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World Bank Document Document of The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No. 39040-PA INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Public Disclosure Authorized COUNTRY PARTNERSHIP STRATEGY FOR THE REPUBLIC OF PANAMA FY2008-2010 Public Disclosure Authorized September 7,2007 Central America Country Management Unit Latin America and Caribbean Region International Bank for Reconstruction and Development This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its content may not otherwise be disclosed without World Bank authorization. Public Disclosure Authorized The last Interim Strategy Note for Panama was discussed by the Executive Directors on October 4, 2005 (Report No. 32887-PA dated August 30,2005) CURRENCY EQUIVALENTS Currency Unit = Balboa 1 US Dollar = 1 Balboa FISCAL YEAR: January 1 - December 31 ACRONYMS AND ABBREVIATIONS AAA Anajytical and Advisory Activities ANAM National Environment Authority ATTT Panama Transport Authority CAF Andean Development Corporation CAS Country Assistance rtrategy CCT Conditional Cash Transfer Program CEM Country Economic Memorandum CFAPAR Country Financial Accountability and Procurement Assessment Report CGR Controller GenerallContraloria General CPPR Country Portfolio Performance Review CPS Country Partnership Strategy css Social Security Institute DCP Public Procurement Directorate DEC National Census and Statistics Directorate DFID UK Department for International Development DGCP Directorate ofPublic CreditlDireccidn General de Cre'dito Pliblico DPL Development Policy Lending ESW Economic and Social Work FSL Fixed-spread Loan FTA Free Trade Agreement GDP Gross Domestic Product GEF Global Environment Fund GNI Gross National Income GOP Government ofPanama IBRD International Bank for Reconstruction and Development ICA Investment Climate Assessment ICR Implementation Completion Report IDB Inter-American Development Bank IFC International Finance Corporation IMF International Monetary Fund ISDA International Swaps and Derivatives Association ISN Interim Strategy Note JICA Japan International Cooperation Agency LAC Latin America and the Caribbean LSMS Living Standards Measurement Survey MDG Millennium Development Goals MEDUCA Ministry ofEducation MEF Ministry of Economy and Finance MIDA Ministry ofAgriculture MIDES Ministry of Social Development MINSA Ministry ofHealth MIS Management Information System NTB Non-tariff Barrier OECD Organization for Economic Cooperation and Development OED Operations Evaluation Department PA Poverty Assessment PAM Panama Municipal Authority PAMBC Rural Mesoamerica Biological Corridor PCA Panama Canal Authority PEFA Public Expenditure and Financial Accountability PFM Public Financial Management PPIAF Public-Private Infrastructure Advisory Facility PRONAT Panama Land Administration Project QAG Quality Assurance Group R&D Research and Development RDO Red de Oportunidades Program RPA Rural Producer Association SIAFPA Government Budget and Accounting System SINAP National Protected Areas System SME Small and Medium Enterprise SPIG Presidential Secretariat for Governmental Innovation TA Technical Assistance TFSCB Trust Fund for Statistical Building UNDP United Nations Development Program USAID United States Agency for International Development Vice President: Pamela Cox Country Director: Jane Armitage Task Team Leader: Jessica Poppele ACKNOWLEDGEMENTS The World Bank Group greatly appreciates the close collaboration with the Government of Panama in the preparation ofthis Country Partnership Strategy. World Bank Panama Country Team contributions were critical to the production of this document. Thanks go to Diomedes Berroa, Edward Bresnyan, Montserrat Bustello, Marlene Cordova, Anna Corsi, Frederic de Dinechin, Pablo Fajnzylber, David Gould, John Kellenberg, Ulrich Lachler, Benedicte Leroy de la Briere, Sonia C. Molina, Lars Moller, Pedro Olinto, Miguel Navarro-Martin, Sabine Perrissin, Andres Pizarro, Laura Rawlings, Manuel Salazar, Manuel Schiffler, Gerard0 Segura, Dean Thompson, Stig Trommer, Alexandria Valerio, Manuel Vargas, and Eduardo Wallentin. The document also benefited from valuable comments from OPCS and LCSOS. COUNTRY PARTNERSHIP STRATEGY FOR THE REPUBLIC OF PANAMA TABLE OF CONTENTS EXECUTIVE SUMMARY ............................................................................................................ i I. Country Context and Development Challenges ..................................................................... 1 Growth Dynamics........................................................................................................................ 1 Poverty and Inequality................................................................................................................. 4 Public Spending and Social Assistance ....................................................................................... 6 Summary of Development Challenges ........................................................................................ 7 I1. Government Strategy and Economic Outlook ....................................................................... 9 Medium-term Economic Outlook .............................................................................................. 10 I11. Panama -World Bank Partnership...................................................................................... 13 What Worked Well ................................................................................................................... -15 What Worked Less Well........................................................................................................... -16 Development Partners............................................................................................................... -16 World Bank Potential Added Value ......................................................................................... -17 Consultations ............................................................................................................................. 18 IV. Panama -World Bank Partnership Strategy (FYOS-10) .................................................... 20 Results Orientation and Monitoring ......................................................................................... -21 Capacity Building for More Effective Public Spending ............................................................ 23 World Bank Lending ................................................................................................................. 23 Analytical and Advisory Services ............................................................................................. 26 IFC Activities ............................................................................................................................ 26 Donor Harmonization and Coordination ................................................................................... 27 Risks .......................................................................................................................................... 27 TABLES .. Table 1: Panama 2004-2009 Strategic Vision ................................................................................ 11 Table 2: Panama Medium-Term Macroeconomic Framework .................................................... 11 Table 3 : Highlights of Government Program Advances to which the ISN Contributed ..............14 Table 4: Actions Taken on Lessons Identified in the ISN(FYO6-07) .......................................... 15 Table 5: Areas of World Bank Potential Added Value ................................................................ 18 Table 6: CPS Program Objectives and Select Areas ofAction .................................................... 20 Table 7: CPS Lending Program .................................................................................................... 24 BOXES Box 1. The Panama Canal .............................................................................................................. 3 Box 2 . Panama Business Environment ........................................................................................... 4 Box 3. Panama: Progress and Prospects for MDG Attainment ...................................................... 6 Box 4. GOP Strategic Vision of Economic and Employment Development Toward 2009.. ........-9 Box 5. GOP is Increasing Transparency and Accountability to Reduce Corruption and Improve Public Sector Efficiency .................................................................................................... 10 Box 6. The Panama-World Bank Development Partnership was Rebuilt through a Two-year Interim Strategy ................................................................................................................. 13 Box 7. Lessons and Recommendations from the Quality Assurance Group (QAG) ...................17 Box 8. Panama’s National Strategy for Development Statistics Advances with Bank Support ..21 Box 9. GOP Favors.. Building Local Capacity Over Use of Financial Agents ............................. .23 Box 10. Public Financial Management ......................................................................................... 25 FIGURES Figure 1.a. Panama: Historically Strong Growth ........................................................................... 2 Figure 1.b. Inequality.....................................................................................................................
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