Opinion Archive

What to Make of Panama as a Latin Hong Kong

March 26, 2008

Your correspondent was recently in the Central American Republic of Panama, a country of 3.2 million that has about 5% of Mexico’s land mass (about the size of South Carolina). Its GDP per capita is similar to Mexico’s, but its growth rate, at 7.8% last year, is more than double this country’s. Like Mexico, Panama has beautiful beaches and friendly people, which make them both attractive to American retirees. But although the American population in Mexico is 20 times bigger, Panama’s numbers are growing faster thanks to government incentives.

Two competing opinions have been voiced regarding Panama’s dramatic building boom, which has created an enviable skyline of multi-storeyed waterfront skyscrapers in Panama City. The first points to the possibility of a bubble based on artificial economic growth. The second highlights the multiple sources of Panamanian growth. It is the second view that seems most plausible. Moreover, and more significantly, Panama is turning into something Latin America desperately needs: a small, democratic, Latin Hong Kong.

A consensus for growth

One could talk about the “strategic” location of Panama in the same way that one talks about Hong Kong’s “privileged” place as a major sea/river port on the “belly” of mainland China. But many poor countries have fortunate geographic locations which they fail to exploit (Mexico is about 50/50 on this front). The main things that distinguish the Chinese city-state and Panama are: 1) the establishment, by outside force, of a relatively strong institutional framework and 2) the consensus that exists among most of the popuation in favor of growth based on free trade.

In Honk Kong’s case, it was British rule which provided a legal framework that has endured after the 1997 handover to the Chinese under “one country, two systems”. In Panama’s case, it began with US-backed independence from Colombia in 1903. It continued with the American construction of, the Canal, one of the most crucial pieces of infrastructure in the world. It consolidated after the 1989 US invasion and the subsequent handover of Canal operations (under the Torrijos-Carter Treaty of 1977) in 1999.

The only thing to fear is fear of change

Panama has gotten a number of important things right. It dollarized its economy, avoiding the monetary crises that often rocked Latin America. It implemented successful policies to become a world fiancial center, giving it the second-most populated banking system in the world in terms of number of institutions. It confounded its critics by running the Panama Canal well and it accepted, by referendum, a $5.3 billion dollar expansion that represents 30% of one year’s GDP. Crucially, its people seem to have little time for anachronistic infighting over the benefits of globalization.

Panama has allowed easy entry to professionals (and retiring Americans) and, as such, has benefited from the implosions that regularly take place on the continent (Venezuela, et al). It has also benefited from the post-9/11 “closing of America”. Thus, Miami’s loss has been Panama’s gain. Lastly, because growth has been so high for the last few years, people believe in the future. This hope, so scarce in Mexico, reduces fear, which allows progress. Because progress requires change, the less fear there is of change, the greater the chance of progress.

Diversified sources of investment

Many Mexican companies attest to the country’s openness. CEMEX trucks abound, there are large Comex paint franchises and, more impressively, ICA has built much of Panama’s toll-road infrastructure. As a testament to the country’s promise, President Calderón removed visa restrictions for Panamanians, something only rich Western countries enjoy.

Beyond the myriad sources of foreign investment, most condominium purchases are by Panamanians themselves. According to José Boyd, the president of the Real Estate association, only 40% of sales are to foreigners. Further, most investment in hotels is also local. Both of these facts bode well for the stability of the economy and say a lot about the country’s home-grown impetus for growth.

Where the similarities end

Of course, Panama is not the economic powerhouse that Hong Kong is. Not only is the Chinese city-state nearly 4 times larger in terms of population, it is also many times richer and its market framework is much more sophisticated. But, despite problems with money laundering and corruption, Panama is a democracy, and it has the Canal.

And Panama has a lot to offer the region. Latin America, like 1970s Asia, is often too insular. And it has a lot of talented, entrepreneurial people that are being harassed by their own governments. Perhaps the most important thing it offers to fellow Latin Americans is a place where they are left safely alone to go about their business. Wishing, perhaps, that others would learn from Panama’s optimistic example.

For the latest thought-provoking article by Agustin Barrios Gomez please go to our Opinion Column page

Return to top