Stabilization Fund for Panama


News from Panama / Friday, January 6th, 2012

Or as I like to call it, cash in the bank!!

Panama does not have a central bank that can print money at will to avoid a crisis so it must save money the old fashioned way and tuck away huge reserves.  While I will not get into the fact that it is in USDs and what that might bring in the future, the basis of the theory is good.  This in from CentralAmericaData.com

Savings must be made and reserves accumulated during booms times in the economy, so that those savings can be used in times of national crisis or contraction.

The creation of funds to build up currency reserves during periods of economic expansion from specific high-performance sources, such as China does with its trade surpluses, Chile with copper or Norway and Libya with oil, is an option to be considered in Panama, which does not have a central bank to control monetary policy or act as a lender of last resort.

In the case of Panama, income generated by the Canal could be a source suitable for the formation of a sovereign stabilization fund which could contribute to the maintenance of the level of investment of Panama’s debt, and a pension reserve fund, which would consolidate the finances of the Social Security Fund.

An article in Prensa.com looks at the benefits that funds of this nature would bring to Panama.

“In the early 1970’s, Dr. Arnold Harberger, professor at the University of Chicago, was invited to Panama, to issue a series of lectures to staff at the newly formed Ministry of Planning and Economic Policy. In one of his lectures, Dr. Harberger said that in light of the absence of a central bank in Panama, a currency policy, and a lender of last resort, it would be in Panama’s interest for the government to create a National Stabilization Fund to deal with economic emergencies, whether in periods of economic slowdown or recession or in times of crises that could affect the banking system. “