Serving Foreigners

...A great number of jobs were created in the expanding public sector, but no sustainable productive base capable of satisfying the population's need for jobs, food and housing was achieved...

...Service to foreigners has been Panama's specialty for decades...

...Panama's Zone employs 5,000 people in over 600 companies in the depressed city of Col6n and it contributes around 3% of GDP...

...Though it directly employs only 400 people, its contribution to GDP is around 3% in current prices, greater than that of the Col6n Free Zone...

...At that time, food and fuel sales were 30% below normal and industry was working at 40% of its usual level...

...In fact, one third of the whole Alaska North Slope output still flows bountifully through it...

...Another 28% of those working are employed in unspecified social and personal servicesthe other pole of low productivity-primarily in urban areas...

...Noriega did cooperate with U.S...

...As it includes reducing the benefits of the Social Security system, removing protectionist tariffs from agriculture and industry, and cutting back on public sector activities, the policy has met widespread resistance...

...Related international financial services, such as insurance and reinsurance, and the ease with which corporations are created and dissolved-Oliver North had three-turned Panama into a beehive for commerce, foreign exchange transactions, countertrade and rediscount activities...

...In November the World Bank suspended disbursements and in March the Inter-American Development Bank followed suit...

...East Coast to Asia...

...The government is desperately seeking non-traditional sources of finance...

...And the opposition is still hoping for a miracle, like the injection of a billion dollars from the United States, to get things moving again...

...Thirty percent of the economically active population works in agriculture, most of them subsistence farmers who complement their meager income with occasional day labor...

...Previously the Administration had cancelled Panama's sugar quota, cut off its military and economic aid, vetoed loans and payments to Panama in international financial organizations, and excluded it from the Caribbean Basin Initiative...

...There is one thing on which all sides agree: The longer the current situation lasts, the worse it will be for everyone...

...Yes, Panama is also a banana republic...

...In a country where barely 19% of GDP is generated by agriculture and industry, the World Bank/IMF has pushed forward on the absurd hope that by growing melons for export Panama could somehow pay off its enormous debt...

...Alternatives being contemplated range from turning the country into a vast international shopping mall to an Albania-style radical autarky...

...troops at the Southern Command...

...Open unemployment reached 17% by June, compared with 12% nine months earlier...

...Yet its national debt per capita, around $2,000, was one of the highest, and income distribution one of the most unequal...

...This tax-free warehousing enclave does $4 billion of business in import and re-export of predominantly high- value, low volume luxury items and electronic goods from the Far East, the United States and Europe, for sale throughout Central and South America...

...The success of the ship registry is tied to the convenient flexibility of Panama's 1927 incorporation law, based on that of the state of Delaware...

...Panama's international banking center took off in 1970, when the government set the ground rules for taxfree, unrestricted, anonymous accounts...

...Since 1983 the government has been struggling to implement a standard "structural adjustment" policy, as recommended by the World Bank and the International Monetary Fund...

...The benefits Panama provides are closely related to its geographic location as a transit route for goods, money, people and information...

...Investors got their money back in a record 18 months...

...On the other hand, the economy has yet to collapse entirely because nearly one-fourth of the working population, more than 150,000 people, are public employees...

...Panama's ship registry now covers 10% of the world merchant fleet, some 12,500 ships, making it the second largest in the world...

...The Col6n Free Zone, established at the Atlantic end of the canal after World War II, is now the second largest in the world after Hong Kong...

...The very openness of the economy and use of the dollar have helped keep some economic circuits moving...

...Japanese direct investment was over $8 billion, the largest in the world after its investment in the United States...

...The direct contribution of the canal to Panama's GDP is around 8%, and some 7,000 Panamanians are employed by the Canal Commission...

...The main beneficiaries are Japan, the United States, West Germany and the United Kingdom, although Panama's consular officials do earn sizeable commissions and ship registry brings up to $30 million in foreign exchange to the treasury each year...

...dollars throughout the country (according to a 1904 convention, Panama reserves the right to mint balboa coins only), and the "stabilizing" presence of 2,000 U.S...

...Besides the canal, today Panama offers the world the Col6n duty-free zone, an international banking center, Panamanian ship registry (previously known as flag of convenience), loose laws of incorporation, and the transisthmian oil pipeline...

...This lucrative network of no-questions-asked banks and dummy corporations employs an army of highly trained lawyers, accountants and their bilingual secretaries...

...Public works projects, which were reduced last year and further slashed in 1988, cannot possibly compensate for the paralysis of the private sector...

...sanctions were only the last of several steps taken to destroy business confidence in Panama...

...In June, estimates of damage to the economy in 1988 alone ranged from a 12% reduction in GDP, if the economic sanctions had been lifted then, to over 20% if they were not...

...So much for the Labor Code, Social Security coverage, retirement benefits and job stability...

...This combination of facilities for international business, known as the transnational services platform, accounts for much of the country's gross domestic product...

...Panama's motto: "For the benefit of the world" Add to this the bazaar atmosphere of downtown Panama City with its business tourism and casinos, and it is not surprising to find that half the economic activity of the country is devoted to private services...

...investment is also largely in the financial (nonbanking) sector, but many U.S...

...Japanese corporations use Panama as a marketing and service center for their business activities throughout Latin America...

...N 1987, 140 MILLION LONG TONS OF CARGO passed through the Panama Canal, 5% by volume of all world trade...

...In terms of value, however, the transport of vehicles and other manufactured goods from Asia to eastern United States is probably most important...

...These damage estimates show the impact of the sanctions on Panama to be extraordinarily high when compared with other cases where sanctions were used to destabilize a government...

...This move was seen as "the thin end of a wedge...to penetrate Panamanian sovereignty," as one critic put it, which could allow U.S...

...New companies were being registered at the rate of 114 a day before the political crisis broke out in June 1987...

...That same study also showed that where economic sanctions were successful in helping bring about a change in government or in a particular policy, the sanctions lasted an average of 4.3 years, the failures an average of seven years...

...Internal debt was another billion dollars, and the 1987 government budget assigned 51% of outflows to debt v-amos hacia ;PANAMA service and capital repayments...

...One cynic noted that while the Medellin cartel used to pay a commission to launder money in Panama, they now charge one to cash government checks...

...This 80-kilometer tube stretching from the Pacific to the Atlantic coasts of Panama was erected just a few months after the contract was signed in 1981...

...They all rose in a chorus of outrage in 1986 when the United States pressed for a change in the bank secrecy laws, ostensibly to prevent illicit money laundering...

...Vast increases in public sector investment, funded by borrowing in the days of easy money, were spent on improving social services and basic infrastructure...

...Sanctions invite contraband, solidarity from other countries, nationalism and diversification, all of which are cards which the Panamanian government has played with some success...

...Some of those who were laid off with redundancy payments to be paid over two years are re-hired on a daily basis and paid according to the day's earnings...

...In 1984, when total assets were $39 billion, 24% were in 11 U.S...

...However, the spokesman for the American Chamber of Commerce in Panama reckons that fully one-half of all private sector business in Panama is U.S.-related...

...In comparison, the Miami duty-free zone's 1987 business was worth only $600 million...

...N 1986, U.S...

...Though an alternative system of controlling drug money was finally adopted, Gen...

...Seventy percent of these goods were involved in direct trade with the United States, the largest volume travelling from the U.S...

...While average life expectancy is a respectable 69 years for men and 72 for women, government figures Panama City's financial district JU.I VIflU'JU I 170 Ju...

...At the time it was called the first "throwaway" pipeline on the grounds that it would soon be superceded by a more direct alternative on the North American mainland...

...private investment is offshore-that is, non-productive-a good estimate for Japan's would put it over three-fourths...

...Some bankers predict that by the end of the year, unless new elements are introduced to shore up the house or to replace it, the only part left standing will be the canal...

...It peaked in 1982 with $49 billion in assets, held by a total of 124 banks with international or general license...

...Estimates of the total number of Panamanian "paper companies," as they are sometimes called, range up to 100,000...

...and Japanese corporations, although this "crossroads of the world" has become a useful place for Latin American, European and other Asian countries to do business as well...

...As one might suspect, the Japanese have not one single manufacturing subsidiary in Panama...

...At the end of 1987, the external public debt amounted to $3,968 million, equivalent to 75% of GDP...

...That same month Panama became the first developing country to effectively default on yen bonds issued in the Tokyo capital market, a situation of which Japanese bankers took an extremely dim view...

...Though Latin American traffic through the canal is of less volume, it is vital for those countries on the Pacific coast, carrying more than 40% of their external trade...

...In view of the political crisis and ensuing fiscal crisis, Panama suspended debt servicing payments in June 1987...

...banks, and 16% in eight Japanese banks...

...Two factors made Panama particularly attractive: the free circulation of U.S...

...The major users of the transnational services platform are U.S...

...Attorney General Edwin Meese in "Operation Pisces" in March 1987, further incensing the REPORT ON THE AMERICASentire banking community...

...In an analysis of more than 70 cases since 1900, the Washington-based Institute for International Economics found only three others in which the cost to the target country as a percentage of GNP was greater than 10%: the US/UK against Iran in 1951 (14%), the UK/UN against Rhodesia in 1965 (12%) and in 1982, the Netherlands against Suriname (10...

...No stateside pipeline yet built could handle this additional volume, and there are still restrictions on the export of Alaskan oil...

...At independence in 1903 the country adopted as its motto 'Pro Mundi Beneficio"-for the benefit of the world-and some would argue it has lived up to that motto only too well...

...At its peak the financial services sector employed around 8,000 people and generated demand for upmarket condominiums and modern office buildings alongside antiquated shacks...

...What made the Administration's economic warfare so devastating was the extreme dependence of Panama's economy on the services it provides foreign banks and corporations...

...At $2,100, Panama's income per capita last year was one of the highest in Latin America, and its inflation rate (3%) one of the lowest...

...The oil pipeline, which carries 600,000 barrels of Alaskan North Slope oil per day, is another story...

...tax authorities access to other company information...

...In many companies, those employees not laid off are working for half, a third, even one-fourth of their former salaries...

...Panama's government froze 18 accounts in ten banks, employing such heavyhanded tactics as cutting off the banks' communications with the outside world while each manager was obliged to comply...

...A look at employment figures gives an idea of why the top 5% of the population receives 17.8% of the national income, while the bottom 20% receives only 2.1...

...companies do have manufacturing facilities in the country, some of them producing for the regional market...

...The estimated 35,000 people who work in construction and the 15% of Panama's industry devoted to producing construction materials work entirely on credit, and were worst hit...

...DIRECT INVESTMENT IN PANama totalled $4.5 billion, the third largest in Latin America...

...When the government succeeded in making its checks negotiable instruments of exchange, that alone allowed for a significant margin of maneuverability...

...Panamanian deposits and loans to local residents have never been more than a quarter of the total activities carried out at the banking center...

...Relative to its neighbors, Panama's service economy has served Panama well...

...When sanctions were imposed this year, Panama was host to 120 banks with assets of just over $20 billion, down primarily due to the political crisis...

...Those days have gone forever, and no easy answers are on the horizon...

...Health, nutritional and educational standards will inevitably decline, as there are no resources for preventive action, and few materials in the schools and universities...

...I/a.UUJI L00 IPANAMA show that one-third of the population was unable to satisfy minimal needs for food and shelter, even before the Reagan Administration's sanctions wrought economic disaster...

...P ANAMA SHARES WITH THE REST OF LATIN America the weighty problem of public indebtedness...

...S NE REASON WHY PANAMA'S ECONOMY shook so violently when dollar accounts in the United States were frozen in March is that U.S...

...Much of their investment is tied up in Panama-registered ships, while the rest is largely in financial services...

...Industry accounts for a scant 9% of GDP and agriculture only 10%, a third of which is taken up by bananas for export...

...Pipelines in the United States can be delayed for years while environmental impact statements are prepared and evaluated...

...Secret banking naturally attracts illicit money, including profits from drug and weapons transactions, and the take of crooked politicians from around the globe...

...Once Washington made destabilization the objective of its policy, they took their business elsewhere...

...Neither the management nor the real ownership of the fleet, however, is in Panamanian hands...

...A few weeks after sanctions were imposed the economy was in shambles, with the public sector living on borrowed time as well as borrowed money, and the private sector operating at half its capacity...

...While it has been estimated that two-thirds of U.S...

...The fruit is the largest single export commodity, earning 20% of Panama's foreign exchange from the export of goods in 1986...

...In the past decade Panama's strategy has been to diversify the services it offers foreign capital hoping that this would stimulate the domestic economy...