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PANAMANIA Benefits of Panama
The economy of Panama is based mainly on the services sector, which accounts for nearly 80% of its GDP and accounts for most of its foreign income. Services include the Panama Canal, banking, commerce, the Colón Free Trade Zone, insurance, container ports, and flagship registry, medical and health and tourism. The country's industry includes manufacturing of aircraft spare parts, cement, drinks, adhesives and textiles. Additionally, exports from Panama include bananas, shrimp, sugar, coffee, and clothing. Panama's economy is fully dollarized,[16][17] with the US dollar being legal tender in the country. Panama is a high-income economy with a history of low inflation.
Contents 1 Economic history 2 Economic sectors 2.1 Financial services 2.2 Agriculture 3 Taxation 3.1 Further reforms 4 Transportation 5 Statistics 6 See also 7 References 8 External links Economic history Main article: Economic history of Panama Since the early 16th century, Panama's geographic location gave the country a comparative advantage. From the earliest Spanish times, ports on each coast and a trail between them handled much of Spain's colonial trade to the benefit of the inhabitants of the port cities.[18]
Panama has always been dependent on world commerce for its prosperity,[18] and it is affected by the cyclical nature of international trade. The economy stagnated in the 18th century as colonial exchange via the isthmus declined. In the mid-19th century, Panama's economy boomed as a result of increased cargo and passengers associated with the California Gold Rush. A railroad across the isthmus, completed in 1855, extended economic growth for about fifteen years until completion of the first transcontinental railroad in the United States led to a decline in trans-isthmian traffic.
France's efforts to construct a canal across the isthmus in the 1880s and efforts by the United States in the early 20th century stimulated the Panamanian economy.[18] The United States completed the canal in 1914.[19] However, the world depression of the 1930s reduced international trade and canal traffic, causing widespread unemployment in the terminal cities and generating a flow of workers to subsistence farming. During World War II, canal traffic did not increase, but the economy boomed as the convoy system and the presence of United States forces, sent to defend the canal, increased foreign spending in the canal cities. The end of the war was followed by an economic depression and another movement of unemployed people into agriculture.[18]
The postwar depression gave way to rapid economic expansion between 1950 and 1970. All sectors contributed to the growth. Agricultural output rose, and commerce evolved into a relatively sophisticated wholesale and retail system. Banking, tourism, and the export of services to the Canal Zone grew rapidly. Most importantly, an increase in world trade provided a major stimulus to use of the canal and to the economy.[18]
In the 1970s and 1980s, Panama's growth fluctuated with the vagaries of the world economy. After 1973, economic expansion slowed considerably as a result of a number of international and domestic factors. In the early 1980s, the economy rebounded. The acute recession in Latin America after 1982, however, wreaked havoc on Panama's economy.[18] This period coincided with the rise to power of General Manuel Noriega during which Panama became increasingly indebted.[20]
The United States started to pursue Noriega, culminating in sanctions that froze Panama's assets in the United States, and because Panama used the US dollar it was forced to default on its IMF debt in 1987.[20] Economic turmoil in the country included a general strike and the banking system closing down for two months.[20] The United States invaded Panama in 1989 and forced the surrender of Noriega.[20] Panama regained access to IMF funds in 1992.[21]
A proportional representation of Panama's exports. After taking office in 1994, President Ernesto Perez Balladares instituted an economic liberalization program designed to liberalize the trade regime, attract foreign investment, privatize state-owned enterprises, institute fiscal discipline. After two years of near-stagnation, there was strong GDP growth in 1997-1998. The most important sectors which drove growth were the Panama Canal and the shipping and port activities of the Colón Free Trade Zone.
During the Moscoso administration beginning in 1999, Moscoso attempted to strengthen social programs. Moscoso's administration successfully handled the Panama Canal transfer and was effective in the administration of the Canal.
Under the Martin Torrijos administration beginning in 2004, Panama continued strong economic growth and initiated the 2007-2016 Panama Canal expansion project.[22] The canal expansion doubled the waterway capacity.[22] Strong economic performance had reduced the national poverty level to 29% in 2008.
In 2008, Panama had the second most unequal income distribution in Latin America. The Torrijos government implemented tax reforms, as well as social security reforms, and backed regional trade agreements and development of tourism. Not a CAFTA signatory, Panama in December 2006 independently negotiated a free trade agreement with the US.
In May 2009, Ricardo Martinelli was elected president, and promised to promote free trade, establish a metro system,[23] and complete the expansion plan for the Panama Canal.
Economic sectors Financial services Panama has a substantial financial services sector and no central bank to act as a lender of last resort to rescue banks that get in trouble. As a result, Panamanian banks are very conservatively run, with an average capital adequacy ratio of 15.6% in 2012, nearly double the legal minimum.[24] The sector grew up providing trade finance for trade passing through the Canal, and later evolved into money laundering for the drug trade under Noriega. Since the global financial crisis of 2007–08 the country has been trying to shake off its reputation as a tax haven, signing double taxation treaties with many (mostly OECD) countries and in April 2011 a treaty on the exchange of financial information with the United States.[24]
Agriculture Further information: Agriculture in Panama
An economic activity map of Panama, 1981. Major agricultural products include bananas, cocoa beans, coffee, coconuts, timber, beef, chickens, shrimp, maize, potatoes, rice, soybeans, and sugar cane.[25] In 2009 agriculture and fisheries made up 7.4% of Panama's GDP[25]
Panama is a net food importer and the United States is its main supplier.[26] Agriculture employs a large number of Panamanians (in relation to agriculture's percentage of Panamanian GDP) with many farmers being engaged in subsistence farming.
Taxation Taxation in Panama, which is governed by the Fiscal Code, is on a territorial basis; this is to say, that taxes apply only to income or gains derived through business carried on in Panama itself.[27] The existence of a sales or administration office in Panama, or the re-invoicing of external transactions at a profit, does not of itself give rise to taxation if the underlying transactions take place outside Panama. Dividends paid out of such earnings are free of taxation.
In February 2005, Panama's unicameral legislature approved a major fiscal reform package in order to raise revenues from new business taxes, and increases the country's level of debt. The legislature voted 46 to 28 in favour of the measures, which include a new 1.4% tax on companies’ gross revenues, and a 1% levy on firms operating in the Colon Free Trade Zone – the largest free port in the Americas.
Further reforms President Ricardo Martinelli had promised to implement a flat tax system with a flat tax of 10% and which promised to raise revenues, put inflation under control and which will allow enormous real wage gains.[citation needed] Instead the Martinelli government increased sales tax to 7% from 5%, as well as increasing other taxes, in order to finance many infrastructure projects around the country.
The current VAT rates are: 7% (standard rate); 15% (tobacco); 10% (alcohol and hotels); 5% (essential goods). The corporate tax rate is 25%, while the highest marginal income tax rate is 27%.
