Posted by on July 22, 2019 11:01 am
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By Andrew Langer, President, Institute for Liberty & TES Contributor

 

 

When the Panama Canal was completed, it was heralded as one of the most difficult engineering projects ever undertaken. In fact, the American Society of Civil Engineers has ranked the canal as one of its seven wonders of the modern world. Having seen it firsthand, it is an awesome achievement to witness.

 

 

The United States controlled the Canal, and the surrounding “Panama Canal Zone” for decades—until we negotiated in good faith with Panama for their eventual receipt of the Canal and the territory surrounding it. Given the treaty that underlaid the construction, operation, and governance of the Panama Canal and the Canal Zone, both sides had to approach the re-negotiation with an assurance of integrity by both sides. It was, the treaty was signed, and Panama took total control in 1999.

 

 

Fast forward two decades, more than a century after the Canal was completed, and the Central American nation is now facing an issue that should be far less challenging: contractual integrity – or better said, the government keeping its word.

 

 

Panama’s President Laurentino Cortizo is in New York this week to meet with potential investors and other executives. Known as “Nito”, he has been in office just a few short weeks. Yet while he courts new investments from his northern neighbors, his administration is quietly taking measures in stark contrast to his public posturing. From pledging to eliminate Panama’s food safety authority and rewriting the constitution, to tearing up a 22-year-old mining contract with a private company that was renewed less than three years ago, one must wonder. Rather than wooing investors, these actions will spook them.

 

 

Foreign direct investment in Panama amounted to $1.648 billion in the first quarter of this year. That represents the second largest quarterly inflow since 1990. Even more, the Chamber of Commerce, Industries and Agriculture of Panama (CCIAP) estimates that the country’s economic growth this year will be 4.5 percent. Neighboring Colombia is a full percentage point behind.

 

 

Long known for financial services and tourism, mining is now critical to this influx and macroeconomic expansion. The sector has received substantial foreign investment to date, and, as such, is one of the fastest growing sectors of the Panamanian economy. Government estimates, moreover, value the country’s mineral resources at $200 billion. To put that large number into perspective, Zorel Morales, chairman of the Mining Chamber of Panama (CAMIPA), says the country possesses 50 billion pounds of copper, 12 million ounces of gold, and 25,000 ounces of silver. According to other government statistics, mining activity today contributes approximately 1.5 percent to the nation’s GDP. Within just two years, however, this is expected to increase to 7 percent.

 

 

Panama’s chief executive would be wise, therefore, not to bite a hand that feeds the nation. This is especially true given the thousands of jobs the sector creates for an economy that pays workers on average only $2,000 per month. One the four main drivers of CCIAP’s strong projection, moreover, is the expectations from mining operations and their impact on exports next year.

 

 

What is more, mining is not only supporting economic growth, but also social development. As Business Panama Group recently stated, “The geological structure of [the country], along with its geographical position, has allowed experts to find mineral deposits… such as gold and mainly copper…These extractions are part of state policies…for a comprehensive development of towns around mining projects.”

 

 

That said, there is more to be worried about here than just the threats to investment and prospering communities. As has been widely reported, corruption was the number one issue among voters in this last presidential campaign. President Cortizo even said it himself: “I aspire to become president of this country firstly to defend Panama’s interests, which means not stealing.” How ironic is it then that Cortizo’s vice president, Gaby Carrizo, was legal counsel to Petaquilla Minerals Ltd., a mining operator whose mine was right next to the mine whose contract Cortizo wants to rip apart? Even richer, the Vice President’s mother served as treasurer of Petaquilla. So much for heeding voters’ number one concern.

 

 

President Cortizo received his master’s degree in business from the University of Texas. While Cortizo was not trained as an engineer who could work on a project like his nation’s famous canal, one would hope he would recall a few of the other lessons from when he was there—lessons in business and ethics.

 

 

Integrity is everything when it comes to relationships. Without that integrity, without the ability of people to rely on the word of the Panamanian government when it comes to contracts, investors will disappear, and rightly so. Panama’s future economic prospects, as well as its continued ability to attract foreign investment, will depend on it.

 

 

 


Andrew Langer is President of the Institute for Liberty. He has a degree in International Relations from the College of William & Mary.