SURVEY OF THE PANAMANIAN ECONOMY (ORR PROJECT NO. 47.4979)

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T01049A003300150001-8
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 179
• Document Creation Date: December 12, 2016
• Document Release Date: November 27, 2000
• Sequence Number: 1
• Publication Date: December 1, 1966
• Content Type: REPORT

Approved For Release 0 A 04 : CIA-RDP79TO1049AO033001 ,00x1=`8
Division: International
Branch: Latin America
SURVEY OF THE PANAMANIAN ECONOMY
(O.riR Project No. 4.7.4979)
December 1966
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I. General . . . . . . . . . . . . . . . . . . . . . ? . ? 1
A. Economy . . . . . . . . . . . . . . . . . . . . 1
B. Human Resources . ... . . . . . . . . . . . . . . . . 8
1. Population . . . . . . . . . . . . . . . . . . . 8
2. Education . . . . . . . . . . . . . . . . . . . 11
3. Employment . . . . . . . . . . . . . . . . . . 14
C. Urban and Rural Welfare Problems . . . ? . ? . ? ? 19
1. Housing . . . . . . . . . . . . . . . . . . . . . 19
2 . Health . . . . . . . . . . . . . . . . . . . 23
a. Nutrition . . . . . . . . . . . . . . . . . 21I
b. Sanitation . . . . . . . . . . . . . . . 25
c. Medical Care ? . . . . . . . . . . . . . 26
D. Development Programs . . . . . . . . . . . .
28
1. Overall Public Investment Expenditures . . . . . 30
2. US/AID Projects . . . . . . . . . . . . . . . . 33
3. Projects of the International Lending Agencies 34
E. Role of the Canal Zone in the Panamanian Economy . 35
1. Historical Role of the Canal . . . . . . . . 35
2. Impact of a Sea-Leval Canal . . . . . . . . . . . 36
II. Agriculture . . . . . . .. . . . . . . . . . . . . . . . . 41
A. Land . . . . . . . . . . . . . . . . . . . . . . . . . 43
1. Topography and Climate . . . . . . . . . . . . . 43
2. Soil and Land Use . . . . . . . . . . . . . . . . 44
3. Land Ownership . . . . . . . . . . . . . . . . . . 45
B. Production and Distribution . . . . . . . . . . . . . 47
1. Crops . . . . . . . . . . . . . . . . . . .49
a. Domestic . . . . . . . . . . . . . . . . . . . 49
b. Exports . . . . . . . . . . . . . . . . . . . 51
2. Livestock . . . . . . . . . . . . . . . . . . . . . 55 11 Approved For Release 2001$_`5R0`_,1
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3. Fishing . . . . . . . . . . . . . . . ... . . . 57
4. Forestry . . . . . . . . . . . . . . . . . . . .
58
Role of Government in Agriculture . . . . . . . . . . 58
1. Ministry of Agriculture . . . . . . . . . . . . 59
2. The Institute for Economic Development ? ? ? ? ?
3. The Livestock Institute . . . . . . . . . .
6o
61
4. Agrarian Reform Commission. . . . . . . . . . . . 62
5. Foreign Assistance to Agriculture ? ? ? ? ? ? ? ? 63
III. Industry.......................... 65
A. Resources . . . . . . . . . . . . . ? . . . . . . . . 69
1. Raw Materials . . . . . . . . . . . . . . . . . . 69
2. Power . . . . . . . . . . . . . . . . . . . . 71
B. Structure . . . . . . . . . . . . . . . ? ? . . . . . 77
1. Ownership . . . . . . . . . . . . . . . . . . . . 77
2. Industrial Investment . . . . . . . . . . .. . . 80
3. Industrial Labor Force . . . . . . . . . . . . . . 83
C. Manufacturing . . . . . . . . . . . . . . . . . . ? 84+
1. Food, Beverages, and Tobacco . . . . . . . . . 814
a. Milk . . . . . . . . . . . . . . . . . . . . 85
b. Meat . . . . . . . . . . . . . . . . . . . 85
c. Sea Food . . . . . . . . . . . . . . . . . . . . 86
d. Cereals . . . . . . . . . . . . . . . . . . 86
.e. Other Foods . . . . . . . . . . . . . . . . 87
f. Beverages and Tobaccos . . . . . . . . . . . 87
2. Footwear and Clothing . . . . . . . . . . . . . . 88
3. Metal Products . . . . . . . . . . . . . . . . . . 89
1.? Nonmetallic Products . . . . . . . . . . . . . . . . 90
5. Refining . . . . . . . . . . . . . . . . . . . . . 91
6. Other Industries . . . . . . . . . . . . . . . . . 92
7. Home Industries . . . . . . . . . . . . . . . . . . 93
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D. Construction .
94
E. Dependence on Foreign suppliers . . .
F. Role of Government in Industry . . . . . . .
? 97
IV. Fiscal and Monetary Structure . . .
A. Public Finance. . . . .
? 100
1. Central Government Budgets . . . . .
? 101
a. Ordinary Budget Revenues
? 103
b. Ordinary Budget Expenditures. . .
? 107
2. Public Debt
? .
107
B. Money and Banking . . . Y . Y G . 0*0 C . . . . . . .
112
1. Financial Institutions
. 112
.a. Banks . .
. 112
b. Other Credit Institutions
? 115
2. 'Trends in Money and Credit
. 116
a. Money. . . . .
. 116
b. Credit .
? 116
V. Transportation . . . .
. ? . . . . . . . . . . . . 119
A. Highways . . . . . . . .
. 119
B. Railroads . , , ,
. 1.21
C. Merchant Marine .
. 122
I). Civil Aviation . . . . .
123
VI. Communications . . ,
? 125
A. Role of Government and Adequacy of Communications
Services
125
B. Radio and Television Service
. 127
C. Newspapers . . . . . .
130
D. Telephone and Telegraph Service
. 131
E. Satellite Communications .
VII. Domestic and International Trade
... 136
A. Domestic Trade . .
. 136
B. International Trade .
1. Imports , .
138
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2. Exports . . . . . . . . . . . . . . . . . . . . . . . . .
3. Direction of Trade . . . . . . . . . . . . . . . . . .
4. CACM . . . . . . . . . . . . . . . . . . . . . ,
5. Colon Free Zone . . . . . . . . . . . . . . . . .
6. Canal Zone . . . . . . . . . . . . . . . .
Balance of Payments . . . . . . . . . . . . . . . .
Tables
1. Panama: Gross Domestic Product at Market Prices, by
Economic Sector 1960-65 . . . . . . . . . . . . . . . . . .
2. Panama: Population Estimates by Province, 1965 and 1970
3. Panama: Urban-Rural Distribution of Population, Selected
Years 1930 - 60 . . . . . . . . . . . . . . . . .. . . . . . ..
4. Panama: School Enrollments, Selected Years 1954-6- . .
5. Panama: Principal Sources of Nonagricultural Employment, 1963
6. Panama: Distribution of the Nonagricultural Labor Force
by Type of Activity, 1960-and, 1964 . . . . . . . . . . . . . . .
7. Panama: Housing Construction, Average 1965-66, Planned
1967-68 and Estimated 1972 . . . . . . . . . . . . . . . . . .
8. Panama: Structure of Investment Expenditures by the
Public Sector, 1960-65 . . . . . . . . . . . . . . . . . . . . .
9. Decrease in Net Foreign Exchange Earnings, Gross Domestic
Product, and Employment for Panama, With and Without
U.S. Military Activity, for Three Sea-Level Canal
Possibilities, First Year of Operation Relative
to Previous Peak Year . . . . . . . . . . . . . . . . . . . .
10. Panama: Area, Production, and Yields of Selected
Agricultural Products . . . . . . . . . . . . . . . . .
11. Panama: Value-Added of Industrial Production, 1960-65 . . . .
12. Electricity Production in Panama City and Colon
13. Panamanian Electric Power Companies . . . . . . . . . . . .
14. Panama: Operation of the Institute of Hydraulic Resources
and Electrification, 1961-65 . . . . . . . . . . . . . . . .
15. Panama. Power Facilities Planned or Under Construction
16. Panama: Structure of the Manufacturing Sector, 1965 . . . . . .
17. Panama: Gross Domestic Private Investment , . , , . , , ,
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141
144
147
111.8
149
151
2
18
31
40
52
66
72
73
74
75
78
80
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18. Panama; ~- k-age
Total Bank Loans, 1960-65 ?. ?
19? Panama: Foreir81
1960-66 , . .?n Capital Flow?to the Private Sector,
20. Panama-:-----1963 Imports by . 82
y Industrial classification
21. Panama: Total Investment b 96
Sources of its Financing , 1960-65 , .
22. Panama: Ordinary Revenues of the Central ?Gove 102
1960-65 . . . . . . rnment,
23* Panama Ordinary ? ? ? ' ' ' ? 105
1960-65 ??Expenditures of the Central Gover
. nment
24
. . . .
?
Panama:
Outstandi
n
D
108
25?
Panama:
g
ebt of the Public Sector, 1960-65
D
111
eposits and Loans of the Banking System
ystem
1
6
Panama:
,
,
Number of Vehicles, 1964-65
'
8
0_65
113
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Panama:
Television Networks and St
120
28.
ations
1966 '
Panama: Number of Telephones, 1961-64 .
129
29?
Panama: Composition of Co
1960-65 . . . Commodity Imports (f.o.b.),
133
30?
Panama. Compositi
1960-65 on ofCommadity imports
31.
Panama : Dir
ecti
142
on of Trade, Imports, Percentage Share of
Principal Suppliers 1960, 1963-65 ,
32.
Panama: Directio
145
33?
n of Trade
Breakdown b v Exports, Percentage
by Major Trading Partner, 1960, 1963-65 .
Panama: Transacti
146
34*
ons
with the Panama Canal Zone,
Panama: 1960-65
Bal
150
ance of Payments Summary, 1960-66
?
152
1.
(Map)
Figures
General Map of the Republic of Panama
Att
2.
(Map)
Urban
achment
and Rural Population by Province, 1960
. Attachm
h.
(Map)
(Map)
Geographic Regions . . .
C
l
ent
Attachment
u
tivated Land in Relation t Area of the
District, 1961 o
?
?_-
Attach
5.
(Map)
ment
Ar
eas of Lumber Exploitation and Location of
?
Attachment
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page
6.
(Map) Electrification, 1964. . . . . . . .
Attachment
7.
(Chart) Cottage Industries According to Class,
1960. . . . . . . . . . . . . . . . .
Attachment
8.
(Map) Highways, Roads, and Railroads, 1963. . . . .
Attachment
9.
(Chart) Panama: Estimated Land Use, 1961 . . . . .
46
10.
(Chart) Panama; Estimated Land Distribution,
1962 ...............:..
48
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1. General
A. Economy
Panama's Gross Domestic Product (GDP) has grown at an average
annual rate of 8 percent since 1960, one of the highest rates in Latin
America. (See Table 1.) Moreover, this expansion has not been accompanied
by inflation. The poorest year for the economy was 196+ when GDP rose
by only 5 percent. This slowdown, which was precipitated by a loss of
business confidence following the outbreak of riots in January of that
year, was short-lived. In 1965 GDP grew 8 percent to about $615 million,
yielding a per capita GDP of somewhat more than $500 -- considerably higher
than the average of less than $300 for the five neighboring countries of
Central America. The economy probably expanded at approximately the
same rate in 1966.
Panama is, nonetheless, still in the early stages of
development, and living standards remain low for the bulk of the
population. The higher income groups, in contrast to those in many
Latin American countries, have reinvested a large portion of their
earnings in the economy. Gross domestic investment by the private
sector, averaging 14 percent of GDP, has been a major determinant of
the economy's growth. In the public sector, investment has averaged an
additional 5 percent of GDP, representing a total investment since 1960
of $14+1 million in such public development projects as roads, housing,
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public buildings, and water and sewerage. Foreign loans and grants have
been a significant source of these funds, supplying 38 percent of the total.
A rising level of foreign exchange earnings also has been a major
stimulus to economic growth. Total exports (including commodity exports
and net earnings'from the sale of services) increased from $77 million
in 1960 to $175 million in 1965, an increase of 128 percent. A sharp
rise in earningsfrom the sale of services to the Canal Zone, the doubling
of banana exports, and the initiation of exports of refined petroleum
accounted for most of these gains. This increase in exports has
permitted commodity imports to increase from $109, million in 1960 to
$188 million in 1965.
In terms of individual sectors, the most rapid growth was registered
by industry, mining, and construction which increased 11 percent annually.
By 1965 these activities constituted more than one-fifth of GDP and
employed 8 percent of the labor force. Services, which are based
directly or indirectly on the country's function as an international
transit point and entrepot, expanded at an annual rate of 8 percent.
Service activities (including services sold to the Canal Zone) constitute
the largest component of the economy, accounting for three-fifths of GDP
and 30 percent of the labor force. The importance of the Canal Zone to the
Panamanian economy is reflected in the estimate that about 40 percent of total
GDP is derived either directly or indirectly from Canal Zone activities.
Agriculture, which accounts for 20
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percent,,, of GDP but employs almost half the labor force, showed a growth
rate of nearly 6 percent per year during the period, resulting mainly
from increased plantings 'oii commercial farms.
Most of Panama's small, industrial base is directed to the domestic
market for processed foodstuffs,. soft consumer goods, and construction
materials and enjoys a high degree of protection from foreign competition.
Panama's single oil refinery is the only export-oriented industry. Modern
industrial plants are concentrated in Panama City and Colon. Away from
these centers there is a proliferation of cottage industries (about
15,000 in 1960) producing foods, beverages, and clothing.
Agriculture, with the exception of a small number of large farms
producing foodstuffs for the urban market and bananas, coffee, and sugar
for export, is largely isolated from the commercial life of the country.
Some 70 percent of agricultural producers in Panama are only marginally
involved in the money economy. These farmers follow traditional agricultural
practices which have not been influenced by technological advances.
The lack of transportation, storage, and credit facilities all
have contributed to the low level of agricultural productivity, and
uncertain land tenure offers little incentive for change. According
to the 1961 census, 90 percent of all farms were held without clear title.
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Efforts by the Robles government to raise the level of agricultural
productivity have moved slowly. Its program of price incentives for
several basic food crops has met with some success as have its efforts
to increase the production of traditional agricultural exports. Progress
in establishing land tenure, effecting technological improvements, and
building farm to market roads, however, has been disappointing. Budgetary
expenditures for these programs generally have been small, and the
shortage of experienced personnel and the lack of coordinated planning
have limited their effectiveness. These factors also have limited the
development of less traditional fields such as forestry, fishing, and
livestock.
Despite the economic growth that Panama has experienced, urban
problems of unemployment and housing have worsened. Unemployment
among nonagricultural workers increased from 15 percent in 1960 to 24
percent in 1964 as population growth and the influx of unskilled young
people fia m rural areas sharply expanded the nonagricultural labor force.
During 1960-64, the nonagricultural labor force grew at an average
annual rate of 3.8 percent whereas nonagricultural employment increased
only 1 percent annually. The high level of unemployment prevailing in
1964 probably did not improve in 1965 and 1966. Population growth
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and migratinn to urban areas also have been responsible for the worsening
of the housing situation in Panama City and Colon where between 40 and 50
percent of the inhabitants live in slum conditions. The present housing
~..i
The general level of health in Panama compares favorably with
the rest of Latin America. Improvement in health standards has increased
life expectancy from 51 years in 1941 to about 62 years in 1952 (the most
recent estimate). The crude mortality rate has dropped from 13.0 per 1,000
inhabitants in 1943 to 7.2 in 1965. Similarly, the infant mortality rate
has been reduced from 72 per 1,000 live births in 1943 to only 44 in 1965.
Communicable diseases largely have been controlled or eliminated.
Yellow fever and dengue have been eradicated, and malaria is only occasionally
encountered due to extensive public health efforts. Tuberculosis, however,
remains a serious health problem. Moreover, an inadequate diet and
insufficient provision of sanitary facilities contribute to a high incidence
of dietary deficiency diseases and to enteric diseases such as dysentery.
Standards of medical care generally reflect the country's underdeveloped
state and large sectors of the population, particularly in rural areas,
have little access to professional medical care.
The most important government agency active in promoting public
health is the Social Security Institute which operates several hospitals and
.offers subsidized medical, dental, and maternity care for nearly 100,000
persons covered by the social security system. Foreign assistance also
has contributed to improvements in Panama's public health services. The
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United Nations has conducted programs to control malaria, tuberculosis, and
leprosy, and has donated supplies and equil-ment to Panamanian medical
institutions. Foreign loans are presently being negotiated for the
construction of potable water systems in rural areas ($1.4 million),
additional malaria control ($1.4 million), a new hospital in Aguadulce
($3.0 million), and expansion of the mobile health units ($0.9 million).
a. Nutrition
The diet of the average Panamanian is less than adequate.
which
The average caloric intake,, is estimated at about 2,300 per day,is
below the average for Latin America and is only three-fourths of the
minimum caloric intake recommended for tropical climates. The diet of
most of the population is composed primarily of starchy foods, including
rice, corn, and beans; protein consumption is extremely low. Dietary
deficiency diseases such as rickets and pellagra are common, particularly
among the rural population and the urban unemployed.
Approximately 25 percent of the populace, mostly school
age children, receive food under the PL 480 program which is administered
by two voluntary agencies, CARE and the Catholic Relief Service (CRS).
.Planned shipments of food under this program will amount to $874,000 in
fiscal year 1967. In addition, a Panamanian committee has recently been
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established to promote production and distribution of Incaparina, a low-cost,
high-protein food supplement.
b. Sanitation
Water supply and sewage disposal facilities are generally
adequate in urban areas (outside slums) but are inadequate or nonexistent
in most rural areas. In 1960, 94+ percent of urban dwellings were supplied
-with water and 77 percent were connected to public sewage systems. In
rural areas, however, more than 70 percent of the population is dependent
on rivers, shallow wells, and other unprotected sources for its water
supplies and there is little provision for sewage disposal. The inadequacy
of sanitary facilities in urban slums.and rural areas is.responsible for
a high incidence of enteric diseases such as dysentery and intestinal
parasitism.
The National Water Supply and Sewage Institution (IDAAN),
an autonomous government agency, is responsible for operating and expanding
water and sewage systems. During the six, year period 1960-65, the Panamanian
government has spent $13.2 million in improvement and expansion programs,
financed mainly with foreign aid. Additional foreign loans amounting to
about $10 million are expected in the near future to improve service in
Colon, Panama City, and a number of towns in the ir_teri:or.
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The availability of medical facilities and personnel in
Panama is substandard. In 1965 there were only 17 hospitals, 12 clinics,
and 44 health centers with an aggregate capacity of 2,560 beds. In the
or one physician per
same year, there were 535 practicing physicians,/ 2,325 inhabitants--well
below the Latin American average of 1 to 1,600., Other medical personnel
include 830 nurses (196+ , 102 dentists (1962), and about 1,300 nurses
aides (1962). Both medical facilities and personnel are concentrated in
urban areas. Much of the rural portion of the country has no access to
professional medical care although since 1962 attempts have been made to
it by means of mobile public health units financed by US/AID
reach ----it-
funds.
In 1965 the country's only medical school (located at the
University of Panama) graduated 23 new physicians. The school was
established in 1951 and, beginning with the first graduating class in 1955,
the number of medical graduates has averaged 16 per year.
The Department of Public Health under the Ministry of
Labor, Social Welfare, and Public Health is responsible for the organization
and planning of Panama's health program. Programs of the department
include preventive medicine, communicable disease control, health education,
maternal and child welfare, sanitary engineering, and rural public health.
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In 1962, a national health plan was established for the
development of public health facilities. The objective of the plan is. the
establishment of three regional hospitals, each with a subsidiary network
of health centers supported in turn by small rural clinics. The plan
envisages serving 70 to 80 percent of the population by 1970. Hospital
construction has been delayed pending foreign assistance, but eight
health centers have been established.
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D. Development Programs
A total of $141 million was invested in public development
projects in Panama during the years 1960-65. These projects covered a
wide range of public facilities including roads, housing, public buildings,
and water and sewerage. It was not until 1963 that individual projects
were pulled together in a comprehensive public investment program.
Included in this program is the so-called Robles Plan which provides for
land reform and the development of public facilities in rural areas. The
relationship of the annual level of public investment expenditures to
GDP is shown in the following tabulation.
Year
Percent of GDP
1960
2.9
1961
5.0
1962
5.4
1963
5.4
196+
4.9
1965
5.1
All expenditures under the program are channeled through the
three principal levels of government: the central government, which
during the years 1960-65 accounted for 55 percent of total public
investment expenditures; some 20 autonomous government agencies, which
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accounted for 43 percent; and the municipal governments, which accounted
for 2 percent.
Public investment programs are financed from a wide variety of
sources including the current account surplus of the public sector, internal.
floating and funded debt, and loans and grants from external sources. The
approximate distribution of sources of financing for the years 1960-65 is
as follows: current account surplus of the public sector; 41 percent;
net increase in external debt, 38 percent; and net increase in internal
.floating and funded debt, 21 percent. The total financing exceeded
investment expenditures slightly during the period, partly because some
of the financing was used for non-investment purposes. Funds from
internal sources are apportioned by the government in accordance with
its own priorities but those obtained from US/AID and the international
lending agencies normally are earmarked for specific development projects
that have been reviewed in detail by the lenders.
2?
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1. Overall Public Investment Expenditures
During the years 1960-65, expenditures on roads and other
transportation facilities were the most important category of public
investment, accounting for 31 percent of the total. Other important
categories were housing (19 percent), public buildings (11 percent),
water and sewerage (9 percent), and education, health, and social welfare
facilities (6 percent). Public investment expenditures on agriculture and
land reform amounted to only $2 million during the period. The structure
of total public investment expenditures for the years 1960-65 is shown in
Table .8
Of the 20 autonomous government agencies engaged in carrying
out public investment under the program, five are the most important: the
Social Security Institute '(CSS), the Housing and Urbanization Institute (IVU),
the Economic Development Institute (IFE), the Hydraulic and Electrification
Institute (IRBE), and the National Water Supply and Sewerage Institute (IDAAN).
Most of the investments of the'CSS have been devoted to construction and
expansion of hospitals and other public health facilities. The IVU is
engaged primarily in the construction of low cost housing.. and,from 1958
when it was founded to the end of 1966, it will have constructed nearly
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5,000 urban and 600 rural dwelling units. The IVU also has purchased a
number of house lots in urban areas which it has distributed gratis to
the poor. In the future, the IVU plans to attain a level of housing
construction sufficient to house 5,000 families per year, principally
in urban areas.
The IFE is engaged primarily in granting loans to low
income farmers for purchase of equipment, fertilizer, seed, and livestock
and makes few direct investments. The IRHE operates much of the electric
power facilities outside the main urban areas, distributing electric power
to some 92 communities. It has constructed several new power installations
and additional installations in la Yeguada, Las Minas Bay, and Bayano are
under construction or planned. IDAAN is engaged in construction of urban
water and sewerage systems, primarily in Panama City, but about half of its
expenditures since 1960 have been in small towns. In preparation is a
facilities for
$10 million project to expand/water supply in Panama City, construction
of which is to begin in 1968.
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2. US/AID Projects
The US government has long provided considerable economic
assistance to-Panama. Such assistance during the period 1952-65 under
AID and its predecessor agencies totalled $32 million in grants and
$38 million in loans. As of November 1965, an undisbursed backlog of
$19 million in AID obligations remained outstanding. Annual disbursements
during 1963-65 have ranged from $6 million to $8 million. Since the
T
launching of the government's comprehensive development program, the
emphasis of AID has shifted from grants to loans for individual develop-
mental projects in direct support of the overall program.
Projects now in progress under AID funds include (a) technical
assistance to agriculture, industry, and urban development, (b) loans for
construction of schools, roads, and dwellings, and for expansion of water
supplies and sewers in Panama City and Colon, and (c) a loan to establish
a new private Panamanian bank to grant medium- and long-term loans to
industrial enterprises.
Following new instances of political unrest in Panama City
and Colon in the spring of 1966, an agreement for a new loan of $3 million
for urban improvement was signed in July and a special US mission headed by
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former Ambassador Philip KLutznick went to Panama in August to investigate
living conditions in urban slums. The outgrowth of this mission was a
US proposal for a new loan of,$13.5 million and a grant of $4.4 million
for,urban improvement with special emphasis on "urban modernization,
social welfare, and employment creation." These funds would be used to
and for
improve urban streets water and sewerage and/community development,
particularly in slum areas of Panama City,beginning in December 1966.
3. Projects of the International Lending Agencies
The IBRD and the IDB also have contributed
n the form of long-term loans for
specific development projects, primarily of a self-liquidating nature.
These loans have been made for a wide variety of types of projects,
including construction of housing, electric power facilities, and roads,
for
and/the establishment of the IFE. In 1966, the IDB granted a loan of
$9 million for construction of low cost housing and one of $0.7 million
for educational scholarships. The IDB also has under consideration loans
of $4 million for construction of farm-to-market roads and another of
also
$3.5 million for the import of livestock. The IBRD/is currently
considering several projects for construction of roads but no estimates
of the amounts of these projects have yet been announced.
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Role of the Canal one in the Panamanian Economy
The importance of the Canal Zone as a source of foreign exchange
is discussed in Section VII B. and to the extent possible, will not be
included in this section.* For an exhaustive analysis of the entire
question of the historical role of the Canal as well as the impact of a
sea-level canal on the economy of Panama, the reader is directed to-he
Stanford Research Institute study entitled "Impact of a Sea-Level Canal
.on the Economy of Panama", SRI Project 5383, July 1965 -- the major source
of the summary that follows.
1. Historical Role of the Canal
The proportion of total Panamanian GDP deriving either directly
or indirectly from Canal Zone activities is estimated to have ranged
between 3$ and 42 percent during the period 1960-64. In 196+ the
Canal's contribution to total GDP of US $595 million is estimated at 39
percent or US $233 million.** Although the Canal Zone has contributed
decreasing share of total employment in recent years, it still employed
Balance of payments data indicate that Panama's net foreign exchange
earnings from relations with the Canal Zone reached $90 million in 1965;
application of the broader concept employed by SRI yields a comparable
figure of $127 million.
*'E Canal-derived GDP figures represent the sum of the net flow of foreign
exchange duo to the canal, modified upward by use of the relatively
conservative multiplier of 1.58, plus direct income (value added) from
the Canal in the form of wages, canal annuities, and so forth.
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20,0001* Panamanians in 1964 or more than 5 percent of the total labor force.
As a proportion of the. nonagricultural labor force, the Canal Zone represented
more than 10 percent of the total. Considering only employment in the
metropolitan area, the Canal Zone represented about 13 percent and, for
the two districts of Colon and Panama, about 16 percent in 1964. Inasmuch
as wages and salaries are relatively high in the Zone, this portion of
employment is of greater importance to the Panamanian economy than the
numbers alone would suggest. Moreover, these employment figures relate
only to workers actually employed in the Canal Zone and do not take into
consideration the important segment of other employment directly related
to the canal or the segment of employment in Panama which is indirectly
supported by canal activities.
2. Impact of a Sea-Leval Canal
It has been estimated that, during the period of construction,
conversion of the Panama Canal at its present site into a sea-level canal
would result in an increase in GDP of about US 147 million annually.
Construction at another site in Panama would generate an estimated increase
in GDP of US $68 million. Construction of a canal outside of Panama,
on the other hand, would depress GDP somewhat, mainly because of smaller
_'Possibly includes 2,000 part time employees.
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expenditures for capital improvement and maintenance on the present canal
in anticipation of shifting operations to the new canal.
The impact on employment levels during the construction period
would be particularly dramatic in the case of canal conversion at its
present site. It is estimated that during the peak year, 46,000 Panamanians
would be employed in the actual construction. and an additional 70,000 jobs
would be generated elsewhere in the economy. Construction of a sea-level
canal/in Panama, using nuclear explosives for high volume excavation work,
would create much less employment -- an estimated 9,000 Panamanian in
construction and 22,000 in new jobs elsewhere in the economy during the
peak construction year. Construction outside Panama would depress canal
employment during the construction period because of the lower level of
capital improvement and maintenance.
The existence of large pools of unemployment and underemployment
suggests that ample manpower is available for construction of a sea-level
canal in Panama. Long-term government planning is necessary, however,
if inflationary pressures accompanying the expansion of spending during the
construction period are to be controlled, and if resources are to be
developed to cushion the impact of the eventual shift to a sea-level canal.
At the time that operations do shift to a sea-level canal, new
and extensive sources of foreign exchange will be required if a serious
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reduction in GDP and employment is to be avoided. It is estimated that the
drop in net foreign exchange earnings from construction period peaks
could range between US $88 million and US $174 million, depending upon
the location of the sea-level canal.
See Table -9 ). Comparison of
GDP in the first operating year of the sea-level canal with GDP in the
peak construction year indicate even more clearly the severity of the
adjustment required.* It is estimated that the drop in GDP would. range
from US $231 million to US. $294 million, assuming that U. S. military
activities in Panama are maintained at the 1964 level. Should military
activities be terminated with the opening of a sea-level canal, the drop
in GDP would be between US $376 million and US $462 million. In
percentage terms, the decrease in GDP could range between 22 and 39
percent, depending on the route and the military assumption.
The reduction in total employment accompanying a shift
to a sea-level canal could range from 94,000 to 192,000, depending on the
route and military assumption used, or 20 to 38 percent below peak year
employment figures, reflecting approximately the same change as in GDP.
Operation of a sea-level canal would require only a fraction of the workers
currently employed at the existing canal. Conversion at the present site,
for example, would drop Panamanian employment in the Canal Zone from the
The estimates referred to in these paragraphs indicate drops in income
and employment.in the first year of operation of the three sea-level canals
considered, assuming that the changeover took place in one year. The actual
shift probably would occur over a longer period, but the figures illustrate
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current level of 20,000 to somewiat over 7,000;'' if military operations are
continued, and to slightly less than 1.,000 assuming a termination of military
operations.
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 II. Agriculture
jUi
The 1961 census revealed that 70 percent of agricultural producers in
Panama were, at best, only marginally linked to the commercial life of the
country. One-half of these farmers did not enter the commercial market
and the remaining producers realized salesof less than US $100 annually.
Under the "Plan Robles" increased attention has been directed to the
agricultural sector but the implementation of development plans has been
slow. Initial efforts have focused mainly on increasing basic food production
through price support programs,_ and have met with some success. Total
agricultural production increased to US $126 million in 1965 but supplementary
imports of food also rose to almost US $19 million, approximately 10 percent
of total imports.
The most important export crops are bananas, sugar cane, and coffee
(accounting for nearly 50 percent of the total value of registered exports)
and the principal crops grown for domestic consumption are corn, beans, rice,
and tobacco. With the exception of banana production and practices on a
few commercial farms, most of these crops are grown under traditional
methods involving a minimum of modern technology. This has made the
level of agricultural production and the welfare of the individual farmer
highly vulnerable to climatic and other natural changes. Tropical soils,
for example, which are quickly robbed of their mineral content, are not
replenished by chemical fertilizers and irrigated lands constitute only
a small fraction of the total croplands. As the soil is worn out, the
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typical subsistence farmer move,to a new"sction of land which-he clears
using slash-and ;burn techniques.
The lack of transportation, storage, and credit facilities and uncertain
land tenure all have contributed to the perpetuation of these traditional
practices. According to the 1961 census, 90 percent of all farms are
held without clear title. The titling process initiated by the Agrarian
Reform Commission has moved slowly, and has limited the effectiveness
of related government programs of financial and technical aid. The
completion of the cadastral survey, currently in process and scheduled
for completion by the end of 1967, should make it possible for the
government to develop more specific plans for agriculture in the future.
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band
The productivity of Panama's arable lands is severely limited
both by the quality of the soil and the inaccessibility of large portions
of the land. The land tenure system, moreover, is a formidable obstacle
to land improvement. Large land owners often leave parts of their
land idle while subsistence farmers, most of whom lack clear title
to any land, move about practically without restriction and contribute
little to the national economy. Commercial farming thus far has
achieved but a small foothold in Panamanian agriculture.
1. Topography and Climate
Panama is separated into nearly equal parts by the Canal
Zone and is divided longitudinally by two mountain ranges that form
the backbone of the Isthmus. (See map, Figure 1.) The San Blas
Mountains, the low eastern range which continues into Colombia, are
an almost impassable jung7E! of forests and swamps. The higher
western mountain range is an extension of the Costa Rican cordillera.
The slopes of this range are covered by dry tropical forests on the
Pacific side and by wet tropical forests on the Caribbean side.
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The Caribbean coast is very wet, with some areas receiving
more than 150 inches of rain a year, and the average mean temperature is
800.Fahrenheit. Agricultural activity in the Caribbean coastal region
is very limited, confined largely to the northern portion of Bocas del
Toro Province. The rainfall on the Pacific side of the Isthmus averages
less than 70 inches annually. Chiriqui, Herrera, Los Santos, and Cocle
(See Figure
Provinces in this region are the main agricultural areas of the country./ 3)
The rainy season lasts from early May to mid-December.
During this eight month period the relative humidity reaches 80 percent
and there are frequent heavy rains. There are only light showers during
the four-month dry season and the relative humidity is about 60 percent.
Winds from the north-east during the dry season and variable winds
during the rainy season moderate the discomfort of high temperatures and
high humidity.
2. Soil and Land Use
Approximately one-third of the total land area of 7.4 million
hectares is arable. There is a broad strip of rich volcanic soil near
the Costa Rican border, but the greatest part of the cultivatable land
is relatively infertile. The soil is heavily weathered and leached,
moderately acidic, and low in nitrogen and organic material. Erosion
is widespread. Most areas farmed are below 240 meters where the soil
is commonly red-brown and friable.
Panama has a great reservoir of unutilized land.
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in 1961 only 7 percent of the total land area was:use-as cropland and
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percent was used as pasturage./ In western Pe.nama the most productive
land is in the provinces of Cocle, Herrera, Los Santos, and Chiriqui. All
of the sugar and 75 percent of the country's rice, corn, beans, and tobacco
are groon in these provinces. Most of Panama's arable land is east of
the Canal Zone but only one percent of this area is cultivated. Most of
eastern Panama province and all of Darien province are suitable for
agricultural expansion but both areas almost totally lack roads or
other communications links with the rest of the country. (Figure
and in 1960.
4 shows the distribution of cropland /improved pastures/ There probably
has been little significant change in land use since the date of this
information.)
Almost 88 percent of the farms in Panama are cultivated without
the aid of either mechanical or animal power. Animal power is available
on 10 percent of all farms and mechanical power on two percent. Irrigation
also is very limited. In 1962, only 14,000 hectares were irrigated and
commercial banana plantations accounted for nearly half of-this total.
3. Land Ownership
In Panama, the government controls all vacant land and all
of the land that belonged to Colombia at the time of independence. As
a result, 88 to 90 percent of the total land area is owned by the government.
Most of the privately owned land is held in the form of large estates by
Panama's leading families. There are relatively few small farmers holding
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Figure 9
Panama: Estimated Land Use, 1961
100%
82% Forests,
Mountains, Waste
7% Cropland
Cocoa
Sugarcane
Bananas
Beans
Coffee
Other Crops
Total Area: 7.4 million hectares (28,600 sq. mi.)
excluding the Canal Zone
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clear title. to the lands t
ed work 0f.tte 95,000 farms in 1961, only
about 10 percent were held under a clear title. More than half of all
farm units were occupied by squatters and the remainder of about 4+0 percent
were in intermediate ownership categories but without land titles.
Subsistence farms of less than 10 hectares account for only
12 percent of the 1.8 million hectares in farm units, but they constitute
64 percent of the total number of farm units. Medium sized farms of 10
.to 100 hectares account for 16 percent of the land in farms and about
one-third of the total number of farms. The remaining 42 percent of the
land is encompassed by three percent of the farms. (See Figure 10
. Production and Distribution
In 1965, agriculture* provided approximately 20 percent of GDP,
about 60 percent of total registered exports, 4+9 percent of employment,
and 85 percent of the country's food requirements. During the 1960-65
period agricultural output increased at an average annual rate of less than
6 percent, considerably less than the 8 percent average achieved in total
GDP growth. In 1965, however, agricultural production reached US $126
million, an increase of almost 9 percent over the preceding year.
Nevertheless, consumer demand has outpaced production growth
and Panamanian food imports have continued to increase, reaching US $18.6
Including fishing and forestry.
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Figure 10
Panama: Estimated Land Distribution, 1962
III
Percent of Farm Units (cumulative)
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 AmRpl9onec F 26 RpJ?&Ste bf d'~ po3~C r96 :: 0 ~Ob `~Qgc~ct5~~~s~i t
mainly of cereals, fruits, vegetables, meats, dairy products, and eggs,
most of which are supplied by the United States, Canada, and Western
Europe. Panama has almost reached self-sufficiency in the production of
corn and beans and now exports some rice and beef. Its main exports are
bananas, sugar, coffee, cocoa, and shrimp.
1. Crops
a. Domestic
Inasmuch as farming methods have changed little and
average yields have remained static, the size of the crop in Panama
is largely a function of the area under cultivation. Under the Robles
Plan, government interest in the agricultural sector has increased and
production has been encouraged largely through application of financial
incentives. Particular attention has been paid to basic food crops for
domestic consumption, resulting in increases in plantings and
output of these products. The area devoted to corn, rice, beans, and
tobacco and. their levels of production yield are shown in Table
Production of rice and corn, two staples in the diet,
has been encouraged by support prices and loans extended through the
Instituto de Fomento Economico (IFE). Support prices for rice are now
US $6.00 per quintal for first quality, long grained rice; US $5.00 per
quintal for short and medium grained rice; and US $4-1-.50 for the most commonly
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grown varieties of rice, Dina-and'Nilo. Since 1961 rice production has
risen from 97,000 metric tons to 130,000 metric tons.in 1965, an average
annual increase of 7.6 percent., Corn production during the same period
rose from 60,000 metric tons to 83,000 metric tons reflecting a growth
rate of more than 8 percent. The revised support prices for corn
per quintal.
now run between US $3.25 and US $3.75,/ Increased domestic production
of rice and, corn\was reflected during 1965 in an 18 percent decrease in
cereal imports from members of the Organization for Economic Cooperation
and Development (which countries supplied 85 percent of Panama's total
food imports).
Declining bean production in 1964 and 1965 led to
increased government interest and aid to farmers. As a result, the
Instituto de Fomento Economico, the Agrarian Reform Commission, and the
Ministry of Agriculture, Com~mierce and Industry have supplied technical
assistance and fertilizers and, more recently, a system of price supports
was instituted. It is estimated that 1966 bean output will exceed the
previous peak of 7,500 metric tons produced in 1963.. A larger share
of the growing domestic demand for tomatoes, onions,and citrus fruits is
now supplied from domestic sources. During 1965 imports of fruits and
vegetables as a whole decreased by an estimated 25 percent.
Tobacco output has more than doubled since 1961 without
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the backing of government 0rxLce.~pportI
Tobacalera Isimina, S.A. a subsidiary of British-American Tobacco Co.,, and
Tobacalera National, S.A., a Panamanian company, purchase tobacco from
farmers under contract. These companies supply both technical and financial
support to the producers. Imports of tobacco have fallen almost 17'percent
during 1965 and further decreases are expected.
Exports
Bananas, the main agricultural export crop, provided
over 110 percent of total registered export earnings in 1965. Banana
exports have increased from US $18 million in 1960 to well over US $30
million in 1965; moreover, during the first six months of 1966 they reportedly
ran 14 percent higher than the level of sales during the same period in
1965. These increases have been achieved, despite a decrease in the
world price for bananas, by expanding the area planted by more than 50
percent since 1960. Most bananas for export are grown either by the Chiriqui
Land Company (a subsidiary of United Fruit Company) on its two plantations
near the Costa Rican border in Bocas del Toro and Chiriqui provinces or
by private farmers in these areas who are under contract to the Chiriqui
Land Company. (The. area, production, and yield of bananas and the other
major export crops are included in Table 10 ?)
Sugar production has increased more than 90 percent
since 1961 reaching 1,l11,000 metric tons in 1965. At the same time the
value of sugar exports has more than tripled, increasing from US $800,000
V5, 7,; r4
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Panama: Area, Production, and Yields of
Selected Agricutural Products
19660 1963- 1962 1963 19614 1965
Bananas
Area (hectares)
11,200
16,800
13,7
00
16,100 16,600
17,000
Production (thousand stems)12,600
17,800
15,
500
18,100 18,675
19,175
Yield (stem/hectare)
1,125
1, 060
1,1
30
1,125 1,125
1,130
Sugar Cane
Area (hectares)
16,600
16,340
20,0
00
21,850 20,440
25,620
Production (thousand
metric tons)
639
578
6
07
592 785
1,114
Yield (metric ton/hectare
) 38,50
35.35
30
.35
27.05 38.40
43.45
Cocoa
Area (hectares) 7,870
5,615
5,
185 4,200 4,200
4,350
Production (metric tons)
1,525
1,265
1,
175 920 910
960
Yield (metric ton/hectare
) .195
.225
.
225 .220 .215
.220
.Coffee
Area (hectares) 24,700
25,000
26,
200 27,300 26,200
25,600
Production (metric tons) 4,145
4,095
5,
110 4,415 4,520
4,370
Yield (metric ton/hectare) .165
.165
.
195 .160 .170
.170
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Table 10
Panama: Area, Production, and Yields of
Selected Agricultural Products
(continued)
1260 1961 1962 1963 1964 1965
Corn
Area (hectares)
Production (metric tons)
Yield (metric ton/hectare)
Beans
85,500
78,385
.915
77,300
59,510
?770
91,800
75,025
.815
83,100
72,865
.875
94,100
76,910
.815
98,800
83,030
.84o
Area (hectares)
Production (metric tons)
19,100
5,950
19,100
5,275
25,600
6,870
25,300
7,305
19,500
4,86o
14,800
4,165
Yield (metric ton/hectare)
.310
.275
.270
.290'
.250
.280
Rice
Area (hectares)
97,400
88,800
100,400
99,600
103,300
120,800
Production (metric tons)
118,725
97,430
110,445
111,275
112,700
129,535
Yield (metric ton/hectare)
1.20
1.10
1.10
1.10
1.10
1.05
Tobacco
Area (hectares)
695
755
765
1,265
890
1,275
Production ,(metric tons)
610
555
675
1,195
785
1,215
Yield (metric ton/hectare)
.875
.735
.885
.945
?880
.950
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in 1961 to US $2,6 million in 1965. Sugar accounted
for nearly 4 percent of total registered exports in 1965. A11 sugar
for export goes to the United States where Panama has a basic quota of
23,000 metric tons annually for 1966-71. The sugar industry in Panama
is concentrated in Cocle Province where two mills la Estrella, at Nota,
and Santa Rose, at Aguadulce, account for almost all output. The mills
refine cane supplied by 2,500 small farmers and the two larger haciendas
owned by the mills. About half the cane comes from the farmers and the
remainder from the haciendas.
Coffee of poor quality is widely grown by small farmers in
Panama. The level of production has fluctuated between 4,000 and 4,500
metric tons since 1960. Coffee for export, representing about 30 percent
of total production, comes mostly from Chiriqui Province where higher
quality coffee is grown. This coffee, with export earnings of US $1.2
million in 1965, is grown by some 270 small farmers and is processed and
marketed by the Beneficio Central de Cafe. The value of 1965 coffee exports
was almost 2 percent of total registered export earnings.
Cocoa is a minor export, earning only US $21i-0,000 in
1965. Because of low world prices for cocoa in recent years, the area
planted has gradually decreased. Most cocoa for export is grown by the
Chiriqui Land Company.
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Exports of juice concentrates are expected to begin in
1967 from Citricos de Chiriqui, S.A., near avid in Chiriqui Province.
This company, owned by a United States national and representing an
investment of US $9 million, has 450,000 orange trees and 150,000 lemon
trees. Full production will not be realized until after 1970. _ The______
are unknown but
potential export earnings of this company/should be significant.
. 2. Livestock
Cattle population has remained static in recent years,
increasing only from 8+7,000 in 1962 to 8+9,000 in 1965. An estimated
125,000 head were slaughtered during 1965, an increase of 9,000 head
over 1962. Cattle exports have increased, however, from 385 head
valued at US $45,000 in 1961 to 7,361 head valued at US $82+,000 in
196+.
Panama has some potential as a producer and exporter of
beef. Hoof and mouth disease is not a problem and beef therefore can
be exported to the United States; the first shipment of Panamanian beef
to this country was made in June 1966. Pasture lands necessary to
expansion of the cattle industry are available, moreover, and government
interest in this field may lead to the opening of new grazing lands.
The livestock industry is hampered,._ however, by the widespread
use of relatively backward practices in animal husbandry and from the
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season. In an effort
lack of water and supplementary feed during the dry
to upgrade practices and the quality of cattle, the IFE now is providing
technical assistance and credits to the livestock industry but thus far
the availability of funds has been limited.
Panamats dairy industry is not expanding at a sufficient
rate'to meet domestic demand and the market in the Canal Zone. Imports
of dairy products increased by more than 50 percent between 1963 and
1965. The number of milking cows has increased only from 137,000 in 1961
to 139,000 in 1965. An average of 68,000 cows were milked during 1965'
and milk production increased 5 percent to 71.3 million liters. Nearly
75 percent of production was sold as whole milk, 20 percent was consumed on
farms, and 5 percent was used for cheese production. The national average
per cow
production of milk is only three liters a day, with an average fat
content of four percent.
Achievements in other sections of the livestock industry
have been even less impressive. The number of hogs decreased from 214,000
in 1962 to 208, 000 in 196+; estimates of hog population in 1965 indicate
a return to a level barely approximating the 1962 count. The slaughtering
of hogs followed the same pattern failing from 65,000 in 1962 to 51,000
rising
ut / to 75,000 in 1965. Panama does not import or
jr, 1961., but'/---
export hogs. Poultry population declined from 2,489,000 in 1961
to 2,269,000 in 1964, though the trend was
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reversed in 1965 when th6-po~ul' Yb 're iwned to slightly above the 1961
level. Consumer needs are filled mainly by small farmers, but urban
markets now are served to an increasing extent by a few modern commercial
farms -- the Hacienda Fedanque and Hacienda Toledano in Panama City and
and the Industrias de Nota, S.A. in Aguadulce.
Fishing
Shrimp is the most important fishing activity. In 1965
shrimp exports -- all of which went to the United States -- earned US
$8.3 million, an increase of more than 65 percent over the 1960 level of
US $5 million. Shrimp sales during 1965 accounted for 11 percent of
Panama's total registered exports. Future increases are unlikely, however,
as conservation laws limiting the number of shrimp boats on the Pacific
side were recently passed to safeguard the current level of production.
Afchovy fishing for the fishmeal and fish oil industry has
increased in recent years. The growth prospects for this activity have
not been determined. In 1965 the one fish reduction plant in operation,
located near Puerto Caimito and operated by Promarina, S.A., produced
5,669 metric tons of fishmeal, valued at over US $900,000, and 1,1109 metric
tons of fish oil, valued at approximately US $275,000. With the addition
of a new plant on
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Toboguilla Island, expected to be in operation in 1966, it is estimated
that the value of fish reduction operations could exceed US $2 million.
A survey by US/AID suggested that Panama has a potential for
lobster production, but thus far there seems to be little local interest
in developing such an industry.
1+. Forestry
Although one of the most important natural resources in Panama,
exploitation of forests for industrial and export purposes has been negligible.
While it is known that mahogany, cupio (a soft wood), and cativo (suitable
for plywood production) are abundant, large forested areas are unsurveyed.
Wood is the most common local fuel in Panama and over 90 percent of all
tree removals are for this purpose. Industrial wood production is limited
to small amounts of sawnwood, plywood, paper and paperboard, and Panama
still finds it necessary to import to supplement domestic output. Between
1959 and 196+ total exports of forestry products, mostly mahogany, were
valued at only $812,000 while imports during the same period measured
$1,892,000. (See Figure 5 .)
C. Role of Government in Agriculture
At the direction of President Robles, the Panamanian government
in 1963 formulated.a "Program for Economic. and Social Development."
Largely designed to attack problems in the agricultural, sector, one
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of its most importangoals was to increase production to a point where
consumption could be increased while at the same time lessening ?
Panama's dependence upon foreign markets as a source of agricultural
supplies. The plan also looked forward to the eventual discontinuance
of the price support program and the development of greater crop
diversification. The plan stated only general goals and did not
detail specific projects or investment plans. It did, however,
provide for a cadastral survey which is still in progress.
Four government agencies are responsible for agricultural
policy: the Ministry of Agriculture, Industry and Commerce, (MAIC);
the Institute for Economic Development (IFE); the Livestock Institute;`
and the Commission for Agrarian Reform.
1. Ministry of Agriculture
The. Ministry is divided into units that have responsibility
for scientific research, animal and plant sanitation, extension services,
agricultural engineering, zootechnics, adult vocational education, farm
economics, and the development and supervision of cooperatives. In
order'.to maintain closer contact with the farmers and to enlarge its
area of influence, the Ministry has been separated into regional units.
The area of responsibility of the Ministry is very broad, however, and
fulfillment of its functions is handicapped by a lack of trained
administrative and technical personnel. The extension services and
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the agricultural research programs, for exampl-e,, are far too limited to
accomplish even minimum goals. Perhaps most important, the Ministry
does not have a unit which is responsible for broad sectorial planning
and for the coordination and evaluation of the programs of the various
government agencies operating in the agricultural sector.
2. The Institute for Economic Development
The Institute for Economic Development (IFE) has responsibility
in the agricultural sector for promoting agricultural production and for
diversifying output through the introduction of new crops. The IFE determines
and administers the price support programs and controls prices through
the purchase, storage, and sale of selected domestic as well as imported
products. It also grants loans to farmers, stock-breeders, and foodstuffs.
producers and it is responsible for the program to multiply and
distribute improved seed.
The IFE has 15 agricultural credit agencies in the interior
of the country and maintains its headquarters in Panama City. Between
1960 and 1965 the IFE granted US $9,1+27,000 in loans to Panamanian
farmers. During the first five months of 1966 there were 2,000 loans
made for a total of US $1.3 million; more than 98 percent of the loans
were for less than US $5,000. Many loans, however, do not reach low
income farmers because of excessive collateral requirements. There
also has been evidence of regional bias in loan extensions. For
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example, in 1964, the province of Chiriqui produced 24 percent of the
rice crop, but receivgd 55 percent of the total credits granted by the
IFE for rice production. In contrast, VeraSuas province accounted
for 25 percent of the rice crop, but its share of IFE credits was
only 8 percent.
Inadequate funds constitute an important factor limiting
the activities of the IFE. It is an autonomous agency of the government
and receives most of its revenue from its own activities, such as
bond issues and interest payment on loans, and from foreign assistance
loans. The government contribution to IFE averages only 14 percent of
IFE's annual budget.
3. The Livestock Institute
Development and coordination of the livestock export
industry is the major objective of the Livestock Institute. At present,
the work of the Institute is centered on determining and administering
pricing policies. Domestic cattle prices generally are higher than
the prevailing world market price; ten percent of the total value
of livestock exports currently is subsidized.
.The Livestock Institute is supported by the government
from a surcharge levied on the slaughter tax. Only with greater
funds will the Institute be able to introduce the improved breeding
techniques and practices necessary to an enlarged and more competitive
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livestock industry.
4. Agrarian Reform Commission
Established in 1962, the Agrarian Reform Commission is
answerable directly to the President, but is administratively within
the Ministry of Agriculture, Commerce and Industry. Its main efforts
thus far have been concentrated in the areas of titling, leasing, and
distributing lands; the execution of a cadastral survey; and an evaluation
of all natural resources of the country. The rural cadastral survey
is about half completed and the section on the Alanje area (Chiriqui
Province) is now available.
The 1961 census showed that 90 percent of the 95,000 farms in
Panama were held without clear title and that about half of the total
number of farms were occupied by squatters. During the period from
March 1963 through December 1964, almost 11,500 title requests were
received by the Agrarian Reform Commission but only 121 titles were
issued. During 1965, the pace increased to 240 titles issued on the
basis of approximately 11,250 requests. Commission plans for 1966 call
for the processing of 1,900 farm titles. on which perhaps 750 titles will
be issued.
Several factors have contributed to the slowness of the
process of titling lands. Information necessary to the issuing of legal
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titles is not yet fully developed and lack of experience in this field
contributed to bureaucratic bottlenecks in the early stages of the
program. The Agrarian Reform Commission, moreover, continues to be
hampered by limited financial resources; in 1965 only $706,000, or
0.8 percent of the national budget, was earmarked for its activities.
The law authorizes the Commission to issue bonds up to a total of
$50 million and to contract for external credits to the same amount,but
thus far bonds totalling only $2 million have been issued and an AID
loan of. $2.4 million contracted. Another factor contributing to the
lack of progress in establishing land tenure is the tendency of farmers
to establish a prior right to property by submitting a request for titling
without carrying the process to the stage of final issuance of title.
Actual distribution of property through sales by the Agrarian Reform
Commission has been slowed by the requirement of 20 percent of the value
as a downpayment, thereby restricting purchases by farmers with scant
resources.
_5. Foreign Assistance to Agriculture
The United States through the Agency for International
Development (AID) in 1964 extended a loan of US $2.4 million for the
Rural Cadastre and Natural Resources Survey. The study is scheduled for
completion in December 1967 and includes the following sections:
identification of rural- property; maps on present and potential soil
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usage; assessment of irrigation possibilities; socioeconomic surveys
at farm unit levels; and an evaluation of the rural transportation
system.
The United Nations Special Fund has provided US $823,000 for
a study of mineral resources and US $969,000 for a feasibility study of
the La Villa irrigation project. The FAO and the United Nations have
provided US $1.5 million for a forest inventory that will take four
years to complete. Another FAO project to study the improvement of
grasses for pastures, better pasture management, and the introduction
of new haying and ensilage techniques has been undertaken.
The activities of the Institute for Economic Development
(IFE) were aided by a loan of US $2.9 million from the Inter-American
Development Bank in December, 1961, to allow extension of agricultural
credit to small-and medium-scale farmers. This loan was completely
expended and in April 1965 a second loan was granted from-the IDB's
Social Progress Trust Fund. The purpose of this loan is to finance
62.5-percent of the cost of a program to extend short, medium, and
long term loans to 5,700 low-income families for the purchase of
agricultural equipment, fertilizers, insecticides, and cattle.
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III. Industry
The manufacturing sector has increased its contribution to total
GDP from 13 percent in 1960 to 16 percent in 1965, growing at an
average annual rate of 12 percent. Annual growth rates have fluctuated
widely, however, from a high of nearly 23 percent in 1962 to less
than 6 percent in 1964. The sector's growth in 1965 was about
7 percent and in 1966 an increase of 9 percent is expected. (See
Table 11 . )
The industrial sector contributes little to foreign exchange
earnings(refined petroleum products are the only significant industrial
export) and employs only 8 percent of the labor force. The principal
developments in the past five years have been the expansion of
cement -producing facilities, sugar mills, paint processing, steel
and aluminum extrusion plants, and construction of a new citrus
concentration plant, a palm oil extraction facility, and a petroleum
refinery. Panama currently produces practically all of its requirements
for cement, refined petroleum products, steel reinforcing bars, many
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aluminum products, soaps and detergents,,, and some consumer goods. It depends
on imports for automobiles and transportation equipment, industrial and
synthetic organic chemicals, manufactured fertilizers, glass, most textiles,
and a wide variety of consumer items.
Panama's industry is concentrated almost entirely in the immediate
area of the terminal cities of Panama City and Colon. Fully 90% of
industrial capital investment, representing nearly three-quarters of the
nation's establishments, is located in this area. In addition, almost
80 percent of construction in 1965 took place in these cities. Almost
half of Panama's industrial firms have a capital base of less than $1,500
and only 10 percent have more thanY50,000. Many of these small and
often inefficiently operated firms are dependent on tariff and quota
protection for survival.
The structural weaknesses of the industrial sector are compounded
by the limitations of the economy as a whole. The total population of
the country is less than that of metropolitan Houston; the entire urban
population is comparable to Denver. The smallness of the market, which is
aggravated by an inadequate transportation system, limits the size and
variety of domestic industries, most of which are involved in production
for import substitution and are of a light industrial nature. Many firms
are reported to be operating with a considerable margin of unused capacity.
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Thus far, they have been unable to develop markets abroad primarily because
of their non-competitive price position.
The outlook for Panamanian industrial development depends to a
large extent upon three as yet unsettled questions. First, the relationship
of Panama to the Central American Common Market remains unresolved.
Many industrialists favor joining CACM to expand their markets but
various commercial groups of importers and retailers oppose increasing
Panamanian tariff barriers to the CACM level. Second, negotiations on
the new canal treaty are still incomplete and have created uncertainty
as to the future location of the Canal. Third, the outlook for the
stability of the Robles government is uncertain. Private investment,
both foreign and domestic, has been the primary stimulant to the industrial
sector and a slackening of investors' confidence could curtail future
industrial growth.
A. Resources
1. Raw Materials
The agricultural and mineral resources available in Panama
for local. industries remain essentially undeveloped. The most significant
progress made in the past five years has been in the industrial utilization
of a variety of agricultural products apart from traditional rice, coffee,
and milk processing. This includes new vegetable oil facilities, tomatoe
processing plants, and citrus concentration and freezing facilities.
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Exploitation of domestic mineral resources has been confined to satisfying
domestic needs for cement, clay, and salt and to meeting construction
requirements for sand and gravel.
Mineral resources include limited deposits of gold, bauxite,
copper, manganese and lignite, but none are commercially exploited.
Geological surveys of mineral resources were began in 1966 under the auspices
of the United Nations. A survey of this nature previously was conducted
in 1945 and to a small extent in 1956. The $1.3 million survey underway
will investigate the central provinces over a two year period. The
area west of Panama City is being surveyed by ground water geologists
of the CATAPAN team (a consortium of International Engineering Co.,
J.L. Jacobs Co., and International Resources and Geotechnics Inc.).
In addition, a non-metallic resources survey in Herrera Province is
in process.
Numerous investigations also have been undertaken by private
holders of mineral concessions granted by the government. Five petroleum
exploratory concessions are in effect but only one company has announced
drilling plans. Nine exploratory concessions for gold -- including an
off-shore concession to extract gold from beach-sands -- are currently
valid. Exploratory concessions also have been granted covering copper,
manganese, limestone, and iron (magnetite).
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2. Power
The power industry in Panama is a mixed system consisting of
one public agency and several private enterprises. The public entity is
charged with providing power in rural areas and developing Panama's power
resources, while private companies serve urban areas and the Panama
Canal Zone. (Figure 6 shows the respective areas of distribution.)
The value added of Panamanian utilities amounted to $14.6 million in
1965, an increase of 22% from the previous year and 75% more than the
value added in 1960. Total installed capacity in 1965 amounted to
about 174 megawatts (MW), nearly half of which is located in the Canal
Zone. Of the facilities in the Republic, 91% are operated by private
companies with the Compania Panamena de Fuerza y Luz (Panama Power and
Light Company CPFL) accounting for more than three-quarters of private
installed capacity. Production of electricity in Panama City and Colon,
principally generated by CPFL, has increased at an average rate of 15%
per year since 1960. As shown in Table 12 , production has more than
doubled between 1960 and 1965.
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Electricity Production in Panama City and Colon
Est.
22LO
L955
190
1961
962
1 63
1964
1965
1966
Million KWH
85.7
113.7
180.7
206.6
233.9
264.6
292.0
378.2
417.5
Annual increase (%)
--
5.9
9.7
14.3
13.2
13.1
10.4
29.5
l0.4
The cost of electricity in Panama City and Colon is relatively expensive
for Latin America. Commercial rates are 5.50 per kwh, residential 3.60,
and 2.50 per kwh for industrial users.
A statistical summary of the various electric companies is
presented in Table 13 Excluding the Panama Canal Company, which provides
some power outside the Zone, the private utilities are dominated by the
CPF'L, a subsidiary of American and Foreign Power Company. A 1927 contract
grants the company operating rights in perpetuity and virtual exemption
from all Panamanian taxes. Unsuccessful negotiations for a new contract
have been underway for the past two years but presently are suspended
until at least February 1967. The company recently concluded a
power-sharing agreement with the Panama Canal Company.
Another large private system is the Empresas Electricas de
Chiriqui (Chiriqui Electric Company -- EEC) in western Panama. This
system was built by the United Fruit Co. to serve its Chiriqui Land Company
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plantation and the city of avid. The company shares its electric production
with Costa Rica in the Golfito border region. Included. in its system is
the largest hydroelectric facility in Panama outside the Canal Zone. The
balance of the private power systems, such as Hidroelectrica de La Chorrera,
El Valle, and Santiago Electrica S.A,, are small isolated companies.
Table 13
Panamanian Electric Power Companies
Systems
Consumption, 1965
million kwh
Installed capacity 1963
thousand kw
Customers 1963
thousand
Government
Inst. Rec. Hid. y Ele.
(IRHE)
JA.2
7.7 a/
13.1
Private
Panama Canal Company
454+.1
84+.5
n.a.
Cia Pan. Fuerza y Luz
(CPFL)
315.0
63.1
71.4
Emp. Elec. de Chiriqui
(EEC)
24.9.
9.1
8.8
Hidro. La Chorrera
2.5 J
1.3
2.0
Santiago Electrica S.A.
1.8
.7
1.4
'El Valle
n.a.
.2
n.a.
Others
n.a.
7.8
n.a.
a. Data are for 1964.
b. Data are for 1965.
c. Data are for 1963.
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The government has not played a major role in the past
development of Panamanian electrification. It was not until 1961 that
the government established the Instituto de Recursos Hidraulicos
(Institute of Hydraulic Resources and Electrification--
Electrificacion / IRHE) which acquired two former private companies,
La Nacion and Panama Electrica, S.A. The IRHE presently controls
less than 10% of total installed capacity and generates less than 1i% of
total production. Details of IRHE's facilities and services and their
growth are given in Table 1.I-
Table 14
Panama: Operation of the Institute of
Hydraulic Resources and Electrification
1961-65
1961
1962
?963
1964
1965
Installed capacity (MW)
n.a.
5'4
6.3
7.7
n.a.
Consumption (mil. kwh)
8.7
9.9
11.2
12.7
14.2
Residential. (mil. kwh)
(1.8)
(3.0)
(3.7)
(4.2)
(6.0)
Commercial (mil. kwh)
(1.8)
(2.6)
(3.1)
(3.3)
(4.0)
Consumers (thousand)
8.1
9.2
10.3
11.5
12.1
Residential (thousand)
(4.6)
(7.9)
(8.9)
(10.2)
n.a.
Commercial (thousand)
(1.0)
(1.3)
(1.3)
( 1.2)
n.a.
Plants with 24-hr. service
n.a.
4
10
13
n.a.
Towns served
66
73
76
89
92
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In addition to rural electrifcation__the IRHE is charged with
developing new sources of power. Plans for the implementation of the
Bayano, Chiriqui-Chico, and the Santa Maria/projects power
are in varying
degrees of readiness. The principal obstacle to all proposed power
projects has been their financing. A summary of development plans is
presented below_1 Table 15.
Table 15
Panama: Power Facilities Planned or Under Construction
Project Type Capacity Cost
(MW) million Remarks
CPFL San Francisco Thermo-
12.5 $7?4 Operational.
CPFL Ias Minas Bay Thermo-
22.0
CPF'L Las Minas Bay Thermo-
33 0
To be completed late
1966.
$10.0 Feasibility study
completed. No
immediate plans for
IRHE La Yeguada Hydro- 12 0
construction.
? 0 First stage (6,000 kw)
to be completed in
late 1966.
IRHE Las Minas Bay Thermo- 40.0
$7.7 Construction contract
awarded October 1966.
IRHE Bayano Hydro- loo-140 $40-60
Two feasibility studies
IRHE Chiriqui-Chico
completed; bids
solicited for. design
and specifications.
(Paja de Sombrero) Hydro- 30.0
$15-18 Feasibility study
i
(f' t
.IRHE Santa Maria
rs stage) completed.
(Santa Fe) Hydro- 23-60.0 $11-32 Prefeasibility study
planned.
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Panama currently is unable to satisfy requirements for electricity
in urban areas and rural service is still in its early stages of development.
Present estimates of future demand indicate a continuing deficit in the
near future despite Panama's hydroelectric potential of 600 MW. Partially
as a result of this situation, many of the large new industries, such as
the petroleum refinery and the cement factory, have been forced to provide
their own power sources.
The policy of the IRHE with respect to rural electrification
has not been established. At least temporarily, the government has
abondoned its program of modernizing and expanding its network of small
isolated generators and currently favors development of large hydroelectric
generating and distribution facilities. In the meantime, however, IRHE
has secured a small loan from the Banco Nacional to maintain the present
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B. Structure
1. Ownership
Two of every three enterprises in 1965 were individually
owned. (See Table 16 .) Including partnerships, which generally do
not extend beyond members of the same family, this type of ownership is
found in 70% of all manufacturing facilities.' In terms of capitalization,
however, individual ownerships and partnerships represent only 5 percent,
or US $4 million, of total industrial investment. Corporations control
95% of Panama's industrial capitalization, or US $78 million. Corporate
stocks generally are held by family groupings. The number of stockholders
is so small that the country lacks a formal stock commission to control
trading. Stock quotations that are periodically published usually reflect
only the nominal stock value.
The system of closely held and intertwining ownership is
the economic base of Panama's oligarchy. Capitalization from personal and
family resources, limited distribution of ownership, and the small size of
the market has bred personal and sectorial monopolies. Government industrial
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monopolies are limited to the production, distribution, and sale of
salt, and the distribution of alcohol for liquor production.
Foreign ownership is limited to only a small number of large
enterprises requiring heavy capitalization and foreign owners
generally hold only minority interests. Principal foreign owned
firms are the Panama Power and Light Company, the Chiriqui Land
Company (United Fruit Co.), Panama Refinery Incorporated, and most
industrial firms in the Colon Free Zone.
2. Industrial Investment
Sources of industrial investment funds are foreign
capital inflows, domestic bank credit, and re-invested profits. An
aggregate measure of industrial investment is not available, but gross
domestic private investment increased nearly 55% in the 1960-65 period,
averaging 14% of GDP annually. Private investment increased steadily
throughout this period with the exception of 1964 when political unrest
resulted in capital flight. (See Table 17.)
Table 17
Panama:
Gross Domestic Private Investment
Millions of Dollars, 1960 Prices
1960
1961
1962
1963
1964
1965
Inventory
7.0
8.4
10.9
11.1
12.4
16.8
Construction
2T.9
18.6
23.3
32.1
26.6
32.8
Capital goods
21.5
38.8
36.7
36.9
34.o
37.5
Total
56.4
65.8
70.9
80.1
73.0
87.1
Percent GDP
13.5%
14.3%
14.20
14.8%
12.8%
14.2%
Percent capital goods
38.1%
59-0%
51.8%
46.1%
46.6%
43.1%
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Credit for industrial investment from domestic banks has expanded
at an average rate of more than 16% per year since 1960. As a portion of
total bank loans, industrial loans have increased from 9% in 1960-62 to
14% in 1963-65. (See Table 18 ). In 1965, total bank loans expanded
by more than one-third but industrial loans contracted slightly. An
increase in unreported short-term overdrafts used for capital investment
probably offset this decline.
Table 18
Panama:. Total Bank Loans,-1960-65 a
1960 1L61 1962 1963 24 1965
Total loans $100.8 119.1 136.6 122.7 144.6 198.2
Industrial $ 8.7 10.6 12.8 20.1 22.4 21.6
Percent total 8.6% 8.9% 9.4% 16.4% 15.5% 10.9%
a. Totals granted during calendar year.
The low level of bank credit available to small industries
led to the creation in 1963 of the Banco de Desarrollo Industrial (Bank for
Industrial Development -- DISA), initiated with an AID loan of $5.1 million
and a private subscription of $1 million. By mid-1966, DISA had lent $4.2
million to small industries at reasonable interest rates on long term.
More than two-thirds of the loans went to import-substitution industries,
which were credited with.creating more than 1,000 new jobs. An additional
$4.0 million AID loan and another $1 million private subscription will be
available by the end of 1966.
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As. shown in Table 19, foreign capital was an important source
of funds for industry in 1960-62, but has since become of lesser importance.
The principal factor in the early 1960's was the external financing of a
petroleum refinery. Following the political troubles in 1964, the exodus
of short-term capital was nearly three times. the volume of private capital
inflows. By 1965 the net capital outflow had decreased to about $8 million.
Table 19
Panama: Foreign Capital Flow to the Private Sector, 1960-66
Million US
Estimated
1960
10,61
1962'
1,063
1964
1965
1966
Long-term direct
investment
$17.3
36.1
21.7
7.7
3.2
2.2
4.0
Other long-term
investment
-1.8
11.2
3.3
5.11
41.7.
3.0
4.0
Short-term capital,
incl. net errors
and omissions
1.1
-23.1
-10.5
-8.5
-22.6
-13.6
-1.0
Net total*
16.6
17.2
111.5
. )-.6
-1)+.7
-8.11
7.0
Minus indicates outflow.
The two additional sources of capital for industrial
development are stock issues and internal corporate financing. The use of
stock certificates in the open market is very limited. Re-invested
corporate earnings probably are a significant source of capital but
data are not available,on the size of such investments.
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Industrial Labor Force
Since 1960, the industrial labor force has increased at an
annual, rate of about 3 percent. The number of industrial workers in
196. was estimated at approximately 31,000 -- or nearly 8 percent of
the total labor force. Industrial employment ranks fourth in importance
after agriculture, services, and commerce. Data for 196+ shows that
only seven out of every ten industrial workers were employed full time,
while two out of ten were employed part time, and one out of every
ten was either unemployed or an unsalaried family employee.
Although there is a shortage of skilled workers in Panama,
the labor force does compare favorably in skills with most Latin
Americancountries. Vocational training given Panamanians employed in
the Canal Zone as machinists, welders, and lathe operators has been
an important source of skilled workers. Vocational training has been
undertaken to a small degree by private industry and the government.
In 1965 the Institute of Human Resources (IFARHU) was established by the
government to augment the efforts of the Ministry of Labor. Legislation
also has been proposed that would require the private sector to allocate
the equivalent of 10 percent of its gross payroll for labor training.
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As estimated 5 percent of the country's labor force is
organized into labor unions. Half of these union members are located
in urban centers and nearly all represent trade and service organizations.
Industrial unionization is small, and labor organizations generally are
"company" unions, not affiliated with any major labor confederation.
The government's system of selective minimum wages favors the industrial
in industry.
worker and lessens the appeal of unionism-/ At the same time, because
the pool of unemployed workers is large, the job market for unskilled
workers is very competitive. Collective bargaining contracts are
practically non-existent.
C. Manufacturing
.1. Food, Beverages, and Tobacco
Food processing industries are the most numerous of
Panama's manufacturing sector and account for nearly 45 percent of the
total value of manufacturing. The value added of domestic production in
the foodstuff indu~:.ry was $43 million in 1965. (See Table 11.) The
growth of this sector has averaged 9 percent per year since 1960, as
compared with 12 percent for the industrial sector as a whole.
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a. Milk
Milk production in 1965 amounted to 18.8 million gallons,
about half of which was processed by the country's four milk plants.
Production of processed milk in all forms amounted in 1965
.to 6,726 metric tons. The largest and oldest plant, Cia Panamena de
A1ientos Lacteos, S.A. in Nata, produces evaporated, condensed,- and
pasturized milk. Cia. Chiriquana de Leche in Concepcion, produces
powdered milk, and another plant in Panama City produces a wide variety
of dairy products. The fourth plant is located in the Canal Zone. At
the present time, the processing capacity of the milk industry is
considerably in excess of the domestic supply of raw milk.
b. Meat
Panama has numerous abattoirs, but most lack storage
and refrigeration facilities. The largest plant, the Abattoir National
S.A., in Panama City, has a daily capacity of 250 cattle and 150 hogs.
A new $l million abattoir of US design located in L'av d- .opened in
mid-1965. Processing capacity far exceeds the local supply of slaughter
livestock. Value of meat production dropped 37% in 1965 to $600,000 due to
a reduction in available slaughter animals. The value of stock lost by
drought and disease in 1965 exceeded the value of cattle commercially
slaughtered. Poultry is generally sold live to the consumer.
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c. Sea Food
The fishing industry is limited largely to shrimp processing
and fish reduction. Seven major companies process shrimp from Panamanian
waters. The largest, the Panama Cooperative Fish Company, has a $1
million plant with freezing units for 4,000 pounds of shrimp and cold
storage facilities for 100,000 pounds. The shrimping industry, which
employs about 3.000 persons, has led to the expansion of boat building
and repair facilities and the establishment of a new box plant (Corporation
Industrial). A new fishmeal facility on Taboquilla Island, which has an
hourly capacity of 50 tons, began operations in 1966. An older plant with
12 ton per hour capacity is located at Caimanito. Total production in
1965 amounted to 5,670 metric tons of fishmeal and 1,410 metric tons of
fish oil.
d. Cereals
In 1963 Panama opened its first flour mill. Utilizing
imported unmilled wheat, the plant produced 45 million pounds of flour
in 1965. Another mill with a larger capacity will open in 1966 and
will produce, in addition to wheat flour, various specialty flours and
animal feed for both the domestic and export markets. Bread is baked
by numerous small bakeries but two modern bakeries dominate the urban
market. Rice is milled in David by the country's only plant. Several
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companies process domestic rice, corn, and molasses for chicken and cattle
e. Other Foods
Panama's two sugar mills (El Ingenio Ofelina and EL Inge_n,
been
Santa Rosa) have recently/modernized and each now has a capacity of about
3,000 tons of sugarcane per 24-hour day. They produce sugar and molasses
for domestic and export markets. Numerous small mills produce a less
refined sugarcake called Panela. Panama has several canneries processing a
variety of local fruits and vegetables. The processing of tomatoes into
pastes, sauces, juices, and soup has more than doubled in the past five
years to 3,326 metric tons. Citros de Chiriqui, a 10,000 acre citrus
plantation near David, has constructed a plant to concentrate and freeze
citrus fruits for export.
Panama has two edible oil plants that produce margarine
and lard, process copra, peanuts, and sesame, and refine imported crude
soy bean oil. The largest plant, Industria Panama Boston S.A., dominates
the market and produces a variety of other consumer items.
f. Beverages and Tobaccos
Non-alcoholic beverages for domestic consumption are
produced by several soft drink bottlers. Production of alcoholic beverages
increased 7.2% to a total of 32.7 million liters in 1965. Beer accounted
for 90% of Panama's alcoholic beverage production. One of the two beer
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breweries is located in Panama City and represents an investment of more
than $11 million. It is the country's largest single industrial employer.
A variety of fermented drinks are produced by numerous home industries.
Cigarettes are manufactured from blends of local and imported tobaccos by
three factories. Only filter tipped cigarettes are produced, many under
license to US companies. Output in 1965 totaled 817 million pieces.
Approximately 72 million pieces are smuggled annually into the country.
2. Footwear and Clothing
The footwear and clothing industry has grown slowly at an
annual rate of 2.5 percent. Producers are generally small and inefficient,
employing antiquated machinery. Panama does not produce textile fabrics,
but a $8.7 million textile factory in the Colon Free Zone is scheduled
for completion in early 1967. This plant will produce 2,500 metric
tons of cotton fabrics per year. Its product will be exported and
used domestically. In the planning stage is a smaller textile factory
representing an investment of $1.6 million. Raw cotton will be imported
by both plants until domestic production is capable of meeting demand.
Clothing manufacture is primarily a cottage industry; in 1960
there were 7,400 home establishments making clothing. An exception is the
shirt making industry which operates under license from large U.S. firms,
including Manhattan, Van Huesen, and MacGregor.
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Footwear production in Panama, utilizing imported plastics
and local leathers, is sufficient to satisfy the low-priced domestic market.
Output in 196+ was estimated at 900,000 pairs. In Panama City there are
about thirty manu -tcturing shops.
3. Metal Products
The metal products industry has grown at an average annual
rate of 35 percent since 1960 and its value-added output in 1965 was equal
to10 percent of total industrial output. The metal products industry in
Panama consists of two iron and steel rolling mills, an aluminum extrusion
1plant, and numerous small shops producing metallic consumer durables.
Production of iron and steel is confined to one 10,000
ton capacity steel rolling mill owned by Acero Panama S.A. Apart
from a small amount of local scrap iron, all steel bars, plates, and
ingots used by the plant are imported. The principal product, steel
reinforcing rods for the construction industry, meets the requirements
of the domestic market. Some small shapes as well as barbed wire, stables,
and cyclone fencing also are produced. A second steel plant, Productora
de Acero y Afines Asocida S.A., is to initiate operations by early 1967.
Production capacity of this plant will approximate 100,000 tons annually,
or ten times the country's present level. The company plans to export most
of its output to Jamacia and Central America.
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Other domestic users of iron and steel products are small
companies producing prefabricated components for the boat building industry,
and home repair items. A new company manufactures metal furniture, files,
and cabinets.
Panama's single aluminum extrusion plant, Aluminio de Panama
S.A., produces aluminum tubing, conduit pipes, frames, jalousies, panels,
and roofing materials from imported ingots and billets. In 1965 the
company installed an aluminum anodizing facility. Several firms
manufacture aluminum products, such as cylinders for bottled gas, valves,
and bottle caps.
.4. Nonmetallic Products
The value-added of the nonmetallic products industry is equal
.to 7 percent of total industrial output. Panamanian industries based on
minerals
nonmetallic/include two cement plants, one clay plant, sand and gravel
operations, and one glass factory. Portland cement production increased
by one-third in 1965 to 165,325 metric tons. The producer, Cemento Panama
S.A., has a capacity of 630 tons per day and plans to nearly double its
capacity in 1967. Limestone is procured locally but gypsum and anthracite
are imported. In addition to cement, the plant produces asbestos cement
sheets (Panalit) for floors and roofing, using Canadian asbestos, and an
insulating material (Fibrolit) made from shredded wood and cement. A
second cement plant, Cemento Atlantico S.A. will initiate operations
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in the fall of 1966. Capacity will be 600 tons per day, part of which will
be exported. A satellite industry, Concreto S.A., produces concrete pipes,
forms,. and ready mixed construction concrete.
The principal clay products manufacturer, Cia. de Productos
de Arcilla S.A., produces structural clay products, sanitary wear, glazed
wall tile, ceramic floor tiles, and other vitreous products. Clay and shale
are extracted locally while kaolin, pyrophyllite, and talc are imported.
In addition, there are numerous small brick and tile producers throughout
the country. Sand and gravel production for the local construction
industry is undertaken by both the government and private firms. During
1965 approximately 200,000 cubic yards were produced.
Approximately 11,000 metric tons of salt were produced by
the Panamanian government in 1965. Salt is recovered from sea water by
natural evaporation. Specialized salts such as iodized salt and rock salt
are imported. Panama also has one crystal manufacturer producing multi-
colored murano glassware.
5. Refining
Panama's largest single industrial establishment, representing
an investment of $30 million, is the oil refinery, Refineria Panama S.A.
The value-added of petroleum products in 1965 amounted to $6.9 million or
7 percent of Panama's manufacturing output. Initiating operations in 1962,
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the facility has a production capacity o
^- rrels a day, utilizing
imported crude oil from Venezuela and Colombia. In 1965 the company
processed 16.9 million barrels (}+2 gallon size), an increase of nearly
10 over 1963, the. first full year of operation.
Ownership at present is exclusively by U.S. interests but
British interests are to acquire a one-third ownership by 1969. Employees
number 365 of which more than 90 percent are Panamanians. The Company was
granted a 25 year period of liberal tax benefits. Import duties on crude
oil in 1965 totaled only $169,000, or 10 per 12 gallon barrel. Some
refined products such as lubricating oils, propane, aviation gasoline, and
some fuel oils continue to be imported.
Other Industries
Panama produces a narrow range of chemical products and relies
on foreign suppliers for industrial and synthetic organic chemicals. One
local firm produces oxygen, nitrogen, acelytene for welding, and carbon
dioxide for use by the beverage plants. Discussions are under way to
establish a small basic chemical plant to produce chlorine, sulfuric acid,
and aluminum sulphate. Two U.S. subsidiaries, using imported raw materials,
supply about one-third of Panama's requirements for paints and varnishes.
Imported plastic materials supply the small plastic industry which has
facilities for injection molding, extrusion of PVC pipe, blow molding,
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polyethylene tubing, and plastic laminates. The small pharmaceutical industry
is limited to mixing operations. All chemical fertilizers must be imported.
Panama has at least 36 saw mills but only those near Panana
City are of commercial significance.. The largest saw mill, Plywood de Panama,
S.A., produces plywood, veneers, and railroad ties. A small-plant processes
mangrove bark for tanneries. There are no paper mills in Panama, although
several paper converting plants manufacture cardboard and paper containers,
stationery, wax paper, sanitary tissue, and paper cups. The rubber industry
is limited to several tire recapping shops.
7. Home Industries
The poor distribution system of commercially produced consumer
goods has fostered a large number of small (x).ttage industries in rural
areas. In 1960 approximately 15,000 homes sold some type of product
in their immediate area. These goods generally are manufactured by members
of the family and involve no capital equipment. Figure 7 shows the number
of cottage industries by type of output. Nearly 90% produced some form of
food, beverage;, or clothing. Other cottage industries produced crude
furniture, soap, pottery, and metal goods.
Figure 7 shows the percentage of cottage industries by province. Panama
Province, where most of the nation's commercial industrial firms are
located, ranks near the bottom in number of cottage industries.
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D. Construction
The construction industry in Panama consists of many small
operators and a few large enterprises complete with their own engineering,
transportation, and equipment facilities. In addition, foreign firms
frequently are contracted to complete major foreign-financed public works
projects.
After declining in 1964 as a result of political difficulties,
the construction industry expanded by 16.4% in 1965 and contributed nearly
$33 million to GDP. As shown below, the value added of construction activities
(Millions U.S. dollars, 1960 prices)
1960
161
1962
163
1.` 64
1965
1966 (Est)
Yotal Value Added
$22.9
26.4
27.2
30.4
28.1
32.7
35.3
Percent of GDP
5.5%
5.8
5.5
5.6
4.9
5.3
5.3
Percent change
--
-15.3%
+3,0
+11.8
-7.6
+16.4
+8.0
in 1965, as a percent of GDP, was slightly less than it was in 1960-63.
The government has encouraged private sector investment by enacting
in 1960 a law granting real estate tax exemptions for five year on new
contruction. The value of building permits issued in 1965 for private
construction showed an increase of 9.3% from the previous year. The
value of new construction in 1966 is expected to surpass the record year of
1963. Seventeen of every twenty permits issued is for construction in Panama City.
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 41
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This
.i r w E.+s9 ..
/ratio has not changed significantly sin.ce 1960. Only one--tenth of all
permits issued in 1965 were for non-residential construction, amounting
to 23% of the total value. In David, however, nearly 4+0% of new
construction (by permit value) was for non-residence structures.
E. Dependence on Foreign Suppliers
Panama is dependent upon foreign suppliers for a significant
portion of its industrial raw materials and finished consumer and capital
goods. Panamanian statistics on imports do not normally distinguish between
raw materials and finished goods. The latest detailed statistics for imports
are given in Table 20 for 1963.
Imports in 1963 classified as raw materials represent less than
30 percent of total imports. acluding imports of crude petroleum, raw
material imports totalled only $14 million, or 11 percent of total imports.
The most important are wheat, tobacco, metals, and chemicals. The limited
size of raw material imports, coupled with the paucity of domestic raw
materials and the high level of finished goods imports, is indicative of
Panama's small industrial base.
The consumer preferences of 5,000 U.S. residents in Panama,
12,000 U.S. citizens plus military forces in the Canal Zone, and foreign
tourists have exerted an important influence on imports of consumer goods.
Panama's dependence on foreign suppliers also is evident in the commercial
sector. In 1965 nearly 600 firms specialized in import-export operations,
95
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Panama: 1963 Imports by Industrial Classification
Million US
Classification
Raw
Finished
Total
Food, beverage, tobacco
4.2
13.2
17.4
Footwear and clothing
1.5
18.6
20.1
Furniture and fittings
--
.8
.8
Wood and lumber products
.4
.3.
.7
heather products
neg.
.4
.4
Chemicals
2.3
12.9
15.2
Non-metals
.1
4.2
4.3
Rubber
.1
2.7
2.8.
Paper products
neg.
8.6
8.6
Petroleum products
33.0
4.6
37.7
Metal products
5.6
8.1
13.7
Machinery and transport
--
31.3
31.3
Others
.1
22
10.0
Total
47.4
115.6
163.0
a. Totals may not add due to rounding.
b. Includes manufactured goods that require additional processing.
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the second largest group after grocery stores. Their combined capitalization
of $11 million is second among all commercial groups.
F. Role of Government in Industry
The government of Panama has limited its activities in the
industrial sector to the encouragement of private investors and the
protection of infant industries. The only direct government involvement
in industry is in salt and alcohol production and in the extraction of sand
and gravel for its own use.
Legislation establishing the Industrial Development Law was
enacted in 1957 and has been responsible for the initial impetus to
industrialization. The law grants liberal duty and tax benefits in regard to
the investment and profits of qualified industrial enterprises. Under this
law, for example, the petroleum refinery was granted exemptions from most
taxes for a period of 25 years.
An import quota system to protect local manufacturing firms
dates from 1962 and now covers more than 125 items. A special commission
composed of government and private representatives operates under the
Office of Price Control and is authorized to establish, revise, and rescind
import quotas for any specific item. Typical restricted items include
food and beverages, leather products, garments and apparel, barbed wire
and steel products, and soaps and detergents.
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Three private institutions supplement the efforts of the
government in fostering industrial growth. Financed largely by foreign
aid, the Panamanian Development Institute (InPaDe) offers technical
assistance to industry as a complement to the relatively ineffectual
government Industrial Development and Productivity Center (IDPC). A
private group has established with AID funds the Industrial Development
Bank (Banco de Desarrollo Industrial-- DISA) to provide credit for industrial
expansion. The National Council of Private Enterprise (CONED) also sponsors
a variety of industrial development programs.
98 - .
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IV. Fiscal and Monetary Structure
The use of the U.S. dollar as legal tender has imposed a sufficient
degree of fiscal and monetary discipline on the Panamanian economy to permit
be
the rapid rate of growth since 1960 to/achieved without serious inflationary
pressures.
Ordinary budget expenditures of the central government, which include
some investment,, exceeded revenues by 7 percent cumulatively from 1960
through 196+ but in 1965 a small surplus was achieved. A consolidated
current account budget for the entire public sector, however, shows a
considerable surplus for the period. This surplus together with domestic
and foreign borrowing has been used by the government to finance its
public investment program.
Domestic and foreign borrowing have greatly increased debt servicing
requirements -- equal to 14 percent of ordinary expenditures in 1965. If
rising tax revenues resulting from new legislation and improved tax
administration are not dissipated on additional operating expenditures,
these debt service payments should not seriously limit the ability of
the central government to expand moderately its public investment programs.
Very little control is exercised by the central government over the
banking, system. The rate of credit expansion, which averaged 12 percent
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per year, during 1961-65, is largely dictated by the size of deposits and
the practices of individual foreign-owned banks.
A. Public Finance
Total expenditures of the public sector, including current operating
expenditures and public investment, average about 25 percent of gross
domestic product (GDP) annually. The public sector consists of the
central government, about 20 autonomous agencies of the central government,
and the municipal governments. Of total expenditures by the public sector,
about 67 percent is accounted for by the central government, 30 percent
by the autonomous agencies, and the remaining 3 percent by the municipal
governments.
Central government revenues, which are derived almost entirely
4
from taxes, account for about 75 percent of total revenues of the public
sector. Revenues of the autonomous agencies and the municipalities, which
account for 25 percent of total revenues, are derived from social
security contributions, the sale of goods and services, interest on
loans, local license taxes, and grants from the U.S. government.
In recent years, the public sector as a whole has produced
significant budget surpluses in its current accounts. These surpluses,
together with borrowing from foreign and domestic sources, have been used
to finance public investment programs. Total public investment and the
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sources of its financing for the years 196-1-65 are shown in Table 21
As a result both of a 196+ tax reform which increased revenues
and other current revenues, and(2) an extraordinary budget for investment
expenditures financed with long-term borrowing. In practice, however, the
ordinary budget, prepared annually on a calendar year basis, includes
some investment expenditures and part of the ordinary budget is financed
by long-term borrowing when short-term floating debts are refunded. An
extraordinary budget as such does not exist as expenditures,are authorized
separately in a series of projects. Moreover, not all extraordinary
expenditures are used for investment purposes.
The ordinary budget is prepared by the Budget Office, which
is subordinate to the Office of the President of the Republic, and submitted
to the Cabinet. The budget approved by the Cabinet is submitted to the
from income taxes and of efforts to trim current operating expenditures,
current account surplus of the
the share of public investment financed by the/public sector rose
from 37 percent during 1961-64 to 60 percent
sharply/in 1965. If pressures for increased operating expenditures can
be controlled, rising tax revenues should permit the government to continue
to expand public sector investment expenditures.
1. Central Government Budgets
In theory the central government of Panama has two budgets:
(1) an ordinary budget for noninvestmen.t expenditures financed with taxes
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National Assembly in October. The budget passed by the National Assembly is
sent to the President for his. signature or rejection. If a budget has not
been signed into law by the end of the year, the previous year's budget
remains in force.
The Comptroller General, who is responsible to the National
Assembly, has preaudit and postaudit control of expenditures; including
expenditures of autonomous agencies and municipalities. The. Comptroller
General also may reduce budget expenditures in the event of insufficient
funds.
a. Ordinary Budget Revenues
Tax revenues account for nearly 80 percent of total
ordinary revenues of the central government, with revenues from the
operation of public services and state enterprises providing the
remainder. As shown in the following tabulation, tax revenues as a
percent of GDP increased in 1962 and again in.1965. The increase in
Tax Revenues as a Percent of GDP
1960
11.1
1961
10.9
1962
11.6
1963
11.0
196+
11.1
1965
11.8
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 Approved For Release 0 Q/ i6 : C _ 9T01049AO03300150001-8
1962 resulted from a rise in income tax rates, the benefits of which
were short-lived apparently because of ineffective administration. The
increase of tax revenues in 1965 followed the 1964 overhaul of tax rates
and tax administration.
As a source of revenue, consumption taxes have shown the
greatest growth in recent years, increasing from 9 percent of total tax
revenues in 1960 to 15 percent in 1965. As a result of increased rates
and improved administration, income tax revenues have shown the second
greatest rate of growth. In 1965, income tax revenues accounted for 26
percent of total tax revenues as compared with 18 percent in 1960. Revenues
import
from/taxes have declined in importance from 34 percent of total tax revenues
in 1960 to 22 percent in 1965. This change has been the result of an
increasing number of exemptions on imports of industrial raw materials
and equipment. (Ordinary revenues of the central government for the years
1960-65 are shown in Table 22 .) If current efforts to improve the
administration and collection of taxes are sustained, tax revenues should
show a greater degree of responsiveness to changes in GDP. In the first
nine months of 1966, tax revenues were 18 percent greater than in the
corresponding period in 1965, whereas ordinary expenditures increased 13
percent.
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b. Ordinary Budget Expenditures
The largest categories of expenditures in the ordinary
(See Table 23)
budget are for education and for labor, social welfare, and public health.
Ordinary expenditures expanded sharply during 1961-65 as a result of increases
in wages and pensions and other remuneration of government employees and
from increased public investment expenditures. The excess of expenditures
over revenues in the ordinary budget up to 1965 was financed by long term
borrowing when short term floating debts were refunded.
The rapid growth of expenditures for debt services,
which increased from 7 percent to 14 percent of total ordinary expenditures
between 1960 and 1965, reflects the use of long-term borrowing to finance
a considerable share of public investment as well as the deficit in the
ordinary budget.
2. Public Debt
The cumulative deficit of the public sector resulting
from public investment and from deficits in the ordinary budget has been
financed by net increases in outstanding debt. Of total outstanding
debt in 1965, 53 percent is accounted for by external funded debt
36 percent by internal funded debt, and 11 percent by
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floating debt Daring 1961-65, the proportion of debt owed to external
creditors increased in relation to both internal funded and floating
debt. International lending agencies recently have expresses) concern over
Panama's ability to support further increases in foreign debt. The
principal foreign creditors are agencies of the U.S. government, the
International Bank for Reconstruction and Development, the Inter-American
Development Bank, and private bond holders. The outstanding debt of the
central government for the years 1960-65 is shown in Table 24
Prior to 1965, the tax revenue system was not sufficiently
elastic to keep pace either with the growth of GDP or with the growth
of operating expenditures. The chronic deficit in the ordinary budget
produced an increase in unpaid commitments for goods and services and
other floating debt that was reduced only by recourse to periodic
conversions into external and internal funded debt. The successive bond
issues resulting both from conversion of the floating debt and from the
direct long term domestic financing of public investment led to a saturation
of the bond.market, to increasing discounts on bond prices, and to increased
difficulty in domestic financing of public investment. In 1965, however,
the effects of the 196+ tax reform together with a firm government policy
to avoid a deficit in the ordinary budget increased the amount of revenue
available for public investment and enabled the government to limit domestic
bond issues to an amount that could be readily absorbed by the market.
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B.; Money and Banking
1. Financial Institutions
a. Banks
The' banking system consists of two state-owned banks,
a dozen or so subsidiaries of privately-owned foreign banks, a small
number of locally-owned banks, and their branches. Panama has no
central bank but the state-owned National Bank of Panama functions as
the official depository and fiscal agent of the government in addition
to its commercial operations. The second state-owned bank is the Savings
Bank which grants loans on real estate and other tangible property.
The privately-owned foreign banks, most of which are
U.S. owned, do most of the commercial banking business in Panama. As
a result of the country's economic growth and the lack of difficulties
with currency conversion, the number of foreign-owned banks in Panama
has been increasing in recent years.
The banking system has played an important role in
Panama's economic growth by providing a strong uninterrupted expansion
of domestic loans. Reflecting the expansion of loans, deposits also
have grown rapidly, suffering only a temporary setback as a result of
political disturbances in early 1964. Total deposits and loans of the
banking system for the years 1960-65 are shown in Table 25
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As a result of Panama's use of the U.S. dollar as its
legal tender, and the use of numbered accounts patterned on Swiss banking
laws, sizeable deposits by foreign nationals are held by the Panamanian
banking system. A considerable share of these deposits are reinvested
in other countries but, by adding to the reserves of Panamanian banks, they
have.aided in Panamanian economic expansion. On the other hand, deposits
by nonresidents are especially vulnerable to political disturbances.
For example, the 1964 decline in total deposits was caused by the
sudden withdrawal of about one-third of the deposits of nonresidents
following the riots in early 1964.
b. Other Credit Institutions.
In addition to commercial banks, Panama has a variety
of other credit institutions, including a half dozen or so autonomous
agencies of the government that grant loans for specific purposes and
forty-odd small savings and loan institutions that grant small loans to
their members. The most important of the autonomous government agencies
is the Social Security Institute (CSS) which is authorized to purchase
government bonds and to grant loans to industry and for housing up to
10 percent of its assets. Other autonomous agencies include the Institute
of Economic Development (IFE) which together with its subsidiary, the Industrial
Development Center, grants small loans to agriculture and industry; the
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m t+'a dv.l'd
Housing and Urbanization Institute (IVU) which grants loans for construction
of inexpensive housing; and the People's Credit Bank, which offers
consumer loans to low income groups. Incept for the CSS, most of -these
autonomous agencies rely on foreign loans and subsidies from the central
government.
2. Trends in Money and Credit
a. Monte
Panama has no bank of issue and the Panamanian unit of
currency, the balboa, exists only in the form of silver and subsidiary
coins. The U.S. dollar has the status of legal tender and circulates
freely in the country on the basis of a 1904 monetary agreement with
the United States. The agreement limits the issue of balboa coins to
the equivalent of $1.5 million, while the constitution explicitly forbids
the issuance of paper currency. No records of the amount of U.S.
currency in circulation are available.
b. Credit
During 1961-65, domestic credit extended to the private
sector expanded sharply, averaging almost 12 percent annually. This
by
expansion of credit was supported/both domestic deposits and deposits of
foreign nationals. A large drain on banking resources caused by the
withdrawal of deposits of foreign national following the 1964 political
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disturbances was made up by external borrowing by the banks and by their
use of foreign and domestic reserves, thus enabling banks to continue
credit expansion in that year. _
The sharp increase of bank credit in 1965 and the first
half of 1966, however, reduced the liquidity position of the banking system.
By mid-1966, banks were forced to raise interest changes to the full statutory
maximum of 7 percent, to reduce loan maturities, and to become increasingly
selective in extending credit. In turn, the tightness of credit produced
upward pressure on interest rates paid on deposits, bringing them up to
the legal maximum, which for most types of savings deposits is 3 percent.
The present tightness of credit will be eased if deposits continue to
grow, but the pace of credit expansion probably will be below that of
1965-66. Deposits and loans of the banking system for the years 1960-65
are shown in Table 25.
The National Assembly recently has considered raising
the 7 percent interest change on loans but
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no action yet has been taken. In November 1966 the N!.tional Assembly
enacted legislation establishing a new national banking commission to
regulate banking operations but retaining the power to set interest
rates as a prerogative of the Assembly.
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V. Trans ortation
A. Highways
The highway network in Panama shown cin the map, Figure 8)
is the most important transportation system in the country. The main
arteries are the Inter-American Highway, which runs between Panama City
and the Costa Rican border, and the Trans-Isthmian Highway between Panama
City and Colon. A section of'the inter-American Highway is still under
construction in Panama, but it is scheduled to be completed in August
1967. Survey work is under way on the projected Pan-American Highway
from Panama City to the border of Colombia.
In 1964 there were 3,875 miles of roads in Panama. Of this total,
337 miles were concrete, 367 were asphalt, 779 miles were gravel, and
2,392 were dirt. Most of the roads require extensive maintenance because
of heavy rainfall and high temperatures. Dirt roads are essentially
dry-weather roads, and more than two-thirds of all dirt roads must
be rebuilt annually.
The number of vehicles registered in Panama is given in Table 26
Of the nearly 37,000 vehicles registered in 1964, about 65 percent were
in the city and province of Panama, 11 percent were in Chiriqui Province,
and 8 percent were in the city and province of Colon.
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Table 26
Panama: Number of Vehicles*
1964-65
Tne
1964
Estimated
1965
Passenger cars
27,259
30,000
Trucks
7,463
8,200
Buses
2,038
2,200
105
120
Others
Total
36,865
40,520
Excludes vehicles registered in the Canal Zone and
vehicles under special registration.
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There are three small railroads in Panama, with a total of 157
route miles of track, operating in three separate areas -- the Canal Zone,
northwestern Panama, and southwestern Panama (sec.' the map, Figure 8).
The-Panama Railroad, owned by the Panama Canal Company, has 48 route
City
miles of 5-foot gauge track between Panama/and Colon. From July 1963
through June 1964 this line transported 600,000 passengers and hauled
183,000 tons of freight across the Isthmus. The Chiriqui National
Railroad (Ferrocarril National de Chiriqui), owned by the Panamanian
government, has 71 route miles of 3-foot gauge track. Its main route
is from avid to Puerto Armuelles, a deepwater port on the Pacific coast.
The Chiriqui Land Company, Bocas Division, operates 38 routes miles of
3-foot gauge track in northwestern Panama. This line connects
plantations in the interior to the Caribbean port of Almirante.
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C. Merchant Marine
On the basis of deadweight tonnage, Panama has the eighth largest
merchant fleet registered for international trade. At the end of 1965,
564 ships of 1,000 gross tons or larger were under Panamanian registry
with an aggregate weight of 4,653,000 gross register tons or 7,228,000
deadweight tons. Of these ships, 351 were freighters, 3.51 tankers, 35
bulk carriers., 18 combination passenger and cargo carriers, and 9
.refrigerated freighters. This large merchant fleet is the product of
liberal registry and tax laws that attract shipowners to use Panama as
a flag-of-convenience.
The government of Panama derives about $1.5 million annually from
Panama-flag ships in the form of consular and registry fees and ship
tonnage tax. (These revenues reportedly would be higher if the corrupt
practices of Panamanian 6onsuls abroad were corrected) In addition
to these direct revenues, the economy benefits from attorney fees for the
incorporation of Panama ship-owning companies and legal work involved
in the purchase, registration, and mortgaging of Panama-flag ships.
The merchant fleet is not an important source of employment for
Panamanian nationals.
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Panama's domestic trade fleet is composed of about 100 merchant ships
of from 100 to less than 1,000 gross tons that are engaged in local and
intercoastal trade. Most of these ships operate out of Panama, Colon,
Puerto Armuelles, and Bocas del Toro. There also are some 200 shrimp
boats operating out of Panamanian ports.
D. Civil Aviation
The Panamanian government does not own or operate any civil airline.
It controls and regulates civil aviation through the Department of Civil
Aeronautics in the Ministry of Government and Justice. Major air carriers
such as KIM, Pan Am, Braniff, Viasa, LAN-Chile, Varig, and Aviancia provide
international air service from Tocumen National airfield to most other
nations in the Western Hemisphere and Europe. Scheduled Panamanian
air carriers are Panama Aeronautica, S.A., Com nia Panemena de Aviacion,
S.A. (COPA), and Aerovias Panama Airways (AP)k). Panama Aeronautica, reportedly
partly owned by U.S. interests, operates a scheduled air service to
Miami using a DC-7B, its only aircraft. COPA provides domestic service
from Panama to David, Puerto Armuelles, Changuinola, and Bocos del Toro,
and one international flight to San Jose, Costa Rica. Its aircraft consist'
of two DC-3's, two C-46's, and one Martin 404. Pan Am holds a 33 percent
interest in COPA and Panamanian interests the remainder. The
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Panamanian air carrier, APA, currently is in serious financial trouble.
In August 1966, Braniff made a proposal to take over APA's routes, with
the
Braniff supplying 40 percent of the capital and/remainder to be raised
by stock sales to the public. APAts routes had included flights to
Miami, Guayaquil, Barranquilla, Bogota, Maracaibo, Caracas, and Lima.
In addition to these scheduled air carriers, there are ten or
more Panamanian companies engaged in charter and nonscheduled air
passenger and cargo service. Some of these companies,as well as other
private aircraft,are believed to engage in illegal shipments of
cargo to neighboring countries.
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x.:a
VI. Communications
A. Role of Government and Adequacy of Communications Services
All newspapers and radio and television stations in Panama are
privately owned. Frequency authorizations for radio and television stations
are granted by the National Radio Commission, which is subordinate to the
General Administration of Post Offices and Telecommunications, Ministry
of Government and Justice. Very limited telephone and telegraph service
is provided by the General Administration of Post Offices and Telecommunications
to isolated communities. All other domestic and international telephone
and telegraph facilities and services are operated by private companies
under concessions granted by the government. Rates for these services
reportedly are not set or regulated by the government.
Newspapers, radio, and television are important political vehicles
in Panama, and communications concessions apparently have been used as a
, source of political patronage. Nevertheless, communications services
are well developed and
adequate to meet the needs of the nation. Panama's domestic and
international telephone service is one of the most modern in Latin
America and can be expanded to meet future needs.
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Isolated communities in Panama are poorly served by telephone and
telegraph facilities, but service probably is sufficient for the
level of demand. Radio broadcasting coverage blankets the country
. but weak licensing controls have permitted an excessive number of fly-
by-night stations. Television service is less extensive but better
organized and probably more than adequate for the size of the potential
listening audience, which is restricted by the cost of receivers and
by the availability of electric power.
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B. Radio and Television Service
.More than adequate radio broadcasting coverage of Panama is provided
by about 90 privately owned radio stations.* Most of these stations
are concentrated around the urban areas of Panama City (145 stations), Colon
(15 stations), David (7 stations), Chitre (5 stations), and La Chorrera
(3 stations). The most important radio networks are: Onda Popular (9
stations), Circuito RPC (8 stations), Radio Mia (7 stations), and Radio
both
Aeropuerto (5 stations). 0nda Popular and Circuito RPC/are owned by Fernando
Eleta, the Foreign Minister of Panama and a member of the National Patriotic
Coalition, and Carlos Eleta, also a member of the National Patriotic
Coalition. Radio Mia is owned by Ramon Pereira, a member of the National
Reformist Party, and Radio Aeropuerto is owned by Jacobo Salas, Jr., a
member of the Panamenista Party. As these political affiliations would
suggest, radio is an important medium for political propaganda. In 1965
there were an estimated 500,000 radio receivers in Panama. This figure
probably is inflated but it indicates, nevertheless, that the ratio of radio
receivers to population is high.
The following tabulation gives the number of hours weekly of short-wave
Spanish language broadcasts beamed to Latin America by Communist countries
An unknown number of these stations are not active. Excluded from this
figure are two radio stations in the Canal Zone operated by the U.S. Armed
Forces Radio and Television Service.
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in 1966:
Hours Week3~y
Country of Origin
155 Cuba
49 USSR
35 Communist China
25 Czechoslovakia
17 Poland
14 North Korea
12 Hungary
10 Yugoslavia
Not all of these broadcasts can be received in Panama, but a significant
portion probably is audible. The number of radio receivers equipped to
receive short-wave broadcasts is unknown but reportedly is high.
As shown in Table 27, there are two television networks and one independent
television station in Panama broadcasting on seven channels. These
stations provide adequate coverage to all the heavily populated areas
of the country. The number of television receivers.: in 1965 was estimated
at 100,000.
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Table 27
Panama: Television Networks and Stations*
1966
RPC-TV (Corporation
Panamena. de
Radiodifusion, S.A.)*
Channel
4-
(HOHM-TV)
Las Ctunbres (near Panama City)
Channel
6
(HOH4-TV)
Alto Quiel (near Boquete)
Channel
7
(HOF34-TV)
Cerro Italia (near Sona)
Channel
12
(HOHM-TV)
El Valle de Anton (in Cocle Province)
Televisora National (Televisorra Nacional, S.A.)***
Channel
2
(HOU34-TV)
Cerro Azul (near Panama City)
Channel
6
(HP5C-TV)
Cerro Bohio (Code Province)
Te le -Baru-x-X
Channel 10 (HOU31-TV)
Cerro Canaa Cruz (near David)
* Not included are two television stations in the Canal Zone, one at Fort
Clayton and the other at Fort Davis.
Studios are at Avenida 11 and Calle 28 No. 10, Panama City. This
corporation is owned by Carlos and Fernando Eleta, who also control the
radio networks Circuito RPC and Onda Popular.
* Network studios are in Panama City. Officers of Televisora Nacional
axe: Rodolfo Chiari (brother of ex-President Roberto Chiari), President;
Roberto Aleman, Vice-President; Ricardo Chiari, Treasurer; and Carlos Arias,
Secretary.
XXX* Tele-Baru is controlled by Ruben Dario Samudio and Manuel Ramon Guerra
and reportedly is affiliated with Televisora Nacional.
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C. Newspapers
There are more than 20 newspapers in Panama."The most important
Panama City daily papers are listed below.
Panama City:
Daily Newspapers
Circulation
Name
1964
Comments
Critica
22,000
Ultranationalistic, owned
by Gilberto Arias.
El Dia
7,000
Conservative, owned by
PR (Republican Party)
Penso and Del Valle.
La Estrella
18,000
Conservative, reportedly,
owned by Duque family.
La Hora
20,000
Leftist, owned by
Harmodio Arias.
El Panama America
18,000
Ultranationalistic, owned
by Gilberto Arias. English
edition also published with
circulation of 6,000.
La Prensa
7,000
Independent, owned by the
Chiari family.
`xpreso n.a. Ultranationalistic, owned
by Gilberto Arias.
Moderate-conservative
owned by David Samudio
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D. Telephone and TelegraDh Service
There has been a dramatic improvement in telephone service in Panaa a
since Communications Incorporated (Comunicaciones, S.A.) was granted a
20-year concession in March '1961.* This concession included both long-distance
telephone service and local telephone service in those areas not served
by 'Panama Power and Light Company (Cia Panemena de Fuerza y Luz, a
subsidiary of American and Foreign Power Company, which is responsible
for telephone service in Panama City and Colon). The first step taken
by Communications Incorporated was the construction of a modern microwave
radio relay line between Panama City and David in 1961-62.*- A similar
line was extended to Colon from Panama City'in 1963.
As shown in Table 28 , nearly 42,000 telephones were in use in Panama
at the end of 1964. The ratio of 3.40 telephones per 100 persons in Panama
is among the highest in all of Latin
America. About 95 percent of the telephones in the country are concentrated
* Communications Incorporated is a subsidiary of Ila~esas Electrical de
Chiriqui,, S.A. The family of ex-President Roberto Chiari, who was in office
at the time the concession was granted, is reported to have an interest in
Communications Incorporated.
This microwave line probably will eventually serve as a segment of an
Inter-American telecommunications network, which has been under discussion
for a number of years. A step in this direction was taken on 30 June 1965
when a Presidential Decree was issued authorizing Communications Incorporated
to enter into contracts with other American Republics to interconnect
telecommunications systems.
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in Panama City, Colon, and David. With the exception of the 690 telephones
operated by the General Administration of Post Offices and Telecommunications,
all telephones are automatic and direct-distance-dialing service is
av~,i.lable. Government-operated telephone and telegraph service is largely
confined to isolated communities. This service, which is provided over
open wirelines and by radio, is poor. Modern teleprinter telegraph
service is.available in Panama City, Colon, and David over facilities of
Communications Incorporated.
International radiotelephone and radiotelegraph service is available
to most areas of the world, and a 128-channel submarine telephone cable,
which lands in the Canal Zone at Fort Sherman, connects Panama with
Miami via, Jamaica. An extension of this telephone cable, with a capacity
of 80-telephone channels, to Cartagena, Colombia is planned for completion
in 1966.
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Table 28
Panama. Number of Telephones
1.961-61.
No. of telephones in major
urban areas, 1964
1.961
32:586
Panama City
33,596
1962
35,954
Colon
ll-,713
1963
39,086
David
1? 226
1964
41,658
Includes 690 telephones operated by the General Administration of Post
Offices and Telecommunications, and excludes the 9,385 telephones in the
Canal Zone.
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E.-'Satellite Communications
Panasia's application to join the Global Commercial Communications
Satellite System (INTELSAT) was approved in May 1966. Its quota in this
system will be .04 percent, costing about $100,000. The Panamanian
government has expressed an active interest in establishing the first
earth station in Latin America for satellite -corumuiicati.ons. Several
U.S. firms have made proposals to the government and to Communications
Incorporated, a private Panamanian company, for the necessary facilities.
No commitment has been made, however, nor has a decision been made as to
whether a government ministry, Communications Incorporated, or a new
private company will be given the concession. International Telephone
and Telegraph Company (ITT) -- which already has a concession in Panama
for international communications through its subsidiary A11 American
Cables and Radio, Inc. -- has proposed to the Panamanian government
that it finance, at a cost of 45 million, and operate an earth station
and pay the government an annual fee for the concession. In August 1966,
ITT subsequently proposed to Communications Incorporated that a new company
be formed (6o percent Panamanian interests and 4+0 percent ITT) for the
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construction and operation of a satellite earth station.*
An earth station for satellite co ,..manications in Panama would offer
direct telephone, telegraph, and television circuits with North America
with
and Europe, and eventually/Africa'aud South America. Access to the Panama
earth station could be made available to the Central American republics
.and possibly Colombia and Venezuela. In addition to its prestige value,
a satellite earth station would be the source of additional foreign exchange
for the'Panamanian economy.
* There are unconfirmed reports that Communications Incorporated is
setting up a new company, called Intra-World Satellite Communications
Company of Panama Inc. (Intra Mundial de Comunicaciones Via Satelites de
Panama, S.A.), in collaboration with Panamanian television interests.
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VII. Domestic and International Trade
A. Domestic Trade
The three principal marketing areas in Panama are Panama City,
Colon, and David and their surrounding regions. Panama City and Colon,
because of their proximity to the Panama Canal, are strongly influenced
by the foreign market. David, with the surrounding Chiriqui Province,
is essentially an agricultural center with a retail commerce oriented
toward the farmer. Difficult and costly overland transportation between
the urban centers and the interior has been an important factor in the
slow development of domestic commerce. The existing road network serves
only half of the population; coastal tramp vessels are used to some extent
to distribute merchandise along coastal areas.
The composition of urban and rural commerce differs widely. Urban
centers contain a wide variety of outlets from supermarkets to small
specialty shops. Urban stores carry domestic agricultural and manufactured
products but consumers of higher income levels generally prefer available
imported merchandise. In the rural areas, on.the other hand, commercial
activity is centered in general stores, groceries, and cantinas. Proprietors
often act as wholesale agents, collecting agricultural products and selling
dry goods to local consumers.
Only Panamanian nationals may engage in retail trade with the single
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exception of U.S. citizens who are residents of Panama. Foreigners may
engage in wholesale activities but are subject to restrictions on employment
of foreign labor. Retailing generally is done by the importers and wholesalers
themselves.although commission representatives are sometimes retained. The
Panamanian government directly engages in retail trade through its
monopolies in the production, distribution, and sale of salt, in the distribution
of alcohol for liquor production, and in the collection of coconuts as
well as through extensive purchases and sales of certain agricultural
products.
Although there is free determination of prices generally, the
government does exercise control over wholesale and retail prices,
especially in some foodstuffs. The influence of the Institute for Economic
Development (IFE) is particularly effective in regard to prices on corn,
rice, coffee, sugar, tomatoes, and coconuts. The IFE occasionally limits
profits as a gesture of concerti "for the public good." The government
also regulates prices of antibiotics, fuels, and products of domestic
industries that operate under special incentives legislation.
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B. International Trade
In both the consumer and industrial sectors the economy of Panama
is strikingly dependent upon foreign trade.- Despite attempts to reduce its
commodity trade deficit, Panama continues to import at a level more than
-double its annual export sales. Annual imports have been increasing at a
rapid rate as a result of the inability of domestic sources to meet the
rising demand for consumer goods, raw materials for the processing industries,
and machinery and materials required for economic development. The widening
gap between commodity exports and imports is filled in large degree by
revenues accruing as a result of Panama Canal operations and, to a lesser
extent, from tourism and capital inflows.
1. Imports
Commodity imports in 1965 increased about 11 percent to a
value of almost US $190 million (see Table 29 ), far outstripping the growth
rate of 8 percent in real gross domestic product (GDP). This level of
imports was the equivalent of more than 30 percent of GDP. The resurgence
of imports in 1965 was the result of renewed business confidence following
the anti- U.S. riots in 196+ when imports increased less than 4 percent.
Liberal credit policies permitted inventories that were depleted in 196+
to be replenished and the resumption of foreign capital inflows allowed
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industrial and development projects to move ahead. The economic recovery
in 1965 also permitted a continuation of the trend toward rapidly rising
imports of consumer goods already evident prior to the riots.
The promotion of import substitution industries, particularly
in the consumer goods field, has long been a government policy in order to
develop industry and to reduce import demand. This policy has led to the
imposition of protective import quotas and tariffs and to the lowering of
on
import duties on input requirements for established industries and/capital
equipment for new industries. A new effort was made in March 1966 to
restrain demand for competitive foreign products by making basic administrative
changes in the enforcement of protective regulations. These changes,
however, are not likely to relieve significantly pressures for increased
because
imports` -most non-food processing industries have a large import coefficient
as do most private and public investment projects. The rate of increase in
imports during 1966 reportedly has been higher than that for 1965.
2. Exl2orts
Exports from Panama, consist mainly of primary food products --
bananas, shrimp, sugar, and coffee -- and refined petroleum products (see
Table 30 . Total exports in 1965 reached a value of approximately US $90
million or more.than twice the value of exports in 1961. Most of this
increase was the result of expanded banana exports, sales of which almost
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doubled due to new plantings undertaken in Panama, and, to an even greater
degree, exports of refined petroleum products. Sales. of refined petroleum
products were initiated in 1962 and rose to approximately US $25 million in
1965. Counterpart imports of crude petroleum, however, grew from US $17
million in 1962 to US $38 million in 1965. It is estimated that net foreign
exchange earnings from sales of petroleum measured only US $7 million in 1965.
The need to expand and diversify exports is recognized by the
Panamanian government but, aside from greater banana production and
establishment of a petroleum refinery, little progress has been made. It
is hoped that exports of less traditional agricultural products can be
for example,
increased;/the expansion program in the cattle industry eventually may
allow addition of new items to the list of exports. Thus far; surpluses
in most fields have been minimal, however, largely because domestic demand
has absorbed production increments as they occurred.
3. Direction of Trade
Panamats trade is strongly oriented toward the U.S. market with
more than 45 percent of its exports being sold to this country. If imports
of Venezuelan crude petroleum are e?,c1uC~ed, Panama receives more than
31
half of its imports from the United States. (See Tables and 32 .) Trade
with member countries of the European Common Market has increased in recent
years and during 1962-65 accounted for an average of 6 percent of Panamanian
exports and over 8 percent of its imports. Trade with Latin American
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 Approved For Release 0~'l0;3I4
Table 31
79101049A003300150001-8
Panama: Direction of Trade, Imports, Percentage Share
of Principal Suppliers, 1960, 1963-65 /
(Percent of Total)
Country
1 60
63
19
12L 196
-
5
.
Panama Canal Zone
~.4
246
.8 .8
Colon Free Zone
7,2
7.6
847 .88
United States
L2.::2
x-3.3 41.8
Latin America
3.0
23.3
24?.8 23.3
Venezuela
--
19.2
18.5 ig.6
Rest of world
2.$_3
21.2
22.5 2.
Common Market
11.6
8.3
8.3 8.8
Total
100.0
100.0
100.0 100.0
a. Components may not add to totals due to rounding.
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Table 32
Panama: Direction of Trade, Exports, Percentage Breakdown
by Major Trading Partner, 1960, 1963-65 J
(Percent of Total)
Country
1960
1263
1964
1965
Identifiable exports to
Canal Zone
22.6
23.4
17.2
19.0
Goods purchased by U.S.
agencies (Nonregistered
exports)
22.6
14.5
12.1
12.2
Exports of petroleum
products
. 9.0
5.1
6.7
Identifiable exports to
Colon Free Zone
.8
.6
.2
.2
United States.
47.6
40.7
43.4
45.7
Canada
.2
4.8
10.1
8.8
Latin America
.2
2.3
3.3
1.6
Common Market
.8
662
7.?+
L- 2
Rest of World
2_
7
21.9
18.1
19.8
_
Total
100.0
100.0
100.0
100.0
a. Components may not add to totals due to rounding.
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countries, on the other hand, continues to be very small representing
less than 2 percent of Panamanian exports and 4 percent of its imports in
1965 (excluding purchases of Venezuelan petroleum).
1k CACM
The question of Panama joining the Central American Common
Market (CALM) or any other trading area is still tinder consideration with
special attention being paid to the competitiveness or complementarity
of Panama with these areas, relative wage-productivity ratios, advantages
of new industries possibly resulting from membership, and similar matters.
Some concern has been voiced that membership in CACM would affect
negatively Panamats profitable relations with the Canal Zoned it has been
proposed that action regarding membership be postponed until after completion
of treaty talks with the United States. It also has been suggested in
some Panamanian circles that a preferential relationship should be
sought with the United States as a more profitable alternative to
market membership. The Panamanian Chamber of Commerce, on the other
hand, has recently proposed the conversion of all of Panama into a free
trade zone, arguing that it is more advantageous to become a center of
regional trade and finance without affiliation with any one "common market".
Panama already has applied for membership in subsidiary organs
of the Organization of Central American States and, pending ratification,
will participate in its labor and social security, public health, and tourism
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councils. Moreover, the study recently completed by Doctor Ramon Tamames,
a Spanish economist commissioned by the Panamanian government to analyze
relative advantages attending entry into CACM, strongly recommends
application for full membership at the earliest opportunity. It is doubtful
that any conclusive action will be taken, however, at least until a similar
study by CACM countries is completed.
5. Colon Free Zone
The Colon Free Zone provides approximately LO percent of Panama's
imports making it the third most important supplier (U.S. - first; Venezuelan
petroleum - second). Of greater significance, however, is its role as an
earner of foreign exchange for Panama. Exports from the Colon Free Zone
increased from US $16 million in 1953 to over US $133 million in 1064
with Panamanian earnings of foreign exchange from this source growing from
US $1 million to US
11 million during the same period.
The growth potential of the Free Zone appears to be excellent
and its advantages are being vigorously promoted abroad. A sizeable
enlargement of its physical plant is being planned to cope with the increasing
trade between Latin American and U.S. and European industries. To date,
Zone activities have been mainly distributive in nature with relatively
large incoming shipments being stored and repackaged into smaller lots for
re-export to South American purchasers. It is probable that manufacturing
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 Approved For Release 2001/03104? O*lA- tpP-79TO1049AO03300150001-8
1 \
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Figure 1: General Mali of the Republic of Panama
Graphic Scale
Intervals of Contour Lines, in meters
Conventional Signs
Principal highways
Dry weather highways
Highways under
construction or proposed
4.? Railroad
International border
Provincial border
District border
Mb Capital of the Republic
Provincial capital
' District capital
o Other towns
Ports
Airports
.i landing fields
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 1 ~.~_, r -t wry bm" ^Ma Ali wr
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V
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Figure 2: Urban and Rural Population, by Province, 1960
Urban population
Rural population
Total population of the
Republic - 1,075, 541
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Figure 3: Geographic Regions
Highlands
High mountains
Medium mountains
Low mountains
Lowlands
Tropical humid region (wet forests)
Tropical and region (savanna)
Region of interoceanic routes
Panama Canal
Railroad
Principal highways
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 `w.r ion" jmw 6" im bmw wftw. ` W -w?__ bm bmw !rte 6004 smog %old
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Figure 4: Cultivated Land in Relation to
Area of the District, 1961
Distribution by type of cultivation,
by province, 1960
Temporary
Permanent
Seeded pasture
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Figure 5: Areas of Lumber Exploitation
and Location' of Sawmills, 1961
Annual Lumber Production: ;.957-61
Million of Million of
sq. ft of lumber sq. ft. of lumber
Areas of Lumber
Exploitation (approx.)
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 6m" -bmw bmd 6=4 6wj 6w 64 6A 61 61 6=4
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Figure 6: Electrification, 1964
Electrified Towns
With its own thermal generation
Without its own thermal generation
Ike With its own hydraulic generation
Federal system
Private system
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 61,01W fir. OEM" *mw lr s,
bmw wood
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X04 ? Clo P7AT0104 A003300150001-8
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Figure 7: Cottage Industries According to Class, 1960
Number of industries
Fabrication of textiles
and articles of clothing
Various food industries
and beverages
Fabrication of wood
products
Others (coal, soap, oil)
starch, etc.)
Fabrication of clay
products
Leather industry and
fabrication of footwear
Percent of dwellings where products
are made for sale, by province,,
1960
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o p ?v N a < o
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01
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Figure 8: Highways, Roads and Railroads, 1963
Capital of the Republic
~--~ Provincial capital
-L" ura.cz capital
Concrete
Asphalt
Gravel
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