Updated May 6, 2019
Panama
Panama’s central location in the Americas (linking North
During his term, Martinelli was criticized for his combative
and South America) and its transportation infrastructure—
style of governing, but he remained popular in large part
especially the Panama Canal, which connects the Atlantic
because of the strong performance of the Panamanian
and Pacific Oceans—make the country a global trade hub
economy.
and a strategic partner for the United States.
Political and Economic Environment
Panama at a Glance
In Panama’s May 5, 2019, elections, Laurentino “Nito”
Population: 4.159 mil ion (2018, IMF).
Cortizo of the center-left Democratic Revolutionary Party
Area: 29,120 square miles, slightly smaller than South Carolina.
(PRD) won a narrow victory in the presidential race with
GDP: $65 bil ion (2018, current prices, IMF est.).
33% of the vote in a seven-candidate contest, and will be
inaugurated to a five-year term on July 1, 2019. Cortizo
Real GDP Growth: 5.3% (2017, IMF); 3.9 (2018, IMF est.).
defeated Rómulo Roux, candidate of the center-right
Per Capita GDP: $15,679 (2018, current prices, IMF).
Democratic Change (CD) party of former President Ricardo
U.S. Trade: U.S. imports, $462 mil ion (2018); U.S. exports
Martinelli (2009-2014), who received 31%, and
$6.88 bil ion (2017) (U.S. Department of Commerce)
independent candidate Ricardo Lombana, who received
Legislature: Unicameral 71-member National Assembly.
19%. Cortizo made inequality and poverty his main
campaign issues, including making health care more

accessible. Opinion polls had shown Cortizo comfortably
In 2016, Panama experienced several high-profile
winning the race, but support for Lombana, who as a
corruption scandals. In April, a group known as the
political outsider ran on an anticorruption platform, more
International Consortium of Investigative Journalists
than doubled from opinion polls. Cortizo’s PRD also won at
revealed more than 11 million files of leaked confidential
least 29 seats in Panama’s 71-seat Legislative Assembly,
financial and legal records—the so-called “Panama
the most for a single party.
papers”—from the Panamanian law firm Mossack Fonseca.
The documents showed the use of Panama as an offshore
Cortizo will succeed current President Juan Carlos Varela
tax haven by a wide range of celebrities, leaders, public
of the center-right Panameñista Party (PPa), elected in May
officials, and criminals worldwide. In May, the U.S.
2014, who could not run since Panama’s constitution does
Treasury Department imposed sanctions on an alleged
not permit consecutive reelection. Cortizo will head
Panama’s
trade-based money-laundering network associated with the
seventh civilian government since the December
prominent Waked family of Panama. The action highlighted
1989 U.S. military intervention that ousted the military
long-standing concerns regarding Panama’s efforts to
regime of General Manuel Antonio Noriega. The endurance
combat tax evasion and money laundering. A third scandal
of elected civilian democracy in Panama for almost 30
in late 2016 involved the Brazilian construction firm
years is a significant departure from the country’s previous
Odebrecht and touched a dozen countries worldwide,
history of military rule, including the populist rule of
including Panama; Odebrecht had paid bribes to secure
General Omar Torrijos (1968-1981) and the increasingly
public works contracts in Panama from 2010 to 2014.
repressive rule of Noriega (1983-1989). Noriega died in
May 2017; after the U.S. intervention, he served prison time
Panama’s services-based economy has been booming since
on drug charges in the United States and France and then
2010, in large part because of the Panama Canal expansion
returned to Panama in 2011 to serve time related to charges
and other large infrastructure projects, such as a metro
for political killings.
system for Panama City; a third bridge over the canal (and a
fourth one planned); and expansion of the country’s airport,
Current President Varela had served as vice president
roads, and highways. The Panama Canal expansion was
during the Martinelli administration and initially served as
completed in 2016, and included adding a new set of locks
foreign minister for two years until Martinelli fired him,
and a new channel, which doubled the canal’s capacity and
related to Varela’s allegations of governmental corruption.
allowed it to accommodate giant container cargo ships
Once in office, the Varela administration pursued numerous
known as post-Panamax ships.
corruption cases against officials from the Martinelli
government, including Martinelli himself, who has been
According to the International Monetary Fund (IMF),
investigated over irregularities in a public welfare program,
Panama’s economic growth averaged almost 6.9% from
illegal wiretapping, and illegal pardons. Pursuant to an
2010 to 2017. Economic growth slowed to an estimated
extradition request from Panama, U.S. marshals arrested
3.9% in 2018, but the forecast for 2019 is for 6% growth,
Martinelli in Florida in June 2017; he ultimately was
among the highest in the hemisphere. Strong economic
extradited to Panama in June 2018, where he remains in
growth and targeted social programs have contributed to
prison awaiting trial for illegally wiretapping his opponents.
poverty reduction. Nevertheless, although the World Bank
https://crsreports.congress.gov

---

Panama
classifies Panama as having an upper-middle-income
canal), free trade zones, use of the U.S. dollar as currency,
economy, inequality in the country remains relatively high,
and its large financial sector—also make Panama
with sharp regional disparities. The World Bank maintains
vulnerable to drug trafficking, money laundering, and other
that poverty prevails in rural areas, particularly among
organized criminal activity. According to the State
indigenous people.
Department’s 2019 International Narcotics Control
Strategy Report (INCSR), transnational drug trafficking
On foreign policy, Panama established diplomatic relations
organizations use Panama as a transit country to smuggle
with China in June 2017 (and in turn cut ties with Taiwan)
cocaine to the United States and other markets. Panama’s
in a move designed to attract more investment from China.
antidrug cooperation with the United States is strong,
Panama and China have signed some 20 cooperation
according to the INCSR, with Panama viewed as a trusted
agreements and are negotiating a free trade agreement.
strategic partner and regional leader in interdicting illicit
Chinese President Xi Jinping visited Panama in December
drug shipments. The State Department cautioned, however,
2018, and President Varela visited China twice, most
that the increasing volume of drugs from Colombia and the
recently in April 2019. With regard to the crisis in
spillover of criminality from neighboring countries exceeds
Venezuela, Panama is a member of the Lima Group
the capabilities of Panama’s security services to manage
supporting a peaceful resolution to Venezuela’s political
these challenges alone.
crisis and has recognized Juan Guaidó as Venezuela’s
interim president.
According to the 2019 INCSR, although Panama has
improved its anti-money laundering (AML) regime,
U.S.-Panamanian Relations
numerous factors impede the country’s efforts to combat
The track record of close U.S.-Panamanian relations stems
such activity, including inexperience with money-
in large part from the extensive linkages developed when
laundering investigations and prosecutions, inconsistent
the Panama Canal was under U.S. control (1914-1999) and
enforcement of laws and regulations, corruption, and an
Panama hosted major U.S. military installations. Relations
under-resourced judicial system. Panama had been on the
have been strengthened by a bilateral free-trade agreement
multilateral Financial Action Task Force’s so-called gray
that entered into force in 2012 and significantly liberalized
list of countries with deficiencies in their standards to deter
trade in goods and services. Because Panama has a
money laundering and combat terrorist financing, but it was
services-based economy, the country historically has run a
removed in 2016 after efforts to improve its AML
large merchandise trade deficit with the United States. In
regulatory framework. In March 2019, the European Union
2018, the United States exported almost $6.9 billion in
rejected a proposal that would have included Panama on a
goods to Panama and imported $462 million. U.S. services
blacklist of countries unwilling to cooperate against money
exports to Panama amounted to $1.6 billion in 2017 (latest
laundering and terrorism financing.
available), while services imports from Panama amounted
to almost $1.3 billion. The stock of U.S. foreign direct
Most U.S. assistance to Panama is security related, focused
investment in Panama was $4.7 billion in 2017 (latest
on improving Panama’s ability to deter drug trafficking. In
available), led by nonbank holding companies, wholesale
terms of bilateral assistance, the United States provided
trade, and finance and insurance.
$3.3 million to Panama in FY2017 and $3.1 million in
FY2018. For each of FY2019 and FY2020, the Trump
Reflecting the close state of relations, President Varela
Administration requested $1.2 million in bilateral assistance
visited the White House in June 2017, where talks focused
for military education and training and support for Panama
on shared priorities in combating transnational organized
to develop a strategic trade control system that meets
crime and illegal migration. Vice President Mike Pence
international standards. Panama also receives additional
visited Panama in August 2017; he reaffirmed the two
U.S. assistance from U.S. regional programs, including the
countries’ historic friendship and committed to strengthen
Central American Regional Security Initiative (CARSI),
the partnership in security and prosperity. In October 2018,
implemented largely by the State Department and the U.S.
Secretary of State Mike Pompeo visited Panama and
Agency for International Development, which supports
reaffirmed the partnership on bilateral and regional issues,
programs aimed at expanding capabilities of Central
including Panama’s advocacy for the restoration of
American countries to interdict, investigate, and prosecute
democracy to Venezuela and Nicaragua.
drug trafficking, money laundering, and other transnational
crimes. The Department of Defense provides support to
Pompeo also raised concerns, however, about China’s
Panama for drug interdiction and counterdrug activities,
investment in Panama and about what he referred to as
including infrastructure and equipment. The Peace Corps
predatory economic activity. The Trump Administration
(with over 190 volunteers) and the Inter-American
has viewed China’s engagement in Latin America with
Foundation provide support for Panama’s economic
suspicion; in September 2018, it recalled its top diplomats
development. From all these sources, including bilateral
from Panama, El Salvador, and the Dominican Republic for
assistance noted above, the United States provided almost
consultation—all three countries had switched their
$27 million in assistance to Panama in FY2017 (latest full
recognition from Taiwan to China. At the time, President
year available).
Varela issued a statement asking for respect for Panama’s
sovereign decisions.
Mark P. Sullivan, Specialist in Latin American Affairs
The same characteristics that made Panama a strategic U.S.
IF10430
partner—its transportation infrastructure (especially the
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 8 · UPDATED

---