential and legislative elections are
been investigated over irregularities in a public welfare
program, illegal wiretapping, and illegal pardons. The
scheduled for May 5, 2019. Because Panama’s constitution
Panamanian government requested Martinelli’s extradition
does not allow for consecutive reelection, Varela is
ineligible to run. As such, Varela’
from the United States in 2016. Pursuant to that request,
s ability to secure support
U.S. marshals arrested the ex-president in Coral Gables, FL,
in the legislature is waning as the elections approach. In the
in June 2017. Martinelli ultimately was extradited to
2019 presidential race, the three major parties already have
Panama in June 2018, where he remains in prison awaiting
selected candidates, with Laurentino ‘Nito’ Cortizo running
trial for illegally wiretapping his opponents.
for the PRD, Rómulo Roux running for the CD, and José
Blandón running for the PPa. Some analysts already are
Panama experienced several high-profile corruption
predicting that Cortizo will win the presidency but will
scandals that came to light in 2016. In April 2016, a group
have to form a coalition in the legislature.
known as the International Consortium of Investigative
Panama’s services
Journalists revealed more than 11 million files of leaked
-based economy has been booming since
confidential financial and legal records—the so-called
2010, in large part because of the Panama Canal expansion
“Panama papers”—from the Panamanian law firm Mossack
and other large infrastructure projects, such as a metro
Fonseca. The documents showed the use of Panama as an
system for Panama City; a third bridge over the canal (and a
fourth one planned); and expansion of the country’s airport,
https://crsreports.congress.gov

---

Panama
roads, and highways. The Panama Canal expansion was
sovereign decisions. (See CRS In Focus IF10982, China’s
completed in 2016, and included adding a new set of locks
Engagement with Latin America and the Caribbean.)
and a new channel, which doubled the canal’s capacity and
allowed it to accommodate giant container cargo ships
The same characteristics that made Panama a strategic U.S.
known as post-Panamax ships.
partner—its transportation infrastructure (especially the
canal), its use of the U.S. dollar as currency, and its large
Panama has one of the fastest-growing economies in the
financial sector—also make Panama vulnerable to drug
Americas. According to International Monetary Fund
trafficking, money laundering, and other organized criminal
statistics, Panama’s economic growth averaged almost
activity. According to the State Department’s 2018
7.2% from 2010 to 2016. In 2017, the economy grew an
International Narcotics Control Strategy Report (INCSR),
estimated 5.4% (the highest in the hemisphere), and the
transnational drug trafficking organizations, principally
forecast for 2018 is for 4.6% growth. In June 2017, Panama
Colombian and Mexican groups, use Panama’s remote
established diplomatic relations with China (and in turn cut
Darién Province (bordering Colombia) and the country’s
ties with Taiwan) in a move supported by Panama’s
coastline areas to move illicit drugs. Panama’s antidrug
business community, which is looking to attract more
cooperation with the United States is strong, according to
investment from China. Since then, Panama and China have
the State Department, with the country viewed as an
signed some 20 cooperation agreements and are negotiating
emerging regional leader in antinarcotics efforts.
a free trade agreement.
According to the 2018 INCSR, although Panama has
Strong economic growth and targeted social programs have
improved its anti-money laundering (AML) regime,
contributed to poverty reduction. Nevertheless, although the
numerous factors impede the country’s efforts to combat
World Bank classifies Panama as having an upper-middle-
such activity, including inexperience with money
income economy, inequality in the country remains
laundering investigations and prosecutions, inconsistent
relatively high, with sharp regional disparities. The World
enforcement of laws and regulations, corruption, and an
Bank maintains that poverty prevails in rural areas,
under-resourced judicial system. Panama had been on the
particularly among indigenous people.
multilateral Financial Action Task Force’s so-called gray
list of countries with deficiencies in their standards to deter
U.S.-Panamanian Relations
money laundering and combat terrorist financing, but it was
The track record of close U.S.-Panamanian relations stems
removed in 2016 after efforts to improve its AML
in large part from the extensive linkages developed when
regulatory framework.
the Panama Canal was under U.S. control (1914-1999) and
Panama hosted major U.S. military installations. Relations
Most U.S. assistance to Panama is security related, focused
have been strengthened by a bilateral free-trade agreement
on improving Panama’s ability to deter drug trafficking.
that entered into force in 2012 and significantly liberalized
The United States provided $3.3 million in bilateral
trade in goods and services. Because Panama has a
assistance to Panama in each of FY2016 and FY2017. For
services-based economy, the country historically has run a
FY2018, the Trump Administration requested $1.2 million,
large merchandise trade deficit with the United States. In
but Congress appropriated $3.2 million in the Consolidated
2017, the United States exported $6.3 billion in goods to
Appropriations Act, 2018 (P.L. 115-141) enacted in March
Panama and imported $443 million. U.S. services exports to
2018. For FY2019, the Trump Administration requested
Panama amounted to $1.6 billion in 2017, while services
$1.2 million, about a 63% reduction from FY2018.
imports from Panama amounted to almost $1.3 billion.
Panama receives additional U.S. assistance from other
Reflecting the close state of relations, President Varela
sources. The Central American Regional Security Initiative
visited the White House in June 2017, where talks focused
(CARSI), implemented largely by the State Department and
on shared priorities in combating transnational organized
the U.S. Agency for International Development, supports
crime and illegal migration. Vice President Mike Pence
programs aimed at expanding capabilities of Central
visited Panama in August 2017; he reaffirmed the two
American countries to interdict, investigate, and prosecute
countries’ historic friendship and committed to strengthen
drug trafficking, money laundering, and other transnational
the partnership in security and prosperity. In October 2018,
crimes while strengthening judicial sectors. The
Secretary of State Mike Pompeo visited Panama and
Department of Defense provides support to Panama for
reaffirmed the partnership on bilateral and regional issues,
drug interdiction and counterdrug activities, including
including Panama’s advocacy for the restoration of
support for training of law enforcement personnel,
democracy to Venezuela and Nicaragua.
infrastructure, and equipment. The Peace Corps (with
around 200 volunteers) and the Inter-American Foundation
Pompeo also raised concerns, however, about China’s
provide support for Panama’s economic development.
investment in Panama and about what he referred to as
From all these sources, including bilateral assistance noted
predatory economic activity. The Trump Administration
above, the United States provided almost $25 million in
has viewed China’s engagement in Latin America with
assistance to Panama in FY2016 (latest full year available).
suspicion; in September 2018, it recalled its top diplomats
from Panama, El Salvador, and the Dominican Republic for
Mark P. Sullivan, Specialist in Latin American Affairs
consultation—all three countries had switched their
IF10430
recognition from Taiwan to China. At the time, President
Varela issued a statement asking for respect for Panama’s
https://crsreports.congress.gov

---

Panama


Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.

https://crsreports.congress.gov | IF10430 · VERSION 7 · UPDATED

---