Updated May 9, 2019
Panama: An Overview
Panama’s central location in the Americas (linking North
returned to Panama in 2011 to serve time related to charges
and South America) and its transportation infrastructure—
for political killings.
especially the Panama Canal, which connects the Atlantic
Current President Varela served as vice president during the
and Pacific Oceans—make the country a global trade hub
Martinelli administration and initially served as foreign
and a strategic partner for the United States.
minister for two years until Martinelli fired him, related to
Figure 1. Panama Map
Varela’s allegations of governmental corruption. Once in
office, the Varela administration pursued numerous
corruption cases against officials from the Martinelli
government, including Martinelli himself, who has been
investigated over irregularities in a public welfare program,
illegal wiretapping, and illegal pardons. Pursuant to an
extradition request from Panama, U.S. marshals arrested
Martinelli in Florida in June 2017; he ultimately was
extradited to Panama in June 2018, where he remains in
prison awaiting trial for illegally wiretapping his opponents.
During his term, Martinelli was criticized for his combative
style of governing, but he remained popular in large part
because of the strong performance of the economy.

Panama at a Glance
Source: CRS.
Population: 4.159 mil ion (2018, IMF).
Political and Economic Environment
Area: 29,120 square miles, slightly smaller than South Carolina.
In Panama’s May 5, 2019, elections, Laurentino “Nito”
GDP: $65 bil ion (2018, current prices, IMF est.).
Cortizo of the center-left Democratic Revolutionary Party
Real GDP Growth: 5.3% (2017, IMF); 3.9% (2018, IMF est.).
(PRD) won a narrow victory in the presidential race with
Per Capita GDP: $15,679 (2018, current prices, IMF).
33% of the vote in a seven-candidate contest, and will be
inaugurated to a five-year term on July 1, 2019. Cortizo
U.S. Trade: U.S. imports, $462 mil ion (2018); U.S. exports
defeated Rómulo Roux, candidate of the center-right
$6.88 bil ion (2018) (U.S. Department of Commerce).
Democratic Change (CD) party of former President Ricardo
Martinelli (2009-2014), who received 31%, and

independent candidate Ricardo Lombana, who received
In 2016, Panama experienced several high-profile
almost 19%. Cortizo made inequality and poverty his main
corruption scandals. In April, a group known as the
campaign issues, including making health care more
International Consortium of Investigative Journalists
accessible. Opinion polls showed Cortizo comfortably
revealed over 11 million files of leaked confidential
winning, but support for Lombana, who as a political
financial and legal records—the so-called “Panama
papers”—
outsider ran on an anticorruption platform, more than
from the Panamanian law firm Mossack Fonseca.
doubled from opinion polls. Cortizo’s PRD also won at
The documents showed the use of Panama as an offshore
least 29 seats in Panama’s 71-seat Legislative Assembly,
tax haven by a wide range of celebrities, leaders, public
the most for a single party, but final results are pending.
officials, and criminals worldwide. In May, the U.S.
Department of the Treasury imposed sanctions on an
Cortizo will succeed current President Juan Carlos Varela
alleged trade-based money-laundering network associated
of the center-right Panameñista Party (PPa), elected in May
with the prominent Waked family of Panama. The action
2014, who could not run since Panama’s constitution does
highlighted long-standing concerns regarding Panama’s
not permit consecutive reelection. Cortizo will head
efforts to combat tax evasion and money laundering. A
Panama’s seventh civilian government since the December
third scandal in late 2016 involved the Brazilian
1989 U.S. military intervention that ousted the military
construction firm Odebrecht and touched a dozen countries
regime of General Manuel Antonio Noriega. The endurance
worldwide, including Panama.
of elected civilian democracy in Panama for almost 30
years is a significant departure from the country’s previous
Panama’s services-based economy has been booming since
history of military rule, including the populist rule of
2010, in large part because of the Panama Canal expansion
General Omar Torrijos (1968-1981) and the increasingly
and other large infrastructure projects, such as a metro
repressive rule of Noriega (1983-1989). Noriega died in
system for Panama City; a third bridge over the canal (and a
fourth one planned); and expansion of the country’s airport,
May 2017; after the U.S. intervention, he served prison time
on drug charges in the United States and France and then
roads, and highways. The Panama Canal expansion was
completed in 2016, and included adding a new set of locks
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Panama: An Overview
and a new channel, which doubled the canal’s capacity and
recognition from Taiwan to China. At the time, President
allowed it to accommodate giant container cargo ships
Varela issued a statement asking for respect for Panama’s
known as post-Panamax ships.
sovereign decisions.
According to the International Monetary Fund, Panama’s
The same characteristics that made Panama a strategic U.S.
economic growth averaged almost 6.9% from 2010 to 2017.
partner—its transportation infrastructure (especially the
Economic growth slowed to an estimated 3.9% in 2018, but
canal), free trade zones, use of the U.S. dollar as currency,
the forecast for 2019 is for 6% growth, among the highest
and its large financial sector—also make it vulnerable to
in the hemisphere. Strong economic growth and targeted
drug trafficking, money laundering, and other organized
social programs have contributed to poverty reduction.
criminal activity. According to the State Department’s 2019
Nevertheless, although the World Bank classifies Panama
International Narcotics Control Strategy Report (INCSR),
as having an upper-middle-income economy, inequality in
transnational drug trafficking organizations use Panama as
the country remains relatively high, with sharp regional
a transit country to smuggle cocaine to the United States
disparities. The World Bank maintains that poverty prevails
and other markets. Panama’s antidrug cooperation with the
in rural areas, particularly among indigenous people.
United States is strong, according to the INCSR, with
Panama viewed as a trusted strategic partner and regional
On foreign policy, Panama established diplomatic relations
leader in interdicting illicit drugs. The State Department
with China in June 2017 (and in turn cut ties with Taiwan)
cautioned, however, that the increasing volume of drugs
in a move designed to attract more investment from China.
from Colombia and the spillover of criminality from
Panama and China have signed some 20 cooperation
neighboring countries exceeds Panama’s capabilities
agreements and are negotiating a free trade agreement.
services to manage these challenges alone.
Chinese President Xi Jinping visited Panama in December
2018, and President Varela visited China twice, most
According to the 2019 INCSR, although Panama has
recently in April 2019. With regard to the crisis in
improved its anti-money laundering (AML) regime,
Venezuela, Panama is a member of the Lima Group
numerous factors impede the country’s efforts to combat
supporting a peaceful resolution to the crisis and has
such activity, including inexperience with money-
recognized Juan Guaidó as Venezuela’s interim president.
laundering investigations and prosecutions, inconsistent
enforcement of laws and regulations, corruption, and an
U.S.-Panamanian Relations
under-resourced judicial system. Panama had been on the
The track record of close U.S.-Panamanian relations stems
multilateral Financial Action Task Force’s so-called gray
in large part from the extensive linkages developed when
list of countries with deficiencies in their standards to deter
the Panama Canal was under U.S. control (1914-1999) and
money laundering and combat terrorist financing, but it was
Panama hosted major U.S. military installations. Relations
removed in 2016 after efforts to improve its AML
have been strengthened by a bilateral free-trade agreement
regulatory framework. In March 2019, the European Union
that entered into force in 2012 and significantly liberalized
rejected a proposal that would have included Panama on a
trade in goods and services. Because Panama has a
blacklist of countries unwilling to cooperate against money
services-based economy, the country historically has run a
laundering and terrorism financing.
large merchandise trade deficit with the United States. In
2018, the United States exported almost $6.9 billion in
Most U.S. aid to Panama is security related, focused on
goods to Panama and imported $462 million. U.S. services
improving Panama’s ability to deter drug trafficking. For
exports to Panama amounted to $1.6 billion in 2017 (latest
bilateral assistance, the United States provided $3.3 million
available), while services imports from Panama amounted
to Panama in FY2017 and $3.1 million in FY2018; for each
to almost $1.3 billion. The stock of U.S. foreign direct
of FY2019 and FY2020, the Trump Administration
investment in Panama was $4.7 billion in 2017 (latest
requested $1.2 million for military education and training
available), led by nonbank holding companies, wholesale
and support to help Panama develop a strategic trade
trade, and finance and insurance.
control system meeting international standards. Panama
also receives support from U.S. regional programs, such as
Reflecting the close state of relations, President Varela
the Central American Regional Security Initiative,
visited the White House in June 2017, where talks focused
implemented by the State Department and the U.S. Agency
on shared priorities in combating transnational organized
for International Development, aimed at improving the
crime and illegal migration. Vice President Mike Pence
capabilities of Central American countries to interdict,
visited Panama in August 2017; he reaffirmed the two
investigate, and prosecute drug trafficking and other
countries’ historic friendship and committed to strengthen
transnational crimes. The Department of Defense also
the partnership in security and prosperity. In October 2018,
supports drug interdiction and counterdrug activities,
Secretary of State Mike Pompeo visited Panama and
including infrastructure and equipment. The Peace Corps
reaffirmed the partnership on bilateral and regional issues,
(with over 190 volunteers) and the Inter-American
including Panama’s advocacy for the restoration of
Foundation provide support for Panama’s economic
democracy to Venezuela and Nicaragua.
development. From all these sources, including bilateral
Pompeo also raised concerns, however, about China’s
assistance, the United States provided almost $27 million in
investment in Panama and about what he referred to as
assistance to Panama in FY2017 (latest available).
predatory economic activity. The Trump Administration
has viewed China’s engagement in Latin America with
Mark P. Sullivan, Specialist in Latin American Affairs
suspicion; in September 2018, it recalled its top diplomats
IF10430
from Panama, El Salvador, and the Dominican Republic for
consultation—all three countries had switched their
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Panama: An Overview


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https://crsreports.congress.gov | IF10430 · VERSION 10 · UPDATED