Country Report Panama April 2009

Summary

Victory in the May 2009 general electionsas now seems virtually certainfor RicardoMartinelli of the centrist Alianza por el Cambio, would mark a break from 20 years of alternating centre-left PRD and centre-right Panamenista rule.
Rising crime rates, party infighting and corruption allegations appear to have all but ended the chances of the ruling PRD of winning another term.
The Partido Panamenistas decision to join Alianza has made it likely that a probable Martinelli administration will hold a legislative majority, at least at the outset of his term, avoiding the risk of early legislative deadlock.
The fiscal accounts will undergo a sharp deterioration in 2009 as government income is hit by falling trade and a contraction in GDP, with little improvement in 2010 as sluggish growth continues to hold back revenue.
Recession in the US and regional markets, falling world trade and financial market stresses will result in Panamas economy contracting by 1.3% in 2009 and staging only a mild recovery in 2010, growing by 1.4%.
After ending 2008 at an estimated 6.8%, inflation will slow sharply in 2009, ending the year at 2.1% as oil and other commodity prices ease, rising to 2.7% at end-2010 as demand and commodity prices stage a modest recovery.
With consumer demand and commodity prices falling, the current-account deficit will narrow to 7.2% of GDP in 2009, before rising to 8.3% in 2010 as Canal-related capital imports increase.

Accusations and counter-accusations have raised the unprecedented prospect of three candidates for the two leading elected offices entering the elections under investigation over alleged illicit finances.
Following the decision by the G20 group of nations in early April to impose as yet undefined sanction on countries considered to be tax havens, Panama has appeared on an OECD grey? list of unco-operative tax havens.
In the first two months of 2009 central government revenue contracted by almost 14% year on year, amid slowing economic growth.
The government took advantage of an improvement in risk appetite and tapped the international capital markets for US$323m in March, the proceeds of which will be used to help cover a growing fiscal and financing gap.
In an acknowledgement of the impact on the domestic economy of global recession in 2009, the authorities revised the official GDP forecast for 2009 twice in the space of one week in March, from 7-7.5% to no less? than 3%.