IL Postcard

The Fate of a Nation Decided in 88 Days

Date: 07/25/2006

Dear International Living Reader,

Will Panama expand its canal…which will also expand the country's opportunities for profit? We'll know in less than three months.

After months of debate and public discussion, a national referendum on the Panama Canal Expansion Proposal has been scheduled for Sunday, October 22, 2006. Panamanians will be asked to simply respond 'Yes' or 'No' to the question: "Do you agree with the third set of locks construction proposal?" A majority of Panamanians must vote yes in order for the project to become a reality.

According to the Panama Canal Authority (ACP)--the autonomous government organization that took over canal operations in 1999--the expansion will raise the heavily transited canal's capacity to accommodate increasingly larger vessels, some of which are already too wide and/or long to transit the waterway. The ACP says the expansion is the only means of achieving "long-term sustainability and growth."

Income generated by the canal contributes millions of dollars each year to the Panama National Treasury. In 2005, $489 million in direct payments were received from the canal. If approved, the expansion project will be funded by canal users and loans, with no major debt incurred by the Republic of Panama.

The report submitted by the ACP claims that the expansion will cause no significant detriment to the environment, as the majority of the work would be carried out in areas that have already been affected by canal operations, with modern technology mitigating any further damage. Some critics, though, believe that the environmental impact has not been sufficiently evaluated. Many worry about the canal watershed area and its inhabitants (some 180,000 people, according to the ACP). The ACP report says funds will be allocated for reforestation, clean-up, socio-environmental follow-up and replacement of infrastructure, as well as other social, environmental and even archeological considerations.

Despite the controversy, recent polls indicate that the majority of Panamanian voters will say "yes" this coming October. According to La Prensa newspaper (http://www.prensa.com), a June 2006 poll indicates that national support for the proposal is 57.9%. On the other hand, the poll noted that a whopping 22.3% were "undecided", as opposed to some 15% in May--so the potential still exists for a surprise upset come referendum day.

How does all this translate for the expat investor or resident? Proponents say fuel prices, tourism, airport activities, legal and financial services and telecommunications will benefit directly or indirectly from the expansion project and resulting economy boost. Some say this could even lead to a significant rise in the value of real estate and other investments, though many agree it is too soon to attempt to predict any such specifics.

The economy, the employment rate, and the nation's position as an important communication and maritime center are expected to improve as a result of the expansion. The project is also expected to benefit the U.S.--the waterway's primary user--and other frequent users in South America and Asia (most notably China, Japan and Chile).

Want to learn more? The Panama Canal Authority website (http://www.pancanal.com/) has a comprehensive English section.

Brandon Clogston
The Panama Insider, International Living

P.S. We'll keep you up to date about the Panama Canal expansion project in upcoming issues of Panama Insider, International Living's online publication for those who are interested in living or investing in Panama. Find out how to subscribe to Panama Insider here.