Dr. Hans Belcsák
s e l e ct e d
S E L E C T E D
topic
T O P I C
Hot Spots: Panama
T
hanks to the Panama Canal and activity associated
with it, real GDP growth in this country has been
the strongest in Latin America, at more than 7% in 2004
and 2005, 8.5% in 2006, 12.1% in 2007 and 10.7% in
2008. While there was some slowdown in 2009, Panama’s performance has remained in positive territory, in
large part because the Canal expansion now underway
benefits the economy in at least three ways—by creating
jobs (5,000 alone in construction), by attracting a wave
of investment into the cluster of industries near the
Canal and bolstering tourism because more cruise ships
are being attracted, and by helping extra revenue flow
into the treasury.
The Canal is already a highly profitable enterprise,
with revenues of about $2 billion annually and expenses of only $600 million. Panama took it over in 1977
under a treaty signed by U.S. President Jimmy Carter,
and any spare cash earnings from it now go into the
Panamanian Treasury (to the tune of $760 million in
the fiscal year that ended last September). The conduit’s
share of traffic between Asia and the American East
Coast has increased to 40% from 11% and since 1998
the average toll has gone up by some 70%. Improved
service has paved the way for the increased tolls, as the
total transit time has been cut to under 24 hours. The
number of transits has risen to over 14,000 annually
from around 13,000.
Panama has sizeable structural foreign trade
and current-account payments deficits.
The world’s largest shipping companies, who sit on the
Panama Canal Authority’s (ACP’s) board, started pushing for an expansion of the waterway almost from the
day the Panamanians took over. The largest container
ships today can carry more than 12,000 boxes, while the
biggest that can still fit in the Canal carry only 4,500.
There was, thus, a real danger that the conduit, unless
widened to accommodate the larger vessels, would
become a backwater in relatively little time. The ACP
started the huge project in August 2007, just as the
world economy slid into recession and world trade contracted for the first time in some 25 years.
The work, for the most part, consists of dredging the
existing Canal and constructing an access channel to a
new set of larger locks. The ACP has already awarded
the contract to build the locks, which will be 60% longer
and 40% wider than the existing ones. The project is
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B u s i n e s s C r e d i t feb r ua r y 2 0 1 0
intended to be finished by 2014 at a total cost of $5.25
billion. While this is more than one-fifth of Panama’s
entire GDP, $3 billion is to come from retained earnings
and the remainder from bilateral and multilateral lenders under favorable conditions, including Japan’s Bank
for International