FILECOPY ReportNo. 2306-PAN Panama'sDevelopment in the 1980's: A SpecialEconomic Report 97p Public Disclosure Authorized (In Two Volumes) t4 1 /J Volume1: The Report July20, 1979 LatinAmerica and Caribbean Region RET1UNTOLs G& Country ProgramsDepartment I INFORMATIONCENTER FOR OFFICIAL USE ONLY Public Disclosure Authorized U Public Disclosure Authorized Public Disclosure Authorized Documentof the World Bank Thisdocument has a restricteddistribution and maybe used by recipients oniy in the performanceof theirofficial duties. Its contentsmay not otherwisebe disclosedwithout Wo!IdBank authorization. Exchange Rate 1.00 Balboa = 1.00 U.S. Dollar Fiscal Year January 1 - December 31 Abbreviations AID = Agency for International Development APN = Auteridad Portuaria Nacional (National Port Authority) BDA = Banco de Desarrollo Agropecuario (Agricultural Development Bank) VNH = Banco Nacional Hipotecario (National Mortage Bank) CODEMIN = Corporacion de Desarrollo Minero (Cerro Colorado Mine Cerro Colorado Development Corporation) COFINA = Corporacion Financiera Nacional (National Finance Corporation) CZ = Canal Zone EDC = Export Development Corporation IDAAN = Instituto de Acueductos y (National Water and Sewerage Alcantarillados Nacional Institute) IDB = Inter-American Development Bank IDIAP = Instituto de Investigacion Agropecuaria (Agricultural Research Institute) IMA = Instituto de Mercadeo Agropecuario (Agricultural Marketing Institute) IPAT = Instituto Panameno de Turismo (Panamanian Tourism Institute) IRHE = Instituto de Recursos Hidraulicos (Hydraulic Resources and y de Electricidad Electricity Institute) INTEL = Instituto Nacional de (National Telecommunication Telecommunicaciones Institute) MICI = Ministerio de Industria y Comercio (Ministry of Industry and Commerce) MIDA = Ministerio de Desarrollo (Ministry of Agriculture) Agropecuario MIVI = Ministerio de Vivienda (Ministry of Housing) MPPE = Ministerio de Planificacion y (Ministry of Planning and Politica Economica Economic Policy) ZLC = Zona Libre de Colon (Colon Free Zone) FOR OFFICIALUSE ONLY TABLE OF CONTENTS Page No. DATA SHEET SUMMARY AND CONCLUSIONS MAP I. INTRODUCTION .......................................... I II. THE PAST PATTERN OF PANAMANIAN DEVELOPMENT .... ........ 1 A. Before 1968 ...................................... I B. 1968 to 1978 ..................................... 9 III. THE NEW CANAL TREATY ................................ 31 A. The Treaty ....................................... 31 B. Implementation of the Treaty ..................... 32 C. Short and Medium Term Impact of the Treaty ....... 37 IV. DEVELOPMENT ISSUES IN THE 1980'S ......... .. ........... 50 A. Spatial Growth Policies ........... .. ............. 53 B. Rural/Agricultural Development Issues .... ........ 56 C. Urban Issues ..................................... 64 D. Copper ...................... ..................... 72 E. Public Finances ................. ................. 77 This report is the product of an economic mission that visited Panama in June 1978. The members of the mission were Paul M. Meo (Chief), Herminia Martinez (Public Investment Program), Yoshine Uchimura (Young Professional), Luis Liberman (Spatial/Agricultural Analysis), Carlo Castelli (Canal), David Goodman (Urban Specialist), and Nancy Rodriguez (Secretary). The draft report was discussed with the Government in February 1979. This document hasa restricteddistribution and may be used by recipientsonly in the performance of their officialduties. Its contents may not otherwise be disclosed without World Bank authorization. Page 1 of 2 PANAMA - COUNTRY DATA GROSS NATIONAL PRODUCT IN 1978 (Prel.) ANNUAL RATE OF GROWTH (%, constant prices) US$ Mmn. % 1963-68 1968-73 1974-77 GNP at Market Prices 2,231.4 100.0 7.0 7.2 1.3 Gross Domestic Investment 601.1 26.9 10.5 11.1 -7.0 Gross National Saving 350.9 15.7 14.3 7.1 0 Current Account Balance -250.2 -11.2 Exports of Goods, NFS 927.1 41.5 8.2 4.5 -2.7 Imports of Goods, NFS 1,093.7 49.0 6.5 7.5 -5.4 OUTPUT, LABOR FORCE AND PRODUCTIVITY IN 1976 Value Added Labor Force/ V. A. Per Worker US$ Mln. % Thou. % US 5 % Agriculture 330.4 17.1 158.7 31.0 2082.0 55.1 Industry 474.0 24.5 83.5 16.3 5677.0 150.3 Services 1129.8 58.4 261.1 51.0 4327.0 114.5 Unallocated 8.7 1.7 - - Total/Average a 1934.2 100.0 512.0 100.0 3778.0 100.0 GOVERNMEN3TFINANCE 2/3/ General Government 2/ Central Government - (B/. Mln.) % of GDP (8/. Min.) % of GDP 1978 1978 1976-77 T978 1978 1976-77 Current Receipts - - - 417.5 i8.0 16.4 Current Expenditures - - - 4 j.4i9.8 16.5 Current Surplus -19.7 -0.9 0.1 -41.9 -.1.8 -0.1 Capital Expenditures 4/ 3395 14.7 16.5 141.7 6.1 6.1 External Assistance (net) - 456.1 19.7 14.5 277.6 ;2.0 4.9 MONEY, CREDIT AND PRICES 1972 1973 1974 1975 1976 1977 (Million B/. outstanding end period) Money and Quasi Money 5/ 440.4 506.4 596.4 622.1 732.3 791.0 Bank Credit to Public Sector 16.3 6.1 71.4 219.0 313.0 315.0 Bank Credit to Private Sector 703.5 965.1 1229.3 1279.2 1301.8 1369.7 (Percentages or Index Numbers) Money and Quasi Money as % of GDP 33.9 34.4 32.5 32.2 36.5 37,1 General Price Index (1963 = 100) 128.1 141.6 1 4.4 210.3 226.7 243.0 Annual percentage changes in: General Price Index (wholesale) 8.5 10.5 30.2 14.0 7.8 7.2 Bank Credit to Public Sector -4.0 -63.0 1070.0 207.0 42.9 0.6 Bank Credit to Private Sector 33.1 37.2 27.4 4.1 1.8 5.2 Note: In early 1979, the Government revised downwards slightly its estimates of GDP in current prices. While the ratios on this page reflect the new GDP estimates, the real increases used stem from the old services, which has not yet been revised. 1/ Total labor force; unemployed are allocated to sector of their normal occupation. "Unallocated" consists mainly of unemployed workers seeking their first job. Excludes collective settlements and indigenous population. 2/ Excludes financial intermediaries. Includes Government owned enterprises. 3/ Cash basis. 4/ The net external borrowing for 1978 is about B/lO million higher than that used for deficit financing in 1978; it will be used during 1979. The pulilicsector deficit was 15.4 percent of GDP in 1978. 5/ Demand, time and savings deposits only. The amount of US dollars in circulation is unknown. Balboa issues are limited to coins. Page 2 of 2 PANAMA- COUNTRYDATA BALANCEOF PAYMENTS MERCHANDISEEXPORTS (AVERAGE 1975-77) 1974 1975 1976 1977 US $ Mln. / (Million US$) Bananas 61.3 24.4 Exports of Goods, NFS - 751.5 851.5 804.2 844.5 Refined petroleum - 58.6 23.3 Imports of Goods, NFS -918.4 -992.1 -961.0 -998.2 Shrimp 27.2 10.8 Resource Gap (Deficit = -) -166.9 -140.6 -156.8 -153.7 Sugar 31.9 12.7 Coffee 3.5 1.4 Interest Payments (net) -55.0 -20.8 -33.3 - 39.0 All other commodities 68.7 27.3 Workers' Remittances - - - - Other Factor Payments (net) - - - - Net Transfers -4.2 -5.0 -4.5 -6.6 Balance on Current Account -226.1 -166.4 -194.6 -199.3 Total 2-25.2 100.0 Balance Direct Foreign Investment 35.4 10.2 7.3 8.0 EXTERNAL DEBT, DECEMBER 31, 1978 Net MLT Borrowing Disbursements 196.7 206.9 309.7 358.4 US 5 Mln. Amortization -93.1 -31.1 -74.2 -89.7 Subtotal 103.6 175.8 235.5 268.7 Public Debt, incl. guaranteed 1,894.9 Capital Grants 9.9 6.0 6.5 5.0 Non-Guaranteed Private Debt Other Capital (net) 2/ -194.8 -155.5 -101.0 -104.9 Total outstanding & Disbursed 1,894.9 Increase in Reserves (-)- 272.0 129.9 46.3 22.4 DEBT SERVICE RATIO FOR 1977 Fuel and Related Materials Imports 277.4 330.7 265.0 254.2 Public Debt, incl. guaranteed 19.9 of which: Petroleum 271.1 324.2 258.4 247.6 Non-Guaranteed Private Debt Exports 227.5 263.1 187.3 178.5 Total outstanding & Disbursed 19.9 of which: Petroleum 227.5 263.1 187.3 178.5 IBRD/IDA LENDING, (12/31/1977) (Million US$) RATE OF EXCIIANGE IBRD Through - 1978 Outstanding & Disbursed 99.1 US $ 1.00 = B/. 1.00 Undisbursed 92.9 B/. 1.00 = US$ 1.00 Outstanding incl. Undisbursed 192.0 1/ Ratio of Debt Service to Exports of Goods Non-Factor Services plus workers' remittances. 2/ Net foreign transactions of the banking system. 3/ Excludes sale of bunker oil. 4/ Includes earnings of Panamanians who work in the Canal Zone. not available not applicalbe Country Programs I Latin America and the Caribbean Regional Office SUMMARY AND CONCLUSIONS Even before its independence Panama's urban economy was closely linked to traffic passing across Panama between the Pacific and Atlantic Oceans. Shortly after its independence Panama became the site of one of the world's two most important canals. The new canal treaties ratified by Panama and the United States in 1978 mean that Panama will own and operate this canal at the end of this century. In less than a year substantial land, infrastructure, revenues, and responsibilities regarding the canal will revert to Panama. These treaties again focus attention on the means by which Panama can more fully reap the benefits of it strategic location. In the past ten years the Government of Panama has undertaken a substantial development effort. This effort, the resulting changes in the economy, and the burden it placed on public finances have been documented in prior World Bank reports. This report sums up Panama's experience over the last ten years, the responsibilities and opportunities of the new treaties, and a revised devel- opment strategy consistent with both past and future perspectives. Between 1955 and and 1968 Panama's GDP grew at over 7 percent annually. Secondary activities located in the Metropolitan Area adjoining the Panama Canal grew at over 10 percent; urban services expanded at only a slightly lower rate.