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Panama: can either side afford unrest?

By Brook LarmerStaff writer of The Christian Science Monitor / August 5, 1987



Panama City

There's a slow-motion Russian roulette being played out in Panama. Eight weeks of political unrest - much of it in the form of short business strikes and partial economic boycotts - have begun to threaten the vital economic interests of both the government and its business-led opposition. But the question remains: which side will give way first?

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The answer hinges, analysts say, largely on two factors:

First, whether the government continues responding with short-term political measures that could hasten an economic collapse.

Second, whether the Civic Crusade - an opposition group headed by businessmen and lawyers - can afford to escalate its economic battle against the government led by military strong man Gen. Manuel Antonio Noriega.

``Can they keep on having ever-increasing strikes if they are the ones who suffer the most?'' asks one diplomat, noting that the falling profits and productivity of private businesses has hurt them more than the government. ``Then again, what other weapon do they have?''

Most analysts feel that the middle-class leaders will never risk a full-scale economic shutdown. Not only do they lack a clear, charismatic leader who could rouse the masses in support of such a sacrifice. But if a longer strike fizzled out, the Crusade's momentum and credibility would be endangered.

Crusade leaders insist that eventually the economic stakes must be raised. ``It's a bitter pill,'' says one banker, ``but we have to swallow it.''

So far the government has been able to deflect - even defy - the economic pressure. As the crisis has continued, General Noriega has reportedly taken economic decisions more into his own hands, often disregarding the proposals of official economic advisers. Says one disgruntled government economist: ``When it comes to times like these, they [Noriega and his general staff] stick to themselves.''

The result, according to sources close to the government, has been policies based less on long-term planning than on snuffing social unrest. Noriega has stopped pursuing the belt tightening reforms required by the World Bank and other international creditors to service Panama's $5-billion foreign debt, one of the highest per capita in the world.

A draft report of the government's economic program released in mid-July outlined a populist plan for retaining the political support of the people. The government has already lowered the price of chicken, eggs, and cheap cuts of pork. Analysts also point to the estimated $3 million that went to carnival-like counterdemonstrations last week.

At this point, Noriega seems to be able to get away with it because short-term economic damage remains minimal.

The flight of nervous capital - an estimated $4 billion to $8 billion out of the country's $38 billion in banking assets - has had little direct effect on the local economy. The bulk of it represents offshore banking - paper transactions that take advantage of Panama's strict bank secrecy laws but yield no taxes. Other income generators, like the Panama Canal, the Colon Free Zone, and an oil pipe line in western Panama, continue to bring in dollars as usual.

Economists do warn, however, that the political turmoil is starting to strain the economy. Both government and private sector productivity have fallen slightly due to periodic 48-hour strikes and counterdemonstrations involving government workers. And since the protest began in early June, local depositers have withdrawn a reported $90 million from the National Bank and the national savings and loan.

``The biggest worry is the local banks,'' says one foreign banker, noting that further erosion could sap up all small loans and credit - the backbone of the local economy. ``How much of a cushion do they have before their funds dry up?'' the banker asked. ``The government says several months. We say two to three weeks.''

``I don't see that the military understands the significance of all this,'' adds another banker with close ties to the ruling party, referring to the rapid erosion of local deposits. ``It doesn't care if it lowers the reserves of the National Bank and the savings and loan as long as it satisfies their purposes. The administration is just working on a day-to-day basis for the crisis.''

That mentality may cause further problems with the country's foreign debt, financial analysts say. The government first ran into snags in April, when it realized that it didn't have the public support to pass social-security reforms required by international creditors. Says one official confidentially, ``The government didn't want to confront the problems because it didn't have the political support, the political will.''

Some say that Noriega has been able to distract attention from the economic difficulties by taking flashy initiatives, like raiding the home of his accuser, retired Army Colonel Roberto D'iaz Herrera.

``The situation with D'iaz Herrera was so gigantic, and continues to be,'' moaned one financial expert, ``that it overshadows the economic problems.''