Updated May 27, 2021
Panama: An Overview
Panama’s central location in the Americas (linking North
was overturned in November 2020. He could face a new
and South America), large financial sector, use of the U.S.
trial.
dollar as currency, and transportation infrastructure—
Like other countries worldwide, Panama is contending with
especially the Panama Canal, which connects the Atlantic
the severe public health and economic consequences of the
and Pacific Oceans —make the country a global trade hub
Coronavirus Disease 2019 (COVID-19) pandemic. Initially,
and a strategic partner for the United States.
the government’s strong response, with school and
Figure 1. Map of Panama
workplace closures, was credited with for curbing the
disease’s spread of the disease. Cases and deaths, however,
surged from November 2020 to January 2021. As of May
27, 2021, Panama had reported over 6,300 deaths, with a
COVID-19 mortality rate of almost 150 per 100,000 people
(the highest rate in Central America) according to Johns
Hopkins University.
According to the New York Times vaccination tracker,
Panama had fully vaccinated 8% of its population as of
May 27, 2021. The government has procured some vaccines
through the COVID-19 Vaccines Global Access (COVAX)
Facility, a mechanism developed by global health
organizations to facilitate equitable vaccine distribution. It
also has negotiated agreements with pharmaceutical

companies. Its goal is to vaccinate 80% of its population.
Source: CRS.
Political and Economic Environment
Panama at a Glance
Current President Laurentino “Nito” Cortizo of the center-
Population: 4.279 mil ion (2020, IMF).
left Democratic Revolutionary Party (PRD) won a narrow
Area: 29,120 square miles, slightly smal er than South Carolina.
victory in Panama’s May 2019 elections, receiving 33% of
GDP: $52.9 bil ion (2020, current prices, IMF est.).
the vote in a seven-candidate contest. Cortizo’s PRD also
won 35 seats in Panama’s 71-seat National Assembly; it is
Real GDP Growth (% change, constant prices, IMF): 2019,
working in coalition with the National Republican Liberal
3.0%; 2020, -17.9% est.; 2021, 12.0%, projected.
Movement (Molirena), which has five seats in the
Per Capita GDP: $12,373 (2020, current prices, IMF).
Assembly, providing the government with a majority.
Key Trading Partners: U.S. (22.2%), China (12.5%), Mexico
Cortizo heads Panama’s seventh civilian government since
(4.9%), Spain (4.2%), and Costa Rica (4.1%) (2020, total trade,
the December 1989 U.S. military intervention that ousted
Panama National Institute of Statistics).
the military regime of General Manuel Antonio Noriega.
Note: IMF = International Monetary Fund.
The endurance of elected civilian democracy in Panama for
more than 30 years is a significant departure from the
Panama’s services-based economy averaged almost 6.9%
country’s history of military rule, including the populist
growth annually from 2010 to 2017, according to the
rule of General Omar Torrijos (1968-1981) and the
International Monetary Fund (IMF), in large part because of
increasingly repressive rule of Noriega (1983-1989).
the Panama Canal expansion and other large infrastructure
projects, such as a metro system for Panama City; a third
Cortizo succeeded Juan Carlos Varela (2014-2019) of the
bridge over the canal; and expansion of the country’s
center-right Panameñista Party. Varela served as vice
airports, roads, and highways. The Panama Canal expansion
president during the Ricardo Martinelli administration
was completed in 2016 and included adding a new set of
(2009-2014) and as foreign minister for two years until
Martinelli fired him, related to Varela’s allegations of
locks and channels, which doubled the canal’s capacity and
allowed it to accommodate giant container cargo ships.
governmental corruption. Once in office, the Varela
Economic growth slowed to 3.6% in 2018 and 3% in 2019
administration pursued numerous corruption cases against
but was still among the highest in the region.
Martinelli government officials, including Martinelli
himself, who was investigated over irregularities in a public
Due to the pandemic, the IMF estimates the economy
welfare program and illegal wiretapping and pardons.
contracted almost 18% in 2020 but forecasts that economic
Martinelli was extradited from the United States to Panama
growth will reach 12% in 2021. Increased mining and a
in June 2018; in August 2019, he was acquitted of ordering
metro system expansion are contributing to economic
the illegal wiretapping of his opponents, but this verdict
growth.
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Panama: An Overview
Before the pandemic, Panama’s strong economic growth
historic friendship and committed to strengthen the
and targeted social programs had contributed to poverty
partnership in security and prosperity.
reduction in recent years, although poverty remained higher
Drug Trafficking and Money Laundering. The same
in rural areas, particularly among Indigenous people, and
characteristics that make Panama a strategic U.S. partner
inequality remained high. According to the World Bank, the
make it vulnerable to drug trafficking, money laundering,
pandemic led to an increased poverty rate of 14.9% in 2020,
and other organized criminal activity. According to the
up from 12.1% in 2019, but poverty would have been much
State Department’s 2021 International Narcotics Control
higher had it not been for government programs providing
Strategy Report (INCSR), transnational drug trafficking
financial transfers to households.
organizations use Panama as a transit country to smuggle
During the 2019 election campaign, Cortizo pledged to
cocaine to the United States and other markets. Panama,
reform the constitution, but his efforts have slowed
according to the INCSR “is a willing and effective partner
considerably. In July 2019, Cortizo submitted to the
in combating the narcotics trade,” and its efforts resulted in
National Assembly a package of reforms prepared by a
significant maritime seizures in 2020.
consultative body consisting of business, labor, and civil
Panama has improved its compliance with international
society groups. The reforms aimed to strengthen the
standards for anti-money laundering (AML) measures, but
judiciary and the separation of powers and to improve
according to the INCSR, numerous factors impede such
public-sector transparency and accountability. The National
efforts. These factors include “lack of capacity to identify
Assembly amended the reforms in October 2019, watering
bulk cash shipments, inexperience with money laundering
down anti-corruption measures and banning marriage
investigations and prosecutions, inconsistent enforcement
equality, among other controversial changes. Protests
of laws and regulations, corruption, and an under-resourced
ensued, and in December 2019, Cortizo pulled the reform
judicial system.” In June 2019, the multilateral Financial
package and announced that his government would start the
Action Task Force added Panama to its so-called grey list
process over again and develop a new national dialogue to
of countries with deficiencies in their AML standards, and
advance the constitutional reforms.
in February 2020, the European Union added Panama to its
In November 2020, the Cortizo government launched a
list of noncooperative jurisdictions for tax purposes. Both
national dialogue to achieve consensus in such areas as
the IMF and the World Bank are providing technical
health care, education, security, and the economy;
assistance to help Panama improve financial integrity. In
constitutional reforms reportedly are part the agenda. Some
April 2021, the Cortizo government presented three bills to
civil society groups have united in a campaign to gather
the legislature to strengthen Panama’s AML regime.
signatures (20% of those on the electoral registry) for a
Concerns About China. In recent years, U.S. officials
constituent assembly to reform the constitution.
have raised concerns about China’s projects in Panama. In
On foreign policy issues, Panama established diplomatic
its 2020 posture statement, the U.S. Southern Command
relations with People’s Republic of China in June 2017
expressed concern that China’s investment in
(and cut ties with Taiwan) in an effort to attract more
“infrastructure on both sides of the Panama Canal could
Chinese investment. Free-trade agreement (FTA)
enable the Chinese military to threaten sea lanes vital to
negotiations began under President Varela but have not
global commerce and the movement of U.S. forces.” Some
resumed under President Cortizo. With regard to the crisis
analysts view President Cortizo as being cautious in his
in Venezuela, Panama is a member of the Lima Group
approach toward China because of U.S. concerns and note
supporting a peaceful return to democracy.
that many planned Chinese projects have not been realized.
U.S.-Panamanian Relations
U.S. Assistance. The United States provided about $26
The record of close U.S.-Panamanian relations stems in
million in assistance to Panama in FY2019 (latest full-year
large part from the extensive linkages developed when the
data available, as reported by the U.S. Agency for
Panama Canal was under U.S. control (1914-1999) and
International Development’s [USAID’s Foreign Aid
Panama hosted major U.S. military installations. A bilateral
Explorer database). Most U.S. aid to Panama is security
FTA that entered into force in 2012 has strengthened
related, focused on improving Panama’s ability to deter
relations and significantly liberalized trade in goods and
drug trafficking. Panama receives assistance from U.S.
services. Because Panama has a services-based economy, it
regional programs for Central America implemented by the
runs a large merchandise trade deficit with the United
State Department and USAID to improve the country’s
States. In 2020, the United States exported $5.8 billion in
capabilities to interdict, investigate, and prosecute drug
goods to Panama and imported $693 million. In 2019, U.S.
trafficking and other transnational crimes.
services exports amounted to $2.4 billion and services
Among other aid spigots, the Department of Defense
imports from Panama amounted to $2.7 billion. The stock
supports counterdrug activities, including through the
of U.S. foreign direct investment in Panama was $5.3
provision of infrastructure and equipment. The Inter-
billion in 2019, led by nonbank holding companies,
American Foundation supports grassroots development
wholesale trade, and finance and insurance.
projects through grants to local organizations. Until the
Reflecting the close state of relations, then-President Varela
COVID-19 pandemic, Panama hosted over 190 volunteers
visited the White House in 2017, where talks focused on
working on agriculture, education, environment, and health
shared priorities in combating transnational organized crime
projects. The United States is also providing humanitarian
and irregular migration. Vice President Mike Pence also
assistance to help Panama with the influx of migrants from
visited Panama in 2017; he reaffirmed the two countries’
Venezuela, estimated at over 120,000, as well as assistance
to support Panama’s response to the COVID-19 pandemic.
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Panama: An Overview

IF10430
Mark P. Sullivan, Specialist in Latin American Affairs


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https://crsreports.congress.gov | IF10430 · VERSION 14 · UPDATED

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