Panama Twenty-Five Years Later

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December 20 marks the 25th anniversary of Operation Just Cause, better remembered as the U.S. invasion of Panama. Set off by the death of an off-duty Marine lieutenant by Panamanian security forces, the invasion represented the final step in a deteriorating relationship between the United States and Manuel Noriega—once a CIA informant and close ally, later a defiant dictator, undone by the winding down of the Cold War and his own brazen corruption. The lopsided confrontation ended by early January of 1990, when Noriega surrendered to U.S. authorities. He was then extradited, tried, convicted, and eventually sentenced to twenty years in U.S. federal prison for drug-trafficking, racketeering, and money-laundering.

Noriega left a devastated economy and society. During his last years the nation defaulted on its debt and fell into a deep recession, with GDP plummeting 13 percent. Panamanians living on just $2 a day rose to nearly a third of the population.

Under the new democratic government led by Guillermo Endara—who most thought won the nulled 1989 presidential elections—Panama began to improve. After the United States lifted its sanctions foreign direct investment returned, especially into the country’s services sector. The U.S. military, always a strong presence due to the canal, as well as others, could again visit, boosting consumption.  Panama’s economy, and in particular its middle class, began to recover.

1999 represented an economic turning point for the country, as the United States returned the canal to Panamanian ownership and control. Today, upwards of 13,000 ships pass through the canal’s locks each year, paying on average roughly $250,000 a trip (which they wire to the canal a couple days before entering the line). This direct influx of money (netting the federal government some three million dollars a day) is complemented by a huge supporting transportation and logistics service sector that, combined, have helped Panama grow an average of nearly  7 percent a year since it gained control of the passageway—faster than any other Latin American country during this time period.

Still, while the country as a whole has gotten richer, not everyone has benefited. Panama’s middle class remains small and inequality high. The sleek skyscrapers that fill the cityscape sit alongside neglected cinder-block apartments. Outside Panama’s urban areas, over 40 percent of the population lives in poverty. Panama’s richest 20 percent of the population controls nearly 60 percent of the nation’s income—a disparity that rivals neighboring countries such as the Dominican Republic and Honduras.

With an expanded canal set to open in early 2016, commerce will only increase (capacity is set to double). While bringing in greater revenues, as well as likely investment, this growth will further tax Panama’s already overburdened infrastructure, including bridges, roads, and even sewer systems. The challenge will be to make its economic growth sustainable and inclusive, finding more ways for average Panamanians, and especially those in areas far away from the canal, to share in the benefits from their country’s continuing economic boom.

Published in conjunction with Latin America’s Moment at the Council on Foreign Relations.