THE attempt of President Ernesto Perez Balladares to open one of the most protected economies in Central America to international competition seems to have succeeded. But the political cost may be great.
While the Legislative Assembly debated legislation "modernizing" the Labor Code in past weeks, several of the country's largest unions took to the streets. The result: three days of rioting last week that left four dead, scores injured, and hundreds arrested.
Although described by commentators as the worst civil unrest since protests in the late 1980s against then-dictator Gen. Manuel Antonio Noriega, the protests and strike failed to halt the reforms to the code, which the Assembly passed in a narrow 37 to 32 vote on Aug. 12.
The code, drawn up in 1971 under the left-leaning populist dictatorship of Gen. Omar Torrijos, gave workers more rights and benefits than in any other country in Central America.
Changes to the code have been debated in Panama for years, but it took the center-right administration of President Perez Balladares, a stalwart of former dictator Manuel Noriega's ex-political party, to cement them.
The new law allows companies to cut salaries in times of national or international crisis. It also reduces pensions and sharply limits the amount that companies must pay striking workers.
Businesses will no longer have to put aside some of their workers' paychecks for social security and pension plans.
Perez Balladares cited "foreign investment" and the "future of Panama" as key reasons for changes in the Labor Code. Panama hopes to join the World Trade Organization this year as well as the North AmericanFree Trade Agreement.
"I don't think these reforms will benefit the economy," says Miguel Antonio Bernal, a law professor at the University of Panama.
"They [the Democratic Revolutionary Party, or PRD] tried the same thing nine years ago. Where are the investors and jobs now?"
The bill ran close in the Legislative Assembly.
One of the legislators against the reforms, Olmedo Guillen, a member of the small Civil Renovation Party, described the reforms as a "quick, easy, and cheap way to fire people."
The new Papa Egoro party of pop singer Ruben Blades has also strongly opposed the reforms.
But Panama's current labor problems are far from cheap in human or economic terms.
"What has come from the lives of four people, more than 400 Panamanians under arrest, hundreds of injuries, and losses of more than $20 million a day?" asked union leaders in a letter to Perez Balladares read on national television Aug. 12.
The political price for Perez Balladares and his PRD could also turn out to be expensive at the next general elections.
Many supporters of the PRD, which draws its base from working-class Panamanians and is the party that originated the reforms, are dismayed at the force with which the reforms have been pushed through.
The PRD youth league and Solidaridad (PRD's legislative voting ally) threatened to jump ship and back the strikers, forcing Perez Balladares to make two minor concessions.
Others in the PRD have been more outspoken, calling the party "traitors to the people" and accusing it of reneging on its historical role as protector of ordinary people. This has become a popular rallying cry for unions.
Some commentators think Perez Balladares may have irreparably damaged the core of his support.
But the president has said that the strikers had no general public support. He called the strikers "small groups seeking a martyr to get backing which they have failed to get and will never get."
While the strikers have returned to work, and Perez Balladares has won this round, the unions say they will continue the fight, through the courts.