Country Brief: Panama
November 18, 2004

            The Republic of Panama is located in Central America, bordering both the Caribbean Sea and the North Pacific Ocean, between Colombia and Costa Rica.[1]  In 1903, Panama seceded from Colombia and signed a treaty with the US allowing the US to build a canal, and giving the US sovereignty over a strip of land on both sides of the canal, referred to as the Panama Canal Zone.[2]  By the end of 1999, the US returned the entire Panama Canal and the area surrounding it over to Panama.[3]  Panama’s population in July of 2004 was approximately 3.1 million, with a 37% poverty rate in 1999, but a high overall literacy level of 92.6%.[4]  Spanish is the official language of Panama, but English is the native tongue of at least 14% of the population, and many Panamanians are bilingual.[5] 

            Three-fourths of Panama’s GDP is accounted for through the service industry.  These services include operating the Panama Canal, the Colon Free Zone, banking, insurance, container ports, flagship registry, and tourism.[6]  The Colon Free Zone is the second largest free zone in the world, and the largest in the Americas. [7] It is located at the Atlantic gateway to the Panama Canal.  The Zone was created in 1948, and houses more than 1,751 merchants.  It generates exports and re-exports valued up to $11 billion a year.[8]  Companies operating from the Zone enjoy trade advantages including special tax incentives.[9]

Panama experienced slow economic growth between the years of 2000 and 2003 due to the departure of US military, the global economic slow down, a decline in the Colon Free Zone, and a decline in agricultural exports.[10]  Panama’s main exports are bananas, petroleum products, shrimp, sugar, coffee, and clothing that are exported to the country’s major markets: the U.S., Germany, Peru, Belgium, Japan, and Italy.[11]  Panama’s main imports are capital goods, crude oil, foodstuffs, chemicals, other consumer and intermediate goods from the country’s major suppliers: Japan, the US, China, Singapore, and Italy.[12] 

                        Panama saw a dramatic 3.2% economic growth in year 2003, compared with pervious year’s growth rate of 0.8%.[13]  Even though Panama has the highest GDP per capita in Central America, it still has a large population living below the poverty line, and a surprisingly high unemployment rate.[14]  Panama currently has a Free Trade Agreement (FTA) with El Salvador and another FTA with Taiwan.[15]  It is in the process of negotiating FTAs with the US[16]and various Central American countries.[17]

            Panama had 387,000 well-developed main telephone lines in use in 2002, and approximately 834,000 mobile phones in 2003.[18]  The country has a total of 355 km of railways, 11,400 km of highways,[19] 103 airports,[20] and five ports and harbors.[21]  Panama is involved in the UN General Assembly, other UN agencies, the World Bank, the Inter-American Development Bank, the International Monetary Fund, the Organization of American States, the Rio Group, the Union of Banana Exporting Countries, the Central American Parliament, the Central American Integration System, and the Alliance for Sustainable Development.[22]

According to the World Bank International Finance Corporation indicator, Panama is one of the easier countries in its region for entrepreneurs to launch a business.  Seven steps are required for an entrepreneur to go through before he or she may launch a business in Panama, which take over 19 days on average. [23]  The cost for the entrepreneur is around 25.1% of gross national income per capita, which is higher than the average country, but much lower compared to regional averages.[24]  There is no minimum deposit requirement to obtain a business registration number, compared with a high regional average, and an even higher overall average.[25] 

            Concerns the international community should be aware of in Panama:

  • Panama’s high unemployment rate,
  • the country’s major problem with official corruption,
  • Panama’s vulnerability to severe weather,[26]
  • the country’s use as a cocaine transshipment point and a primary money-laundering center for narcotics revenue,
  • heavy money-laundering activity in the Colon Free Zone,[27] and
  • the continued FTA negotiations between Panama and the US .[28]

[1]Panama,” CIA: The World Fact Book,

[2] Fact Book.

[3] Id.

[4] “Background Note: Panama,” US Dept. of State, << />>. There is a high discrepancy between the urban and rural literacy levels: urban 94%, rural 62%.

[5] Dept. of State.

[6] Fact Book.

[7] “Colon Free Trade Zone (CFTZ),” Investing in Panama,

[8] Investing in Panama.

[9] Id.

[10] Id.

[11] Id.; Dept. of State.

[12] Id.

[13] Dept. of State.

[14] Id. 14% unemployment rate in 2002.

[15] Id.

[16] Negotiations for the US FTA began in April of 2004.

[17] “Panama Free Trade Agreement,” Office of the United States Trade Representative (USTR),

[18] Fact Book.

[19] Only approximately 400 km of highways are paved.

[20] 42 of the airports in Panama are paved.

[21] Id. Ports and harbors: Balboa, Cristobal, Coco Solo, Manzanillo (part of Colon area), and Vacamonte.

[22] Dept. of State. Panama participates in FAO, G-77, IADB, IAEA, IBRD, ICAO, ICCt, ICFTU, ICRM, IDA, IFAD, IFC, IFRCS, ILO, IMF, IMO, Interpol, IOC, IOM, ISO, ITU, LAES, LAIA (observer), NAM, OAS, OPANAL, OPCW, PCA, RG, UN, UNCTAD, UNESCO, UNIDO, UPU, WCL, WCO, WFTU, WHO, WIPO, WMO, WToO, WtrO.  Fact Book.

[23] “Snapshot of Business Environment,” The World Bank Organization,

[24] Snap Shot.

[25] Id.

[26] “Panama Mudslide Kills Nine,”,

[27] Fact Book.

[28] Jackson, Eric. “No US-RP Free Trade Deal Yet,” The Panama News,

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