Panama Finance Profile 2012

Although market competition has a strong institutional framework, many functional deficits remain. Panama’s profile in the 2009 Doing Business survey is a very mixed one. Starting a business requires seven different procedures and takes thirteen days (rank 32 out of 181 countries), but the time required to close a business is on average more than two years (rank 72). It is quite easy to get credit (rank 28), but it takes a long time and a lot of money to enforce business contracts (rank 116). The informal sector encompasses 44% of the work force. The structure of the formal economy is characterized by the dichotomy between a large service sector that accounts for 80% of the GDP and small inward-looking agriculture and industrial sectors. Services include operating the Panama Canal, banking, the Colón Free Zone, insurance, container ports, ship registry (flag of convenience) and tourism. Panama was one of the world’s fastest growing economies in 2007 with real growth rising to 11.2%, following an average growth rate of nearly 8% between 2004 and 2006.
 

The 1996 law establishing the Commission on Free Competition and Consumer Affairs was recently (2006) amended for the purpose of overseeing free competition and consumer protection. The 1990s saw the implementation of a program to privatize state-owned enterprises, which brought to an end a series of market distortions and opened the telecommunications sector, railways and the country’s main ports to private investors. The privatization of state assets and holdings, however, has led to strong market concentrations in recent years, particularly in the operation of port facilities at both ends of the Panama Canal.

Beginning in the 1990s, Panama’s trade policy pursued the objective of an increasingly open economy. The average tariff dropped from 15.9% in 1996 to 8.6% in 2006. Currently, tariffs for agricultural products are on average more than twice as high (15.3%) as for industrial items (7.2%). The 2009 Doing Business survey ranks Panama eighth in “trading across borders.” The country does not belong to any economic bloc, but has signed a series of free trade agreements with Latin American and Asian countries. Panama signed a free trade treaty with the United States in June 2007, which was thereafter ratified by the parliament. Chances for approval by the U.S. Congress, on the other hand, are rather shaky. The United States is Panama’s most important trading partner. U.S. exports to Panama in 2007 were $3.7 billion and U.S. imports from Panama totaled $ 366 million.
 

Liberalization of foreign trade
 

Panama’s financial sector is relatively well developed and stable. The country is a regional financial hub and home to many international companies and financial institutions. Because the U.S. dollar is legal tender, Panama has no central bank. An independent Banking Superintendency oversees the financial sector. Since 1998, regulations have largely been brought into compliance with international standards, thus removing Panama from the OECD’s tax haven and money laundering blacklist. Few restrictions limit opening banks, and the government exercises little control over the allocation of credit. Foreign and domestic banks are treated equally, and one-third of the banking sector consists of foreign institutions. Currently, seventy-seven banks operate in Panama and employ 17,000 people. The sector accounts for around 10% of the country’s GDP.