Panama: An Overview

Updated May 26, 2020
Panama: An Overview
Panama’s central location in the Americas (linking North
governmental corruption. Once in office, the Varela
and South America), large financial sector, use of the U.S.
administration pursued numerous corruption cases against
dollar as currency, and transportation infrastructure—
Martinelli government officials, including Martinelli
especially the Panama Canal, which connects the Atlantic
himself, who was investigated over irregularities in a public
and Pacific Oceans—make the country a global trade hub
welfare program and illegal wiretapping and pardons.
and a strategic partner for the United States.
Martinelli was extradited from the United States to Panama
in June 2018. In August 2019, he was acquitted on charges
Figure 1. Map of Panama
of ordering the illegal wiretapping of his opponents.
President Cortizo’s plans for constitutional reforms have
slowed. In July 2019, Cortizo submitted to the National
Assembly a package of reforms prepared by a consultative
body consisting of business, labor, and civil society groups.
The reforms aimed to strengthen the judiciary, improve
public sector transparency and accountability, and
strengthen the separation of powers. The National
Assembly amended the reforms in October 2019, watering
down anti-corruption measures and banning marriage
equality, among other controversial changes. Protests
ensued, and in December 2019, Cortizo pulled the reform
package and announced that his government would start the

process over again and develop a new national dialogue
Source: CRS.
process to advance the constitutional reforms.
Political and Economic Environment
Panama at a Glance
Like other countries worldwide, Panama is contending with
Population: 4.2 million (2019, IMF est.).
the Coronavirus Disease 2019 (COVID-19) pandemic. The
Area: 29,120 square miles, slightly smaller than South Carolina.
s strong response, with school and workplace
closures, has been credited for curbing the spread of the
GDP: $68.5 billion (2019, current prices, IMF est.).
disease. As of May 22, 2020, the country had 291 reported
Real GDP Growth: constant prices, 3.7% (2018, IMF); 3%
COVID-19 deaths.
(2019, IMF est.); -2.1% (2020, IMF forecast)
Current President Laurentino “Nito” Cortizo of the center-
Per Capita GDP: $16,245 (2019, current prices, IMF).
left Democratic Revolutionary Party (PRD) won a narrow
Key Trading Partners: United States (25%), China (10%),
victory in Panama’s May 2019 elections, receiving 33% of
Mexico (5%), Costa Rica (4%), and Spain (4%) (2019, total trade,
the vote in a seven-candidate contest. Cortizo’s PRD also
Panama National Institute of Statistics).
won 35 seats in Panama’s 71-seat National Assembly, the
most for a single party; it is working in coalition with the

National Republican Liberal Movement (Molirena), which
has five seats in the Assembly, providing the government
Panama’s services-based economy had been booming since
with majority support. During the campaign, Cortizo
2010, in large part because of the Panama Canal expansion
pledged to reduce inequality and poverty, make health care
and other large infrastructure projects, such as a metro
system for Panama City; a third bridge over the canal (and a
more accessible, and reform the constitution.
fourth one planned); and expansion of the country’s
Cortizo heads Panama’s seventh civilian government since
airports, roads, and highways. The Panama Canal expansion
the December 1989 U.S. military intervention that ousted
was completed in 2016 and included adding a new set of
the military regime of General Manuel Antonio Noriega.
locks and channel, which doubled the canal’s capacity and
The endurance of elected civilian democracy in Panama for
allowed it to accommodate giant container cargo ships.
more than 30 years is a significant departure from the
country’s history of military rule, including the populist
According to the International Monetary Fund (IMF),
rule of General Omar Torrijos (1968-1981) and the
economic growth averaged almost 6.9% from
2010 to 2017. Economic growth slowed to 3.7% in 2018
increasingly repressive rule of Noriega (1983-1989).
and 3% in 2019 but was among the highest in the region.
Cortizo succeeded Juan Carlos Varela (2014-2019) of the
Due to COVID-19, the IMF forecasts a contraction of 2.1%
center-right Panameñista Party. Varela served as vice
in 2020; other observers project a deeper recession.
president during the Ricardo Martinelli administration
Panama’s strong economic growth and targeted social
(2009-2014) and served as foreign minister for two years
until Martinelli fired him, related to Varela’s allegations of
programs contributed to poverty reduction in recent years.

Panama: An Overview
The 2020 economic downturn could jeopardize those gains.
country to smuggle cocaine to the United States and other
Although the World Bank classifies Panama as having an
markets. Panama’s antidrug cooperation with the United
upper-middle-income economy, inequality remains high.
States is strong, according to the INCSR, with Panama
The World Bank maintains that poverty prevails in rural
proving itself as a “willing and effective partner in
areas, particularly among indigenous people.
confronting drug trafficking.”
On foreign policy, Panama established diplomatic relations
According to the 2020 INCSR, although Panama has
with China in June 2017 (and in turn cut ties with Taiwan)
improved its anti-money laundering (AML) regime,
in a move designed to attract more investment from China.
numerous factors impede the country’s efforts to combat
President Xi Jinping visited Panama in December 2018, and
such activity, including inexperience with non-drug-related
then-President Varela visited China twice, most recently in
money laundering investigations and prosecutions,
April 2019. Panama and China have signed some 30
inconsistent enforcement of laws and regulations, an under-
cooperation agreements. Negotiations for a free-trade
resourced judicial system, and corruption. In June 2019, the
agreement (FTA) began under President Varela but have
multilateral Financial Action Task Force (FATF) added
yet to resume under the Cortizo government. With regard to
Panama to its so-called gray list of countries with
the crisis in Venezuela, Panama is a member of the Lima
deficiencies in their standards to deter money laundering
Group supporting a peaceful resolution to the crisis and has
and combat the financing of terrorism.
recognized Juan Guaidó as Venezuela’s interim president.
Concerns About China. U.S. officials have raised
Under President Cortizo, Panama joined the United States
concerns with Panama about China’s investment in Panama
and 10 other countries in September 2019 in invoking the
and its alleged predatory economic activity. In September
Rio Treaty to facilitate a regional response to the crisis.
2018, the Trump Administration recalled its top diplomats
U.S.-Panamanian Relations
from Panama, El Salvador, and the Dominican Republic for
The record of close U.S.-Panamanian relations stems in
consultation because all three countries had switched their
large part from the extensive linkages developed when the
recognition from Taiwan to China. At the time, then-
Panama Canal was under U.S. control (1914-1999) and
President Varela issued a statement asking for respect for
Panama hosted major U.S. military installations. A bilateral
Panama’s sovereign decisions. In its 2020 posture
FTA that entered into force in 2012 has strengthened
statement, the U.S. Southern Command expressed concern
relations and significantly liberalized trade in goods and
that China’s investment in “infrastructure on both sides of
services. Because Panama has a services-based economy, it
the Panama Canal could enable the Chinese military to
runs a large merchandise trade deficit with the United
threaten sea lanes vital to global commerce and the
States. In 2019, the United States exported $7.7 billion in
movement of U.S. forces.” Some observers see President
goods to Panama and imported $452 million. U.S. services
Cortizo as being more cautious in his approach toward
exports amounted to $1.7 billion in 2018, and services
China because of U.S. concerns.
imports from Panama amounted to $1.5 billion. The stock
U.S. Assistance. The United States provided a total of
of U.S. foreign direct investment in Panama was almost
almost $20 million in assistance to Panama in FY2018
$5.1 billion in 2018, led by nonbank holding companies.
(latest full-year data available). Most U.S. aid to Panama is
Reflecting the close state of relations, then-President Varela
security related, focused on improving Panama’s ability to
visited the White House in June 2017, where talks focused
deter drug trafficking. Panama receives assistance from
on shared priorities in combating transnational organized
U.S. regional programs for Central America implemented
crime and illegal migration. Vice President Mike Pence
by the State Department and the U.S. Agency for
visited Panama in August 2017; he reaffirmed the two
International Development to improve Panama’s
countries’ historic friendship and committed to strengthen
capabilities to interdict, investigate, and prosecute drug
the partnership in security and prosperity. In October 2018,
trafficking and other transnational crimes.
Secretary of State Mike Pompeo visited Panama and
Among other U.S. aid spigots to Panama, the Department of
reaffirmed the partnership on bilateral and regional issues,
Defense supports drug interdiction and counterdrug
including Panama’s advocacy for the restoration of
activities, including through the provision of infrastructure
democracy to Venezuela and Nicaragua.
and equipment. The Inter-American Foundation provides
President Trump spoke with President Cortizo by phone in
support for grassroots development projects in Panama
early May 2020. According to a State Department readout
through grants to local organizations. Until the COVID-19
of the call, the two leaders discussed their countries’
pandemic, when Peace Corps volunteers were evacuated
ongoing efforts to confront COVID-19. President Trump
worldwide, Panama hosted over 190 volunteers working on
reportedly offered resources to help support critical care
agriculture, education, environment, and health projects.
and thanked President Cortizo for his administration’s
The United States also provided almost $2.7 million in
continued support for a democratic transition in Venezuela.
FY2019 to help with the influx of refugees and migrants
from Venezuela in Panama, estimated at almost 95,000.
Drug Trafficking and Money Laundering. The same
U.S. agencies announced in early May 2020 that they were
characteristics that make Panama a strategic U.S. partner
providing $750,000 of previously announced health
also make it vulnerable to drug trafficking, money
assistance to help Panama care for COVID-19 patients
laundering, and other organized criminal activity.
According to the State Department’s 2020 International
Mark P. Sullivan, Specialist in Latin American Affairs
Narcotics Control Strategy Report (INCSR), transnational
drug trafficking organizations use Panama as a transit

Panama: An Overview

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