Here is a great report by my friend Simon Strong from Tenacitas International on the good, the bad and more on Panama.  Any great city in the world shares the same problems and Panama is no exception.  Trust me, the same story has been told for years about Miami.  I can remember the hey days of the capital infusion from Colombia and the boys with duffle bags pouring into the stodgiest of banks who welcomed the cash.

PANAMA CITY, PANAMA — Panama is booming. As the canal is widened to accommodate greater shipping, the capital’s colonial center restored and a new metro inaugurated, Panama economically far outstrips the rest of Central America and is the preferred place in the region to do business, both legal and illegal.

Panama looks set easily to exceed eight percent growth in GDP this year, almost double that of its successful southern neighbor, Colombia, and far in excess of its Central American cousins. And this is no isolated occurrence. During the last five years the Panamanian economy has consistently grown well over five percent annually. Infrastructure projects abound. There is the widening of the canal to accommodate larger ships; the construction of a subterranean metro to ease traffic in the capital; an extension to the country’s international airport, already a regional hub; and a tasteful recovery of the colonial quarter of Panama City, the Casco Viejo, where the price of a restored house or apartment starts at $3,000 per square metro.

Meanwhile, there is the multi-billion canal expansion project, due for completion in June 2015, and a banking sector that is thriving as never before, with 93 international banks present, holding deposits of almost $100 billion. Another pillar of the economy is foreign investment. On the one hand, corporations have relocated their regional headquarters to Panama because of attractive incentives. On the other, US pensioners keen to see their retirement dollars go further, as well as tax exiles from around the world, have settled in the country. And President Ricardo Martinelli has made it even easier for foreigners to obtain Panamanian residency, issuing an executive decree in May 2012 whereby citizens of more than 20 “friendly” nations, mostly European, can obtain residency with a bank balance as low as $5,000.

Latin Americans are also arriving in droves. Colombians have never ceased to play a significant part in the economy of their former territory. This century, they have been joined by Venezuelans either fleeing the ravages of chavismo or seeking safe harbor for their ill-gotten assets.

Meanwhile, Panama’s nascent mining sector flourishes. A $6 billion copper mine on the Atlantic coast owned by Minera Panama, a subsidiary of Canada’s First Quantum Minerals Ltd, is expected to become one of the world’s major open-pit copper developments. First shipments are due in 2016.

However there is a dark side to this boom and President Martinelli’s stewardship. There are constant protests against the government, orchestrated by labor unions, students, teachers and doctors, among others. The president has bought shares in many of the major media outlets, muzzling criticism. Accusations of high-level corruption are commonplace. Organized crime is very much present and extremely comfortable.

There is also a huge contrast between the gleaming skyscrapers of downtown Panama City and elsewhere, such as the crumbling buildings of Colon, the country’s biggest port. Colon has long been the dark underbelly of the nation. Its free trade zone, the world’s largest after Hong Kong, provides a sizeable chunk of the country’s trade revenue. It also provides services to international drug traffickers, who bring their unwashed narco-dollars to the free trade zone, buy whisky, cigarettes, flatscreen TVs and other consumer desirables, transport them to Colombia and sell them in pesos.

These Colombian purchases have long been Colon’s lifeblood. And currently they are needed more than ever, since its other big customer, Venezuela, is not paying its debts. Payments for up to $1.2 billion remain outstanding because of the Venezuelan government’s ferocious foreign exchange controls. With the currency restrictions, economic instability and threats of a devaluation in Venezuela, merchants in Colon are becoming increasingly uneasy.

Colon is also home to the more sophisticated of the approximately 200 street gangs that constitute Panama’s own organized crime world. For the most part this is low-level crime such as muggings, robberies and local drugs sales, which feeds a growing domestic drug market and fuels the murder rate of 18 per 100,000 of the population. This rate is well below the Central American average, but four times the US murder rate and, in a worrying indicator of the wide availability of weapons, 70 percent of all murders are committed with firearms.

Cocaine from Colombia continues to pour through Panama. The border between the two nations is the dense Darien jungle, where the rebels of the Revolutionary Armed Forces of Colombia (FARC) have stationed their 57th Front. One of its commanders is a former Panamanian policeman. An indication of the drugs flow can be seen by the seizures. More than 40 tons of cocaine has been seized in 2013, which at an average interdiction rate of 15 per cent would indicate that some 300 tons of drugs have been successfully shipped onwards

Panamanian intelligence has tracked the presence of at least four Mexican cartels in the country, those of Sinaloa, Juarez, the Zetas and the Beltran Leyva organization, which have permanent emissaries negotiating with their Colombian counterparts to secure multi-ton shipments. The same factors that make Panama attractive for other visitors draw organized crime as well: the prevalence of other foreigners, good hotels, restaurants and casinos, readily available prostitutes, little police interference and a welcoming banking sector.

Whether Panama can continue to grow at such a frantic pace, with organized crime underwriting many of the shiny new skyscrapers according to national and international intelligence sources, without some kind of a social or political reckoning, is hard to gauge. But for the moment, the good days are here.

Republished with permission from Tenacitas International.

I love Simon‘s tagline

“Building the moral fiber of a nation is the duty of all members of society, but above all, of its political and business leaders. A critical step is recognizing that white collar not only breeds in the same moral swamp as violent crime, but represents a pervasive threat to democratic integrity and rule of law.”
– Simon Strong, Americas Quarterly.

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