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Panama Recent Economic Performance
The Torrijos era (1968-81) stands as a dividing point in
Panama's economic history. Under Torrijos, the state took a more
active role in the economy and initiated ambitious social projects.
The public sector expanded to an unprecedented degree, as did the
fiscal deficit and the external debt. In the 1980s, Panama was
forced to address some of the excesses of the 1970s, and to adjust
its policies, often under the aegis of the International Monetary
Fund
(IMF--see Glossary)
and the World Bank (see Glossary).
In the 1960s, Panama experienced buoyant growth in virtually
all areas of the economy as a result of the boom in canal-related
activities and the growth in private investment. GDP expanded at an
average of 8 percent per year. Employment grew at 3.5 percent per
year, well above the population growth of about 3 percent a year.
Most of the new jobs were generated by the private sector.
In the 1970s, Panama's average annual growth rate of GDP fell
to 3.4 percent. Many factors contributed to the decline. In the
international arena, reduced canal use (especially after the
Vietnam war), rising oil prices, international inflation, and
recession in the major industrial countries had a negative impact
on Panama's economy. Domestically, investment fell in response to
government policies of agrarian reform, expropriation of private
power companies, creation of state industries, protection of labor,
controls on housing, subsidies, and high support prices. In
addition, the prolonged negotiations between the United States and
Panama over the canal adversely affected investor confidence. The
government sought to regain private investment by investing in
large infrastructure projects and by expanding or acquiring
productive enterprises. Two-thirds of the new jobs created in the
1970s were in the public sector. The public-sector deficit
expanded, and the government was forced to borrow money from
abroad. By 1980 the external debt had reached 80 percent of GDP.
In 1982 Panama, like most of Latin America, felt the impact of
the world recession. Once again, the government sought to remedy
the declining private-sector investment through increased public
expenditures. In the same year, the public-sector deficit reached
11 percent of GDP. In 1983 and 1984, the government imposed a
severe austerity program, which had the imprimatur of the IMF.
Public investment was reduced by 20 percent in 1983 and by a
further 8 percent in 1984. The public deficit was also cut, to
about 6 percent of GDP in both years. In addition, the government
undertook structural adjustment measures in the areas of industry
and agriculture and instituted changes to streamline the public
sector. The simultaneous recession and reduction in public
expenditures caused GDP to fall in 1984, the first decline in more
than twenty years. In the following years, however, Panama,
avoiding the economic slump that plagued most Latin American
countries, experienced moderate growth.
Data as of December 1987
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