Panama’s proposed budget for 2008, exceeding $8.2 billion, is the country’s largest ever. With its primary focus on social development, the budget aims to provide more equitable income distribution. Over $4 billion will be allocated to food-aid programs, Internet technology for schools and the Panama Bay clean-up program.

According to the 2007 Index of Economic Freedom (assessed by the Heritage Foundation and the Wall Street Journal), Panama is ranked 10th among 29 countries in the Americas with a 65.9 percent economic freedom index and is the 47th freest economy in the world. The country scores high on a number of freedom indices, including business, fiscal, government, financial, investment and monetary. Panama uses the United States dollar as legal tender. Inflation rate is relatively low at 1.1 percent for 2006.

Panama’s economic development strategy concentrates on two primary factors: its geographic location and expansion programs for the Panama Canal. The Panama Canal expansion program is producing a tremendous spin-off benefit in all sectors of the economy. Indeed, the maritime infrastructure that supports the Canal and all its ancillary services has resulted in Panama emerging as the region’s largest logistics center and one of the world’s primary multi-modal logistics centers.

The logistics and export-oriented service sectors, influenced by external and internal forces, the construction and real estate boom have contributed to over 76 percent of Panama’s GDP in 2006. The service sector includes the operation of the Panama Canal, the financial sector, the Colon Free Zone, insurance, container ports, flagship registry, telecommunications, and tourism. Access to quality and cost-effective services, such as finance, transport and telecommunications, plays a key role in determining Panama’s competitiveness.

Recently, the World Bank rated Panama as Latin America’s top country for exporting and importing containerized goods. Panama was also rated as the fastest-growing economy in Latin America by the International Monetary Fund (IMF) and the United Nations Economic Commission for Latin America and the Caribbean (ECLAC).

The rapid development of new businesses in the real estate and logistics sectors has contributed to Panama being rated as the best place to start a business in Latin America and the 31st best place to start a business globally by ECLAC.

Panama’s economy is expected to grow by 8.5 percent in 2007
Within this context, it is not surprising that the economy of Panama is projected to grow by 8.5 percent in 2007 after showing an 8.1 percent growth in 2006 (ECLAC’s Economic Survey of Latin America and the Caribbean, 2006-2007). Growth is particularly visible in the construction and real estate sectors, the banking sectors and the maritime logistics sector.

The largest number of international bank offices in Latin America can be found in Panama along with the world’s largest shipping registry. The Colon Free Zone is the largest of its kind in Latin America and the Caribbean and the second largest in the world.

Speaking about the advantages of Panama’s advanced economic system to international business, Daniel Quiroga of DHL Global Forwarding says:

“Multinational companies are more and more seeing Panama as a growth economy, a place where the ease at which business can be conducted is preferable to their previous North American and European choices. They choose Panama to have added value to their products, to use the advanced logistics center that is offered here and to distribute their products to the Americas. For the last 11 years, DHL Global sees Panama as the perfect place to develop new value-added solutions in addition to being the largest regional distribution center where we can bring cargo from Europe, Asia, indeed from different parts of the world, through this network of ocean liners and air freights and send them out by air to different parts of the Americas.”

Julio Escobar, Ph.D., of the National Secretariat of Sciences, Technology and Innovation (SENACYT) points out that Panama is becoming more than just a traditional logistics economy.

“This country is fast becoming a knowledge-based economy and a business hub comparable to the best in the world. Prosperity is linked to international trade and approving a free trade agreement will enable Panama to become a beacon in the knowledge economies of the world. Panama is a multiple economy, we have outstanding achievement in most economic sectors, but we do have poverty and are addressing that through our development programs.”

Panama is not a member of the Caribbean and Latin America Free Trade Agreement (CAFTA). In December 2006, a Free Trade Agreement between Panama and the United States of America was negotiated. It awaits approval from the United States Congress. The largest user of the Panama Canal and Panama’s largest trading partner is the United States. As President Bush has said on a number of occasions during the last few months, international trade between the United States and Panama will benefit from free trade.