Panama economy

In 1994 Panama’s president launched an economic liberalization program. This program was designed to liberalize the trade regime, attract foreign investors, private enterprises, and institute fiscal discipline.
Early 1998 panama joined the World Trade Organization and a banking reform law was approved. After about two years the GDP grew by 3.6% and four year later this number increased to 6%. The most important factors contributing to this economic growth were the Panama Canal and the shipping and port activities of the Colon Free Zone.

Panama’s economy is based on a well developed service sector. This service sector is mainly directly towards banking, commerce, tourism, trading and private industry. The canal is of very high importance for the economic growth and stability of panama as it accounts for millions of dollars in toll revenue and provides many employment options.
Finally the Currency used in panama, the balboa, is paired to the American dollar adding extra stability and ease of use. Panama has it’s own coinage but uses U.S. dollars for all it’s paper currencies and business or international transactions.

International Trade and the Colon Free Trade Zone

Created in 1984 the Colon Free Trade Zone (CFZ) is the largest free zone in the Americas and the second largest in the world. The CFZ holds many benefits for the national economy of panama. The commercial activity it generates accounts for 7.5% of the national internal product, it is therefore considered one of the largest pillars in the panamian economy. Products imported most often include electric appliances, cigarettes, clothing, watches, textiles, perfumes, jewelry and cosmetics.
The success of this particular free zone is due to several factors such as the geographical location including the panama canal, the pairing with the U.S. dollar as currency, a large banking center and several very large and modern harbors. Free movement and complete exemption from tax is offered by the CFZ. No taxes are taken on export of capital or payment of dividends. Furthermore companies located in the CFZ are exempt from import duties.

The Panama Canal

The Panama Canal, otherwise known as the great passage way between the Atlantic and pacific ocean, was constructed as of august 1914. The canal extends 80kms from Panama City to colon on the Caribbean sea. It is amongst others considered to be one of the largest engineering achievements in the world.
In 1903 a first treaty was signed between the U.S.A. and Panama. This treaty granted the United States the use, occupation and control of a canal zone in which the United States obtained full sovereign rights. In return the US granted the full independence of Panama.
A treaty transferring full control of the canal to Panama was agreed upon in 1977. The actual effect of this treaty was however not seen until December 31st 1999. As of this date Panama became truly independent in every way. Furthermore this final treaty, which was revised in 1979 by the Panama Canal Commission, guaranteed permanent neutrality of the canal.
The canal is continuously undergoing modernization and maintenance in order for it to maintain its current standards and success. Together with the Colon Free Trade Zone it accounts for more than half of the countries economic growth.