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U.S. DEPARTMENT OF STATE
PANAMA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICES
BUREAU OF ECONOMIC AND BUSINESS AFFAIRS






                             
                             PANAMA

                     Key Economic Indicators
        (Millions of U.S. dollars unless otherwise noted)


                                   1992      1993 1/   1994 2/

Income, Production and Employment:

Real GDP (1985 prices)            5,477     5,801     6,091
Real GDP growth (pct.)              8.6       5.9       5.0
GDP (at current prices)           6,001     6,562     6,975
GDP Share by Sector:  (pct.)
  Agriculture/Forestry/Fisheries   10.6      10.1       9.8
  Manufacturing                     9.2       9.3       9.1
  Utilities                         3.2       3.2       3.2
  Construction                      5.1       6.7       7.7
  Commerce/Hotels/Restaurants      11.8      11.9      11.9
  Panama Canal                      9.2       8.6       8.4
  Oil Pipeline                      1.7       0.8       0.3
  Colon Free Zone                   8.1       8.6       9.0
  Transport/Communications          7.2       7.4       7.3
  Finanace/Insurance/Real Estate   14.6      14.9      15.4
  Government Services              11.7      10.8      10.6
  Other                             7.5       7.4       7.3
Real GDP Per Capita (1985 prices)  2041      2167      2256
Labor Force (000s) 3/               921       949       979
Unemployment (official rate) 3/    13.1      12.5      11.9

Money and Prices:

Money and Quasi-Money (M2)        3,535     4,300     3,916
Commercial Interest Rates
  Fixed deposit (pct.)              5.5       5.0       5.3
  Average lending (pct.)           11.0      10.5      10.8
Gross Savings (pct. GDP)           17.3      16.0      16.7
Gross Investment (pct. GDP)        22.7      20.0      21.4
Consumer Prices
  (pct./annual average CPI)         1.8       0.9       1.4
Wholesale Prices
    (pct./annual average)           2.7       2.5     (2.6)
Exchange Rate (balboa:USD)          1:1       1:1       1:1

Balance of Payments and Trade:

Total Merchandise Exports (FOB)     481       500       520
  Exports to U.S. (pct.)             45        45        45
Total merchandise imports (CIF)   1,827     2,007     2,205
  Imports from U.S. (pct.)           40        40        40
Aid from U.S. Government            234        42        21
External Public Debt              5,204     5,369     5,539
Debt Service Paid 4/                230       234       238
Foreign Assets                      504       566       636
Balance of Payments
  Current Account                   -41       -16       N/A
  Foreign Investment                  1         2       N/A


N/A--Not available.

1/ Estimated.
2/ Projected.
3/ Data revised October 31, 1994.
4/ Excludes clearance of arrears to International Financial
Institutions (IFI's) in 1992.



1.  General Policy Framework

    Panama's economy is based on a well-developed services
sector that accounts for 70 percent of gross domestic product
(GDP).  Services include the Panama Canal, banking, insurance,
government, the transisthmian oil pipeline, and the Colon Free
Zone (CFZ).  Manufacturing, mining, utilities, and construction
together account for approximately 20 percent of GDP. 
Agriculture accounts for about 10 percent of GDP.  Growth of
Panama's economy continues to slow from the previous four years
(the high point was reached in 1991, with a high point of
9.6%), with 1994 growth projected at 5.0%, down from 1993's
5.9% and 1992's 8.6%.  As in preceding years, private
construction and capital goods spending plus CFZ activity and
certain services exports have been the main sources of growth. 
A slight upswing in Panama Canal traffic and revenues has also
boosted growth.

    The new government, which took office September 1, 1994 has
announced its intention to address directly a past failure by
policy-makers to follow through on key economic policy
reforms:  reduction of the public sector payroll,
liberalization of the trade regime, privatization of
state-owned enterprises, and encouragement of job-creation
through labor code reforms.  Decisive government action in
these areas will be key to Panama's current application to join
the GATT and the soon-to-be-formed World Trade Organization,
the establishment of increased investor confidence, and the
resolution of Panama's large outstanding foreign debt.  In the
absence of effective action, growth in all sectors is likely to
be negatively affected, and job creation will begin to lag
behind population growth.  Although a comprehensive national
economic plan has been released which incorporates the above
concerns, as of the date of this report there had been no
specific implementation of proposed reforms.  Medium-term
prospects for strong economic growth and job-creation are
therefore uncertain, pending further policy developments.  

    The use of the U.S. dollar as Panama's currency means that
fiscal policy is the government's principal macroeconomic
policy instrument.  Because Panama does not "print" a national
currency, government spending and investment are strictly bound
by tax and nontax revenues (including Panama Canal receipts)
and the government's ability to borrow.


2.  Exchange Rate Policies

    Panama's official currency, the Balboa, is pegged to the
U.S. dollar at one Balboa to one U.S. dollar.  The fixed parity
means price and availability of U.S. products in Panama depend
on transport costs and tariff and non-tariff barriers to
entry.  At the same time, the fixed parity means that U.S.
exporters have zero risk of foreign exchange loss on sales to
Panama.


3.  Structural Policies

    The newly elected Government of Panama, which took office
on September 1, 1994, has declared its policy commitment to
trade liberalization, and has published an ambitious but
disciplined national economic plan.  The plan has as its
centerpiece Panama's accession to GATT/WTO, and the associated
trade liberalization measures which accession will require. 
The new government is also emphasizing fiscal discipline,
internal savings, partial privatizations of some public
entities and utilities, revision of the inflexible labor code,
elimination of price controls and establishment of an antitrust
law and enforcement authority, and health and housing programs
to ease the severe rural and urban poverty and high
unemployment which reflect Panama's very uneven distribution of
wealth and income.  

    In the area of trade liberalization, any lowering of tariff
and non-tariff barriers would build on the previous
government's conversion from specific tariffs to an ad valorem
system on about 280 tariff line items.  Current tariff rates
for industrial products are set at 40 percent for
agroindustrial products.  Some 227 product classifications
carry a 50 percent tariff, while a 60 to 90 percent rate
applies to some 60 sensitive agricultural products.  

    Panama is an observer to the General Agreement on Trade and
Tariffs (GATT), but applied for full GATT membership in May
1993.  Bilateral and multilateral working party meetings on
Panama's application have already been held.  

    Panama enacted a new tax law in December 1991 and a
privatization framework law in July 1992.  The tax reform act
reduced corporate income tax rates to 30 percent effective as
of 1994.  The 1991 privatization law resulted in very few
actual privatizations.  It is likely that any of the
privatizations being considered by the new government will, if
carried out, be performed pursuant to fresh legislation.  


4.  Debt Management Policies

    Panama is current on interest and principal due to the IMF,
World Bank, Inter-American Development Bank, and International
Fund for Agricultural Development.  It cleared $645.8 million
in arrears with these institutions during February/March 1992,
and took steps in 1993 and 1994 towards normalizing relations
with foreign commercial creditors (bondholders, commercial
banks, and suppliers); Panama's accrued commercial debt,
including interest, stands at about 5.3 billion dollars.

    Panama remains current on interest and principal payments
to U.S. government creditor agencies.  Some 1994 disbursements
from International Financial Institutions of previously agreed
credits were suspended, however, due to the previous GOP's
failure to satisfy all IFI conditions, most prominently a
failure to privatize and to reduce the size of the public
sector sufficiently.  The GOP remains committed to reaching an
agreement with its external commercial creditors.  In October
1994, shortly following announcement of its national economic
plan, the GOP signed an agreement with the Inter-American
Development Bank (IBD) whereby IBD will provide up to 750
million dollars between 1995-1996 for a variety of social
welfare and infrastructure improvement projects. 


5.  Significant Barriers to U.S. Exports

    The new government's economic reform program is still
largely inchoate, but appears strongly oriented toward
export-led policies designed to attract increased foreign
investment.  At the same time, the Panamanian economy remains,
for now, one of the most heavily protected ones in Latin
America.  

    The Panamanian agricultural sector is protected by
significant non-tariff barriers.  Agricultural products such as
rice, corn, beef, dairy products, soybeans, and wheat are
controlled by the Ministry of Agriculture and the Agricultural
Marketing Institute (IMA).  Import permits are required from
the Ministry of Agriculture for imports of animal products,
animal by-products, and seeds.  In 1993, the government passed
a law restricting imports of poultry products based on
zoosanitary restrictions and trade reciprocity.  The new
government's agriculture ministry has announced its intention
to enforce strictly the prior approval requirement (Decree 15
of May 18, 1967) for all imports of meat products, in addition
to phytosanitary requirements.  

    IMA maintains a list of 48 agricultural products under
import quota and 30 products under import permit.  The prior
government issued several decrees (effective December 1, 1993)
eliminating seven products from the list of products under
quota and two from the list of products under import permit.

    Non-agricultural product registration requirements, which
were previously applied prior to market entry (by customs
authorities) now become effective six months after initial
product entry.  Thus, importers can establish product sales
potential prior to an investment of financial and staff
resources in the registration process.

    The Panamanian Government officially promotes foreign
investment and affords foreign investors national treatment, as
well as actively promoting specific investment opportunities in
agriculture, industry, tourism, and an expanded range of
services.  A limitation in Panamanian law on foreign government
ownership of land affects a few U.S. government investment
insurance programs, but places no legal limitations on foreign
private investment or ownership. 

    While the Government of Panama does not officially present
any barriers to U.S. suppliers of banking, insurance,
travel/ticket, motion picture, and air courier services, some
professionals can expect certain technical/procedural 
impediments, i.e., architects, engineers, and lawyers have to
be certified by Panamanian boards.

    Panama does not have an investment screening mechanism, and
the Panama Trade Development Institute works to attract
investment to priority areas.  Under the terms of its Bilateral
Investment Treaty with the United States, Panama places no
restrictions on the nationality of senior management.  Panama
does restrict foreign nationals to 10 percent of the
blue-collar work force, however, and specialized foreign or
technical workers may number no more than 15 percent of all
employees in a business.  Disinvestment may be difficult for
foreign (and Panamanian) companies involved in labor-intensive
production, because of labor code regulations, which restrict
dismissal of employees and require large severance payments. 
The current government is considering modifications to the
labor code.


6.  Export Subsidies Policies

    Export subsidies policies benefit both foreign-owned and
domestic export industries.  The tax credit certificate (CAT)
is a major export subsidy.  CATs are given to firms producing
nontraditional exports when the exports' national content and
national value added both meet minimum established levels. 
Exporters receive CATs equal to an amount that is 20 percent of
the exports' national value added.  The certificates are
transferable and may be used to pay tax obligations to the
government.  They can also be sold in secondary markets at a
discount.

    A number of industries that produce exclusively for export
also are exempted from paying certain types of taxes and import
duties.  The Panamanian government uses these exemptions as a
way of attracting investment to the country.  Companies that
benefit from these exemptions are not eligible to receive CATS
for their exports, however.


7.  Protection of U.S. Intellectual Property

    Panama recently passed major legislation (Law No. 15 of
August 8, 1994) intended to modernize its copyright protection
regime and is also considering legislation to strengthen
industrial property (patents, trademarks, and trade secrets)
protection.  Panama is a member of the World Intellectual
Property Organization, the Geneva Phonograms Convention, the
Brussels Satellite Convention, and the Universal Copyright
Convention, but it is not a member of the Bern Convention for
the protection of Literary and Artistic Works, the Paris
Convention for the Protection of Industrial Property, or the
Central American Copyright Convention.  

    Panama signed with other Central American countries a
declaration of intent to join the Paris Convention in October
1992.  Officially, Panama's adherence to some of the major
international conventions governing intellectual property
rights offers more protection than that which is given to
domestic Panamanian interests under Panamanian law.

    The new copyright law, which takes effect January 1, 1995,
strengthens copyright protection, facilitates prosecution of
copyright violators and makes copyright infringement a felony,
punishable by fine and incarceration.  The bill also protects
computer software as a literary work.  The next major challenge
for Panama in the copyright is establishment and funding of the
new Copyright Directorate called for in Law 15, the drafting
and application of detailed implementing regulations, and the
creation of the judicial expertise necessary to enforce the new
law.  

    The Legislative Assembly's Commerce and Industries
Committee during the legislative session ending June 30 had
taken under consideration an industrial property law, modeled
after the Mexican industrial property rights law.  The
Assembly, however, did not take final action on the bill before
adjourning.  The draft law would have established a standard of
20 years of protection for all patent holders, in place of the
current range of 5 to 20 years for Panamanians and 5 to 15
years for foreigners.  The bill also would protect processes. 
The draft law would impose a working requirement on patent
holders, although the patent holder can satisfy the working
requirement by importing the product.  Under the draft law, the
government would be able to issue compulsory licenses only
after notice to and a hearing for the patent holder.  In
addition, a patent holder would still preserve his rights by
beginning manufacture or importation within one year of the
initial notification of the compulsory licensing proceeding. 
The recipient of a compulsory license would have the capacity
to manufacture the product himself in Panama.

    The draft industrial property law also provides for
protection of trademarks and trade secrets.  The bill would
simplify trademark registration, and give protection for 10
years, renewable for an unlimited number of additional 10-year
periods.

    The newly elected Assembly, which was sworn in September 1,
has not yet placed the bill on its agenda.  The government will
likely re-introduce the bill no later than 1995, since its
passage is an important element of Panama's application to join
GATT.  It is possible there will be significant modifications
made in the draft bill to strengthen its protections before the
National Assembly takes final action.

    Video piracy is a major concern in Panama.  Some firms are
illegally reproducing videos and distributing them from the
Colon Free Zone (CFZ) to Panama, Central America, and elsewhere
in South America.  Recently, some U.S. firms have also
complained about trademark infringement by firms in the CFZ and
about use of the CFZ as a transshipment point for pirated
products.  GOP police authorities recently have raided several
CFZ warehouses, in response to concerns about illegal
transshipments and illegal assembly activity.  


8.  Worker Rights

    a.  The Right of Association

    Panamanian private sector workers have the legal right to
form and join unions of their choice, subject to registration
by the government.  Unions have criticized, however, government
requirements for registration, including the minimum number of
workers necessary for union formation (currently 51).  With a
large percentage of small-scale shops and businesses in Panama
having less than the required number of employees, many work
forces fall below this number.  The only option for such
employees is to affiliate themselves with an existing trade
union in another company, which is often difficult.  Easier
registration requirements are one demand that the unions have
been making in Panama.  Despite being legally allowed, attempts
over the past twenty years to organize in the banking sector
have not been recognized by the government.  No organizing
efforts also have been successful in the Colon Free Zone
either.  Unions claim that the government will never allow
organizing efforts to succeed in these important economic
sectors.  Some economists, on the other hand, argue that these
sectors have flourished in part precisely because the unions
have been excluded.

    The ILO's Committee of Experts (COE) has criticized the
excessively high numbers of members required to establish a
union along with the requirement that 75 percent of union
members be Panamanian nationals, and the automatic removal from
office of trade union officials dismissed from their jobs.  The
COE also has noted that Panama's Constitution and the Labor
Code require that the executive board of a trade union be
composed exclusively of Panamanians.  The ILO feels that
government legislation should be made more flexible to permit
organizations to choose leaders without hindrance and should
allow foreign workers to hold trade union office.

    According to Ministry of Labor statistics, approximately 11
percent of the total employed labor force is organized.  There
are 289 active unions, grouped under six confederations and 48
federations representing approximately 82,000 members in the
private sector.  From January to August, two new unions
registered with the Government.  Some unions formerly
affiliated with federations and confederations have chosen to
function independently in recent years.  Organized labor, which
received various benefits from and was largely coopted by the
military regime from 1968 to 1989, is no longer identified with
nor controlled by the Government or political parties. 
Although the new Perez Balladares PRD government has closer
ties with organized labor than did the Endara Administration,
union organizations at every level may and do affiliate with
international bodies.

    Prior to the passage of Panama's new Civil Service Law (Ley
Administrativa) or Law 9 of June 20, 1994, most government
workers were not permitted to organize unions or bargain
collectively.  The exception was workers in certain state-owned
companies, such as public utilities, which have been allowed to
organize unions--rights they carried over from when their
companies were private sector entities--and these unions are
among the strongest in Panama.  FENASEP (the umbrella
organization for the public employee associations) was
especially active in the debate leading up to the passage in
June of the Civil Service Law which established the basis for
the creation of a career civil service for the first time in
Panama, formalized the formation of public employee
associations and federations and established their right to 
represent their members in collective bargaining with their
respective agencies.

    Most workers have the right to strike.  Some key groups,
however, do not (i.e., certain government workers in areas
vital to public welfare and security such as the police and
health workers and those employed by the U.S. Military Forces
and the Panama Canal Commission).  Unionized employees of
formerly private and telephone companies, retain their original
right to strike when certain criteria are met.  For example, a
notice of intention to strike must be served at least eight
calendar days in advance and strikers must continue working in
reduced shifts to prevent public services from being completely
paralyzed.

    b.  Right to Organize and Bargain Collectively

    As noted above, the Panamanian labor code grants
individuals the right to organize labor unions and employee
associations.  On January 13, President Endara signed Law 2 of
1993 which restored full freedom of association and collective
bargaining rights to workers in the private sector.  Earlier,
Law 25 of November 1992 amended Law 16 of 1990 by reimposing
the obligation of firms operating in export processing zones to
enter into collective bargaining agreements with workers. 
Panama's labor code prohibits anti-union discrimination by
employers.  Disputes or complaints may be brought to a
conciliation board in the ministry of labor for resolution. 
The Labor Code provides a general mechanism for arbitration
once conciliation procedures have been terminated.

    c.  Prohibition of Forced or Compulsory Labor

    The Panamanian labor code prohibits forced or compulsory
labor, and there are no reports of either practice.

    d.  Minimum Age for Employment of Children

    The Panamanian labor code prohibits the employment of
children under the age of 14, or under the age of 15 if the
child has not completed primary school.  The code also
prohibits the employment of persons under age 18 in night
work.  Children between the ages of 12 and 14 may perform farm
or domestic labor as long as the work is light and does not
interfere with the child's schooling.  Enforcement of these
provisions is triggered by a complaint to the Ministry of
Labor.  which can order the termination of illegal employment. 
Child labor provisions were generally enforced in Panama in
1993, although less so in the interior of the country because
of insufficient resources to monitor any abuses.

    e.  Acceptable Conditions of Work

    The labor code establishes minimum wage rates for most
categories of labor and requires substantial bonuses for
overtime work.  Panama has a substantial informal sector in
which some workers earn below the minimum wage.  In December
1992, the government decreed a 20.5 percent nominal increase in
the minimum wage effective January 1, 1993.  While the minimum
wage varies according to region and type of work, the prevalent
minimum wage increased from $.78 per hour to $.94 per hour.

    The labor code establishes a standard legal workweek of 48
hours throughout Panama and provides for at least one 24-hour
rest period.  The Labor Code also sets numerous health and
safety standards for all places of employment.  However, The
Ministry of Labor, which is responsible for insuring that
employers comply with these regulations, does not have enough
inspectors and resources to enforce these laws effectively.

    f.  Rights in Sectors with U.S. Investment

    Although Panamanian labor laws differ from sector to
sector, within each sector U.S. firms adhere to the prevailing
laws.



  Extent of U.S. Investment in Selected Industries.--U.S. Direct
Investment Position Abroad on an Historical Cost Basis--1993

                    (Millions of U.S. dollars)
                                                                
              Category                          Amount          

Petroleum                                                724
Total Manufacturing                                      169
  Food & Kindred Products                   (1)
  Chemicals and Allied Products             (1)
  Metals, Primary & Fabricated              (2)
  Machinery, except Electrical                0
  Electric & Electronic Equipment             0
  Transportation Equipment                    0
  Other Manufacturing                        21
Wholesale Trade                                          578
Banking                                                  (1)
Finance/Insurance/Real Estate                         10,926
Services                                                 (1)
Other Industries                                         (1)
TOTAL ALL INDUSTRIES                                  12,575   

(1) Suppressed to avoid disclosing data of individual companies
(2) Less than $500,000

Source: U.S. Department of Commerce, Bureau of Economic
Analysis
(###)


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