Panama: Not one of the World’s Hot Spots: (At least not yet)

I am currently on leave in the beautiful and seemingly untroubled country of Panama. Although planning to spend my time writing about Latin American populism, I have become distracted by this country’s deviation from the Latin American (and indeed global) phenomenon of populism and relentless mass unrest. In the era of economic globalization with its mantra of ever-expanding trade, relative social and political peace in a country that is a central hub of trade is essential. Roughly $270 billion worth of cargo crosses the Panama Canal each year; the canal serves more than 140 maritime routes to over 80 countries.

Limited Social Protest and No Real Populism

Panama has not been entirely bereft of protest. In the fall of 2019, there were protests, largely carried out by university students, against proposed constitutional reforms. Protesters objected to the elite-pacted nature of the proposed reforms and to some of the terms, which involved, among other things, a reduction in university autonomy; they demanded a more participative process that would include a broadly representative constituent assembly. The protests ended when the President signed an agreement for further dialogue before the reforms became law. While the country was governed by a purportedly left-centre government (with populist origins) between 2004 and 2009, that regime did not have poverty and inequality reduction as its central aim - either in rhetoric or in policy; nor did it display the anti-oligarchical, or anti-imperialist rhetoric characteristic of regimes of other left populist regimes of the first part of the 2000s. A common explanation for the country’s relative social peace and lack of political polarization is its high economic growth rates—for a decade Panama has had one of the fastest growing economies in the region, with an average annual per capita growth rate of 5 percent between 2008 and 2018.

But There Are Two Panamas

However, the benefits of this growth have been very unevenly distributed. Panama has one of the highest levels of inequality in Latin America, ranking only behind Brazil and Honduras. It also has sharp regional inequality, with the benefits of economic growth going largely to the urban middle and upper classes, particularly in Panama City. As in so many other Latin American countries, there is a close correlation between race and social conditions. The highest poverty levels are found among the Indigenous population, who constitute about 13 percent of the population. In rural Indigenous regions, over 90 percent of the population faces extremely high levels of deprivation including the virtual absence of electricity, adequate nutrition, clean water, and access to education. While official sources, like the Economic Commission for Latin America and the Caribbean, report poverty reduction from 34 percent to 17 percent in recent years, these figures have been disputed due to their failure to take into account the high cost of living of the poor in urban areas. Panama has implemented targeted transfer programs to help the poor. However, the small amount of money transferred has not been enough to lift many of the poor out of extreme poverty. In fact, Panama stands out as having one of the lowest levels of social spending in Latin American and the Caribbean. The country has a large informal sector (almost one-half of the economically active population), meaning that half of all workers lack social security (heath and pensions protection).

The Economic Model: Canal Dependence (probably worse than the resource curse)

Dependence on natural resource exports with its attendant large inflow of revenue during boom times has proven destructive to agriculture and mining, with detrimental consequences for employment and poverty reduction. The canal has had a similar impact, albeit without the usual collapse in revenue that attends commodity price declines. The existence of the Panama Canal has discouraged vigorous efforts to support economic diversification. Revenue from the Canal, which has grown substantially since expansion of the canal was completed in 2016, and provided about 1.7 million dollars to the Panamanian government in 2018. The country’s high economic growth rates have been largely driven by the canal and the related construction and service industries it has generated—hence, the benefits have been largely concentrated in Panama City. Reliance on the canal as the driver of economic growth has meant tax rates are low and not sufficiently distributive.

Moreover, the adoption of a neoliberal economic model since the early 1980s further exacerbated the regional disequilibrium and rural poverty. Agriculture was hit hard by trade liberalization and the removal of rural supports, resulting in a sharp decline in rural employment and agricultural production and an increase in food imports. The government’s solutions have been less than optimal in terms of their ability to generate sufficient decent employment. In an effort to rejuvenate the rural economy and increase employment, for example, the government invited a subsidiary of Del Monte to resurrect large-scale banana production in the province of Chiriquí, a move that generated farmer protest against land evictions and resulted in government repression. The establishment of “petroleum free zones,” providing generous tax treatment for companies engaged in petroleum and gas related activities such as refining and storage, will generate few jobs. Nor do the country’s export processing zones provide much in the way of decent employment. Government incentives to MNC mining investment has caused land contamination and deforestation, particularly in Indigenous areas. Indigenous protests were met with repression.

In this context, Panama’s relative political stability is probably ephemeral. The country has what the casual observer would describe as a multiparty competitive electoral democracy. However, power rests in the hands of a privileged oligarchy who exercise personalistic control of the major parties; these parties incorporate supporters through various forms of clientelism. There is no mass-based party with a programmatic social justice agenda. The main issue in the 2019 election, corruption, is an important one but does not involve any significant departure from the canal-focused neoliberal strategy of past governments. The country’s political conditions combined with the its high degree of inequality, reinforced by distinct racial identities, appear to set the stage for the rise of populism and its ultimately polarizing impact.