IL Postcard

A Tree (and a Weed) Grows in Panama

Date: 07/15/2007

Panama's economy is growing-no one can dispute that. But at what price?

Not one but two consulting firms have released surprising 2007 projections for economic growth in Panama. The new projections come from Indesa-a Panama-based finance and economics consulting firm-and Deloitte, 2007 winner for the title of "world's best financial assessment firm," according to England's prestigious International Securitization Report.

Indesa's report indicates that Panama's Gross Domestic Product (GDP) will grow 11% this year. That's quite a revision from earlier projections by the same company, which placed growth at around 7.3%. Deloitte's report is slightly more conservative, placing 2007 GDP growth at around 10%. But this is still a far cry from Panama growth projections released earlier this year by the International Monetary Fund (IMF) and Panama government (6.6% and 8%, respectively).

Indesa says it raised its projection because this year Foreign Direct Investment (FDI) has already grown 30%, exports are up 20% and consumer spending has registered growth of more than 15%. The company says the still-booming construction industry is also a factor.

Domingo Latorraca, a partner at Deloitte, says his company's 10% prediction depends on world growth models; barring any unforeseen incidents affecting the "robust" global economy, Panama's should grow 10% as predicted. Latorraca adds that the pending U.S. - Panama Free Trade Agreement (FTA) will help sustain projected growth. (On Friday, a representative from Washington's Cato Institute said that of the four FTAs awaiting U.S. Congressional approval, Panama's is most likely to be ratified…more on that as the story develops).

But there's a weed growing in this garden of prosperity. Anyone who lives here can tell you it isn't all rainbows and sunshine for Panamanians. Inflation is at an all-time high. Historically, inflation here has remained around 1%, but 2007 figures released by Indesa indicate it will reach 3% this year. Locals have already voiced concern over rising food prices, especially those of milk and meat, and it seems this is an upward trend-Indesa predicts inflation (and correspondingly, food prices) will continue to rise through 2009, topping at around 3.5%.

Of course, this affects everyone living here, but it's especially bad news for minimum wage workers. Their earnings now barely cover what the government refers to as la canasta básica de alimentos (the basic food basket-everything required for basic meals and nutrition), calculated at $204.98 a month according to a report released by Panama's Consumer Protection Authority in April 2007. If all their wages go toward food, these workers will have nothing left over to pay for shelter and other basic necessities. There's been talk of raising the minimum wage from around $284 a month to $300, but so far the government has done this only for workers in the public sector. Private businesses were "invited" to follow suit by the President.

If past history is any indication, though, don't hold your breath for a change there…not unless it is required by law. We'll keep you posted.

Best Regards,

Jessica Ramesch
Editor, Panama Insider
International Living

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