Information about Western Hemisphere Hemisferio Occidental
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Panama

Author(s):
International Monetary Fund
Published Date:
March 1999
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Panama: Basic Data
I. Social and Demographic Indicators
Area (thousand sq. km)77,082Nutrition (1994)
Calorie intake
Population (1996)(per capita a day)2,534
Total (million)2.7
Rate of increase (percent a year)1.6Health (1994)
Density (per sq. km.)35.9Population per physician808
GDP per capita (US$) (1997)3,229Population per hospital bed (1992)335
Unemployment (August 1998)13.4
Population characteristics (1995)Access to safe water (percent
Life expectancy at birth (years)73of population, 1995)
Crude birth rate (per thousand)22.8Total82
Crude death rate (per thousand)4.9Urban84
Infant mortality (per thousand live births)22.6Rural68
Income distribution (1995)Education (in percent, 1995)
By highest 20 percent of households60Secondary education
By lowest 20 percent of households2enrollment rate68
Sources: Panamanian authorities; and Fund staff estimates.

Excluding grants.

External debt service as percent of exports of goods and nonfactor services. The 1997 figure reflects debt restructuring involving the retirement of Brady bonds.

II Economic Indicators, 1993-97
19931994199519961997
(In annual percent changes)
National accounts and prices
GDP at constant 1982 market prices5.52.91.82.44.4
Agriculture and mining0.32.83.10.6-0.9
Manufacturing and construction14.53.71.3-0.74.0
Services3.74.51.63.64.8
Consumer price index (end of period)1.01.30.82.3-0.5
(In percent of GDP)
Gross investment24.124.526.223.625.4
Private consumption53.953.754.656.255.3
Public consumption21.319.720.220.020.4
Gross national saving22.024.122.822.022.4
(In millions of balboas)
Public sector finances
Revenue 1/2,0562,2022,3012,2712,414
Noninterest expenditure1,8331,7921,8681,9642,178
Primary balance (deficit -)223411441312308
Overall balance (deficit -)-101251434-28
Memorandum items:
Primary balance (percent of GDP)3.15.35.63.83.5
Overall balance (percent of GDP)-1.40.30.20.4-0.3
Money704800816833992
Quasi-money3,7324,2984,7005,0165,725
Net domestic assets3,8024,2594,7975,1425,913
Credit to the public sector-523-801-1,031-851-1,011
Credit to the private sector4,9815,7566,5217,0027,948
(In millions of U.S. dollars)
Balance of payments
Trade balance-377.9-248.6-569.2-510.6-593.4
Exports, f.o.b.614.7672.4742.9761.4804.5
Imports, f.o.b.-1,552.10-1,852.7-1,979.9-2,076.2-2,349.3
Colon Free zone559.5931.7667.7804.2951.4
Services and transfers (net)94.9218.3299.9378.3329.2
Of which: Interest on public debt-338.6-354.0-393.2-243.3-286.2
Current account-282.9-30.3-269.3-132.3-264.3
Capital account458.5-67.916.1532.1406.9
Public196.1-230.8-68.7-168.4-336.2
Private262.4162.984.7700.5743.1
Overall balance175.6-98.2-253.2399.8142.6
Net foreign assets of BNP377.6631.6708.7952.11,082.3
External payments arrears3,236.03,526.23,938.197.343.5
Memorandum items:
Debt-service ratio 2/26.320.321.915.444.4
Current account (as percent of GDP)-4.3-0.4-3.4-1.6-3.0
External debt outstanding (as percent of GDP)78.071.275.261.857.9
IMF data (as of October 31,1998)
Article VIII statusAs of 11/26/46
Intervention currency and rateB 1.00 per U.S. dollar
QuotaSDR 149.6 million
Fund holdings of local currencySDR265.75 million
From Fund resources (including SBA and EFF)128.0
Fund holdings as percent of quota177.6
Arrears with the FundNone
Special Drawing Rights Department
Cumulative SDR allocationSDR 26.32 million
Net acquisition or utilization (-) of SDRs24.55 million
Holdings of SDRs1.77 million
Share of profits from gold salesUS$5.7 million
Sources: Panamanian authorities; and Fund staff estimates.

Excluding grants.

External debt service as percent of exports of goods and nonfactor services. The 1997 figure reflects debt restructuring involving the retirement of Brady bonds.

Sources: Panamanian authorities; and Fund staff estimates.

Excluding grants.

External debt service as percent of exports of goods and nonfactor services. The 1997 figure reflects debt restructuring involving the retirement of Brady bonds.

Introduction

This report provides background information to the staff report for the 1998 Article IV consultation discussions with Panama. It presents an overview of recent developments and chapters focusing on areas of interest in Panama’s medium-term economic strategy. The first chapter gives a broad overview of economic developments with emphasis on 1997. Subsequent chapters update information on important areas of economic activity: the structure and reform of the financial sector (Chapter II); reversion of the Canal Zone areas to Panama (Chapter III); and analysis of key elements of the economic reform program since 1994, including trade reform and other measures to foster competitiveness and competition (Chapter IV).

I. Macroeconomic Trends

1. Following the political and economic crisis of 1988-89, when real GDP fell by a cumulative 18 percent, the economy experienced a broad-based recovery with high rates of real GDP growth. The recovery was facilitated by the lifting of economic sanctions and large aid flows by the United States, and was supported by an economic program that succeeded in restoring financial stability and began to address structural distortions. However, progress with respect to deregulation, privatization, and public sector reform was limited.

A. Developments During 1990-92

2. Reform policies initiated during 1990-92 were supported by loans from the IBRD and IDB, grants from U.S. AID, and by a 1992 Stand-by Arrangement with the Fund. Economic growth rebounded, inflation remained low and unemployment, which was almost 19 percent in 1989, fell to 14.7 percent in 1992. While the condition of the public finances improved, at least one structural reform was reversed and progress in other structural areas was slow. The overall public sector deficit was reduced from an annual average of 10 percent of GDP during 1988-89 to 1.3 percent of GDP in 1991 and turned into a small surplus in 1992. The strengthening of the fiscal position resulted particularly from enhanced tax administration and an improvement in the finances of the Social Security Agency (CSS). However, a structural rigidity was reinstated in 1991 when the Supreme Court reactivated special labor laws that had been suspended since 1988, granting again automatic wage increases to more than 50 percent of civil servants. The public sector accumulated sizable external arrears during 1988-91, but in 1992 arrears with multilateral institutions were settled and agreement was reached to reschedule a substantial part of the debt owed to Paris Club creditors. During 1990-92 some liberalization of the trade regime was achieved through the conversion of quantitative trade barriers to ad valorem tariffs.

B. Developments During 1993-96

3. In the period preceding the 1994 elections, the economy slowed as economic reforms lost momentum, and the overall public sector balance returned to a small deficit. The government that assumed office in 1994 began to implement a medium-term program of economic reforms to promote economic growth and to reduce unemployment while maintaining low inflation in the context of a reasonable fiscal balance. The reform agenda included public debt restructuring, trade liberalization, privatization, and other measures to foster private sector participation and competition. The program was supported by a Stand-by Arrangement with the Fund beginning in November 1995.

4. Real GDP weakened substantially to an annual average of about 2½ percent during 1994-96 with negative growth in mining, construction and Colon Free Zone (ZLC) activities (Table 1). Dampened conditions were due in part to the crisis in Mexico, virtually halting major residential construction in Panama City and reducing trading activity through the ZLC. During this period unemployment remained near 14 percent (Table 9). The persistence of high unemployment was associated with rigidities in the labor market and the low labor absorption of some of the more dynamic sectors in the economy (SM/96/164, Rev. 1). Inflation remained low, averaging around 1½ percent a year during 1994-96 (Table 11). Panama does not have an exchange rate policy since the U.S. dollar serves as legal tender and the balboa is used as a unit of account and to issue coins. The absence of domestic currency issue has contributed to the maintenance of price stability.

Table 1.Panama: National Accounts by Productive Activity 1/
19931994199519961997
(In millions of balboas at 1982 prices)
Gross domestic product at market prices5,922.56,091.36,198.06,348.26,628.7
Primary activity488.7502.4517.8521.0516.3
Agriculture480.4493.3509.2512.9506.8
Mining8.39.18.68.19.5
Secondary activity832.7863.2874.6868.4903.1
Manufacturing589.5614.6615.8620.3642.6
Construction243.2248.6258.8248.1260.5
Services4,506.74,710.14,784.24,954.15,190.5
Public utilities240.0255.0259.9311.0321.7
Commerce, restaurants,

and hotels
1,229.51,289.81,280.41,271.71,379.9
Colon Free Zone, wholesale488.2533.6516.6494.3570.4
Restaurants and hotels85.490.395.0100.7106.1
Other655.9665.9668.8676.7703.4
Transport and communications666.3695.8761.3781.8817.1
Panama Canal Commission352.0362.4419.4429.9422.2
Other transport and communications314.3333.4341.9351.9394.9
Financial intermediation647.0675.0641.8706.1729.2
Housing786.5821.1841.4867.7889.5
Public administration612.1632.0653.5665.3690.6
Other services325.3341.4345.9350.5362.5
Plus import taxes 2/235.9245.2249.8256.5279.9
Less imputed banking services141.5229.6228.4251.8261.1
(Percent change)
Gross domestic product at market prices5.52.91.82.44.4
Primary activity0.32.83.10.6-0.9
Agriculture0.02.73.20.7-1.2
Mining16.99.6-5.5-5.817.3
Secondary activity14.53.71.3-0.74.0
Manufacturing6.34.30.20.73.6
Construction40.52.24.1-4.15.0
Services3.74.51.63.64.8
Public utilities18.16.31.919.73.4
Commerce, restaurants, and hoteles5.14.9-0.7-0.78.5
Colon Free Zone, wholesale4.59.3-3.2-4.315.4
Restaurants and hotels2.35.75.26.05.4
Other5.81.50.41.23.9
Transport and communications-3.24.49.42.74.5
Panama Canal Commission-5.23.015.72.5-1.8
Other transport and communications-0.96.12.52.912.2
Financial intermediation10.84.3-4.910.03.3
Housing2.34.42.53.12.5
Public administration0.73.33.41.83.8
Other services0.94.91.31.33.4
Plus import taxes 2/40.43.91.92.79.1
Less imputed banking services26.362.3-0.510.23.7
(Percent distribution)
Gross domestic product at market prices100.0100.0100.0100.0100.0
Primary activity8.38.28.48.27.8
Agriculture8.18.18.28.17.6
Mining0.10.10.10.10.1
Secondary activity14.114.214.113.713.6
Manufacturing10.010.19.99.89.7
Construction4.14.14.23.93.9
Services76.177.377.278.078.3
Public utilities4.14.24.24.94.9
Commerce, restaurants, and hotels20.821.220.720.020.8
Colon Free Zone, wholesale8.28.88.37.88.6
Restaurants and hotels1.41.51.51.61.6
Other11.110.910.810.710.6
Transport and communications11.311.412.312.312.3
Panama Canal Commission5.95.96.86.86.4
Other transport and communications5.35.55.55.56.0
Financial intermediation10.911.110.411.111.0
Housing13.313.513.613.713.4
Public administration10.310.410.510.510.4
Other services5.55.65.65.55.5
Plus import taxes 2/4.04.04.04.04.2
Less imputed banking services2.43.83.74.03.9
Sources: Office of the Comptroller General; and Fund staff estimates.

The national accounts for 1980-94 were revised and published in December 1995. The base year for the constant price data was updated to 1982 from 1970 and methodological improvements were implemented.

Includes the sales tax; “impuesto a la transferencia de bienes muebles.”

Sources: Office of the Comptroller General; and Fund staff estimates.

The national accounts for 1980-94 were revised and published in December 1995. The base year for the constant price data was updated to 1982 from 1970 and methodological improvements were implemented.

Includes the sales tax; “impuesto a la transferencia de bienes muebles.”

Table 2.Panama: National Accounts by Use
19931994199519961997
(In millions of balboas at current prices)
Total domestic demand7,198.97,577.87,986.88,229.88,876.4
Consumption5,449.95,681.15,913.06,284.26,644.3
Public1,543.21,525.61,595.11,650.51,788.2
Private3,906.74,155.54,317.94,633.74,856.1
Gross domestic investment1,749.01,896.72,073.81,945.62,232.1
Public288.8266.7272.0313.4388.4
Private 1/1,460.21,630.01,801.81,632.21,843.7
Balance of trade (goods and nonfactor services)53.8156.2-80.713.8-96.7
Excluding the Colon Free Zone-212.7-255.3-231.3-344.4-463.8
Exports of goods and nonfactor services2,715.23,074.72,990.33,117.03,397.3
Excluding the Colon Free Zone1,999.02,143.02,322.52,312.82,396.5
Imports of goods and nonfactor services2,661.42,918.53,071.03,103.23,494.0
Excluding the Colon Free Zone2,211.62,398.32,553.82,657.22,860.2
Gross domestic product at current market prices7,252.77,733.97,906.18,243.68,779.7
(In percent of GDP)
Total domestic demand99.398.0101.099.8101.1
Consumption75.173.574.876.275.7
Public21.319.720.220.020.4
Private53.953.754.656.255.3
Gross domestic investment24.124.526.223.625.4
Public4.03.43.43.84.4
Private 1/20.122.822.819.821.0
Balance of trade (goods and nonfactor services)0.72.0-1.00.2-1.1
Excluding the Colon Free Zone-2.9-3.3-2.9-4.2-5.3
Exports of goods and nonfactor services37.439.837.837.838.7
Excluding the Colon Free Zone27.627.729.428.127.3
Imports of goods and nonfactor services36.737.738.837.639.8
Excluding the Colon Free Zone30.531.032.332.232.6
Gross domestic product at current market prices100.0100.0100.0100.0100.0
(Annual percent change)
Total domestic demand8.65.35.43.07.9
Consumption2.44.24.16.35.7
Public16.5-1.14.63.58.3
Private 1/-2.36.43.97.34.8
Gross domestic investment33.88.49.3-6.214.7
Public38.4-7.72.015.223.9
Private 1/32.911.610.5-9.413.0
Balance of trade (goods and nonfactor services)450.9190.2-151.7-117.1-801.4
Excluding the Colon Free Zone68.320.0-9.448.956.7
Exports of goods and nonfactor services9.513.2-2.74.29.0
Excluding the Colon Free Zone5.77.28.4-0.45.7
Imports of goods and nonfactor services7.79.75.21.012.6
Excluding the Colon Free Zone9.68.46.54.011.6
Gross domestic product at current market prices9.26.62.24.36.5
Sources: Office of the Comptroller General; and Fund staff estimates.

Includes changes in inventories

Sources: Office of the Comptroller General; and Fund staff estimates.

Includes changes in inventories

Table 3.Panama: Saving and Investment
19931994199519961997
(In millions of balboas)
Gross domestic investment1,749.01,896.72,073.81,945.62,232.1
Fixed capital formation1,723.81,873.21,972.72,069.32,276.0
Public sector288.8266.7272.0313.4388.4
Private sector1,435.01,606.51,700.71,755.91,887.6
Changes in inventories25.223.5101.1-123.7-43.9
Gross national saving1,592.61,866.41,804.51,813.31,967.9
Public sector saving187.8290.2278.6342.5290.1
Private sector saving1,404.81,576.21,525.91,470.81,677.8
Foreign saving156.430.3269.3132.3264.3
(In percent of GDP)
Gross domestic investment24.124.526.223.625.4
Fixed capital formation23.824.225.025.125.9
Public sector4.03.43.43.84.4
Private sector19.820.821.521.321.5
Changes in inventories0.30.31.3-1.5-0.5
Gross national saving22.024.122.822.022.4
Public sector saving2.63.83.54.23.3
Private sector saving19.420.419.317.819.1
Foreign saving2.20.43.41.63.0
Sources: Office of the Comptroller General; and Fund staff estimates.
Sources: Office of the Comptroller General; and Fund staff estimates.
Table 4.Panama: Agricultural Production
19931994199519961997
(In millions of balboas at 1982 prices)
Total480.4493.3509.2512.9506.8
Crops259.4269.0262.9259.0239.3
Rice31.832.333.235.124.5
Corn17.117.317.618.210.9
Bananas130.5136.1126.6115.7109.2
Sugarcane19.019.318.219.622.3
Coffee11.813.215.015.014.1
Other49.250.852.355.458.3
Livestock155.0157.3159.3168.0170.6
Forestry14.714.612.812.012.7
Fish51.352.474.273.984.2
(Annual percent change)
Total0.02.73.20.7-1.2
Crops-3.03.7-2.3-1.5-7.6
Livestock-0.21.51.35.51.5
Forestry0.7-0.7-12.3-6.35.8
Fish19.02.141.6-0.413.9
Source: Office of the Comptroller General.
Source: Office of the Comptroller General.
Table 5.Panama: Value Added in Manufacturing
19931994199519961997
(In millions of balboas at 1982 prices)
Total589.5614.6615.8620.3642.6
Food227.2237.1245.5249.1263.0
Beverages53.153.752.755.659.2
Tobacco21.127.827.228.727.6
Petroleum products21.115.110.519.017.4
Textiles and garments42.838.134.432.030.0
Leather products and footwear10.911.613.011.410.4
Wood and furniture25.331.427.628.431.1
Paper products26.129.930.628.827.2
Printing and publishing14.215.216.213.512.9
Chemicals, rubber, and plastic products58.157.659.356.857.2
Glass and other mineral products45.549.945.241.144.2
Basic metal industries10.89.810.913.717.6
Metal products, machinery, and equipment19.321.522.721.224.5
Other14.015.920.021.020.3
(Annual percent change)
Total6.34.30.20.73.6
Petroleum products-19.8-28.4-30.581.0-8.4
Total (excluding petroleum products)7.65.51.0-0.74.0
Food, beverages, and tobacco3.85.72.12.54.9
Other products12.35.2-0.4-4.32.8
Source: Office of the Comptroller General.
Source: Office of the Comptroller General.
Table 6.Panama: Electricity Generation and Consumption

(In thousands of gigawatt hours) 1/

19931994199519961997
Net generation3.153.363.523.824.05
Hydro2.302.392.423.002.90
Thermal0.850.971.100.821.15
Total consumption2.492.672.872.983.30
Residential0.750.790.850.860.94
Commercial0.840.911.001.041.18
Industrial0.410.430.460.470.47
Government0.450.470.530.550.57
Petroterminal0.010.010.010.000.00
Other0.030.060.020.060.14
Source: Hydraulic Resources and Electricity Institute (IRHE).

A gigawatt hour is equal to one billion watts generated or consumed during one hour.

Source: Hydraulic Resources and Electricity Institute (IRHE).

A gigawatt hour is equal to one billion watts generated or consumed during one hour.

Table 7.Panama: Private Sector Construction Permits, District of Panama(In thousands of square meters)
19931994199519961997
Total968.9912.4827.9925.3702.4
Residential706.7550.4505.8430.0354.9
Commercial228.9299.7277.0438.9319.9
Industrial29.014.814.426.83.9
Other4.347.630.729.623.7
Source: Office of the Comptroller General.
Source: Office of the Comptroller General.
Table 8.Panama: Domestic Sales of Petroleum
19931994199519961997
(In millions of U.S. dollars)
Domestic sales190.6200.0222.5255.8309.1
Gasoline58.659.969.080.587.7
Diesel79.988.593.7103.8126.9
Fuel oil22.827.334.339.835.6
Kerosene2.32.22.12.03.1
LP gas16.317.319.422.133.1
Other products 1/10.74.84.07.622.7
(In millions of barrels)
Domestic sales8.39.09.79.810.8
Gasoline2.32.42.62.72.9
Diesel3.13.74.13.64.3
Fuel oil1.51.71.81.91.7
Kerosene0:10.10.10.10.1
LP gas0.80.90.91.01.0
Other products 1/0.50.20.20.50.8
Source: Ministry of Commerce and Industry.

Includes marine diesel.

Source: Ministry of Commerce and Industry.

Includes marine diesel.

Table 9.Panama: Labor Force Statistics 1/
19931994199519961997
(Thousands of persons)
Total population2,535.02,582.62,631.02,674.52,718.7
Working-age population1,557.91,594.71,632.41,670.21,706.8
Total labor force 2/940.3967.31,007.91,012.11,049.4
Employment by activity815.6831.8866.7867.2909.1
Agriculture and mining189.3167.9181.9176.0171.6
Manufacturing84.489.592.694.096.2
Public utilities8.69.38.89.19.1
Construction49.552.553.654.959.6
Commerce135.0146.1152.1153.0168.1
Banking17.919.419.722.122.8
Transport and communication59.360.763.459.062.1
Other services271.5286.4294.6299.1319.6
Unemployment124.7135.5141.3144.9140.3
Memorandum items:
Number of employed by:
Public sector156.6163.3161.4160.2161.8
Private business323.4340.4354.3359.4372.7
Self-employed236.1232.8247.0250.3275.9
Other99.495.4103.997.398.7
(Annual percent change)
Total population1.91.91.91.71.7
Working age population2.42.42.42.32.2
Total labor force2.72.94.20.43.7
Employed4.32.04.20.14.8
Unemployed-7.28.74.32.5-3.2
(In percent)
Labor force participation rate 3/60.460.761.760.661.5
Employment ratio 4/52.452.253.151.953.3
Unemployment rate13.314.014.014.313.4
Of which:
Metropolitan areas 5/15.616.016.616.915.4
Sources: Ministry of Labor; and Office of the Comptroller General.

Data are based on August surveys, except for total population which is a mid-year estimate.

Excludes indigenous population, canal area and collective housing, but includes employees in the formal and informal sectors, employers, and the self-employed.

Total labor force as percent of the working-age population.

Employed labor force as a percent of the working-age population.

Includes the cities of Panama and Colon.

Sources: Ministry of Labor; and Office of the Comptroller General.

Data are based on August surveys, except for total population which is a mid-year estimate.

Excludes indigenous population, canal area and collective housing, but includes employees in the formal and informal sectors, employers, and the self-employed.

Total labor force as percent of the working-age population.

Employed labor force as a percent of the working-age population.

Includes the cities of Panama and Colon.

Table 10.Panama: Average Prices Received by Farmers
19931994199519961997
(In balboas per unit)
Rice (100 lb.) 1/12.1212.5612.8711.9112.32
Corn (100 lb.)11.7111.6711.8612.3412.26
Beans (100 lb.) 2/33.5033.1235.1332.7738.53
Potatoes (100 lb.)18.8826.2923.4024.7219.30
Bananas (stalk)2.462.682.172.612.76
Chicken (live, lb.)1.201.231.241.211.23
Milk, fresh (bottle)0.300.300.290.270.28
(In 1987 prices) 3/
Rice (100 lb.) 1/10.9511.0711.3710.7311.03
Corn (100 lb.)10.5810.2910.4811.1110.97
Beans (100 lb.) 2/30.2729.1931.0429.5234.49
Potatoes (100 lb.)17.0623.1720.6822.2717.27
Bananas stalk2.222.361.922.352.47
Chicken (live, lb.)1.081.081.101.091.10
Milk, fresh (bottle)0.270.260.260.240.25
Source: Office of the Comptroller General.

First grade.

Colorado or Chiricano.

Deflated by the agricultural wholesale price index.

Source: Office of the Comptroller General.

First grade.

Colorado or Chiricano.

Deflated by the agricultural wholesale price index.

Table 11.Panama: Selected Price Indices 1/(Annual percent change)
19931994199519961997
(Period average)
Consumer price index0.51.30.91.31.3
Wholesale price index-0.32.03.02.1-2.2
Imports1.81.93.93.8-4.1
Industrial products-2.52.22.71.3-0.9
Agricultural products0.62.5-0.2-1.90.6
GDP deflator3.63.70.51.72.0
(End of period)
Consumer price index1.01.30.82.3-0.5
Wholesale price index0.24.41.83.5-3.9
Imports1.05.12.86.0-6.3
Industrial products-1.44.41.52.2-2.5
Agricultural products3.42.1-1.0-0.90.8
Sources: Office of the Comptroller General; and Fund staff estimates.

The consumer and wholesale price indices use 1987 as the reference period.

Sources: Office of the Comptroller General; and Fund staff estimates.

The consumer and wholesale price indices use 1987 as the reference period.

Table 12.Panama. Consumer Price Index(1987=100)
TotalFoodClothingHousingMiscellaneous
(In percent)
Weights:100.034.95.121.039.0
(Period average)
1993105.1108.4110.8103.7102.2
1994106.5110.0111.5103.6104.1
1995107.5110.6110.0105.4105.5
1996108.9111.4109.0108.2106.9
1997110.2112.2106.8110.5108.7
(End of period)
1993105.8109.0111.4103.4103.3
1994107.2111.7108.9104.2104.5
1995108.1111.7109.4106.5105.6
1996110.6113.6108.8110.2108.4
1997110.1112.6106.4110.6108.1
1993
March104.8107.7109.9104.0101.9
June105.1108.4111.2103.9101.9
September104.8108.1111.5103.8101.6
December105.8109.0111.4103.4103.3
1994
March105.8108.3112.8103.5103.9
June106.4110.1112.5103.3104.0
September106.7110.7110.4103.7104.3
December107.2111.7108.9104.2104.5
1995
March107.0109.5110.5104.9105.4
June107.7110.3110.6105.5106.2
September108.0111.3109.1105.4106.2
December108.1111.7109.4106.5105.6
1996
March108.4111.3110.2107.0106.4
June108.3110.2107.6107.9106.9
September109.1111.9109.3108.7106.9
December110.6113.6108.8110.2108.4
1997
March109.9111.9108.2109.7108.7
June110.3112.0106.5110.5109.1
September110.6112.7104.4110.8109.4
December110.1112.6106.4110.6108.1
1998
March110.4112.2108.3110.5108.9
June110.8112.7108.2110.5109.7
September111.5112.7108.1113.2110.0
Sources: Office of the Comptroller General; and Fund staff estimates.
Sources: Office of the Comptroller General; and Fund staff estimates.
Table 13.Panama: Wholesale Price Index(1987 = 100)
TotalImportsIndustrialAgricultural
(In percent)
Weights100.043.745.111.2
(Period average)
1993110.1114.8105.6110.7
1994112.4116.9107.9113.5
1995115.7121.5110.8113.2
1996118.2126.2112.3111.0
1997115.5121.0111.2111.7
(End of period)
1993109.3112.8105.2112.0
1994114.1118.6109.8114.4
1995116.2121.9111.4113.2
1996120.3129.2113.8112.2
1997115.6121.1111.0113.1
1993
March110.0114.3106.2109.1
June110.9116.4105.8110.0
September110.3115.6105.0111.6
December109.3112.8105.2112.0
1994
March110.1114.2105.9111.7
June112.1117.1106.9114.7
September113.2117.8108.9113.0
December114.1118.6109.8114.4
1995
March114.7120.0110.2112.2
June116.0121.8111.1113.7
September116.0122.4110.6113.6
December116.2121.9111.4113.2
1996
March117.8126.3111.6109.9
June117.0124.3111.4111.0
September117.6125.0112.2111.0
December120.3129.2113.8112.2
1997
March115.8121.3111.7111.0
June115.4120.8111.2111.1
September115.3120.7111.0111.7
December115.6121.1111.0113.1
1998
March111.6115.1108.1112.8
June111.1113.9108.0113.2
Sources: Office of the Comptroller General; and Fund staff estimates.
Sources: Office of the Comptroller General; and Fund staff estimates.
Table 14.Panama: Selected Energy Prices
Detail199219931994199519961997
(Balboas per megawatt hour)
Electricity rates
Weighted average116.4115.4115.5115.5112.8111.6
Residential123.3121120.5120.5120.5118.0
Commercial119.6119.4119.2119.2119.5118.1
Industrial102.6100.9100.799.499.499.4
Government113.8113.1103.4112.7111.6111.0
(Balboas per gallon)
Petroleum prices
Gasoline premium1.891.591.621.661.781.76
Gasoline regular1.811.511.521.621.671.67
Diesel1.181.071.131.201.301.26
Kerosene1.101.051.101.181.231.14
Sources: Hydraulic Resources and Electricity Institute (IRHE); and Ministry of Commerce and Industry.
Sources: Hydraulic Resources and Electricity Institute (IRHE); and Ministry of Commerce and Industry.

5. Investor confidence and saving began to recover in 1993, in the period leading to the 1994 elections, and subsequently with the implementation of a program featuring a prudent fiscal policy, structural reforms, and external public debt restructuring. Private investment increased from an annual average of about 13 percent of GDP during 1990-92 to 21 percent of GDP during 1993-96. Private saving rebounded from 12½ percent of GDP to 19 percent of GDP over the same periods (Table 3). Public investment and saving also increased, especially during 1994-96, relative to the years immediately following the crisis. As a result of the recovery in saving, the external current account deficit declined, to 1½ percent of GDP in 1996.

6. After a small deficit of 1.4 percent of GDP in 1993 when tax administration and CSS performance weakened, the public sector finances shifted to small surpluses during 1994-96 as a result of the implementation of the government’s reform policies (Table 15). In 1994 expenditure control improved, and in 1995 strong revenue collection efforts by the central government and the CSS were only partly offset by automatic government wage increases, higher external interest obligations, and increased spending by the CSS on pensions and medical services. A Tax Incentives Harmonization Law was passed in June 1995, and important progress was made in 1996 to prepare for the privatization of ports.

Table 15.Panama: Operations of the Nonfinancial Public Sector
Prel.Preliminary

Jan. - Jun.
1993199419951996199719971998
(In millions of balboas)
Revenue2,055.82,202.02,301.02,271.22,413.71,198.31,254.6
General government revenue1,684.31,782.31,962.71,997.82,118.31,036.31,126.4
Central government1,150.81,204.31,287.21,325.91,447.4680.4775.0
Social security agency474.6522.3586.5613.5613.0324.4319.2
Rest of general government58.955.789.058.457.931.532.3
Public enterprises operating balance (deficit -)335.5369.3341.3293.5240.4143.183.3
Overall balance of nonconsolidated public sector (deficit -)-5.212.2-18.0-16.020.89.348.8
Educational insurance balance (deficit -)22.313.9-0.8-22.74.1-1.7-19.4
Capital revenue18.924.315.818.630.111.315.5
Grants0.11.07.84.670.650.050.0
Expenditure2,156.82,178.52,294.42,242.12,512.01,239.41,375.0
General government current expenditure1,868.01,911.82,022.41,928.72,123.71,024.11,110.0
Central government1,128.71,146.71,185.61,079.61,207.3603.3658.4
Social security agency609.9651.8720.2725.5780.7360.0388.5
Rest of general government129.4113.3116.7123.5135.760.863.1
Capital288.8266.7272.0313.4388.4215.2265.0
Fixed investment282.4237.6243.1279.5341.1188.5230.4
Transfers to private sector6.429.128.934.047.326.834.6
Saving 1/187.8290.2278.6342.5290.1174.1144.6
Overall balance (deficit -)2/-100.924.514.433.6-27.78.9-70.4
Financing100.9-24.5-14.4-33.627.7-8.970.4
External219.0119.0206.4-224.1-481.2-467.3217.7
Disbursements48.752.0112.7262.31,500.2630.7398.3
Repayments279.1271.0262.6328.71,277.7520.6165.1
Debt rescheduling0.0481.077.73,342.835.719.00.0
Arrears449.4-143.0278.6-3,422.5-67.82.60.0
Trust fund for development0.00.00.0-78.0-671.6-599.0-15.5
Domestic (net)-118.1-193.5-220.8117.9-162.7-140.6-159.0
Of which: Banking System-260.4-277.8-229.5179.8-160.0-218.2-175.7
Arrears0.035.00.00.0-35.0-13.00.0
Privatization0.050.00.072.6671.6599.011.7
(Annual percent change)
Revenue2.47.14.5-1.36.35.34.7
Expenditure13.11.05.3-2.312.013.510.9
Current10.02.35.8-4.610.16.08.4
Capital38.4-7.72.015.223.970.723.1
(In percent of GDP 3/)
Revenue28.328.529.127.627.527.327.2
Grants0.00.00.10.10.81.11.1
Expenditure29.728.229.027.228.628.229.8
Current25.824.725.623.424.223.324.1
Capital4.03.43.43.84.44.95.8
Saving 1/2.63.83.54.23.34.03.1
Overall balance (deficit-) 2/-1.40.30.20.4-0.30.2-1.5
Financing (net)1.4-0.3-0.2-0.40.3-0.21.5
External3.01.52.6-2.7-5.5-10.64.7
Domestic (net)-1.6-2.5-2.81.4-1.9-3.2-3.5
Privatization0.00.60.00.97.613.60.3
External interest obligations4.04.65.02.93.23.03.2
(In millions of balboas)
Memorandum items:
External interest obligations291.0354.0393.0241.6281.6132.0146.5
GDP (market prices)7,252.77,733.97,906.18,243.68,779.7
Balance in Trust Fund for Development 4/0.00.00.078.0754.1677.0769.6
Sources: Office of the Comptroller General; Ministry of Planning and Economic Policy: and Fund staff estimates.

Revenue less current expenditure.

Revenue and grants, less expenditure.

Part-year percentages are annualized.

The Trust Fund for Development invests divestment proceeds abroad and transfers its investment income to the central government to finance development projects, including social projects.

Sources: Office of the Comptroller General; Ministry of Planning and Economic Policy: and Fund staff estimates.

Revenue less current expenditure.

Revenue and grants, less expenditure.

Part-year percentages are annualized.

The Trust Fund for Development invests divestment proceeds abroad and transfers its investment income to the central government to finance development projects, including social projects.

Table 16.Panama: Central Government Operations
Prel.Preliminary

Jan.-Jun.
1993199419951996199719971998
(In millions of balboas)
Revenue1,355.91,361.91,473.71,544.61,600.4783.2814.9
Tax revenue862.5916.3990.2984.91,043.5496.0546.5
Income tax336.3352.4405.4392.4416.9195.2193.6
Wealth taxes38.441.443.645.447.125.629.5
Taxes on foreign trade156.6177.7188.3193.6219.097.1115.7
Taxes on domestic transactions331.2344.8352.9353.5360.5178.1207.7
Nontax revenue491.4442.7481.6558.2554.3286.6267.8
Panama Canal78.381.292.094.195.448.548.6
Oil pipeline royalties3.83.03.10.00.00.00.0
Transfers from the rest of public sector261.2220.9264.4345.9257.6149.080.8
Other148.1137.6122.1118.2201.389.1138.4
Capital revenue2.02.91.91.52.50.60.6
Grants0.11.07.84.670.650.050.0
Expenditure1,607.11,599.31,627.41,487.11,733.3877.31,134.8
Current1,401.71,427.71,474.01,327.11,480.5749.3957.6
Wages and salaries567.8533.0542.9568.5592.4287.4314.7
Goods and Services149.3134.1111.8112.5147.565.683.7
Pensions and transfers388.8405.6417.2385.7394.1230.4376.7
Of which:
Social security agency209.0212.2216.7170.7194.0107.1259.6
Decentralized agencies61.168.868.974.576.637.839.1
Public enterprises2.90.02.82.22.61.10.5
Interest290.8350.3394.4251.4299.7142.5156.8
Internal24.824.225.328.632.918.716.3
External266.0326.1369.1222.8266.8123.8140.5
Other current expenditure5.04.87.78.946.923.325.7
Capital205.4171.6153.4160.1252.8128.0177.2
Fixed capital formation162.4115.6113.6117.8197.698.8142.6
Transfers of capital43.056.039.842.355.129.234.5
To decentralized agencies18.37.910.86.42.41.80.0
To public enterprises18.318.80.11.95.50.70.0
Other6.429.328.934.047.226.834.5
On lending0.00.00.048.0-30.0-30.00.0
Saving 1/-45.8-65.7-0.3217.6119.933.8-142.7
Overall balance (deficit-)2/-251.1-236.4-145.914.0-32.3-14.2-269.9
(In millions of balboas)
Financing251.1197.0145.9-14.032.314.2269.9
External266.0147.0269.8-174.9-431.6-441.9226.4
Disbursements110.058.099.5250.61,496.7648.0380.7
Repayments48.0198.0196.0274.61,224.6493.5142.6
Debt rescheduling0.0481.029.93,342.835.70.00.0
Arrears204.0-144.0336.4-3,415.7-67.82.60.0
Trust Fund for Development0.00.00.0-78.0-671.6-599.0-11.7
Domestic (net)-14.90.0-123.988.3-207.7-142.931.8
Of which: Banking system-128.7-12.6-55.9222.0-131.4-164.5-94.0
Arrears0.035.00.00.0-35.0-13.00.0
Privatization0.050.00.072.6671.6599.011.7
(Annual percent change)
Current revenue6.90.48.24.83.63.04.0
Tax revenue4.16.28.1-0.55.91.310.1
Nontax revenue12.7-9.98.815.9-0.76.2-6.6
Total expenditure12.8-0.51.8-8.616.622.029.4
Current expenditure7.21.93.2-10.011.614.527.8
Capital expenditure74.8-16.5-10.64.457.9103.038.4
(In percent of GDP)3/
Current revenue18.717.618.618.718.217.817.7
Tax revenue11.911.812.511.911.911.411.9
Nontax revenue6.85.76.16.86.36.65.8
Total expenditure22.220.720.618.019.720.024.6
Current expenditure19.318.518.616.116.917.120.8
Capital expenditure2.82.21.91.92.92.93.8
Saving 1/-0.6-0.90.02.61.30.8-3.1
Overall balance (deficit -) 2/-3.5-3.1-1.80.2-0.4-0.3-5.9
Financing (net)3.53.11.8-0.20.40.35.9
External3.72.53.4-2.1-4.9-10.14.9
Domestic-0.20.0-1.61.1-2.4-3.30.7
Privatization0.00.60.00.97.613.60.3
(In millions of balboas)
Memorandum items:
GDP (market prices)7,252.77,733.97,906.18,243.68,779.7
Balance in Trust Fund for Development 4/0.00.00.078.0754.1677.0769.6
Sources: Office of the Comptroller General; Ministry of Planning and Economic Policy; and Fund staff estimates.

Revenue less current expenditure.

Revenue and grants, less expenditure.

Part-year percentages are annualized.

The Trust Fund for Development invests divestment proceeds abroad and transfers its investment income to the central government to finance development projects, including social projects.

Sources: Office of the Comptroller General; Ministry of Planning and Economic Policy; and Fund staff estimates.

Revenue less current expenditure.

Revenue and grants, less expenditure.

Part-year percentages are annualized.

The Trust Fund for Development invests divestment proceeds abroad and transfers its investment income to the central government to finance development projects, including social projects.

Table 17.Panama: Central Government Revenue
Prel.Preliminary

Jan.-Jun.
1993199419951996199719971998
(In millions of balboas)
Total revenue (Including grants)1,356.01,362.91,481.51,549.21,670.9833.2864.9
Tax revenue862.5916.3990.2984.91,043.5496.0546.5
Direct taxes374.7393.8449.0437.8464.0220.8223.1
Income tax336.3352.4405.4392.4416.9195.2193.6
Wealth tax38.441.443.645.447.125.629.5
Taxes on foreign trade156.6177.7188.3193.6219.097.1115.7
Export taxes12.013.610.79.46.23.21.7
Import taxes144.6164.1177.6184.2212.893.9114.0
Taxes on domestic transactions331.2344.8352.9353.5360.5178.1207.7
Tobacco and beverages40.140.841.437.140.220.721.4
Value added tax134.7143.2147.3154.6163.578.789.6
Petroleum products92.793.995.397.693.943.457.1
Stamp taxes33.336.337.633.637.315.621.9
Other30.430.631.230.725.619.717.4
Grants0.11.07.84.670.650.050.0
Nontax revenue491.4442.7481.6558.2554.3286.6267.8
Panama Canal78.381.292.094.195.448.548.6
Oil pipeline royalties3.83.03.10.00.00.00.0
Other Services148.1137.6122.1118.2181.084.894.9
Transfers from rest of public sector261.2220.9264.4345.9257.6149.080.8
Of which:
Consolidated public sector203.1154.7184.7217.2150.4102.239.3
Nonconsolidated public sector15.611.613.664.3107.246.941.5
Interest earnings and dividends0.00.00.00.020.34.343.6
Capital revenue2.02.91.91.52.50.60.6
(In percent of GDP 1/)
Total revenue18.717.618.718.819.019.218.8
Tax revenue11.911.812.511.911.911.411.9
Direct taxes5.25.15.75.35.25.14.8
Income tax4.64.65.14.84.74.54.2
Wealth tax0.50.50.60.60.50.60.6
Taxes on foreign trade2.22.32.42.32.52.22.5
Export taxes0.20.20.10.10.10.10.0
Import taxes2.02.12.22.22.42.12.4
Taxes on domestic transactions4.64.54.54.34.14.14.5
Tobacco and beverages0.60.50.50.40.40.40.5
Value added tax1.91.91.91.91.91.81.9
Petroleum products1.31.21.21.21.11.01.2
Stamp taxes0.50.50.50.40.40.40.4
Other0.40.40.30.30.30.50.3
Grants0.00.00.10.10.81.21.1
Nontax revenue6.85.76.16.86.36.65.8
Panama Canal1.11.01.21.11.11.11.1
Oil pipeline royalties0.10.00.00.00.00.00.0
Services2.01.81.51.42.11.92.1
Transfers from rest of public sector3.62.93.34.22.93.41.8
Of which:
Consolidated public sector2.82.02.32.61.72.30.9
Nonconsolidated public sector0.20.10.20.81.21.10.9
Interest earnings and dividends0.00.00.00.00.20.10.9
Capital revenue0.00.00.00.00.00.00.0
Sources: Office of the Comptroller General; Ministry of Planning and Economic Policy; and Fund staff estimates.

Part-year percentages are annualized.

Sources: Office of the Comptroller General; Ministry of Planning and Economic Policy; and Fund staff estimates.

Part-year percentages are annualized.

Table 18.Panama: Central Government Expenditure
Prel.Preliminary

Jan.-Jun.
1993199419951996199719971998
(In percent of GDP 1/)
Total expenditure22.220.720.618.019.720.024.6
Current expenditure19.318.518.616.116.917.120.8
Wages and salaries7.86.96.96.96.76.56.8
Goods and services2.11.71.41.41.71.51.8
Interest4.04.55.03.03.73.23.4
Pensions and transfers5.45.25.34.74.55.28.2
Other0.10.10.10.10.30.70.6
Capital expenditure2.82.21.91.92.92.93.8
Investment2.21.51.41.42.32.33.1
Transfers0.60.70.50.50.60.60.7
Memorandum item:
Noninterest expenditure18.116.115.615.016.016.821.2
(Annual percent change)
Total expenditure12.8-0.51.8-8.616.622.029.4
Current expenditure7.21.93.2-10.011.614.527.8
Wages and salaries18.7-6.11.94.74.25.59.5
Goods and services20.3-10.2-16.60.631.127.327.8
Interest-14.420.512.6-36.219.2-12.610.0
Pensions and transfers8.14.32.9-7.52.240.863.5
Other-15.3-4.060.316.2427.0489.310.3
Capital expenditure74.8-16.5-10.64.457.9103.038.4
Investment120.4-28.8-1.73.767.7114.244.3
Transfers-1.830.2-28.96.330.372.618.2
Memorandum item:
Noninterest expenditure21.3-5.1-0.1-3.616.032.533.1
Sources: Office of the Comptroller General; Ministry of Planning and Economic Policy; and Fund staff estimates.

Part-year percentages are annualized.

Sources: Office of the Comptroller General; Ministry of Planning and Economic Policy; and Fund staff estimates.

Part-year percentages are annualized.

Table 19.Panama: Operations of the Social Security Agency
Prel.Preliminary

Jan.-Jun.
1993199419951996199719971998
(In millions of balboas)
Current revenue474.6522.3586.5613.5613.0324.4319.2
Contributions372.0396.3452.6475.0488.8243.4257.6
Professional risk premium34.235.040.538.536.818.019.1
Administered funds22.918.029.124.311.98.02.8
Income from investment29.839.053.859.558.528.030.4
Other15.734.010.516.217.027.19.3
Current expenditure609.9651.8720.2725.5780.6360.0388.5
Wages125.6134.3143.3151.4156.275.679.0
Goods and services75.082.2107.390.697.542.945.3
Transfers409.3435.3468.6482.6526.2241.1263.9
Domestic interest0.00.00.91.00.70.40.3
Operating balance (deficit -)-135.3-129.5-133.7-112.1-167.7-35.6-69.3
Current transfers (net)208.6211.7216.7170.7193.5107.1259.4
Transfers from central government209.0212.2216.7170.7194.0107.1259.6
Transfers to central government0.40.50.00.00.50.00.2
Capital revenue11.110.811.412.29.74.75.1
Saving 1/84.493.094.570.835.576.2195.2
Capital expenditure11.67.820.237.124.213.512.0
Fixed investment11.67.811.620.224.213.512.0
Financial investment0.00.08.616.90.00.00.0
Overall balance (deficit -)72.885.274.333.711.362.7183.2
(In percent of GDP 2/)
Current revenue6.56.87.47.47.07.56.9
Of which: Contributions5.15.15.75.85.65.65.6
Total expenditure8.68.59.49.39.28.68.7
Of which: Current8.48.49.18.88.98.38.4
Operating balance (deficit -)-1.9-1.7-1.7-1.4-1.9-0.8-1.5
Current transfers (net)2.92.72.72.12.22.55.6
Overall balance (deficit -)1.01.10.90.40.11.44.0
Sources: Social Security Agency; Ministry of Planning and Economic Policy; and Fund staff estimates.

Including capital revenue.

Part-year percentages are annualized.

Sources: Social Security Agency; Ministry of Planning and Economic Policy; and Fund staff estimates.

Including capital revenue.

Part-year percentages are annualized.

Table 20.Panama: Operations of the Decentralized Agencies 1/
Prel.Preliminary

Jan.-Jun.
1993199419951996199719971998
(In millions of balboas)
Operating revenue58.955.759.758.457.931.532.3
Operating expenditure129.4113.3116.7123.5135.760.863.1
Interest6.97.36.76.26.72.61.7
Other122.5106.0109.9117.3129.058.261.4
Operating balance (deficit -)-70.5-57.6-56.9-65.1-77.8-29.3-30.9
Current transfers (net)72.768.768.970.076.637.839.1
Transfers from central government61.168.868.974.576.637.839.1
Transfers to central government10.40.10.04.60.00.00.0
Transfers from public enterprises 2/22.00.00.00.00.00.00.0
Capital transfers from central government18.37.910.86.42.41.80.0
Capital revenue2.43.42.51.710.80.39.7
Saving 3/4.614.514.56.59.68.818.0
Capital expenditure4.59.611.520.323.011.710.5
Fixed investment17.119.613.615.623.011.710.5
Net lending-12.6-10.0-2.14.70.00.00.0
Overall balance (deficit -)18.412.813.8-7.3-11.0-1.17.4
(In percent of GDP) 4/
Operating revenue0.80.70.80.70.70.70.7
Operating expenditure1.81.51.51.51.51.41.4
Operating balance (deficit -)-1.0-0.7-0.7-0.8-0.9-0.7-0.7
Current transfers (net)1.00.90.90.80.90.90.8
Overall balance (deficit -)0.30.20.2-0.1-0.10.00.2

Includes the operations of the University of Panama, Human Development Institute (JFARHU), Agricultural Development Bank (BDA), Agricultural Marketing Institute (IMA), and National Mortgage Bank (BHN).

Transfers received to finance vocational training.

Including capital revenue.

Part-year percentages are annualized.

Includes the operations of the University of Panama, Human Development Institute (JFARHU), Agricultural Development Bank (BDA), Agricultural Marketing Institute (IMA), and National Mortgage Bank (BHN).

Transfers received to finance vocational training.

Including capital revenue.

Part-year percentages are annualized.

Table 21.Panama: Operations of the Public Enterprises 1/
Prel.Preliminary

Jan.-Jun.
1993199419951996199719971998
(In millions of balboas)
Current revenue714.2754.3749.7740.6637.6369.4260.3
Operating expenditure378.7385.0408.4447.2397.2226.4171.0
Wages and salaries150.3149.1169.4174.2122.571.150.5
Goods and services154.5158.7164.2152.3127.749.067.1
Transfers32.433.534.373.160.638.513.9
Other14.914.715.627.859.156.130.0
Interest26.629.024.919.627.311.79.5
Domestic1.61.11.00.812.53.73.4
External25.027.923.918.814.88.06.1
Operating balance (deficit -)335.5369.3341.3293.5240.4143.189.3
Current transfers net of taxes-211.8-154.1-181.9-210.4-147.4-101.1-38.6
Transfers from central government2.90.02.82.22.61.10.5
Transfers to central government-192.7-154.1-184.7-212.6-149.9-102.2-39.1
Transfers to rest of public sector-22.00.00.00.00.00.00.0
Capital revenue1.47.20.03.37.05.70.1
Capital transfers from central government18.318.80.11.95.50.70.0
Saving 2/125.1222.4159.486.4100.047.750.8
Capital expenditure103.9104.697.8104.396.264.565.3
Net borrowing0.00.00.048.0-30.0-30.00.0
Overall balance (deficit -)39.5136.761.732.0-20.7-46.1-14.5
(In percent of GDP 3/)
Current revenue9.89.89.59.07.38.55.6
Operating expenditure5.25.05.25.44.55.23.7
Operating balance (deficit -)4.64.84.33.62.73.31.9
Current transfers (net)-2.9-2.0-2.3-2.6-1.7-2.3-0.8
Capital expenditure1.41.41.21.31.11.51.4
Overall balance (deficit -)0.51.80.80.4-0.2-1.1-0.3
Sources: Office of the Comptroller General; Ministry of Planning and Economic Policy; and Fund staff estimates.

Includes the operations of the Hydraulic Resources and Electricity Institute (IHRE), National Telecommunications Institute (INTEL) (until May 1997), Colon Free Zone (operating agency), Civil Aviation Authority, National Water and Sewerage Institute (IDAAN), La Victoria Sugar Corporation, Tourism Institute, Bayano Cement Plant (until September 1994), and the Port Authority which on March 1, 1997 privatized about three quarters of its operations.

Including capital revenue.

Part-year percentages are annualized.

Sources: Office of the Comptroller General; Ministry of Planning and Economic Policy; and Fund staff estimates.

Includes the operations of the Hydraulic Resources and Electricity Institute (IHRE), National Telecommunications Institute (INTEL) (until May 1997), Colon Free Zone (operating agency), Civil Aviation Authority, National Water and Sewerage Institute (IDAAN), La Victoria Sugar Corporation, Tourism Institute, Bayano Cement Plant (until September 1994), and the Port Authority which on March 1, 1997 privatized about three quarters of its operations.

Including capital revenue.

Part-year percentages are annualized.

Table 22.Panama: Nonfinancial Public Sector Gross Domestic Debt(In millions of balboas; end of period)
June
199319941995199619971998
Consolidated nonfinancial public sector1,010.81,003.5946.11,136.61,198.01,154.0
Loans41.541.837.0207.0259.9220.0
Securities969.2961.7909.2929.5938.1934.0
General government974.21,019.5964.31,159.41,180.91,166.1
Loans5.06.33.6177.4207.2196.6
Securities969.21,013.2960.6982.0973.7969.5
Central government1,814.61,794.71,670.71,792.21,735.61,836.1
Loans32.231.125.8196.7223.2210.9
Securities1,782.41,763.61,644.91,595.51,512.41,625.2
Of which: Short term15.615.618.582.1125.0125.0
Sources: Office of the Comptroller General; and Fund staff estimates.
Sources: Office of the Comptroller General; and Fund staff estimates.

7. In the context of low inflation, the monetary and credit aggregates grew at a faster pace than real GDP. Broad money grew by an annual average of about 10½ percent a year during 1993-96, while private sector credit grew by around 13½ percent a year (Table 23 and 24). While the public sector continued to build up deposits in the domestic banking sector during 1993-95, there was a further accumulation of external arrears. The clearing of most of these arrears and the debt-reduction operations in 1996 led to an increase in bank credit to the public sector. The net foreign assets of the banking system increased from US$1.9 billion in 1993 to about US$2.5 billion in 1996, of which 38 percent (US$952 million) was held by the National Bank of Panama (BNP). Interest rates continued to track international market developments and the spread between deposit and lending rates declined slightly from 1.5 percentage points in 1993 to 0.8 percentage point in 1996.

Table 23.Panama: Accounts of the Banking System 1/(In millions of balboas; end of period)
DecemberJune
1993199419951996199719971998
I. National Bank of Panama
Net foreign assets485.5631.6708.7952.11,082.31,029.31,267.0
Assets597.1703.9780.51,016.51,147.21,092.91,328.1
Reserve position with IMF16.317.317.617.116.016.515.8
SDR holdings 2/0.00.00.00.00.00.00.0
Foreign currencies43.891.976.5253.177.151.145.3
Brady bonds0.00.00.0150.00.00.00.0
Deposits abroad537.0594.7686.5596.31,054.21,025.41,267.0
Liabilities 3/106.667.767.159.660.959.155.5
Deposits from nonresidents5.04.74.74.74.14.55.7
Net domestic reserves504.1597.0787.6352.9515.5497.4524.5
Domestic currency2.22.62.22.22.22.31.6
Interbank deposits (net)480.3568.6742.0321.1487.0478.0500.7
Checks in clearing21.625.843.429.626.417.122.2
Net domestic assets-456.6-704.8-924.0-893.3-1,151.2-1,116.3-1,358.2
Public sector (net)-627.3-843.5-1,025.3-853.1-1,076.1-1,063.2-1,235.9
Central government (net)473.6479.8433.3609.7399.2430.3301.0
Rest of public sector (net)-1,100.9-1,323.3-1,458.6-1,462.7-1,475.21,493.5-1,536.9
Of which: Social Security-529.8-659.8-812.6-865.4-974.8-919.8-1,042.4
Private sector323.0300.9318.8301.0322.4321.0298.5
Official capital and surplus-159.8-189.8-258.6-387.1-436.0-405.1-465.6
Valuation adjustment-19.8-21.1-21.5-20.8-19.5-20.1-19.3
Unclassified assets (net)27.348.862.666.658.051.164.1
Long-term foreign liabilities202.4199.5251.573.866.173.366.7
Of which:
FIVEN104.2104.2104.20.00.00.00.0
PEMEX68.668.668.60.00.00.00.0
Other29.526.778.773.866.173.366.7
U.S. AID facility53.329.09.31.20.91.00.8
SDR allocation36.138.439.137.835.536.535.0
Liabilities to the private sector241.2256.9272.4298.9344.1299.6330.7
Demand deposits49.660.163.067.695.960.571.7
Time deposits117.6113.4114.6117.7118.4127.5117.0
Savings deposits69.779.190.3109.5126.0107.4136.0
Cashier’s checks in circulation4.34.34.54.13.74.26.0
II. Private Banks
Net foreign assets1,398.31,770.81,734.11,529.51,770.11,727.21,289.3
Assets3,711.75,697.14,635.65,230.15,266.55,579.73,520.7
Foreign currencies97.1104.1105.3119.7149.5104.8117.4
Deposits abroad3,212.74,466.13,505.83,881.84,490.33,970.62,803.1
Other unclassified401.81,126.91,024.41,228.6626.61,504.2600.2
Liabilities529.5899.41,138.3956.0539.21,042.3491.1
Overseas operations (net)-1,783.8-3,026.91,763.2-2,744.7-2,957.2-2,810.2-1,740.2
Credit to nonresidents9,023.110,919.611,028.310,253.611,328.710,471.110,258.7
Deposits from nonresidents9,447.511,566.19,992.79,531.110,612.410,008.18,311.8
Foreign banks6,650.78,550.76,641.46,267.17,472.76,878.95,721.1
Private nonresidents2,796.83,015.43,351.33,263.93,139.73,129.22,590.7
Other foreign liabilities1,359.42,380.52,798.83,467.23,673.53,273.13,687.2
Net domestic reserves-567.1-684.4-858.8-614.3-722.1-861.3-808.5
Domestic currency7.514.416.410.114.710.78.5
Interbank deposits (net)-574.6-698.8-875.1-624.4-736.9-872.1-817.0
Net domestic assets4,118.04,809.15,498.45,980.36,925.36,333.07,804.1
Public sector (net)104.874.362.379.3151.953.7156.1
Credit104.874.362.379.4152.053.7156.1
Deposits0.00.00.00.00.00.00.0
Private sector4,332.55,118.65,852.46,347.67,237.56,708.28,120.8
Unclassified assets (net)-319.3-383.8-416.3-446.6-464.1-428.9-472.8
Liabilities to private sector4,949.25,895.46,373.76,895.57,973.37,198.98,284.9
Monetary liabilities3,941.24,574.14,941.95,234.76,028.25,503.06,286.5
Demand deposits645.2728.6737.7758.3889.7733.6845.0
Time and savings deposits3,296.03,845.54,204.24,476.55,138.64,769.45,441.5
Time deposits2,635.03,136.23,483.23,672.54,203.13,924.64,445.0
Savings deposits661.0709.2721.0804.0935.5844.9996.5
Private capital and surplus1,008.01,321.31,431.81,660.81,945.11,695.91,998.3
III. Savings Bank
Net foreign assets7.95.49.07.36.66.36.3
Net domestic reserves13.060.1118.4145.0161.4165.6176.2
Domestic currency0.20.90.20.10.20.10.1
Deposits in local banks (net)10.755.1114.2142.1157.9160.5171.8
Demand deposits10.410.60.62.23.84.52.8
Time deposits45.678.2127.3165.0188.7187.1181.2
Deposits of banks-45.3-33.7-13.7-25.1-34.7-31.1-12.1
Checks in clearing 4/2.24.14.12.83.35.04.3
Net domestic assets248.3215.8189.0176.7188.1174.7186.0
Public sector (net)-0.7-31.9-67.6-77.1-86.6-96.7-106.5
Central government1.11.12.25.94.70.74.7
Loans and advances1.11.12.25.94.70.74.7
Deposits0.00.00.00.00.00.00.0
Rest of public sector-1.8-32.9-69.8-83.0-91.3-97.4-111.1
Loans and advances0.00.00.00.0-18.0-18.0-18.0
Deposits 5/-1.8-32.9-69.8-83.0-73.3-79.4-93.1
Private sector325.5336.1349.6353.3388.3375.1397.7
Loans and discounts325.4336.0349.5353.2356.8355.6364.7
Investment0.10.10.10.131.419.533.0
Unclassified assets (net)0.0-5.5-4.0-19.1-22.9-21.0-12.0
Official capital and surplus-76.6-82.9-89.0-80.4-90.7-82.6-93.1
Long-term foreign liabilities10.410.19.18.18.18.67.5
Liabilities to private sector258.4270.9306.4319.9348.0338.1361.1
Demand deposits9.411.215.47.36.36.65.5
Time and savings deposits249.0259.7291.0312.5341.7331.5355.6
Time deposits103.999.0111.8113.5132.6120.9132.1
Savings deposits145.1160.7179.2199.1209.2210.6223.5
IV. Consolidated Banking System
Net foreign assets1,891.72,407.82,451.92,488.92,859.02,762.82,562.6
Assets4,316.66,406.45,425.16,253.86,420.36,678.94,855.2
Liabilities636.1967.01,205.31,015.6600.01,101.4546.6
Overseas operations (net)-1,788.8-3,031.6-1,767.9-2,749.3-2,961.3-2,814.6-1,745.9
Credit to nonresidents9,023.110,919.611,028.310,253.611,328.710,471.110,258.7
Deposits from nonresidents9,452.511,570.79,997.49,535.810,616.510,012.68,317.4
Other foreign liabilities1,359.42,380.52,798.83,467.23,673.53,273.13,687.2
Net domestic assets3,802.04,259.44,796.95,142.35,912.45,187.96,517.3
Public sector (net)-523.3-801.1-1,030.6-850.8-1,010.81,106.3-1,186.3
Credit1,062.6983.4931.01,139.11,112.4998.41,105.2
Deposits-1,585.9-1,784.5-1,961.7-1,990.0-2,123.1-2,104.7-2,291.5
Private sector4,981.15,755.66,520.97,002.07,948.17,404.38,816.9
Official capital and surplus-236.3-272.8-347.6-467.5-526.7-487.8-558.7
Net domestic reserves-54.3-31.742.8-119.2-48.9202.6-113.8
Domestic currency9.917.918.812.517.113.110.2
Net interbank deposits-83.6-75.2-18.9-161.2-92.0-233.6-144.4
Checks in clearing 4/23.829.947.533.529.722.126.4
Cashier’s checks in circulation-4.3-4.3-4.5-4.1-3.7-4.2-6.0
Unclassified assets (net)-311.8-361.6-379.2-421.0-448.5-418.8-440.0
Valuation adjustments-19.8-21.1-21.5-20.8-19.5-20.1-19.3
Other assets (net)-292.0-340.5-357.7-400.2-429.0-398.8-420.8
U.S. AID facility53.329.09.31.20.91.00.8
Long-term foreign liabilities213.1209.9261.682.974.281.874.3
SDR allocation36.138.439.137.835.536.535.0
Liabilities to domestic private sector5,444.56,418.96,948.17,510.28,661.77,832.38,970.6
Monetary liabilities4,436.55,097.55,516.25,849.46,716.66,136.46,972.3
Demand deposits704.2799.9816.1833.2991.9800.6922.3
Time and savings deposits3,732.34,297.74,700.15,016.25,724.85,335.86,050.0
Time deposits2,856.53,348.73,709.73,903.64,454.14,172.94,694.0
Savings deposits875.8949.0990.51,112.61,270.71,162.91,356.0
Private capital and surplus1,008.01,321.31,431.81,660.81,945.11,695.91,998.3
Sources: National Bank of Panama, Superintendency of Banks, and Savings Bank.

Excludes operations of international banks which are licensed to perform only offshore transactions, but includes the offshore activities of banks licensed to perform both domestic and offshore transactions.

Not included in BNP accounts, but in central government accounts.

Excluding the use of Fund credit

Includes bonds issued by the central government during 1988-89 in lieu of payment in cash to government employees for a 13-month salary bonus.

Increases from 1994 reflect deposits of the Social Security Agency (CSS).

Sources: National Bank of Panama, Superintendency of Banks, and Savings Bank.

Excludes operations of international banks which are licensed to perform only offshore transactions, but includes the offshore activities of banks licensed to perform both domestic and offshore transactions.

Not included in BNP accounts, but in central government accounts.

Excluding the use of Fund credit

Includes bonds issued by the central government during 1988-89 in lieu of payment in cash to government employees for a 13-month salary bonus.

Increases from 1994 reflect deposits of the Social Security Agency (CSS).

Table 24.Panama: Summary Operations of the Banking System
DecemberJune
1993199419951996199719971998
(In percent of GDP)
Net domestic assets50.652.657.560.363.056.363.5
Public sector (net)-5.4-8.6-11.6-11.4-10.6-12.3-12.4
Private sector62.569.477.682.085.180.388.0
Other-6.4-8.2-8.5-10.3-11.6-11.7-12.1
Liabilities to domestic private sector70.176.784.587.792.184.991.2
Monetary liabilities56.961.667.168.971.666.771.1
Demand deposits9.29.710.210.010.48.69.3
Time and savings deposits47.751.956.958.961.258.161.8
Time deposits36.740.144.646.247.645.648.1
Savings deposits11.111.812.312.813.612.513.7
Private capital and surplus13.115.117.418.820.518.120.0
(12-month change) 1/
Net domestic assets8.38.48.45.010.36.917.0
Public sector (net)-5.5-5.1-3.62.6-2.1-0.8-1.0
Private sector19.014.211.96.912.610.118.0
(12-month percent change)
Liabilities to domestic private sector15.317.98.28.115.310.814.5
Monetary liabilities16.014.98.26.014.810.013.6
Money11.213.62.02.119.012.815.2
Quasi-money17.015.19.46.714.19.613.4
Time deposits16.117.210.85.214.18.712.5
Savings deposits20.18.34.412.314.212.816.6
Sources: Office of the Comptroller General, National Bank of Panama, Superintendency of Banks, Savings Bank; and Fund staff estimates.

In relation to liabilities to the private sector at the beginning of the period.

Sources: Office of the Comptroller General, National Bank of Panama, Superintendency of Banks, Savings Bank; and Fund staff estimates.

In relation to liabilities to the private sector at the beginning of the period.

8. After recording deficits for most of the 1990s, the overall balance of payments shifted to a surplus in 1996 mainly because of lower interest obligations and a recovery in net re-exports from the ZLC. With the economic recovery, imports increased significantly, widening the trade deficit. This was partly offset in 1994 by strong growth in canal traffic, ZLC net re-exports, and related transportation activity. In 1996 the trade deficit was more than offset by net capital inflows, including direct investment mainly in tourism and port projects.

9. To normalize relations with private creditors and bilateral lenders, action was taken to settle arrears and reduce external debt and debt service in 1994-96. In 1994 the government completed an external bond exchange, settling arrears with private creditors of about US$425 million, while the BNP settled US$103 million in interbank deposit arrears with commercial banks that had been outstanding since 1984. In 1995 about US$60 million of enterprise debt owed to commercial banks that had fallen into arrears was restructured. In July 1996 a debt and debt-service reduction operation was concluded resulting in a 29 percent reduction on three-fourths of the external debt, including a debt package of US$3.8 billion with commercial banks (with the government issuing Brady bonds) and oil debt obligations with Mexico and Venezuela totaling US$308 million.1 As a result of these operations, in 1996 interest relief amounted to 2 percentage points of GDP. External debt declined from 75 percent of GDP in 1993 to about 62 percent of GDP in 1996.

C. Developments in 1997

10. In 1997 the government continued to implement its medium-term economic program. The reforms enacted in 1997 included further privatization (port and telecommunications services), trade reform, and steps to convert the supplementary civil servants pension fund into a voluntary self-financed plan. In addition, the government began to reorient government expenditure to social priorities, improve CSS operations, and to encourage investment in the canal zone areas reverting to Panama. In December 1997, the IMF Board approved an extended arrangement with Panama to support the continued implementation of the government’s program.

11. Economic growth in 1997 rose to 4½ percent with both private and public investment rising, inflation remaining low and unemployment declining (Figure 1). Following privatization, significant investment to modernize two major sea ports led to a strong pick up in activity in the ZLC and in the ports. Privatization of telecommunications (including the national phone company and cellular services) also fostered an expansion of these services. At the same time, several new mining and construction projects began, while tourism related services continued to grow at a moderate pace. While national saving grew, investment rose at a faster pace and the external current account deficit widened to 3 percent of GDP in 1997.

Figure 1.Panama Real Sector Developments

Sources: Panamanian authorities; and Fund staff estimates.

12. Trade reform2 and lower world prices for food products contributed to a decline in the inflation rate in 1997. The 12-month change in the CPI was negative (0.5 percent) in 1997; wholesale prices declined by 3.9 percent (a decline of 6.3 percent for wholesale imports) (Table 11). As regards unemployment trends, the unemployment rate declined to 13.4 percent in August 1997 (from 14.3 percent in August 1996), and preliminary data suggest that it remained at that same level in August 1998.

Public sector

13. The overall balance of the nonfinancial public sector moved from a small surplus in 1996 to a deficit of 0.3 percent of GDP in 1997 reflecting the fiscal cost of structural reforms initiated in 1996 (Figure 2). Nevertheless, privatization proceeds contributed to a build-up in the net foreign assets of the nonfinancial public sector in 1997 (Table 15).

Figure 2.Panama Public Sector Operations

(In percent of GDP)

Sources: Panamanian authorities; and Fund staff estimates.

1/ Includes Central Government non-tax revenue, and revenues of the Social Security Agency (CSS) and the decentralized agencies.

14. The central government balance also shifted from a small surplus in 1996 to a small deficit in 1997 (Table 16). Revenue fell by ½ percent of GDP; with tax revenue remaining steady (in part due to improved tax administration and buoyant economic activity and despite trade liberalization), and nontax revenue (particularly transfers from the rest of the public sector) declining following the privatizations (Table 17). In relation to GDP, total expenditure increased in 1997 as a result of automatic wage increases, higher spending on goods and services, and improved implementation of investment projects (Table 18). Further debt-reduction operations (described below) resulted in an increase in external interest expenditure in 1997.

15. The operating deficit of the Social Security Agency continued to widen in 1997 because of the higher pension payments and spending on medical services outstripped the revenue enhancements achieved through administrative reforms, including door-to-door inquiries and collections. The overall surplus of the CSS continued to deteriorate (to 0.1 percent of GDP) in 1997 (Table 19).3 To safeguard the actuarial integrity of the CSS, a study was initiated with technical support from the International Labor Organization to review the long-term funding aspects of the pension scheme and other benefits program. The report circulated in mid-1998 for public discussion suggests that cash deficits could occur in about a decade.

16. The decentralized agencies, including the University of Panama, continued to incur operating deficits that needed to be funded through central government transfers of about 1 percent of GDP in 1997 (Table 20).

17. The operating surplus of the public enterprises declined mainly as a result of privatizations to 2.7 percent of GDP in 1997 (compared with 3.6 percent of GDP in 1996), especially due to the sale of the telephone company to the private sector (Table 21). Continued high losses in certain public utilities (from system leakages and illegal connections) accounted for weak revenue collections. Privatization also explained the continued decline in public enterprise investment to slightly under 1.1 percent of GDP in 1997.

Monetary sector

18. Bank liabilities and credit to the private sector have continued to grow somewhat faster than GDP. The growth of the banking system’s liabilities to the private sector increased to 15½ percent in 1997 (from 8 percent in 1996) and remained high (14½ percent) in the year ended in June 1998 (Table 23). Growth was particularly strong in demand and saving deposits (Table 25). Similarly, domestic credit to the private sector increased by 13½ percent in 1997 (from 10½ percent in 1996), and accelerated to 19 percent in the year ended June 1998. Credit to finance commercial and financial activity as well as personal consumption has grown rapidly in recent years (Table 28). With a high level of liquidity in the system, the net foreign assets of the banking system rose to US$2.9 billion at end-1997 (3214 percent of GDP), an increase of 2.3 percent relative to private sector liabilities at the beginning of the year. Following international trends, commercial lending rates declined to 10.2 percent by end-1997 (and to 9.9 percent in June 1998) while deposit rates have remained stable (Figure 3).

Table 25.Panama: Private Sector Deposits
DecemberJune
1993199419951996199719971998
(In millions of balboas; end of period)
Total private sector deposits4,436.55,097.55,516.25,849.46,716.66,136.46,972.3
Demand704.2799.9816.1833.2991.9800.6922.3
National bank49.660.163.067.695.960.571.7
Savings bank9.411.215.47.36.36.65.5
Private banks645.2728.6737.7758.3889.7733.6845.0
Time and savings3,732.34,297.74,700.15,016.25,724.85,335.86,050.0
National bank187.3192.5204.9227.2244.4234.9252.9
Savings bank249.0259.7291.0312.5341.7331.5355.6
Private banks3,296.03,845.54,204.24,476.55,138.64,769.45,441.5
Time deposits2,856.53,348.73,709.73,903.64,454.14,172.94,694.0
National bank117.6113.4114.6117.7118.4127.5117.0
Savings bank103.999.0111.8113.5132.6120.9132.1
Private banks2,635.03,136.23,483.23,672.54,203.13,924.64,445.0
Savings deposits875.8949.0990.51,112.61,270.71,162.91,356.0
National bank69.779.190.3109.5126.0107.4136.0
Savings bank145.1160.7179.2199.1209.2210.6223.5
Private banks661.0709.2721.0804.0935.5844.9996.5
(12-month percent change)
Total private sector deposits16.014.98.26.014.810.013.6
Demand11.213.62.02.119.012.815.2
Time and savings17.015.19.46.714.19.613.4
Time16.117.210.85.214.18.712.5
Savings20.18.34.412.314.212.816.6
Sources: National Bank of Panama; Savings Bank; and Superintendency of Banks.
Sources: National Bank of Panama; Savings Bank; and Superintendency of Banks.
Table 26.Panama: Offshore Operations of Private Banks 1/(In billions of U.S. dollars; end of period)
DecemberJune
1993199419951996199719971998
Foreign assets17.422.922.721.622.921.621.8
Foreign reserves5.48.47.07.37.77.75.8
General license banks3.75.74.65.25.35.63.5
Offshore banks 2/1.72.72.42.02.42.12.3
Credit to nonresidents12.014.515.714.315.214.016.0
General license banks9.111.011.110.311.310.510.3
Offshore banks2.93.54.64.03.93.55.7
Foreign liabilities15.820.820.719.920.919.920.5
Short-term liabilities0.71.11.31.10.71.20.8
General license banks0.50.91.11.00.51.00.5
Offshore banks0.20.30.20.10.20.10.3
Deposits from nonresidents13.617:216.515.316.515.415.8
General license banks9.411.610.09.510.610.08.3
Offshore banks4.25.76.65.85.95.47.5
Other liabilities1.42.42.83.53.73.33.8
General license banks1.42.42.83.53.73.33.7
Offshore banks0.00.00.00.00.10.00.1
Capital and reserves0.30.30.30.30.40.30.3
Source: Superintendency of Banks.

Includes offshore operations of international license banks.

Refers to international license banks.

Source: Superintendency of Banks.

Includes offshore operations of international license banks.

Refers to international license banks.

Table 27.Panama: Interest Rate Structure(Simple average)
January-June
1993199419951996199719971998
Lending rates (less than one year)
Commercial9.610.210.610.510.210.39.9
Industrial9.39.810.110.19.39.88.9
Personal12.512.512.612.212.612.012.6
Deposit rate (six-month) 1/4.95.56.56.46.26.26.2
U.S. Prime rate (six-month)6.07.18.88.58.58.48.5
LIBOR (six-month)3.45.16.15.65.95.95.8
Difference between deposit rate and LIBOR1.50.40.40.80.30.30.4
Sources: Superintendency of Banks; and International Financial Statistics.

Domestic deposit rate.

Sources: Superintendency of Banks; and International Financial Statistics.

Domestic deposit rate.

Table 28.Panama: Banking System Credit to the Private Sector by Economic Activity(End of period)
June
1993199419951996199719971998
(In millions of balboas)
Total4,7235,4206,1196,4747,2126,7407,971
Commerce2,0862,3942,6712,5682,8962,6683,309
Housing1,1831,3341,4931,6491,8441,7371,977
Other construction125150187297278295262
Manufacturing263286367371415395450
Personal consumption6407488499481,0979861,271
Financial and insurance enterprises184215237300362324380
Agriculture108124130137129139128
Livestock117144161155150148147
Fishing17252628272535
Other00021142312
(12-month percent change)
Total24.214.812.95.811.47.818.3
Commerce24.514.811.6-3.812.81.424.0
Housing15.612.811.910.511.89.813.8
Other construction22.520.024.858.6-6.430.5-11.2
Manufacturing21.88.728.31.111.915.513.9
Personal consumption43.816.913.511.715.714.328.9
Financial and insurance enterprises46.016.810.426.420.714.917.3
Agriculture28.614.84.65.6-5.87.2-7.9
Livestock8.323.111.7-3.6-3.2-8.0-0.7
Fishing-32.047.12.29.6-3.6-16.740.0
(In percent of total credit)
Total100.0100.0100.0100.0100.0100.0100.0
Commerce44.244.243.639.740.239.641.5
Housing25.024.624.425.525.625.824.8
Other construction2.62.83.14.63.94.43.3
Manufacturing5.65.36.05.75.85.95.6
Personal consumption13.613.813.914.615.214.615.9
Financial and insurance enterprises3.94.03.94.65.04.84.8
Agriculture2.32.32.12.11.82.11.6
Livestock2.52.72.62.42.12.21.8
Fishing0.40.50.40.40.40.40.4
Source: Superintendency of Banks.
Source: Superintendency of Banks.

Figure 3.Panama Monetary Developments

Sources: Panamanian authorities; and Fund staff estimates.

19. New banking legislation that became effective in June 1998 incorporated the recommendations of the Basel Committee on banking supervision, including consolidated supervision of banks that are licensed for offshore and other international operations. The new law strengthens banking supervision through the establishment of a new superintendency with broad power. Foreign assets of offshore banks amounted to about US$23 billion a year from 1994 to 1997, and declined to about US$22 billion in June 1998, as a result of the withdrawal of one bank from Panama (Table 26).

EBS/98/208

Corrected: 12/18/98

20. The new banking law and prudential standards now also apply to state banks. In addition, plans for restructuring their operations are currently being developed. The operating profits of the Savings Bank and National Mortgage Bank (BHN) in 1997 were marginally lower than in 1996 (Table 29). Despite increased operating expenditure, the performance of the two banks in early 1998 improved over the same period in 1997. While the Savings Bank improved its investment performance, the Mortgage Bank was more successful in collecting loan payments. On the other hand, the Agriculture Development Bank recorded operating losses in 1997 and in the first six months of 1998, in part because of drought (El Niño) which affected its relatively large agricultural portfolio.

Table 29.Panama: Public Sector Banks-Operating Revenue and Expenditure(In millions of balboas)
June
1993199419951996199719971998
I. National Bank of Panama
Operating profits or losses (-)33.733.259.957.744.823.818.2
Operating revenue62.062.489.188.176.738.933.8
Net interest52.651.678.177.765.333.729.3
Interest receipts (cash)89.698.5139.3142.4144.270.169.4
Accrued91.1104.5143.5143.7148.566.482.6
Not yet collected 1/-1.5-6.0-4.2-1.3-4.43.6-13.2
Interest payments accrued-37.0-46.9-61.2-64.7-78.9-36.4-40.2
Noninterest income 2/9.410.811.110.311.45.34.5
Operating expenditure28.329.229.230.432.015.215.6
Wages and salaries19.319.219.119.620.410.010.0
Goods and services8.28.48.710.211.04.95.4
Other 3/0.81.61.30.60.60.20.1
II. Savings Bank
Operating profits or losses (-)4.44.01.54.63.30.42.4
Operating revenue17.918.318.322.121.910.811.6
Net interest10.912.913.916.316.98.59.5
Interest receipts (cash)28.031.237.743.447.923.325.3
Accrued35.238.744.445.750.324.526.4
Loans32.635.736.536.336.218.318.4
Fixed deposits2.53.07.89.312.35.66.5
Investments0.00.10.10.11.80.51.5
Not yet collected-7.2-7.5-6.7-2.4-2.3-1.2-1.2
Interest payments accrued-17.1-18.3-23.8-27.1-31.1-14.8-15.7
Noninterest income7.05.44.45.85.12.32.1
Operating expenditure (cash)13.514.316.817.518.610.39.2
Expenditure15.115.920.621.020.710.010.4
Of which:
Depreciation-1.0-1.4-1.5-1.5-1.40.7-0.7
Provisions for bad loans-0.6-0.2-2.3-2.0-0.7-0.4-0.5
III. National Mortgage Bank
Operating profits or losses (-)5.79.05.44.23.2-0.91.1
Operating revenue12.616.413.014.213.83.96.4
Net interest6.86.67.17.97.91.93.7
Interest receipts (cash)14.714.915.115.614.85.47.2
Loans13.813.313.514.313.84.96.8
Fixed deposits0.81.01.20.90.90.40.4
Investments0.10.60.40.30.10.00.0
Interest payments (cash)7.98.38.07.76.83.53.5
Noninterest income5.89.85.96.35.92.02.8
Operating expenditure (cash)6.97.37.69.910.64.85.4
Wages and salaries2.62.93.43.43.91.81.8
Goods and services4.34.54.26.66.73.03.5
IV. Agricultural Development Bank
Operating profits or losses (-)-1.2-2.5-3.3-3.0-3.8-2.0-1.9
Operating revenue4.83.22.82.11.40.50.6
Net interest4.32.92.51.80.70.30.3
Interest receipts (cash)8.67.96.75.94.82.42.2
Interest payments accrued4.34.94.24.14.12.11.9
Interest payments (cash)4.34.63.93.83.61.81.6
Noninterest income0.60.30.30.30.70.20.3
Operating expenditure (cash)6.05.76.15.15.22.52.5
Wages and salaries4.24.14.53.63.71.81.8
Goods and services1.00.90.90.90.90.40.4
Other0.80.70.70.60.60.30.3
Sources: National Bank of Panama; Savings Bank; National Mortgage Bank; and Agricultural Development Bank

Difference of interest receivable at the beginning and at the end of the period.

In 1993 excludes B 12.7 million of reversion of reserves for bad loans.

Includes exchange losses of B 0.4 million in 1993, B 1.2 million in 1994, and B 0.9 million in 1995 on repayments, and exchange profit of B 0.5 million in 1996.

Sources: National Bank of Panama; Savings Bank; National Mortgage Bank; and Agricultural Development Bank

Difference of interest receivable at the beginning and at the end of the period.

In 1993 excludes B 12.7 million of reversion of reserves for bad loans.

Includes exchange losses of B 0.4 million in 1993, B 1.2 million in 1994, and B 0.9 million in 1995 on repayments, and exchange profit of B 0.5 million in 1996.

21. While for private banks, the ratio of nonperforming loans to total lending has remained low, in the case of state banks, this ratio fell from 14.8 percent in 1996 to 10.6 percent by end-1997, but rose slightly to 11.4 percent in June 1998 as further arrears accumulated (Table 30). The BHN forgave over US$35 million in interest arrears during 1997 (see Chapter II) and the Agricultural Development Bank began a much smaller program of debt forgiveness in July 1997.

Table 30.Panama: Public Sector Banks-Portfolio in Arrears(In millions of balboas at end-year)
June
1993199419951996199719971998
I. National Bank of Panama
Total private sector portfolio 1/269.5262.2276.9268.6260.6258.4256.8
Commerce44.539.739.136.843.437.142.7
Agriculture and forestry69.176.678.079.681.778.879.4
Personal loans105.591.599.592.675.985.072.9
Others50.354.460.259.659.657.561.9
Loans overdue17.612.710.711.511.111.111.3
Commerce8.36.24.34.13.33.82.8
Agriculture and forestry4.93.53.74.44.74.24.8
Personal loans0.80.81.00.91.11.51.4
Others3.62.11.72.12.01.62.2
Loans overdue17.612.710.711.511.111.111.3
Between 30 and 90 days4.84.63.85.14.84.55.3
Over 90 days12.88.16.96.46.46.65.9
Loans overdue (in percent)100.0100.0100.0100.0100.0100.0100.0
Between 30 and 90 days27.336.235.244.642.840.847.4
Over 90 days72.763.864.855.457.259.252.6
Share of arrears in total portfolio (in percent)6.54.83.94.34.34.34.4
Commerce18.615.610.911.17.610.36.5
Agriculture and forestry7.14.64.85.55.85.46.1
Personal loans0.80.91.01.01.51.72.0
Others7.23.92.83.63.42.83.6
II. Savings Bank
Total portfolio313.6324.6336.9351.8355.0355.5364.7
Mortgages233.0252.1265.4275.1285.8281.4288.5
Personal loans72.261.460.262.155.058.660.1
Other8.411.011.414.614.215.516.1
Loans overdue69.368.561.653.254.655.357.7
Mortgages62.958.649.844.344.044.245.8
Personal loans5.28.111.16.48.28.58.5
Other1.21.80.72.52.42.63.4
Loans overdue 2/69.368.561.653.254.655.357.7
Between two and nine months32.531.529.5
More than nine months36.937.132.2
Loans overdue (in percent)100.0100.0100.0100.0100.0100.0100.0
Between two and nine months46.845.947.8
More than nine months53.254.152.2
Share of arrears in total portfolio (in percent)22.121.118.315.115.415.615.8
Mortgages27.023.218.816.115.415.715.9
Personal loans7.213.218.510.314.914.514.1
Other14.716.46.017.116.916.821.1
III. National Mortgage Bank 3/
Total portfolio153.8166.6174.4188.5195.4192.6198.6
Total arrears34.838.542.245.68.143.211.9
Share of arrears in total portfolio (in percent)22.723.124.224.24.122.46.0
IV. Agricultural Development Bank 4/
Total portfolio89.981.476.674.276.172.979.7
Loans overdue10.021.620.420.719.923.021.5
Between 30 and 90 days1.33.30.71.01.12.51.6
More than 90 days8.718.319.719.718.820.519.9
Loans overdue (in percent)100.0100.0100.0100.0100.0100.0100.0
Between 30 and 90 days13.315.53.44.95.510.97.3
More than 90 days86.784.596.695.194.589.192.7
Share of arrears in total portfolio (in percent)11.226.526.727.926.131.527.0
Sources: National Bank of Panama; Savings Bank; National Mortgage Bank; and Agricultural Development Bank.

Central government overdrafts of B 932 million accumulated during the crisis of the late 1980s were regularized in 1993, and no public sector arrears remain.

From 1996 onwards refers to loans overdue more than 91 days.

The portfolio includes bad loans related to projects, financed through the Ministry of Housing, aimed at solving social problems.

From 1993 onward, the portfolio excludes bad loans.

Sources: National Bank of Panama; Savings Bank; National Mortgage Bank; and Agricultural Development Bank.

Central government overdrafts of B 932 million accumulated during the crisis of the late 1980s were regularized in 1993, and no public sector arrears remain.

From 1996 onwards refers to loans overdue more than 91 days.

The portfolio includes bad loans related to projects, financed through the Ministry of Housing, aimed at solving social problems.

From 1993 onward, the portfolio excludes bad loans.

Table 31.Panama: Balance of Payments 1/
19931994199519961997
CreditDebitBalanceCreditDebitBalanceCreditDebitBalanceCreditDebitBalanceCreditDebitBalance
(In millions of U.S. dollars)
Current account7,917.88,074.2-156.48,778.38,808.6-30.39352.09,621.3269.38,710.68,842.9-132.39,826.410,990.7-264.3
Goods and services7,72338,040.8-317.58,592.88,772.0-179.29,167.89,591.4-423.58,527.08,812.7-285.79,633.610,060.5-426.8
Commodity trade5,413.65,747.0-333.46,040.16,288.6-248.66,100.16,669.3-569.25,723.96,234.5-510.66,675.27,268.7-593.4
Nonpetroleum exports (f.o.b.)5,311.50.05,311.55,932.60.05,932.65,954.40.05,954.45,556.50.05,556.56,501.40.06,501.4
Petroleum trade (fo.b.)102.1266.0-163.9107.4299.1-191.7145.8303.5-157.7167.4394.9-227.5173.8371.9-198.1
Nonpetroleum imports (f.o.b.)0.05,481.0-5,481.00.05,989.5-5,989.50.06,365.8-6,365.80.05,925.2-5,925.20.06,896.8-6,896.8
Freight and insurance28.2636.3-608.127.6710.3-682.726.3709.7-683.515.0646.2-631.215.2748.3-733.2
Of which: ZLC0.0424.9-424.90.0475.1-475.10.0475.0-475.00.0407.8-407.80.0482.4-482.4
Transportation603.763.6540.1667.170.8596.3728.876.5652.3740.4107.7632.7767.776.7690.9
Travel225.7122.5103.2261.6122.2139.4310.4127.5182.9343.1135.8207.3374.2137.4236.8
Investment income947.41,318.7-371.31,082.11,417.5-335.41,488.11,830.9-342.81,219.71,519.2-299.51,317.01,647.1-330.2
Of which:
Interest on public debt0.0291.1-291.10.0354.0-354.00.0393.2-393.20.0243.3-243.30.0286.3-286.3
ZLC6.157.5-51.46.3115.2-108.819.378.0-58.613.994.3-80.416.4111.6-95.2
Government n.i.e.19.334.6-15.220.334.7-14.420.839.5-18.721.345.0-23.721.646.5-24.9
Other services485.4118.1367.2494.0127.9366.1493.3137.8355.5463.6124.3339.3455.5128.5327.0
Of which: ZLC31.824.96.931.245.2-14.032.642.1-9.532.038.2-6.233.039.8-6.8
Unrequited transfers194.533.4161.1185.536.6148.9184.129.9154.2183.630.2153.4192.830.2162.6
Private transfers16.723.7-7.117.124.8-7.716.320.4-4.115.820.0-4.216.620.0-3.4
Official transfers177.89.7168.1168.511.8156.6167.89.5158.3167.810.2157.6176.210.2166.0
Capital account 2/3,178.83,502.4-323.63,749.84,181.9-432.01,345.01,169.5175.4698.9377.6321.34,215.94,040.2175.7
Official capital76.7272.2-195.538.3269.1-230.8155.0223.7-68.7186.4354.8-168.41,511.21,847.4-336.2
Grants42.00.042.00.00.00.00.00.00.00.00.00.070.60.070.6
Nonfinancial public sector34.7272.2-237.538.3269.1-230.899.7223.7-124.0186.4354.8-168.4-1,440.61,847.4-406.8
Medium and long term34.7259.1-224.438.3257.0-218.799.7211.1-111.4186.4342.0-155.61,426.91,847.4-420.5
Released collateral0.00.00.00.00.00.00.00.00.00.00.00.013.70.013.7
Venezuela oil loan0.012.7-12.70.011.7-11.70.012.6-12.60.012.4-12.40.00.00.0
Mexico oil loan0.00.4-0.40.00.4-0.40.00.00.00.00.4-0.40.00.00.0
(Official bank (other long term)0.00.00.00.00.00.055.30.055.30.00.00.00.00.00.0
(In millions of U.S. dollars)
Private capital3,102.13,230.2-128.13,711.53,912.8-201.21,190.0945.8244.1512.522.8489.72,704.72,192.8511.9
Direct investment140.861.879.0167.40.0167.4192.40.0192.4275.10.0275.1848.40.0848.4
Private borrowing41.040.20.832.030.91.244.826.018.757.20.057.21,645.10.01,645.1
Commercial banks foreign position2,920.33,128.2-207.93,512.13,881.9-369.8952.8919.833.0180.222.8157.4211.22,192.8-1,981.6
Errors and omissions237.6364.2-159.3210.8231.2
Overall balance-242.4-98.2-253.2399.8142.6
Financing357.2114.8242.4494.5396.498.2369.2116.0253.23,418.73,818.4-399.881.5224.1-142.6
Reserves14.0114.8-100.814.0147.3-133.212.9116.0-103.175.9295.3-219.545.8156.3111.0
Net foreign assets of the
National Bank of Panama0.0107.9-107.90.0146.1-146.10.077.1-77.10.0243.4-243.40.0130.2-130.2
Net use of Fund credit14.06.97.114.01.212.912.938.9-26.075.951.924.045.826.119.7
Rescheduling0.00.00.0480.50.0480.577.70.077.73,342.80.03,342.835.70.035.7
Arrears343.20.0343.20.0249.1-249.1278.60.0278.60.03,523.1-3,523.10.067.8-67.8
Memorandum items:
Colon Free Zone
Commodity trade4,776.94,060.7716.35,367.64,436.0931.75,357.24,689.5667.74,962.54,158.3804.25,870.64,919.3951.4
Services37.9507.3-469.437.5635.4-597.951.9595.1-543.145.9540.3-494.449.4633.8-584.3
Commodity trade without ZLC636.71,686.3-1,049.6672.41,852.7-1,180.3742.91,979.9-1,237.0761.42,076.2-1,314.8804.52,349.3-1,544.7
Services without ZLC1,324.4467.8856.61,433.1430.41,002.71,527.7496.01,031.71,537.5486.71,050.82,909.02,158.0751.0
Income and other services of:
General license banks570.4489.780.6752.7602.6150.1998.5857.1141.4807.1725.281.9894.3866.727.6
International license banks391.8406.1-14.3355.6324.231.4511.2469.142.0446.0411.734.3444.5436.67.9
Current account without ZLC3,103.03,506.2-403.23,373.23,737.3-364.13,942.84,336.7-393.93,702.24,112.3-410.13,906.44,537.6-631.3
Current account without
ZLC and banks2,140.92,610.4-469.62,264.92,810.5-545.62,433.23,010.5-577.32,449.12,975.4-526.32,567.63,234.3-666.7
Sources: Office of the Comptroller General; and Ministry of Planning and Economic Policy.

The data reflect the residence of enterprises based on the recommendations of the System of National Accounts 1993, and the Balance of Payments Manual, fifth edition, especially for the transactions of the enterprises operating in the Colon Free Zone (ZLC) and the international license banks.

Excluding errors and omissions.

Sources: Office of the Comptroller General; and Ministry of Planning and Economic Policy.

The data reflect the residence of enterprises based on the recommendations of the System of National Accounts 1993, and the Balance of Payments Manual, fifth edition, especially for the transactions of the enterprises operating in the Colon Free Zone (ZLC) and the international license banks.

Excluding errors and omissions.

External sector

22. The external current account deficit widened to 3 percent of GDP in 1997 from percent of GDP in 1996 (Table 32 and Figure 4). The trade deficit grew as imports associated with expanding investment were not fully offset by the growth in exports and ZLC net re-exports (Table 39). The services trade surplus fell in 1997 as growth in canal activity and tourism was insufficient to counter the increase in imported freight and insurance services connected with ZLC activity and the increase in external interest payments resulting from debt-reduction operations. The capital and financial account remained in surplus and the overall balance of payments declined to US$143 million in 1997, and net foreign assets of the BNP rose by US$130 million.

Table 32.Panama: Summary Balance of Payments(In millions of U.S. dollars, unless otherwise specified)
19931994199519961997
Current account balance-156.4-30.3-269.3-132.3-264.3
Trade balance-333.4-248.6-569.2-510.6-593.4
Exports636.7672.4742.9761.4804.5
Non-oil exports534.6565.0597.1594.0630.7
Petroleum exports102.1107.4145.8167.4173.8
Imports-1,686.3-1,852.7-1,979.9-2,076.2-2,349.3
Petroleum imports-266.0-299.1-303.5-394.9-371.9
Non-oil imports-1,420.3-1,553.6-1,676.4-1,681.3-1,977.4
Colon Free Zone, net716.3931.7667.7804.2951.4
Service balance15.969.3145.7224.9166.6
Freight and insurance-608.1-682.7-683.5-631.2-733.2
Of which: Colon Free Zone-424.9-475.1-475.0-407.8-482.4
Transportation540.1596.3652.3632.7690.9
Travel103.2139.4182.9207.3236.8
Investment income-371.3-335.4-342.8-299.5-330.1
Of which: public sector-291.1-354.0-393.2-243.3-286.2
Other services352.0351.7336.8315.6302.1
Transfers (net)161.1148.9154.2153.4162.6
Of which: Official transfers (net)168.1156.6158.3157.6166.0
Capital account balance-85.9-67.916.1532.1406.9
Public sector (net)-195.5-230.8-68.7-168.4-336.2
Grants42.00.00.00.070.6
Nonfinancial public sector-237.5-230.8-124.0-168.4-406.8
Drawings34.738.399.7186.41,440.6
Amortization-259.1-257.0-211.0-171.3-1,201.4
Other-13.1-12.1-12.6-183.5-646.0
National Bank of Panama0.00.055.30.00.0
Private capital 1/109.6162.984.7700.5743.1
Overall balance-242.4-98.2-253.2399.8142.6
Financing242.498.2253.2-399.8-142.6
Net foreign assets of the National Bank

of Panama (increase -)
-107.9-146.1-77.1-243.4-130.2
Net use of Fund credit7.112.9-26.024.019.7
Rescheduling0.0480.577.73,342.835.7
Arrears (net)343.2-249.1278.6-3,523.1-67.8
Memorandum item:
Current account (in percent of GDP)-2.2-0.4-3.4-1.6-3.0
Sources: Panamanian authorities; and Fund staff estimates.

Includes errors and omissions

Sources: Panamanian authorities; and Fund staff estimates.

Includes errors and omissions

Table 33.Panama: Composition of Merchandise Exports(In millions of U.S. dollars; unless otherwise specified)
19931994199519961997
Merchandise exports, f.o.b. 1/636.7672.4742.9761.4804.5
Petroleum102.1107.4145.8167.4173.8
Nonpetroleum exports, f.o.b. 2/506.8539.8577.2566.4658.0
Bananas
Value201.2206.6190.4184.0179.8
Volume (millions of boxes)38.241.138.134.833.5
Unit value per box5.35.05.05.35.4
Sugar
Value21.817.118.022.628.7
Volume (thousands of metric tons)62.854.844.246.662.4
Unit value per pound0.20.20.20.20.2
Shrimp
Value57.069.582.874.695.7
Volume (thousands of metric tons)7.67.910.411.012.6
Unit value per pound3.44.03.53.13.4
Coffee
Value11.614.033.418.822.4
Volume (thousands of metric tons)7.95.310.58.47.5
Unit value per pound0.71.21.41.01.4
Fishmeal
Value4.55.15.02.24.5
Volume (thousands of metric tons)15.719.120.57.111.1
Unit value per pound0.10.10.10.10.2
Other seafood
Value18.518.419.522.136.4
Volume (thousands of metric tons)6.36.25.47.213.4
Unit value per pound1.31.41.71.41.2
Clothing
Value21.420.522.220.124.1
Volume (metric tons)0.70.60.60.60.7
Unit value per pound32.634.436.233.534.4
Other exports
Value171.7188.6205.9222.0266.4
Balance of payments adjustments for cove-9.0-12.4-22.8-5.6-67.0
Re-exports35.937.642.733.239.7
Sources: Office of the Comptroller General; and Fund staff estimates.

Including re-exports and balance of payments adjustments.

Excluding re-exports and balance of payments adjustments.

Sources: Office of the Comptroller General; and Fund staff estimates.

Including re-exports and balance of payments adjustments.

Excluding re-exports and balance of payments adjustments.

Table 34.Panama: Petroleum Trade(In millions of U.S. dollars; volumes in millions of barrels; and unit values in U.S. dollars per barrel)
19931994199519961997
Net imports163.9191.7157.7227.5198.1
Total imports, f.o.b.266.0299.1303.5394.9371.9
Crude oil
Value182.1118.8135.0289.0262.2
From: Ecuador77.095.3116.695.8162.0
Venezuela20.714.918.4147.049.2
Mexico12.50.00.00.017.6
Other71.98.60.046.233.4
Volume12.48.58.814.715.0
Unit value14.714.015.420.517.5
Refined products83.9180.3168.5105.9109.7
Refinery64.2180.3168.5105.9109.7
Other19.70.00.00.00.0
Total exports, f.o.b.102.1107.4145.8167.4173.8
To other countries9.610.58.720.522.3
Bunker oil for ships76.263.081.7122.0120.9
Fuel for aircraft16.333.955.424.930.6
Sources: Office of the Comptroller General; and Ministry of Commerce and Industry.
Sources: Office of the Comptroller General; and Ministry of Commerce and Industry.
Table 35.Panama: Nontraditional Exports and Issue of Tax Credit Certificates(In millions of U.S. dollars)
19931994199519961997
Nontraditional exports, f.o.b. 1/77.882.2100.8129.5125.6
Food25.41.03.12.811.9
Other agricultural products17.023.835.446.251.3
Beverages and tobacco7.69.88.210.39.7
Metals0.30.00.00.00.0
Manufactures27.547.654.270.252.7
Issues of tax credit certificates12.312.613.819.118.8
Food4.20.10.30.32.2
Other agricultural products3.65.45.28.57.9
Beverages and tobacco1.22.31.01.51.5
Manufactures3.24.87.38.87.2
Ratio of tax credit certificates to nontraditional exports15.815.313.714.814.9
Source: Panama Trade Development Institute (IPCE)

Excludes nontraditional exports not benefitting from tax credit certificates.

Source: Panama Trade Development Institute (IPCE)

Excludes nontraditional exports not benefitting from tax credit certificates.

Table 36.Panama: Composition of Merchandise Imports, c.i.f.(Value in millions of U.S. dollars; indices: 1988 = 100)
19931994199519961997
Food
Value195.3211.9230.8267.0269.9
Volume index291.4315.4346.9385.1381.2
Unit value index72.172.171.474.876.3
Capital goods
Value514.5541.9582.7679.6762.9
Volume index352.4379.8373.0427.1488.8
Unit value index108.9106.6116.7119.2116.5
Petroleum
Value192.0125.5144.0301.7262.1
Volume index182.5126.1129.7216.7221.1
Unit value index122.2122.2136.9182.2155.6
Other consumer goods
Value1,293.41,522.81,553.21,531.51,697.4
Volume index233.6405.9386.9386.5423.3
Unit value index112.175.881.182.283.2
Total value2,195.22,402.12,510.72,779.82,992.3
Sources: Office of the Comptroller General; and Fund staff estimates.
Sources: Office of the Comptroller General; and Fund staff estimates.
Table 37.Panama: Direction of Trade 1/(In percent)
19931994199519961997
Exports, f.o.b.100.0100.0100.0100.0100.0
Western Hemisphere55.461.066.372.872.9
United States34.337.841.947.446.2
Central America and the Caribbean17.919.219.619.320.8
South America2.12.73.74.13.9
Other1.11.37.43.15.0
Europe38.133.930.723.022.3
Belgium and Luxembourg5.57.04.84.25.3
Germany14.312.812.64.53.0
Italy5.51.81.11.00.7
Sweden9.79.04.810.28.3
Other3.13.37.43.15.0
Other countries5.43.81.92.23.6
Of which: exports through the
Colon Free Zone1.11.31.12.02.0
Imports, c.i.f. 2/100.0100.0100.0100.0100.0
Western Hemisphere60.060.963.765.764.0
United States36.938.039.437.436.9
Mexico2.82.03.33.84.9
Central America and the Caribbean9.39.17.67.17.2
Costa Rica2.82.82.92.72.9
Trinidad and Tobago0.80.70.40.30.7
Other5.75.64.34.13.5
South America11.011.813.417.415.0
Venezuela1.72.23.27.24.0
Ecuador3.84.45.33.75.6
Brazil1.51.71.41.11.0
Other4.03.53.55.44.4
Europe9.09.68.88.38.6
Germany1.91.81.91.71.3
France0.80.60.60.51.5
Spain1.01.01.21.01.3
Italy0.81.40.90.80.7
Netherlands0.41.81.30.90.6
United Kingdom0.70.60.60.60.9
Other3.42.42.32.82.3
Othër countries31.029.527.526.027.4
Of which: imports from the
Colon Free Zone16.515.314.313.613.3
Source: Office of the Comptroller General.

Based on Customs data.

Excludes sales of bunker oil.

Source: Office of the Comptroller General.

Based on Customs data.

Excludes sales of bunker oil.

Table 38.Panama: Net Services Receipts(In millions of U.S. dollars)
19931994199519961997
Total service receipts (net)15.969.3145.7224.9166.6
Investment income-371.3-335.4-342.8-299.5-330.1
Of which:
Interest on the public debt-291.1-354.0-393.2-243.3-286.2
Colon Free Zone-51.4-108.8-58.6-80.4-95.1
Freight and insurance-608.1-682.7-683.5-631.2-733.2
Transshipment of oil25.323.522.010.922.3
Colon Free Zone-424.9-475.1-475.0-407.8-482.4
Other-108.5-231.0-230.5-234.3-273.1
Travel103.2139.4182.9207.3236.8
Transportation 1/540.1596.3652.3632.7690.9
Canal receipts400.9419.2462.8486.7493.7
Other139.2177.1189.6142197.2
Government-15.2-14.4-18.7-23.7-24.9
Other services (net)367.2366.1355.5339.3327.0
Memorandum item:
Nonfactor services387.2404.7488.5524.4496.8
Source: Office of the Accountant General.

Excludes sales of bunker oil and aviation fuel.

Source: Office of the Accountant General.

Excludes sales of bunker oil and aviation fuel.

Table 39.Panama: Operations of the Colon Free Zone(In millions of U.S. dollars)
19931994199519961997
Imports 1/4,495.84,923.25,160.54,623.55,389.6
Textiles and clothing1,200.11,310.71,255.2973.01,200.0
Beverages and tobacco122.7120.7119.7176.1207.8
Chemical products417.1413.1448.7496.1577.7
Instruments614.5616.9416.2317.6340.9
Machinery and transport goods1,231.81,457.21,783.71,502.41,654.8
Other915.91,008.81,137.01,158.51,408.4
Exports, f.o.b. 1/5,149.95,748.15,731.35,491.86,276.0
Textiles and clothing1,327.81,478.71,339.41,177.21,384.2
Beverages and tobacco151.1143.1142.2183.1218.0
Chemical products563.2595.4644.7675.6770.5
Instruments685.1735.3457.7388.2373.8
Machinery and transport goods1,419.51,666.51,896.31,803.41,960.2
Other1,010.41,137.71,251.11,264.21,569.3
Memorandum item:
Number of Panamanians employed in Colon Free Zone 2/12,14712,67413,42112,15213,639
Sources: Office of the Comptroller General; and Administration of the Colon Free Zone.

Excludes balance of payments adjustments.

Average for the year.

Sources: Office of the Comptroller General; and Administration of the Colon Free Zone.

Excludes balance of payments adjustments.

Average for the year.

Figure 4.Panama External Developments

(In percent of GDP, unless otherwise indicated)

Sources: Panamanian authorities; and Fund staff estimates.

1/ Includes grants.

2/ In percent of exports of goods and nonfactor services.

23. The real effective exchange rate of the balboa was relatively stable during 1997 (with a 12-month appreciation of 0.8 percent), as the nominal effective appreciation of the U.S. dollar was mostly offset by the low rate of inflation relative to the major trading partners (Figure 5). The real effective exchange rate was unchanged in the 12 months through September 1998.

Figure 5.Exchange Rate Developments

(1990 = 100)

Source: IMF Information Notice System.

1/ Relative prices measured by seasonally adjusted consumer price index.

2/ IMF trade-weighted index of nominal exchange rates deflated by seasonally adjusted relative consumer prices; increase means appreciation.

3/ Trade-weighted index of nominal exchange rates; seasonally adjusted.

24. In 1997 and 1998 the government undertook three separate debt-reduction operations by issuing international bonds to retire some of the Brady bonds issued in 1996 (Table 43 and 45). In March-April 1997, five-year Eurobonds were placed for US$500 million and proceeds were used to retire Brady bonds with a similar face value for about US$400 million. A second debt reduction operation was conducted in September 1997 when 30-year Global bonds for US$700 million were exchanged for Brady bonds with a similar face value and about US$100 million in cash. These two operations lengthened the average maturity of public debt while retiring Brady bonds at a discount. The bond exchanges resulted in a small increase in debt-service payments due during 1999-2000. The saving in net present value was US$77 million in the case of the Eurobonds, and US$95 million in the case of the Global bonds. The transactions released Brady bond collateral of US$13.7 million. A third operation was conducted in April 1998 when US$300 million in ten-year U.S. dollar bonds with an annual interest rate of 8.25 percent were issued to retire US$70 million in Brady bonds and domestic debt, and to improve cash flow management. While the 1998 operation led to a small reduction in the net present value of external debt, it increased debt and debt service by a small amount during 1999-2000.

Table 40.Panama: Canal Statistics
Total TrafficTraffic Assessed Toll on Net Tonnage Basis 1/
Fiscal year

Ended

Sep. 30
Number of

Transits

(In thousands)
Tolls

(In millions

of US$)
Cargo Tonnage

(In millions

of long tons)
Average Toll

(US$ per

long ton)
Number

of

Transits

(In thousands)
Net Tonnage 2/

(In millions

of p.c.

net tons)
Average Tonnage

per transit

(In thousands of

p.c. net tons)
Total traffic
199313.7400.8158.02.513.4187.414.0
199414.0419.2170.82.513.7195.214.2
199515.1462.8190.42.414.8216.314.7
199615.2486.7198.52.614.9228.315.3
199714.7493.7189.92.614.3217.515.0
Of which:
Commercial
Ocean traffic 3/
199312.1389.2157.72.512.1186.415.4
199412.2416.8170.52.412.3194.315.8
199513.4460.0190.32.413.4215.416.1
199613.5483.1198.12.413.5226.916.8
199713.0491.6189.82.613.0216.816.8
Source: Panama Canal Commission.

Traffic tolls not assessed on net tonnage basis are assessed on displacement-tonnage basis.

One Panama Canal (p.c) net ton equals 100 cubic feet space. Noncommercial ocean traffic is mainly U.S. Government traffic.

Ocean traffic includes ships of 300 p.c. net tons and over.

Source: Panama Canal Commission.

Traffic tolls not assessed on net tonnage basis are assessed on displacement-tonnage basis.

One Panama Canal (p.c) net ton equals 100 cubic feet space. Noncommercial ocean traffic is mainly U.S. Government traffic.

Ocean traffic includes ships of 300 p.c. net tons and over.

Table 41.Panama: Principal Commodities Shipped Through the Canal(In thousands of long tons)
Fiscal Year

Ended September 30
Atlantic to PacificPacific to Atlantic
1993199419951996199719931994199519961997
Total97,213102,595120,845124,205115,54760,49167,94369,45873,86174,233
Agricultural31,67031,53143,68441,42034,59211,69313,07512,17213,12412,580
Canned and refrigerated foods8591,1131,2181,2301,2134,5824,8835,6455,7175,761
Grains29,94929,54741,11839,27932,3993,4624,5202,9563,1552,912
Other8628711,3489119803,6493,6723,5714,2523,907
Mining products20,10321,42721,96022,02220,59615,52319,23321,45823,79625,152
Minerals1631861591301013,7635,6025,2686,8427,126
Phosphates and fertilizers11,74813,60314,45114,80513,8881,3781,8341,4571,1351,193
Ores and metals4,3863,7664,1283,6413,7766,1726,3306,6337,8828,412
Coke and coal3,8063,8723,2223,4462,8314,2105,4678,1007,9378,421
Crude oil and petroleum products 1/13,56914,31215,94419,24519,15111,94612,65011,51613,54111,591
Chemicals7,2928,2588,5579,5558,8601,4871,4511,5571,8201,502
Manufactures of iron and steel3,5323,7464,8984,7053,9112,1744,1014,2763,6404,249
Machinery and equipment6306927348097871,3771,3571,4081,1251,272
Lumber and wood products4,8545,2975,9287,2387,1464,7754,1654,7843,7924,060
Miscellaneous15,56317,33219,14019,21120,50411,51611,91112,28713,02313,827
Source: Panama Canal Commission.

Includes crude oil, diesel oil, fuel oil, gasoline, jet fuel, liquified natural gas, kerosene, and asphalt

Source: Panama Canal Commission.

Includes crude oil, diesel oil, fuel oil, gasoline, jet fuel, liquified natural gas, kerosene, and asphalt

Table 42.Panama: Travel Receipts and Expenditure, and Number of Visitors
19931994199519961997
(In millions of U.S. dollars)
Net travel receipts103.2139.4182.9207.3236.8
Travel receipts225.7261.6310.4343.1374.2
Tourists107.2138.0152.4173.9155.0
Business, official, and education related travel66.759.760.462.185.8
Travelers in transit and others51.763.897.6107.1133.4
Expenditure of Panamanians traveling abroad-122.5-122.2-127.6-135.8-137.4
(In thousands)
Visitors 1/316.0251.2373.2412.1413.6
Tourists190.5241.3264.1299.0263.5
Business, official, and education related travel125.5109.9109.1113.1150.1
Travelers in transit 2/229.7283.6431.8467.7573.5
Sources: Office of the Comptroller General; and Fund staff estimates.

Entries into Panama excluding residents, immigrants, and persons in transit or whose destination is the Canal area.

Nonresidents who spent less than 48 hours in Panama.

Sources: Office of the Comptroller General; and Fund staff estimates.

Entries into Panama excluding residents, immigrants, and persons in transit or whose destination is the Canal area.

Nonresidents who spent less than 48 hours in Panama.

Table 43.Panama: Public Sector External Debt and Debt Service

(In millions of U.S. dollars; stocks at end of period) 1/

19931994199519961997
Stock of external debt
Total5,429.85,505.55,946.15,107.35,064.1
Multilateral767.3733.0764.5806.0934.8
IMF115.7132.8110.6130.9143.7
IBRD244.3206.3182.5198.7229.6
IDB397.3384.8462.4469.7554.7
IFAD10.09.19.06.76.9
Bilateral757.7770.6838.0542.1506.3
Paris Club 2/417.7408.4400.2385.4333.1
Venezuela, Mexico262.1277.2299.20.00.0
Support group77.985.0138.6156.6173.2
Commercial3,829.33,944.14,299.63,724.23,594.1
Medium- and long-term debt3,613.43,830.04,193.63,724.23,594.1
Of which:
Brady bonds0.00.00.03,227.62,027.9
Other bonds469.4433.1432.5365.41,499.6
Short term 3/215.9114.1106.00.00.0
Suppliers 4/75.557.844.035.028.9
Debt-service obligations 4/
Total570.2624.2655.8479.41,509.7
Principal279.1270.3262.6236.01,227.5
Interest291.1354.0393.2243.3282.2
Multilateral149.3146.7171.5170.2139.2
Principal88.495.4125.3124.097.1
Interest60.951.346.246.242.1
Bilateral97.290.669.866.582.5
Principal52.949.731.230.457.2
Interest44.341.038.736.125.3
Commercial308.8374.6397.7230.91,280.2
Principal 5/127.0116.394.172.51,068.1
Interest181.8258.3303.6158.4212.1
Of which; Short term 6/4.510.42.90.00.0
Suppliers15.012.316.711.87.9
Principal10.88.912.19.15.2
Interest4.23.44.62.72.7

Includes accrued interest arrears.

Includes insured suppliers’ credit.

Noninsured suppliers’ credits only

Includes imputed charges on overdue obligations.

Increase in 1997 is due to repurchases of Brady bonds.

Consists of interest on credit lines and on money facilities of the National Bank; the latter is excluded from interest of the nonfinancial public sector in the balance of payments table.

Includes accrued interest arrears.

Includes insured suppliers’ credit.

Noninsured suppliers’ credits only

Includes imputed charges on overdue obligations.

Increase in 1997 is due to repurchases of Brady bonds.

Consists of interest on credit lines and on money facilities of the National Bank; the latter is excluded from interest of the nonfinancial public sector in the balance of payments table.

Table 44.Panama: External Public Debt Indicators(In percent)
19931994199519961997
Debt-service ratios 1/
In terms of public sector receipts 2/42.145.844.531.094.3
Principal due20.19.817.815.376.7
Interest due21.526.026.715.817.6
In terms of GDP7.98.18.35.817.2
Principal due3.83.53.32.914.0
Interest due4.04.65.03.03.2
In terms of exports of goods and nonfactor services21.020.321.915.444.4
Principal due10.38.88.87.636.1
Interest due10.711.513.17.88.3
External debt in terms of GDP 3/74.971.275.262.057.7
Multilateral and bilateral 4/21.019.420.316.416.4
Of which:
IMF1.61.71.41.61.6
Other 5/53.851.754.945.641.3
Effective interest rates on total debt 6/5.56.56.94.45.5
Memorandum item:
Six-month LIBOR (year average)3.45.16.15.65.8
Sources: Office of the Comptroller General; National Bank of Panama; Ministry of Planning and Economic Policy, and Fund staff estimates.

Debt-service ratios exclude payments due on short-term debt, but include payments due to the IMF.

Central government receipts include transfers from the rest of the public sector and exclude grants.

Including interest arrears and short-term debt.

Includes insured suppliers’ credits.

Includes nonguaranteed suppliers’ credits.

Interest rate on average debt outstanding during the period. Rates are affected by variations in exchange rates.

Sources: Office of the Comptroller General; National Bank of Panama; Ministry of Planning and Economic Policy, and Fund staff estimates.

Debt-service ratios exclude payments due on short-term debt, but include payments due to the IMF.

Central government receipts include transfers from the rest of the public sector and exclude grants.

Including interest arrears and short-term debt.

Includes insured suppliers’ credits.

Includes nonguaranteed suppliers’ credits.

Interest rate on average debt outstanding during the period. Rates are affected by variations in exchange rates.

Table 45.Panama: Operations on Medium- and Long-Term External Debt Classified by Creditor1/(In millions of U.S. dollars)
Operations in 1993
Out-

standing 12/31/92
DrawingsAmort-

ization Due
Interest

Due
Interest

Paid
Adjus-

tments 2/
Out-

standing

12/31/93
Total4,993.848.7279.1286.6224.5109.25,213.9
Multilateral836.428.788.460.9149.3-9.4767.3
IMF111.014.06.96.513.4-2.4115.7
IBRD297.50.345.730.776.4-7.8244.3
IDB415.814.434.322.656.91.4397.3
IFAD12.10.01.51.02.5-0.610.0
Bilateral759.020.052.944.359.0-6.6757.7
Paris Club3/445.10.019.816.536.3-7.6417.7
Venezuela and Mexico241.60.013.125.10.0-4.6262.1
Support group72.320.020.02.722.75.677.9
Commercial banks3,318.20.0127.0177.32.0119.93,613.4
Medium- and long-term debt2,965.70.082.8156.60.021.73,144.0
Bonded debt352.50.044.220.72.098.2469.4
Suppliers 4/80.20.010.84.214.25.375.5
Sources: Ministry of Planning and Economic Policy; National Bank of Panama; IMF; IDB; IBRD; and Fund staff estimates.

Excluding short-term debt. Figures include interest arrears.

Adjustments due to valuation changes, data revisions, and/or debt reduction.

Includes insured suppliers’ credit.

Noninsured suppliers’ credits only.

Drawing refers to short-term debt refinanced in January 1996 into medium-term debt. It also includes commercial bank debt converted into Brady bonds in 1996 and arrears to Libya.

In 1997 Euro bonds (US$500 million) and Global bonds (US$700 million) were issued.

Operations in 1994
Out-

standing

12/31/93
DrawingsAmort-

ization

Due
Interest

Due
Interest

Paid
Adjust-

ments 2/
Out-

standing

12/31/94
Total5,213.952.3270.3343.6286.868.45,391.4
Multilateral767.330.595.451.3146.730.6733.0
IMF115.714.01.27.68.84.2132.8
IBRD244.31.453.518.171.614.1206.3
IDB397.314.639.424.764.112.3384.8
IFAD10.00.51.40.82.2-0.19.1
Bilateral757.721.849.741.061.611.8770.6
Paris Club 3/417.71.817.620.838.46.5408.4
Venezuela and Mexico262.10.012.116.90.0-1.8277.2
Support group77.920.020.03.223.27.185.0
Commercial banks3,613.40.0116.3247.965.734.43,830.0
Medium- and long-term debt3,144.00.0104.4224.66.034.43,397.0
Bonded debt469.40.011.923.359.60.0433.1
Suppliers 4/75.50.08.93.412.8-8.357.8
Sources: Ministry of Planning and Economic Policy; National Bank of Panama; IMF; IDB; IBRD; and Fund staff estimates.

Excluding short-term debt. Figures include interest arrears.

Adjustments due to valuation changes, data revisions, and/or debt reduction.

Includes insured suppliers’ credit.

Noninsured suppliers’ credits only.

Drawing refers to short-term debt refinanced in January 1996 into medium-term debt. It also includes commercial bank debt converted into Brady bonds in 1996 and arrears to Libya.

In 1997 Euro bonds (US$500 million) and Global bonds (US$700 million) were issued.

Operations in 1995
Out-

standing

12/31/93
DrawingsAmort-

ization

Due
Interest

Due
Interest

Paid
Adjust-

ments 2/
Out-

standing

12/31/94
Total5,391.4167.9262.6390.3288.9179.45,840.1
Multilateral733.0107.9125.346.2171.548.9764.5
IMF132.012.938.98.747.73.8110.6
IBRD206.32.843.115.558.616.5182.5
IDB384.890.941.821.363.028.4462.4
IFAD9.11.31.50.72.30.29.0
Bilateral770.660.031.238.744.813.6838.0
Paris Club 3/408.44.718.522.340.95.6400.2
Venezuela and Mexico277.20.012.612.40.09.6299.2
Support group85.055.30.04.04.0-1.7138.6
Commercial banks3,830.00.094.1300.755.9118.74,193.6
Medium- and long-term debt3,397.00.093.6269.824.4118.83,761.1
Bonded debt433.10.00.531.031.4-0.1432.5
Suppliers 4/57.80.012.14.616.7-1.744.0
Sources: Ministry of Planning and Economic Policy; National Bank of Panama; IMF; IDB; IBRD; and Fund staff estimates.

Excluding short-term debt. Figures include interest arrears.

Adjustments due to valuation changes, data revisions, and/or debt reduction.

Includes insured suppliers’ credit.

Noninsured suppliers’ credits only.

Drawing refers to short-term debt refinanced in January 1996 into medium-term debt. It also includes commercial bank debt converted into Brady bonds in 1996 and arrears to Libya.

In 1997 Euro bonds (US$500 million) and Global bonds (US$700 million) were issued.

Operations in 1996
Out-

standing

12/31/95
DrawingsAmort-

ization

Due
Interest

Due
Interest

Paid
Adjust-

ments 2/
Out-

standing

12/31/96
Total5,840.1368.3236.0243.3659.7-684.75,107.3
Multilateral764.5234.5124.046.2170.2-69.0806.0
IMF110.675.951.96.558.5-3.7130.9
IBRD182.568.631.412.543.9-21.0198.7
IDB462.490.039.026.465.3-43.7469.7
IFAD9.00.01.70.82.5-0.66.7
Bilateral838.027.830.436.1247.7-112.1542.1
Paris Club 3/400.23.417.621.639.2-0.5385.4
Venezuela and Mexico299.20.012.89.6203.7-105.20.0
Support Group138.624.40.04.84.8-6.4156.6
Commercial banks4,193.6106.072.5158.4230.0-503.73,724.2
Medium- and long-term debt 5/3,761.1106.05.5129.7133.6-504.33,358.9
Bonded debt432.50.067.028.796.40.6365.4
Suppliers 4/44.00.09.12.711.80.135.0
Sources: Ministry of Planning and Economic Policy; National Bank of Panama; IMF; IDB; IBRD; and Fund staff estimates.

Excluding short-term debt. Figures include interest arrears.

Adjustments due to valuation changes, data revisions, and/or debt reduction.

Includes insured suppliers’ credit.

Noninsured suppliers’ credits only.

Drawing refers to short-term debt refinanced in January 1996 into medium-term debt. It also includes commercial bank debt converted into Brady bonds in 1996 and arrears to Libya.

In 1997 Euro bonds (US$500 million) and Global bonds (US$700 million) were issued.

Operations in 1997
Out-

standing

12/31/96
DrawingsAmort-

ization

Due
Interest

Due
Interest

Paid
Adjust-

ments 2/
Out-

standing

12/31/97
Total5,107.31,486.41,227.5282.31,541.9-269.95,064.1
Multilateral806.0247.197.142.1139.2-21.2934.8
IMF130.945.826.17.533.6-6.9143.7
IBRD198.754.529.213.843.15.6229.6
IDB469.7144.639.820.360.0-19.8554.7
FAD6.72.21.90.52.5-0.16.9
Bilateral542.139.357.225.382.5-17.8506.3
Paris Club 3/385.47.755.619.975.5-4.4333.1
Venezuela and Mexico0.00.00.00.00.00.00.0
Support group156.631.61.65.47.0-13.4173.2
Commercial3,724.21,200.01,068.1212.11,292.6-230.23,594.1
Medium- and long-term debt 5/3,358.90.01,002.0168.91,203.0-230.22,094.5
Bonded debt 6/365.41,200.066.043.3109.30.21,499.6
Suppliers 4/35.00.05.22.77.9-1.028.9
Sources: Ministry of Planning and Economic Policy; National Bank of Panama; IMF; IDB; IBRD; and Fund staff estimates.

Excluding short-term debt. Figures include interest arrears.

Adjustments due to valuation changes, data revisions, and/or debt reduction.

Includes insured suppliers’ credit.

Noninsured suppliers’ credits only.

Drawing refers to short-term debt refinanced in January 1996 into medium-term debt. It also includes commercial bank debt converted into Brady bonds in 1996 and arrears to Libya.

In 1997 Euro bonds (US$500 million) and Global bonds (US$700 million) were issued.

Sources: Ministry of Planning and Economic Policy; National Bank of Panama; IMF; IDB; IBRD; and Fund staff estimates.

Excluding short-term debt. Figures include interest arrears.

Adjustments due to valuation changes, data revisions, and/or debt reduction.

Includes insured suppliers’ credit.

Noninsured suppliers’ credits only.

Drawing refers to short-term debt refinanced in January 1996 into medium-term debt. It also includes commercial bank debt converted into Brady bonds in 1996 and arrears to Libya.

In 1997 Euro bonds (US$500 million) and Global bonds (US$700 million) were issued.

Table 46.Panama: Arrears on Public Sector External Debt Service(In millions of U.S. dollars; end of period)
19931994199519961997
PrincipalInterestPrincipalInterestPrincipalInterestPrincipalInterestPrincipalInterest
Total2,141.81,575.01,927.21,599.01,954.81,983.351.545.821.319.9
Commercial banks1,743.31,249.71,800.21,478.61,817.91,841.148.844.020.019.2
Of which:
Short-term debt 1/183.932.072.042.128.134.020.015.220.019.2
Bonded debt253.1201.42.30.72.50.71.41.10.00.0
Mexico and Venezuela109.1100.3121.2117.2133.1140.50.00.00.00.0
Suppliers36.323.63.52.41.31.01.30.71.30.7
Sources: Ministry of Planning and Economic Policy; IMF; DDB; IBRD; and Fund staff estimates.

Consists of credit lines to public enterprises and money facilities of the National Bank.

Sources: Ministry of Planning and Economic Policy; IMF; DDB; IBRD; and Fund staff estimates.

Consists of credit lines to public enterprises and money facilities of the National Bank.

25. As a result of the operations described above, the stock of external debt in relation to GDP fell from 62 percent in 1996 to about 58 percent in 1997 (Table 44). By the end of 1997 the public external debt amounted to US$5.1 billion (from a peak of US$5.9 billion in 1995), of which less than 1 percent was in arrears. Following settlement of a dispute with a private creditor in October 1997, the remaining arrears were owed to Libya (because of a United Nations’ sanction) and creditors that could not be identified since the 1996 debt restructuring. In 1997, total external debt-service payments in relation to GDP increased temporarily to 17.2 percent (44.4 percent of exports of goods and nonfactor services) due to the debt-reduction operations.

II. Financial Sector—Update

A. Institutional Framework

26. The financial sector in Panama comprises the banks, the stock exchange, insurance and reinsurance companies, finance houses, and leasing companies. The most important component of the sector is the banking system, which accounted for more than 90 percent of financial sector assets and net worth in June 1998.

27. The banking system consisted of four public banks and 101 private banks in June 1998. The public banks are the National Bank of Panama (BNP), the Savings Bank, the National Mortgage Bank (BHN), and the Agriculture Development Bank (BDA). The “international banking center”4 excludes the BHN and the BDA because they do not take deposits from the public. The BNP is the largest bank in terms of domestic credit and deposits and has the largest number of branches (49). It acts as the financial agent for the public sector, performs the functions of a clearing house, and ensures an adequate supply of U.S. currency to the banks. The Savings Bank is a mortgage bank, specializing in financing medium-income customers, and has 37 branches around the country. Private banks operate under three types of licenses: general, international and representative office. Of the 101 private banks, 21 general license banks are incorporated locally.

28. The stock exchange, established in 1990, has developed at a rapid pace but the market accounted for only around 5 percent of total lending by the financial system in 1997 and is highly concentrated in domestic private sector fixed-income securities. Only 26 of the 122 stocks listed on the exchange are traded.

29. The legal framework for insurance and reinsurance companies is provided in Laws 54 and 55 of 1984, which established the “Insurance and Reinsurance Center” to foster offshore insurance activity. At present, there are 26 insurance companies and 20 reinsurance companies with total assets amounting to around US$498 million.

30. Finance houses in Panama specialize in small-scale financing, including credit for consumer durables. All finance houses are incorporated locally and some are affiliated with nonfinancial business enterprises. They are not authorized to accept deposits from the public. Their main source of funds (80 percent) is borrowing from commercial banks. There were 133 companies, with total assets of US$680 million at the end of 1997; 42 were engaged in leasing.

STRUCTURE OF THE INTERNATIONAL BANKING CENTER

Reform of the financial sector

31. Efforts to modernize the financial sector include the application of international supervision standards and best practices. In this context, a three-year supervision strengthening program that began in mid-1998 with Inter-American Development Bank support covers: (i) banking, (ii) the securities market; and (iii) investment and pension funds.

32. New Banking Law. A new law governing the banking sector was approved by Cabinet Decree-Law No. 9 on February 26, 1998 and came into force on June 12, 1998 (replacing the 1970 law on which Panama’s international banking center was based). The new law replaced the National Banking Commission with a stronger Superintendency of Banks that has powers to effectively supervise banking operations and intervene in banks facing difficulties.

33. The superintendency is the most important regulatory agency in the financial sector. It has administrative and financial independence and enhanced supervisory functions to inspect and regulate banks, including public banks. The general policy of the superintendency is determined by a five-member executive board, while day-to-day operations are run by a superintendent.

34. The main improvements outlined under the new Banking Law are described below.

Capital adequacy requirements:

  • Apply uniform capital adequacy requirements consistent with international practices recommended by the Basel Committee. Banks must maintain capital funds of at least 8 percent of their risk weighted assets and off-balance sheet operations.
  • Raise the minimum capital requirement for general license banks from US$1 million to US$10 million.
  • Eliminate the requirement to maintain contingency credit and legal reserves with other banks.

Credit concentration limits:

  • Set the credit concentration limits to 25 percent of a bank’s capital funds (rather than as a percent of its capital, reserves, and deposits as stipulated under the old law).
  • Eliminate exemptions from those limits (including credit to the State and credit secured by collateral worth 15 percent of the loan amount).
  • Raise the limit to 30 percent for banks with mixed capital and headquarters in Panama that are primarily lenders to other banks.

Regulations on credit to related parties:

  • Set strict limits on guaranteed and nonguaranteed lending to related parties.
  • Establish an overall ceiling of 75 percent of capital on lending to related parties that is not guaranteed by deposits.
  • Include limits on lending to bank employees, and to firms related to bank directors, the bank, or an associated economic group.
  • Permit exemptions, under specified conditions, that can be granted by the superintendent for nonguaranteed interbank lending involving a mixed capital bank with its headquarters in Panama.

Regulations on consolidated supervision:

  • Provide for consolidated supervision. Powers have been given to the superintendency to supervise Panamanian bank branches and subsidiaries overseas. Similarly, foreign banks in Panama may be subject to consolidated supervision by their home authority.

Regulations on bank secrecy:

  • Maintain bank secrecy; however, the superintendency has power to gather all information necessary to adequately supervise banks (including information on deposits, assets, and capital) while maintaining the confidentiality of this information.

35. Key regulations associated with the new Banking Law, to be implemented by end-1998, will cover definitions of financial groups; limits on credit concentration and credit to related parties; consolidated supervision; and bank secrecy within strengthened surveillance of the banking system. The superintendency published regulations on capital adequacy and liquidity requirements on October 14, 1998.5 Regulations 5 and 6 outline rules for general and international license banks, respectively. These regulations stipulate definitions of capital (including loss provisioning), the weighting of assets by risk, and limits on global risk concentration. Banks were granted 180 days from the date of publication of the regulations to attain these capital adequacy requirements.

36. Rationalization of public banks. The government is seeking ways to improve efficiency in the provision of financial services. The operations of the state-owned Savings Bank are expected to improve under the new Banking Law because it is now subject to the same strengthened supervisory guidelines that are applied to the rest of the banking system.

37. New Securities Law. To make the Panamanian securities market more transparent and trust worthy, an improved Securities Law is expected to be approved in 1998 to replace the 1970 securities legislation. At present, the Ministry of Commerce and Industry delegates supervisory functions to the National Financial Assets Commission. The new Securities Legislation would replace this Commission with a financially and politically autonomous body, and seek to bring the stock exchange to international standards through stronger disclosure requirements, prevention of insider trading, supervision of traders, and establishment of electronic trading to improve custody and settlement of transactions. New instruments would include securities accounts and repurchase agreements.

38. Pension Funds. In February 1997 a law was passed to convert the supplementary civil servants’ pension fund into a private, voluntary, self-financed plan (SIACAP). Appointment of the SIACAP administrative council took place in May 1998. In 1998 pensioners were given the choice of cashing in their benefits or rolling over their funds into SIACAP. Those choosing to leave the fund have been paid by the government for their benefits.

Operations of the banking sector

39. Overview. The growth of the banking system’s liabilities to the private sector increased from 8 percent in 1996 to 15½ percent in 1997, and remained high (14½ percent) in the year ended June 1998 despite global financial instability (Table 23). Net domestic credit (mainly to the private sector) increased by 13½ percent in 1997 and by 19 percent in the year ended in June 1998, accompanied by a small improvement in the net foreign asset position of the banking system. Domestic interest rates have followed trends in international markets (see Chapter I).

40. Public banks. Although the BNP acts as a commercial bank (in addition to its role as a public bank—see paragraph 2), the size of its operations with the private sector is small and has declined over time. As of June 1998, the BNP accounted for 4.7 percent of total domestic monetary liabilities to the private sector and 3.4 percent of total credit to the private sector, while in 1996 these ratios were 5.1 percent and 4.3 percent, respectively.

41. The BNP continued to grow during 1997. The net foreign asset position of the BNP rose from US$952 million in 1996 to US$995 million in September 1998, the operating balance amounted to US$45 million in 1997, and the loan portfolio in arrears was maintained at around 4 percent of the total private sector loan portfolio in 1997 (Tables 23, 29, and 30). The net creditor position of the public sector with the BNP grew from US$853 million in 1996 to US$1,076 million in 1997, resulting from an accumulation of deposits by the autonomous public entities, in particular fixed-term deposits of the social security agency, which exceeded the credit to the central government. Capital and surplus of the BNP rose from US$387 million at end-1996 to US$482 million at end-September 1998.

42. While the recent performance of the public sector has strengthened the liquidity position of the BNP, the BNP continues to depend on public sector deposits as a source of funds. A significant proportion of the investment portfolio of the BNP is in short-term deposits with maturities ranging from overnight to 180 days. Interest on these deposits represents its main source of income.

43. Similar to the BNP, the size of the Savings Bank operations with the private sector is small and has decreased over time. In 1997 the Savings Bank accounted for about 5 percent of total domestic monetary liabilities to the private sector and around 5 percent of total credit to the private sector. Official capital and surplus increased from US$80 million in 1996 to US$91 million in 1997, including the revaluation of real state assets. However, the operating surplus fell from US$4.6 million in 1996 to US$3.3 million in 1997. The loan portfolio in arrears increased slightly from 15.1 percent of the total loan portfolio in 1996 to 15.4 percent in 1997 due to the accumulation of arrears on consumer loans from 10.3 percent to 14.9 percent in the same period.

44. The financial position of the BHN has weakened further. Operating profits declined from US$4.2 million in 1996 to US$3.2 million in 1997. At the end of 1997 arrears were estimated to be 4 percent of the credit portfolio (US$195 million). The arrears ratio declined as a result of the forgiveness in March 1997 (under Law 12) of interest arrears on loans up to US$25,000 on projects financed through the Ministry of Housing. The largest BHN expenditure is interest on deposits to the social security agency.

45. The BDA has experienced a continued deterioration of its financial position. Operating losses increased from US$3 million in 1996 to US$3.8 million in 1997 and the loan portfolio (excluding portfolio classified as bad loans) increased marginally from US$74 million in 1996 to US$76 million in 1997, of which 26 percent has been in arrears.

46. Regarding the operations of private banks, deposits grew by 14.8 percent in 1997 compared with 6 percent growth in 1996 (Table 25). This reflects the strengthening of economic activity, mainly in the Colon Free Zone and in ports services. In 1997 domestic private sector deposits rose to the equivalent of 72 percent of GDP from 69 percent of GDP in 1996, indicating increased financial intermediation in the economy. The rise in deposits resulted in an increase in net foreign assets of the general license banks of around US$240 million during 1997.

47. Private banks’ credit to the private sector increased by 11.4 percent in 1997, faster than nominal GDP growth (6.5 percent). The growth of credit rose from US$6.5 billion in 1996 to US$7.2 billion in 1997 mostly for commerce, financial and insurance services, and consumer loans (Table 28). By end-1997, 40.2 percent of outstanding credit to the private sector was for commerce, compared with 39.7 percent at end-1996, and 15.2 percent was for personal loans compared with 14.6 percent, respectively. During this period credit for housing (25½ percent of bank credit to the private sector) and manufacturing (around 6 percent of total credit) remained unchanged, while the share of credit to agriculture and livestock declined.

Securities market

48. Trading volume in the securities market increased from US$446 million during 1996 to US$711 million in 1997; this 1997 total was surpassed in the first ten months of 1998. Most of this activity remains in the primary market. In 1997, 14 percent of the trading took place in the secondary market, compared to 22 percent in the first ten months of 1998. The market capitalization of the stock has increased significantly from US$2.2 billion at end-1997 to US$3.8 billion by June 1998, due to the admission of three important financial and insurance institutions. A project to introduce electronic trading began in 1998 and is expected to be in operation in the second quarter of 1999. The project is expected to cost about US$0.5 million. Partners in this project include NASDAQ (New York) and the electronic exchange of Chile.

III. Reversion of the Panama Canal and Related Areas—Update

A. Overview

49. Following its declaration of independence from Colombia, Panama ratified the Hay/Bunau-Varilla Treaty with the United States in December 1903, which gave in concession to the United States part of Panama’s territory (called the Canal Zone) to build, operate, and protect an interoceanic canal across the Isthmus. In September 1977 the Governments of Panama and the United States signed new treaties (Torrijos-Carter Treaties) which entered into force on October 1, 1979, whereby Panama assumed general territorial jurisdiction over the Canal Zone. The Panama Canal Treaty of 1977 governs the operations, management, and protection of the canal through noon, December 31, 1999. The Treaty on the Permanent Neutrality and Operation of the Canal commits Panama and the United States to continue to protect the canal and to ensure its permanent neutrality beyond the expiration of the Panama Canal Treaty. The two governments envisaged a gradual transfer of land and facilities during 1979-99 encompassing an area of 147,400 hectares with military bases, ports, airports, schools, hospitals, and housing units bordering the canal.

B. Institutional Setup

50. Institutional arrangements have been made for the implementation of the Treaty of 1977. The Canal Zone Government was dissolved on September 30, 1979; the Panama Canal Company was replaced by the binational Panama Canal Commission on October 1, 1979; and several entities were established to facilitate the process of reversion.

51. The Panama Canal Commission (PCC) is in charge of managing, operating, and maintaining the canal until the expiration of the treaty on December 31, 1999. Since 1990, the Administrator of the PCC has been a Panamanian. The PCC is supervised by a nine member Board of Directors. Five members are nationals of the United States and four are Panamanian citizens proposed by the Panamanian Government and appointed by the U.S. Government. The legal status of the PCC was changed in February 1996 from a U.S. government agency to a U.S. government corporation (Public Law 104-106). The new status gives the PCC greater autonomy and flexibility to smooth the process of transferring the canal to Panamanian authority by the end of 1999.

52. The Transition Commission for the Transfer of the Panama Canal was created in January 1995 to prepare Panama for assuming the administration, operation, and maintenance of the canal by end-1999. The Transition Commission has been working closely with the PCC to modify legislation concerning the canal to make it consistent with Panamanian law.

53. The Panama Canal Authority (PCA) was created under Title XIV of the Constitution in November 1994. It is an autonomous state entity that will take over the management of the canal from the PCC at the end of 1999. The Organic Law of the PCA was passed in June 1997, and by-laws and regulations will be completed before the end of 1999. The PC A will be run by an eleven-member board. Only a minority of board members can be nominated during any five-year presidential term. The chairman of the board will have cabinet rank in the government. Unlike its predecessor, the PCA will seek to make a profit on its operations. Accordingly, its board of directors will need to decide what margin of return should be built into the structure of toll charges. In August 1998 the present Administrator of the PCC was named the first Administrator of the PCA for a term through 2005. He will serve concurrently as Administrator of both agencies until the PCC ceases to exist at the end of 1999.

54. The Interoceanic Region Authority (ARI) is an autonomous government agency created in February 1993 to integrate the reverted areas into the Panamanian economy. To this end, the ARI is responsible for administering the reverting areas and for issuing the required regulations for leases, sales, concessions, and management contracts. The ARI has attracted investment projects in the areas of ports, industry, commerce, and tourism. The National Maritime Authority (AMN) coordinates the ports projects. Investment commitments in the reverting areas are estimated at US$976 million for the period through the year 2000, and at US$575 million in 2001-05. These amounts do not include investment in the canal (see below). Ports and maritime services account for about 36 percent of this total investment, while tourism projects account for 41 percent.

55. Associated construction employment in the reverting areas is expected to range from 3,300 to 9,200 people a year; permanent employment will increase from about 2,100 in 1998 to nearly 8,000 by end-2000. The ARI also is granting land concessions along the side of the canal for ship repair yards, cargo services, and warehousing and bunkering facilities. Privatization of the Cristobal and Balboa ports, and investment in two container terminals near the Atlantic mouth of the canal in 1997 increased the importance of this regional transhipment hub. A description of some of the major projects that have been approved and that are either completed or presently under construction is provided in Attachment I.

C. Main Features of the Canal and Assets Being Transferred

56. The canal was inaugurated on August 15, 1914. It measures 50 miles from the Atlantic to the Pacific side, and it takes about 8 to 10 hours for an average ship to transit the canal. Ships are raised and then lowered 85 feet during their passage between the two oceans by a system of three sets of locks: the Gatun, Pedro Miguel, and Miraflores locks. The canal has only been closed once, in 1915, due to landslides; it operates 24 hours per day, every day of the year.

57. The canal is dependent on natural water flows into Lake Gatún, one of the largest man-made lakes in the world, for the smooth operation of the system of locks. Each opening and closing of a set of locks uses some 52 million gallons of water. The natural watershed provided by Panama’s forests (which face environmental risks due to changing agricultural patterns), supplies most of the water feeding Lake Gatún. During periods of drought, the canal operators are required to undertake water conservation measures. In extreme periods, such as the drought caused by ElNiño, the maximum draught of ships using the canal and transit speeds were reduced to limit ship depth when crossing the canal Ship operators are notified well in advance of any changes in maximum draught and other rules, for efficient scheduling. Although the amount of cargo on a ship may have been affected, the restrictions did not significantly alter the number of ships per day that traversed the canal.

58. During the period 1980-97, the canal’s activities have accounted for an annual average of 6.8 percent of GDP. During the fiscal year ended September 30, 1997, over 13,000 commercial ships passed through the canal, and toll revenue amounted to US$493 million (Table 40). At the end of the 1997 fiscal year, the canal employed 9,766 people, of which 8,053 were permanent (7,441 Panamanians) and 1,713 temporary. In the last few years, the canal has been operating close to capacity.

59. Tolls on ships using the canal are based on net tonnage (or, if that is unavailable, on displacement tonnage). The first toll rate increase in the history of the canal occurred in 1974, and the most recent increase (7.5 percent), became effective on January 1, 1998. As a result of toll increases in 1997 (8.2 percent), toll revenues increased by 1.8 percent relative to the previous year, despite a 3.6 percent decline in the number of transits and a 4.2 percent decline in tonnage.

60. In accordance with the timetable stipulated by the Panama Canal Treaty, key assets in the reverting areas were handed back to Panama during 1979-98, including the ports of Balboa on the Pacific side and Cristobal on the Atlantic side, and the trans-isthmus railway. By the end of 1999 all remaining assets will be handed over to Panama. The military installations and associated properties yet to be reverted will be transferred on the dates shown in Attachment II. The value of land and facilities is estimated at US$4.6 billion, excluding the value of the hydrographic basin in the canal area.

61. Currently, 91 percent of the physical surface consists of national parks, ecological reserves, and some contaminated areas, while 9 percent is settled. The area set aside for national parks constitutes around 40 percent of the canal area and includes five national parks; the operational area of the canal and military bases are located in the remaining 60 percent.

D. The Canal’s Investment Program

62. The PCC’s long-term investment planning is regularly adapted in light of traffic prospects and guided by the objective to provide reliable and efficient service. Investment has been financed with the PCC’s own resources. The PCC’s investment program for 1999-2005 amounts to some US$867 million. Although much of the expenditure will be for capacity building (such as widening the Gaillard Cut), some also will be for replacement and modernization of canal equipment (tugboats, towing locomotives, and locks machinery and control systems). The canal is now able to accommodate about 35 to 37 vessels a day; upon completion of the projects now in progress, capacity would increase to about 42 vessels a day. The need for an additional set of locks, as well as the financial viability of undertaking such a major project, will be evaluated by the authorities after the canal’s reversion.

E. Development Strategy for the Reverted Areas

63. The interoceanic region that is to revert to Panama by the end of 1999 stretches from the Atlantic to the Pacific ocean on both sides of the Panama Canal Five Army installations, two Air Force bases, and one Naval station were located in these reverting areas. The reverting areas contain many housing and residential areas, schools, hospitals, industrial areas, storage facilities, ports, marinas, golf courses, theaters, bowling alleys, and other recreational facilities. In addition, there are thousands of hectares of uninhabited land.

64. As noted above, the Panamanian Government created the ARI to promote and oversee investment in the reverting areas and to ensure that the development of the region is incorporated into the nation’s development plan. The government has supported ARI’s efforts to encourage foreign investment through a series of laws and decrees providing deregulation, tax and financial incentives, open trade policies, and flexible labor conditions. In its promotion of investment the ARI employs the following criteria for project approval. Projects must make a contribution to the Panamanian economy by generating local employment, contributing to exports, and using local materials and inputs when possible. Also, investors must comply with requirements for the protection of the Panama Canal watershed, which is critical for the long- term viability of the canal.

65. The ARI has identified four important areas of development for the region. They include maritime facilities and services, manufacturing and export industries, education, and tourism. Considerable development already has taken place in the maritime sector (see Attachment I). The country’s two major ports have been privatized and modernized. Shipping-related service businesses are being established, in particular ship handling, salvage operations, and maritime insurance. An export processing zone has been established in the former Fort Davis, focussing on manufacturing and assembly. In addition to the establishment of university facilities in the reverting areas, the headquarters of the “City of Knowledge” has been founded in the former Fort Clayton to promote a broad range of educational activities. The tourism sector also is targeted for development, and several international investors have shown interest. Panama has a diverse ecosystem and an abundance of rare animal and plant life. The country also has about 2,000 miles of coastline on two oceans. Major projects are planned near Fort Amador at the Pacific mouth of the canal, including cruise ship facilities, hotels, and related services.

66. Although the reverted areas have a concentration of serviceable infrastructure in the military areas (including water supply, roads, telecommunications, and electricity), infrastructure in adjacent areas is somewhat weaker. The integration of these areas into the Panamanian economy therefore will require a significant upgrading and expansion of infrastructure. There also may be significant costs associated with the cleanup of contaminated areas.

F. Economic Impact of the U.S. Withdrawal and Other Issues

67. The phased withdrawal of U.S. troops from Panama will be concluded by the end of 1999. The U.S. military presence in Panama has contributed to the Panamanian economy through wages and salaries, purchases of goods and services, and expenditure related to treaty implementation. The total contribution in 1997 is estimated to have been US$312 million (US$319 million in 1996). The military installations provided direct employment to about 2,700 people in 1997 (3,200 in 1996). In addition, some 2,000 people worked as domestic help. Despite these losses permanent employment opportunities in the region will increase as investment projects mature (see paragraph 55), although average salaries may be somewhat lower. In the meantime, there has been a substantial increase in employment in construction.

68. The lack of a standing military in Panama means that the authorities will need to consider how best to address the issue of canal security once the U.S. military forces leave. Even though there will not be a U.S. military presence in Panama after end-1999, the United States is committed to defend and protect the canal indefinitely beyond that date under the Treaty on the Permanent Neutrality and Operation of the canal, which takes effect once the Panama Canal Treaty has been executed. This treaty provides that the United States can intervene unilaterally, if needed, to protect and defend the canal.

IV. Promotion of Competition

A. Introduction

69. The authorities have continued to strengthen the economy through measures to increase competition from abroad and domestically. Apart from privatization and labor market reform, this strategy has included trade reform and changes in the domestic regulatory environment.

B. Trade Reform

70. Beginning in the late 1980s when Panama had one of the most complex and distortionary trade regimes in the region, trade reform has transformed the country into one of the most open economies. Compared with the highly protective policies of the recent past, the current trade regime consists of lower, more uniform tariff rates, and no nontariff barriers to imports.

71. Law 3 of 1986 on the promotion of manufacturing granted protection to domestic producers in the agriculture and manufacturing sectors by imposing high tariffs on their final products and exempting them from high import tariffs on inputs. Under this law, registered companies producing for the local market received an exemption from import taxes on raw materials, semi-finished products, other inputs, packaging materials, and spare parts for five years. Thereafter, these companies were allowed to import these items after paying a 3 percent import duty. A 3 percent duty on machinery and equipment for registered agricultural and manufacturing firms began immediately. As a result of these exemptions, effective protection for these sectors tended to be high.

72. In 1990, before significant trade reform took place, the unweighted nominal average ad valorem tariff was 33 percent, with maximum ad valorem tariffs of 270.5 percent for agricultural products and 257.5 percent for manufactured goods. In addition to ad valorem tariffs, the trade regime included specific rates (ranging in ad valorem equivalents up to 435 percent), mixed rates, zero quotas, prior permits, extensive tariff exemptions, sanitary permits and registrations, and price references and controls.

73. Trade reform gathered momentum in 1991 with support from the World Bank under an Economic Recovery Loan.6 Many of the specific and mixed rates were converted into ad valorem tariffs, and nominal tariff ceilings were introduced in August 1991 for most products (90 percent for agroindustrial commodities and 60 percent on manufactured goods). Protection of agricultural products remained very high for basic grains; however, rates were much lower for some importers on a discretionary basis, if the goods were deemed to be used as inputs or an exemption was granted.

74. The 1995 Tax Incentives Harmonization Law (Law 28 of June 20) extended the right to all importers to import certain inputs and capital goods at a 3 percent tariff. Superseding the 1986 Law 3 that granted these rights to registered companies, the 1995 Harmonization Law states that the 3 percent tariff would apply to all importers of each relevant product until registration of the related firms expires. It is estimated that the registration of the last firm under Law 3 will expire in 2008. This law also equalized the applicable rate on agricultural products regardless of their use as an input or a final good, it phased out most of the tax breaks and subsidies on import-substituting activities and the tax credit for nontraditional exports, and it overturned sanitation rules that were inconsistent with World Trade Organization standards. Despite these improvements, nontariff barriers remained extensive, especially to protect domestic producers of foodstuffs.

75. Renewed efforts began in 1996 to further liberalize the trade regime. The February 1996 Competition Law introduced anti-dumping and countervailing provisions in line with World Trade Organization (WTO) standards. In April 1996 negotiations to join WTO were concluded. Under this agreement nontariff barriers were to be eliminated, and most nominal tariffs were to be reduced from 0-90 percent to 0-40 percent by December 1996 and to 0-30 percent within five years. Exceptions to these WTO negotiated binding tariff ceilings covered 80 customs classifications for agricultural and agroindustrial products.

76. Consistent with the WTO agreement, in December 1996 and March 1997 further trade policy changes were made by Cabinet decrees that: (i) reduced maximum tariffs on industrial products to 60 percent and on agroindustrial products to 40 percent, from 90 and 50 percent respectively; (ii) reduced the tariffs on the main agricultural commodities to 20-60 percent, from 50-180 percent; (iii) transformed all remaining specific tariffs into ad valorem tariffs; and (iv) eliminated nontariff barriers to imports.

77. In July 1997 the Legislative Assembly approved the WTO Protocol and associated laws. On July 24, 1997, the cabinet passed decree No. 37 lowering the maximum tariff on construction materials, vegetable oils, and wheat and wheat products to 10 percent from 27-40 percent; this became effective on September 1, 1997.

78. The most recent set of trade reforms was passed on November 12, 1997 when the government issued Cabinet Decree No. 68.7 Effective January 1, 1998, the number of tariff bands was reduced from 108 to five; the rates are 0, 3, 5, 10, and 15 percent. The only exceptions to the new maximum rate of 15 percent were for rice (lowered to 50 percent from 60 percent), lactose products (lowered to 40 percent from 50 percent), and automobiles (remaining at 15-20 percent). Decree 68 further stipulated that the rate for rice will decline to 30 percent on January 1, 2000. A fourth exception for sugar was introduced on May 14, 1998 by Cabinet Decree 19, raising the maximum tariff to 50 percent on imports at prices below a ten year historical average level (after removing 35 percent of the lowest and highest prices) and leaving the maximum rate at 15 percent for all other sugar imports. This exception was added in response to complaints by domestic producers of dumping from overseas suppliers; the planned privatization of the La Victoria sugar mills also was taken into account.

79. To ameliorate the costs of adjustment to the new tariff structure, Cabinet Resolution No. 263 included a US$25 million fund to finance reconversion and technological modernization of agricultural and manufacturing activities, and a US$10 million fund to finance export market development. These funds are administered by BNP and lent at market rates. The resolution also provides for the sale of public silos to producer associations. Thus far, these programs have benefited producers converting to nontraditional products, such as the successful transformation of former salt miners into shrimp farmers.

80. Remaining distortions to a liberal and competitive trade system include tax credit certificates for nontraditional exporters (Certificados de Abono Tributario—CATs), export taxes on bananas and scrap metal, technical barriers concerning the registration of medicines, and exemptions to the sales tax on certain tradable goods. These remaining distortions are small and, in the most important cases, are being eliminated over time. The CAT certificates are granted to exporters of nontraditional exports that are wholly or partly produced or processed in Panama (Table 35). Currently the value of the certificates is based on 20 percent of the domestic value added. This rate is scheduled to be reduced to 15 percent of the domestic value-added on January 1, 2000 and to be phased out by December 31, 2002. Export taxes on bananas that were imposed in 1993 (60¢ per box on exports of 24,000 boxes or more) began to be phased out in 1996 with the rate dropping to 25¢ in that year, 17¢ in 1997, 10¢ in 1998 and zero by January 1, 1999. Scrap metal is charged one percent of its value when exported; no plans exist to phase out this tax. Consistent with WTO accession, sanitation permits and registrations will follow WTO rules by end-1998 (although technical barriers to competition may exist involving registration of medicines, see below). Imports of inputs used in agriculture are exempt from the sales tax that is imposed at the border (impuesto sobre transacciones de bienes muebles, ITBM). This tax is also imposed on domestic products but is not applied to services. Generally the tax rate is five percent, except for alcoholic beverages and tobacco that are charged 10 percent.

Recent impact of the trade reform

81. Trade has grown steadily faster than the economy (which grew at a nominal rate of 5.3 percent during 1993-97) with exports increasing on an annual average basis by 6.6 percent (4.4 percent for non-oil exports) and imports by 9.8 percent (10.4 percent for non-oil imports) (Table 32). Increased trading activities and related shipments contributed to rapid growth in petroleum product exports (particularly bunker oil to ships) (Table 34). Simultaneously, the more liberal trading regime contributed to expansion in nontraditional primary exports (such as shrimp) and to significant increases in capital imports associated with rising levels of investment. Trade has become more focused on the region; the Western Hemisphere has become a more important destination for Panamanian exports and source of imports, with less importance for European trading partners (Table 37).

82. Nominal tariffs have been reduced dramatically since the beginning of the extended arrangement with the Fund in December 1997 and evidence suggests that effective protection also has been substantially reduced. In addition to lowering the maximum tariff rate generally from 60 percent to 15 percent, the reform that went into effect in January 1998 reduced tariff rate dispersion from 108 tariff rates to five (0, 3, 5, 10 and 15 percent). In August 1997 the International Trade Council in the Ministry of the Presidency estimated that the simple average tariff was 12.8 percent, and by August 1998 this rate had fallen to 9 percent. Based on the ratio of import duties collected to the value of imports, the average rate increased slightly, from 7.4 percent in June 1997 to 8.4 percent in June 1998. This increase was attributable to improved customs collections, an increase in imports that previously were discouraged under high tariff rates, and the reduction in the number of tariff lines below 5 percent. In some cases nominal rates increased, for example only 3,530 tariff lines are 5 percent or less in 1998 compared with 3,753 lines in August 1997 (see box below). Lower maximum rates and fewer tariff lines at the lowest rates tend to reduce effective protection.

EBS/98/208

Corrected: 12/18/98

Panama: Tariff Ranges and Lines
Tariff Ranges

(In Percent)
Number

of Customs

Tariff Lines
Percent

of Total

Tariff Lines
August 1997
0-53,75344.6
5.01-101,44917.2
10.01-157839.3
15.01-206187.3
20.01-251111.3
25.01-3086410.3
30.01-35881.0
35.01-406407.6
40.01-50770.9
50.01-6050.1
Prohibited and restricted *210.2
Other (unidentified)10.0
August 1998
03664.3
0.1-32,67231.3
3.1-54925.8
5.1-101,87122.0
10.1-153,01835.4
15.1-20260.3
20.1-3040.0
30.1-40420.5
40.1-5040.0
Prohibited *120.1
Restricted*80.1

Certain imports are prohibited or restricted for health and safety reasons.

Certain imports are prohibited or restricted for health and safety reasons.

83. Based on an index of aggregate trade restrictiveness developed in a recent Fund study on trade liberalization,8 Panama is rated 1 on the 10-point scale, reflecting its liberal trade regime. While the index covers the most critical elements of trade restrictiveness (average tariffs and nontariff barriers), it does not incorporate other elements such as tariff dispersion and exemptions. As noted above, tariff dispersion is moderate (generally 0-15 percent) and exemptions are now seldomly used.

84. While low inflation has been a key factor in the offsetting of the nominal appreciation of the currency in recent years, trade reform also has contributed to preserve competitiveness9 and has not led to a decline in tax revenue. The authorities hoped that the 1998 trade reform would have a neutral fiscal impact and stood ready to take additional fiscal measures to ensure that any reduction in revenues would not compromise the achievement of the planned fiscal target. In the event, import tax revenue through the first half of 1998 rose by more than 21½ percent relative to the first half of 1997. As noted above, in part this was the result of imports that, before the reform, were effectively prohibited by high tariff rates.

85. The World Bank has estimated that tariff reductions introduced in 1998 would lead to reductions in the prices of basic foodstuffs, which subsequently would more closely reflect international prices. The Ministry of Planning and Economic Policy has documented some of these price reductions for edible oils, poultry products, tomatoes, onions, potatoes, lentils, and beans. Combining estimates of price reductions with preliminary information from the recent living standards measurement survey, a preliminary study by the World Bank estimated that these price reductions would bring minimum benefits to the poor of 0.5 percent of GDP per year,10 will increase per capita consumption of the poor by 2.8 percent, and will reduce the population below the poverty line by almost 1 percent. The extreme poor will benefit relatively more than the rest of the population because they tend to spend more of their income on these basic food items.

86. In addition to lower prices on imports and import competing products, consumers have benefited from the trade liberalization through greater variety of products, increased points of distribution, and discounts for bulk purchases (yielding still lower prices per unit). Producers benefit through lower prices on inputs and developing markets with more sophisticated consumers. While producers who previously received the most protection will tend to lower (or cease) production, new opportunities for commerce have arisen based on the new set of relative prices (for example, the development of larger retail stores). At the same time, employees of formerly protected firms will need to shift into more productive activities. The transition costs are difficult to distinguish from other structural changes in the economy (such as privatization), and are to be mitigated by public funds (described above) to assist the private sector with the transition.

C. Changes in the Domestic Market

87. Competition in the domestic market has been enhanced through labor code reform, privatization of public enterprises and associated regulatory changes, and the removal of price controls. The August 1995 Labor Code reform gave more flexibility to private sector employers in their labor relations,11 but did not address public employment issues. In addition to privatizing port operations (early 1997), the telecommunications firm (May 1997), and the railroad (February 1998), the authorities’ privatization program includes the electricity company (privatized in November 1998), the water company (planned for mid-1999) and an airport. To encourage competition following the privatization of these enterprises, the authorities created a regulatory agency (Ente Regulador de Servicios Publicos) in January 1996, which has powers to enforce regulatory requirements for privatized public services (eventually covering telecommunications, electricity, and water). The February 1, 1996 Competition Law (Law 29) abolished the Price Control Office, created the Competition and Consumer Affairs Commission (CLICAC), and eliminated numerous price controls. The CLICAC is charged with the responsibility to enforce the anti-trust standards outlined in the Competition Law. In March 1997 all remaining price controls were removed, except on five goods with import tariffs above 40 percent; these exceptions lapsed in September 1997. With support from the World Bank, the authorities completed key by-laws associated with the Competition Law in September 1998 to: (i) define markets and the nature of monopolistic practices, including barriers to entry and exit; (ii) establish the basic principles for the assessment of economic efficiency; and (iii) state the essential elements of due process in the application of the law.

88. The first test of the new regulatory measures preceded the establishment of these new by-laws. The market for medicines has been cited frequently because of price increases that followed when controls were lifted. CLICAC and the Legislative Assembly have gathered information and held discussions with market participants. Rules concerning the registration of patented medicines have given exclusive importing and sales rights to the international manufacturers and domestic distributors of these products. Moreover, extended patent rights granted in Panama have inhibited the marketing of generic drugs, including by pharmacies. These restrictions (set out in Resolution No. 031 of February 1, 1997), also apply to cosmetics and similar products. In June 1998 the Minister of Health signed a resolution derogating part of Resolution No. 031, effectively reducing some administrative procedures that may have delayed imports. In July 1998 the CLICAC presented its report on the Legislative Assembly’s meetings on this topic. No solution has yet been agreed to remove these impediments to competition.

89. Powerful cooperatives still limit entry and competition in freight and passenger transport. Cargo costs have been inflated by restrictions on transportation between Panama and Central America, especially for cargo that originates in the Colon Free Zone (ZLC) because the ZLC administration strictly controls passes granted to truckers to enter the ZLC. For passenger transportation a technical committee run by service providers allocates routes, limits vehicles, and sets prices. In February 1998 the authorities removed restrictions on Central American truckers so that rules are homogeneous for all truckers regardless of the company’s residency; however, the ZLC system remains unchanged.

D. Remaining Issues on Competitiveness

90. Shortcomings remain in key factor markets. Public and private labor markets are separated by different rules and incentives, limiting mobility within and across labor markets. In addition, land tenure remains an obstacle to efficient use of this resource. The World Bank reports that in 1990 about two-thirds of all land in use lacked property titles and that registration can take as long as ten years. This inhibits access to finance and the accurate assessment of opportunity costs. The authorities are preparing a land management program that includes a review of land tenure laws, establishment of a modern cadastre and registry, and a national titling process.

91. Competition in oil refining and marketing remains limited and market outcomes are distorted. A 20-year contract with the only oil refinery in Panama was granted in 1992 (under Law No. 31). The law initially set a 20 percent tariff on petroleum products in 1992 that was to be reduced by one percent per annum until the rate reached 5 percent (10 percent in the case of Bunker fuel). Exemptions to this tariff include products sold to ships carrying international cargo, aviation fuel (AvGAS), kerosene for airplane turbines, and imports needed to fill domestic supply that cannot be met by the domestic refinery. The law allows for other contracts with third parties to establish a separate oil refinery and to grant the same rights and privileges to the new refinery. In addition, the law stipulates conditions for the sale and distribution of petroleum derivative products and sets out definitions and rules on dumping and related sanctions. This system, which includes differential taxation, administered prices, tariffs and subsidies across different products and marketing agents combined with selective exemptions has led to a divergence between domestic prices and import parity, rationing, and sporadic quality problems.

92. Article 23 of the petroleum law fixes prices for each petroleum product. It grants the state the power to control domestic prices so that they will not fall below a calculated parity, while it also obligates the refinery to charge prices that are no higher than these parity prices. Parity prices are based on published variable costs (updated every 14 days) and fixed costs (updated annually) for each product. Variable costs include a published f.o.b. price in the Caribbean (itself a weighted average of four regional f.o.b. prices), fleet, insurance, transportation losses, letters of credit, and storage losses, while fixed costs include unloading charges (with updates indexed to the CPI), storage at terminal costs (with updates indexed to the CPI), and capital (with updates indexed to production volumes). Thus, parity prices do not need to correspond to the costs of the petroleum refinery.

93. Productivity gains by the refinery add directly to its profitability or are shared with employees; however, the benefits are not passed on to consumers. The World Bank estimates that petroleum prices remain about 30 percent above U.S. levels, with the protected firm capturing most of the difference, to the detriment of other producers, consumers, and government revenues. A consultant for the CLICAC has shown that prices in Panama are among the highest in the hemisphere and has estimated that the transfer from consumers to producers due to this protection was about US$73 million in 1997. The commission is continuing to investigate these distortions and is considering possible actions to increase efficiency and transparency in the market for petroleum products.

APPENDIX I
Panama: Summary of the Tax System as of September 30, 1998
TaxpayerDescription/Tax BaseDeductions/ExemptionsRates
1. INCOME TAX
Individuals and corporations receiving income earned from carrying out productive activities (including the rendering of services) within the territory of the Republic of Panama.Tax base: The total amount of net taxable income–whether in money or in kind–earned by the taxpayer (gross income less expenses and deductions).A. Main personal deductions:Personal: Individuals pay rates ranging from 4 to 33 percent (11 brackets) on net taxable income from B 3,000 to B 200,000; a proportional rate of 30 percent is paid if net taxable income exceeds B 200,000.
1. Standard: B 800 per taxpayer
Special regimes apply to:2. Medical expenses incurred in Panama (including insurance premiums)
Public sector institutions and private corporations are required to withhold income tax at the source (payroll and dividend taxes).a. micro enterprises, and small- and medium-sized firms: Their annual gross income must not exceed B 200,000; income up to B 100,000 is taxed in accordance with the “personal income tax rates”. The amount between B 100,000 and B 200,000 is taxed on the basis of corporate rates.3. Interest paid on home mortgage loans (up to B 15,000).Corporate: Legal entities pay a proportional rate of 30 percent on net taxable income (if they are listed in the Registro Industrial, under Law 3/86, they pay 30 percent on net taxable income up to B 500,000 and 34 percent on net taxable income in excess of B 500,000).
B. Exempted types of income:
b. Income of artists and professionals on occasional visits is taxed at a rate of 15 percent.1. Compensation received in connection with occupational accidents and insurance policies in general; and pensions and other benefits received through the Social Security Agency (CSS).
c. Enterprises located in the Colon Free Zone, or other free trade zone established in Panama, pay no tax on their earnings from external operations. Earnings from domestic operations are taxed at the general corporate rate of 30 percent.2. Income earned from international maritime operations carried out by merchant ships registered in Panama.
3. Interest paid on: Panamanian government securities; savings or time deposit accounts with banks located in Panama; and interest paid to international public entities and foreign governments.
d. Transport and telecommunications enterprises have the option to treat as net taxable income from operations 3 percent of the gross value of receipts from such operations, or to determine their net taxable income in accordance with the general rules of the Fiscal Code.4. Interest earned by banks on loans extended to farmers during the planting cycle, provided the proceeds from the loans are used for the production of rice, corn, beans, or sorghum, and the annual interest rate does not exceed S percent.
e. Exhibition companies and film distributors pay an income tax rate of 6 percent.5. Premiums in respect of reinsurance operations relating to risks abroad.
f. Dividend tax is levied through withholding effected by the firm that pays out the dividends. Withholding is6. Prizes and other benefits obtained from games of chance administered by the government.
10 percent or 20 percent depending on whether registered or bearer instruments are involved. No dividend tax is payable if retained earnings are capitalized.7. Royalties paid abroad by entities established in the Colon Free Zone.
C. Exempted persons or entities
g. The Complementary tax is an advance payment on dividend taxes made when the distribution of earnings or dividends amounts to less than 40 percent of after tax earnings of a corporation. Corporations are required to withhold1. Firms or individuals exempted under the terms of public treaties or by contracts authorized or approved by Law.
4 percent if they do not distribute dividends. No complementary tax is imposed if earnings are distributed in an amount equal to or greater than 40 percent of after tax earnings.2. The state, municipalities, and autonomous or semi-autonomous state institutions.
h. Income gains from the sale of realestate:3. Churches, seminaries, and religious associations, provided their incomes derive directly from the respective activities.
Tax base:

(i) The value of the property at the time of transfer; or

(ii) The land registry value indexed by 5 percent for each year of ownership; or

(iii) The land registry value indexed by 10 percent for each year of ownership.
4. Shelters, hospices, and charities in general, provided that their revenues are allocated exclusively for social assistance or public welfare.
At the time of the real estate transfer, the taxpayer can opt to pay a 2 percent transfer tax over the value of (a) or (b) whichever is higher (which serves as a tax credit). Alternatively, the taxpayer can opt to pay 5 percent over the value of (a) or (c), whichever is higher. The latter settlement is considered final.5. Individuals and corporations engaged in agriculture with annual gross revenue of less than B 100,000.
6. Trust funds established by corporations for funding pension facilities that are additional to those of the CSS.
7. Cooperatives.
2. REAL ESTATE TAX
Owners of real estate within the territory of the Republic of Panama, including buildings or other permanent constructions, as recorded in the Public Ownership Register.Tax base: the highest of the following items:

(i) The value set by the Ministry of Finance and Cadastral Directorate (including improvements); or

(ii) The price negotiated in the sale; or

(iii) The assessed value in a succession.
a. New construction, for up to 20 years.Property values and corresponding rates:

a. B 20,000 -50,000:1.75 percent.

b. B 50,001-75,000:1.95 percent, and

c. From 75,001 upwards: 2.10 percent.
3. INHERITANCE AND GIFT TAX
Heirs or recipients of a particular item of property.Tax base: The amount of any gift, whether revocable or irrevocable.Bequests and grants in favor of the state, autonomous institutions of the state, or municipalities.Rates are 4-33.75 percent, depending on the amount of the gift and the recipient’s kinship with the party making the gift.
4. VALUE ADDED TAX
The transferor, whether merchant, producer, importer, service provider, or lessor, etc.Tax base:

(i) Imports: the c.i.f. value plus all duties, fees, assessments, or charges (for customs purposes);

(ii) Sales of products, both wholesale and retail;

(iii) The provision of services through which raw materials are converted into a finished or semi-finished product,

(iv) The invoiced value of the lease of movable assets, or failing that, the value of the contract.
a. Sales of unprocessed agricultural products, livestock, poultry, and fish.

b. The rendering of services (except those under (iii) of the tax base).

c. Exports and re-exports.

d. Transfers made to the Panama Canal Commission or the U.S. Army.

e. Transfer of movable tangible assets, if effected in free trade zones or areas under customs control.

f. Transfers and imports of carbonated beverages, fuel, lubricants, food items, pharmaceuticals, medicinal products, and school supplies.

g. Imports and transfers of inputs used in agriculture.
A general rate of 5 percent with a special rate of 10 percent on sales of alcoholic beverages and cigarettes.
5. COMMERCIAL ANDINDUSTRIAL LICENSE TAX
The owner or legal representative, i.e., the individual or legal entity to whom the commercial and/or industrial license is issued.To provide permits for commercial and industrial activities in Panama for individuals and corporations.a. Agricultural activities.

b. Manufacturing and sale of crafts and other small industries.
One percent of the capital of the firm, with a minimum of B 10.00 and a maximum of B 20,000.
Tax base: The firm’s total taxable capital (assets minus liabilities).
6. IMPORT DUTIES
Any individual or corporation importing goods liable to taxation.All goods liable for taxation that are imported into Panama.Effective January 1,1998, the maximum import tariff is 15 percent, with the exception of automobiles (15 to 20 percent), dairy products (40 percent), rice (50 percent), and sugar (50 percent).



b. In addition, an administrative fee for customs services of B 70.0 applies in case customs declarations/assessments that exceed B 2,000.
Tax base: The c.i.f. value of the merchandise according to the rates set in the import tariff schedule in terms of the nomen-clature of the harmonized commodity description and coding system.
7. EXPORT DUTIES
Individuals or corporations exporting bananas.Tax base: Boxes (bananas)The applicable rate of B 0.10 per box (40 -42 pounds) will be abolished on January 1,1999.
8. SELECTIVE SALES TAX(Excise Tax)
ConsumersTax base:
  • (i) Carbonated beverages:
    • If domestically produced, the sales price.
    • If imported, the c.i.f. value plus all taxes, duties, assessments, or charges (for customs purposes) applicable to imports.
  • (ii) For domestic or foreign liquors: by degree of alcoholic strength. Domestic or foreign beers and wines: per liter.
  • (iii) For cigarettes: the price of each pack sold.
a. Sales for export.



b. Sales of products to the Panama Canal Commission, or the U.S. Armed Forces.



c. Outward sales made directly to crews and passengers of ships or aircraft, or sales made to firms operating in free trade zones or ports established in the Republic of Panama.
a. Carbonated beverages, domestically produced or imported: 5 percent; syrups or concentrate used in the production of carbonated beverages: 6 percent.



b. Liquors: B 0.035 per degree of alcoholic strength per liter.



c. Wines: B 0.05 per liter.



d. Beer: B 0.1325 per liter.



e. Cigarettes: 32.5 percent of the consumer sales price.
9. GASOLINE CONSUMPTIONTAX (Excise Tax)
Users of gasoline.Tax base: Gallon of gasoline sold.B 0.10 per gallon of gasoline.
10. TAX ON UNUSED LAND
The owner of the land.Tax base: Privately-owned land in excess of 500 hectares containing no planted portions of prepared or converted land, or land which is not used for a particular commercial or industrial activity.a. Land containing:

(i) forests that are being cultivated to an adequate extent;

(ii) sawmills, mines, or operations of workable reserves or deposits of all kinds.



b. Land that is barren or not usable for cultivation.
The tax is B 1.50 per annum for each hectare.
11. TAX ON BANKS, FINANCIALINSTITUTIONS, ANDEXCHANGE HOUSES
Owner or representative.Tax base: Banks: the nature of their activities. Exchange houses: fixed amount. Financial institutions: capital base.State-owned banks.Banking: institutions carrying a general license: B 25,000 per year; with an international license: B 15,000 per year; exchange houses B 600 per year, and financial institutions: 2.5 percent of their paid-up capital as at December 31 of each year, with a maximum of B 12,500 per year.
12. TAX ON INSURANCEPREMIUMS (Excise Tax)
Any individual or corporation taking out insurance policies against risks, and renewals of such policies, in the Republic of Panama.Tax base: The amount of gross insurance premiums paid to individuals or corporations engaged in the insurance business.Fire insurance agencies and companies.Seven percent.
13. TAX ON INSURANCEENTERPRISES
Enterprises selling insurance.Tax base: The value of the total assets of an insurance enterprise as of December 31 of each year.State-owned entities.Enterprises with assets in excess of B 10 million: B 25,000 per year, enterprises with assets in the range of B 5-10 million: B 20,000 per year, and enterprises having assets of less than B 5 million: B 10,000 per year.
14. TAX ON FOREIGNTELEPHONE CALLSAND TELEGRAMS
Individuals or corporations using international telephone and telegram services.Tax base: International telephone calls or telegrams.Does not apply to telephone calls to public or private enterprises providing telephone services.B 1.00 per international call/telegram.
Note: This matrix excludes some minor municipal taxes.Sources: Panamanian authorities; and Fund staff estimates.
Note: This matrix excludes some minor municipal taxes.Sources: Panamanian authorities; and Fund staff estimates.

ATTACHMENT I

Panama: Investment Projects in the Reverted Areas 1/
SectorProject Description
MaritimeCristobal and Balboa Ports Management and Expansion
Hutchison Port Holdings, Ltd., of Hong Kong was awarded a contract to operate, renovate, and expand the ports of Cristobal (Atlantic) and Balboa (Pacific). The company will pay Panama US$22.2 million a year and requires an investment of US$130 million during the first three years. The company’s subsidiary, Puertos Panama, began operations in January 1997.
Manzanillo International Terminal
A joint venture of Panamanian and United States investors began operations in 1995; the Panamanian participants were bought out in 1998. The port is situated next to the Colon Free Zone; it presently handles 50,000 containers each month. During its first three years, US$210 was invested by the project.
Evergreen Container Terminal
The Taiwanese company Evergreen, together with a Panamanian associate, have invested about US$100 million in a container facility near the Colon Free Zone.
IndustrialDavis Export Processing Zone
The governments of Panama and Taiwan each invested US$13 million in 1996 to create an export processing zone near the Colon Free Zone. The site is the former Davis military base.
TourismAmador: United Enterprise Trust Group (IJETG) Hotel Complex
In early 1998 the UETG (Korean-American consortium) began construction of a US$300 million hotel complex that will comprise 250 time share condominiums, 50 villas a luxury hotel of 16 floors and 500 rooms, and a convention center in Amador.
Amador Port Area Hotel Complex
About US$110 million is being invested to build a 500 room hotel with a commercial center and a port-of-call for cruise ships.
Hotel of the Americas
About US$20 million is being invested to develop the site of a former military academy of the United States, on a peninsula of Lake Gatun near the Atlantic. The project will include a 200 room 4-star hotel, restaurants, and recreation areas.
Tennis Center
A world class tennis center is being built in the Llanos de Curundu area. It will have 7 clay courts (one in a stadium), and two cement courts. The center will host international events and promote the sport in the region through training programs and tennis laboratories.
CommercialAlbrook Commercial Center
About US$46 million is being invested to develop and manage a commercial center in Albrook. The contract is for an initial period of 40 years.
Source: Interoceanic Region Authority.

This listing includes some of the major projects already developed or being developed as of mid-1998.

Source: Interoceanic Region Authority.

This listing includes some of the major projects already developed or being developed as of mid-1998.

ATTACHMENT II

Panama: Canal Area Properties to be Transferred in 1999
DateSite and Description
January6Chivo Chivo (antennas)
February15Marine Corps Barracks
113 hectares: 25 housing units; 2 barracks; golf course; and two restaurants.
March15Farfan Housing Area
331 hectares: 100 housing units; 4 barracks; and pool.
April30Rodman Naval Base
Deep draft port facility; boating and water recreation marina; retail shops; bowling alley; community clubs; office building complex; post office; fire station; pool; gym; heavy industrial area; chapel; warehouses; family housing; dormitories; and cold storage.
June1Western Polygon of Balboa
30Fort Sherman
9,349 hectares: small cement dock; water recreation facilities; chapel; gym; theater; outdoor recreation fields and beach; gas station; runway; community club; warehouses; family housing; and dormitories. About half of the land area is tropical forest.
30Piña Training Area
30Galeta Island Communications Center
Located in Rodman Naval Base, a part of the Caribbean Basin Radar Network.
30Fort Davis Communications Center
30Pratt Communications Center
July30Cocoli Housing Area
59 hectares: 162 housing units; 2 barracks; and community center.
30Russeau Encampment
78 acres: camping area; dining hall; kitchen and laundry facilities; administrative offices; and bunkers.
August13Balboa Secondary School
77 rooms; capacity for 1,300 students; auditorium; playing fields; beach; gym; and
August31Tiro de Nuevo Emperador Polygon (remainder) 17,228 acres
September1Panama Canal College
4 hectares: 9 buildings; capacity for 2,200 students; library; gym; and laboratories.
16Curundu Secondary School
98 class rooms; 2 gyms; and tennis court.
November1FortKobbe
2,102 hectares: elementary school with capacity for 428 students; 264 housing units; 12 barracks; warehouses; and underground storage (presently used for munitions storage).
30Corozal (East)
130 hectares: 60 housing units; 7 barracks; retail stores; primary school with capacity for 300 students; bank; fire station; cold storage warehouse; industrial maintenance complex; mental health center; veterinary clinic; and cemetery.
30Fort Clayton
882 hectares: 1,392 housing units; 19 barracks; bowling alley; chapel motel; community clubs; gym; pool; theater; recreation center; fire station; gas station; automobile service center; recreation fields; 2 elementary schools having a combined capacity for 1,100 students; police station and detention center; office buildings; preschool facilities; post office; and hospital.
30Rodman Munitions Depository
30Curundu Laundry and Dry Cleaning Center
30Ancon Communications Center
30Morgue del Gorgas
December22Corozal (West)
Source: interoceanic Region Authority, Property Reversion Section.
Source: interoceanic Region Authority, Property Reversion Section.
1See EBS/96/148, Appendix II for a detailed explanation of these operations.
2See chapter IV.
3Financial investment through home mortgage lending by the CSS was halted in 1996.
4The phrase “international banking center” is commonly used in Panama to describe the private banks and deposit-taking public banks.
5Regulations are available on the superintendency’s web page: http://www.superbancos.gov.pa/.
6The trade regime and reform efforts through 1995 were outlined in the 1996 Recent Economic Developments (SM/96/164).
7Regional trade agreements could further liberalize the trade regime, especially joining the American Free Trade area that, when established, would harmonize and lower tariffs by 2005.
8See EBS/97/163, “Trade Liberalization in Fund-Supported Programs,” August 27, 1997. The methodology of the index is discussed in the annex of the study.
9The real effective exchange rate has depreciated by 12½ percent since July 1990 because nominal appreciation has been more than offset by low inflation.
10The benefits are likely to be greater because these estimates assume zero elasticity of substitution for producers and c