Foreign Economic Relations

Foreign Economic Relations

In the 1980s, Panama has struggled to adjust to the constraints imposed on its economy by a high external debt. To compensate for a deficit in the capital account, its current account has registered a surplus since 1983, because the service sector has maintained a surplus. Debt has remained high in per capita terms, but the actual debt burden has fallen.


The value of Panama's merchandise exports has always lagged behind imports. The level of imports relative to the size of the economy has remained large. Panama's consumption standards have been high for a developing country. In the early 1900s, nearly everything consumed in the metropolitan areas was imported because little agricultural surplus and virtually no manufacturing existed. By the mid-1980s, the country was largely self-sufficient in foods except for wheat, temperate-zone fruits and vegetables, and oils and fats. Domestic manufacturing provided a growing share of consumer goods, but the country still imported a wide range of commodities.

With the decline of commodity prices on world markets in the 1980s, the terms of trade have steadily moved against Panama. Based on a terms of trade index of 100 in 1980, Panama's index stood at 82 in 1985, meaning that it had to export considerably more in order to import the same value of goods it had previously imported.

Panama controlled trade by issuing import and export licenses. Since 1983 tariffs have gradually replaced quantitative restrictions on imports. Taxes were levied on some imports, and incentives were given to nontraditional exports through tax credit certificates.

In 1985 merchandise exports totalled US$414.50 million (excluding reexports from the CFZ) down from US$526.10 million in 1980. Refined petroleum topped the list of export items, at US$100.60 million, but its net contribution to the trade balance was much smaller, given that Panama's crude oil is imported. Bananas, traditionally the largest export item, accounted for US$78.1 million in exports, followed by shrimp (US$53.4 million), manufactured goods (US$45 million), sugar (US$33.3 million), coffee (US$15.6 million), and clothing (US$11.5 million).

About 75 percent of Panama's exports went to industrial countries; Latin America received the other 25 percent. The United States was by far the largest single market, and in 1985 received 60.5 percent of Panama's exports. Most of the remaining exports went to Costa Rica (7.5 percent), the Federal Republic of Germany (West Germany) (5.5 percent), Belgium (4.9 percent), and Italy (4.5 percent). The CBI was expected to increase Panama's exports to the United States. The CBI seeks to provide long-term trade, aid, and investment incentives to promote the economic revitalization of the Caribbean Basin. The most significant incentive is twelve-year, duty-free access of most goods to the United States market. Some omitted goods were footwear, textiles, leather and general apparel, canned tuna, petroleum and petroleum products, rubber and plastic gloves, luggage, and handbags. In addition, special rules limited the eligibility of sugar for duty-free treatment. Twenty countries, including Panama, were granted this access in January 1984. In 1987 judging the long-term CBI benefits for Panama was premature. Critics charged that few new trade benefits would accrue from the CBI beyond those under the Generalized System of Preferences, which already accommodated 87 percent of Caribbean Basin exports to the United States. In the initial years of CBI implementation, the share of Panama's exports going to the United States remained unchanged.

In 1985 Panama's merchandise imports amounted to US$1.34 billion, or about 30 percent of GDP. In that year, manufactured goods were the largest import item (US$348.6 million), followed by crude oil (US$271.8 million), machinery and transport equipment (US$266.7 million), chemicals (US$158.0 million), and food products (US$142.6 million). Crude oil has traditionally been the largest import item, but in the 1980s its share of imports fell as petroleum prices declined and hydroelectric energy capacity increased.

About one-third of Panama's imports came from the United States, another third from other industrial countries, and onethird from Latin America. In 1985 Panama's imports came from the United States (30.8 percent), Japan (8.9 percent), Mexico (8.2 percent), Venezuela (6.8 percent), and Ecuador (7.2 percent). Mexico and Venezuela supplied 70 percent of Panama's crude oil under the San Josť Agreement.

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