UNN-26 Public Disclosure Authorized SOME ASPECTS OF THE ECONOMY OF

Prepared by

Romeo Dalla Chiesa Public Disclosure Authorized

for the

GOVERNMENT OF THE REPUBLIC OF PANAMA Public Disclosure Authorized

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Washington, D. C. Public Disclosure Authorized May 1957 SOME ASPECTS OF THE ECONOMY CF PANA 1/

Table of Contents

Page

Economic History 1

International Trade and Payments 2

The Size, Age, and Skill of the Population 4

Capital and Capital Formation 8

National Income and Output 10

Agriculture, Forestry and Fishing 12

Industry and Commerce 14

1 This study was prepared in December 1956. The Economic

1. The history of Panama has been influenced by trade across the Isthmus from the discovery of the Pacific by Balboa in 1513 to the present day. The first commercial route was the gold road from to Portobello which carried the wealth of the colonies to the Atlantic seaboard for shipment to . Panama was a center of American trade for almost two centuries and came to ba amongst the wealthiest of the Snanish colonies. This prosperity was generated almost exclusively by commerce. There was some development of light manufacturing, which was, however, frustrated by Spanish taxes. Apart from this, productive acti-vity in Panama was confined to subsistence farming by indians and escaped slaves. Panamals importance as a trading center declined Twith the decline of Spain, and came to an abrupt end when Henry Morgan destroyed Panama City. 2. In the middle of the nineteenth century, the California gold fever spread through the South Sea. Thousands crossed the Isthmus following the "Darien route," and -old from California was shipped to the Eastern ports by way of Panama. Under this stimulus, a railroad was built from Palnama City to Colon. Panama--then part of the Renublic of Colombia--experienced a short revival which came to an end with the decline of the railroad traffic. 3. After a long struggle Panama became an independent nation in 1903. TsTith independence came some awareness of the opportunities offered by the geographic position and natural resources of the country, wh'ich for centuries had suffered the greed and neglect of foreign administrators. It was not, however, until recent yrears that attempts have been made to develop the country. 4. In 1914 came the opening of the Canal which had a profound influence on the economic position, and on the economic attitude of . The attitude is called "Canal mentality," i.euf, the prevailing belief that the Republic exists by and for the Canal. Since 1914 Panama's economic pursuits have been related in a very high degree to demand arising from the Canal, and from the strip of leased to the which is called "Canal Zone." The Canal and its related activities have absorbed a large proDortion of Panama's labor sunr^ly at comparatively high wage rates. In 1940, for instance, when activities on the Isthmus had not reached the peak level of the war years, about 14 percent of Panama's gainfulla, employed population and 30 percent of its salary and wage earners were employed in the Canal Zone. mSnoloyees of the Zone comprised the second largest occupa- tional group in the nation. Imnortant elements in the Panamanian community have been engaged in catering to the Canal's needs. Bars, restaurants, and stores selling liquor, clothinu, jewelry, gifts and novelties flourish on account of the patronage of soldiers, sailors, American employees, tourists and transients from the Canal and the Zone. VTholesale merchants and commercial farmaers have been largely dependent upon bulk purchases made by U.-. Government agencies, especially of agricultural products grown in the Republic. liJhole- sale and export trade hardly existed at all before the opening of the Canal - 2- but developed during the past few decades, together with supporting industrial and servicing activities. Panama also receives financial and transfer pay- ments originating in the Canal., such as payments to contractors, capital transfers particularly in the form of portfolio investment, and direct pay- ments to the Panamanian Government. 5. The importance of the Canal to Panama may be expressed in quanti- tative terms. In the early 19LOts, for instance, it was estimated that about 4O percent of the national income of Panama originated in the Canal Zone. Of the income coming from the Zone, 83 percent was in the form of wages arnd salaries, plus the earnings of self-employed personis; the reirmaining 17 percent was in the form of net profit to business, and returns on property* The net contributions of the Canal Zone to the economy of Panama ranged from ",20 million in 1939 to $85 million at the Deak, in 1942. They averaged around A40o million in 1946-195O, and finally levelled off at about 835 million during more recent years. These receipts have enabled Panama to offset, to a large extent, her deficit on current account vis-a-vis the rest of the world. 6. But the Canal has not been an unmixed blessing. It has turned the attention of Panamanians away from the development of the resources of their country. It has created a sharp distinction between the capital and the rest of the country, by causing a concentration of business and political power in Panama City. The influence of business in politics has also given a disproportionate share of government services to Panama City.

7. Unless the Canal Zone can be exploited more intensively as a market for Panamanian goods and services, its contribution to Panama's national income is bound to decrease su:bstantially over the next ten years. On a per capita basis, the countrJy's net receipts from the Zone are already far below the 1940 level. Even when expressed in current prices, they declined frorn $163 in 1940 to about ASO in 1955. A reasonable estimate of the position in 1965 is that receipts fromn the Canal would fall to 530 per head. This is based on the assumptions that population will continue to grow at the compound annual rate of about 3.0 percent and that total net receipts will not be lower than at the presenit (i.e., ,A3 million), a slight decline in the employment of Panananians in the Zone being possibly offset by larger exports of goods. to the Zone.

International Trade and Payments

Panama's balance of payments is unfavorable but less so than the figures would suggest. The statistics of exports omit firstly the amount of imports that is reexported, and which has been estimated at a fi-fth of total imports. Secondly, the declared value of produce exported by the foreign owned plantation companies is below their commercial value, which has been estimated at 85 percent above the declared value. Part of the difference, however, returns to Panama bv way of invisible receipts. The following table shows the pattern of Panama's imports: -3-

Panama's Imports by Categories, 1950-1954

(% of value of total imports)

A. Consumption Goods 51.l B. Raw ancd Semimanufactured Mlaterials 22.5 1. Foodstuffs of which: 14.5 C. Fuels, Lubricants and - Prime necessities (-) 6D7 Related Products 8.5 - All others (*r) 7.8 D. Capital Goods1 of which: 2. Beverages and tobacco, mfg. 5.0 - mate- 3. Finished cloths and shoes 5.7 rials ancl equip- 4. Other nondurable 8.8 ment 4.8 5. Durable consumnption goods 17.1 - Agricultural machi- of which: nery and implementsO.5 - Cars and other vehicles - Transnort equipment 5.l for personal use )X.1 - Industrial efluipment 0.9 - Cooking, heating,radios - Other capital goods 5.6 and other electric F. Unclassified Imnorts 1.0 household goods 1.7 - All other durable 11.3 Total Imoorts 100.0

( Classification based on family's budget sample study.

It is on account of the entreaot trade that consumer goods make up so large a proportion--over 50 percent--of total imports. Durable consumer goods, for example, represent over 17 percent of total imports, and consist principally of luxury items which Panamanian customers could not afford to ourchase on such a scale. Similarly, more than half of food imports is represented by items which, according to studies of family budgets, are not generally included in the diet of the average Panamanian.

Except for certain items, especially durable goods, imports of consumer goods have increased less rapidly than imports of raw materials and capital goods. The increase in domestic agricultural production is responsible for a decline in imports of live animals, food and drink from 22 percent of total imrorts in 1904.-47 to 19 percent in 1950-1951•. A growth of industrial investment has accounted for an increase in the pro- portion of imports of raw materials and capital goods, from 25 percent of total imports directly after the war, to hlO nercent in 1950-5). The pattern of Panama's export trade is shown in the following table:

Panama's E-rports by Prindf,.! cmmodities (percent of value of total exports) Period Total Cacao Abaca All others 1946-50 100.0 69.2 7.4 12.4 - 11.0 1950-54 100.0 70.6 6.4 6.6 5.2 11.2 Note: Based on recorded exnort data with due adjustment for valuation. Bananas, cacao and abaca--produced and sold chiefly by the Chiriqui Land Co., a subsidiary of the United Fruit Comnany--account for more than three-fourths of total exports. During recent years, however, a new product, shrimps, has become important. Sxports of shrimnps t-thich were nil or insigniificant up to 1950, now represent a source of B/ 31 million of net earnings for the country, or some five percent of total exp,o.,rts. Abaca fiber exports, on the other hand, have declined quite substantially since the war. plantations are being improved, and cacao production has been greatly expanded in recent years. EPxports of both commodities are expected to increase in the near future. The compilation of estimates of Panama's balance of payments is not made easier by the country's geographic position, the presence within its political boundaries of an important area under foreign administraticn with which the Republic maintains the freest inter- course, and the use of the U.S. dollar as the de facto national currency. The aggregate deficit of the Republic with the rest of the world on account of goods, services and donations is estimated at about $18 million per year during the period 1950-1955. There is, however, reason to believe that the external position of Panama is more favorable than the figures seem to indicate. If,for instance, allowance were made for underestimates, and for the substantial current and capital transactions wqhich still go unrecorded, the deficit on current transactions would be substantially reduced.

Balance of Payments of Panama, 1950-1955 (in millions of Balboas)

1950 1951 1952 1953 1954; 1955(r') Transactions with the Canal Zone 38.5 35.3 34.9 36.8 35.2 1..6 Other goods and services -49.9 -52.6 -60.9 -50.5 -16.7 -h4.5 Donations - 5.7 - 3.8 - o.5 - )4.2 - 5.6 - 6.5 Total current transactions -17.1 -21.1 -26.5 -17.9 -17.1 - 9.4 Private capital - 2.7 2.0 l4.O 30j 7.0 1.8 Official and bank capital 5.0 0.9 - 1.8 - 6.3 - 0.2 Net errors and omissions l4.5 18.2 22.5 16.3 16.4 7.8 1/ No sign indicates credit; minus sign indicates debt. 7-1*)Preliminary.

The Size, Age and Skill of the Population Populatioon increased from 290,000 in 1911 to 890,000 in 1956, the rate of natural increase averaging about 2.6 per annum for most of this period. It has become closer to 3 percent in more recent years largely on account of a decrease in infant and childhood mortality with fertility con- tinuing at a high level. As a result of the prevaili-ng vital trends, Panama's population is expected to be over 1.5 million in 1980, imnlying an increase in population density from the present average of 12 to about 20 persons per square kilometer. Panama is, therefore, a sparsely settled country and will continue to be so for many years to come. Settlement is, however, uneven. There are large areas, principally east of the Canal -iid along the Atlantic coast with less than five persons per square kilometer, settlement being prevented by rugged topography, hazards to health, and lack of communications. On the other hand, densities of over 100 persons per square kilometer are found in the relatively arid provinces of Los Santos and Herrera in the Azuero peninsuila, as well as in the Panama province. There, population pressure on meager resources results in low agricultural productivity and disguised unemployment. Finally, between the two extremes of almost uninhabited tracts of land and over- populated districts, there is the large area extending, south of the mountains, west of the Canal to the Costa Rican border with a population density rang- ing from 10 to 30 persons per square kilometer.

The land here would support a denser population, which is, however, iept dispersed by the large landownriers, who held large tracts of arable land for cattle range or for speculative purposes. It is in this part of Panama that the density of population may be said to be low in relation to available resources.

The findings as to the wide range of population densitiy suggest that there is a major problem of obtaining a better distribution of popula- tion in relation to economic resources and employment opportunities. In this connection it may be noted that the government still holds large armounts of land suitable for developmenit. Colonization projects may not involve large numbers of people, and the scale of operations should not be too hard to manage.

The size of the labor supply varies not only in proportion to the size of the population but also in relationto its age structure. In Panama, the population is relatively young. The median age is only slightly higher than 19 years, or the same as for the United States at the beginning of the nineteenth century. The rural population is even younger. Children acco-Lmt for almost 42 percent of the total population. Less than 53 percent of the population is of working age, wihile the remaining 5 percent are of 60 years and over. This means that the ratio of persons who are in a dependent status to those of wiorking age is about 9 to 10 compared with an average of 5 to 10 in advanced countries. This is a very high depen- dency ratio, especially for a country wrhere a large proportion of the people of working age are unemployed or underemployed, and where produc- tivity is low. There is not likely to be much change in this age struc- ture during the next few decades as the excess of fertility over mortality is expected to continue. The burden of dependency is frequently resolved by putting the children to work, especially within the rural poDulation. This practice appears to have declined in recent years. Thus, while in 1940 about 20 percent of the children of l0-l1 years of age were reported as economically active, in 1950 the ratio had declined to less than 12 percent. -6-

The burden of dependency would be heavy even if the adult labor force were fully employed. This is not, however, the case. Unemoloyment, which Twias Dractically non-existent in 19l.g0 is now estimated at between 30 and 50,O00, most of whom live in the cities of Panama and Colon. There is little open unemployment in agriculture, but a good deal of dis- guised unemployment. In 1950, there were known to be about 38,000 people on small peasant nlots subsisting on a share of the family income, and contributing virtually nothing to Droduction.

The problem of growth must be viewed against this somewhat alarm- ing domegraphic background. For the period 1950-1954 as a whole popula- tion increased at an annual average rate of 2.9 percent, compared with an increase in the country's total real income of only 2.5 perce.nt which brought about a reduction in the real income per head from B/ 289 in 1950 to 285 in 1954, or a d 9line of 0.4 percent on the average for the period under consideration.-

Population and Per Capita Incomne

Average rate of 1950 1954 growth: 1950-54

Population (thousand) 757 8 46 2.9% (million) 206 231 2.9% Gross national income (million) 219 241 2.5% Gross per capita income (Balboas) 289 285 -0.4% Mlemorandum: Net per capita income (278) (268) (-0.9%) (Balboas) 1/

Note: All data are shown at constant market prices.

1/ The reduction in real per capita income would appear even greater by the use of Net YTational Income figures at market -orices, that is to say, after deducting Lrom the Gross Ntatiowial Product the provisions for consumption of fixed capital, i.e., depreciation charges. The best available data appear to show that the incidence of these charges increased quite substantially over the neriod 1950-195b.. It is felt, however, that this greater incidence is rather fictitious, since it must be explained more in terms of a greater coverage and better report- ing of income tax declarations--as a result of a stricter enforcement of the tax law--rather than a function of an accelerated rate of depre- ciation allowances. -7-

The average income per head is not, of course, an adequate indica- tion of the general standard of living in Panama. There are great differ- ences betwueen rich and poor, and even between urban and rural workers. In this latter connection, the average income per head of farm workers in 1950 was 3/ 460, compared with B/ 1,150 per head for urban labor. The average number of dependents per worker Twas four in the country, and three in the city, which implies that income per head of the population was B/ 115 in the country, and B/ 385 in the city. There are also wide dispar. ities of income within the two sectors, The largest part of total income originating in agriculture was accounted for by a few big companies and a small number of commnercial farmers, the average income of about 85,000 farms--a nroductive unit including at least six people--being somewhat lower than B/ 100 per year. In industry, commerce, and services,about 55 percent of salary and wage earners received, on average, less than B/ 600 in 1950. Profits, rent and interest absorbed the largest share of industrial income. Certain changes have taken place in the pattern of income distri- bution between 19"0 and l954. The standard of living of the average city worker has fallen, the reduction in activity in the Canal Zone having created unemprloyment mainly in Panama City and Colon. There has, however, been some increase in rural living stanidards since 1950, on account of greater demand for farm products, and hi-gher productivity. Farmers -who previously lived on a subsistence level have begun to earn cash incomes from the sale of produce. With respect to the skill and ability of its population, Panama may at first convey a better general impression than some other countries at the same stage of economic development. In the past few decades there has been a remarkable spread of general edtucation. Between 1911 and 1950, illiteracy among people of 10 years and over declined from 72 to 28 percent.7I With res- pect to specialized skills Panama possesses a fairly good nucleus of technic- ally trained workers for industrial emiployment, and of professionals. l1echanizs and machine operators, electrical fitters, plunbers, carpenters, telegraph-tele- phone and press operators, drivers and conductors account for between 25 and 30 percent of the economically active population in the urban centers. Among the Caribbean Republics, Panama probably has the highest per- centage of engineering school graduates, some of whom have been trained in the United States. The Society of Architects and Engineers in Panama City lists some two hundred members, of which more than two-thirds are civil engineers and architects wihile the remainder are scattered through a variety of other engi- neering pursuits. There is a cadre of well-trained statisticians ancl accoun- tants, especially within the public service, and efforts are being made to secure for them the benefits of study abroad. There is a primary school teach. er in Panama for every 45 children of 7-15 years of age, one physician for every 3,,200 population, and one nurse per 750 people. These general ratios for the whole of Panama compare favorably with those obtaining in many other Latin American countries, though they remain inadequate in relation to the require- ments of development. In government service there is also a lack of capable administrators and technicians to carry out even a minimum program,

1/ Comparative figures of illiteracy percentage: Colombia 44%; 21%; Dominican Repulblic 43%; Ecuador hhc"; El Salvador 60%; Guatemala 72%; Haiti 90%; Honduras 65%; Mexioo 514.. Source: U.N. Demographic Yearbook, -1955. -8-

Capital and Capital Formation

Real capital is scarce in relation to Panamats population and natural sources. Panama's labor force is virtually unaided by power of any kind. Electric generating capacity amounts to 35,500 kw, of which 75% is installed in the cities of Panama and Colon. In the interior some 600,000 people are served by small thermal plants, operating intermittently, with a total generating capacity of 9,000 kwv,or some 1 watts per head. The majority of farms have no animal or mechanized power. There are only about 600 farm tractors in Panama and most of them are concentrated in company banana and plantations. Regarding other capital resources about 99% of the 85,00o farms surveyed by the 1950 census had only a shallow well, or none at all; a house worth less than $80; no draft animals, and only crude hand tools for working the land.

Rural transportation is very poor. About 80% of the farmers still send their produce to market either by human carriers, pack horse, or boat, and only 8o can afford truck transport. Serious spoilage of products, lower returns to producers, waste of farm surpluses, excessive wear of transport equipment, are but a few of the ill-effects of the gaps in the system of feeder roads linking the agricultural areas writh market centers. On account of lack of maintenance the telecommunicationi system established by the U.S. Army is gradually reaching its life expectancy and p oint of collapse. The country lacks in general modern buildings and equipment for production, storage, waste disposal, health, and education.

In Panama, data on capital formation for the years 1950-1954L show that the level of gross investment came to an average of 12 percent of the gross national product.

Gross Capital Formation by SType of Capital Goods, 19504L412 (millions oT Balboas at 1950 prices) 1950 1951 1952 1953 1954

A. Fixed Capital formation 19.3 18.2 19.3 21.3 25.0

a. Construction materials, imported and domestically produced 9.8 11.1 10.7 10.9 13.7 b. Agricultiral & industrial machinery 15 0.8 1.1 1.0 1.1 c. Transport equipment 4.3 3.4 4.1 4.2 4.7 d. Other capital goods, n.e. 3.7 2.9 3.4 5.2 5.5

B. Increase in stocks 8.2 6.9 14.5 0.5 .8

Gross Capital Formation, Total 27.5 25.1 33.8 21.8 25.8

Ratio to Gross National Product 12.6% 11.3% 14.3% 965% 10.7%

Footnote on followving page An average rate of 12 percent of the gross rational product going into investment would appear satisfactory at first glance, by comparison with the general performance of underdeveloped countries. This judgment is, however, subject to two qualifications. Firstly, betwveen 140 and 50a, of the absolute figure of gross capital formation represents trade profits and transportation costs. iqonopolistic practices allow importers to charge unduly high mark-ups on the imported capital goods that account for between 70 and 75•'of gross capital formation. Imports account for half of the materials employed in construction, and all the machinery and equipment used in every trade. In addition to this, high cost transportation raises the price of equipment at the point where it is installed.

The second reason for taking a less favorable view of investment in Panama than is imnlied by the statistics is that the productivity of capital is low. In industry this is largely on account of excs s capacity resulting from slackening of demand or bad investment planning. In power, tele- communications and transportation in particular - where 'public authorities carry out most of investment - it is primarily on account of inefficient organization and execution of projects, wasteful use of capital equipment and the postponement of maintenance.

The relationship of investment to output which may be derived from aggregate statistics is therefore somewhat misleading. 73etween 1950 and 1954h fixed capital formation amounted to B/78 million wrihile gross domestic product increased by B/25 million, indicating a capital-output ratio of 3.1 to 1. But it was agriculture, where little invest.ment had taken place, that made the greatest contribution to the increase in the nation's production. By contrast, the sector where the largest amoun+s of investment had been made was luxury housing, which may be said to have contributed little to the wealth of the nation. 17/Es ates of capital formation presented here are based on imports and local production of durable and capital goods. The selections of items was made on the principle that in underdeveloped countries any durable goods which can be applied to production processes and wirhich directly or indirectly migh lead to higher production levels over the short or long-run can be considered capital equipment. Therefore, animals used for reproduction purposes, seeds for improving crops or introducing new crops, rubber tires for trucks, cement bricks, tiles, glass-, iron, fixtures, cars providing essential passenger traffic, bicycles, sewing machines, professional tools, office equipment, etc. are all considered capital goods. A number of assumptions of varying degree of validity had to be made to adjust the recorded value of capital and durable goods, both imported and locally produced, for cost of trans- portation and mark-ups of importers, wholesalers and distributors, and for the value added in construction activities. It is of interest to note, however, that the value added in construction was equivalent to about 144 percent of the total value, a ratio which,-has been calculated on the basis of information collected from builders and contrac:tors. - 10 - National Income and Output During, and immediately after the war, Panara experienced a steady expansion of income as a result of greater payments from the Canal Zone. This was accompanied by higher imports of luxury and consumption goods, the accumulation of foreign assets and cash balances, rising bank deposits, and speculative investment in residential houses and other real estate. By the end of 1948 the wave of prosperity had subsided and, as revealed by the data presented in the following table the country started to face a difficult problem of economic readjustment, which has not yet been satisfactorily resolved.

Selected Economic Indicators

Indices: 1945 100

1948 1951

Net receipts from the Canal Zone 75 65 Imports 140 145 National qov3rnment revenues 121 121 National govermnent expenditures 109 103 National government debt 162 214 Banc deposits: demand (private) 68 58 Bank deposits: time (total) 77 65 Building construction 60 38

The fall in the Republic's invisible exports to the Canal Zone sharply curtailed its capacity to pay for the high level of imports from the rest of the world to which it had become accustomed. Total balance of payments deficits between 1946-49 amounted to some B/ 75 million, and were reflected in a contraction in the supply of money and in a gradual decline in the liquidity of the banking system. At the end of 1950 the only Panama-oT,tned and operated private banking institution was forced to suspend operations because a run reduced cash on hand below the legal requirement. Building construction activity in Panama City and Colon which had attained a total value of about B/ 13 million in 1945, dwindled to a yearly average of B/ 5 million during the period 194}9-l951 Such is the background for developments sicee 1950.

The value of all goods and services produced in the country, the gross domestic product at mnarket prices, increased from B! 206 million in 1950 to B/ 25h million in 195b. Du-ring the same period, Panama's gross national income, i.e., the market valuLie of the domestic product plus the income accruing from abroad grew from B/ 219 million to B/ 264 million. Gross Domestic Product and National IncomeL/ (in millions of BalToas)

At current prices At 1950 prices 1950 1954 195T0 J-954

Private Consumption Expenditures 170 210 170 205 General Government consumption expencditures 31 39 31 38 Gross Capital Formation 28 28 28 26 Exports of Goods and services 68 107 68 88 Less Imports of Goods and services 91 131 91 126 Gross Domestic Product at market prices 206 254 206 231 Plus Net Factor Income Payments from the rest of the world 13 10 13 10 Gross National Inicome 219 264 219 241

Note: Details may not add to totals because of rounding.

l/Lack of many types o statistics normally going into domestic product and national income data made it necessary to approach the compilation of national account,s from statistics on the volume and value of production of goods and services with such supplements and adjustments as other available information indicated to be necessary or desirable. A discussion of the procedures used in making the statistical estimates is found in the Appendix on National Accounts. In this context it suffices to mention that no single deflator was used in arriving at real output and income figures, but tha't, the aggregates were built up from volume indices of the several sectors, derived by varying methods.

A substantial part of the advance was, however., the result of price increases. Had the purchasing power of the balboa remained constant over the entire period, real output and real income woild have stood at B/231 million and B/241 million respectively by 1954. Expressed in annual rates, total real output grew at about 2.91., and real income at about 2.5% per anmum. Bearing in mind that this progress started from a depressed level of economic activity, it can hardly be considered satisfactory.

Real output increased 'oy some 12 percent within the years under consideration. Three major sectors of the economy, agriculture, public utilities and government administration, and commercial services, expanded while two sectors, manufacturing and construction activity, and ovwnership of dwellings, contracted.. - 12 -

Industrial Origin of Domestic Product (percentages)

1950 1954

Gross Domestic I±ioduct, at factor cost 100 100

1. Agriculture, forestry and fishing 33 34 2. Manufacturing, quarrying and construction 18 11 3. Public utilities and government administration 8 12 4. Commercial services 26 31 5. Ownership of dwellings 15 13

Note: Details may not add to totals because of rounding.

Succeeding paragraphs will deal with developments in agriculture, forestry and fishing, and in industr-y and commerce.

Agriculture, Forestry and Fishing

Half the arable land in Panama is used for grazing, or held idle for speculative purposes. Its settlement is hindered by the large landowners, with the result that many of the peasants have to hire out, migrate, or practise a nomadic subsistence agriculture on the lower mountain slopes, moving on as they exhaust the soil. Cash crops are grown principally by the plantation companies, a few commercial farmers, and those peasants who have managed to improve t-heir productivity slightly in recent years, and raise a small marketable surplus.

Rain forest covers 20,000 square miles, or 70 percent of the country. No comprehensive forest survey has ever been carried out, but con- servative estimates indicate that there are at least 20 to 30 billioni board feet of timber in the province of Darien alone. Of the several hundred species of trees which are found, only a few of the high. quality woods are marketable in the export trade, but more than 15 or 20 could support domestic industries if they were accessible and concentrated stands. VWh'erever roads have been built, timber has been cut in an unrestricted and unplanned manner resulting in losses far beyond the simple waste of wood. In these areas, new growth is not replacing the forest; desirable species are disappearing; and the soil is beirg exhausted by the cultivation of forest lands which are not capable of supporting permanent agriculture. Some sources of water are being denuded of trees, and are losing their retention capacity.

Until recently very little opportunity had been taken of the countryts long coastline to establish an organized fishery industry and to supplement the starchy diet of; the bulk of the population. The fishing and freezing industry, one of the fastest growing activities in PanamLa, was organized on a commercial basis only a few years ago. At the same time, a 31 - beginning has been made on fish meal production for local use as a constituent of h6g and poultry feed. While the fishing grounds of Panama cannot be compared with those off the coast o.f Peru and Venezuela, they are good enough in quantit-y and variety to sustain an increasing supply of fish for domestic consumption and processing. Here again however., further developmenit is largely hampered by lack of knowledge. Some preliminary studies are under way, but considerably more research and exploration needs to be done before investment a potentials in boats, equipment and canneries can be determined, and before solution can be fLound to problems of freezing, storage and marketing.

So much for the background of resources in agriculture and fishing. The use to which they have been put is reflected in the output of different commodities. There are no figures for agricultural production over a period sufficiently long to make useful comparisons. It is, however, possible to compare the share of agriculture in total output in 1950 and 1954, when it increased from 33 to 34 percent. The output of forest products declined, but this was more than offset by a growthi of production in agriculture and fishing. This was attributable to increases in both employment and productivity. Within the last decade more workers found productive employment in agriculture than in all other economic pursuits combined. Some came only to inflate the large number of part-time family employees, but the largest increase in the agricultural labor force was recorded among full-time workers. At present, some 55 percent of the working populatioin is engaged in livestock raising, forestry and fishing as against an estimated 52 percent in the early 1940Ts.

Output has increased quite significantly since 1950 as a result of the increased purchasing power of the immediate postwar period, a widening of the market economy for farm surpluses, higher prices and government support- is ing actions. Production of , a staple item in the Panamanian diet which produced on about 85 percent of the farms, increased by some 20 percent between 1950 and 1954. Local demands are being met and Panamanian rice may shortly reach world markets. During the same period production of corn and sugar has expanded by 22 and 39 percent respectively. plantings are increasing and in the next fe.w years production and exports should show significant gains. Banana production has been expanding largely as a result of a temporary increase in world prices and the reclamation of old banana lands which were abandoned some years ago on account of Panama disease. For crops other than rice, sugar, corn, coffee and bananas, statistics are fragmentary and unreliable. They indicate however, that betveen 1950 and 1954 production of such crops as tomatoes, vegetables, tobacco, yucca, plantains and avocados increased quite of substantially. No significant changes have occurred in the production cacao, beans and fruits, though -prospects are good especially for oranges, Livestock raising has also increased. For example, until a few years ago, Panama produced barely enough cattle for domestic consumption. At present the output has been raised to the point where Panama is supplying exports has to the Canal Zone and to some Caribbean countries. Production of chickens almost doubled in recent years, while poultry and egg imports have been drastically reduced. Hog production, though still inadequate to meet domestic demand, has experienced some improvements in quality as a result of imports of high-quality breeds. 14 -

With respect to fishing, the commercial catch has more than doulbled since 1950, and the shrimp industry, which was organized on a commercial basis in 1952, now yields an export income of B/4-5 million per year. There are other indications suggesting the extent of the advances obtained in agricultural output. Since 1950, the volume of overseas exports of agricultural products grew by about 25 percent, while those of foodstuffs to the Canal Zone increased almost threefold. The share of food products in total imports has declined from 20 percent in the 1940's to 15 percent at the present time, even though domestic consumption has not declined, which indicates a considerable degree of import substitution from domestic agriculture.

As a result of the increase in agricultural production, complemen- tary industries have continued to expand and to account for an increasing share of agricultural output. Milk processing has more than doubled since 1950. The production of evaporated and condensed canned milk has been keeping pace with a rapid growth in domestic demand. A new plant has been established to produce powdered milk. Since 1952 the National Abattoir, with its modern equipment and sanitary conditions, has made availabl'e increasing supplies of fresh meat for the Canal Zone.

Industry and Commerce

The share in total output of manufacturing and construction fell from 18 percent in 1950 to 11 percent in 1954. There are no adequate statistics for output by volume, but the information that is available indicates the decline occurred principally in construction and allied trades. Employment in construction is still well below the Frewar level, but output has recently started to show some signs of recovery mainly on account of the increase in expenditures on public works. Suppliers of building materials had expanded capacity with the increase of demand from the Canal Zone during the war, and the requirements of luxury house building in the boom of the middle 1940ts, but since 1950 they have been operating at 55-60 percent of capacity while some of the submarginal firms have been forced out of business. The same condition obtains in the beverage industry, one of the major activities in Panama, where for the past few years plant utilization has not exceeded 50 percent. There are also instances where excess capacity has emerged on account of lack of raw materials. For example, since 1950, the largest manufacturer of soap, detergents, edible oils, fats, and vegetable shortening has often had to curtail production because of shortages in the supply of , copra and tallow.. By placing excessive reliance upon protective measures, such as tariffs and import restrictions this industry has expanded too fast in relation to its supply of raw material. Both the Government and the management of the firm have recently taken active steps in order to remove this obstacle. With the protection of high tariffs, industry has been able to pass on the high cost of under-employed plants in the form of high prices.

The share in total output of commercial activity, commerce, dis- tribution, banking and tourism, has increased from 26 percent in 1950 to 31 percent in 1954. W.hile a certain widening of the market economy has occurred, the major influence has been an increase in the transient and tourist trade. Panama is a conveniexnt shopping place for tourists passing through the Canal, and the new international airport at Tocumen. The establishment of the Colon Free Zone has already helped to revive entrepot trade, particularly in the form of transshipment business from sea to air.