Panama's Rewards of Ratification

Those treaties could unlock a lot of investment

Panama's controversial canal is not the only thing in that country under water; so, too, is its economy. During the past several years of hot debate and demonstrations over the fate of the canal, moneyed Panamanians and foreign investors have been reluctant to sink cash into the country. They are even less willing to do so now, fearing that Panama could be thrown into turmoil if the U.S. Senate fails to ratify the canal treaties. But if the treaties are adopted, Panamanians believe, investment, and their economy, will surge.

The $2 billion-a-year economy has not grown at all since 1975, when it rose a meager .6%. Unemployment, says the government of Brigadier General Omar Torrijos, runs at 11%, but unofficial estimates put it at twice that much. It has fallen upon the government to become the employer of last resort, and since late last year Torrijos has created 22,000 new jobs, mostly make-work. Inflation, mercifully, has dropped from 30% in 1974 to less than 10%, and a new sales tax added some $35 million to government coffers last year. But the $432 million budget (9% of it allotted to the military) has a deficit of $89 million, and the national debt stands at $1.6 billion. That translates into $930 for each of the 1.7 million Panamanians --only $270 less than per capita income.

Like other oil-importing countries, Panama was savaged by the OPEC-induced recession. Torrijos' populist policies did not aid recovery. A law making it difficult for landlords to evict rent-delinquent tenants halted private housing construction, and new hiring has been discouraged by labor regulations that make the firing of employees a byzantine process. In 1973 the government concluded that salvation lay in growing more sugar: the industry is labor-intensive and world prices were high, but they have since fallen. Recently the government warned that 20,000 more workers will be idled and the economy will tumble into worse shape when the sugar harvest is completed in April. Not coincidentally, the ratification showdown on Capitol Hill should occur near then.

In terms of hard cash, ratified treaties would hardly be a panacea. The canal now contributes, indirectly, some $250 million a year to the economy in the form of wages of Panamanians, local purchases by the U.S. Government, and so forth. Panama gets $2.3 million in an annual payment from the U.S. for the right to run the canal. After ratification, the Torrijos government would get a cut of canal operations. It is counting on $60 million the first year, rising to $90 million annually by the year 2000. That presumes a 30% increase in canal tolls. But tolls have already gone up more than 40% since 1974, and another large increase might cause shippers to look more favorably on longer but cheaper alternatives.

The U.S. has promised Panama $290 million in loans over the five years following ratification, plus $50 million in military aid over ten years. This income, says Pedro Rognoni, president of Panama's Industrial Association, "will not solve the economic problem--that will be solved only by production." There are many possibilities for development. The Cerro Colorado copper deposit, near the

Costa Rican border, is thought to be among the world's largest. Bananas are the country's biggest export, and there is ample room for more plantations if money can be found to continue clearing the green jungle. Shrimp is already big business, and the World Bank is financing the construction of a fishing port at Vacamonte on the Pacific coast. Though Panama's lone cement plant, which is privately owned, is now operating at only half of its capacity, the government is finishing up a new $68 million plant of its own that is scheduled to begin production late this year. Torrijos' advisers are sure that with recovery, both plants will be going at full tilt.

Still, Panama's economy is weighted toward service industries, and there lies the biggest growth potential. Some businessmen think the government should expand the single-track Panama Railroad to handle more traffic in the containers borne by ships too large to navigate the canal. The free-trade zone in Colon already contributes 7 1/2 % of the gross domestic product; the zone could spread onto American-occupied land near by that would be ceded to Panama under the treaties. Panamanians are even now enlarging the country's international financial center, an outpost of 81 banks from all over that are lured by the country's easy tax and currency-convertibility laws. The dream: to make Panama a kind of Latin Switzerland.

If the treaties are torpedoed, says Panamanian Economist Guillermo Chapman, unemployment could reach 30% and "growth" could shrivel to minus 3% yearly. It is only fair to add that if the treaties are ratified and the economy fails to recover, the Panamanians will have no one to blame but themselves. sb

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