Panama Recovers, But Slowly

End of US sanctions brings renewed prosperity to some, but 1 in 5 workers is jobless

HUMBERTO FERNANDEZ grumbles when a customer interrupts his tally of a long list of orders."We're really busy," explains the manager of Hollywood Enterprises, a toy wholesale outlet in the Colon Free Zone, located at Panama's main Atlantic port. "Business is good. Perhaps better than last year." But across the isthmus in Panama City, Gregoria Salazar worries about stretching her husband's $400 a month mechanic's wages to feed 12 family members. She has six working-age children - all unemployed. "We thought it would be easier after [Gen. Manuel Antonio] Noriega [was ousted as dictator]. But I don't see much change." Renewed prosperity for some, continued poverty for others. Panama's economic recovery - after two years of damaging sanctions, a United States invasion, and looting - is decidedly uneven. The statistics show some progress. Last year, gross domestic product surged 3.4 percent (after falling 17.5 percent from 1988 through 1989). Growth was strong in the first half of 1991 but is slacking off now. Economic Planning Minister Guillermo Ford predicts sustained 5 percent growth over the next three years. Private economists say 3 to 4 percent is more likely this year. After much delay, the $420 million in aid appropriated by the US Congress is now flowing into the economy. Construction is booming. The crucial bank-services sector is slowly recouping lost assets. The inflation rate is a mere 2 percent. Thanks to the Gulf war, Panama Canal traffic hit record levels. To top it off, Latin America's biggest duty-free zone, where Mr. Fernandez is busy filling orders, has another record year in the making. Last year, Colon Free Zone trade totaled a record $5.8 billion as Panamanian businesses rebuilt inventories after the looting that followed the US invasion in December 1989. In the first half of this year, free-zone trade is up 20 to 30 percent, despite a July transport strike. So why were several hundred Panamanians marching through the main streets of the capital on a recent afternoon, cursing President Guillermo Endara, Mr. Ford, and opposition leader Ricardo Arias Calderon for letting international financial institutions dictate economic policy? "The short answer is unemployment. That's the most urgent problem," replies Roberto Mendez, a University of Panama economics professor and publisher of Gaceta Economica, a monthly newsletter. Almost half of Panama's population of 2.4 million lives in poverty. Adopting the tactics in vogue throughout Latin America, Panama is embracing privatization, free-market reforms, and less government spending. Mr. Endara inherited from General Noriega a $5.4 billion external debt, of which $3.1 billion is in arrears ($660 million to international lending agencies). International lenders won't provide any more credit until Panama gets its fiscal house in order. Last week, Ford was in New York negotiating with US banks. In September, Ford signed a structural adjustment agreement with overseas lenders to reduce government employment by some 20,000 jobs out of 144,000. But that doesn't sit well with critics, such as Professor Mendez, who note that the unemployment rate stands at about 18 percent. "The central priority of Ford's program is to pay off foreign debt. In the short to medium term, that's not going to create jobs, improve health care, or build schools," Mendez says. He argues the amount of credit made available from paying off foreign debts will not make a dent in unemployment. The money spent on paying off arrears would be better spent on development now. Ford counters: "Not paying is suicide. Paying is painful but it's the only way to develop a future for Panama." He says gaining access to new loans from the World Bank or Inter-American Development Bank is only part of the rationale for paying off debt. "Many countries which would back corporate, private investment in Panama, won't look at us until we have our house in order." But an awakening labor movement, no longer under Noriega's corrupting influence, is expressing its discontent. In October, government unionized medical workers held a strike protesting reforms to the social security system. Earlier, air traffic controllers staged a one-day strike and threatened an indefinite walkout before the government decided to discuss their demands. And teachers staged three strikes in August to recover back pay. Government officials point to a law passed early this year allowing assembly plants to be established in "export zones" that exempt companies from certain labor laws and taxes on profits. The law aims to create 35,000 jobs by the year 2000. A number of Asian business groups are moving in to set up garment and electronics factories under the new law. Interest is being expressed in land to be vacated by the US Southern Command - 10 military installations. However, despite a treaty which will turn the US-run Panama Canal and all US military property over to Panama in less than nine years, there's strong public support for asking some of the 10,000 US troops here to stay on for economic reasons. The US military employs some 5,500 Panamanians and pumped $213 million into the local economy in 1990, according to US Department of Defense figures. Endara states he will not renegotiate the treaty. But "the US bases are going to be an issue for the next government," predicts Ford. Of course, that assumes the US, which is closing down bases at home, will want to keep a toehold here.

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