What irony! Panama is expected to be Latin America's economic star in 2012, with a 6.8 percent economic growth rate and no money woes in the foreseeable future. Yet, many Panamanians are sounding surprisingly gloomy about their future.

According to the World Bank's Global Economic Prospects 2012 released earlier this week, Panama's growth rate will be the highest in Latin America this year, followed by Uruguay's at 5.7 percent and Chile's 5 percent. In the Caribbean, Haiti is expected to grow by 9 percent, largely due to earthquake reconstruction.

President Ricardo Martinelli, a supermarket tycoon-turned-politician, is benefitting, among other things, from an economic boom fueled by a Panama Canal expansion that is expected to bring the country $29 billion over the next 25 years, construction of a Panama City subway system that is scheduled to be the first in Central America, and an influx of wealthy Venezuelans who are investing heavily in real estate.

But the latest headlines from Panama confirm what I already sensed during a visit there last year: a growing political turmoil over Martinelli's strong-armed ruling style, which many fear will lead to an autocratic state with no checks and balances, more corruption, capital flight and economic decline.

Martinelli's approval rate has dropped from nearly 80 percent when he took office to 44 percent today, according to a new Dichter @Neira poll. There are signs of growing social protests, such as a rare strike of Panama Canal expansion workers this week.

Critics say Martinelli is a right-wing populist who is buying people's allegiance with subsidies while destroying the country's democratic institutions.

"It sounds weird, but we have a president who is a businessman, and it's the business people who are most concerned about him," Bobby Eisenmann, the founder of the daily La Prensa and one of the country's best-known private sector leaders, told me this week. "There is a lot of concern about the president's abuse of power."

Martinelli already controls the National Assembly and the Supreme Court. Critics say he is moving to control the electoral tribunal and the Panama Canal, an independent agency, and to re-elect himself despite a constitutional ban on re-election.

Meantime, Martinelli is sending tax inspectors to critics like Eisenmann, who says his companies were slapped with a $3 million fine after he started speaking out against government corruption. "He's using tax inspectors for political purposes," Eisenmann says.

The government sees a rosy future ahead. Panama's economy minister Frank G. de Lima told me that Panama's economy will grow 7.5 percent this year. In addition to the new Panama Canal income, tourism is expected to grow from a record 2 million visitors last year to 2.2 million this year, and the recently-signed free trade deal with the United States will increase economic growth by 0.5 percent to 1 percent a year, he said.

"Panama had the largest economic growth and lowest unemployment rate in Latin America last year," de Lima said. "We're even more optimistic than the World Bank for 2012."

Asked about the growing political polarization, de Lima said that "when you don't have serious economic problems that other countries have, like high unemployment rates, the small problems are over-blown. That's what's happening right now."

My opinion: There is probably an element of truth in what both sides are saying, but some of the things happening in Panama are reasons for concern.

Panama is a service economy that depends heavily on the Panama Canal, and vibrant banking, shipping and foreign trade sectors, all of which will need international credibility and a good education system to thrive in coming years. And Panama is flunking the test on both fronts.

Without a clear separation of powers to keep the government honest, there will be no confidence, and fewer investments. And with bad education policies -- such as its recent decision to withdraw from the international PISA test of 15-year-old students, which gives countries a comparative diagnosis of where they stand -- it won't have a professional class to compete effectively in a global service economy.

It's not too late. Martinelli can still prove critics wrong, and help steer Panama to a long period of prosperity. But if he doesn't listen to some of his critics, he will turn the country into a banana republic and ruin one of the Western Hemisphere's most promising success stories.

 

 

 

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