A WORLD BANK COUNTRY STUDY PANAMA Structural Change and Growth Prospects * 1*, - . - - - - - - - - .~ - A WVORLD BANK COUNTRY STUDY PANAMA Structural Change and Growth Prospects The World Bank Washington, D.C., U.S.A. Copyright ©) 1985 The Intemational Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Mtanufactured in the United States of America First printing August 1985 World Bank Country Studies are reports originally prepared for internal use as part of the continuing analysis by the Bank of the economic and related conditions of its developing member countries and of its dialogues with the governments. Some of the reports are published informally with the least possible delay for the use of govem- rnentf, and the academnic, business and financial, and development communities. Thus, the typescript has not been prepared in accordance with the procedures appropriate to fc rmal printed texts, and the World Bank accepts no responsibility for errors. The publication is supplied at a token charge to defray part of the cost of manufacture and distribution. The designations employed, the presentotion of material, and any maps used in this document are solely for the convenience of the reader and do not imply the expression of any opinion whatsoever on the part of the World Bank or is affiliates concerning the legal status of any country, territory, city, area, or of its authorities, or concerning the delimitation of its boundaries or national affiliation. The most recent World Bank publications are described in the annual spring and fall lists; the continuing research program is described in the annual Abstracts of Current Studies. The latest edition of each is available free of charge from the Publications Sales Unit, Department T, The World Bank, 1818 H Street, N.W., Washington, D.C. 20433, U.S.A., or from the European Office of the Bank, 66 avenue d&Iena, 75116 Paris, France, Library of Congress Cataloging-in-Publication Data Main entry under title: Panama : structural change and growth prospects. (A World Bank country study) "Report no. 5236-PAN." "February 28, 1985."' 1. Panama--Economic policy. 2. Panama--Economic conditions--1979- . 3. Finance, Public--Panama. 4. Labor supply--Panama. 5. Agriculture and state-- Panama. 6. Industry and state--Panama. I. Inter- national Bank for Reconstruction and Development. Latin America and the Caribbean Regional Office. II. Series. HC147.P43 1985 338.97287 85-12420 ISBN 0-8213-0580-8 PREFACE The World Bank periodically prepares country economic reports that provide a basis for the dialogue between member Governments and the Bank on macro and sector policies, investment priorities and Bank assistance to the couintry. While circulation of these reports is normally restricted to menaber Governments of the Bank and international organizations concerned with developmnent problems, the Government of Panama has agreed to make this report available to a wider audience as an important contribution to the ongoing discussions of its economic adjustment process. The present report is based on the findings of a mission that visited the country in March 1984 and on subsequent updating of those findings. It was prepared during a time of intense and fruitful dialogue between the Government of Panama mnd the World Bank concerning the most appropriate economnic policies to enable Panama to meet the challenges of the 1980's. These challenges are indeed serious. Panama faces the need to fundamentally reorient its economy at a time when the world economic environment is more hostile than in previous decades, and when it is facing an acute scarcity of international credit. The country's previous sources of growth -- the public sector and internationally oriented services -- can no longer provide the dynamism required to address Panama's mounting unemployment. Renewed growth therefore depends upon greater dynamism in agriculture and industry, geared towards exports and fuelled by private investment. This in turn implies building upon the country's considerable assets as a colnmercial and financial center, located at the crossroads of world trade, through deepening and expanding the economic adjustment process to which a good beginning hes been made. This report concludes that, while there is no guarantee of success, an open economy growth strategy, combined with a coherent and well planned fiscal policy, has by far the best chance of encouraging the right kind of export-oriented, labor intensive investment. The Bank and Government hope that the report will prove valuable to a wi,le audience interested in Panama's economic development and in tne wider problems of struictural adjustment. The findings and recommendations of the report, however, remain the responsibility of its authors. A. David Knox Vice President Latin America and the Caribbean Regional Office SYNOPSIS Panama's first democratically elected Government in 16 years faces a serious economic situation. The principal growth sources since 1970-the public sector and internationally oriented services--have dried up. The public sector is tightly constrained by external debt obligations while services rely heavily on the depressed Latin Americani market. High and rising unemployment could soon become a divisive social issue. Panama's medium term prospects of renewed growtlh depend upon greater dynamism in agricmilt'tr- anld [ildustry, geared towards exports and fueled by private investment. This in turn implies bulilding upon the country's considerable assets as a commercial and financial center, located at the crossroads of world trade, through deepenLng and expandinig the structural adjustment process to which a good beginninig has been made. This report concludes that, while there is no guarantee of success, an open economy growth strategy, combined with a coherent and well planned fiscal policy, has by far the best chance of encouiraging the right kind of export-oriented, labor intensive investment. The likely alternative is continued stagnation, increasing strain on the social fabric, and erosion of Panama's creditworthiness. This report is based on the findings of an economic mission which visited Panama in March 1984, comprised of Robert Lacey (Chief), Desmond McCarthy (Macroeconomic analysis), Thorkild Juncker (Young Professional), James Loome (Research Assistant), Maria Teresa Rodrigo (Secretary), and James E. Austin and David Flood (Consultants). The report also incorporates the work of other missions during that period especially those of Mario Reyes Vidal (Industry), Eric Shearer (Consultant, Agriculture), and Aura Garcia de TruslQw (Urban Planning), and of subsequent updating missions. The Report was discussed witlh the Government in October, 1984. CURRENCY EQUIVALENTS Currency Unit Balboa (Bt.) US$1 B/.1 Note: The issue of Balboas is restricted to coins. The US Dollar (US$) is accepted as currency. Fiscal Year January 1 - December 31 WEIGHTS AND MEASURES Metric System GLOSSARY OF ABBREVIATIONS APN - Autoridad Portuaria Nacional (National Port Authority) BDA - Banco de Desarrollo Agropecuario (Agricultural Development Bank) BDC - Bayano Development Corporation BHN - Banco Hipotecario Nacional (National Mortgage Bank) BNP - Banco Nacional de Panama (National Bank of Panama) CALV - Corporacion Azucarera La Victoria (La Victoria Sugar Corporation) CAT - Certificado de Abono Tributario (Tax Credit Certificate) CBI - Caribbean Basin Initiative CFZ - Colon Free Zone CNI - Consejo Nacional de Inversiones (National Investment Council) COFINA - Corporacion Financiera Nacional (National Finance Corporation) CSSO - Caja de Seguro Social (Social Security Agency) DFC - Development Finance Corporation DICOMEX - Direccion de Comercio Exterior (Foreign Trade Directorate) ENASEM - Empresa Nacional de Semillas (National Seed Corporation) ENDEMA - Empresa Nacional de Maquinaria (National Machinery Pool) FIVEN - Fondo de Inversiones Venezolano (Venezuelan Investment Fund) IDAAN - Instituto de Acueductos y Alcantarillados Nacionales (National Water and Sewerage Institute) IDB - Inter-American Development Bank IDIAP - Instituto de Investigaciones Agropecuarios (Agriculture Research Institute) IFARHU - Instituto para el Fomento y Adiestramiento de los Recursos Humanos (Human Resources Developmeiit Institute) IMA - Instituto de Mercadeo Agropecuario (Institute of Agricultural Marketing) IMF - International Monietary Fund INTEL - Instituto Nacional de Telecomuriicaciones (National Telecommunications Institute) IRHE - Instituto de Recursos Hidraulicos y Electricos (Hydroelectric Resources Institute) ISA Instituto de Seguros Agricolas (Crop Insurance Institute) MICI - Ministerio de Comercio e Industria (Ministry of Commerce and Industry) MIDA - Ministerio de Desarrollo Agropecuario (Ministry of Agriculture and Livestock Development) MIPPE - Ministerio de Planificacion y Politica Economica (Ministry of Planning and Economic Policy) MIVI - Ministerio de Vivienda (Ministry of Housing) ODAC - Oficina de Desarollo del Area del Canal (Office of Canal Area Development) ORP - Oficina de Regulacion de Precios (Price Regulation Office) PCV - Programa Colectiva de Vivienda (Collective Housing Program) SAL - Structural Adjustment Loan SDR - Special Drawing Rights of IMF USAID - U.S. Agency for International Development PANAMA - ECONOMIC DATA GNP pr capita, 1983: US$1,940 GROSS NATIONAL PRODUCT IN 1983 ANNUAL RATE OF GROWrH (5In constant prices) USS Million J 1970-75 1975-80 1980-83 GOP at Market Prices 4,369.6 100.0 4.7 6.3 3.3 Gross Dbmestic Investment 1,103.6 25.3 6.6 0.2 2.4 Goss National Savings 918.4 21.0 4.2 1.5 -3.0 Current Account Balance -185,2 4.2 - - - Export GNFS 1,805.0 41.3 3.8 10.4 3.2 Import GNFS 1,709.7 39.1 4.6 4.8 -3.6 VALUE ADDED IN 1983 ANNUAL RATES OF GROWTH (constant 1970 prices) US$ Million % 1970-75 1975-80 1980-85 Agriculture 194.6 10.1 1.2 1.8 3.9 Industry and Mining 180.5 9,4 3,0 4.3 -1.1 Services 1,547.3 80.5 5.6 7.2 3.7 Total 1,922.4 100.0 4.9 6.3 3.3 GOVERNMENT FINANCE PUBLIC SECTOR CENTRAL GOVERNMENT USS millions % of GDP USS millions I of GDP 1983 1977 1983 1977 1983 Current Revenues 1,405.8 26.0 906.2 17.8 20.7 Current Expenditures 1,262.6 24.0 909.5 17.1 20.8 Current Savings 143.2 2.0 -3.3 0.7 -0.1 Capital Expenditures 390.5 14.4 224.5 5.6 5.1 Overall Deficit (-) 247.3 -12.4 -227.8 -6.3 -5.2 PRICES AND WAGES (Annual Percentage Increases) 1979 1980 1981 1982 1983 Whole prices 14.0 15.4 10.0 8.3 2.8 (bst of Living 8.0 13.8 7.3 4.2 3.6 Average wages 6.3 11.2 4.2 6.2 n.a. Real wages -1.6 -2.3 -3.0 1.8 n.a. PAHAM~AJ. TRADE, PAYMENTS AND CAPITAL RLOWS BALANCE OF PAYMENTS (MillIons of SUS) Actual Prelminar 1980 1981 1982 1983 1984 Exports of Goods and Services (NF) 1,567.2 1,690.5 1,782.7 1,805.0 1,785.7 of which merchandise f.o.b. 526.0 493.5 488.2 436.7 404.8 Imports of Goods and Services (NF) 1,684.8 1,858.2 1,803.2 1,109.7 1,488.8 of which omrchandise f.o.b. 1,342.3 1,469.5 1,496.3 1,353.0 1,148.8 Net Transfers 12.7 29.1 35.1 39.6 45.0 Investment Income (Net) -283.2 -275.6 -372.1 -320.1 -367.5 Current Account Balance -388.1 -414.2 -437.5 -185.2 -70,6 Official Capita (Net) 223.8 203.9 509.1 295.6 250.4 Amortization 263.3 316.4 400.9 268.8 n.e. Dlsbursement 487.1 520.3 910.0 564.4 n.e. Other Official Transactlons (Net) 39.1 -36.9 3.0 -88.2 20.1 Private Capital (Not) 149.1 303.4 52.4 -41.6 -120.1 Not Errors and Omlsslons and Undentified Flows -23.9 -56.2. -127.0 19.4 -79.8 EXTERNAL TRADE 1978 1978 1979 1980 .1981 1982 1983 1984 Merchandise Exports fob 370.3 11.2 3.5 5.7 7.3 2.9 -14.0 2.1 Primary 135.5 3.6 3.2 0.3 -3.4 -11.6 18.2 0.8 Manufactures & other 234.8 23.0 3.8 19.4 -16.4 10.6 -36.3 3.4 Merchandise Imports fob 853.8 13.3 3.6 8.1 -0.2 0.6 -11.9 -4.4 Petroleum 219.2 -4.0 11.9 -14.1 -14.9 -4.3 -6.3 -1.8 Machinery and Equipment 188.8 32.9 -6.f, 15.6 14.2 9.3 -28.0 -13.0 Manufactures 356.2 31.6 -2.4 9.4 -1.1 -5.4 -25.4 -1.5 Others 89,6 -39.0 22.4 45.6 9.2 0.9 0.7 -1.5 PRICES Export Price Index 100.0 115.5 118.2 120.3 115.1 117.4 121.2 Import Price Index 100.0 121.3 126.6 139.0 141.4 142.: 144.9 Terms of Trade Index 100.0 ,95.2 93.4 86.5 81.4 82.2 83.6 Oomposition of Merchandise Trade (%) (at Current Prices) 1960 1970 1975 1980 1985 Exports 100.0 100.0 100.0 10o.o 100.0, Pr I mary 73.9 74.2 44.6 39.0 32.9 Oihers 26.1 6,0 55.4 61.0 67,1 Imports 100.0 100,0 100.0 100.0 100.0 Petroleum 9.9 1900 34.4 31.1 29.6 Machinery & Equipment 22.1 27,5 29.0 19.4 21.8 Others 68.0 53o5 36.6 49.5 48,6 EXTERNAL DEBT, DECE;ER 31, 1983 (MII ilons of $US) Public Extornal MLT Debt Outstanding 3,405.3 Total Service Payments 463.6 Interest 275.8 ftiortizatIons 187.8 Service Payments as % of GNFS Exports 25.7 Service Payments as % of Public Sector Revenue 33.0 PANAMA Strtuctural Change and Growth Prospects Volume I: Main Report Table of Contents Page No. COUNTRY DATA SYNOPSIS SUMMARY OF MAJOR CONCLUSIONS.................................... xvi A. Macroeconomic Policy ......................... xvi B. Employment...... e........ . *.......... xiX C. Agriculture and Agroindustry ..................... xx D. Industry, Trade Policy and Export-Related Services ......... Xxi E. Public Finances......................... ................... xxiii F. Final Remarks ..................... .... * xxiv Chapter I - Recent Economic Performance and the Structural Adjustment Program ........... 0 ................ 0....... I A. Past Economic Trends and Recent Changes ................... I B. The Structural Adjustment Program ................... . 4 Chapter II - Employment ........... ........ . ...... .. . ... .... 9 A. The Deteriorating Employment Situation o........ 9.......9 B. The Sources of Employment .....O ...... . ........ .... 11 C. Labor Market Policies .. . . . . .. *.............. . * ...... 13 D. Expansion of Public Sector Employment ....................... 19 E. Implications for Employment Policy... .................... 21 Chapter III - Public Sector Finances.....*............o........... 23 A. Overall Trends.................... e .. . .. e e . ...... ..... 23 B. Central Government..*........ ...... ....... . ... ... ..... 25 C. The Social Security Agency . o..o .......... 27 D. The Decentralized Agencies .. ....... ............ 30 E. The Public Sector Enterprises* ..............o....... 37 F. The Public Investment Program ....... ........................ 47 G. Public Sector External Debt................... o ....... . . . 50 H. The Need for Continued Fiscal Discipline ....... * ........ 54 This report is based on the findings of an economic mission which visited Panama in March 1984, comprised of Robert Lacey (Chief), Desmond McCarthy (Macroeconomic analysis), Thorkild Juncker (Young Professional), James Loome (Research Assistant), Maria Teresa Rodrigo (Secretary), and James E. Austin and David Flood (Consultants). The report also incorporates the work of other missions during that period especially those of Mario Reyes Vidal (Industry), Eric Shearer (Consultant, Agriculture), and Aura Garcia de Truslow (Urban Planning), and of subsequent updating missions. The Report was discussed with the Government in October, 1984. - xi - Table of Contents - (Cont'd) Chapter IV - Agriculture and Agroindustrial Policy ................... 57 A. Overview of the Agricultural Sector...................... 57 B. The Policy Framework....... ..... e . .o .... . . . . . . . . . . . . . 59 C. The Current Role of the State...................... 61 D. Potential for Exports and Import Substitutes ................ 75 E. An Outline Strategy for Greater Efficiency .................. 81 Chapter V - Industrial Policy........... .............e.oe....... 84 A. Introduction ........................... ......... 84 B. Recent Performance and endTrends.............. .... 85 C. The Current Policy Framework................. *.* ......... e?. 88 D. Export and Employment Incentives .......................... 90 E. The New Industrial Development Strategy.s................... 92 F. The Prospects for Industrial Exports ......................... 95 Chapter VI - Export Related Services., . .............. ..... 98 A. Introduction...................... ........ o....... ........ 98 B. The Port System, the Panama Canal and Ocean Freight Cost ...................... . . . e ................... ee eX* ** *XX XX 101 C. Land Transportation ..... . . ................. . .* .......... 106 D. The Colon Free Zone ... . .. . ... ............ . . . . . . . . . . . . 109 E. The Reverted Areas .. . . . . * . . . . . * . . . ....... . . ...... . . . . 1 12 Chapter VII - Economic Prospects for the Rest of the 1980ts........ 118 A. Introduction .. .. . .o. . ................ 6. ..... . e ...*X § **e***eeev 118 B. The Projected Scenarios.... ...... . ............................ . 119 C. Results of the Projections ...... . .. . . . . .. e ".. .... . * . * e 121 D. Implications of the Economic Projections. ............. ...... 126 - xii List of Tables of Main Text 1.1 Principal Economic and Social Indicators.*.*..............** 3 2.1 Key Aggregate Employment Indicators, 1974 and 1983 ... 10 2.2 Job Generation Since l97O,,.....,..................o... 12 2.3 Annual Growth Rates of Employment, 1970-82...............* 12 2.4 Employment, Wage and Productivity Indicators in Manufacturing Before and After the Introduction of the Labor Code.. . .... . . . . . . . , . . . . . . e e e . . , e , . . . , s e . , 15 2.5 Employment and Output Indicators in the Construction Sector.. ...... * * , ........... 16 2.6 Social Security Contribution Rates,.......S........,Q...... 16 2.7 Average Monthly Earnings in Manufacturing: Selected Countries Relative to Those In Panama,..,.e.*,*, 19 2.8 Public and Private Sector Employment, 1963-1982......... 20 3.1 Key Consolidated Public Sector Ratios, 1971-83.**..e*.*t* 24 3.2 Central Government Revenue as Percentage of GDP, 1971-83 ....... 9 eee* .....,,, ........, 25 3.3 Central Government Current Expenditures as Percentage of GDP, 1971-83.... 26 3.4 Social Security Agency: Key Statistics..................eee 27 3.5 Summary of Finances of The Social Security Agency...........*.....9... ... ... 28 3.6 Social Security Agency: Estimated Actuarial Deficit as of December 31, 1982 ...................... 30 3.7 Consolidated Operation of the Decentralized Agencies, 1988 ........+o*..e******e****ae**e***e*31 3.8 COFINA: Summary Accounts....... ....... 32 3.9 University of Panama;. Summary Indicators . .............. 35 3,10 University of Panama: Summary Accounts .....e ....e...... 36 3.11 IFARHU: Summary of Operations ..........,............ 36 3.12 Consolidated Operations of the Public Sector Enterprises. 37 3. 13 IRHE: Summary Accounts 9 9,999999999 9e99*999999e999 2 38 3,14 IRHE: Performance Indicators: Annual Averages a 39 3. 15 IDAAN: Summary Accounts ., ........o..... ** 9999999 41 3.16 IDAAN: Performance Indicators .......e...e......... 42 3.17 INTEL: Performance Indicators .................,......... 43 3918 INTEL: Summary Accounts e....... ...... 2** **e*. e¢ve*. 44 3.19 International Telephone Rates in Selected Countries ..... 45 3.20 Cemento Bayano: Summary Accounts e 46 3.21 Comparison of Programmed, Budgeted and Actual Capital Expenditures by Sector, 1983 ....,....,6.*.*.. *.*. 48 3.22 Revisions of the 1984 Public Investment Budget ......... 49 3.23 Evolution of Medium and Long-Term Debt ............ .... 51 3,24 Short-Term Public Debt Outstanding ....... . .. 51 3.25 External and National Bank Financing of the Public Sector Deficit . e e 9 999999r999e 9 o.9.09......... 52 3,26 Projection of Public External Debt Service, 1984-87 ,..... 54 3.27 Public Savings Financing of Public Investment, 1971-83 .. 55 - xiii Table of Contents - (Cont'd) 4.1 Yield Comparisons for Selected Crops, 198181*....* ....... 58 4.2 Ratio of Panamanian to U.S. Agricultural Prices.... 61 4.3 Degrees of Incentives on Selected Agricultural Products Relative to those on Rice..................... 62 4.4 Crop and Fertilizer Prices in Panama, 1982-83 ............ 65 4.5 La Victoria Sugar Company: 1982-83 Operations ........... 73 5.1 Manufactured Goods: Ex-Factory Cost in Panama Compared to CIF Price, Mid 1983 .............. 84 5.2 Growth in the Manufacturing Sector, 1960-82 - ............. 85 5.3 Structure of the Manufacturing Sector, 1970 and 1982 ................................................. 86 5.4 Manufactured Exports, 1970-82 ............ * ............... 87 5.5 Performance of Non-traditional Exports Since Introduction of the CAT, 1975-82... ............ 90 6.1 The Service Sector in Relation to GDP, 1970-83........ .. .... e e ...e........ o .......... 99 6.2 The Ports of Balboa and Cristobal-Key Statistics, 1980-83 ................ 6 ............... o .......... 101 6.3 Port Transshipment Traffic, 1969-80 ..................... 102 6.4 Comparison of a Transshipment call in Kingston, Jamaica and Cristobal, Panama..a......... . ....... a ..... 103 6.5 Major Shipping Lines by Volume and Port of Call, 1982e .. . . . . . . . . . . 0 ............e............** e* ** ** ** ** *X 105 6.6 Land Freight Traffic by Carriers, 1976 and 1981 .......... 107 6.7 Cost of Land Transportation, 1982 and 1984 .........o ..... 108 6.8 Truck Tariffs in Panama and other Countries, 19833... 108 6.9 Colon Free Zone: Key Statistics, 1972-83............. 110 6.10 Allocation of Reverted Assets as of February, 1984 ........ . ........ .... .............. e ..... 114 7.1 Assumed Real Annual Average Growth Rates for Exports Under Alternative Scenarios 1984-89 ............. 119 7.2 Economic Performance Under Alternative Scenarios ......... 122 7.3 Key Public Sector Variables Under Alternative Scenarios.. 123 7.4 External Debt Variables Under Alternative Scenarios ...... 124 7.5 Balance of Payments Scenarios ............ s ...... 126 LIST OF GRAPHS OF MAIN TEXT Following Page No. 2.1 Population Growth 1911 to 2000 ..............* ..... 11 2.2 Urban Population Growfth 1911 to 2000........ ...... 11 2.3 Real Wages by Sectoro ....... ................. 18 3.1 Consolidated Public Sector Deficit as Percent of GDP ...... e e * ... ...@ ........3*** e** o...o... e*** 24 33.2 Electric Power Costs 1980* ....................e.... 39 3.3 Med--.ium and Long-Term Debtxiv .......-........ e..* .. . 50 -xivT - Table of Contents - (Cont'd) 4.1 Crop Comparisons. . . . . e . . e . . . . . . . . . . . * * * .......... 57 6.1 Travellers to Panama, 1970 to 1983.,,....... 100 6.2 Caribbean Ports Container Volume, 1979-82......... 103 6.3 Indices of Panama Canal Traffic ................. 106 7.1 Private Consumption per capita ..... ..............e 121 7.2 Public Sector Savings .-e e... .. D............... *.. 121 7.3 Projected Unemployment Rates ..................... e e 122 7.4 Public Sector Deficit as Percent of GDP ........... 123 7.5 Interest on External Debt as Percent of Public Revenue .. ....... ............ ........ . 125 MAP IBRD 18310 (July 1984) - xv - SUMIARY OF MAJOR CONCLUSIONS i. On October 11, 1984 Panama's first democratically elected Government in 16 years took office. It confronts a serious economic situation. Real per capita output has stagnated since 1980, and GDP since 1982. The principal growth sources since 1970--the public sector and the internationally-oriented service sector--have dried up. The plublic sector is under a severe financial ponstraint: it must service, under conditions of acute scarcity of commercial credit, an external debt of 73 percent of GDP, larger in relative terms than those of Argentina, Brazil or Mexico. The export-oriented service sectors are heavily dependent on the Latin American market; they are therefore unlikely to recover dynamism until a regional recovery takes place. High and rising urban unemployment, perhaps the major economic problem the country faces, could soon become a divisive social issue. Given the moderate growth prospects for services, more rapid expansion must be centered in the directly productive sectors of agriculture and industry. The entrepreneurial initiative and investment finance for this must come from private sources rather than the financially weakened public sector. Moreover, the domestic market is small and largely saturated; merchandise exports must therefore become the engine of growth. ii. The encouragement of the appropriate blend of export-oriented, labor intensive activities requires: (i) a major overhaul of the structure of incentives which is currently geared towards import substitution and results in the minimization of employment; (ii) a leaner, more efficient public sector, both to ease Panama's severe fiscal burden and release resources for private investment; and (iii) specific reforms to tackle individual sectoral inefficiencies. Because it uses the US dollar as a medium of exchange, Panama cannot exercise the option of compensating exporters through exchange rate adjustment. All sources of high cost and inefficiency must therefore be tackled individually. iii. Parallel with a severe program of fiscal stabilization and austerity, the Government has begun to address these issues through a series of fundamental reforms, After successfully carrying out important initial measures, the Government needs now to broaden and deepen this adjustment process to improve the investment climate, address labor market rigidities and promote efficient resource allocation. A. Macroeconomic Policy iv. Export expansion by the goods sectors is now viLal. The World Bank's macroeconomic projections show that continued reliance on the service sector alone will. nor generate sufficient growth to permit significant xvi - increases in real per capita consumption or to absorb the rising labor force, even unider favorable international conditions. This requires a thorough revision of the current structure of incentives. The current bias towards import substituting activities for a small, protected market must be reversed, and exporting made at least as profitable. This can effectively be accomplished by a general opening of the economy to international competition, thereby permitting entrepreneurs to obtain raw materials and intermediate goods at close to international prices. Indeed, those economies that have tried to graft an efficient export sector onto a virtually unchanged import substituting one have met with very mixed success. This is because the high costs and inefficiencies in the protected parts of the economy inevitably erode the competitiveness of the exporters. By contrast, where general, open economy policies have been followed, the results have often exceeded the expectations of the policies' most enthusiastic advocates. This is not to say that success is guaranteed; on the contrary, an export-oriented, market based strategy is by definition a step into the unknown. But experience elsewhere, particularly in small economies with a powerful entrepot tradition to build upon, indicates that it is the best way to break out of the vicious circle of high costs and stagnation. v. To become a successful exporter, however, it is not enough to restructure incentives. All the inefficiencies and sources of high costs which pervade the economy must be addressed if the goods sectors are to compete internationally. Here a distinction may be made between non-tradable and tradable goods and services. Among the non-tradables, the experience of successful exporters shows that cheap, reliable, basic public services, such as electricity, water and telecommunitations, are a cornerstone of development strategy. In Panama, their cost must be brought down. This must be tackled through reducing the operating costs of the entities concerned. Similarly, the cost of export related services such as the ports and land transportation needs to be reduced. This can be achieved through improvements in infrastructure and equipment, increasing operating efficiency through concessions to the private sector under competitive conditions, and through institutional reforms aimed at ending restrictive practices which pass high costs onto the user. vi. In the case of tradable goods, examples abound in the Panamanian economy of very high prices for staple goods; this inevitably adds to upward cost pressures. Cement is produced domestically at over twice world costs and sold to the consumer at three times world prices; farmers pay a high price for fertilizers and chemical pest controls; the ex-refinery price of most petroleum products is about a third above that of other refineries in - xvii - the Caribbean area; the high cost and inefficient agricultural and agroindustrial sectors, subsidized throuigh high support prices and import restrictions, lead to upward pressure on urban wages, reinforcing labor market rigidities and high social security charges; and local industry, protected from outside competition, sells most of its products at prices well in excess of world levels. Ultimately, these costs can only be brought down through exposing the sectors concerned to international competition. Clearly this needs to be done gradually to minimize the disruptive impact on employment; however, it must be done if the economy is to become competitive. Panama can no longer afford the luxury of subsidizing these activities. vii. The formidable array of bureaucratic controls on prices and marketing, particularly in agriculture and agroindustry, also needs to be dismantled since it constitutes a barrier to po '_ntial exporters. Exporters have to pass through some eight or ten complex administrative procedures in the case of many product groups; often the only legal way to overcome these barriers is to export through the state marketing inistitute, IMA. viii. A revised development strategy and incentive system will require complementary investment if it is to be successful. However, the quality of the investment is much more important than its quantity. Panama has had very high levels of investment, averaging over 20 percent of GDP since 1970, but this has not laid adequate foundations for future expansion. Much of it was concentrated in the state sector, while a significant proportion of private investment was geared to the local market in activities heavily stubsidized, directly or indirectly, by the State. The productivity of the new capital was consequently low. New private investment needs to be encouraged in export-oriented, employment intensive activities, with much higher output per unit of capital spent. ix. To achieve this, the investment climate must be improved. This is not only a matter of an appropriate legal framework and incentives; contfidence must be engendered in the permanence of the new policy and "rules of the game". This can only be inculcated througlh putblic commitment, both at the highest political levuil and by the newly elected legislature, and through a well planned campaign of "public education" showing the necessity for, and the advantages of, the new policy framework. For local investors even this may not be enough, at least initially. Efforts to attract foreign investment through the National Investment Council and similar initiatives must therefore be intensified. These could be linked to the identification and dissemination of opportunities in the US market arising from the Carribean Basin Initiative. Successful export projects require not merely capital but entrepreneurship, technology, management skills and an appropriately trained labor force as well. This is particularly so for the relatively high value products on which Panama will have to concentrate, given its comparatively high labor costs. - xviii - B. Employment x. Unemployment is, without doubt, the gravest economic and social problem currently facing Panama's policy makers. The officially estimated unemployment rate is some 10 percent nationwide and 12 percent in the Panama City/Colon Metropolitan Area, both all-time highs. The deterioration is accelerating and the long term unemployment rate has doubled since the mid-1970s. The projections in this report show, moreover, that there are likely to be many unemployed in the medium term even given a moderate economic recovery. A realistic asses-ment of growth prospects, and of the possibilities of increasing employment in the short term, indicates that there could well be some 100,000 people unemployed by the late 1980's. Not only is this a threat to the social fabric; it also means that one of Panama's most important comparative advantages--its relatively skilled, productive and frequently bilingual labor force--is increasingly untapped. To meet this social and economic challenge, drastic and rapid, action needs to be taken to modify the legal and institutional framework in which the l..bor market operates. xi. A coherent attempt should be made to encourage employment by reducing the perceived costs associated with it. Social Security contributions and other social charges, which have more than doubled since 1970, must not be allowed to increase further, and ways should be sought to reduce them, Employment may also be encouraged by reducing effective subsidies on the use of labor substitutes, e.g. duty exonerations on imported capital equipment and accelerated depreciation allowances. xii. However, such considerations are relatively marginal compared to the rigidities of labor legislation which are the principal cause of a perceived high cost of employment by entrepreneurs. Despite being a highly sensitive political issue, major and economy-wide modifications of the Labor Code are a sine qua non if Panama is to expand production for export at the rate necessary to absorb the growing labor force. This is unlikely to be achievable through changes to individual clauses by presidential decree. The Code is a weighty document, skillfully put together, with mutually reinforcing articles and clauses. To make it compatible with rapid employment generation would require major revisions, These should concentrate on removing the obstacles tc rewarding productivity and introducing greater flexibility in the hiring and dismissal of workers. Specifically, employers should be permitted to lay off labor in response to market conditions and also to supplement the labor force with temporary workers when demand is high. xiii. These reforms should be accompanied by measures to assist the self employed to fend for themselves. This would be preferable to further special employment programs which would burden an already tight budget, or to relief - xix - transfers which would do the same and engender a feeling of dependency among the beneficiaries. The opportunities for the self-employed, already 200,000, would be enhanced by technical assistance, credit, and sites for artisanal activities and small business, as well as by support for cottage industries. They would also benefit from proposed reforms to industrial incentives legislation which tends to favor the strong and the influential. For example, much protection and most incentives are currently granted through the mechanism of individual Contracts with the Nation; the resources required to negotiate and obtain them are frequently beyond the means of small enterprises. C. Agriculture and Agroindustry xiv. While the rural sector is unlikely to become an important generator of jobs, a more efficient agriculture has a vital role to play in reducing upward pressure on wage costs. Lower support prices and a more liberal agricultural trade regime would ensure a lower cost supp'y of food a-d inputs for the urban area. xv. However, despite some recent reforms, Panama's agricultural strategy remains based upon the goal of self sufficiency with little regard paid to economic and financial cost. In addition, the Authorities have sought, since the late 1960's, to transfer resources principally to the beneficiaries of land reform, who constitute only one fifth of the rural poor. To accomplish these objectives, a wide variety of state institutions was created or reinforced, to grant subsidized credit, market agricultural output, provide subsidized inputs and engage in direct production. To complement the activities of these institutions, the Government retains strict control over the prices of nearly all agricultural inputs and outputs and over foreign trade in most agricultural and agroindustrial products. xvi. The results of this strategy have been less than successful. The average rate of growth of agricultural output since 1970 has been less than two percent per year; real average per capita production in 1980-83 was 2 percent less than in 1969-71. Moreover, 85 percent of the volume increase was in sugar cane following loss-making public investments in four sugar mills in the mid 1970's. xvii. State intervention has tended to favor those subsectors (e.g. sugar and rice) where Panama's comparative advantage is; not strong. By contrast, where potential does exist, it is often hampered by bureaucratic intervention or by inappropriate pricing policies. Panama's possibilities for expanding exports lie principally in (a) salt-water, farm-bred shrimp for which production capacity could be profitably quintupled within a very few years; (b) dual purpose semi-intensive cattle raising in the central and western coastal plains an-' foothills; (c) small scale, labor intensive production of tropical export crups (e.g. coffee, cacao), and of temperate zone vegetable - xx - and fruit crops in the upper altitudes; (d) equally small scale labor-intensive growing of selected vegetable and fruit crops with irrigation near the rivers of the central provinces; and (e) development of the country's considerable forestry potential. Movement toward this, or a similar output pattern, would also be socially desirable in that it reduces the importance of crops with marked seasonality of employment, such as sugar cane. xviii. For this potential to be more fully realized, this report develops four general guidelines to help the Government reorient its agricultural strategy towards a new period of growth. First, support prices should be lowered until they approach internationally competitive levels. This should improve resource allocation and reduce costs to the consumer. In particular, immediate action should be taken to reduce the high support price for rice, which is threatening the financial stability of the state marketing institute, Il4A. Second, the State should refrain from entering into direct production in competition with the private sector wherever competitive conditions prevail. The possibilities of privatizing existing state production should be considered on a case-by-case basis. Third, price controls should be reduced on agricultural and agroindustrial inputs and outputs. They not only lead directly to the misallocation of resources; their administration inevitably spreads into control of exports and imports, thereby impeding expansion of export-related activities. Price controls can be justified only to mitigate the social effects of an actual or impending scarcity of a mass consumption good. Panama's open economy in principle guarantees that such scarcities cannot arise provided the Government liberalizes commerce and does not interfere with the market. Fourth, a significant obstacle to export-oriented private investment in agriculture is uncertainty about the continuity of any given economic policy measure or set of measures. The creation of a climate of certainty would likely do more for stimulating private investment than many incentive measures. Investors and entrepreneurs need stable "rules of the game" long enough to promise a reasonable rate of return on their investment. D. Industry, Trade Policy and Export Related Services xix. The Government has already made significant progress in reorienting incentives for the urban, industrial sector. Nearly half of all quantitative restrictions on imports were removed by 1984, and very few will remain after March, 1985, While this is an important first step, the program will continue. In particular, the Cabinet has approved a draft Industrial Incentives Law, incorporating a generalized system of incentives, tariff reductions and other key reforms, which would be solidified by Legislative approval. xx. To complement these, the Authorities could take a number of specific actions to enhance industrial export prospects. First, they may - xxi wish to increase public awareness of their new trade and industrial policy. This would reduce uncertainty and accelerate the desired reallocation of resources. Second, institutional support for exporters could be increased. Third, the Caribbean Basin Initiative (CBI) will benefit Panama's export drive provided the promotional institutions, such as the NatLonal Investment Council, familiarize themselves with CBI rules, provide updated information to investors and coordinate with promotion agencies in other beneficiary countries to explore possibilities of obtaining economies of scale through joint operations. The potential vanguard of Panama's CBI response could be the experienced and successful traders of the Colon Free Zone (CFZ). The Zone merchants also require information concerning the CBI's detailed trade provisions, and this information should be channelled to them on a systematic basis. xxi. There is considerable scope for expansion of free zone and export-oriented industrial activities in the reverted Canal Area. To develop this potential, a number of interrelated policy changes are required. First, the urban planning process must be considerably strengthenied to provide necessary technical input for a coherent land use policy. Second, use could be made of a variety of instruments to allow private exploitation of the assets without losing national ownership. These include long-term leases and concessions as well as short term rentals. Third, the Canal Area and related assets could present an important but untapped source of fiscal revenue. If the present process of allocation, almost wholly to the piublic sector, continues, they will instead become a fiscal drain. The previous functions of the defunct Canal Authority could be vested in the Ministry of Finanice, as the overall administrator of the nation's assets. The Ministry would then be responsible for processing requests for land allocation, with sufficient powers to resist further public sector encroachment. Further, the c,urrent practice of renting both buildings and land at well below market rates should cease. Instead, leases should be auctioned to the highest bidder consistent with land use zoning policies. Lease agreements should contain rental escalation clauses. Rents charged on already allocated assets, to either public or private sector tenants, should be reviewed and, if necessary, increased to current market values. Fourth, encouragement could be given to private derev(lopers to uirbanize underdeveloped lands and provide basic sites and services. They could recoup their inivestment through subletting. Fifth, a strateay could be developed to minimize the impact of release of the reverted areas on existing land values. This could include the rent or sale of assets at their full market value and also the use of techniques Stich as zoning requirements and coordinated timing of land releases, preannounced to reduce market uncertainty. - xxii - xxii. In principle, Panama's geographic position and international transport infrastructure should provide a springboard for the expansioil of goods exports. In practice, this potential cannot be fully tapped because of a number of institutional deficiencies and cost disadvantages. First, Panama's ports require improved management, equipment and layout. Second, other institutional factors in the transport sector, such as monopoly practices in land transportation, not only increase costs to the user but reduce operational flexibility and limit technological initiative. Since the container revolution, Panama has lost most of the transshipment business related to Canal traffic to neighboring ports, while use of the Trans-Isthmian land bridge, which could have considerable potential, is very limited. While there is a need to modernize port equipment, the role of the public sector should be limited to the provision of basic infrastructure. Port operation and management, particularly container transshipment, would likely be more efficiently handled by private sector concessions operating under competitive conditions. This would help to reduce port tariffs and operating costs and increase the rate of port throughput. On all these counts, Balboa and Cristobal currently compare unfavorably with other ports of the Region. A study is already underway to address these issues and determine the possible role of the Trans-Isthmian railroad in container transshipment. Action should be taken urgently to end monopoly practices in the trucking industry which result in very high tariffs, thereby hurting Panamanian exporters and reducing the potential .or the development of intermodal transport operations across the Isthmus. Barriers on entry to the trucking industry should be removed, and the prohibition on the operation of foreign truckers lifted. The economies of scale in transportation, particularly containers, are highly significant. Should these recommended reforms result in a significant increase in transshipment operations and related activities in the Canal ports and across the Isthmus, they would likely result in both reduced unit port costs and cheaper and better shipping options for Panamanian exporters. E. Public Finances xxiii. Thanks to a strict austerity program, the Government restored fiscal stability in 1983 after controls on public expenditure had been loosened in the previous year. In 1983, the consolidated deficit was reduced from 11 percent to under 6 percent of GDP, with a similar target for 1984. This program was supported by a two year Standby Arrangement with the IMF. xxiv. In the coming years, the public sector will be under considerable financial strain. While revenues are depressed by sluggish economic performance, debt servicing obligations are very high. From 1985 through 1987, Panama's commercial amortization obligations total nearly US$1.5 billion, while interest obligations will likely reach about US$360 million per year, equivalent to over a quarter of consolidated public sector revenues. Recent gains therefore, need to be consolidated in order for the Government to meet this onerous burden and, at the same time, finance the minimum amount of public investment to achieve its development goals. This will require consistent and continued fiscal discipline, such as Panama has - xxiii - not achieved for several decades. Reducing the public sector's role in the economy, will lessen the fiscal burden, increase the availability of scarce commercial credit for the private sector, and raise the productivity of investment. xxv. Panama's public savings must be considerably increased. The Authorities should aim to increase them from the current 3.5 percent of GDP to at least 5 percent within the next three years. Without important changes on both the revenue and the expenditure sides, the prospects for achieving this are, at best, mixed. While the expected windfall from the La Fortuna Hydroelectric Project and the Trans-Isthmian Oil Pipeline should provide some financial relief to the Government, they may be offset by increased current expenditures in low cost housing and make-work employment programs as well as, eventually, increased social security obligations. Projections indicate that these latter could impose a very large fiscal burden in the medium term since the Social Security Agency's own reserve is unlikely to earn a sufficient financial return to meet future obligations to beneficiaries. To meet these outlays, strict control on all expenditures must be maintained and strengthened. Public investment could be reduced from the current 9 percent of GDP by concentrating it on vital projects which directly contribute to the Government's strategy. Studies should be undertaken to determine the extent to which state monopolies, such as utilities and ports, can reduce their operating costs without prejudicing their financial health. The five year program of eliminating subsidies to decentralized agencies should be vigorously pursued; this means seeking economies in higher education and reform of agricultural pricing and credit policies which impose heavy financial burdens. Central Government expenditures could be contained through continued austerity and a freeze on recruitment. xxvi. The benefits of many of these actions will only be felt in the medium term. In the meantime, extra revenue should be sought through improved tax administration, especially in the Customs, where substantial sums are lost each year in the form of uncollected duties. Going beyond that to the introduction of new taxes carries the risk of deferring private sector recovery: the existing tax burden on the economy (at 22 percent of GDP including Social Security taxes) is high by Latin American standards. If financial necessity requires a new tax measure, an extension of the value added tax to certain service activities could be considered; this might yield some 15 percent of GDP in extra revenues. Alternatively, the divestiture of some state assets, an important aim of the structural adjustment program, could be accclerated together with more appropriately priced leasing of reverted Canal Area assets. The extra resources could render new taxes unnecessary. F. Final Remarks xxvii. The analysis of this report suggests that Panama has considerable potential for returning to a growth path within two or three years. It is endowed with a geographic location at the crossroads of world trade, a sophisticated, export-oriented commercial sector, an open, well developed financial system, a relatively well trained and frequently bilingual labor force, good communications and an adequate international transport infrastructure. But to build upon these assets, the Government must continue - xxiv - removing constraints to this growth by putting in place a framework conducive to private investment and expansion of exports. This will involve deepening and extending the structural adjustment process to which such a good beginning has been made. The likely alternative is continued stagnation, increasing strain on the social fabric, and erosion of Panama's creditworthiness. xxviii. In order to encourage the right kind of export-oriented, labor intensive investment the Government should: (i) accelerate the restructuring of incentives, many of which currently point in the wrong direction; (ii) remove labor market rigidities and legal impediments to employment; and (iii) progressively open the economy to international competition while dismantling the regulation of prices and trade which discourages investment and impedes exports. At the same time, public sector resources must be increased to finance an investment program oriented to support private initiatives, and to meet expected heavy future outlays in the social sectors. A prudent, coherent and wnll planned fiscal policy, combined with an open economy growth strategy, will not only confirm Panama's creditworthiness, but also improve the allocation of scarce resources, attract foreign capital and lay the foundations for future prosperity. - xxv V I. RECENT ECONOMIC PERFORMANCE AND THE STRUCTURAL ADJUSTMENT PROGRAM A. Past Economic Trends and Recent Changes 1.1 The 1960's saw rapid economic expansion in Panama, with GDP growth averaging 8 percent per year (or 5 percent per capita). Much of the impetus came from buoyant Canal-related activities, and the effects of the Remon-Eisenhower treaties which transferred some economic activities from the Canal Zone to Panama. Real agricultural output increased by nearly 5.3 percent per year, based largely on expansion of grass-fed beef production and on increased output of bananas following important disease eradication measures. These were major factors contributing to a substantial growth of exports. Industrial growth was also strong, with a 10.9 percent annual average increase in real value added, most of it directed towards the domestic market. Almost as impressive was the growth of the construction and services sectors at over 8 percent per year. The latter, which now accounts for 70 percent of the GDP is highly export-oriented and is geared to the Latin American market. It consists mainly of entrepot trading, financial services and transportation. The principal source of investment finance and entrepreneurial talent was the private sector. Private domestic savings averaged about 15 percent of GDP, while private investment increased at a real 12.5 percent rate between 1960 and 1970, rising from 12 percent to 18 percent of GDP. Total employment grew at 3.5 percent per year, well in excess of the 2.5 percent annual increase in population. Nearly all the expansion in employment opportunities was provided by the private sector, and occurred in the urban areas; in the agricultural sector, employment expanded at only 0.7 percent per year. 1.2 The benefits of this rapid development were, however, corncentrated in relatively few hands. Real wages were held down; the nominal minimum salary remained constant between 1960 and 1968. Acute poverty persisted, mostly in the countryside. Moreover, the social and economic infrastructure, particularly in rural areas, was inadequate to ensure continued economic and social improvement outside the metropolitan corridor. Statistics in the most recent "World Development Report" indicate that Panama's income distribution in 1970 was one of the most skewed in the Latin American Region. 1.3 The development strategy initiated by the Torrijos Government in 1968 aimed at major social reforms while attempting to sustain growth through increasing and diversifying exports. Greater national integration was achieved by increasing and improving the communications and transport linkages among the regions of the country; social improvements were made by supporting human resources development, agrarian reform and the provision of basic needs, and by strengthening the country's institutional framework. The strategy was executed through expanded and improved social services (particularly in health and education), through the development of infrastructure by constituting public utilities (electricity, telephones, water) into individual state entities, and by an ambitious public investment program. The system of hydro-electric generation, roads, educational, water and health facilities which was built up throughout the country provided services to wide sections of the population which had not previously enjoyed them. 1.4 Although this strategy was initially successful in combining rapid growth with social reform, the economy was adversely affected by both external and domestic developments in the mid-1970s. Real annual GDP growth fell from 7.3 percent between 1968 and 1973 to 1.7 percent between 1973 and 1977, before recovering to 4.4 percent between 1978 and 1982. The increase in world oil prices and related inflation after 1973 brought about international economic uncertainty, while Canal activities slowed after the peak Vietnam war traffic decreased. Domestic uncertainty stemmed mainly from the extensive/long Cana,l Treaty negotiations, %2t1.-.ough confidence was also undermine,,' by increased regulation of the economy through a highly restrict4ve Labor Code, and price and rent controls. Consequently, private investment declined in absolute terms between 1973 and 1977. The public sector compensated for this, not only through investments in large infrastructure projects, but also by the creation or acquisition (and subsequent expansion) of. a number of directly productive enterprises. State subsidies and high support prices absorbed an increasing proportion of the current budget, while public sector employment accounted for two thirds of the new jobs created between 1970 and 1979. Despite additional revenue measures, this expansioni resulted in a sharp increase in the public sector deficit, and consequentiLy in the Government's dollar-denominated debt which reached nearly 80 percent of GDP by the late 1970s. 1.5 The atmosphere of political uncertainty diminished considerably after agreement was reached on the Canal Treaty terms in 1977, and this enabled the Government to modify economic policy. The public sector entered into a period of retrenchment aa several large capital projects were completed, no further state enterprises were created, and the Government began a sustained effort: to reduce the public deficit through increased taxes and tighter controls on expenditures. By 1981 the deficit had fallen to about 5 percent of GDP JErom nearly 12 percent in 1979, so that Panama fully complied with the targets established under IMF Standby Arrangements. To encourage private investment, new incentives for export, investment and employment generation were introduced, Together with the agreement and subsequent ratification of the Canal Treaties, these led to some restoration of private sector confidlence. However, private investment did not recover to the levels of the 1960's9 and early 1970's. Between 1978 and 1982 it was still less in real terms, and as a percentage of GDP, than between 1968 and 1973 1/. Furthermore, although the services and construction sectors once again flourished, agriculture and industry continued to be more adversely affected by the policy and institutional environment. Real per capita agricultural output was less in 1982 than in 1977 while industrial value added declined from 11.5 percent of GDP to 9.8 percent. 1/ Between 1968 and 1973, private investment, in constant 1970 prices averaged B/.233 million compared with B/.218 million between 1978 and 1982; as a percentage of GDP, private investment averaged 19 percent during the former period and 16 percent during the latter. -3- Table 1.1: PRINCIPAL ECONOMIC AND SOCIAL INDICATORS Indicators (annual growth rate) 1960-1970 1970-1979 1980-1983 a/ GDP 8.0 4.5 3.3 Agricultural Output 5.3 2.2 3.9 Industrial Output 10.9 3.4 -1.1 Construction and Services 8.1 5.1 4.5 Private Sector Investment 12.5 0.7 2.8 b/ Private Sector Employment 3.4 0.5 n.a. Total Employment 3.5 2.2 2.2 b/ Unemployment Rate, End Period c/ 7.1 8.8 9.5 Infant Mortality Rate, End Period d/ 40.5 21.7 n.a. Number of Doctors per 10,000 Inhabitants, End Period 6.3 9.4 9.8 Number of Secondary School Students, End Period 78,466 171,000 e/ 177,000 a/ Preliminary. b/ 1978-82. c U Unemployed as a percentage of the economically active labor force. d/ Per thousand, live births. e/ 1980 Source: Statistical Appendix. 1.6 In 1982, Panama felt the impact of the world recession in general, and of the deepening economic and financial crisis in Latin America in particular. Growth in the financ.al sector was less than half that of preceding years, while value adde' in tourism and in the Colon Free Zone declined sharply. Private investment fell in real terms following the completion of a publicly and privately financed trans-isthmian oil pipeline. Partly to compensate for this, and partly because of increased political pressures, controls on public expenditure were loosened. The consolidated public sector deficit for the year as a whole was ll percent of GDP, almost double the amount stipulated in the Government's Standby Arrangement. Public investment was over 12 percent of GDP as against a target of 10 percent. To correct this situation the Authorities carried out, in 1983 and 1984, a severe austerity program, supported by an IMF Standby. This reduced public investment by 20 percent and the deficit to about 6 percent of GDP in 1983; in 1984 preliminary figures indicate a further reduction of 8 percent in nominal public capital expenditures and a deficit of 6 percent of GDP. -4- 1.7 In 1983, real GDP stagnated for the first time in more than two decades. Construction, depressed by public austerity and the termination of the pipeline construction, fell by 28 percent. Tourism and wholesale and retail commerce, strongly dependent on the wider Latin AmeJ;can market, fell by 6.3 percent as the financial crisis continued to afflict the Region. For similar reasons, there was another massive slump in the Colon Free Zone where real value added dropped by 28.1 percent after having declined by 14.4 percent in 1982. Manufacturing, especially clothing, footwear and consumer durables, suffered from the general decline in purchasing power and fell by 2.3 percent. Without a very large increase in value added associated with the Trans-isthmian Oil Pipeline operation (essentially interest and depreciation), real per capita GDP would have declined by 6.5 percent. 1.8 In late 1982, the Government realized that, given the likely external environment, the outlook was for continued stagnation in the medium term unless domestic rigidities and distortions were tackled. The social consequences of stagnation would be aggravated by the already high and rising unemployment rate which threatens to become an explosive social issue. Merely to absorb additions to the labor force, the economy needed to grow by some 7.5 percent annually, given current labor market rigidities. Bold actions were required to re-orient the economy towards a new growth path. This was because the growth sources of the past decade--the public sector and the internationally oriented services sector--had dried up. The public sector is under a severe financial constraint: it must service, under conditions of acute scarcity of commercial credit, an external debt larger in relative terms than those of Argentina, Brazil or Mexico. The service sector is unlikely to recover its full dynamism until Latin American regional recovery takes place. In view of this, more rapid expansion must meanwhile be centered in the directly productive sectors of agriculture and industry. The entrepreneurial initiative and investment finance for this must come from private sources rather than the financially weakened public sictor. Moreover, the domestic market is small and largely saturated; exports must therefore become the engine of growth. B. The Structural Adjustment Program 1.9 In several important respects, the Panamanian economy is not well structured as a goods exporter. A clear dichotomy exists between the previously dynamic, internationally-oriented service sector and the inward-looking, over-regulated goods sectors. Encouraging the appropriate blend of export-oriented, labor intensive activities requires: (i) a major overhaul of the structure of incentives which is currently geared towards import substitution and results in the minimization of employment; (ii) a leaner, more efficient public sector, both to ease the fiscal burden and release resources for private investment; and (iii) specific reforms to tackle individual sectoral inefficiencies, Because of its use of the US dollar as a medium of exchange, Panama cannot exercise the option of compensating exporters through exchange rate adjustment. All sources of high cost and inefficiency must therefore be tackled individually. Relatively high wages and social charges, labor market rigidities, and inefficiencies in public sector enterprises are reinforced by expensive locally produced intermediate goods such as petroleum products and cement; a high cost, -5- heavily protected local industrial sector; an ine" icient agricultural sector geared to self sufficiency irrespective of economic cost; high cost and inefficient port operations; a monopolistic structure of internal road transport services resulting in high rates; and dominance by a few firms of the distribution of a number of imported commodities such as fertilizers, vegetable oils and grains. 1.10 Parallel with its program of fiscal stabilization and austerity, the Government has begun to address these issues through a series of fundamental structural reforms. These measures, although mutually reinforcing, may be divided into three main areas: first, to reduce the scope and improve the efficiency of the public sector; second, to begin reorientation of the incentive structure in the urban, industrial sector towards exports and employment generation; and, third, to increase productivity and output in the agricultural sector. Public Sector Efficiency 1.11 The major components of the Government's program for improved public sector efficiency include: (i) a major review and subsequent rationalization of public sector enterprises; (ii) a coherent investment program consistent with the priorities of the new development strategy; (iii) reform of public sector housing policy; (iv) reform of the public health and social security systems; (v) more effective management of state-owned assets especially those located in the former Canal Zone, where control has recently reverted to Panama; (vi) reform of the Customs Administration; and (vii) improved public sector debt management. 1.12 The review of the 45 public sector agencies and enterprises showed that while they had a consolidated current surplus of some B/.8 million in 1982, this concealed large discrepancies; some entities earned substantial profits while others required large subsidies. Approximately B/.65 million (1.5 percent of GDP) was spent in 1982 on current subsidies and transfers excluding those to higher education establishments. The Government has developed a program to eliminate these subsidies over a period of five years. As an important beginning, in 1983, it sold a major unprofitable hotel; ended a contractual arrangement of market sharing and cross subsidization involving a state owned cement plant; initiated a major restructuring of the development finance corporation, COFINA; closed the least efficient of the four sugar mills of the publicly owned La Victoria Sugar Corporation; eliminated state subsidies to an agricultural development corporation and a citrus plant, and began the process of partial privatization of the latter; advanced plans for the divestiture of another loss making hotel; and began financial and managerial reforms at the national airline, Air Panama. 1.13 Controls exercised by the Ministry of Planning and the Office of the Comptroller General over public investment and public sector debt management have been considerably improved and strengthened. Departures from control procedures, at one time endemic, are now rare, although their continued occurrence points to the need for further improvements in this area. Public investment expenditure has been sharply reduced in accordance -6- with fiscal restraints, and restructured to correspond to the priorities of the new development policy. Further reductions will have to be made in view of the financial burden of heavy debt servicing obligations through 1987 (Chapter III and Annex II). 1.14 In public housing, a number of actions have been taken to improve the sector's precarious financial situation. Interest rates on new loans by the National Mortgage Bank (BHN) have been raised from between 7 and 9 percent to 12 percent (compared to a current inflation rate of about 4 percent), control procedures over the selection and state financing of housing projects strengthened, and the Social Security Agency is ending its costly intervention in the housing market as a direct promoter of construction. These reforms were to some extent counterbalanced by the extension at the end of 1983, of formal interest rate subsidies to all housing units of less than B/.20,000 each. This extension was cancelled by new legislation in November, 1984 (Chapter III)e 1.15 Further issues of public sector reform are being addressed through technical assistance and studies, partly financed by a World Bank Technical Assistance Loan which accompanied a Structural Adjustment Loan (SAL). The Bank loan is financing studie, of the management of state owned assets in the reverted Canal Area, and in the Transisthmian transport corridor between Panama City and Colon; administrative and financial reforms in the Social Security; the role of state institutions in the agricultural sector; and unit cost reductions in the health sector. Two shorter studies on industrial protection and agricultural pricing have already been completed. In the area of Customs reform, the Government is receiving technical assistance from an international expert who has prepared detailed recommendations for reform (Chapter III). The Industrial Incentive Structure 1.16 The principal aim of the actions taken in the industrial and commercial sectors is to liberalize commerce in manufactured goods with a view to increasing competitiveness and reducing the anti-export bias of incentives (Chapter V). To this end, nearly half the total number of quiantitative restrictions on imports were replaced by tariffs between March and October, 1983. Most of the rest will have been similarly replaced by March 1985. After that date, only some twelve sensitive agricultural products will still be protected through Import quotas. There has also been some easing of price controls on products previously subject to import quotas. The initial tariff levels on most items where quotas have been removed range between 25 and 75 percent ad valorem, although in the case of the least efficient industries, the protection is higher than 100 percent. 1,17 Further industrial incentives reforms, and timetables for the reduction of tariffs towards an established minimum of 10 percent ad valorem, are embodied in new draft incentives legislation approved by the Cabinet in June 1984, Once enacted as law, it would establish equal incentives for all firms, maximum levels of tariff protection, and tax exoneration and deferrals for exporters. -7- Agricultural Policy 1.18 In agriculture also, the Authorities confront a formidable array of controls and bureaucratic obstacle8 which have lead to a production pattern incompatible with Panama's comparative advantages and which impedes export oriented expansion (Chapter IV). So far the reforms have concentrated on a series of product-specific actions designed to liberalize trade and on improvements to the overall policy framework embodied in the Agricultural Incentives Law. The reforms carried out to date are: (i) a reduction in the 1983 rice support price of 8 percent which, in the event, was insufficient to discourage production of another costly surplus; (ii) liberationi of beef and coffee exports; (iii) lifting of domestic price controls on higher quality meat cuts, potatoes and higher grade coffee; (iv) establishing an intermedLate grads "B" price for milk; and (v) lifting of import quota restrictions on five agricultural commodities. 1.19 The general framework of agricultural incentives is addressed in draft legislation approved by the Cabinet together with the new Industrial Incentives Bill. A new agricultural law, based upon the draft, would abrogate those aspects of existing legislation which are incompatible with the new direction of economic policy. For example, instruments to achieve the goal of self sufficiency in all products the country is agronomically capable of producing, irrespective of economic cost, would be removed from the legal framework. Annual import substitution targets would also be eliminated, together with price controls on agricultural equipment and inputs. Interest rate subsidies for agricultural loans would be reduced. Continuation of the Structural Adjustment Program 1.20 Although the measures described above represent a good beginning -o the Government's program of reforms, much remains to be done. A new Administration took office in October 1984, and while it is still developing the details of its economic strategy, it is already possible to discern its main elements: (i) reform of labor legislation to reduce market rigidities and disincentives to employment; (ii) continuing reforms of the structure of incentives, especially trade and pricing policy, in agriculture and industry; (iii) continuing the reform of public sector institutions and financial control; and (iv) addressing other individual sources of high cost and inefficiency in the economy which impede its international competitiveness. In addition, the new Government gives high priority to reforms in the construction industry and to diversifying Panama's service activities, both with a view to generating urban employment. 1.21 With regard to the incentive structure, the Government's first task will be to obtain Legislative approval, and pass as Law, the draft Agricultural and Industrial Incentives Bills prepared in 1984. Reforms to the general structure of incentives will need to be complemented by the dismantling of regulatory obstacles which actually impede exports. These are most prevalent in the agricultural sector where export restrictions are periodically imposed to reinforce domestic price controls or to serve special interests or both. In both agriculture and manufacturing there is a need to simplify procedures for obtaining export incentives. -8- 1.22 The issue of price controls is likely to prove difficult. There is strong evidence that these represent serious disincentives to private investment, especially in agroindustry. However, progress made so far in dismantling them has been slow. Price liberation has been restricted to those goods whose import quotas have been lifted; even there, the Price Regulation Office has been tardy in carrying out Planning Ministry instruc- tions. This would be a major area of action for the new Government, 1.23 Substantial revisions to labor legislation, embodied in the Labor Code of 1972 (Chapter II), will be necessary if Panama is to attack seriously its unemployment problem. The Code's provisions make it difficult and expensive to dismiss personnel and hence provide a powerful disincentive to hiring them in the first place. It thus reinforces heavy social charges and a higher level of wages than those in most countries of the Region. The problem cannot be tackled simply by removing or reinterpreting individual clauses through presidential decree. The Code is a weighty docul,ent, skillfully put together, with mutually reinforcing articles and clauses. To make it compatible with rapid employment generation would require a major revision. 1.24 In the public sector, the essence of the program would be to reduce the scope of the sector in relation to GDP with a view to relieving both the fiscal and public tariff burdens, and releasing resources for private sector expansion. To achieve this, it would be necessary, first, to continue formulating a reduced public investment program consistent with the aims of overall economic policy; and, second, increase public sector savings through the execution of a coherent medium term reform plan aimed at increasing efficiency and cutting costs. 1.25 Each area of policy reform is discussed in this report. Employment and the labor market are considered in Chapter II. Chapter III addresses the issue of public sector finance in the context of the country's external debt burden, and shows the need for further institutional reform. Agricultural and industrial policy are discussed in Chapters IV and V respectively, while Chapter VI examines those export-oriented service activities which directly affect the economics and institutional aspects of exporting. Finally, Chapter VII presents projections of future economi-c performance under alternative policy assumptions. -9- III. FM{PLOYHENT A. The Deteriorating Employment Situation 2.1 Unemployment is, without doubt, the gravest economic and social problem currently facing Panama's policy makers. Unless drastic and rapid action is taken to modify the legal and institutional framework in which the labor market operates, unemployment will swiftly rise to rates which may strain the fabric of society. Without such measures, the GDP will likely need to grow by some 7.5 percent per annum from 1985 onwards merely to avoid a further rise in unemploytient. This is double the growth rate actually achieved since 1980. 2.2 Unemployment in Panama is not simply a product of the economic recession; rather, there is a long term, structural problem related to the institutional and legal framework in which the labor market operates. This was pointed out in a Special Economic Report on Metropolitan Unemployment in Panama, issued by the Bank in July, 1982 (3833-PAN). That Report concluded that the unemploymetit outlook pointed to an increasingly serious problem. 2.3 Data which have become available since then confirm the accuracy of this prediction. The officially estimated unemployment rate reached 9.5 percent in mid 1983, the highest rate recorded since the data began to be systematically collected in the early 1960's. The unemployment rate in the Panama City/Colon Metropolitan Area was estimated to be nearly 12 percent in mid 1983, another all-time high. Average participation rates 1/ have fallen sharply, and the long-term unemployment rate, especially in the Metropolitan Area, has nearly doubled since the mid 1970's. 2.4 No recent official estimates are available of a breakdown in, unemployment rates between the cities of Colon and Panama. All evidence indicates, however, that the situation in Colon is very much worse. While in Panama City, unemployment is partly a consequence of the recession, in Colon it is principally chronic and long term. The working age population is about 80,000, and it is difficult to identify more than 30,000 jobs in the area, at least in the formal sector. A significant proportion of these are, moreover, filled by commuters from Panama City. With the most optimistic assumptions, the unemployment rate in the city is some 25 percent. 1/ The proportion of the total workforce (defined as those 15 years and above) which is economically active, i.e. working or seeking work. - 10 - Table 2.1: KEY AGGREGATE EMPLOYMENT INDICATORS 1974 AND 1983 1974 1983 Official national unemployment rate 5.8 9.5 (percent) Participation rate (percent) 59.5 55.9 Percentage of unemployed without work for at least one year 16.1 a/ 27.3 b/ a/ 1976 b/ 1982 Source: Statistical Appendix, Tables 1.5 through 1.16. 2.5 Between 1976 and 1982, Panama's working age population grew by 3.7 percent per annum nationally, and by 4.1 percent in the Metropolitan Area, reflecting continued rural/urban migration. This rapid growth reflected high birth rates of over 40 per thousand in the 1960s; at the same time mortality rates began to decline. Subsequently, in the 1970s, the demographic trend underwent a major change. While mortality rates continued to fall, birth rates declined dramatically to 36 per thousand between 1975 and 1980. This decline is estimated to have continued into this decade, to a current 28 per thousand, and is officially projected to fall further to about 20 by the year 2000. Mortality rates, after falling from over 10 per thousand in 1960, to 7.3 in 1970, and again to 5.3 in 1983, are projected to stabilize at around 5 per thousand over the next 15 years. Consequently, overall population growth fell from 3.4 percent in the 1960s to an estimated 2.6 percent between 1975 and 1983. The projected rate for the rest of this century shows a continued decline with growth averaging less than 2 percent annually by the 1990's. Reflecting these trends, the growth rate in the working age population may be expected to fall after 1985. 2.6 The future behaviour of rural/urban migration is less certain. A return to buoyancy in the export-oriented industrial and service sectors could well bring about renewed acceleration, while rural job opportunities, on the most optimistic assumptions, are unlikely to increase. If the economy returns to a reasonable growth path (i.e. with real GDP increasing by at least 5 percent per annum after 1985), the rate of increase of the Metropolitan Area's working age population will likely not decline by much during the rest of the 1980's. Only after 1990 will the scope for further rural/urban migration be reduced by a lack of surplus labor in the rural areas. (See Graphs 2.1 and 2.2). 2.7 For the working age population, participation rates have declined from 60 percent in the early 70's to just over 50 percent in 1982 and 1983. This reflected greatly increased enrollment in secondary and tertiary education, a reduction in the voluntary retirement age from 62 to 55, and a falling female participation rate. Witlhout these factors, the unemployment rate in 1983 would have been over 20 percent, more than double the registered estimate. The lower participation rates are particularly evident among the young; according to official household survey information, less than 10 percent of those who attained the age of 15 between 1978 and 1982 found paid employment. Those who were unable to continue their education entered the ranks of the unemployed; the registered unemployment rate for those under 25 years of age is 24 percent, two-and-a-half times the national average. 2,8 It is unlikely that participation rates, especially among males, will decline further; indeed preliminary evidence for 1983 suggests that an increasing trend may have set in. Fiscal constraints will impede further significant expansion of the secondary and tertiary education system, while further lowering of the retirement age would be most imprudent in view of potential financial difficulties in the Social Security Agency. For policy making purposes, therefore, it should be assumed that the participation rate in the mid to late 1980's will be no lower than that registered between 1978 and 1982. 2.9 According to household surveys, a significant deterioration took place between 1976 and 1983 in terms of the average length of unemployment. In the Metropolitan Area, the proportion of those out of work for at least a year nearly doubled to 30 percent of the unemployed, as did the percentage of hard core unemployed, defined as those without a job for 3 years or more. This increase in long term unemployment is indicative of the fundamental nature of the problem facing policy makers. B. The Sources of EmployMnt 2.10 The recovery of economic activity in Panama after 1977 was accompanied by some increase in employment. Much of the immediate increase, however, was due to the emergency employment program launched by the Government in late 1977, This accounted for about 20,000 of the 28,000 new jobs generated between late 1977 and late 1978. In 1980, after the emergency program was discontinued for fiscal reasons, the rate of employment increase dropped sharply. Only 11,000 new jobs per year were created between 1979 and 1982, While this was a considerable improvement on the recession years of the mid 1970's, it was still less than the 13,000 new jobs generated annually during the 1960's. Graph 2.1 POPULAllON GROWTH 1911 TO 2000 Urban PMovinces af Pnama and Colon versus Toil POPULATION IN MIUONS 4 23 PANAMA AND COLON 3 III- TOTAL COUNTRY 2. 0- 1911 1920 1930 1940 1950 1960 1970 1980 1990 2000 SOURCE: STATISTICAL APPENDIX TABLE 1.1 Graph 2.2 URBAN POPULATiON GROWTH 191110 2000 POPULAMON OF PROVINCES OF PANAMA AND COLON AS PC OF TTAL PERCENT OF TOTAL POPULAlION 70- s. - 20 1911 1920 1930 1940 1950 1960 1970 1980 1990 2000 SOURCE: STAiSTICAL APPENDIX TABLE 1.1 - 12 - Table 2.2: JOB GENERATION SINCE 1970 (Number of New Jobs per year) Period National Avg.Annual Metropolitan Avg. Annual Percentage Area Percentage Increase Increase 1970 - 72 12,700 2.9 9,000 4.0 1973 - 75 1,900 0.4 2,700 1.1 1976 - 78 a/ 10,400 2.1 7,100 4.0 1976 - 78 nI/ 200 0.0 3,100 1.2 1979 - 82 11,400 2.1 3,100 1.0 a! Including Emergency Employment Program. b/ Excluding Emergency Employment Program. Source: Statistical Appendix, Tables 1.5 and 1.6. 2.11 Once the effect of the official emergency program is discounted, the rate of job generation in the Metropolitan Area has been less than a quarter of that required to meet the increase in working age population. The effect of this on the official unemployment rate has been diluted by rapidly falling participation rates especially among new entrants. Table 2.3: ANNUAL GROWTH RATES OF EMPLOYMENT: 1970 - 82 METROPOLITAN AREA Sector 70-73 74-77 77-79 79-82 Total 3.7 -1.5 8.5 1.0 Agriculture -3.5 -3.6 12. 3 -2.4 Manufacturing 4.2 -2.1 6.0 -2.5 Construction 16.1 -9.9 16.0 5.4 Utilities 10.4 4.3 7.5 5.3 Commerce 3.6 -1.6 5.6 -0.9 Transportation/Storage/Communication 6.6 .3 7.6 7.0 Finance 9.5 - 2 13.0 6,6 Other Services 3.4 1.2 10.7a/ 1.2 Canal Area -3.8 -3.9 -2a2 -4.1 a/ Includes Emergency Employment Program. Source: Statistical Appendix, Table 1.6. - 13 - 2.12 For the economy as a whole, the rate of growth of jobs since 1970 has been less than half that of GDP. The overall employment elasticity --the percentage change in employment associated with a one percent change in real value added-- averaged 0.46 during the 1970-82 period. This means that the economy must grow, in real terms, by 7.5 percent per year merely to absorb additions to the labor force 2/e 2.13 With the exception of financial services and real estate, where employmevrt grew rapidly in the 1970's, all sectors show declining employment elasticities after 1970. In agriculture, employment stagnated during the 1960's and has declined slightly since 1970, For the economy less agriculture, the overall employment elz;sticity since 1970 was 0.65 compared to 0.77 during the 1960's. This reflects declines in manufacturing (0.85 to 0.61), construction (1.09 to 0.54) and nearly all service activities (0,74 to 0.66). This occurred during a period of substantial expansion in education, increasing literacy and the acquisition of important new skills in internationally oriented services, especially in the financial sector. Lack of overall skills cannot therefore wholly explain declining elasticities. Rather, the evidence strongly indicates that they are principally the product of state intervention in the labor market. C. Labor Market Policies 2.14 Since the early 1970's, the State has played a central role in the functioning of the labor market. This was done with the specific social objective of aiding the poorer members of society. Its results have, however, been unfortunate: the perceived cost of employing labor has increased substantially. On the other hand, workers themselves have benefitted little from this: real wages in nearly all sectors have stagnated since the mid 1970's. The jobs of those already in employment have been protected at the cost, first, of stagnant real wages, and second, of severely impeding access to the job market by the unemployed and new entrants to the working age population. The policy impediments to employment in the labor market itself have been reinforced by the system of industrial incentives (Chapter V) which encourages the use of capital intensive rather than labor intensive techniques. 2.15 Since 1970, governmnent intervention in the labor market has taken the following forms: (i) a Labor Code governing employer/employee relations; (ii) increasing Social Security contributions; (iii) intervention in wage determination; and (iv) expansion of public sector employment. The Labor Code 2.16 Panama's Labor Code, which became effective at the beginning of 1972, made importaDt advances in the protection of employees' rights and in the necessary regulation of workplace conduct and relationships. Moreover, interviews with entrepreneurs indicate that the great majority of them favor a Labor Code as an important factor in maintaining Panama's tradition of good and relatively tranquil labor relations. However, the Code as it currently 2/ Assuming no changes in participation rates or in policies to increase marginal employment elasticities. (See Statistical Appendix, Tables 1.13 and 1.14). - 14 - stands increases incentives to minimize hiring wyhile making it virtually impossible to reward greater productivity. For example, Article 159 stipulates that a worker's salary cannot be reduced under any circumstances whatsoever. Thus, if an employer, in accordance with another Article (number 142) pays according to piece work, he must continue paying the same salary even if the worker's productivity subsequently drops. This clearly discourages the establishment of piece-work related wage schemes which are common in precisely the sort of assembly industries which Panama hopes to attract. It also increaFses the cost of overcoming fluctuations in demand or productivity by use of financial rewards to workers. A decree changing Article 142 was drawn up in late 1982 but was not passed. 217 The Code's provisions concerning dismissal also increase labor costs. Severance payments, on a sharply increasing scale according to years of service, are due to any permanently employed worker.3/ After two years of employment the worker cannot be dismissed without a court case. If the court case aoes against the employer he can still dismiss the worker, but must pay him his full salary for the period from the filing of the case to the date of the verdict, as well as 150 percent of the severance payments due under the standard regulation. The severance payment also takes into account any productivity bonus which may have been paid. Auditors require many larger companies to maintain a separate reserve to cover possible severance pay claims and the legal costs associated w.th dismissal. Bankruptcy does not excuse the firm from severance pay obligations. In short, the cost of dismissal has become so prohibitive that employers are increasingly reluctant to hire workers for fear of being unable to fire them, except at great cost, when market conditions become unfavorable. 2.1$ The difficulties and high costs associated with adjusting the labor force to fluctuating market conditions are particularly onerous for a firm trying to export. The relative uncertainty in these markets makes flexibility essential if Panamanian firms are to compete suiccessfully. This is not to endorse, however, proposals for a separate labor policy for export industries. Such a policy would have several disadvantages. First, it would create what might be perceived as an enclave with separate privileges thereby increasing social tensions. Second, export industries are sometimes difficult to define: should they, for example, export 100 percent of sales or some portion thereof? In the latter case, it is difficult to see how labor relations would be regulated for that part of output sold on the domestic market, Other firms competing in this market would justifiably protest against unfair competition. Third, the system would be difficult to administer and police. Fourth, export industries would require locally produced inputs, the costs of which would include the effects of current labor legislation and would therefore indirectly affect the competitiveness of exports0 3/ A worker is defined as permanent when: (i) there is a permanent need for the function he fills; (ii) the work is part of the normal activities of the employer, and (iii) the contract is unlimited in time. The latter provision does not exclude a temporarily hired worker, with two or more contracts back-to-back, from being considered permanent because of provisions (i) and (ii). - 15 2.19 The effects of the Code and other Government policies on the functioning of the labor market can be clearly seen in the case of the manufacturing and construction sectors. In manufacturing, during the five years preceding the Code's introduction, the employment elasticity exceeded unity, average real wages were rising sharply and labor increased its share in value added. In the seven years after the Code the employment elasticity fell by nearly 30 percent, real wages declined as unions opted for job security rather than higher financial returns, and the share of labor in real value added diminished. It is not argued that the Code was wholly responsible for these changes, since other anti-employment biases were also present in policy, and the country passed through a recession during the mid 1970's. Moreover, productivity--at least per worker, if not per Balboa invested--improved. Nevertheless, the Code undoubtedly played an important part in discouraging job creation. Table 2.4: EMPLOYMENT, WAGE AND PRODUCTIVITY INDICATORS IN MANUFACTURING BEFORE AND AFTER THE INTRODUCTION OF THE LABOR CODE 1965 - 71 1972 - 79 Employment elasticity 1.05 0.76 Average annual real wage increase (%) 5*5 0.5 Average annual increase in real output per employee (%) -0.5 0.7 Average annual increase in the share of real wages in real output 6.0 -07 Source: Statistical Appendix, Tables 1.13, 9.7 and 9.8. 2.20 In the construction sector, the change since the Code's introduc- tion has been even more noteworthy. After employment had increased faster than real output in the 1960's, its growth fell to less than a fifth of that of real output between 1970 and 1979, before improving to just under half in recent years. During the period of falling real output in the mid 1970's, employers were unable to dismiss workers permanently. Instead, they were kept on a nominal payroll (although receiving no wage) and had to wait longer periods between projects. They also obtained fewer days' work each time they were called. While this muted the effects of the recession on recorded unemployment rates, it also reduced the impact of the recovery on job creation. The additional investment in construction after 1978 was more effective in reducing underemployment in the sector's labor force than in generating new jobs. There is also some evidence of the adoption of more capital intensive techniques, especially in building construction. - 16 - Table 2.5: EMPLOYMENT AND OUTPUT INDICATORS IN THE CONSTRUCTION SECTOR 1960-69 1970-79 1979-82 Employment elasticity 1.09 0.17 0.49 Real value added per employee (annual average in 1970 Balboas) 3,041 3,212 3,773 Source: Statistical Appendix, Tables 1.13 and 9.8. Social Security Coutributions 2.21 Social Security contributions are, in essence, a tax on employment. They have sharply increased in recent years as the following table shows. Table 2.6: SOCIAL SECURITY CONTRIBUTION RATES (Percent of insurable salary) a/ Period Pension and Medical Professional Total Life Insurance Insurance Risk Before 1962 4.0 4.0 - 8.0 1962-1974 4.5 4.5 - 9.0 1975-1979 6.5 5.5 1.7 139 7 1980 8.8 9.0 1.7 19.5 1981 9.8 9.0 147 20.5 1982 (Jan-Jul) 1023 9.0 1.7 21.0 1983 11.3 9.0 1. 7 22,0 July 1984 onward b/ 9.0 9.0 1.7 19.7 a/ At presenit the distribution between employers and employees is Employers 13.9 percent Employees 8.1 percent 727 percent b/ Since July, 1984 the CSS no longer receives the third part of the thirteenth month bonus which is instead retained by the employee. Source: Social Security Agency and World Bank estimates. - 17 - 2.22 Although the Social Security Agen-rcy's finances give serious cause for concern (Chapter iII), the scope for meeting increasing obligations through further rate hikes is severely limited. If other social charges, such as annual paid vacation rights and the "thirteenth month" bonus, are added to Social Security contributions, the total burden on salaries is about 40 percent. This is a further strong disincentive to expand employment demand. Wages and Wage Policy 2.23 Between 1970 and late 1976, Government wage policy consisted of: (i) the direct determination of salaries for public sector employees without the right of collective bargaining; (ii) the setting of minimum wages for public and private sector employees which varied both according to sector and region of the country, 4/ and (iii) allowing other wage rates to be determined by collective or individual bargaining in accordance with the provisions of the Labor Code. 2.24 Since late 1976, there have been a number of important de facto modifications to this framework, usually in response to political pressures from affected interest groups. Nominal wage increases in the private sector were very high between 1973 and 1976, averaging 12 percent per year, while real wages rose by an annual 3.2 percent. Trade unions effectively used the muscle provided by the Labor Code which guaranteed job security. In 1975, with the onset of the recession, the profitability of employing labor became severely eroded. To prevent large scale lay-offs, therefore, the Government suspended collective bargaining rights for two years, an action which reduced real wage increases to about 1.5 percent per year. 2.25 After the reinstatement of collective bargaining rights in 1979, wage demands were much more moderate. In that year, some 170 collective bargaining contracts were signed providing for increases of about 5 percent. With consumer prices rising by about 8 percent, this implied a substantial reduction in real wages. These moderate negotiated wage increases reflected the large pool of unemployed and underemployed which had developed during the 1975-77 recession. Again the Authorities intervened, this time to increase by decree the collectively negotiated wages of certain categories of workers. A general wage increase, ranging from B/.15 to B/.25 per month for those earning less than B/.300 per month was decreed, together with a B/.30 per month general rise for public sector employees. The minimum wage was also adjusted upwards. Similar interventions occurred in 1980 and 1981. In 1980, collectively bargained adjustments in the private sector averaged about 7 percen.t. However, sharp increases in public utility tariffs and in the price of liquid fuels contributed to a domestic inflation of 13.5 percent. To mitigate this, thte Authorities decreed a general salary adjustment of B/.25 per month retroactive to the beginning of the year, as well as a special 5 perLcnt rise for teachers and doctors guaranteed for two years. As a consequence, nominal wages in the private sector rose by 9.9 percent rather than the 7 percent reached by collective negotiation. This was still insufficient to offset the effects of inflation, and real wages fell by 3.6 percent. 4/ From 1979 onwards, there has been a trend toward narrowing the area differential because the cost of living for low income earners was found to be virtually identical throughout the cotuntry. - 18 - 2.26 In 1981, the collective bargaining process failed to generate even nominal increases for a wide range of occupations. Only 46 contracts were signed compared to 170 in 1979 and 108 in 1980. No wage increase would have accrued to the 70 percent of the private sector labor force not covered by these contracts. In June a general award of B/.30 per month was officially decreed5/. Once again, however, this was not enough to compensate for inflatiorn and real wages in the private sector fell by 1.5 percent. With the exception of the former Canal Zone, the decline continued in 1982. On average, real wages fell at an annual rate of 1.4 percent between 1978 and 1982. By the end of 1982, the average private sector employee had gained virtually no real increase since 1973. His public sector equivalent was even worse off: average public real wages declined by 9 percent between 1973 and 1982. 2.27 The decline in real wages was temporarily halted in 1983 when the Government authorized increases of over 10 percent to teachers, doctors, nurses and lower paid civil servants. Private sector wages also increased despite the depressed state of the economy. One hundred collective bargaining contracts were signed, leading to a 1,6 percent rise in real wages. No further direct interventioa in collective bargaining agreements took place between mid-1981 and the end of 1983. 2.28 Minimum wages adjustments have not generally acted as an upward pressure on private sector wage awards. They have been very infrequent (in 1974, 1979 and 1983) and the minimum wage remains well below the average level for any sector. The last increase of 17.5 percent, in February 1983, brought the Metropolitan Area Minimum wage up to B/.0.78 per hour. This is about half the average hourly earnings in the manufacturing sector. Public sector wage adjustments, also, have mostly been below the level of increases granted in the private sector (with the exception of three years: 1978, 1979, and 1983). 2.29 In practice, therefore, the impact on the private sector of official intervention in wage determination has been felt mostly Lhrough decreed increases in collectively negotiated adjustments. These have been reinforced by the upward pressure generated by substantially higher wages in the Canal Area, which have been raised in real terms in accordance with the cost of living in the United States (see Graph 2.3). 5/ Enterprises that had already granted wage increases of more than B/.30 per month did not have to adjust wages further, while those that had granted less had to make up for the difference. If collective agreements were in effect, the adjustment had to be B/.30 plus 25 percent of the increase included in the agreement. Agricultural enterprises employing less than 10 workers were limited to increases of B/.15 per month, while domestic employees were granted only B/.10 per month. Graph 2.3 REAL WAGES BY SECTOR Average Real Monthly Wages CONSTANT 1980 BALBOAS PER MONTH 1500- a PUBLIC M PRIVATE 1000 M CANAL 1000 500 0- 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 SOURCE: STATISTICAL APPENDIX TABLE 9.7 - 19 - 2.30 Despite falling real wages, Panamanian average earrnings are still much higher than those of most of its competitors. Table 2.7 shows average monthly earnings in manufacturing in selected countries in relation to those in Panama in 1976 and 1982. The average labor cost in the other countries increased from 69 percent of Panama's in 1976 to 76 percent in 1982. Preliminary data for 1983, however, suggests that Panama's competitive position has again sharply deteriorated following major devaluations in many competing countries. Moreover, these earnings do not include Social Security contributions and other social charges which are considerably higher, as a percentage of salary, in Panama than in most of the other countries. While no reliable comparative figures are available, the inclusion of these charges would likely widen the gap by at least 10 percent of the Panamanian earnings level. On top of this, there are the rigidities and costs associated with the Labor Code. Table 2.7: AVERAGE MONTHLY EARNINGS IN MANUFACTURING: SELECTED COUNTRIES RELATIVE TO THOSE IN PANAMA (Earnings in Panama 100) 1976 1982 PANAMA 100.0 100.0 Costa Rica 77.7 41.0 Honduras 56.1 84.2 Peru 67.2 48.2 Guatemala 63.2 71.4 Mexico 131.1 103.2 Korea 55.1 98.1 Singapore 73.6 104.2 Sri Lanka 16.4 10.6 Source: ILO: Annual Statistics D. Expansion of Public Sector Employment 2.31 Durina the 1970's, there were some 112,000 new entrants to the labor force. Of these, only 20,400 (18 percent) found jobs in the private sector; another 17,500 (16 percent) were officially registered as unemployed. The remaining 74,000 (66 percent) found their way into direct public sector employment. As a result, between 1970 and 1979, public sector employment expanded at an annual rate of 10 percent and rose from 13 percent to 25 percent of total employment. - 20 - Table 2.8: PUBLIC AND PRIVATE SECTOR EMPLOYMENT, 1963-1982 Public Sector a/ % of Private Sector % of Employment Total Employment Total (000) (000) 1963 37.2 11.0 301.8 89.9 1970 54.4 13.1 361.2 86.9 1979 128.1 25.1 381.6 74.9 1982 136.5 25.0 409.1 75.0 a! Excluding Canal Area. Source: Comptroller General, World Bank estimates and Statistical Appendix, Table 1.15. 2.32 This major structural shift in the labor market was brought about in three ways: first, by encouraging existing public sector entities, as well as the Central Government itself, to expand employment beyond immediate needs; second, by creating new entities, particularly in the directly productive sectors; and, third, by establishing a special emergency employment program in 1978 which provided 20,000 jobs until its termination in 1980. In addition, over 50,000 persons were induced by state action to leave the labor force. Secondary and tertiary education were greatly expanded and this enabled the absorption of 30,000 persons of 15 years and above into schools and universities. A further 20,000 took advantage of the lowering, in 1975, of the voluntary retirement age to 55. In short, the public sector, directly or indirectly, prevented some 125,000 persons from entering the ranks of the unemployed. 2.33 For budgetary reasons, the public sector's role as a job provider declined markedly after 1980. Between 1979 and 1982, some 8,500 new jobs were created, half the annual rate of the previous decade. The Emergency Employment Program was discontinued, and the expansion rate of secondary and tertiary education was reduced by half. For the future, however, even these reduced rates of expansion are too high, in terms of either fiscal capacity to sustain them or their economic desirability. Partial evidence indicates that most of public sector entities, such as the Social Security Agency, IRHE and the Port Authority, have continued to expand employment in recent years, despite an excess of labor by 1980. Although a recruitment freeze is officially in force, this only seems to have had a significarv -impact on the Central Government itself. Given the Government's difficult financial situation in the coming years (Chapter HII), further employment expansion can only be achieved at the cost of reducing investment. Similar fiscal constraints will severely limit the further expansion of secondary and tertiary education. Moreover, long term financial weaknesses in the social security system should rule out further lowering of the retirement age; indeed, the need to reduce the burden of social security levies indicates - 21 - that a raising of the voluntary retirement age should be seriously considered. In short, the impact of the public sector on unemployment, either as a direct provider of jobs, or through inducements to leave the labor market, will likely be drastically reduced for at least the remainder of this decade. E. Implications for Employment Policy 2.34 The broad aims of employment policy should be twofold: first, the overall policy framework should encourage private sector investment in activities likely to lead to rapid job generation; and second, changes should be made to increase the buoyancy of employment in relation to output. 2.35 There are, however, likely to be many unemployed in the medium term even with a successful job generation effort. A realistic assessment of growth prospects, and of the possibilities of increasing employment elasticities in the short term, indicates that there will be at least 110,000 people unemployed by the late 1980's. These must be assisted in establishing themselves as productive self-employed. This would be preferable to further special employment programs which would burden an already tight budget, or to relitef transfers which would do the same and engender a feeling of dependency among the beneficiaries. The opportunities for the self-employed, who already number 200,000 6/, would be enhanced by sites for artisanal activities and small business,,by support for cottage industries, and by creating a more open and competitive economic environment in which small business and the self-employed can flourish, 2.36 A program to aid the self-employed should not, however, be a substitute for a wider employment policy. Over reliance on self-employment would not solve the social problems caused by the decline of regular employment and may even exacerbate them. According to partial income distribution data, the self-employed are included in the poorest quartile of the population. There is also informal evidence that a substantial pei:centage of self-employed are involuntary and would rather be in regular work. Employment policy must therefore address, as its principal issue, the provision of more jobs in the regular, formal economy. 2,,37 A coherent attempt should be made to increase marginal employment/ olatput elasticities, mainly by reducing the overall cost of employing labor. Although real wages have stagnated since the mid 1970's, Social Security contributions add significantly to perceived labor costs, These contributions and other social charges must not be allowed to increase further, and ways should be sought to reduce them. Employment/output elasticities may also be increased by removing subsidies from the use of labor substitutes, e.g., duty exonerations on imported capital equipment and accelerated depreciation allowances, Care must be exercised in this approach since, although relative labor cost may be reduced, total production costs may rise thereby offsetting the potential gain to investment and employment. 6/ Excluding employers with 5 or more workers. See Statistical Appendix, Table 1,15, - 22 - As industry cannot be compensated by exchange rate adjustment, it is important that the reduction of capital subsidies be accompanied by measures to reduce the cost of employment. 2.38 However, such considerations are relatively marginal compared to the rigidities of labor legislation which are the principal cause of a perceived high cost of employment by entrepreneurs. Despite being a highly sensitive political issue, major and economy-wide modifications of the Labor Code are a sine qua non if Panama is to expand production for export at the rate necessary to absorb even a reasonable proportion of the growing labor force. This is unlikely to be achievable through changes to individual clauses by presidential decree. The Code is a weighty document, skillfully put together, with mutually reinforcing articles and clauses. To make it compatible with rapid emplomLnent generation would requlIre major revisions. These should concentrate on removing the obstacles to rewarding productivity and introducing greater flexibility in the hiring and firing of workers. Specifically, employers shoi.ld be permitted to lay off labor in response to market conditions and also to supplement the labor force with temporary workers when demand is high. 2.39 Finally, a new employment policy for Panama should recognize that the rural sector is unlikely to become an important generator of jobs even with major improvements in agricultural policy. Even during the 1960's, when agricultural output expanded at an average annual rate of 6 percent, employment grew only from 150,000 to 158,000. In 1982 it was 154,000O Moreover, much of Panama's comparative advantage in agriculture lies in areas such as grass-fed beef production and forestry which are not particularly labor-intensive. This is tnot to say that agricultural policy has no bearing on employment policy. On the contrary, given first that the principal generation of jobs will take place in the urban Metropolitan Area, and, second, that Panama's competitiveness cannot be enhanced by use of the exchange rate mechanism, a more efficient agricultural sector has a vital role to play in reducing upward pressure on wage costs. Lower support prices and a more liberal agricultural trade regime would ensure a lower cost supply of food and inputs for the urban area (Chapter IV). 23 - III. PUBLIC SECTOR FINANCES A. Overall Trends The Consolidated Public Sector Deficit 3.1 Because Panama uses the US dollar as a currency, there is no "transfer problem", no foreign exchange reserves and no short term foreign exchange constraint. Inward and outward capital flows are unimpeded and at least partially set the level of domestic activity and import demand. In these circumstancea, it is not possible for the authorities to control the domestic money supply or the exchange rate, while other key prices are difficult to determine by state intervention. Only the public sector is fully and directly susceptible to economic management. The key stability variable is the deficit of the consolidated public sector, rather than the balance of payments deficit. 3e2 The behavior of the public sector deficit since 1970 may be divided into three distinct periods as shown in Table 3.1. From 1970 through 1974, public capital expenditures averaged less than 9.1 percent of GDP, and almost a third of them were financed from current account savings. Consequently, the consolidated public sector deficit averaged less than 6,5 percent of GDP. From 1975 through 1979, public expenditures, especially investment, expanded rapidly while public savings deteriorated. This deterioration took place in spite of a series of major new tax packages and continuous IMF Standby Arrangements. Since 1980, with the exception of a major aberration in 1982, public savings have shown a distinct improvement. Revenues were boosted by about B/.80 million per year by the 1979 ratification of the Canal Treaties; capital and current expenditures were kept under tighter control; and Panama fully complied with IMF Arrangements in 1980 and 1981. - 24 - Table 3.1: KEY CONSOLIDATED PUBLIC SECTOR RATIOS, 1971-83 (As percent of CDP) 1971-75 1976-80 1981 1982 19d3 Average Average Current revenues a/ 22.8 25.7 31.0 30.2 32.6 Of which: taxes b7 17.6 20.2 22.2 22.0 23.0 non-tax revenues 5.2 5.5 8.8 8.2 9.6 Current expenditures 20.2 25.0 26.9 28.9 29.3 Public Saving 2,6 0.7 4.1 1.3 3.3 Capital expenditures 9.1 13.6 9.8 12.3 9.5 Overall deficit 6.5 12.9 5.7 11.0 6.2 Financed by: External borrowing (net) 6,3 12.5 1.6 10.3 3.7 Internal borrowing (net) c/ 0.2 0.4 4.1 0.7 2.5 a/ Including grants in aid. b/ Including Social Security contributions. T/ From the National Bank, Source: Statistical Appendix, Tables 5.1 through 5.6. 3.3 In 1982, Panama began to feel the impact of the international recession and private investment fell, Partly to compensate for this, and in a context of political uncertainty following the death of General Omar Torrijos in July 1981, controls on public expenditure were loosened. Several entities exceeded their capital budgets by wide margins, particularly the electricity company, IRHE, and the Social Security, Agency. By mid-1982, it had become clear that Panama's fiscal Standby targets would be grossly exceeded, The consolidated public sector deficit was almost double the amount agreed to with the IMF. 3.4 Faced with a much more difficult international credit environment, the Government reacted vigorously to the 1982 fiscal crisis. Additional revenue was raised through an increase in the minimum tariff and crude petroleum import taxes, and substantial cutbacks were made in capital expenditures. After these measures, the public sector deficit was reduced to about 6 percent of GDP in 1983, with a target of 5.5 percent in 1984, This target was met in the first six months of 1984. There was to be no net increase in public sector commercial foreign debt in either 1983 or 1984. A new Standby Arrangement was agreed with the IMF for SDR 150 million (about US$173 million), of which one third was made available in 1983 and the rest in 1984, In addition, Panama received some US$60 million in 1983 from the Compensatory Financing Facility. Graph 3.1 CONSOUDATED PtBUC SEMTR DME AS P NT OF GDP As Pwrcnt Of GDP PERCENT OF GDP 25- 20 15 10 0 .-- - - - - - 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 SOURCE TEXT TABLE 3.1 - 25 - B. Central Government Revenue 3.5 About 80 percent 1/ of Central Goverrnment revenue derives from taxes; of this, about 45 percent is from personal and corporate income taxes and a further 35 percent a domestic sales and value added tax. These are high proportions by developing country standards and reflect important tax reforms introduced In the 1970's. Income tax collection is relatively efficient and is effective in the case of individuals and small businesses as well as major commercial enterprises. It has proved a highly buoyant revenue source, rising from 5 percent of GDP in the early 1970ts to over 7 percent in 1983, The value added tax is selectively applied to both localLy produced and imported manufactured goods. The importance of these sources of tax revenue means that total government income is less vulnerable to the vicissitudes of imports and sales than that of many countries of the Region. Tax revenue has therefore been buoyant, generally keeping pace with, or exceeding, growth in nominal GDP. A relatively small proportion of taxes is levied on foreign trade; this is fortunate because in recent years falling imports have more than offset the effect of higher tariff rates and a conversion of quantitative restrictions into tariff protection. 3.6 Non-tax revenues received a substantial boost after 1979 when the Canal Treaties were ratified. The annual income from Canal operations rose by about B/.80 million and now represents about 40 percent of total non-tax revenues. Of increasing importance also are royalties and taxes from the Trans-Isthmian Oil Pipeline; some B/.45 million was provided from this source in 1983. Other important non-tax income sources include gambling levies (about B/.50 million per year) and charges for the use of the Panamanian Flag of Convenience (about B/.35 million per year). Table 3.2: CENTRAL GOVERNMENT REVENUE AS PERCENTAGE OF GDP, 1971-83 Peri'-od Taxes Of which Non-tax Total Income Tax Revenue 1971-75 average 12,5 4.8 3.3 15.8 1976-79 average 13.7 5.4 2,8 16.5 1980 15.2 5.8 4.8 20.0 1981 16,1 6,8 4.7 20.8 1982 15,3 6.4 5.2 20.5 1983 15.9 7.1 5s2 21.1 Source: Statistical Appendix, Table 2.1 and 5.2. I/ 1980-83 average. - 26 - Expenditures 3.7 Since the early 1970's, Central Government expenditure has risen sharply, both in absolute terms and as a proportion of GDP. However, 90 percent of the increase between 1971-75 and 1981-83 was caused by the rise in interest payments on the public debt, which have increased from less than 2 percent to over 6 percent of the GDP. This is due not only to the expansion of the Central Government's own debt; since the mid-1970's, it has assumed responsibility for the foreign obligations of a number of state enter p rises. International interest rates have risen sharply over the same period L/, so that the share of interest in total current expenditures also rose spectacularly. Preliminary figures in 1983 suggest a respite due to a levelling off international interest rates; in 1984, however, this trend was reversed. Table 3.3: CENTRAL GOVERNMENT CURRENT EXPENDITURES AS PERCENTAGE OF GDP, 1971-83 1971-75 1976-79 1980 1981 1982 1983 Annual Annual Average Average Wages and salaries 8.0 8.8 8.0 7.8 7.5 8.3 Interest 1.9 3.8 5.6 6.2 7.3 6.1 Transfers a/ and pensions 2.2 4.2 4.0 4.8 4.0 3.8 Other expenditures 1.7 1.9 1.7 1.6 3.0 3.1 Total 13.8 18.7 19.3 20.4 21.^ 21.3 a! To the Social Securilty Agency, decentralized agencies and public enterprises. Source: Statistical Appendix, Tables 2.1 and 5.2. 3.8 It is noteworthy that Central Government wages and salaries fell as a percentage of GDP between 1976 and 1983 despite a 75 percent increase in employment over the period. This reflects the significant erosion in real wage rates which took place between 1976 and 1982, and which was partially corrected by a 10 percent rise in 1983 for the- lower paid public employees. Many ministries and agencies of the Central Goverment are carrying a considerable excess of employees over and above their necessities. However, until the private sector begin. ,enerating jobs on a greater scale, it may be difficult for the Authorities to shed this excess. 2/ Between 1978 and 1982 the effective interest rate on the total exLernal public debt rose formi 7e5 to 12.5 percent. - 27 - 3.9 Current transfers to the rest of the public sector rose sharply in the first half of the 1970s but have remained constant since then. By contrast, the Government increaseu purchases of goods and services and other items of consumption by nearly 100 percent in 1982 in response to the deepening economic recession. This is perhaps the one area of expenditure where reductions could be made relatively easily in the short term. C. The Social Security Agency 3.10 The Social Security Agency (CSS), established in 1941, has shown impressive growth in recent years. It now provides pension, disability compensation and sickness benefits to over half the population. Moreover, over half the workforce is contributing to the CSS and thus building rights to comprehensive medical services and other benefits for themselves and their dependents. The value of contributions to the CSS has grown from 4.2 percent of GDP in 1971 to 7.1 percent in 1983; this reflects both an 87 percent increase in the number of contributors and a rise in the contribution rate from 9 to nearly 20 percent of the insured workers' salaries. CSS revenues received a sharp boost in 1979 and 1980 with the exp>nsion of coverage to former Canal Zone workers. Between 1978 and 1981, the average contribution per covered worker rose by over 50 percent. The ratio of pensioners and dependents to active contributors has more than doubled, from 1.04 to 2.23 since 1971. Table 3.4: SOCIAL SECURITY AGENCY: KEY STATISTICS 1971 1977 1982 Number of active contributors a/ 187,349 275,286 350,988 Total contributions (B/. million) b/ 48.6 129.0 293.9 Average contribution (B/.) 259 469 837 Contributors as % of economically active population 38.4 40.2 54.2 Number of beneficiaries c/ 382,786 765,851 1,133,211 Total benefits paid (B/.Jmillion) c/ 48.1 124.6 250.1 Beneficiaries as % of total population 27.3 43.2 55.5 Contributions as % of salary 9 13.7 22.0 a/ Estimated. W/ Cash payments including both employers' and employees' contribution. -/ Including active contributors, pensioners and their dependents. Source: Social Security Agency 3.11 The increase in the ratio of dependent beneficiaries to active contributors has to a significant extent been uncontrolled, and has taken - 28 - place without due regard to the CSS Is ability, in the Jo.-ing run, to meet the corresponding obligations. A similar observation cac. br! made regarding the lowering, in several stages during recent years, of t.u1! ¢.oluntary retirement age for certain categories of workers from 62 to 55, with pension rights equal to the last year's salary. For the moment, hoTrerver, higher contribu- tion rates have raised the CSS operating surplus subscantially. This is because the age structure of the population is currently such that a relatively large number of active contributors are supporting a relatively small number of pensioniers, and the vast majority of dependents are in an age group where their demands on medical, disability and pension services are light. By 1982, the Agency's operating surplus had reached B/.52 million, equivalent to 2 percent of GDP and 90 percent of total public savings, before falling back to B/.18 million in 1983 after a renewed surge in benefits. 3,12 The Agency's capital outlays have also grown, thanks to increases in net lending to the National Mortgage Bank (BHN), hospital construction and, more recently, a self administered and financially disastrous houslnr program. This program, known as the Programa Colectivo de Vivienda or PCV was very ambitious, involving the construction of some 8,000 units over a two-year period at a cost of B/.220 million. It was over and above the CSS's normal program of mortgage finance for its members, and involved the Agency as direct promoter and financial guarantor of the venture. The project was suspended in July 1982, amidst accusations of corruption and financial mismanagement which assumed the proportions of a national scandal. Only 2,500 units had been completed or started; over B/.100 million had been spent by mid-1984, implying an average unit cost of some B/.40,000 compared to an initial estimate of B/.27,500. Due to these large capital outlays, and despite a larger current surplus, the Agency had an average annual deficit of B/.35 million between 1981 and 1983, compared to B/.4.8 million average between 1971 and 1980. Table 3.5: SUMMARY OF FINANCES OF THE SOCIAL SECURITY AGENCY a/ (Millions of Balboas) 1971-75 1976-79 Average Average _1980 1981 1982 1983 b/ Current Revenue c/ 84.1 150.8 291.1 266,7 318.7 333.1 Current Expenditure c/ 80.0 145.0 197.0 235,7 266,5 314e7 Operating Surplus or 4,1 5.8 22.1 31.0 52.2 18.4 Deficit (-) Capital Expenditures 6.8 14.1 23.7 63.2 95.4 47.5 Overall Surplus -2.7 -8.3 -1.6 -32.2 -43.2 -29.1 Deficit (-) a/ Cash outlays, not accruals. b/ Preliminary. c/ Excluding current transfers to and from Central Government. Source: Statistical Appendix, Table 5.5. - 29 - 3.13 The potential state of CSS finances gives serious cause for concern. The substantial surpluses which the Agency is currently earning, need to be invested in assets which yield amounts sufficieiit to enable the Agency to meet future pension obligations. Instead, they have either been spent on ill-conceived schemes, such as the PCV, or invested in low yielding loans to public entities such as the National Mortgage Bank (BHN). Moreover, the Central Government and some other public sector institutions only pay a small portion of the contributions for their employees in the form of cash. The rest accumulates as Treasury debts, corresponding to the recent unpaid contributions, and of long-term bonds (carrying an eight percent average annual interest for the most recent bonds) into which the Treasury debts are eventually converted. As of September 30, 1983, total assets of the CSS were valued at just over B/.1 billion, of which half consisted of the accumulated debts of the rest of public sector. A further 30 percent consists of current assets, made up mostly of contributions due but not paid and a large non-interest bearing checking account in the National Bank of Panama (the latter has fluctuated around B/.60 million between early 1982 and mid-1984, before dropping sharply in the second half of the latter year). Only about 4G5 percent of the Agency's financial portfolio is invested in relatively high yielding assets. As a consequence, the arnual cash rate of return on financial assets averaged only 4.3 percent between 1981 and 1983. This means that the real value of the reserves, which will eventually be drawn upon to meet future pension obligations, is falling. 3.14 An analysis has been made of the financing of the CSS's future pension obligations. This indicates an actuarial deficit of about B/.275 million 3/. This estimate was made by an international actuarial expert contracted by the CSS who based his calculations on conservative assumptions; the true actuarial deficit is probably much greater. As part of CSS studies now underway, a more refined analysis of the deficit will be made, together with recommendations of the actions necessary to prevent its conversion into a major public sector cash crisis, 3/ An actuarial deficit means that the present value, at a given reference date, of future pension obligations exceeds the value at that date of the reserve available to meet them. The rate of interest at which the future obligations are discounted should approximate the expected rate of return on the reserve fund. The deficit of B/.275 million assumes, first, a discount rate of 5 percent and, second, that no increase is granted to existing pensions to compensate for inflation. If it is assumed, more realistically, that the rate of return on the reserve, and hence the rate at which future obligations are discounted, is 4.5 percent, and that peision obligations are increased by two percent annually to provide partial protection against inflation, then the resulting actuarial deficit is more than doubled. - 30 - Table 3.6: SOCIAL SECURITY AGENCY: ESTIMATED ACTUARIAL DEFICIT AS OF DECEMBER 31, 1982 a/ B!. millions Present value of obligations b/ 983.3 Value of accumulated funds 707.2 Actuarial Deficit 276.1 a/ Takes into acount increases in pension obligations granted on 1/1/83 b/ Discounted at five percent per year. Source: Social Security Agency 3.15 If the real value of capital which it has invested in loans to the Central Government and other public entities proves unrecoverable, then the CSS will he unable to meet its future pension obligations. The extent to which past errors can be compensated by further increases in contribution rates is severely limited. Social Security contributions are, in essence, an employment tax and already constitute a major disincentive to job expansion. Moreover, from July 1984, the Agency lost an important source of revenue. Traditionelly, in December of each year most employees are given their normal monthly pay plus an addition.al "thirteenth month" pay check, Through a tax, CSS had been given one-third of the "thirteenth month" bonus. After July 1984 this arrangement ceased, and it will thereby lose some B/.40 million in annual cash revenue. Most of this money was on-lent by the CSS to the BHN. To date, there have been no announcements of a reduction in BHN's housing program or in CSS benefits to compensate for this. D. The Decentralized Agencies Overview 3.16 The principal decentralized agencies are the development banks (BDA, BHN and COFINA), the institutions of higher education (University of Panama and Human Resources Development Institute) and the Agricultural Marketing Institute (IMA). They account for only about 5 percent of consolidated public sector revenue and have no authority to levy taxes. They rely mostly on Central Government transfers and short-term foreign borrowing to finance their expenditures. Their overall operating deficit averaged about B/.30 million annually between 1978 and 1981 before jumping to B/.45 million in 1982, and to B/.50 million in 1983. These agencies also rely on their operating revenues to finance expenditures. - 31 - Table 3.7: CONSOLIDATED OPERATIONS OF THE DECENTRALIZED AGENCIES, 1978-83 (Millions of Balboas) a/ 1978 1980 1981 1982 1983 b/ Current Revenue c/ 34.7 54.5 64.1 67.1 71.2 Current Expenditure c/ 58.8 83.9 92.7 112.8 121.4 Operating Deficit -24.1 -29.4 -28.6 -45.7 -50.2 Capital Expenditure 67.0 60.6 65.6 99.9 68.0 Special Capital Receipt - - - - 34.0 d/ Overall Balance -91.1 -90.0 -94.2 -145.6 -84.2 a/ Cash outlays, not accrual. b/ Preliminary. c/ Excluding transfers to and from Central Government. d/ Proceeds of sale of Marriott Hotel by COFINA; included in current revenues in consolidated public sector accounts. Source: Statistical Appendix, Table 5.3. 3.17 The BDA and IMA are discussed in Chapter IV (paras. 4.22 through 4.34). This section therefore concentrates on the remaining two development banks (COFINA and BHN) and the higher education institutions. The National Finance Corporation (COFINA) 3.18 COFINA, a wholly Government-owned company, was established in 1975 with the objective of providing longer term finance to industry. After suffering for several years from frequent chzages in management, poor project evaluation, inadequate project supervision, and extension of credit based on political considerations, COFINA's financial situation had become critical by mid-1982. A review revealed that 95 percent of the B/.78 million portfolio was nonperforming; loans amounting to B/.30 million had to be written off, and accrued interest losses were a further B/.7 million. By late 1982, lending operations had essentially ceased, During the second half of 1983, the Corporation was engaged in restructuring its capital with a view to majority private sector ownership including participation from commercial banks. The Central Government has assumed responsibility for COFINA's debts. - 32 - Table 3.8: COFINA: SUMMARY ACCOUNTS a/ (Millions of Balboas) Annual Average 1975-1979 1980 1981 1982 1983 Current revenues 1.9 5.1 9.9 5.5 10.7 Current expenditures 1.5 5.9 5.1 9.5 15.5 d/ Current surplus or deficit (-)b/ 0.4 -0.8 4.8 -4.0 -4.8 Capital expenditures c/ 9.0 18.1 22.2 27.4 10.9 Capital receipt 34.0 e/ Overall surplus or deficit (-) -8.6 -18.9 -17.4 -31.4 18.3 a/ Cash basis. b/ Before transfers. c/ Net lending to the private sector except where otherwise indicated. d/ Mostly payment of commercial guarantees. e/ Special receipt of BI.34 million from the sale of the Marriott Hotel. Source: World Bank estimates. 3.19 Those restructuring efforts were initially hampered by pre-electoral political uncertainties. However, even after the broad thrust of the new Government's economic policy had been made clear in late 1984, little active interest on the part of the private sector had materialized. This lull is not inconvenient. At present, demand for investment funds is weak, in particular for new ventures requiring long term loan capital. On the other hand, if the new Government continues to show a positive attitude towards the private sector, and there is a strong economic recovery, there could be an upsurge of demand for investment finance. 3.20 Before that occurs, it may be opportune to reconsider the role of development finance in the Panamanian context. For some time it has been widely assumed that there is a shortage of long term financing for industry and that the establishment of a Development Finance Corporation (DFC) is the best way to alleviate it. No recent attempt has been made, however, to analyze the true extent of the problem, or the most appropriate way of solving it. There is unanimity among bankers and entrepreneurs in Panama that established, creditworthy corporations receive all the funding they require from the commercial banks. The discussion should therefore be focussed on small or medium size firms, who may wish to start a viable venture, but are constrained by lack of funds. In particular, the guarantees required by the commercial banks, which may extend to a lien on assets - 33 - two-and-a-half times the value of the loan, may be a limiting factor. To determine the real extent of the constraint, an in-depth investigation of the industrial demand for credit should be conducted to determine: (a) Whether long term funds or working capital is the most important constraint, especially for export finance, and for the small or medium sized firms which would be the principal beneficiaries of the DFC. If working capital is more important, it may be more readily obtained from the commercial banks. (b) The extent to which the requirements for riskier, small scale ventures are perforce met by short term credits which may be rolled over. The risks to the borrower of frequent interest rate changes and the withdrawal of credit at short notice are inherent in such arrangements. (c) How small and medium sized enterprises adjust to the possible shortage of term financing. Do they invest less or concentrate resources on activities with rapid payback periods, or both? The National1 Mortgage (BBN) 3.21 Private housing finance in Panama, serving the needs of middle and upper class clients, works well in a liberal environment. Substantial advantage is taken of the presence of many banks in the country to tap financial resources for mortgage investment. In 1983, the >-J. king system had B/.616 million in outstanding credits to the housing sector, representing 18 percent of its total domestic portfolio. In the public sector, institutions have, by contrast, been less than successful either in mobilizing funds or in meeting the shelter needs of the greac majority of low income families. This is partly because the main institution involved, the National Mortgage Bank (BHN), has suffered from operational and financial deficiencies which have impeded its ability to mobilize resources and execute programs. 3.22 The BHN is the financial arm of the Ministry of Housing (MIVI) and has the task of mobilizing financial resources for MIVI's programs. It also functions as the regulatory agency of the five Panamanian Savings and Loan Associations. In practice, the bank suffers from lack of operational autonomy essential to the efficiency of any financial institution, and is frequently denied the auditory capacity required to verify MIVI's use of its funds.4/ Given the total size of its assets (less than B/. 300 million) and the fa7ct that MIVI, not the bank, services the mortgage portfolio, it should only require about half its present work force of 150 employees. The result has been perennial operating deficits and disorder in the Bank's internal accounting. Funds generated for MIVI projects have fluctuated considerably from year to year, and chronic operational deficits have necessitated large Central Government contributions. These subsidies are provided ex post, rather than being budgetted for in advance. They averaged B/.4.5 million annually between 1980 and 1982. 4/ In November 1984, legislation was being prepared to legally restructure BHN. This would include ending its effective obligation to finance Housing Ministry projects. 34 - 3.23 Other than these injections of government capital, the BHN's main sources of funds are low interest loans from the CSS, cash flows from its existing loan portfolio, and loans from USAID and other international organizations. In the past the bank also borrowed substantial short term commercial funds to help meet its operating deficit and to finance construction programs; the total commercial bank debt still outstanding as of December 31, 1983 was B/. 18.6 million5/. The only consistent source of funds for the BHN has been the loans from the CSS mostly financed from the "tthirteenth month" contributions; terms have been 10 years at 3 percent- annual interest. However, these contributions are no longer available to the CSS. As of December 31, 1983, the total of outstanding "thirteenth month" loans from the CSS to the BUN was B/I127 million, nearly 60 percent of the value of the bank's housing portfolVo and 63 percent of its total debt. 3.24 Ironically, the cut off of this vital source of regular cheap funding immediately followed the introduction of a number of important reforms in the BHN. In 1983, the bank revised its interest rate policy. Instead of interest rates on BHN loans being fixed arbitrarily on a case-by-case basis by MIVI, most new loans carry a standard rate of interest, currently 12 percent annually. Moreover, a procedure was established by which MIVI should only receive money from the BHN for projects backed by proper studies which meet established social criteria; disbursements should only be made against vouchers of work performed. Projects cannot commence until MIVI has received formal assurance from the BHN that there are funds available to finance them. The bank is no longer permitted unrestricted access to commercial loans. In an effort to stimulate greater reliance on loan recoveries, the Government has stated its intention to gradually eliminate the direct subsidy. 3.25 This intention is clearly threatened by the loss of the "thirteenth month" contributions. Indeed, the BUN will soon face a major financial crisis if a new source of funds is not found. The measures either taken or contemplated to meet this situation are clearly inadequate. First, the period of repayment to the CSS of the "thirteenth month" contributions has been extended from 10 to 25 years. Second, an agreement was reached in October 1982, whereby BNP, the Caja de Ahorros 6/ and the CSS promised to purchase BHN bonds valued at up to B/.16 million over a three-year period. Future purchases, however, would be determined in the light of each institution's budgetary constraints. These sources together are unlikely to compensate the bank for the loss of the regular CSS contribution. 5/ A further B!. 8 million outstanding in commercial credits was assumed by the Central Government. 6/ A profitable state owned savings bank which provides substantial amounts of housing finance to its mostly middle class depositors. - 35 - The University of Pan 3.26 The University of Panama has shown diramatic growth since the early 1970's. Between 1971 and 1983, the number of students attending rose from 14,500 to 39,100, equivalent to a growth rate of 8.6 percent per year. In 1982, 72 percent of the students benefitting from tertiary education attended the University. The number of teachers (excludin,r, the regional campuses) rose from 484 to 2,100 over the same period. Total capital and current cash cost outlays per student increased from B/.537 to B/.956 per year. Between 1971 and 1978, costs per student were falling in both nominal and real terms; since that latter date, they have risen sharply: by 13,8 percent per year in nominal terms, and by 6.1 percent per year in constant 1970 prices. This coincided with a rapid expansion in the teaching staff and an equally rapid decline in the student/teacher ratios. Table 3.9: UNIVERSITY OF PANAMA: SUMMARY INDICATOXRS 1972 1978 1983a/ Number of students 17,678 32,386 39,114 Number of teachers 529 1,100 2,057 Students per teacher 33 29 19 Graduates as percent of students 4.9 8.5 8.5 Students per classroom 106 100 102 Capital outlays per student (1970 balboas) 47 8 90 Current outlays per student (1970 balboas) 453 305 330 a/ Preliminary. Source: Comptroller General. 3.27 The University's current :. c.iues are very small and cover, on average, little more than 10 percent current expenditures. Nearly all recurrent costs and all capital expenditures are therefore a direct charge on the fisc. Current and capital expenditures combined have averaged over two percent of the consolidated expenditures of the entire public sector since 1972, while the University's 1980-83 deficit was 10 percent of the public sector total. The extent to which the University's expansion has contributed to economic growth. in Panara is a complex subject beyond the scope of this report. However, short and no.sdium term fiscal constraints will likely dictate severe limitations on future current and capital expenditures. 36 - Table 3.10: UNIVERSITY OF PANAHMA: SUMMARY ACCOUNTS (Millions of Balboas) Annual Annual Average Average 1971-75 1976-79 1980 1981 1982 1983 Current revenues 1.6 2.2 3.6 2.3 3.0 4.0 Current expenditures 10.5 16.0 21.0 23.5 26.7 29.4 Operating defLicit -8.9 -13.8 -17.4 -21.2 -23.7 -25.4 Capital expenditures 2.8 1.3 3.9 4.8 5.8 8.0 Overall balance -11.7 -15.1 -21.3 -26.0 -29 .5 -33.4 Source: IMF and World Bank estimates. Human Resources Developuent Institute (IFA ) 3.28 This Institute, which has granted scholarships and loans to university students in Panama and abroad since 1975, is another increasingly significant fiscal drain. Approximately half its total expenditure is meant to be self financing from loan recoveries and is not therefore recorded as net lending in the national capital budget. In practice, however, students rarely repay these loans which consist, in effect, of a government subsidy directly to the students and indirectly to the University. The number of loans and scholarships outstanding has risen from 3,132 in 1976 to 11,733 in' 1982; over the same period, the Institute's annual net outlays rose from B/.9.5 million to B/.16 million. This is a further item of expenditure which is szarcely compatible with the need for fiscal austerity. It is recommended that a system be introduced to ensure loan recovery, while not undermining equity principles; this might be done, for example, through systematic deductions from the graduate students' salaries. Table 3.11: IFARHU: SUMMARY OF OPERATIONS (Millions of Balboas) Annual Average 1976-79 1980 1981 1982 1983 Current Revenues 0.7 1.8 2.4 2.8 3.1 Total Expenditures 9.6 15.2 14.7 18.8 17.9 Deficit -8.9 -13.4 -12.3 -16.0 -14.8 Number of loans and scholarships outstanding 5,162 8,807 11,680 11,733 n.a. Sources: Comptroller General and World Bank estimates. - 37 - E. The Public Sector Enterprises Overview 3.29 The main public sector enterprises are the utility companies (IE, INTEL and IDAAN), the La Victoria Sugar Corporation, the Bayano Cement Company, the Colon Free Zone and the Port Authority. They accounted for 94 percent of all the enterprises' operating surplus between 1980 and 1982 and 96 percent of their capital expenditures. Their consolidated accounts have improved considerably since the mid to late 1970s. Si-ce 1981, they have averaged a current surplus of nearly B/.60 million, equivalent to about two percent of GDP. This was due mainly to suibstantial price hikes; utility and port tariffs were raised several times and the finances of the La Victoria Sugar Corporation and Bayano Cement Company improved as they began to operate nearer full capacity. However) revenue increases concealed deteriorating efficIency, which was passed on directly to the consumer. Capital expenditures, except for a surge in 1982 due to the Fortuna hydroelectric cost overrun, declined since 1980 as a number of large capital projects were completed. Table 3.12: CONSOLIDATED OPERATIONS OF THE PUBLIC SECTOR ENTERPRISES a/ (Millions of Ba3boas) Annual Annual Average Average 1971-75 1976-79 1980 1981 1982 1983 b/ Current Revenue c/ 68.9 183.6 361.9 427.1 436.0 501.1 Current Expenditure c/ 50.8 182.3 318.4 364.7 394.8 430.7 Operating Surplus or Deficit (-) 18.1 1.3 43.5 62.4 41.2 70.4 Capital Expenditure 63.4 195.3 116.1 117.1 179.4 126.0 Overall deficit -45.3 -194.0 -72.6 -54.6 -138.2 -55.6 a/ Cash outlays, not accrual. I/ Preliminary. C/ Excluding transfers to and fromn Central Government. Source: Statistical Appendix, Table 5.4. 3.30 Of the most important public eaterprisa, the La Victoria Sugar corporation is considered in Chapter IV, the 6olon Free Zone in Chapter VI, and the Port Authority in Chapter VI. In this section, therefore, the discussion eoncenttates on the public uitilities &ad the Bayano,Cement Company. -38- The Bydroelectric Resources Institute (IRHE) 3.31 IRlIE was created in 1961 for the purpose of planning, constructing and operating all electric power generation required by the country. For several years it fulfilled this function alongside private generating and distributing companies. In stages, the Authorities have provided IRHE with a satisfactory case for operating as an autonomous entity, and have purchased t1e assets of the private utilities, vesting them in IRHE. This process was largely completed by the end of 1976. Today, the institution is the sole utility providing electrical energy to the entire country, with the exception of the area served by the Panama Canal Commission and some minor plants in isolated areas. 7/ Table 3.13: 1RHE: SUMMARY ACCOUNTS a/ (Millions of Balboas) Annual Annual Average Average 1971-75 1976-79 1980 1981 1982 196 3 Current Revenue 35.3 89.7 145.9 168.7 198.7 241.4 Current Expenditure 28.3 75.5 116.4 124.4 156.7 213.0 Operating Surplus or Deficit (-) b/ 5.0 14.2 29.5 44.3 42.0 28.4 Capital Expenditure 29.0 70.9 54.7 69.0 123.2 93.1 Overall surplus or deficit (-) -24.0 -56.7 -25.2 -24.7 -81.2 -64.7 a/ Cash basis. _y/ Before transfers to the rest of the public sector. Source: IMF and World Bank estimates. 3.32 As the above table shows, IRHE has generated a substantial operating surplus in recent years. This surplus is important fiscally; between 1980 and 1983, it accounted for two thirds of the surplus of all state enterprises and nearly one third of consolidated public sector savings. Tariffs were raised several times in order to cover increased costs of imported petroleum. The average electricity tariff rose, in real terms, by 50 percent between 1975 and 1983. This has enabled IRHE to earn a satisfactory rate of return, on revalued assets, which has averaged a little under 7.5 percent per year since 1976. 7/ Electricity services to the Canal facilities and adjacenL areas are provided by the Panama Canal Commission which has an installed capacity of 210 MW. The systems of the Commission and IRHE are interconnected and exchange of power and energy takes place efficiently on a daily basis without a formal exchange contract. 39 - 3.33 From the viewpoint of the institution itself, and from that of the fisc, it is important to maintain adequate tariff policies which both reflect the cost of the service provided and generate a contribution to capital expenditures. It is for this reason that IRHE has egreed to set tariffs to earn an 8.75 percent rate of return from 1980; this is the maximum allowed by law. However, as with all monopolies, there is a danger that a cost plus tariff policy will pass inefficiencies on to the consumer without adequate attention paid to the reduction of costs. 3.34 This is what may have occurred in the case of IRHE. Since 1975, the current cash cost of producing each kWh of electricity sold has risen from 4.7 US cents to 11.5 US cents in 1983. In constant 1970 prices this represents an increase of 55 percent or 5.6 percent per year. This partially reflects the rising cost of imported fuel oil which IRHE uses to fire its thermal generators, and for which it I's currently paying higher than world prices to the local refinery. Nevertbeless, other performance indicators have deteriorated markedly, particularly those reflecting labor productivity and system losses. Table 3.14: IRHE: PERFORMANCE INDICATORS: ANNUAL AVERAGES 1976-78 and 1981-83 1976-78 1981-83 Employment a/ 3,802 5,393 Number of customers per worker 52 47 Quantity of electricity sold per worker b/ 315 314 System losses (%) c/ 13.0 16.3 Cash cost per unit sold d/ 3.8 4.4 Financial rate of return e/ 7.4 7.3 Debt/equity ratio 47/53 44/56 a/ Total employment including construction workers and temporary employees. ''/ In gigawatt hours. ci As percentage of total electricity generated. t/ In constant 1970 prices, deflated by the consumer price index, expressed in US cents per kilowatt hour. e/ on revalued assets. Source: World Bank Staff Appraisal Reports. Graph 3.2 ELECTRK POWER COSTS 1980 Unit Cost , AconsLmer By Country US CENTS PER KILOWATT HOUR 15- 10 5 .., ' . - ,, '' . ' - 0 .RE - -S -8.- SOUlRCE: STATISlC#AL APP3ENDIXb TAlBLE B1., - 40 - 3.35 These performance indicators compare unfavorably with those of other utilities in other countries which compete with Panama in industrial export markets. For example, one of the productivityr indicators, the number of customers served per employee, was 47 itt Panama in 1982 as compared to 75 and 95 for the power sectors of Costa Rica and Ecuador respectively, and 62 for both Haiti and Jamaica. In order to cover IRHE's relatively high costs, electricity tariffs are considerably higher than those of most other countries of the Region. 8/ Such comparisons should, however, be treated with caution because, in some cases, low tariffs may be financed by fiscal subsidies (Graph 3.2). 3.36 IRHE's high tariffs reflect high labor and debt servicing costs. The entity's total wage bill (including social charges and benefits) rose from B/.12 million in 1977 to B/.39 million in 1983, a real annual increase of 14 percent. Average labor costs per employee doubled over the same period from B/.300 to B/.600 per month, a real annual increase of over 5 percen.t. This occurred while real wages in both the private sector and the rest of the public sector were declining. With regard to debt servicing, IRHE is the 'largest single public sector borrower outside the Central Government itself; its medium and long term debt, of US$433 million at the end of 1983, represented nearly half the total outstanding and disbursed obligations of the public sector apart from the Cerntral Governiment. The entity's short-term debt is also significant. This stood at US$48 million at the eŽad of 1983, 63-percent of the total for the entire non-financial public sector. Much of this short-term debt was incurred as bridging finance to purchase equipment ultimately financed by loans from multilateral agencies. Total annual interest payments on IRHE's debt averaged US$24 million per year between 1980 and 1983, equivalent to t.5.5 percent of total currernt cash outlays. The interest burden would have been still higher were it not for the practice of capitalizing interest due on loans financing certain important construction activities. With the conclusion of the Fortuna project construction in 1984, cost outlays on interest may be expected to increase sharply. 3.37 Despite its high debt burden and deteriorating cost performance, IRHE's future outlook is promising for a numaber of reasons. First, in 1983 there was some improvement in the performance indicators (electricity sold per worker rose and system losses fell), though they remained inferior to those of the mid to late 1970s. Second, preliminary figures indicate that overall operating costs fell after the Fortuna project came on stream in late 1984 so that the entity's current surplus should incr,.se. Third, there should be no capital expenditures on large scale hydrotkectric projects for at least the remainder of this decade. Increased demand will instead be met through ilMveLtments in smaller hydro-electric or coal fired projects. Commencement of constructing the next large scale project, Changuinola, has been postponed from 1988 to 1992, and may well be delayed further. In order to consolidate these gains, a detailed study of IRHE's cost structure could be made to determine where reductions could be realized. The cost burden on the rest of the economy may thereby be lowered without prejudicing the financial health of the institution. 8/ In 1983, the ver tariff cbar3d to all srs is the following couthrieN wa as fo11ows (in cant pr kilowatt/hour); GueLemala 13.5; Pan~me 12.7; Nicaragua 11.1; Houduras 8.2; El Salvador 5.3; Costa Rica 4,. - 41 - The National Water and Sewerage Institute (IDAAN) 3.38 IDAAN was created in 1961, and is responsible for the operation of public water supply and sewerage facilities in communities of over 500 inhabitants throughout the country. Water supply and sanitation service levels in Panama are high by Latin America standards. By the early 1980's, some 85 percent of the population had access to public water supply systems compared to 70 percent a decade earlier. The quality of water supply services provided by IDAAN is generally good. In urban areas, potable water is available around the clock for the great majority of communities. Although in rural areas, where 70 percent of the population is served, quality of service is less reliable and depends on the local communities' ability to maintain and operate their systems, Panama enjoys considerably more freedom from water-related diseases than most tropical countries. 3.39 Financially, and in operational terms, the Institute's record since the mid 1970's has been mixed. Thanks to a more realistic pricing policy, current revenues have increased sharply. The average water tariff rose from B/.0.56 per 1,000 US gallons in 1976 to B/.0.86 in 1979 before falling back to B/.0.79 in 1981 and rising again to B/.1 in 1982. Income from higher tariffs has enabled IDAAN to finance a substantially greater proportion of investment from internally generated resources than was the case in the early 1970's. However, costs also increased sharply in the late 1970's: between 1976 and 1979 current cash outlays per water connection rose from B/.112 to B/.162, equivalent to 7.5 percent per year in real terms. Since then, real unit costs have fallen slightly but in 1982 were still some 10 percent higher than in 19 7 6. Table 3.15: IDAAN: SUMMARY ACCOUNTS a/ (Million of Balboas) Annue l Average Annual Average 1971-75 1976-79 1980 1981 1982 1983 c/ Current Revenue 9.3 20.0 24.6 27.9 37.5 41.3 Current Expenditure 7.2 13.9 21.8 25.2 32.2 33.1 Operating Surplus b/ 2.1 6.1 2.8 2.7 5.3 8.2 Capital Expenditure 12.8 7.9 5.1 6.9 8.5 9.4 Overall Deficit -10.7 -1.8 -2.3 -4.2 -3.2 -1.2 a/ Cash basis. b/ Before transfers. c/ Preliminary. Source: IMF and World Bank estimates. - 42 - 3.40 The improved unit cost performance since 1979 is mainly due to the rapid.expansion in services: water production has been growing at 12 percent per year and the number of water supply connections by 6 percent. The number of employees, permanent and temporary, increased from 1,939 in 1976 to about 2,300 in 1982, Although the number of employees per 1,000 water connections has fallen from 19 to 15 over the same period, this remains very high compared to other Latin American water utilities of similar size. Even with the low degree of mechanization of most of the small systems located around the country, a ratio of no more than 9 employees per 1,000 connections would be justified. There may also be considerable scope for improving tariff collection through increasing the percentage of water supplies which are metered; the quantity of water unaccounted for has also risen significantly in recent years and was estimated at 36 percent by 1982. Improving these indicators will be necessary to increase internal cash generation and to contribute to the entity's investment plans for the remainder of this decade. Table 3,16: IDAAN: PERFORMANCE INDICATORS 1976 1979 1981 Water Production (000 US gals) 18.44 26.24 33.00 Water Sales (000 US gals) 16.23 15.99 17.60 Percentage of unaccounted-for water 30.5 37.7 37.1 Percentage of non-metered connections 53.4 63.6 60.3 Number of employees a/ 1,939 1,994 2,291 Employees/thousand water connections 19 15 15 Current cash cost per water connection (B/.)b/ 76 94 80 a/ 83 percent permanent and 17 percent temporary. b/ In constant 1970 prices deflated by the consumer price index. Source: World Bank Staff Appraisal Reports Natioaal eleme. aicatios InTstitute (INTEL) 3.41 TL e ce La 1974w felloww the nationa1izatieo of the forsg enterprise tiLn providing dgestic telephone services, and was given eozsuwivs rigts $ trut ana arpleit the country's telephone and teleco iateatt ms r. Slacs t , &U e~*tia svet.4 ha" beeni invested In i' L; 6A internetional exehags h* been inftalled to per,tit INTEL to h l .ntertatio6al *ervicas previously provided by private corporations; and the Institute has also taken over the telegraph and telex - 43 - services which had corresponded to the National Directorate of Telecommunications. INTEL therefore exercises an effective monopoly over all telecommunication services in Panama. Density of coverage (about 10 telephones per 100 people) is superior to all countries of the Region except Argentina, Uruguay and Costa Rica. In general, standards of service are substantially higher than those of practically all other countries of the Region. Excellent telecommunications, however, are a necessity rather than a luxury for Panama with its considerable dependence on internationally oriented commercial and financial service . Although the quality of service is still good, there have been some signs of deterioration in recent years, and these must be swiftly checked if the country is to maintain its Important comparative advantage in this area. Table 3.17: INTEL: PERFORMANCE I-NDICATORS 1974 1977 1980 1982 Number of telephones 120,401 145,344 173,482 197,005 Number of telephones per 100 inhabitants 7.8 8.6 8.9 9.6 Current revenue per telephone (B/. per annum) a/ 110 103 157 181 Current cost per telephone a/ 45 66 100 127 (B/. per annum) a/ In constant 1970 prices deflated by the consumer price index. Source: Comptroller General and World Bank estimates. 3.42 Since its foundation, INTEL has generated a significaiut current surplus, second only to that of IRHE in importance among the public enterprises. This has enabled it to finance, over the 1974-83 period as a whole, all its capital expenditures and still have some resources to contribute to the overall fiscal balance. As a consequence, its medium and long term debt, nearly all related to suppliers' credits, is small: at US$41 million at the end of 1983 it amounted to just over one percent of the total for the nonfinancial public sector. Interest payments of about US$5 million in 1983 were only some 8 percent of INTEL's current revenues. - 44 - Table 3. ,8: INTEL: SUMMARY ACCOUNTS a/ (Millions of Balboas) Average 1974-79 1980 1981 1982 1983 cl Current revenues 27.9 53.8 70.7 78.5 84.7 Current Expenditures 15.9 34.3 50.6 53.5 60.3 Current surplus b/ 12.0 19.5 20.1 25.0 24.4 Capital Expenditures 13.5 25.9 14.8 13.0 5.5 ,Overall Surplus or deficit(-) -1.5 6.4 5.3 12.0 18.9 a/ Cash basis. b/ Before transfers to the rest of the public sector. c/ Preliminary. Source: IMF and World Bank estimates. 3.43 The institution's excellent financial performance conceals a deteriorating trend which, if allowed to continue, could eventually lead to an overall financial deficit. While average revenues per telephone have increased from B/.148 per year in 1974 to B/.405 per year in 1983 (equivalent to an annual increase of 5.5 percent in constant '970 prices), current costs per telephone have risen much faster from B/.60 in 1974 to B/.288 in 1983 (equivalent to 12.2 percent per year in constant prices). As a consequence, the operating surplus as a proportion of current revenues fell from an average of 44 percent between 1974 and 1979 to 31 percent between 1980 and 1983. This is unusual for a telecommunications institution where substantial investments in modernized automated equipment should lead to reductions in current unit costs, at least in real terms. 3.44 The fact that tariffs have risen less rapidly than costs, plus some degree of cross subsidization of international by local services, has kept Panama's international tariffs competitive aith those of neighboring countries (Table 3.19). As of mid 1983, only the USA (Miami) and Costa Rica, of the countries chosen, had significantly cheaper rates for calls within the Region, the first because of economies of scale and the second because of an undervalued exchange rate. Nevertheless, the trend of unit operating costs gives serious cause for concern, and a thorough study could be made of INTEL's cost efficiency procedures to identify the scope for larger savings. - 45 - Table 3.19: INTERNATIONAL TELEPHONE RATES IN SELECTED COUNTRIES, MID 1983 a/ Panama 1.70 USA (Miami) b/ 1.41 Guatemala 1.65 Costa Rica 1.33 El Salvador 1.65 Jamaica 3.92 Dominican Republic 6.00 Haiti 6.00 Barbados 7.78 a/ In US dollars per minute, average standard rates for a direct dial call to the US. b/ For calls to Central America and the Caribbean. Source: World Bank estimates. The Bayano Cement Company (Ceriento Bayano) 3.45 Construction of the Bayano cement project began in 1975, and production of cement on a significant scale in 1979. At the time of its foundation, the local market was adequately supplied by two private firms. One of the private firms closed down in 1976. In 1977 and 1978, the remaining private company, Cemento Panama, supplied the entire domestic market of some 270,000 metric tons per year. 3.46 The combined capacity of the two cement plants is now approximately double the size of the local market. The Government's stated original intention was therefore to export a substantial proportion of Cemento Bayano's output. In the event, production costs ruled this out: at full. capacity the plant's total cost is about B/.72 per ton of bagged klinker 9/s more than double the current international price. The plant is oil fired and uses the "dry kiln" method to prodtuce klinker. Fuel and energy costs are high: each ton of klinker produced in 1983 required 25.4 gallons of fuel oil at 90 cents per gallon, and 69.5 kilowatt hours of electricity at 13 cents each. These two items alone amounted to B/.32 per metric ton, 43 percent of the production cost of the klinker, and just over a quarter of the consumer prLce of the cement. Interest payments on medium and long term debt between 1978 and 1983 accounted for a further 10 percent of total costs. 9/ Made up of B/.56 in direct production costs, B/.11 in depreciation and B/.5 in financial costs. - 46 - 3.47 Costly as it is, however, the Bayano plant is more efficient than the "wet" process (also oil fired) employed by Cemento Panama. The private plant found its output cut back because of competition from Bayano in the local market, and its costs per ton sold rose dramatically to over B/.90 per ton of clinker. Rather than allow this company, which employs some 400 people (it is one of the largest industrial employers in Panama), to go bankrupt, a contractual arrangement was made in January 1981 through which Cemento Panama ceased to produce klinker but instead bought it in bulk from Cemento Bayano. In order to accomodate this arrangement, the domestic market was formally divided between the two companies with Cemento Panama having approximately 58 percent and Bayano 42 percent. 23.48 The contractual arrangement lasted three years, during which time XCemento Panama modernized its plant so that it could resume production of Flinker. To generate the cash necessary for this, it bought klinker from Bayano at around B/.50 per metric ton, well below cost, and sold cement at the controlled price, which was increased in 1981 from B/|106 per metric ton to B/.120 for this purpose. Because Bayano can sell its own cement at the controlled price, its revenue was sufficient to finance this subsidy, although its ability to generate a cash surplus was severely compromised. The cost of the arrangement was therefore shared by the fisc and the consumer who, since 1981, has been paying three times the international price for cement. Table 3.20: CEMENTO BAYANO: SUMMARY ACCOUNTS a/ Accumulated 1980 1981 1982 1983 b/ 1975-79 Current revenue 6.8 14.1 19.1 23e0 32.2 Current Expenditure 18.6 15.0 16.7 18.9 16.8 Current Surplus or deficit c/ () -11.8 -0.9 2.4 4.1 6.4 Capital Expenditure 95.5 1.1 O0.6 4.1 Overall Surplus or deficit (-) -107.3 -2.0 2.4 3.5 2.3 a/ Cash basis b/ Preliminary c/ Before transfers. Source: IMF and World Bank estimates. 3.49 The prospects for an efficient cement industry in Panama are bleak. At the beginning of 1985, Cemento Panama will bring a refurbished coal fired process on stream; Bayano has also started to invest in conversion to coal. If these new processes function well, they should bring direct 47 - production costs down by at least B/.20 per ton. However, Cemento Panama will have an annual capacity of 150,000 metric tons while BayanotsX will remain at 310,000 metric tons. At the height of the recent building boom in 1982, the total domestic market was about 350,000 metric tons, 76 percent of the combined capacity of the two plants. Even under a reasonably optimistic assumption of 5 percent annual growth in the demand for cement, both plants will be unable to operate at full capacity until 1990. Moreover, both are likely to press for continued high prices in order to recover recent and current investments in coal fired processes. The Panamanian consumer and economy will therefore likely continue paying a heavy price for the cement industry investment decisions of the 1970's. F. *The Public Investment Program 3.50 The Public Investment Program for the period 1983-85 is discussed in detail in Annex II. This section therefore summarizes its main features. When it was first prepared in late 1982, the Program envisaged a capital expenditure of some B/.390 million per year, equivalent to about 9 percent of GDP. This compares with an average of 15 percent between 1976 and 1979 and 10.5 percent between 1980 and 1982. However, due to lower than expected public sector revenues (because of the effects of the recession), and to the financial constraints imposed by heavy debt amortization obligations, further reductions are being made. Investment is even more heavily concentrated in projects yielding a high social and economic rate of return and which support private sector initiatives in export-oriented, employment generating activities. 3.51 The preparation of the public investment program in Panama is the responsibility of the Ministry of Planning and Economic Policy (MIPPE). This Ministry, and not that of Finance, also produces and monitors the current budget. A reasonably well qualified staff is responsible for planning public investment, and the institutional framework for the preparation of a coherent investment program is therefore in place. However, although central control procedures for project selection, analysis and execution have been strengthened in recent years, this process is far from complete. This is illustrated by some major recent departures from the budget, the most serious examples of which were a B/o25 million unbudgetted expenditure on a road in 1983, the excess of some B/.100 million on the Social Security housing program of 1981-83, and the B/.250 million Fortuna hydroelectric cost overruns in 1981-82. Although the cause of the excesses varies from case to case, they all share one common factor: the central planning authorities in MIPPE were not aware, at least in detail, of what was occurring until after the event, and were in each case presented with a costly fait accompli. This clearly demonstrates the need for strengthening not only MIPPE's own project planning capabilities, but also the authority of the planning staff, so that they can more effectively monitor the budgetting and accountability of the executing agencies. 3.52 The total amount spent in 1983 was B/.407 million, some 4 percent over the budget. There were, however, considerable changes in the sectoral -48- distribution of expenditures compared to those in the original 1983-84 Investment Program (Table 3.21). In particular, outlays on infrastructure increased from BI.145.7 million to over B/.200 million, due principally to the excesses mentioned above. This was balanced by reduced social sector outlays, especially in health and housing, while in the directly productive sectors of agriculture and industry, net lending $ell after lower than expected demuand for credit from the private sector. Table 3.21: COMPARISON OF PROGRAMMED, BUDGETTED AND ACTUAL CAPITAL EXPENDITURES BY SECTOR, 1983 (Millions of Balboas) Original Revised Actually Sector Budget a/ Percent Budget b/ Percent Spent c/ Percent Productive Sectors Agriculture 68.9 17.7 42.5 10.9 57.7 14.2 Industry and Commerce 27.7 7.1 7.1 1.8 23.9d/ 5.9 Sub-total 96.6 24.8 49.6 12.7 81.6 20.1 Social Sectors Education 18.3 4.7 16.0 4.1 18.5 4.5 Health 32.3 8.3 44.3 11.4 23.0 5.6 Housing 65.0 16.7 40.3 10.4 33.0 8.1 Sub-total 115.6 29.7 100.6 25.9 80.4 18.2 Infrastructure Energy 78.3 20.1 107.7 27.7 116.0 28.5 Tele- communication 12.1 3.1 16.6 4.3 5.5 1.4 Transport 55.3 14.2 76.6 19.7 82.2 20.2 Sub-total 145.7 37.4 200.9 51.7 203.7 50.1 Multisectoral and Tourism 31.6 8.1 38.4 9.9 47.3 11.6 TOTAL 389 .5 100.0 389.5 100.0 407.1 100.0 a/ In accordance with the agreed 1983-85 Investment Program. b/ As of September, 1983. c/ Preliminary Estimate. d/ Including the repayment of B/.10.9 million in loan and commercial guarantees by COFINA. Sources: MIPPE and World Bank estimates. - 49 3.53 The detailed capital budget for 1984 was revised twice since the initial preparation of the 1983-85 Investment Program. The first revision, at the end of 1983, involved modifications only in sectoral distribution and made the 1984 budget more closely consistent with the revised 1983 sectoral allocations. The second, in June, 1984, reduced the total expected outlay to B/.360 million, from the original B/.388 million, a prudent adjustment in view of the depressive effects of the continued economic recession on anticipated public sector revenues. The original and revised budgets are shown in the following table. Table 3.22: REVISIONS OF THE 1984 PUBLIC INVESTMENT BUDGET (Millions of Balboas) Original Investment Revised Investment Sector Budget 1984 Budget 198 4 Amount Percent Amount Percent Productive Agriculture and Rural Development 77.0 19.8 45.4 12.6 Commerce and Industry 20.2 5.2 15.9 4.4 Subtotal 97.2 25.0 61.3 17. 0 Infrastructure Energy 89.8 23.1 97.6 27.1 Transport 66.5 17.1 76.0 21.1 Telecommunications 10.9 2.8 14.1 3.9 Subtotal 167.2 43.0 187.7 52.0 Social Sector Education 14.8 3.8 19.3 5.4 Health 29.5 7.6 23.8 6.6 Housing 58.7 15.1 42.0 11.7 Subtotal 103.0 26.5 85.1 23.6 Other Tourism 0.5 0.1 0.5 0.2 Multisectoral and Community Projects 20.8 5.4 26.0 7.2 Subtotal 21.3 5.5 26.5 7.2 Total 388.7 100.0 360.5 100.0 Sources: MIPPE and World Bank estimates. 3.54 The 1985 outline budget, initially set at B/.392 million, has been revised to take account of the difficult financial situation the Government is likely to face during the year. Reductions of about B/.30 million have been proposed in comparison with the revised 1984 budget. This is prudent in the light of the likely public savings performance, and the small size of the consolidated deficit that can be financed. The reductions are in the following areas: - 50 - (a) In agriculture, a compensation payment to a multinational firm was completely paid in 1.984; this and other economies would give a savina of about B/10.5 million. (b) In transport, two major road projects on which B/.24 million was spent in 1984 will be completed, and a further B/.5 million would be cut from various penetration road programs. (c) In energy, some B/.20 million should be saved after the completion of the Fortuna project; although there is some postponement of expenditures on ongoing projects, outlays on new projects would bear the greater part of the cuts. (d) Some B/.3 million would be reduced from multisectoral outlays, especially some le. ser priority community projects. 3.55 For the medium term, the availability of external credit will likely continue to be very limited while a foreseeable need for heavy current outlays in the social sectors will limit increases in public savings. In view of this, it would be prudent to aim for a total annual public investment of no more than some B/.450 million in current prices by the end of the decade, equivalent to some 6 percent of GDP. To maintain the momentum of development while keeping within these financial constraints will require careful investment planning by a strengthened project department within MIPPE. G. Public External Debt Growth and Structure of the Debt 3.56 The absence of both a Central Bank and the power to influence domestic money supply means that the public sector deficit can only be financed through dollar denominated borrowing. Indeed, in practice, the size of that deficit has been historically determined by the availability of foreign financing. Even short term lending to the non-financial public sector by the National Barik of Panama is limited by the bank's own dollar denominated credit lines and deposits. In the mid to late 1970's, increasing deficits coincided with an abundant supply of commercial credit at negative real interest rates. Between 1971 and 1979, public medium and long-term external debt nearly quadrupled from about US$540 million to US$2,100 million. Commercial debt (mostly bank loans, but some bonds and suppliers credits) rose from 53 percent to 75 percent of the total. After a marked slowdown in 1980 and 1981, total outstanding and disbursed debt surged ahead again in 1982. By the end of 1983, total medium and long-term obligations stood at US$3,048.1 million, 73.5 percent of the GDP. Commercial debt was US$2,130.6 million, 70 percent of the total. (See Graph 3.3.) Graph 3.3 MEDIUM AND LONG TEM DCT 1974 - 1983 US$ MIWONS 4000- m COMMERCIAL 3000 a CONCESSIONAL 2000 1000 - Aw - 0- ~ ~ . e/A .'K~M 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 SOURCE: STATISTiCAL APPENDIX TABLE 4.3 .* i *- - 51 - Table 3.23: EVOLUTION OF MEDIUM AND LONG-TERM DEST (US$ million) a/ 1974 1979 1963 Total outstanding 538.6 2,062.8 2,956.1 Index 100.0 383.0 548.8 Commercial b/ 285.0 1,556.1 2,130.6 index 100.0 546.0 747.6 Percentage Commercial 52.9 75.4 72.1 a/ Excluding IMF, FIVEN and PEMEX credits to the National. Bank of Panama. 'I/ Excluding Eximbank, but including banks and suppliers credits. Source: Statistical Appendix, Table 4.3. 3.57 Despite Panama's high dependence on commercial credit, reliance on commercial short-term debt 10/ has been minimal Between 1981 and 1983, this averaged less than 5 percent of the total. Table 3.24: SHORT-TERM PUBLIC DEBT OUTSTANDING (millions of US$) 1981 1982 1983 a/ Non-financial public sector 62.4 93.9 76.2 National Bank 78.2 60.9 60.0 Total 140.6 154.8 136.2 Percentage of total debt 5.2 4.8 3.8 a/ Preliminary. Source: Statistical Appendix, Table 4.1. 3.58 The National Bank is the principal source of domestic financing for the non-financial public sector. It on-lends credits obtained principally from the following sources: (i) multilateral and bilateral official loans for which the National Bank is the executing agency; (ii) liabilities to the IMF throsb draw4wr of Stwanby trenches; (iii) deposits on conrcasioary terms from Venezuela and Mexico under the San Jos4 Accord on oil purchases; aa4 (1v) crEdb Iis* firm ei.reial beuMk. 10/ Defined as debt with a maturity of 12 months or leEs. - 52 - 3.59 A ceiling on National Bank credit to the non-financial public sector is normally part of the annual Standby Arrangement with the IMF. Accordingly, increases in National Bank credit are often limited to those financed by (i), (ii) and (iii) above 11/ Table 3.25: EXTERNAL AND NATIONAL BANK FINANCING OF THE PUBLIC SECTOR DEFICIT, 1974-83 (US$ million) Financed by External National Year Deficit Borrowing (net) Bank (net) 1974 108.2 101.3 6.9 1975 202.8 196.8 6.0 1976 373.6 381.8 -8.2 1977 257.5 249.4 8.1 1978 377.2 378.8 -1.6 1979 330.6 336.0 -5.4 1980 184.1 187.1 1981 207.9 61.6 146.3 b/ 1982 464.0 49 5.6 -31.6 1983 a/ 247.7 131.8 115.9 b/ a/ Preliminary. b/ The increases are due to public sector entities securing credit lines via the National Bank rather than directly. Source: IMF 3.60 The burden of financing the external debt has increased sharply since the late 1970s. Interest on the total debt rose from US$131.4 million in 1978 to an estimated US$335.3 million in 1983, equivalent to 24 percent of 11/ Seas,'.nally, ceilings are adjusted upwards to allow for crop finauicing etG. but the ceiling for the year as a whole is zere net increase in exterual c :rcial fiusming. - 53 - total public sector reveniues 12/, 8 percent of GDP, and 35 percent of gross domestic savings. Total debt service rose over the same period from US$275 million to US$529 million, equivalent to 38 percent of public sector revenues. 3.61 By 1983, 72 percent of the medium and long-term debt was accounted for by the Central Government, up from 58 percent in 1975. From 1974 through 1982, the decentralized agencies and the public sector enterprises had independent access to international capital markets. The Central Government has been subsequently obliged to take over debts which these entities have been unable to service. Examples include the La Victoria Sugar Corporation, Citricos de Chiriqui, Air Panama and COFINA. In other cases, with the full knowledge of the Central Government, entities secured commiercial credits for projects with low or lo,ig term financial returns. In 1983, a Directorate of Public Credit was established in MIPPE charged with improving the control and coordination of public debt. With regard to medium and long-term debt, these new controls have so far worked well. However, some agencies have recently increased their short-term debt as a consequence, first, of reduced or eliminated Central.Government subsidies or of official pricing policies. An example is the Agricultural Marketing Institute, IMA, which increased its short-term liabilitites by nearly 100 percent in 1983 in order to finance its purchases, storage and loss-making sales of surplus rice. 3.62 Bv late 1982, it became clear that Panama would no longer have access to large amounts of commercial credit. Commercial bankers had become increasingly concerned about their sovereign risk exposure in Latin America, while Panama's own creditworthiness suffered from the major reversal of the public financial program in 1982. Consequently, in 1983, the authorities had considerable difficulty in negotiating a new credit to refinance the bulk of amortization obligations falling due in 1983 and 1984. In the end, however, mainly as a result of its 1983-84 stabilization and structural adjustment programs, the Govirn)nent was able to obtain a refinancing with a voluntary credit of US$278 .nilion signed in September, 1983. The agreement between the Government and t'ke commercial banks reflects equal concern about the ecorLomy' s long-ter-Ln prospects as about short term financial stability. This is an important departu- from normal commercial agreements where conditionality is normally restricted to compliance with short-term stabilization plans. It is a welcome recognition that stabilization and medium-term strzct1iral adjustment are intimately linked and that neitlher can ultimately succeed without the other. Debt Service Projections 3.63 The amounts projected for Panama's e.ebt servicing are very substantial by historical standards. As the i'ollowing table shows, Panama 12/ "Wiven Panamats monatary structure, debt servico ratioa are more meeningfully expregsod in relation te public seQtor revenues than to experts of goods and s.rviese. Public sector revenues are defined as the current revenues of the Cestral Government and decentralized agencies plus the current surplus of the public sector enterprises. - 54 must confront commercial amortization obligations totalling nearly US$1.2 billion during the three years 1985-1987. This will occur at a time when there will likely be a net negative flow of fun' ' corresponding to the special petroleum credits from Venezuela and Mr,.'co 13/ and when the country will be repaying the substantial IMF drawings currently being made. The Government started negotiations with the commercial banks in the fall of 1984 with a view to refinancing amortization obligations due in 1985 and 1986. While the banks may agree to a substantial rescheduling of principal repayments, it would be imprudent to expect these negotiations to result in a significant increase in medium and long term exposure of commercial banks to the Panamanian public sector. Table 3.26: PROJECTION OF PUBLIC EXTERNAL DEBT SERVICE, 1984-87 a/ (US$ Millions) 1984 1985 1986 1987 Total debt service 668.8 802.1 958.6 978.6 Interest b/ 393.6 404.0 369.7 304.4 Amortization 275.2 398.1 588.9 674.2 of which: Multilateral Loans c/ 36.3 69.6 99.5 138.9 Bilateral loans 33.5 41.6 83.0 63.1 Sub-total official 69.8 111.2 182.5 202.0 Bonds 22.1 22.1 22.2 22.0 Suppliers credits 14.7 17.7 16.4 17.0 Commercial Banks 168.6 247.1 367.8 433.2 Sub-total cornmercial 205.4 286.9 406.4 472.2 a! The projections reflect existing commitments of bilateral and multilateral agencies plus additional new financing to cover public sector deficits of 5.5 percent of GDP for 1.984 and 4 percent thereafter. b/ Based on an assumed LIBOR of 12.5 percent from 1985 onwards and a 10 percent interest rate on multilateral loans. c/ Including IMF. Source: Statistical Appendix, Table 4.4. H. The Need for Continued Fiscal Piscipliue 3.64 In order to be able to meet the onerous burden of debt service obligations, and at the sa time finance the minimum amunt of public investmeat required to achieve its develpent goals, the Government must 13/ Despite a renewal of th San Jose Petroleum accord for one year from June 30, 19,S which will previde dditional credits of about US$15 million ill the first six tathe of 1965. - 55 - cons,"derably improve its public savings performance. This is all the more so because of the likelihood of a heavy real interest rate burden on public debt for the rest of this decade. Between 1970 and 1983 public savings never exceeded 4 percent of GDP, while the proportion of public investment finaniced from public savings varied greatly. Table 3.27: PUBLIC SAVINGS FINANCING OF PUBLIC INVESTMENT, 1971-83 Year Percent of Public Investment Financed by Public Savings 1971-75 annual average 32.4 1976-79 annual average 1.2 1980 37.5 1981 42.1 1982 10.6 1983 35.0 3.65 From 1985 onwards, these percentages must increase substantially, given that further commercial credit will continue to be scarce and that a considerable proportion of non-commercial loans will have to be used to meet amortization obligations to bilateral and multilateral agencies. Total non-commercial amortization obligations will increase from US$69.8 million in 1984 to B/.111.2 million in 1985 and again to B./.182.5 million in 1986 14/'. Even new inflows from these sources, considerably larger than the historical pattern, would not therefore negate the need for a much stronger sustained savings performance. 3.66 Without important changes, particularly oi. the expenditure side, the prospects for achieving this are, at best, mixed. From the positive viewpoint, the coming-on-stream of the La Fortuna power plant will likely result in fuel savings of some B/.60 million per year. In addition, the share of profits corresponding to the Government's 40 percent stake in the Transisthmian Oil Pipeline Corporation, together with corporate taxes, could yield over US$50 million in additional annual revenue starting in 1985. 3.67 While the expected windfall from these assets should provide some financial relief to the Government, they will probably be offset to a considerable extent by increased current expenditures in areas such as low cost housing, health and make-work employment programs, as well as, eventually, increased social security obligations. Some of these 14/ Of the difference between 1984 and 1986, 25 percent is due to iucreae4 amortizations to IBRD and IDB, 31 percent to IM repayments and 44 percent to amortizations of bilateral credits to Venezuela and Mexico granted unaler the San, Jose petroleu accord. - 56 - expenditures will be unavoidable if social cohesion is to be maintained during - difficult period of economic adjustment. Moreover, the high tariffs charged for most public sector services are already a significant burden on the economy and a disincentive to private investment; financially sound ways must be found to reduce them. Studies should be urgently undertaken to determine the extent to which state monopolies, such as utilities and ports, can reduce their operating costs without prejudicing their financial health. The five year program of eliminating subsidies- to decentralized agencies should be vigorously pursued; this means seeking economies in higher education, and reforms of agricultural pr4 cing and credit policies which currently impose heavy financial burdens on these agencies. 3.68 In addition, it is recommended that extra revenue be sought through rimproved tax administration, especially in the Customs, where substantial sums are lost each year in the form of ancollected duties, and through the introduction of new taxes. The staff of the Customs Administration are poorly trained and their methods of operation are inadequate to cope with the complex problems of modern commerce. This slows down, and at times even prevents, the introduction of desirable reforms to tariff policy. The Government is receiving technical assistance from an IMF expert who has prepared detailed recommendations concerning: (i) changes in the method of payment of customs duties to impede false declarations of value: (ii) the introduction of the Brussels Nomenclature (for which a detailed study has already been prepared) following a period of intensive training for Customs staff; (iii) a change from specific to ad valorem tariffs and (iv) a change from FOB to CIF as the basis for the assessment of tariffs. The Government has stated its intention to begin implementing these reforms at the beginning of 1985. Some of them require the approval of the legislature, which the Authorities were unable to secure during the preelectoral period. They should now be treated as a matter of urgency in order to reap the fiscal benefits of the new trade policy 15/. 3.69 The existing tax burden on the economy, at about 22 percent of GDP (including Social Security taxes), is already high by Latin American standards; introducing new taxes carries the danger of stifling private sector recovery. Savings must be sought by cutting public sector current expenditures if fiscal discipline is to be combined with economic buoyance. In the short term, however, financial necessity may dictate new revenue measures. In this case, the value added tax could be extended to certain service activities, yielding net extra revenues equivalent to some 1.5 percent of GDP. Alternatively, if the State can accelerate divestiture of some further assets in accordante with the overall aims of the structural adjiutmet prop, the extra income may thereby render new tax measures unmeosssary. 15, FVhich involves a shift frot quantitative restrictions to protection via tAriffs. - 57 - IV. AGRICULTURE AND AGROINDUSTRIAL POLICYI/ A. Overview of the Agricultural Sector 4e1 After the agricultural sector had grown by 5.3 percent per year during the 1960's, its average rate of increase from 1970 onwards fell to 1.9 percent. In 1983, real per capita agricultural output was 10 percent less than in 1970. This contrast in performance reflects sharply different development strategies and policy frameworks. Prior to 1970, the sector was subjected to relatively little state control. Moreover, growth was export-led with the most dynamic subsectors being bananas, beef and marine shrimp. Since 1970, the only agricultural export to increase significantly was sugar,. Indeed sulgar was responsible for 85 percent of the increase in the volume of crop production between 1970/72 and 1979/81, This was, however, achieved only through direct state intervention in sugar production at substantial financial and economic cost. 4.2 By the beginning of the 1980's, Panama remained a relatively inefficient producer of most of the crops grown for domestic consumption and of the one export crop --sugar-- which had significantiy increased during the previous decade. The following table compares average yields in Panama w-th those of other areas. It can be seen that in all cases except sorghum Panama's yields are lower than the international average, and in all cases except potatoes less than the South America average. These results reflect the poor quality of most Panama's soils as well as inappropriate agricultural policies which have concentrated in areas which do not coincide with the country's comparative advantage. 1/ Tile aim of this chapter is to examine the effects of policy on the agricultural and agroindustrial sector. It does not enter into details of physical production such as land use patterns, yields and agronomic potential, all of which have been amply covered in previous reports and studies. Rather, it concentrates on the institutional and other instruments of policy, particularly in the fields of pricing and marketing, and indicates how they must be changed to reorient the sector towards greater efficiency. Graph 4.1 CROPS: YIED COMPARISONS 1981 KILOGRAMS PER HECTARE (World Averae = 100) KILOGRAMS PER HECTARE 250 - Z2 PANAMA 200 m SOUTH AMERICA !M WORLD AVERAGE 150 100 50 0S SOURCE: TEXT TABLE 4.4 58 - Table 4e1: YIELD COMPARISONS FOR SELECTED CROPS, 1981 (kg/ha) Crops Panama South North International America AmerI ca Average Rice 1,694 1,782 5,462 2,855 Corn 927 2,212 6,863 '3,370 Dry Beans 260 520 1,611 567 ,Sorghum 2,445 3,192 4,025 1,507 Sugar Cane 49,800 57,230 88,802 56,102 Potato 12,517 11,116 29,166 14,387 Cocoa 274 538 358 Sources: FAO Statistical Yearbook, Office of the Comptroller General and Worl.d Bank estimates. 4.3 Agriculture has also performed poorly as a provider of jobs. The rate of increase of total farmland in the 1970's averaged only 16,000 hectares per year, a quarter of the previous decade's increase. Most of this went into highly seasonal crops such as sugar cane or into non-labor intensive activities like grazing. At the same time, market-oriented cropping technology has become more capital intensive. As a result, agricultural employment has dropped from 158,000 in 1970 to 154,000 in 1982. 4.4 The limited growth of the 1970's occurred despite a massive injection of public resources. In the last half of the decade, when state spending in the sector was at its peak, net current outlays (including the losses of the agricultural public sector enterprises) averaged B/.38 million per year and public capital expenditures a further B/145 million, This was 27.4 percent of the sector's annual value added throughout this period. The total number of public employees in the sector is nearly 7,600; five percent of the total agricultural labor force. The State pervades all aspects of sectoral activity. Factor and product prices are closely regulated, there is considerable intervention in marketing and the Government participates heavily in the provision of credit, the supply of inputs and machinery and in direct agricultural production. 4.5 The principal objective of this massive effort was initially social, the transfer of resources to the rural poor, especially the beneficiaries of the ambitious land reform which the Government undertook during 1969-73. Over 16 percent of Panama's farm land changed hands in 5 years. About 200 agrarian reform settlements (asentamientos) were formed on this land, and considerable government attention was paid to them. The lending of the state-owned agricultural bank was increased rapidly, and much of its lending went to asentamientos. New instituilons were formed to assist in marketing their output. Even the traditional s,rvices of MIDA were - 59 - channelled mainly towards their needs during the 1970s. Together with major state investments in three new sugar mills, a financially weak citrus establishment,.and new enterprises in bananas, these actions resulted in many lost subsidies, unrecoverable loans, an inflexible price support system, and poorly managed state enterprises. An indirect and unquantifiable cost was the adverse effect on the previously buoyant private agricultural sector. 4.6 The economic strategy accompanying these social goals has aimed towards self-sufficiency in food production. At considerable economic and financial cost, this has been achieved in rice, poultry, potatoes, onions and tomato products. This contrasts with Panama's possibilities for expanding exports which lie principally in: (a) salt-water farm-bred shrimp for which production capacity could be quintupled within a very few years; (b) dual purpose, semi-intensive cattle raising in the central and western coastal plains and foothills; (c) small scale, labor intensive production of tropical export crops (e.g. coffee, cacao), and of some temperate zone vegetable and fruit crops in the upper altitudes; (d) equally small scale labor-intensive growing of selected vegetable and fruit crops with irrigation near the rivers of the central provinces; and (e) development of the country's considerable forestry potential. Movement toward this, or a similar output pattern, would also be socially desirable in that it would reduce the importance of crops with marked seasonality of employment, such as sugar cane. 407 The scope for futher import substitution is, moreover, limited. The import bill for agricultural products (excluding forestry) was only 7.2 percent of total imports between 1980 and 1982. Furthermore, 75 percent of agricultural imports consisted of cereals, fresh or processed fruit and vegetables, milk and milk products and meat products. Most of these items, such as wheat and most temperate climate fruits, cannot be produced in Panama, Others, such as pork and pork products, can be produced only at high cost. Self sufficiency in corn and beans, if possible at all, will depend critically on the introduction of new technology and improved, certified seeds; even then it will likely require high support prices. Government attempts to stimulate private sector interest in further agricultural and agroindustrial import substitution have met with little interest, B. The PolicyFramework 4.8 Far from recognizing these realities, the policy framework, embodied in the current Agricultural Incentives Law 2/, is geared explicitly toward further import substitution. According to the Law, all food imports are to be reduced by 20 percent below their 1982 levels by mid 1985 and progressively thereafter to no more than 10 percent of the value of national production by 1992. This is to be achieved through the imposition of quantitative restrictions by MIDA. Domestic production is to be encouraged by state intervention in determining factor and input prices, credit distribution and agricultural production. Price controls are to be 2/ This Law, after a delay of two years, was finally passed in November, 1982. - 60 - maintained and strengthened. Tax concessions, if implemented, would reduce incentives to use land more efficiently. These policies were to be executed by the formidable array of state inst.-tutions built up during the 1970's, covering every aspect of agricultural activity from inputs to credit, marketing and direct production. 4.9 The Government has recently declared a change of strategy. Its new agricultural policies aim to: - orient the agricultural sector more toward production for export; - separate policies aimed at improving the social welfare of the rural poor from production policies; - reduce price controls and producer subsidies; - revise the role of public institutions in agriculture to achieve these objectives; - eliminate subsidies for state agricultural corporations; and - increase productivity through more effective and selective research and technology transfer. 4.10 Since the Incentives Law is'clearly contrary to this strategy, the Government is considering drastic modifications to it. The new draft legislation, which was approved by the Cabinet in late June, 1984, would abrogate those aspects of the existing Law which are incompatible with the new direction of economic policy. For example, instruments to achieve the goal of self sufficiency in all products the country is agronomically capable of iroducing, irrespective of economic cost, would be removed Irom the legal framework. Annual import substitution targets would also be eliminated. Price controls on agricultural equipment and inputs would be removed and interest rate subsidies for agricultural loans reduced. 4.11 Preparation of the araft legislation has been accompanied by a series of initial actions consistent with the direction of the Government s new program. In 1983 it closed the costly Felipillo sugar mill, part of the La Victoria complex; freed beef and higher grade coffee exports; freed the prices of potatoes and high grade coffee; reduced the support price for rice; and changed from import quotas to tariff protection for 25 important food commodities. While these are important measures, the new Government aims to accomplish more liberalization in the future in order to achieve the goals of its new agricultural policy. These cannot be reached while the State's presence remains so pervasive in the agricultural sector, influencing prices, marketing, credit and direct production. Frequently the burden of state interference, and related red tape, acts as an impediment to exports. - 61 - CO The Current Role of the State Pricing Policies 4.12 Pricing policies have been used both to allocate resources and to redistribute income. Price controls are still maintained on important agricultural products consumed locally (except potatoes) and margins are, in effect, fixed by the State at each step of the marketing chain. Producer prices are set with the participation of the Ministry of Agricultural Development (MIDA) and the Agricultural Marketing Institute (IMA) as well as the Price Regulation Office (ORP). They are negotiated annually with the interested parties (except, of course, the consumer), and are based on production cost data estimated by MIDA. Production responses to price increases have been strong, suggesting that, properly used, pricing policy could be a powerful tool for achieving higher production and exports. Strong producer response has been particularly clear in the case of rice. Due to a combination of support prices twice as high as international levels, and cheap credit, rice output rose from 127,000 tons in 1970 to nearly 200,000 tons in 1982. By the late 1970's, self sufficiency had been achieved and by 1982, Panama had reached a surplus position. IMA has had to export some 10,000 tons at a substantial financial loss. Further large surpluses were harvested in 1983 and 1984. 4.13 An analysis, comparing producer prices in Panama with those in the US, using the latter as an approximation to world prices, obtained the following results. Table 4.2: RATIO OF PANAMANIAN TO U.S. AGRICULTURAL PRICES a/ Product 1970-73 1975-78 1980-83 Tomatoes 5.89 5.53 9.04 Chicken 3.01 2,72 3.67 Potatoes 2.24 2.76 3.54 Sorghum 3.24 2.75 2n41 Corn 1,54 1.95 2.40 Eggs 1.39 1.27 1,84 Rice 0.71 1.05 1.33 Milk 1,39 1,22 1,14 Beef 0,53 0.61 0.64 Tobacco 0.61 0,60 0,78 a/ In both cases prices are in constant 1980 values deflated by each country's CPI. To mitigate the effects of annual variations, average prices over three year periods were used. Source: University of Minnesota: Study of Agricultural Prices and Trade Policy in Panama. 4.14 With the exceptions of beef and tobacco, nearly all prices are substantially above those in the US and in most cases the differentials have - 62 - widened since the early 1970's 3/. None of the crops is freely traded; the closest approximation to free trade is milk where the processing oligopoly supplements domestic supplies with large imports of powdered milk at world prices. The relatively low Panamanian beef price is explained by low cost, grass fed production of a relatively low-grade product, and by a consistent policy of ensuring supplies of cheap beef to the consumer through previous export restrictions and continuing price controls. After Argentina and Uruguay, Panama has the highest per capita beef consumption in Latin America. There is clearly a strong price disincentive against consuming other sources of animal protein, especially chicken which is nearly four times as expensive as in the US. This is a direct reflection of the high cost of feed, especially maize and sorghum, which make up 46 percent of the cost of raising a chicken in Panama. High prices also result from the lack of competitiveness within the poultry industry itself: 90 percent of the output is in the hands of three firms which also control most of the feed milling and mixing. 4.15 The following Table measures the degree of price incentives to produce different products relative to the incentive to produce rice 4/. Ite; objective is to illustrate the inconsistenicy inherent in current policy. To derive the indications in Table 4.3 the domestic/US price ratios for rice were divided by the ratios for the other products. Values of less than 1.00 indicate a greater relative price incentive than for rice and vice versa. If all incentives were uniform or close to it, all the values in the Table would be at or about 1.00. The high degree of variability in the actual indicators, both from period to period for the same product, and between products, is a reflection of the inconsistency which has prevailed over the years. Table 4.3: DEGREES OF INCENTIVES ON SELECTED AGRICULTURAL PRODUCTS RELATIVE TO THOSE ON RICE 1970-73 1975-78 1980-83 Mean Rice 1.00 1.00 1.00 1.00 Corn 0.46 0.54 0.55 0.52 Sorghum 0.22 0.38 0.55 0.38 Potatoes 0.32 0.38 0.38 0.36 Tomatoes 0.12 0.19 0.15 0.15 Tobacco 1.16 1.75 1.71 1.54 Beef 1.34 1.72 2.08 1.71 Milk 0.51 0.86 1.17 0.85 Eggs 0.51 0.83 0.72 0.69 Chicken 0.24 0.39 0.36 0.33 Source: World Bank Estimate_s from Table 4.2 3/ Where border price data are available the differentials are even wider than in comparison with the US where farmers also receive price supports. The average ratios between Panamanian producer and border prices for four important commodities in 1982 were as follows: Rice 1.68 Corn 2.44 Sorghum 2.57 Beef 0.32 4/ The choice of rice is arbitrary; any crop could be chosen to illustrate the argument. - 63 - 4.16 The matrix of relative incentives is also inconsistent with Panama's comparative advantages. All products are strongly and increasingly favored over beef, despite the fact that it is the agricultural prcduct in which the country's comparative advantage is greatest. Even rice, which Panama is able to produce with relative efficiency compared to other crops, is at a disadvantage against most products. There is also a growing relative disincentive for milk, which has not had a strong price incentive since 1970-73. By contrast, special preferences have been afforded to tomatoes, potatoes and poultry for which Panamanian conditions are less suited. 4,17 Neither have pricing policies acted efficiently as means of redistributing income to poorer groups. Again, rice may serve as an example. One of the original purposes of the rice support program was to create an economic base for the asentamientos, In recent years, many inefficient asentamientos have dropped out of rice production as credit was tightened and other subsidies withdrawn, Over 90 percent of commercial rice is now produced by medium sized or large farmers, many using mechanized methods. These relatively efficient producers are thus making exceptional profits from the current support price policy. With production costs of around B/.800 per hectare, the break even yield would be 60 cwt at the current support price, yet some commercial producers have yields on average of 100 cwt/hectare. Profits of about B/.600/hectare are therefore being made. Far from redistributing income to the rural poor, current pricing policy hence effectively subsidizes relatively efficient farmers. These producers use more mechanized techniques and farm larger areas; they are therefore also likely to be relatively wealthy. 4,18 The relationship between producer support prices and controlled retail prices is also inconsistent between products. Based on a comparison between Panamanian and US prices, products may be divided as follows: (A) (B) (C) High Producer Price High Producer Price Low Support Price High Retail Price Low Retail Price Low Retail Price Tomatoes Rice Milk Eggs Corn Products Beef Chicken Cooking Oils a/ Tobacco Oranges & Tangarines Beans Coffee Fruit Juices Onions Cocoa Products Pork products Sugar Wheat Products a/ a/ Retail price only; these commodities are not eurrently produced in Panama and hence have no suppert price. - 64 - 4.19 Products in category A are all much more expensive to the consumner than they would be under a free trade system, tnough only potatoes could 7e considered a staple item. Products in categury B, excei)t for cooking oils for which raw materials are currently imported, involve very low distribution costs achieved in most cases by reducing distribution margins to minimuLr sustainable levels. There is a danger that cooking oils may shift to category A if enforced use of crude palm oil as raw material, following establishment of a local extraction plant, forces up refining costs. The same may occur with onions if the Authorities proceed with plans for expensive drying and cold storage facilities to enable the market to be supplied with domestic production during the rainy season when onions cannot be harvested. Products in category C have artificially depressed prices with varyinig consequences for production incentives. In nearly all cases, investment in higher quality and productivity is discouraged. In the case of wheat products, low controlled prices encourage consumption in competition with rice, thereby contributing to the surplus stimulated by the high support price. 4.20 High fertilizer prices contribute to Panama's high agricultural costs. In particular, yields of grain crops are determined in considerable measure by the price of nitrogen relative to the price of the crop. In Panama, the main source of nitrogen is urea. Although the components for the mix are freely imported into Panama, the Panamanian farmer pays almost double the price paid by his American eqtitvalernt for pure nitrogen; moreover, the spread has been widening: in the U.S., the price of nitrogea to the farmer rose by 17 percent in real terms between 1973 and 1983, and in Panama by 34 percent. This is partly for technological reasons5/, though even urea costs nearly 60 percent more in Panama than in the U.S. This reflects the high cost of internal transportation and higlh margins within an oligopolistic marlceting and mixing structure. 4.21 The cost of nitrogen helps to determine the price of feed grains (mainly corn), a major component of livestock productioln costs. The figures in the following table show that the advantage to the farmer of higher producer prices in Panama is largely offset by the higher price of nitrogen. The figulres are derived by dividing the crop price by the nitrogen price. The exceptions are potatoes, tomatoes and chicken meat. 5/-Ureats nitrogen content is onl7'46 percent. In the United States, the largest single sourae is anhydrous amuwnia, which is 82 percent nitrogen; this is a gas and requires sp;cial equipment, normally included in the dealor price, for its application. -65- Table 4.4: CR0" AND FERTILIZER PRICES IN PANAMA, 1982-83 Crop/Product Pounds of Nitrogen Pounds of Feed Purchased Purchased with one with one cwt of Livestock cwt of crops Products U.S. Panama U.S. Panama Corn 33 33 Sorghum 30 31 a/ Rice 57 36 Potatoes 34 49 Tomatoes 22 77 Tobacco 968 313 Beef 1,169 392 a/ Milk 287 113 Eggs 1,234 b/ 941 b/ Chickens 605 894 a/ 1980 figures. b/ Pounds of feed per 100 dozen. Source: University of Minnesota: Ibid Marketiag 4-22 The history of state intervention in the marketin- of agricultural products, particularly grains, goes back to well before the 1968 revolution. The Authorities control the marketing of agrictultural products through the state agency IMA. IMA was created in 1975 as a decentralized institution from the former marketing directorate of MIDA. The creatioi. of IMA was therefore to streamline the state system rather than to correct inadequacies in private sector marketing. IMA is obliged to buy auy surplus of specified crops at the ruling support price. Th&:.re currently include rice, maize, sorghum, beanis, onions, salt and coffee. IMA also administers a large modern abattoir, a chicken processing plant and the national matketing of h.las and skins. It is the sole importer of maize, sorghum, beans, onions, potatoes and edible oils, either directly or by allocation to private traders, and it controls, together with the Office of Price Regulation, import quotas for alarge number of food oreducto. Since 1975, however, the State has increased its intervention, thrQugh IMA, Lato meat processing, ths marketing of hides and skins, perishable produce and supervision of municipal wholesale markets. 4.23 The presence of the State in agricultural marketing has coincided with a reluctance on the part of the private sector to invest in modern storage and distribution facilities. As IMA's own facilities were also inadequate, it contracted for the construction of a major network of grain elevators and warehouses in the main production areas. Although these facilities are partly financed by a USAID loan approved in 1975, they were only completed at the end of 1984. The large rice surplus of recent years thereLore, not only exhausted the capacity of both public and private storage facilities, but was being stored in far less than optimal conditions. 4.24 IMA's financial position is severely compromised by the chronic rice surplus and losses from the purchase and storage of other domestic crops. Despite substantial profit margins from its import monopolies, IMA has sustained cash losses (before current transfers from Central Government) in every year since its foundation. The total accumulated loss up to the end of 1983 was B/.27 million. Over half this loss (B/.15.8 million) was incurred in the first four years (1976-79) when it purchased over 100,000 metric tons of rice. In the following three years, its financial position steadily improved, with annual losses of B/.3.7 million, B/o1.0 million and B/.0.8 million respectively. During this period only 50,000 metric tons of rice were purchased. Then, in 1982/83, the trend was reversed: in the year ending June, 1983, IMA was obliged to buy 63,000 metric tons of rice. The effect of this on the entities' finances began to be felt in 1983 when a cash loss of nearly B/.7 million was sustained. According to its budget, it should have realized a profit of about B/.1 million. Since IMA's only significant sources of income to offset its losses from rice and other domestic crops are margins on the imported products it controls, it has a vital institutional stake in preventing the adoption of a freer trade regime. 4.25 As of June 30, 1984 IMA's accumulated rice stocks amounted to some 30,000 tons. A further 45,000 tons were stored in private depots, making a total of 75,000 tons, 40 percent of Panama's total yearly output. IMA's storage costs amount to B/.7.40 per ton per month. To ease the constraint on storage space and to meet periodic cash shortages, some 6,500 tons of rice were exported between May, 1983 and February, 1984 at an average loss of B/.175 per ton. Because many current storage facilities are inappropriate for bulk rice, an tnknown but significant proportion of IMA's stocks has been destroyed by pests and spoilage. In the latter half of 1984, stocks were substantially reduced through sales, at below cost, to local chicken rearers. 4.26 In previous years, the Institute's losses have been met by transfers from Central Government. Since early 1983, however, these transfers have not been forthcoming in sufficient amounts and IMA has therefore resorted to short term borrowing from commercial banks. Outstanding short term debts doubled to over B/.18 million during the 12 months ending September 30, 1983. About three quarters of this was owed to commercial banks. Nearly half the value of the "assets" which IMA has to set against these liabilities consist of crop inventories, mostly rice, valued at purchase price. A further 35 percent consists of credits to producers. IMA's financial situation is, in short, unsustainable and will require - 67 - Central Government intervention to service the debt and meet the rice related losses. In the medivm term IMA's problems can only be solved through fundamental reforms in the whole marketing system. The Government is now undertaking institutional and marketing studies to consider a variety of such reforms. 4.27 A further unfortunate consequence of the State's current role in agricultural marketing is the series of bureaucratic obstacles which must be overcome in order to export agricultural and some agroindustrial products. An exporter must obtain: - A Certificate of Origin from the Chamber of Commerce. This in turn requires the presentation of a commercial invoice, a legal "Declaration of Exportation", and a formal request to export directed to the Ministry of Finance on sealed legal paper; - An export authorization from IMA. This requires the submission of the Certificate of Origin, with its supporting documentation, and a formal request to the Director of IMA on sealed legal paper. A study will then be carried out of local market conditions, and if it can be proved that there is an excess over requirements, IMA will, in principle, authorize the export. Before the necessary signature can be obtained, however, IMA must stamp the Declaration of Exportation and register the data contained therein in its archives. These procedures can be greatly simplified if IMA itself carries out the exporting; - another authorization from the Price Regulation Office. Here there are two categories of products: those with and those without export quota restrictions6/. For the former, separate authorizations are required from two departments: the General Administration and the Quota Department. The Quota Department determines whether the proposed export is within the quota ceiling; in order to do this it requires the exporter to maintain detailed files on national production, sales and stocks. The approval of the Quota Department is waived for products which are not on the controlled export list; - a Sanitary Certificate (animal or vegetable depending on the case) issued by the Ministry of Health for which there must be a written request detailing description of the product and in some cases attaching samples; 6/ As of June 30, 1984 the following products were subjected to export quotas: fishmeal, fishoil, condensed and evaported milk, leather, hides and skins, sugqr, sardines, mayonnain*, coffee, mustard and tomato products; in sum, virtually all Panam's exports except bananas, eef, and shrimp. - 68 - also from the Ministry of Health, a Certificate of Free Sale of the product for which a separate written request must be made. After being approve. and signed by the Ministry's technical functionary, this must be countersigned by the Vice Minister of Health; it is then taken by the exporter for authentication by the Ministry of External Relations before being given back to the exporter for his use; - in the case of certain products, special additional authoriza- tion from the state institution concerned; for example, exports of forestry products must be authorized by the National Forestry Agency and fish products by the Marine Resources Department of the Ministry of Commerce and Industry; and - Customs authorization: this is the final step and granted once the Customs are satisfied that all the above documentation is in order. 4.28 Not surprisingly, this complicated and costly procedure 8everely discourages private, export-oriented investment in agriculture and egroindustry. In practice, of course, methods are found by experienced entrepreneurs to reduce the time and effort required to obtain the necessary authorizations. To a potential new investor, however, they appear formidable; moreover, the methods used to overcome them may not appear practical or desirable to all foreign investors. The mission was informed by the National Investment Council of several specific cases of potential investors in agroindustry who had been apparently discouraged by bureaucratic obstacles. The Government has formed an inter-institutional commission to examine ways of simplifying and centralizing both export and import procedures for food products. Credit 4.29 The influence of the State in the provision of agricultural credit is felt in two ways: through the operations of the public sector development banks and through interest rate subsidies. The two principal instruments of development finance in the sector are the Agricultural Development Bank (BDA) and the National Bank of Panama (BNP). BNP operates as a commercial bank lending on commercial terms. It also has a Technical Unit in its Agricultural Development Department which is rei.ponsible for on-lending funds from international development agencies. TVese loans have fixed terms and interest rates. The Technical Unit works reasonably well. Payment and collection records are good and most of its loans are adequately evaluated. - 69 - 4.30 BDA was established in 1973, as a continuation of the Economic Development Institute. Its principal objectives are to provide crop finance, development credit and technical assistance to small- and medium-sized farmers and organized farmer groups (asentamientos and cooperatives). It has until recently required a substantial operating subsidy and had, by the end of 1982, received over B/. 31 million in capital contributions from the Government. These contributions were made during the course of several attempts to restruLcture the bank's portfolio. It remains, however, characterized by substantial interest arrears, and a high proportion of the portfolio (about 26 percent at the end of 1982) consists of loans either in default (about 11 percent) or rolled over to avoid being declared in default. About 90 percent of BDA's loans range from a few hundred to a few thousand Balboas. Larger loans for longer terms are made only for livestock (normally up to B/.30,000 and up to 12 years maturity). Interest rates have for some time been positive in real terms and varied between 9 and 11 percent in late 1984. 4.31 BDA is of considerable importance to the agricultural sector. The bank's share of total credit to the agriculttural sector was 23 percent in 1982, and in crop finance (excluding bananas and sugar) over 50 percent. The number of loans granted to farmers by BDA exceeds that of the rest of the banking sector combined. The bank is used extensively by MIDA in the pursuit of planning objectives by directing financial resources into what the Ministry considers priority crops. A considerable proportion of its credit was also directed, in the mid to late 1970's, towards asentamientos and in providing working capital to other state enterprises in the agricultural sector. 4.32 During 1983, another conscious, but only partially s.iccessful, effort was made to improve both the operational efficiency and portfolio of the BDA. During the 12 months ending June 30, 1983, loan recoveries increased by 25 percent, about 90 percent of new crop loans were tied to crop insurance 7/ and operating costs were reduced by automation and closure of some branches. Nevertheless, operating costs, at 6.7 percent of productive assets, remain very high according to commercial criteria. Moreover, the recent reform effort does not appear to have survived a change of management which took place in early 1984 involving the resignation of the General Manager who instigated it. 4.33 While most interest rates in Panama are determined by the market, reflecting the opeenness of the financial sector, the Authorities have intervened, with limited success, in the determination of domestic interest rates with a view tA inRtlt(~ctng the sectoral allocation of financial resourees. On the lending side, special legislation, of July 1980, established an interest subsidv scheme for agricultural loans. The scheme is financed from the "Speaial Fund for Interest Compensation" which is fed by a levy of up to one percentage point on local commercial and pe.rsoIal loans; up to the end of 1983 the levy was in fact half a percentage point. The preferential rate for agricultural loans is fixed periodically by the 7/ Provided through the state-owned crop insurance agency, ISA. - 70 - National Banking Commission. It was originally set at three points below the domestic market reference rate (which is automatically varied to follow movements in LIBOR); it reached seven points in 1981 during the period of high international market rates before dropping back again to three points where it currently stands- Although the scheme decreases the relative cost of agricultural credit, it seems to have had little or no practical impact on the sectoral distribution for credit. During the three years before the scheme's irntroduction, some 7 percent of total domestic credit was directed to agriculture; in the three following years this percentage fell to 5.5 percent. Similarly, between 1976 and 1979 domestic credit to agriculture increased at an annual nominal rate of 9.5 percent; since 1980 this fell to 8.8 percent. -Cheaper credit does not therefore appear to compensate for the relatively high risks associated with agricultural investment, especially in the context of inappropriate trade and pricing policies. 4,34 Undeterred by the evidently limited impact of interest rate subsidies on credit demand or agricultural output, the Authorities sought to increase these through the Agricultural Ince,itives Law of November, 1982. This provides for a further two percent subsidy financed through a special B/.20 million fund called FINDES administered by the BDA. FINDES in turn is to be financed through periodic bond issues by the BDA, on which no more than 5 percent is to be paid; from Mexican and Venezuelan oil price rebates under the San Jose Accord; by tax deductible private donations; and by loans from international organizations. The latter clause would ensure that conces- sionary loans by official aid agencies are passed on to loan recipients 8/. This part of the Incentives Law has not yet been implemented, and would be abrogated by the draft Bill revising the entire Law. Its implementation would lead to further serious erosion of BDA's lending base and would introduce yet more distortions into an area of the credit market which already suffers from unnecessary and distortionary state intervention. Direct State Production 4.35 During the 1970's, the Government became increasingly involved in direct production. This was done with the twin objectives of creating employment in poor rural areas and establishing development centers ("Polos de Desarrollo") to stem the tide of rural/urban migration. This policy had limited success but a high financial cost, the legacy of which is still a heavy fiscal burden. In the agricultural sector, the most important state enterprises are the Bayano Development Corporation, the Chiriqui Citrus Company and the La Victoria Sugar Corporation. 4.36 The Bayano Development Corporation(BDC) was created in 1975 to protect the watershed of the Bayano hydroelectric reservoir and to start a capital intensive state farm producing mostly rice, cattle and timber. BDC has required operating subsidies in each year; its capital cost per direct 8/ The InterAmerican Development Bank and USAID are the BDA's chief sources of funds. - 71 - job created is over B/.100,000; and it has failed to achieve adequate yields or efficient production methods with the partial exception of the sawmills. Its financial record has also been impaired by the provision of free medical and education facilities, constructed and operated for the BDC employees, but utilized by several hundred families from the surrounding area. Operating losses, before depreciation and interest, have averaged about B/.1 million in each year of the Corporation's existence. This is met by direct subsidy from the Central Government. In 1983, the Government stated that the subsidy would be eliminated. It is not yet known if this has been achieved. 4.37 The Chiriqui Citrus Company, which consisted originally of a privately owned 5,000 ha. plantation and concentrate plant, was taken over by the Government in 1975 after being abandloned as a chronic loss maker. In late 1983, the Authorities paid about US$6 million in compensation to the original owner, a sum never capitalized in the accounts of the enterprise itself. Plantation size was reduced to about 2,000 ha in 1978. Initially heavy operating losses were incurred, but recently the enterprise has been operating at a small profit (without taking into account the debt to the original owners). Yields are, however, low and costs are high. Only 80 percent of the trees are currently producing and the average yield in 1983 was 1.25 boxes (90 lbs) per-tree; a good yield would be 6 boxes. The plant's principal product is orange juice concentrate of which it produces about 140,000 gallons per year. It operates at about 35 percent of capacity. This gross underutilization and high raw material costs, due to low yields, lead to high production costs. Direct production costs for orange juice concentrate in 1982 were B/.4.87 per gallon, plus a further B/.3.30 per gallon for marketing, administrative and other indirect costs. These high costs, which compare with about US$6 per gallon in Florida, can only be sustained in a protected domestic market. Thanks to temporarily high international prices, the plant is, nevertheless, able to export: some 80,000 gallons were sold to Costa Rica in 1983,, while in 1984 the company planned to penetrate the US market. There are plans for expanding orange production with a view to increasing plant utilization. Although Citricos has declared its intention to eventually export most of its inicreased output, juice and container filling equipment is already being installed with a view to increasing domestic sales. The entity's intentions to sell orange juice directly to consumers in tetrapak containers will involve it in competition for a limited national market with its two principal private customers for orange juice concentrate. 4.38 Although Citricos has been run as a state enterprise, it had always been the Government's intention to turn it into a cooperative. Lately, as it became clear that the management problems are too great for a workers' cooperative to handle, the Government is considering bringing in foreign capital and management for a mixed enterprise with .he workers' cooperative, which is already functioning as a provider of the firm's labor and owner and administrator of the social infrastructure and services, such as the cafeteria and gasoline pump. Management asserts that expressions of interest have been received from 10 firms, including three large food multinationals. - 72 - 4.39 The La Victoria Sugar Corporation was started in the early 1970's with the objective of making sugar a leading export and expanding employment in poorer cural areas. While the original plans were for one mill, the high world sugar prices of 1974/75, which were projected to continue, led to plans for four more. One was subsequently cancelled, due to falling world prices and high costs at La Victoria, the original mill. Capacity by 1983 was at 20,150 tons of cane per day, divided as follows: Mill Name Location Daily Capacity (tons) La Victoria Santiago, Veraguas 6,250 Felipillo Pacora, Panama 5,500 Alanje Alanje, Chiriqui 7,200 -Azuero Pese, Herrera 1,200 20,150 4.40 The Corporation continued to make heavy losses which by 1983 had exceeded an accumulated B/.200 million. In March, 1983, the Government closed down Felipillo, the least efficient mill, where total production costs 9/ for the 1982/83 harvest were 43 cents/lb compared to an average FOB export price of about 16 cents. Despite its having ceased operations, Felipillo, which has a book value of B/.38.4 million 10/, is still a considerable part of the Corporation's debt burden; moreover, most of the employees have not been laid off. 4.41 Key statistics for the 1982/83 harvest are found in Table 4.5. 4.42 Final figures relating to the 1983/84 harvest are not yet available; reportedly, however, plant utilization at the La Victoria and Alanje mills has been increased following the closure of Felipillo, resulting in unit cost reductions of around 20 percent. Since average prices have remained about the same as in 1982/83, La Victoria, the most efficient mill, is r ir the financial breakeven point. 9/ Including depreciation, interest and the mill's share of central office administration costs. 10/ Excluding land and construction in progress. - 73 - Table 4.5: LA VICTORIA SUGAR COMPANY: 1982-83 OPERATIONS La Victoria Felipillo a/ Alanje Azuero Total Cane processed 367,912 143,746 454,891 83,260 1,079,809 (short tons) Sugar produced (short tons) 38,195 15,960 38,534 7,549 100,238 Exports (short tons) - - - - 53,865 Average export price (cents/lb) - - - 15.67 Domestic sales (short tons) - - - - 13,669 Average domestic price (cents/lb) - - - - 17.79 Total average sales price (cents/lb) - - - - 16.10 Production cost (cents/lb) 20.63 42.60 24.04 37.41 26.70 Loss per lb produced 4.53 26.50 7.94 21.31 10.60 a/ Felipillo was closed in March, 1983 after about half of the cane had been harvested and processed. Source: La Victoria Sugar Corporation. 4.43 The Corporation's losses should be seen in the context of price and marketing policy for the whole industry. In the domestic market, refined sugar is sold ex-mill for 29.3 cents/lb. In the export market, about 81,000 11/ short tons are sold to the US under a special quota arrangement at aboutE21 cents/lb crude C.I.F. (the export price F.O.B. Panama is about 17 cents/lb). Panama currently has 2,9 percent of the US annual sugar import quota. There is a formal allocation of 87 percent of the domestic market and 25.5 percent of the US quota market to the two private sugar mills which between them produce about 86,000 short tons (almost half the country's total output). Thus, only about 9 percent of the private mills' output has to be sold at world market prices (4 cents/lb crude in late 1984), while the corresponding proportion for the Corporation is nearly 25 percent. Moreover, the Corporation does not sell refined sugar domestically; the price it receives for its crude sugar is 11.5 cents/lb less than the ex-mill price of the private companies' refined products. Costs at the private mills reportedly total about 16 cents/lb, roughly the same as reported current 1l/ In 1985, the quota will be reduced by some 17 percent. - 74 - costs at the origi:Al La Victoria mill. There is therefore a strong element of subsidy of the private by the public sugar industry through this market structure. 4.44 The Corporation's mills, moceover, sustain heavy social costs for education, health and similar facilities. They are also overstaffed. La Victoria, Alanje and Azuero provide, between them, permanent jobs for 1,300 workers and seasonal employment for 8,500 more. In the areas concerned, it would be very difficult to find alternative employment. The Corporation's bloated central office in Panama City costs about B/.2.2 million per year, equivalent to over one cent/lb of crude sugar. 4.45 In order to improve the Corporation's financial situation, a number of immediate options are available to the Government, short of wholesale closure or sale of its assets at deflated prices to the private sector. These include: - Sale of the idle equipment at Felipillo; - Closure of the chroaically inefficient Azuero mill and transfer of its cane, if economical, to La Victoria (SaTntiago); - Sale of the Felipillo lands to the private sector with freedom to cultivate what the ownier wishes; - Sale of the properties in Cocle, bought by the Corporation in anticipation of the construiction of a fifth mill; - Closure of the central office in Panama City, or its restructuring in accordance with minimum requirements; and - Reduction of the permanent labor force in Alanje and La Victoria to more normal levels for the sugar industry. Inputs and Technical Assistance 4.46 The Government intervenes in the provision of agricultural inputs and technical assistance through a variety of institutions, nearly all of which present problems of varying severity. The National Seed Corporation (ENASEM) contracts for the production of selected seeds from private growers which it resells to farmers at a small margin. Although it has only 15 percent of the market, ENASEM maintains that it plays a price setting role; prices of locally produced seeds have certainly increased much more slowly than those of imported hybrids where ENASEM has not intervened in the market. Financed by an IDB loan, ENASEM is to be considerably expanded; its goal is to market 56 percent of Panama's certified seed requirements by 1989. Given the existence of actual and potential private suppliers, the - 75 - desirability of such market dominance by a state institution seems questionable. There may well be cheaper ways of achieving lower seed prices than through the creation or expansion of direct official intervention. 4.47 Farm machinery hire and repair services, crop insurance, and agricultural, research services are provided respectively by the Machinery Pool (ENDEMA), the Crop Insurance Agency (ISA) and the Agricultural Research Insti.tute (IDIAP). Until recently much of these institutions' efforts were directed towards assisting the asentamientos, leaving other farmers to private enterprise. ENDEMA operates inefficiently and state subsidies are heavy. Moreover, the entity is impeded from fulfilling its originally intended function of providing smaller producers with access to agricultural equipment by technical and financial shortcomings. The Government announced, in November 1984, the imminent closure of ENDEMA. ISA and IDIAP have substantially rationalized their operations and methods. These organizations are no longer serious fiscal burdens, nor are they institutionally part of MIDA as was once the case. They might be consideued for sale to the private sector. In the specific case of IDIAP, institutional stengthening is required to increase practical research capabilities more geared to farmer's needs. There is also a requirement for much closer coordination of research activity with the extension services provided in MIDA. 4.48 Recent institutional changes have also been made in MIDA itself with a view to improving and widening its extension services. Previously, these were directed almost exclusively towards the asentamientos and were combined with the provision of other subsidized services. In February 1984 MIDA was reorganized; regional offices have been converted into "executive directorates"; each responsible for managing field service agencies. These agencies, described by the Minister of Agriculture as "the most important units of the new service-oriented MIDA" are to provide extension services to all farmers who wish them. The agencies and executive directorates are integrated into a new vertical chain of command designed to streamline implementation of minir.erial decisions. While the significance of these welcome institutional improvements should not be underestimated, more time will be required for them to take effect. The Ministry remains very short of trained extension agents. However, the new organization should stimulate a considerable increase in field visits and experience of MIDA officers, which in itself is a substantial improvement. D. Potential for Exports and Import Substitutes 4.49 Rather than treating agricultural products under the commonly used categories of "traditional" and "new", it is more meaningful to classify them according to their degree of potential growth from an overall market point of view, considering both supply and demand. A product may have a high supply potential in Panama, but a low absorptive potential in foreign markets, and vice versa. The first category of products considered are those currently exported or which have export potential. They are bananas, coffee, sugar, shrimp, cocoa, beef and fresh fruits and vegetables. A discussion follows of the principal import substitution crops in Panama: rice, feedgrains, tomatoes and tomato products, potatoes, onions, vegetable oils and milk. For both categories, a set of specific policy recommendations is provided. - 76 - Export Products 4.50 Panama's highest value agricultural and agro-industrial exports are bananas, seafood, sugar and coffee. With the exception of seafood, all have relatively low growth potential. Low international prices for bananas have resulted from a world market surplus, fueled primarily by massive acreage increases in Ecuador and Colombia. The major banana firms, in an effort to reduce the surplus, have recommended cutbacks in contracts with independent farmers. This caused labor difficulties in the Panamanian plantations. There is land available with good potential for bananas on the Atlantic Coast which would improve the country's competitiveness in European markets by avoiding Canal transit. However, world market conditions would need to improve substantially before developing this land. 4.51 Production of an exportable surplus of coffee has fluctuated considerably since the mid 1970' s. On average, since 1976, Panama has exported 13 percent less than its International Coffee Organization export quota of 4,000 metric tons. However, in recent years the exportable surplus has risen and the Government is trying to negotiate an increase in its quota. This effort is hampered by bureaucratic impediments and controls, designed to reduce smuggling, 12/ but which lead to defaults on export contracts and loss of reserve space on ships. Potential for this crop is also limited by lack of suitable land. 4.52 Studies have demonstrated that, for climate and soil reasons, Panama's comparative advantage in sugar is limited. Moreover, the outlook for world prices is poor. There should be no thought of increasing production of this crop; rather, efforts should be concentrated on rationalizing the industry and reuucing public sector losses. To achieve this, the Government may wish to carry out not only the recommended institutional reforms to the La Victoria Corporation but also move towards a freer market system. At the same time, prices could be adjusted downwards to encourage only sufficient production for the domestic market and the US quota. Such action would relieve the Panamanian consumer/taxpayer of the double sacrifice of paying twice the free international price for sugar and in effect paying for a resource transfer from the public to the private mills (para. 4.45). It would lead to healthy competition among the three corporations (one public and two private), for the domestic and foreign- markets and would have a beneficial impact on industries which use sugar as an input. Manufacturers at present pay 28.60 lb., making it very difficult for them to compete i nternationally. 4.53 Exports of seafood, especially shrimp from salt water farms, have a considerable potential. There are currently 2,300 ha in production, but Panama's full potential, on the Pacific coast alone, is about 13,000 ha. To realize this, the Government should: (i) streamline the procedures for processing and supervising concessions for the salt marsh areas; (ii) review all concessions granted to date for compliance with the Law and take speedy 12/ The movement of coffee beans from the growing areas in Chiriqui to the roasterst plants in Panama City requires six separate permits from different official agencies. 77 - action where they are being held for speculative purposes; (iii) raise the rental fees for concessions sufficiently to discourage speculation but not so high as to impede the industry's rapid development; (iv) encourage foreign investment in establishing commercial breeding suppliers to overcome the shortage of post-larvae; (v) encourage an agreement whereby the only producer of non-soluble feeding pellets shares his technology with the rest of the industry; and (vi) encourage size grading of shrimp for export by all producers, in order to secure a higher price, while taking care not to discriminate against the interests of smaller producers. 4.54 Three other products which show considerable potential, but which are currently exported in only small quantities, are cocoa, beef, and f ruits and vegetables. 4.55 Production of cocoa has declined rather than expanded in recent years, despite the existence since 1981 of a processing plant with a capacity seven times the national bean output of 350 tons per year. The plcant exports most of its production in the form of cocoa butter and powder. Pricing arrangements for the raw material, based on international quotations, work well. The principal constraints to development concern raw material production. Most could probably be overcome by switching from the current system of small farmer production to organization in the form of plantations and outgrowers. However, in view of the difficulties encountered by other plantation crops in Panama, especially in terms of labor relations, it is recommended that suitably qualified consultants be contracted to assess alternatives for production organization under Panamanian conditions. 4,56 Although grass fed beef production is where Panama's greatest comparative advantage lies in agriculture, misguided price and marketing policies have stunted growth for several decades. Domestic prices have been controlled at well below world levels in most years and exports have been subject to quota restrictions. Panama has never filled its US import quota. A number of other factors erode the profitability of modern slaughter houses: high utility costs; competition from small-scale intermediaries ("matarifes") who have very low fixed costs; and market regulation of by-products, particularly hides. 4.57 In order to develop a dynamic, efficient and export-oriented beef industry, a number of measures are urgently required. First, price controls on live cattle and on all beef cuts could be removed. This is opportune while there is now an excess supply. Second, the authorities should widely disseminate a declaration that exporc restrictions on beef will not be reimposed, thus giving cattle ranchers and modern meat packers at least a verbal guarantee that their investment in higher productivity and quality will not be penalized. Third, to provide the consumer with an alternative protein source, measures should be taken to cheapen poultry meat. Cheaper feed should be made available through liberalizing imports of corn and sorghum and encouragement given to potential new investors in poultry rearing. - 78 - 4.58 Although, for climate and soil reasons, Panama's possibilities in fruit and vegetables (other than bananas) are limited, opportunities do exist. The most promising crops are melons and plantains. Plantains, of which 40,000 boxes, worth US$182,>00, were exported to the US in 1982, are produced in Chiriqui, Bocas del Toro and the Darien. Exports in 1984 were, however, very low due to greater incidence of the Sigatoka Negra disease in Chiriqui. To encourage development of this crop, action should be taken to (i) teach small farmers to eradicate Sigatoka Negra through systematic spraying; (ii) encourage an agreement between. the owners of Puertc Almirante port in Bocas del Toro province and local growers to permit exports of plantain through the port 13/; and (iii) sell the packing plants to private exporters or producers: the collection and packing o"f' the fruit might be more expeditiously carried out by the private sector, or a producer cooperatives, than through IMA which currently manages the plants. 4.59 The country appears to have the appropriate agronomic conditions for growing melons for export into the US winter market. This is a high value market. Transport and labor costs can be offset as long as the operations are well managed. Because the produce is perishable, efficient coordination of the production-packing-transport system is critical. Lack of this in the past proved fatal to several initiatives. The Government could stimulate such export operations by ensuring that no bureaucratic interference impedes the critical coordinating function. Price intervention is unnecessary. Testing of varieties by IDIAP would help to ensure local adaptation and reduce risks to producers. Reportedly, Miami brokers have not given exporters fair returns, and the possibility of establishing an importing operation in Miami might be explored. A note of caution is in order regarding market prospects. The window for the winter market is narrow, thereby making this a highly seasonal activity, Furthermore, it is likely that the competition from Central American and Caribbean countries will increase and the strong presence of Mexico will continue. 4.60 Other nontraditional fresh produce exports that appear to have growth potential and deserve stupport in their initial stages include: okra, cassava, cucumbers, strawberries and eggplant. Some of these might be exported in a more processed fLorm (egg., frozen okra, cucaimber in pickling brine). Spices and medicinal plants have been exported in small quantities but do not appear to hold large potential. Cut flowers from the Chiriqui area may have potential, but access to appropriate air transport remains a serious barrier. 4.61 Panama's potential in forestry has been the subject of several comprehensive studies in recent years. All of them point out the consider- able scope for expanding exports of tropical hardwoods especially from the forest of the Darien, However, there is considerable danger that in the absence of rational exploitation, the rapid exhaustion of resources could bring substantial ecological damage in its wake. There is general recognition that the Government's National Renewable Resources Institute needs strengthening in order to more effectively plan and police the exploitation of forestry resources. Until this is done, unregulated exploitation will continue. 3/ At present, due to prohibition of the loading of plantains in Puerto Alminarte, plantains from Bocas del Toro have to be exported through the Costa Rican port of Puerto Limori, some 75 miles from the packing plant. -79 - Import Substitution_Crops 4,62 The Government's encouragement of import substitution has focussed principally upon rice, feedgrains, and horticultural products, particularly tomatoes, potatoes and onions. Self-sufficiency has been achieved in rice and most horticulture, though not in feedgrains. Currently, efforts are centered on attempting to substitute for imports of vegetable oils and milk, as well as developing seed varieties which will assist the drive to self-sufficiency in feedgrains. 4.63 In the case of rice, not only has self-sufficiency been reached, but a substantial surplus created. High support prices--currently double world levels--make this crop very profitable for relatively efficient growers who now supply the majority of marketed output. Despite the severe financial problems that this is creating for IMA (para.4.27) the Government remains reluctant to use the price mechanism to reduce output. A powerful pressure group has been formed by the more efficient growers who also own many of the mills. The mills frequently buy from other farmers at below the support price and then sell the milled rice at controlled prices which assume they have payed the support price to the farmer. The Authorities attempted to reduce the 1984/85 rice acreage by restricting credit and the amounts which IMA would buy. These restrictions had only a limited impact on output as yields increased on a reduced area. Most credit for rice is now supplied by commercial banks and the Authorities' influence over their lending is limited. Moreover, IMA was in the event unable to resist pressures to purchase surplus output. Such measures cannot substitute for an urgently required reduction in the support price to a level much nearer world prices. Even should this result in a deficit, the amount involved could be imported at less cost than the local rice. Such action would also release land and other resources for more economic alternatives, thereby mitigating the possible depressive effects of rice price reductions on land values. 4.64 In contrast to rice, high support prices for the basic feedgrains (maize and sorghum) have not reduced the import gap which, at 48,000 tons per year, is one third of consumption. This is imported by IMA which sells to the wholesaler at the equivalent of the domestic support prices. As the latter are 21 times world levels, the profit margins associated with this operation are substantial. The failure to achieve self-sufficiency is attributed to the lack of well adapted seeds. It is anticipated that when these are finally develope-',14/ production of sorghum and possibly also maize may be feasible at prices acceptably close to world levels. If not, then the poultry industry should be allowed to rely essentially on freely imported feed. This would enable it to offer the consumer a cheap alternative protein source to beef thereby reinforcing the recommended policy of liberating beef prices and exports. 14/ The Government anticipates that marketing of the new seeds could begin in 1986, - 80 - 4.65 Twenty-five years ago, all tomatoes and tomato products consumed in Panama were imported. Today, Panamanians consume about 15 kg. of tomatoes per capita per year, all locally produced. This has been achieved through (for Panama) an unusually productive partnership between small farmers and a multi-national processing firm which supplies them with credit and technical assistance. Government protection enables the company to pay the farmers some four times the world price and still sell its products at a profit. Evidence indicates that productivity has risen and production costs now average less than half the officially regulated support price. Aiven that the latter rules out exports, and impedes the further expansion of the local market, there is a strong case for substantially lower producer and consuamer prices. 4.66 As in the case of tomatoes, self-sufficiency in potatoes has been achieved through the efforts of small, market-oriented farmers. In March, 1983, potatoes became the first foodstuff to be completely freed from official price and supply controls. An import tariff of 68 cents/lb. (equivalent to 500 percent effective protection), has been imposed to protect local production. This is effectively controlled by two cooperatives, who have taken advantage of the protection offered by sharply increa3ing prices. In February 1984, potato wholesale prices were 165 percent higher than a year earlier; at 36 cents/lb. potatoes have become a luxury food. Although potatoes are not as important a staple as rice, recent events hardly make price deregulation popular among consumers. The problem could be easily solved by liberalizing imports from neighboring countries. 4.67 The price of onions is still controlled; the support price has risen by 50 percent since 1979, rather more than the rate of inflation. This has enabled local production to supply the domestic market except during part of the rainy season when onions cannot be harvested. The Authorities have expressed their intention to achieve full self-sufficiency through installing driers and enlarged cold storage facilities. This is, however, likely to be extremely costly; if the cost is passed on to the consumer, then onions also will become a luxury food and consumption will fall. 4.68 Following many unsuccessful attempts to produce domestic raw materials for edible oils, a palm oil production scheme was originated with World Bank support in 1979. The oil palms were planted and the first fruit harvested in 1984, No extractor plant has, however, been constructed and a temporary arrangement has been made to process fruit at a plant in Costa Rica. The crude oil is then returned for sale in Panama. The private sector has been reluctant to invest in a product for which it considers the supply of raw material to be potentially unreliable: the fruit is produced by cooperative farms in a politically sensitive area. Moreover, the two private refineries, which currently process imported crude soybean oil, believe that the heavier palm oil product may meet consumer resistance. Private sector participation may, therefore, require heavy protection; alternatively, the State may become involved in another likely loss making public enterprise which will run counter to the thrust of its economic policies. If a domestic plant can only operate with heavy protection, ways may be sought of making a permanent arrangement with the Costa Rican processing plant, and inicluding the marketing of the crude palm oil outside as well as inside Panama. These and other alternatives are to be considered in an economic study of the processing plant scheduled to commence in March 1985, 81 - 4.69 It would appear, on the basis of present knowledge, that substantial additional milk production could result from appropriate pricing and marketing policies wihout significant sacrifice by the low income consumer. This would benefit many hundreds of small dual purpose (i.e. milk and beef) ranchers who rely on milk as a source of regular cash flow. The three principal constraints to greater milk output have traditionally been: - the oligopolistic structure of the processing industry which prefers to reconstitute imported powdered milk because of reliability and cheapness of supply; - poor returns to the farmer: the controlled farmgate price fell at an annual rate of 3 percent in real terms in the 20 years ending 1982. - the absence of regulations and mechanisms establishing a grade of milk hygienically acceptable yet technically and financially feasible for the majority of producers. 4.70 The new grade "B" milk is an attempt to deal with the last of these constraints. 15/ It has yet to.be marketed because the precertified producers are still to complete modifications required according to preliminary inspection, and because the monopoly pasteurizing firm is still negotiating processing and marketing margins with the Government. In addition to establishing this grade as quickly as possible, farmgate milk prices should be allowed to rise at least as fast as other consumer items. Commercial imports of dried milk should be free, but subject to a modest tariff which would make them marginally more expensive to the processor than the local milk equivalent. The existing oligopolistic structure of milk processing and distribution would likely rule out decontrol of wholesale and retail prices. E. Ar Outline Strategy for Greater Efficiency 4.71 Five general guidelines are proposed to help the Government reorient its agricultural strategy towards a new period of growth. They deal with competitiveness, the roles of the public and private sector, pricing, and continuity. Thiey are not panaceas, nor do they represent a "first best" solution, Rather they indicate the general direction which policy could follow, while taking account of Panama's resource, economic, political and social realities. 4.72 Ensure competitiveness. Efficiency of resource use implies that costs of Panamanian products, regardless of whether primarily for export or for domestic consumption, should approach internationally competitive prices. Adjusting support prices downward for those commodities that are priced substantially above their CIF price is one way to increase pressure on the agricultural economy's competitiveness because such high price levels tend to lead to inefficient resource use. Similarly, abolition of 15/ Previously, there were only two grades: "A", of relatively high quality milk and "Industrial", - 82 - government-fixed marketing and processing margins can lead to greater competitiveness as less efficient firms are forced to modernize or turn to other activities, while new firms may be encouraged to invest and thus increase competition. 4.73 Reduce the public sector's ongoing role to one of supporting functions where the private sector is efficient and there is adequate competition. Production of goods and services by a public sector agency in a market economy, where competitive conditions prevail, tends to become superfluous. Panama's experience has shown that it has often led to public Epending and/or prevents the private sector from taking advantage of all possible economies of scale and markets; this, inter alia, also reduces the tax base. 4.74 In an ostensibly market-oriented economy like that of Panama, Government should resist regulating directly prices and supply. Rather, it should stimulate competition and investment by providing the essential physical and service infrastructure which the private sector is unable to provide. Prime examples include agricultural research and extension, where these functions cannot be effectively provided by the private sector, and price stabilization during seasonal market gluts. Such services can only be provided effectively by well-trained, experienced personnel. 4.75 Deregulate prices selectively. Most price controls and price supports in Panama's agricultural sector result in substantial interrelated market distortions that tend, in most cases to result in windfall profits for a few relatively efficient producers rather than benefitting consumers. Ceteris paribus, price controls can be justified only to mitigate the social effects of an actual or impending scarcity of a mass consumption good or when monopoly or oligopoly exist. Panama's open economy in principle guarantees that mass scarcities cannot arise if Government does not interfere with the market. In practice, however, oligopolistic market structures (examples include fertilizers, animal feeds and poultry) impede the effectiveness of the competitive process thereby strengthening the perceived need for price controls. Oligopolistic market power will likely be eroded following completion of the changeover from quota to tariff protection that is currently underway. To carry this process further may require reforms to the legislative framework for commercial practices aimed at creating more competitive conditions. In the meantime, the Government may wish to proceed at once with decontrol of those commodities where domestic prices are currently depressed, or for which competitive import and marketing/processing channels already exist. 4.76 Assurance of Policy Continuity. A significant obstacle to productive private investment in Panama today is uncertainty about the continuity of any given economic policy measure or set of measures. The creation of a climate of eertainty in this respect would do likely more for stimulating private investment than many incentive measures. Investors and entrepreneurs need to be assured of the "rules of the game"' for periods - 83 - of time that are long enough to promise a reasonable rate of return on the given investment . And the longer the time horizon of policy stability to which the investors can look forward, the more likelihood there is that they will invest for the long term. In the new democratic environment, legislative backing for the new policies could well provide enhanced stability. - 84 - V. INDUSTRIAL POLICY A. Introduction 5.1 Panama's manufacturing sector is characterized by a vicious circle of high protection against impirts, inward orientation to a small domestic market, lack of economies of scale, and hence high unit costs, leading to a perpetuation of higlh protection against imports. Over two thirds of gross output consists of first necessity consumers goods (food and clothing) so that high production costs add to the upward pressure on urban wages. Another 20 percent consists of inputs to other manufacturers or sectors (building materials, packaging materials, oil refining) thereby further perpetuating the vicious circle of high costs. The following table compares the ex-factory cost in Panama of some of most important locally produced product groups with their CIF price as of mid 1983. Except for furniture, for which the transport cost in relation to value is unusually high, there is a significant premium, varying between 14 and 114 percent of the CIF value. In some individual products, including some foodstuffs, the difference is over 300 percent. Given that local value added averages about one third of£ the value of gross output in Panama, this is equivalent to effective protection of about 1,000 percent. Table 5.1: MANUFACTURED GOODS: EX FACTORY COST IN PANAMA COMPARED TO CIF PRICE, MID 1983 Product or Product Group Percent Food products 148 Domestic soaps and detergents 114 Textiles 123 Clothing 123 Cement 214 Other building materials 151 Fuel Oil a/ 137 a/ The comparison is ex-refiners rather than CIF. Source: Center for Development Technology: La Proteccion Efectiva de Algunas Industrias en la Republica de Panama, Draft Report, June 1984. 5.2 Not surprisingly, manufactured exports are extremely low. Despite having accelerated in recent years, they still represent only just over 2 percent of gross value, and 2.5 percent of the value of exports of goods and non-factor services. Clearly, this unimpressive perforrmance must be transformed if goods exports are to play the critical role Panama's new development strategy assigns to them. - 85 - 5.3 Panama's industrial experience illustrates all too clearly the pitfalls associated with import substitution in a small developing country. Its consequences can be seen not only in terms of static cost comparisons as illustrated above, but also in terms of its other side effects: unplanned and inconsistent levels of protection which discriminate between industries in a manner totally unrelated to comparative advantage, increasing capital intensity, the dedication of entrepreneurial energy to obtaining permits and finding loopholes in regulations, low product quality, and the dominance of the small market by one or a very few producers in nearly all subsectors. 5.4 To break from this vicious circle into one of export-led expansion, would imply a transformation of the domestic market environment and the structure of incentives. The riomestic market needs to be opened up by removing price controls and queatitative restrictions so that exporters may have access to the international market for their necessary inputs and so that the functioning of markets more accurately reflect relative scarcities. Moreover, successful export orientation requires a firm and stated commitment by policy makers to make exporting (regardless of what is exported) at least as profitable as producing for the domestic market. Experience teaches that this is best achieved through setting relatively uniform across- -h-board incentives related to a simple, widely known set of "rules of the game". 5.5 Panama has begun to move in this direction, although much remains to be done. This chapter details the characteristics of the manufacturing sector, and of the existing system of incentives, in order to provide dimension to the challenge which faces the Authorities, as well as frame detailed policy recommendations. It begins with an overview of recent trends, then discusses the current policy framework, employment and export incentives before considering the Government's new industrial development strategy. Finally, there is a brief discussion of the prospects for industrial exports. B. Recent Performance and Trends 5.6 While the growth of the manufacturing sector exceeded that of GDP in the 1960's, it has since lagged behind with a corresponding fall in its Table 5.2 : GROWTH IN THE MANUFACTURING SECTOR, 1960-1982 (Percentages) Period Annual Average Growth Annual Average Share of Rate of alanufacturing Growth Rate of Mlanufacturing in GDP GDP 19 60- 69 11.4 8.1 1960: 13.1 1970-75 2.9 4.7 1970: 12.5 1976-79 3.2 3.4 1979: 11.3 1980-83 -0. 4 3.2 1983; 9.5 Source: Statistical Appendix, Tables 2.4, 2.6 and 8.1. - 86 - share. Rapid expansion in the 1960's was driven almost entirely by import substitution. The business climate was favorable and the private sector was the source of most financial and entrepreneurial resources. The marked slowdown in the 1970s reflected a deterioration in business confidence due to the protracted Canal negotiations, and to state intervention measures such as the Labor Code, price and rent controls. The sector did not share in the 1978-82 economic recovery in Panama; indeed it continued to bp adversely affected by the policy and institutional environment. While there is general agreement that further import substitution possibilities are now severely limited, the policy framework is only slowly and partially adapting itself to encouragement of exports. 5.7 The most important change in the structure of manufacturing since 1970 is the increase in the share of food processing. The sharp decline in the share of oil refining reflects increased competition from other refineries in the area which are more efficient and have a more appropriate product mix. Table 5,3: STRUCTURE OF THE MANUFACTURING SECTOR 1970 and 1982 (in percentages of total value added in 1970 prices) 1970 1982 Consumer Goods 65.6 72.6 of which: Food Processing a/ 35.3 47.3 Clothing and Footwear 10.4 10.2 Intermediate Goods 31.3 24.0 of which: Oil Refining 10,1 3,0 Non-Metallic Minerals 7.6 6.3 Capital Goods 3.1 3.4 Total 100.0 100.0 a/ Including beverages Source: Statistical Appendix, Table 8.2. 5.8 Starting from a very low base, exports of manufactured goods have expanded since 1970, and particularly since 1975. However, in 1982 they still represented only 2.1 percent of gross sales, -87 Table 5.4: MANUFACtURED EXPORTS a/, 1970-1982 (A) (B) Year Manufactured Gross Value A as Percentage Exports of Manufactured of B (B/Wmillions) Output (B/.Million) 1970 1.6 356.5 0.5 1975 8.1 975.5 0.8 1980 31.2 1,514.4 2.1 1982 38.5 1,822.7 b/ 2.1 a/ Categories 5 through 8 of the SITC Code less Category 68. b/ Preliminary. Source: Statistical Appendix, Tables 8.1 and 8.4. 5.9 Manufactured exports are highly concentrated with regard to both products and markets. About 75 percent of the increase since 1970 has been in clothing, food processing and leather goods, although more recently chemical products have claimed a larger share. This was due mainly to the export of medical products, paints and rubber products directed to Caribbean and Latin American countries in the late 1970's. In 1981, over two thirds of the sector's exports went to a few regional markets, principally Central America, Colombia, Venezuela and Netherlands Antilles. Economic and other difficulties in these markets largely explain the slowdown in the rate of expansion since 1980. The Government is now actively engaged in trying to attract investors from the Far East and elsewhere who have export-oriented manufacturing experience and whose main markets would be in Europe and North America. 5.10 Data on investment in manufacturing is scarce and rather unreliable. It indicates, however, that private investment has remained at a very low level since 1970. Sharp increases in the total value of investment in 1977 and 1978 were due to substantial public capital expenditures in sugar mills and a cement plant. The stock of foreign direct investment in manufacturing had the same nominal value at the end of 1981 as at the end of 1975. There was consistent net disinvestment by foreigners from 1976 through 1978. After the ratification of the Canal Treaties in 1979, some capital returned but net disinvestment resumed in 1981. One of the salient characteristics of Panamanian manufacturing is the low degree of foreign ownership. Even those firms with foreign shareholding must have local partners owning over one third of the capital. Short term prospects for increased investment are bleak. Both domestic demand and that in traditional export markets is slack. Even were it buoyant, however, substantial new - 88 - investment would be unlikely since the sector is operating at an average 30 percent capacity utilization 1/e Nearly 60 percent of the industries operate only one shift and several entrepreneurs reported capacity utilization levels as low as 10 percent. C. The Current Policy Framework 5.11 The trends described above are wholly consistent with the prevailing structure of incentives. The usual incentive mechanism for manufacturing investment is an individual contract with the Government under which the investor undertakes to carry out an investment project in return sIfor exemptions from income tax and import duties, reduced rates of taxation and/or tax credit certificates. On expiring, these contracts have been renewed automatically. In addition, benefits usually include protection against foreign competition through import quotas or other quantitative restrictions. Intensive use of capital over labor has been favored by incentives such as re-investment and accelerated depreciation allowances Effective protection of final goods produced for the local market is frequently excessive, and has diverted entrepreneurial and financial resources away from exports. Individual contracts increase dispersion of effective protection, discriminate against small firms, and relate benefits to negotiating strength rather than desirability of the project. Quota protection is usually accompanied by price controls which limit profitability, favor consumption over savings and discourage investment. 5.12 It is hardly surprising that such a policy framework has fostered the development of industries operating at low levels of efficiency with overdimensioned plants. High protection, intended to last only for a certain period, is frequently perpetuated due to the combined bargaining power of the industrialists and labor unions. The costs, borne mostly by the consumer, are frequently not well understood. Preliminary estimates of effective protection indicate an average level in excess of 80 percent, with rates as high as 1,000 percent prevailing in some subsectors, The protective system is, moreover, concentrated heavily in favor of final products and actively biased against local procurement of intermediate goods and raw materials. There is also a triple bias against small firms. First, applications for individual contracts are costly, and their approval subject to administrative discretion. This clearly favors financially powerful companies. Second, the incentive system frequently makes uneconomic the subcontracting activities normally appropriate for small ent-arprises: it is cheaper for a larger firm to import. Industries tend to sel,mct their production processes, and hence the inputs they use, according to the pattern of incentives rather than the potential and capacity of domestic producers. Third, small manufacturers are often unable to import intermediate goods and raw materials directly, which is a privilege negotiated as part of an individual contract, Instead, they must use intermediaries who capture for themselves many of the benefits of the incentive system. 1/ According to the industrialist's organization Sindicato Industrial de Panama. Full capacity would be defined as two eight hour shifts. - 89 - 5.13 The incentives are also strongly biased against employment creation. Since the passage of the Industrial Incentives Law in 1970 (Law No. 413) 2/ and of the Labor Code in late 1971, manufacturing has generated 530 new jibs per year compared with 2,400 per year in the 1960's. Again compared with the 1960's, the capital: output ratio 3/ rose from 1.4 to 4 and the average capital cost of each job from B/.13,700 to B/.29,500 in constant 1970 prices. 5.14 Most subsectors are characterized by a non-competitive structure in which one, two or three firms control virtually all the domestic market. This is, for example, the case in petroleum refining, vegetable oils, tomato products, clothing, beverages, tobacco, tanning, packaging materials, plastic products, glass products, cement and metal products, to mention only the most important instances. There is also a high degree of ownership concentration: most of the medium anl large scale local enterprises are owned by small family groups. This tends to increase both the extent and depth of market collusion and othe, non-competitive practices. 5.15 In order to protect the consumer from major abuses of monopoly power and oligopolistic collusion, a complex regime of price controls has evolved. Initiated by Law No. 160 of 1969 to help maint4n the "supply and orderly distribution" of basic foods and other goods fo44low income families, controls have since grown to cover some 75 items of whichI 50 are food and food products. Prices for locally produced food are set at each stage of the production and distribution process starting with the farmer. Other controls are enforced at the retail level. Prices are set by an Office of Price Regulation (ORP) which, however, lacks a clear formula for determining them. Where products subject to import quotas also have controlled prices, the 0(p 4/ also administers the quotas. The private sector constantly complains of long time lags (sometimes more than a year) between the petitioning and granting of a price increase. The increases, when granted, often take the form of one large hike, rather than incremented adjustments. This practice squeezes profit margins and discourages investment. 5.16 Widespread contraband lessens the adverse effects oL the protection system on the consumer and the economy in general. Smuggling is *ancouraged by Panama's situation at the crossroads of world trade and by the presence in the country of the Colon Free Zone. Illegal importing of consumer goods from the CFZ is said to have increased since the domestic decline in the Zone's traditional export markets. However, while this may mitigate the suffering of the consumer, it does little to alter the supply side effects of a system of incentives which clearly points in the wrong direction. 2/ This Law institutionalized the concepts of individual contracts with the nation and also generalized many of the other incentives discussed in this section. 3/ The amotint of incremental capital investment divided by the increment in output over the same period. 4/ The ORP, although nominally under the jurisdiction of the MICI, acts with a substantial degree of autonomy. - 90 - D. Export and Employment,lncentives 5.17 In an atLempt to correct these anti-export and anti-employment biases, the Government passed two measures during the 1970's. First, export incentives were expanded through Law No.108 of 1974 which created a tax credit certificate (Certificado de Abono Tributario, or CAT) redeemable in payment of direct taxes and customs tariffs. It is given for all non-traditional exports 5/. The amount of the CAT is equal to 20 percent of local value added, and is granted provided the export in question has a local content of at least 20 percent of the gross value. Since 1977, the CAT has been transferable; upon receipt it can be sold or taken to a bank and discounted, This immediate cash valise greatly increases its attractiveness to the recipient. 5.18 After the introduction of the CAT in 1975, the value of non- traditional exports increased rapidly while their share of total exports rose eight times. Table 5.5: PERFORMANCE OF NON-TRADITIONAL EXPORTS SINCE INTRODUCTION OF THE CAT, 1975-82 1975 1982 Value of non-traditional exports (US$ Millions) 9.3 74.5 Non-traditional exports as percentage of total exports 3.0 24.3 Proportion of non-traditional exports benefitting from the CAT 12.0 72.0 Average CAT received as percentage of FOB value 18.5 a/ 13.0 Total value of CAT granted (US$ Millions) 0.2 7.0 a/ 1975 was an exception; in later years the CAT varied between 12 and 15 percent of FOB value. Source: Statistical Appendix Tables 5/ Law No. 108 considers non-traditional exports to be merchandise produced or elaborated totally or partially in Panama, with the exception of the following exports: sugar; banana, fruit or mashed banana; honey and molasses; cocoa; coffee (beans); fresh, refrigerated or frozen shrimp; fresh, refrigerated or frozen beef; rawhide; tough timber; cattle, pigs, and horses, live, except those of pure breed; fish meal; other oils, from fish and sea animals; scrap iron; raw tortoise shell; fruit extracts; petroleum and its by-products; sales protected by bilateral agreements of free commerce or preferential trade; sales made from the Colon Free Zone to foreign countries; minerals, metals, and by-products. - 91 - 5.19 Despite this impressive record, the CAT system as currently operated has some important drawbacks. First, there is considerable administrative delay in the calculation of the amount due. Several firms complained of the difficulty in defining and calculating the local content in a product and also its local value added. Second, the granting of CATs has been highly concentrated both in terms of the number of beneficiaries and of the range of products. About 81 percent of the total issued since 1975 have gone to exporters of otnly five product groups: seafood, other processed foods, tobacco, clothing and leather products. Furthermoce, nearly half the value of the CAT has been received by only six enterprises. This has significantly reduced its impact on the growth and diversification of Panama's exports. 5.20 The second attempt to encourage both exports and employment was through a Decree of January 1979, establishing a scheme known as the maquila program for the promotion of export-oriented assembly industries. Companies operating under the program are required to export the entire output of finished products; in return, they are granted duty-free import of machinery, raw materials and intermediate products, and exemption from sales, export and corporate income tax. The most important incentive, however, appears to be the special labor-training scheme available to maquila industries. The company and the Ministry of Labor sign a contract for the provision of workers selected by a public technical training institute. During the 3 month maximum training period, workers may receive less than the minimum wage while the employer pays no social charges. The trainee is not subject to the full provisions of the Labor Code and may be dismissed or admitted to the permanent labor force at the employer's discretion. 5.21 The program has had a slow beginning. No company was founded until early 1981 and by January, 1984 only seven firms employing some 700 ueople had been established. All produce textiles or clothing. Five are in Panama City and two are in the Coco Solo reverted land area, adjacent to and administered by the Colon Free Zone. There are two main reasons for the program's lack of success. First, the Labor Cod,e applies in full to all employees after the initial three-month training period. Although some employers are firing and rehiring workers towards the end of the three months, there are clearly limits to such stretching of the law. Most investors interviewed indicated that they had established their plant in the expectation of major modifications to the Code in the ne.ar future. Such industries are notoriously footloose and will no doubt depart if such changes are not forticoming. Second, there was until late 1982 virtually no promotion of the program or indeed of foreign investment generally, This was corrected by the establishment, in 1982, of the National Investment Council (CNI). 5.22 The CNI is meant to assist foreign investors by unifying the fulfillment of bureaucratic requirements into a "one-step" process. This assistance relates, in particular, to the negotiation of the relevant incentive package. The CNI is also charged with promoting Panama as a location for export-oriented manufacturing, It identifies visiting potential investors and arranges visits to potential source countries for Panamanians interested in finding joint venture partners. - 92 - 5.23 Interviews with representatives of potential investoL countries repeatedly suggested that the CNI had so far failed to systematically present production conditions in Panama, in general, and detailed production cost data (on labor, power, land, buildings) in particular. The CNI is aware of this problem; indeed its previous policy was to delay provision of cost data to investors to prevent comparison with competing location.s in the region. A more open approach emphasizing Panama's relative advantages has now been adopted, and cost data in a format suitable for detailed production and operating cost calculations are under preparation. By 1984, these improvements were already having an apparent impact. Firm undertakings to invest, measured in terms of the number of jobs created, were more than double the previous three years taken together. 5.24 The Colon Free Zone administration also promotes investment. In principle, the division of labor between the Zone administration and the CNI is clear: the former is exclusively concerned with the promotion of the Zone. In practice the Colon Free Zone represents a foreign investment option that the CNI should present on equal footing with others; there is consequently duplication of effort, and even competition between the CNI and the Zone. 5.25 Foreign trade promotion is the responsibility of the General Directorate of Foreign TraQe located in MICI. The Directorate's successes have been limited. Communications with exporters have been poor and recent budget reductions have further reduced the Directorate's effectiveness. Projects such as participation in fairs, commercial and industrial missions and research have had to be discontinued and commercial offices abroad have been closed. E. The New Industrial Developnent Strate,g 5.26 Aware that the current policy framework is strongly biased against employment creaticn and export promotion, and that the mitigating measures so far taken have had only a marginal impact, the Government began in late 1982 to formulate a new industrial development strategy as part of its medium term economic policy. For the industrial sector, a three stage approach was- adopted: phase out quantitative restrictions (and associated price controls) in favor of tariffs; gradually reduce the level of effective protection and make remaining protection more uniform; and create incentives giving exporting the edge over import substitution. The principal measures taken in 1983 and 1984 include: dismantling import quotas and replacing them by tariffs; drafting new industrial incentives legislation by which the Contracts with the Nation would be replaced by a general system of incentives; once the new legislation is enforced, expiring contracts will not be renewed; formulating a full set of minimum and maximum tariffs as uniform as possible; and simplifying procedures for granting redeemable tax certificates to exporters. 5.27 Although implementation of this plan at first proceeded slowly, it accelerated considerably in 1983. By October of that year about half the quantitative restrictions (QR's) had been eliminated and replaced bv tariff s. Most of the new tariffs in the case of existing industrial products - 93 - range from an equivalent of 25 to 75 percent ad valorem. For agroindustry using local raw materials the initial tariff range is higher, often well above 100 percent ad valorem. This is in order to maintain protection to the agricultural producers, who often receive government-decreed support prices from the manufacturers. For new industries, the authorities have announced that no further QRs will be applied and that effective protection will be a maximum of 125 percent in the first year, falling to 100 percent thereafter 6/ and then progressively towards the minimum tariff level. 5.28 While these accomplishments represent real progress, the full strategy outlined in the Government's program must be carried out if the reforms are to have the desired effect. The key remains improving international competitiveness and increasing employment by removing the anti- export and anti-employment biases persisting in the incentives system. 5.29 After a careful study of effective protection, the Covernment is determined to eliminate most remaining QRs by mid 1985. By mid 1984, a new minimum tariff level of 10 percent had been established and incorporated into the new, proposed Industrial Incentives Bill. The minimum tariff, by implication, should end full exonerations through its application to some industrial inlputs, machinery and food product imports which now have very low or zero tarifEfs. This will encourage the production of agricultural and intermediate inputs penalized by the current structure of protection and reduce the relative advantage of capital intensive processes. 5.30 A program for reducing tariffs is incorporated in the new draft Industrial Iilcentives Bill, approved by the Cabinet in June, 1984 and which would replace Law No. 413. The Bill eliminates the concept of individual Contracts with the Nation. Instead, benefits under the Bill would be available to all firms on an equal basis, requiring only the firm's registration in the Ministry of Commerce and Industry. The signing of new individual contracts and the renewal of existing ones would cease when this legislation becomes effective. In the interim period, new contracts and renewals are for a five year period. 7J The Bill also specifies the protection and benefits applying to industrial activities. Here a distinction is made between new and existing industries. For the former, no more than 30 percent ad valorem tariff protection would be granted, reduced to 25 percent: after three years and to 20 percent after five years. For existing industries, initial tariffs which replace qutantitative restrictions, would be reduced gradually to no more than 30 percent ad valorem; the speed of adjustment would vary from case to case 8/. The Authorities recognize 6/ Given the average proportion of value added in local manufacturing, these are equivalent to average nominal ad valorem tariffs of about 40 and 33 percent respectively. 7/ Only 6 percent of existing coTitrac2t.s were lile For renewal between mid-1983 and the end of 1984. 8/ Tariffs are to be reduced by 20 percent of the existing tariff per year until reaching no more than 30 percent ad valorem. For example, an industry with a nominal tariff of 100 percent ad valorem in year n would have 80 percent ad valorem in year n + 1. - 94 - that a few existing industries are unlikely ever to be able to compete under such conditions. The overall economic benefits of the structural adjustment program, however, combined with the proposed gradual reduction in protection, is expected to permit most firms to adjust their operations in a timely manner, while encouraging the establishment of new enterprises. For the new industries, the draft Bill clearly encourages export orientation. Full import duty exonerations would be granted for exports as well as exoneration from all other taxes. Exporters would obtain these exonerations even when the raw materials or intermediate goods concerned are produced locally. The Bill would also abolish previous legal obligations to maintain and increase employment, and to sell products at officially determined prices. 5.31 This strategy represents a major reversal of previous policy and considerable opposition to its implementation may be anticipated. This is already manifest in the difficulties encountered by the Government in negotiating the removal of QRs and the level of tariff protection to replace them. Moreover, the change of direction was initiated a little more than 12 months before elections were held in early May 1984. The Government's courage in adopting a new it.dustrial strategy at such a time should be clearly acknowledged. 5.32 The new Government may now wish to confirm the new policy and explain how it fits into a new export oriented economic strategy. Such an announcement would reduce uncertainty among entrepreneurs as to whether there is a coherent strategy and how measures taken to date fit into it. Lack of publicity or disbelief in the long term nature of the policy impedes the very reallocation of resources which it is designed to produce. It also leads the industrial sector (both management and labor) to complain that they are having to bear the burden of adjustment while other elements of policy, which have a direct bearing on their efficiency and profitability, remain untouched. Principal among these other elements are labor policy, transportation costs, utility services and costs and price controls. 5.33 The Government intends to dismantle gradually the price control system, starting with those products previously subject to quota restriction but now protected by tariffs. This should provide an important stimulus to private investor confidence, and the consequent reduction in bureaucratic interference will help to compensate firms for reduced import protection. However, there has been no general announcement of the intention to abolish price controls, and officials at the ORP are not aware of this policy. Not surprisingly, progress in implementing this part of the strategy has been slow. To the end of February 1984, decisions had been taken at ministerial level to lift controls on 25 products; in only one case, however, were the ORP officials, let alone the producers, aware of this. Similar failure to filter down policy changes to the level of working officials has been noted in MICI itself and in the Customs Administration, where staff were frequently unaware that an import or export quota had been lifted. 5.34 Lack of knowledge of the strategy among the general public, and even within the Government itself, is adversely affecting its implementation and its impact on resource reallocation. The post-electoral period may - 95 - provide a good opportunity to give the matter full publicity. Changes may later become necessary, but provided these are consistent with the objectives of the original system, they would not invalidate it. Similarly it is essential to ease the impact of adjustment on thi. industrial sector by announcing parallel measures in other sectors designed to increase the competitiveness of the economy as a whole. F. The Prospects for Industrial Exports 5.35 There are obvious limits to the extent to which a government, especially in Panama, can stimulate export growth. In the absence of exchange rate adjustments and confronting severe fiscal constraints, it must concentrate on eliminating, sector by sector, detail by detail, the sources of inefficiency. It must also do everything possible to eliminate anti-export bias in the trade and tax systems. To assist competitiveness, exporters should be given free access to inputs at international prices and rebates of domestic taxes. This type of relief is widely recognized under GATT as an appropriate way of stimulating efficient export industries, This would mean making an exemption from the minimum tariff for exporters or adopting some other compensating mechanism, for example a drawback scheme. 5e36 The current system of granting CATs should be greatly simplified, while emphasizing their tax rebate nature so as not to violate GATT rules. They should be granted on the basis of FOB value, not local value added. They should be automatic, rather than discretionary, upon the presentation of evidence of exporting. If the authorities wish to use CATs to stimulate exports with higher percentages of local value added, then certain products should be declared ineligible or eligible only for a lower percentage of the FOB value. The system should be fully publicized and the rules for obtaining the benefits clarified and widely disseminated. Th'se modifications would reduce the concentration of CATs among a few firms and products. 5.37 If Panama is to rely on growth through exports, it must, in addition to realizing the full potential of existing industries, diversify and deepen its manufactured export sector. An ongoing study of the industrial sector has identified a number of investment opportunities including the expansion of current existing industries (such as designer clothes, and assembly of electronic, medical and pharmaceutical products), and the establishment of new, "high technology " projects, including export projects related to the financial and shipping sectors. Given its geographical location, its human resources, and its accessibility to high technology, Panama should be able to develop these new types of industries. 5.38 Experience in other developing countries which have adopted successful industrial export strategies indicates that a key role can be played by well designed prormotional and support programs. These should pay particular att.ention to appropriate institutional support. This would, however, be largely ineffective without a strong, publicly-stated political - 96 - commitment to the radical policy changes reqtlired to adopt an export-oriented development strategy. Such public commitment, translated into clear and universal "rules of the game", is another common characteristic of successful exporting countries which is currently missing in Panama. Despite the beginnings of a change of direction, there is no private sector confidence in the coherence and continuity of policies. Until such confidence can be inculcated through unambiguous guidelines, the effectiveness of both technical and institutional improvements will be severely compromised. 5.39 One factor which may be holding back such an opea commitment is the uncertainty inherent in basing growth prospects upon exports. Even if everything were done in Panama to promote and encourage exports, there is no guarantee that the strategy will succeed. Exporting is by nature an uncertain business. One difficulty already encountered is protectionism in the United States, the most promising market in the short and medium term. 5.40 A review of export-oriented industries 9/ in the current pipeline shows clearly that they are predominantly "quota-refugees" rrom the Far East. The spot market cost in these countries of shares in the quotas imposed by the USA or by "voluntary restraint" is becoming higher than the cost of relocating part of the production to Panama or other countries so far without quota restrictions in the US market, Thanks to these peculiar commercial and policy circumstances, Panama's short term prospects for expanding labor-intensive assembly for exports is likely to be based on relocating Far Eastern industries producing clothing and other "sensitive products". The Panamanian Government has already experienced a US reaction to an increase beyond traditionally low levels of import from Panama of such products. Within months of the start of production of one of the Hong Kolng owned maquila industries, the US Department of Commerce made the first of three calls for a reduction of imports from Panama to the USA of the sole products of the plant (womenst woolen sweaters). According to Asian investors interested in the exploitation of Panama's commercial policy status with the USA, production levels will never reach proportions that will trigger protective measures. However, given the experience of the first producer of a sensitive product, this forecast appears unlikely to materialize. The future for such activities is therefore most uncertain and will depend on the dynamics of commercial diplomacy between the USA and Panama. 9/ All such industries would be part of the so-called Maquila Program. (para. 5.20). - 97 - 5.41 On the other hand, the new elements included in the Caribbean Basin Initiative (CBI) 10/ could provide the basis for some interesting arrangements benefiting Panama'S export sector. The possibility of consolidating value-added from two or more beneficiary countries plus Puerto Rico opens up the possibility of establishing so called twin-plant operations, a practice well-known in the US/Mexican border trade. For Panama, twin-plant operations with Puerto Rican industrialists could prove particularly interesting by locating the relatively more labor-intensive part of production in Panama (the Panamanian wage level is about one third of the Puerto Rican) while retaining the capital-intensive and technically more demanding operations in Puerto Rico. The use of the US dollar as legal tender, and the absence of capital controls, make Panama attractive for such operations despite a high wage level relative to most other Caribbean or Central American locations. 5.42 In order to maximize the potential benefit from the CBI, Panama's promotional institutions, CNI and DICOMEX, should be improved. They should: - familiarize themselves with the administrative aspects of exporting under the CBI; - provide updated information to investors; - emphasize in promotional campaigns which products, eligible for entry under the CBI, would be most welcome in Panama; and - coordinate with promotion agencies elsewhere, particularly in Puerto Rico, to explore the possibilities for twin plant operations. 10/ While the General System of Preferences (GSP) in its present form expires at the end of 1985 and may or may not be extended, the CBI will not expire until the end of 1995. The most important difference between the two schemes concerns the value-added requirement for duty-free entry to the USA. Under the GSP, a minimum of 35 percent value-added in the beneficiary country is required for the good to be eligible for duty-free entry. Under the CBI, the value-added requirement remains 35 percent, but the requirement can be met by consolidating value-added in any of the CBI beneficiary countries, Puerto Rico and the US Virgin Islands; in addition US made components may comprise up to 15 percent of the 35 percent, leaving 20 percent value-added in beneficiary countries. The 35 percent domestic value-added requirement does not preclude the input itself from being produced using foreign components as long as the foreign components have undergone more than "simple combining or packaging operations". Consequently, the net local content of the eligihle product can be much less than the 35 percent or 20 percent of US inputs used. - 98 - VIE EXPORT RELATED SERVICES A. Introduction 6.1 Traditionally, Panama has derived much of its economic dynamism from its geographic location at the crossroads of world trade. Trans-Isthmian transportation was a vital link in the Spanish Empire's trade network, while in the mid 19th century the construction of a railway transformed the Isthmus into an important transit point for those travelling to the west coast of North America. Most significant of all was the construction of the Panama Canal in the early years of the century. The Canal enhanced the country's geographic advantages immeasurably; as Canal traffic grew, a variety of related entrepot and transportation services flourished, These included trans-shipment, break-bulk, ship repair, bunkering, storage, distribution and services to travellers by ship. Panama became a natural center for regional free zone services, and the Colon Free Zone started on the basis of the substantial flow of merchandise through the Isthmus. Later, the CFZ acquired a dynamism of its own, independent of Canal activity. Accompanied by the rapid growth of financial services encouraged by favorable legislation and the country's open monetary system, these activities combined to make services the most dynamic ane by far the dominant sector of the economy. - 99 - Table 6.1: THE SERVICE SECTOR IN RELATION TO GDP, 1970-83 (Percent) a/ 1970 1975 1980 1983 GDP 100.0 100.0 100.0 b/ 10000 b/ Services c/ 63.9 65e6 68,5 71.0 Of which: Transport, Storage & Communications 6.0 9.0 10.2 16.0 Financial Services d/ 10,9 11.6 10.5 9v9 Commerce e/ 15.8 14.9 14.9 12.2 Panama Canal f/ 7.3 5.8 10.2 9.1 Other Services 23.9 24.3 22.7 23.8 Annual Growth Rates: 1970-75 1975-80 1980-83 a/ GDP 4*7 5.9 b/ 3.9 Services c/ 5.2 6.9 5,2 Of which: Transport, Storage & Communications 13.6 8.6 20.6 Financial Services d/ 5.9 3.9 2.0 Commerce e/ 3.5 5.9 -2.8 Panama Canal f/ -0.1 18.6 0.0 Other Services 5.0 4.6 5.5 a/ Preliminary. -/ Includes the effects of incorporation of the Panama Canal into the GDP. c/ Not including utilities. d/ Net of imputed commission to avoid double counting of interest. e/ Including hotels and restaurants. f/ Prior to 1980 this item covered services to the Canal Area from the rest of Panama; after 1980 it includes the value added of the Canal Commission itself. Source: Statistical Appendix, Table 2,4. 6.2 The spin-off for the rest of the economy from the service sector has been significant; it employs about 300,000 persons directly, some 55 percent of total employment. Agriculture and food processing have benefitted from the substantial urban market which grew around service activities. The construction sector derived much of its growth in recent decades from the development of the banking sector in Panama City with its tall office buildings and apartments and houses for the foreign and local executives. Local industry has also gained, especially firms producing furniture, building materials and clothing. Government derives substantial income from the service sector, not only in taxes but in the sale of public goods; for example 35 percent of the annual income of the electricity company, IRHE, is derived from sales to commercial customers. - 100 - 6.3 The future prospects for the service sector are less buoyant. Much of its growth has been oriented to the Latin American market. This is, for example, the destination for practically all the re-exports from the Colon Free Zone. Most of the CFZ's customers will continue to face acute foreign exchange shortages in the coming years. Some of the commercial activity in the CFZ, and much of it in the rest of Panama, benefitted from a substantial number of short term visitors who would stopover on the way to and from Latin America. The number of such visitors has declined in recent years 1/. Tourism from Latin America has been adversely affected by the regional recession, competition from other export-oriented retail centers, particularly Miami, has increased markedly, and Panama has lost its status as an almost automatic stopover point for travellers to and from South America 2/. (See Graph 6.1) 6.4 Similarly, the rate of growth of international financial ser.v;ices is showing signs of slowing down. In 1983, for the first time since legislation establishing the offshore banking sector was passed in 1970, both foreign assets and liabilities of banks based in Panama declined. The immediate causes were threefold. First, the Eurodollar market, of which Panama's financial center is an offshoot, slowed its expansion markedly in 1983, and the international interbank deposit market slowed with it. Second, the continuing financial crisis throughout Latin America drastically reduced commercial lending activities there. Third, confidence among deposit holders in Panama was adversely affected by the protracted negotiations of public sector debt amortization rescheduling in 1983, and by the failure of a Venezuelan bank, which had a considerable part of its exposure linked to activities in the Colon Free Zone. Moreover, future prospects in international banking do not augur well for further expansion. Financial recovery in Latin America is still distant; the trend towards interest rate decontrol in major financial centers may reduce the attractiveness of offshore operations; and improved communications technology is combining with legal restraints on syndication activities to concentrate a higher proportion of financial dealing in the major centers. 6.5 Given its own, more moderate growth prospects, the key question is the extent to which Panama's export-oriented services can act as a springboard for growth of goods exports. lWhile the latter should, in principle, capture substantial benefits from the country's financial, commercial and international transport infrastructure, these are currently limited by a number of institutional deficiencies and cost disadvantages. First, Panama's ports require improved management, equipment and layout to increase efficiency and reduce costs. Second, other institutional factors in the transport sector, such as monopoly practices in land transportation, 1/ Between 1974 and 1978, the number of international passengers at Omar Torrijos Airport grew at an average of 5.3 percent per year; between 1978 and 1983 this figure declined by 3 percent per year. 2/ This is partly due to developments in aviation technology; the increased use of larger aircraft with no need to refuel between the US and South American destinations will likely consolidate Miami's position as the hub of regional air cargo traffic. Graph 6.1 rmkYv'E] TO PANAMA 1970 TO 1983 Thousands THOUSANDS OF TRAVELLERS 1000- - TOURIST & BUSINESS 800 E71 TRANSIT & OTHER 600 400 200W 19701971 197 1973 1974 1975 19J76 1977 1978 1979 1980 1981 1982 1983 SOURCE. STATIS1CAL APPENDIX TABLE 3.6 - 101 - increase costs to the user and reduce flexibility and technological initiatives. Third, not only has entrepot trade declined sharply in the wake of the regional recession, but institutional linkages between the firms which operate in the free zones and those in the local manufacturing sector are not well developed. This limits the latter's access to the former's trading expertise. Fourth, the substantial potential of the reverted Canal Area assets as sites for export oriented commercial and industrial activities has to date been untapped thanks to a political framework which has paralyzed their effective utilization. This chapter addresses these issues in turn. I, The Port System) the Panama Canal and Ocean Freight Costs 6.6 There are 14 ports in Panama, but those of Balboa at the Pacific entrance to the Canal, and Cristobal at the Atlantic entrance, are by far the most important for international shipping. They accounted for 70 percent of the international vessels that called at Panamanian ports in 1983. Balboa has more cargo, nearly half of it is bulk, and much of the rest containerized. Cristobal has a slightly higher share of container traffic but the percentage of containerized cargo is expected to increase more rapidly in Balboa in the near future. In both ports the number of vessel calls has fallen sharply in recent years; in Cristobal the tonnage of cargo handled has also dropped (Table 6.2). Table 6.2: THE PORTS OF BALBOA AND CRISTOBAL-KEY STATISTICS, 1980-83 1980 1981 1982 1983 Port of Balboa: Total cargo (thousand metric tons) 420 419 437 475 Of which: Bulk - (percent) 35.4 36.5 34.2 44.4 Container - (percent) 51.5 52.9 53.7 45.8 General Cargo - (percent) 13.1 10.6 12.1 9.8 Vessels calling (int'l traffic) 2,034 2,042 1,733 1,516 Total employment n.a. n.a. 639 630 of which operational staff n.a. n.a, 476 480 Port of Cristobal: Total cargo (thousand metric tons) 434 432 342 344 Of which: Container - (percent) 47.7 53.5 64.6 69.5 General Cargo - (percent) 52.3 46.5 35.4 30.5 Vessels calling (int'l traffic) 2,643 2,410 2,153 1,810 Total employment n.a. n.a. 1,295 1,351 of which operational staff n.a. n.a., 875 928 Source: National Port Authority. - 102 - 6.7 Before containerization became widespread, Balboa and Cristobal were important centers of transshipment of breakbulk traffic passing through the Canal. With containerization, there has been a sharp increase in competition from other regional ports, notably Miami and Kingston, and in direct shipments from USA, Europe and Japan to Caribbean and South American destinations. For a variety of reasons, Panama has lost substantially to this increased competition; transshipment traffic fell from about 145,000 tons in 1969 to about 39,000 tons in 1980. This has only been partially compensated for by growth in Colon Free Zone traffic. Table 6.3: PORT TRANSSHIPMENT TRAFFIC, 1969-80 (Tons) Year Balboa Cristobal Total 1969 17,704 127,518 145,222 1975 7,424 54,267 61,691 1976 10,538 24,243 34,777 1977 5,457 35,054 40,511 1978 7,259 39,740 46,999 1979 7,638 34,911 42,549 1980 8,038 30,669 38,707 Source: Panama Canal Company. 6.8 First, Balboa and Cristobal are ill-equipped to handle container traffic efficiently. In the early 1970's, other regional ports started to invest heavily in container handling space and equipment. Balboa and Cristobal, then run by the US Canal Zone Administration, did not follow suit. Only in the late 1970's did two private shipping lines set up their own container gantries in Balboa. The port of Cristobal, which has invested, with World Bank support, in a container area, is to purchase two new - gantries. In the meantime, it must rely on the service of relatively smaller container carriers, either of the roll-on/roll-off type, or equipped with their own gear. Various initiatives to improve this situation did not come to fruition. In the mid-1970's, the Government wished to improve the country's container handling capabilities by building a major facility at Coco Solo near Colon (at this time Balboa and Cristobal were still controlled by the Panama Canal Commission). This project was, however, costly, and was abandon'ed in accordance with World Bank advice. Subsequently, after the National Port Authority (APN) had taken over the ownership and management of Balboa and Cristobal in 1979, it did not respond positively to two proposals from the private sector, first from a port operating concern and later from a shipping company, to set up and operate container gantries at Cristobal. Balboa had first two and now one private container area. - 103 - 6.9 Cristobal's two new container cranes may reverse the loss of business. However, this and other planned improvements to the port are proceeding slowly, and in the meantime traffic has declined. Graph 6.2 shows the small and falling share of Cristobal in Caribbean container traffic. Negotiations are also underway with a private firm to add a second container crane at Balboa. However, the Government's ongoing study of the development potential of the Trans-Isthmian Transport Corridor is investigating the possible use of Panama as a major container transshipment and handling center for round the world traffic. In view of this, the Authorities would likely wish to wait for the results of the study before entering into a new commitment. 6.10 Second, the National Port Authority, in common with most public enterprise monopolies in Panama, pursues a cost plus tariff policy. While this has enabled it to generate a small operating surplus 3/, thereby making a small contribution to capital expenditures, it has also passed on high costs and inefficiencies to the user. Real current costs per ship handled in APN's ports (expressed in constant 1970 prices) rose from B/.3,600 in 1980 to B/.3,900 in 1983. As a consequence, port charges both for ships and for container handling, are much higher in Panama than elsewhere. In Balboa and Cristobal, the charges for handling one container from ship's hold to the point of leaving the port area averages some B/. 375, almost 90 percent higher than in either Kingston or Miami. According to a tariff study carried out by the National Port Authority, port tariffs for ships are 16 percent higher than in Kingston. Table 6.4: COST COMPARISON OF A TRANSSHIPMENT CALL IN KINGSTON, JAMAICA, AND CRISTOBAL, PANAMA Kingston Cost as Percentage of Cristobal Cost Container handling charges 53 Container handling efficiency 207 Hours in port 50 Port tariffs 86 Cargo handling cost a/ 106 Direct cost in port 103 Total cost of call in port (including estimated cost of stay in port) 75 a/ Including stuffing and unstuffing of containers cargo. Source: National Port Authority, Final Report of Tariff Study. 3/ This averaged B/.4.9 million, between 1980, when the entity assumed full responsibility for Cristobal and Balboa, and 1983, 10 percent of the current revenues and expenditures. Graph 6.2 CARIBBEAN PORTS CONTAINER VOWME 1979-82 THOUSANDS OF TWENTY-FOOT EQUIVALENT UNITS 1500- 2 CRISTOBAL PANAMA m Kingston L San Juan 1000 500 0- 1979 1980 1981 1982 SOURC TET TABL. - 104 - 6.11 Of much greater significarice than the level of tariffs, however, is port efficiency which determines the time a vessel must remain in port. Modern container carriers have extremely high fixed costs and therefore place a heavy premium on speed of operation. In Kingston and Miami, more than twice the number of containers per hour are handled, on average, than in Cristobal and consequently the average tIme a ship spends in port is halved. However, if costs can be brought down and efficiency improved, Panama woul.d be able to tap the substantial potential advantage it has from the existence of the Canal. Ships have to queue to enter the Canal i-d could, with an efficient operation, discharge substantial numbers of containers while waiting, thus avoiding the loss of valuable hours in port. 6.12 The two principa- reasons for the comparatively low efficiency of the two Panamani6a ports are poor maintenance of equipment and the labor situation. Maintenance of both cargo handling equipment and piers reportedly slipped during the last two years of the US port administration, and has failed to improve since, making a total of 8 consecutive years of poor maintenance. The labor system is very rigid. Stevedores must be hired in groups of 16 for periods of 8 hours, whether this amount of manhours is needed for a particular ship or not. For example, a ship that needs 9 men from 9:00 to 11:00 a.m. will need to hire a full gang from 7:00 a.m. to 3:00 p.m. In addition, ship operators complain about availability and reliability of the port workers. Wage rates are also high, as a result of comparisons with the earnings of US labor when the ports were operated by the Canal Commission. 6.13 Principally because of low traffic volumes, no advantage is taken of existing spare capacity to negotiate lower outward freight rates. Whereas 98 percent of all containers unloaded in Panama in 1983 were full, almost 75 percent of those loaded were empty. This suggests considerable scope for reduction in outward rates which are currently practically the same as inward rates. Some larger, regular customers have already been able to negotiate reductions which should favor exports. 6.14 Negotiations for lower freight rates may be hindered by the dominance of a few carriers in the country's trade, particularly in container traffic. Although Pan.ama's ports are served by about 155 shipping lines, nearly 50 percent of the cargo tonnage is shipped by eight companies. Their dominance of the container trade is even more pronounced: in 1982 four of them were responsible for nearly 90 percent of all container movements (measured in Twenty Foot Equivalent Units or TEUs) in Balboa and the other four for 65 peren-tt in Cristobal. In each port, the largest firm is responsible for more than 45 percent of the container traffic. 105- Table 6.5: MAJOR SHIPPING LINES BY VOLUME AND PORT OF CALL, 1982 Lines/Port Freight Container (Including containers) Movements Ton( 000) Percent TEUs Percent Balboa Total 437.0 100.0 36,187 100.0 U.S. Lines 122.8 28.1 16,544 45.7 Delta Lines 55.6 12.7 7,469 20.6 Lykes Lines 33.2 7.6 3,126 8.6 European Lines 21.5 4.9 4,553 12.6 Others 203.9 46.7 4,495 12.5 Cristobal Total 342.5 100.0 43,391 100.0 Barber Blue Sea 85.2 24.9 20,310 46.8 Zion Line 18.4 5.4 3,141 7.2 Ecuadorian Line 14.4 4.2 1,245 2.9 Sea Land 26.0 7.6 3,656 8.4 Others 198.5 57.9 15, 039 34.7 Source: National Port Authority. 6.15 The importance of a few carriers in the total trade is typical of countries with a relatively small volume of container traffic, and there is little that the Authorities can do to address it in the short term. However, experience elsewhere indicates that competition in the container/transhipment business increases with the level of traffic. User charges will therefore likely benefit from a more expansionary policy. 6.16 Before the container revolution, Panama's transshipment and entrepot activities were an offshoot of the growth of Canal traffic. Recent evidence indicates, however, that canal traffic itself is unlikely to be an important growth source in future. 6.17 Although, between 1977 and 1982, the volume of cargo carried through the Canal increased at an annual rate of 8.5 percent, much of this was due to the shipment of Alaskan oil to the US East Coast. In 1983, cargo dropped by 22 percent; 60 percent of this decline was due to the loss of the Alaskan oil business following the completion of the Trans-Isthmian Oil Pipeline in late 1982. The remaining 40 percent is explained partly by depre3sed international trade and partly by increased use of alternative routes. Coal and coke traffic dropped sharply from 22 percent to 10 percent - 106 - of total cargo between 1982 and 1983. Although this partially reflected reduced demand by the Japanese steel industry, it was mainly due to an increasing tendency to use larger ships, routing them around Cape Horn. 6.18 More disturbingly from the viewpoint of Panama as a transshipment center, a tendency to use larger ships may also depress the demand for Canal passage by the container trade. Waiting time to enter the Canal may add uncertainty to a tight line schedule or reduce the already slim time difference between the Canal and Cape routes on a voyage between the Far East and Europe. Another major competitor to the Canal for container traffic from the Far East to Latin America and the Caribbean is the US landbridge connecting the US west coast ports with Miami. A through bill of lading combining ocean freight from the Far East to the US west coast, truck or rail to Miami, and sea or air freight from Miami (depending on the value of the goods and their destination) to the final destination is in many cases not only cheaper, but also faster than all-water freight through the Canal. 6.19 Taking account of these factors, it is likely that future growt1h in Canal traffic will be modest. A Canal Commission forecast indicates stagnation in 1984 after the decline in 1983, with transits growing at between 2 and 3 percent per year in the following years. (See Graph 6.3) 6.20 The less than buoyant prospects for Canal traffic give even greater importance to the solution of the problems associated with Panama's ports, if some of the transshipment business lost to Miami, Kingston and San Juan is to be recaptured. An increase in transshipment business, by increasing vessel frequencies, reducing unit costs and introducing the possibility of container operations while waiting to enter the Canal, would also lead to cheaper and more efficient port services for Panamanian exporters. C. Land Transportation 6.21 Much land transportation in Panama is pervaded by monopolistic or quasi-monopolistic practices which raise costs for the whole economy and are particularly onerous for exporters. Although truck± ng is not systematically regulated by the Government, individual owner-operators form themselves into cooperatives which control acLess to routes and cargo and fix rates. Moreover, the trans-isthmian route bctween Colon and Panama City is dominated by two carriers, Terminales Panama and Terminales Chiriqui. In 1981 these firms accounted for about half of trans-isthmian road freight and 60 percent of cargo loaded for inland destinations at the ports of Cristobal and Balboa. Given the market collusion with the independent truckers' cooperatives, the only competition for trans-isthmian traffic is the rundown railway, whose traffic is declining both absolutely and as a share of the total. The railway's already severe competitive disadvantages in terms of time and reliability are compounded by current tariff policies. A container unloaded at Balboa onto a rail freight car with final destination at the Colon Free Zone must be unloaded off the car within the boundaries of the port of Cristobal, since there is no rail link to the Zone. Instead of being charged only for the cost of this extra handling, the sea carrier is charged full wharfage and handling charges at Cristobal as well as Balboa. Graph 6.3 INDICES OF PANAMA CANAL TRAFC 1974=100 INDEX 1974 =100 300- 250 U2 TRANSITS M TONNAGE 200 £M TOLL REVENUE 150 1D]:01 am a..* 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 SOURCE: STATISTICAL APPENDIX TABLE 8.10 - 107 - Table 6-6: LAND FREIGHT TRAFFIC BY CARRIERS, 1976 AND 1981 (In thousands of tons and % of total) 1976 1981 Quantity Percent Quantity Percent Trans-Isthmus Freight:a/ Terminales Panama 207.4 33.5 271.0 37.5 Terminales Chiriqui 59.9 9.7 75.0 10.4 Independent Carriers 172.5 27.8 222.4 30.7 Total road 439.8 71.0 568.4 78.6 Rail 180.0 29.0 155.0 21.4 Total 619.8 100.0 723.4 100.0 Inland Cargo from the Ports:a/ Terminales Panama 20.4 47.1 26.7 47.7 Terminales Chiriqui 5.9 13.6 7.4 13.2 Independent Carriers 17.0 39.3 21.9 40.1 Total 43.3 100.0 56.0 100.0 a/ There may be some overlapping of the two cargo categories; it is not known how much of the trans-isthmian traffic is transshipment. Source: Panama Railway: Marketing Study 1982. 6.22 This market dominance was until recently reinforced by land transport revenue allocation by the Maritime Conferences. The Conferences would agree to divide cargo to be transported inland, or transitted overland from one port to another, in accordance with a prior revenue sharing arrangement negotiated among the truckers. The arrangement also included the railway. While most cargo entering and leaving Panama is not now controlled by formal Maritime Conferences, this has not stopped collusion among truckers' or the reported continued freight allocation by individual shipping lines to trucking companies. 6.23 The recent recession has led the trucking industry to press successfully for protection against foreign truckers and reinforced resistance to entry by new operators. The impact on costs may be illustrated by the example of an agroindustrialist who exports part of his output to Costa Rica and imports some of his raw material from Guatemala. Both importing and exporting is regular, thereby facilitating, in theory, the use of the same truck to bring the raw materials and carry the finished goods. However, foreign truckers are now proh3bited from hauling cargo of Panamaniai origin in Panama; consequently, the foreign truck bringing in the raw material must return, empty. Because of higher tariffs charged for both sections of tHe haul, and extra handling charges, the cost of the exported product c.i.f. Costa Rica is increased by about 4 percent. - 108 - 6.24 in a manner reminiscent of textbook monopoly practice, truckers have sharply increased tariffs in response to a decline in business. The cost of transport from the CFZ to ports and airports has increased by between 15 and 150 percent since 1982. Table 6.7: COST OF LAND TRANSPORTATION, 1982 AND 1984 (US$ per container/truck) Containers Bulk Break-bulk From Colon Percent Percent Percent Free Zone to: 1982 1984 Change 1982 1984 Change 1982 1984 CG.-ange Bahia las Minas 75 125 66.7 175 200 12.5 100 200 100.0 Balboa 175 200 14.3 300 400 33.3 80 200 150.0 Cristobal 75 150 100.0 150 180 20.0 60 85 41.7 Source: Mission interviews. 6.25 These truck tariffs, which amount to almost 20 cents per ton/kilometer, are among the highest in the world. The tariffs shown in Table 6.8, for countries other than Panama, are those for short distances, generally of less than 200 kim, and for trucks carrying general cargo with a capacity of between 12 and 20 tons. In all cases, loading and unloading costs are included in the tariff. Table 6.8: TRUCK TARIFFS IN PANAMA AND OTHER COUNTRIES, 1983 (US cents per ton/kilometer) Country Average truck Tariff Panama 19.8 5 Nigeria 13.48 Benin 10.06 United States 10.02 Brazil 9.60 Korea 9.60 Bolivia 8.55 Argentina 8.43 Mexico 8.20 Chile 7.93 Source: World Bank Staff Appraisal Reports and estimates. - 109 - 6.26 These high rates not only reduce the country's competitiveness, but also impede the growth of new service activities. These might, for example, include a trans-isthmian intermodal system which could build upon the changes in transport technology imposed by the advent of large container vessels of some 4,500 TEU capacity. The operating costs of these vessels make them very sensitive to waiting time to enter the Canal whlich they would onlyv be able to transit by day. If they could use their waiting time to load and unload containers, then this could give Panama a real advantage as a transshipment center. Land transport across the Isthmus could then be used to move cargo to smaller distribution vessels. This already takes place on a limited scale; RO-RO services 4/for high value commodities have been operating in Panama since t'le early 1960's. Despite being considerably more expensive, RO-RO competes with traditional shipping services through its time and reliability advantages. However, the significant expansion of such services to cover normal trans-isthmian container traffic would require a door to door operation based upon a through bill of lading, as well as a careful blend of operational and infrastructure improvements. One entity (usually a specialized forwarding agent) would take responsibility for the whole movement. The system's success would depend upon competitiveness and efficiency at each stage of the operation. In Panama, on average, the cost of the land transport portion averages 19.5 percent of the combined land-sea revenue5/. This is a much higher percentage than would normally be expected; the average for other, similar countries is 5 percent. Distances are, moreover, shorter than average in Panama which should reduce, rather than increase, the land transport portion of the cost. 6.27 It is possible that economic pressures will eventually erode monopoly practices in the trucking industry. However, once economic recovery takes place, they may return to hinder growth. This could be avoided by prohibiting them by law and by ensuring free entry into trucking, subject to safety and environmental specifications. Lifting the prohibition on the operation of foreign truckers in Panama would reinforce such measures. D. The Colon Free Zone 6/ 6.28 1981 was the last year of uninterrupted growth of the Colon Free Zone (CFZ) since its beginning in 1948. In that year re-exports amounted to more than US$2.3 billion, almost double the 1978 level; employment reached 7,000 persons. Growth in re-exports between 1972-1982 was spectacular, averaging 25 percent per year in nominal terms, and was heavily concentrated in the markets of Venezuela (including Aruba) and Colombia. By 1982, these two countries accounted for close to 50 percent of total re-exports, while once-important markets in Central America and Mexico had dropped to less than 10 percent. Re-exports to Brazil peaked in 1975 at 12 4/ Roll-on-Roll-off services transport loaded truck trailers by ship. The trailers are hauled off the ship at destination port by local tractors which may also take them to their final destination. This kind of operation is particularly attractive for containerized cargo. 5/ For containerized cargo U.S. West Coast to Caracas, Venezuela. 6/ The Colon Free Zone is a public enterprise which has exclusive. -ir'hy' the leasing of warehouse space in the free zone am- permitted. Between 1979 and 1983, the CFZ had average arnnua _ revenues of B/.7 million and current outlays of B/.6 million. - 110 - percent but lost momentum in the late 1970's reaching a low of only 2 percent in 1980. CFZ trade declined by 40 percent in 1983, after an 8 percent fall in 1982. This reflected, in large measure, the decline of the Venezuelan and Colombian markets, in the wake of the financial problems there. Table 6.9: COLON FREE ZONE: KEY STATISTICS, 1972-83 1972 1975 1980 1981 1982 1983 Employment 2,660 3,639 6,254 6,918 6,974 6,002 Imports, US millions 245 415 1,781 1,996 1,703 1,151 Re-exports, US$ millions 312 530 2,068 2,338 2,149 1,493 Shiare of re-exports Venezuela, Aruba and Colombia 19.4 21.6 29.8 38.2 46.6 n.a. Central America and Mexico 17.5 16.1 10.6 9.4 8.4 n.a. Brazil 8.8 12.1 1.9 1.9 1.9 n.a. Source: Colon Free Zone Administration. 6.29 The CFZ firms link producers in North America, the Far East and Europe with the Latin American market, offering a variety of services in addition to mere commercial intermediation and break bulk. Several of the larger CFZ firm's links with producers, especially in the Far East and Europe, are long established and they can easily obtain credit from them. This, together with their own financial strength, allows them in turn to extend substantial credit to Latin American importers who would liltely be obliged to prepay any direct purchases. Moreover, Panama's strict banking secrecy extends to the CFZ and, together with a tradition of mercantile discretion, provides an attractive environment for the Latin American importer. 6.30 This largely unique mix of services means that the CFZ will likely continue to have substantial business in Latin America for the foreseeable future. Zone merchants are optimistic concerning their ability to compete in a revived Latin American market and are content to wait out the recession. However, three factors may undermine the Zone's prospects for further rapid growth beyond mere recovery to pre-recession levels, First, there may be an increasing tendency for some countries to rely on direct transactions rather than on the CFZ. This has already occurred in Mexico and Brazil, where shortage of trade credit is often overcome by direct bilateral dealing involving the respective governments, sometimes using barter as a means of exchange. 6.31 Second, some CFZ markets, such as Central America and the Caribbean, have declined because they increasingly rely on other free zones, especially Miami.7/ Although Miami does not yet have the contacts and credit links comparable to those of the CFZ operators, it does offer other advantages over Panama: the ability to provide direct retailing services to the US market, a vastly superior transport infrastructure, and cheaper, more efficient auxiliary services, particularly utilities and telecommunications. The International Airport and the Port of Miami have provided springboards for the growth of trade. The airport has established itself as the gateway to Latin America, for both passengers and cargo. The port has expanded into one of the major ports of the Caribbean region in little more than 10 years. Almost all cargo is containerized. Port users have benefitted from a policy which has concentrated public sector resources on the construction of infrastructure and acquisition of equipment, but allows the private sector to operate the port through the sale, lease and renting of facilities. In order to successfully withstand the competition from Miami and other potential zones, it is important that the CFZ be given similar advantages through improved port operations and facilities, and a more liberalized regulatory framework for land transport. This could stimulate the re-establishment of a successful transshipment business at Cristobal, and reforge the linkages between the CFZ and Canal traffic which were cut with the advent of containerization. 6.32 The third limitation on the CFZ future growth possibilities is its strong orientation towards Latin America. Shifting this orientation to Northern Hemisphere markets would be difficult to achieve on a significant scale. The advantages to a US importer of using the Zone instead of importing directly from source are not identifiable. Were such advantages nevertheless to arise, he would be more likely to use free zone facilities located on US soil. 6.33 The strongest possibilities for future expansion lie in using the Zone as a base for manufactured exports, particularly to the US under the Caribbean Basin Initiative (CBI). Already a few export-oriented clothing producers have loc.ited in the Colon area. Activities could be expanded further into the manufacture of light industrial products such as electronic assembly, precision instruments, toys, cosmetics, etc. With a view to this, the Government is already actively promoting Panama among potential investors both in the Far East, and elsewhe. e. Their location in the CFZ or closeby in the Reverted Areas, would place tlhem well in terms of access to transport and general urban infrastructure. The CFZ already has a number of potential advantages to offer as the vanguard of Panama's CBI response. First, its entrepreneurs are highly experienced and successful traders. Although their existing links with the US market are weak, their knowledge of how to build such links is considerably superior to those in the domestic manufacturing sector in Panama. As in many other countries, lack of export marketing expertise is an important constraint to the development of exporting by 7/ There are two free zones in the Miami Area: the publicly-owned Miami Free Zone near the International Airport, and the private Port Everglades Foreign Trade Zone, some 3 miles North of the city. While the combined throughput in 1983 was US$512 million, only one-sixth that of the CFZ, growth since operations started in 1979 has been spectacular: over 50 percent per year in nominal terms, before a sharp downtown occurred in 1983, reflecting the Latin American recession. - 112 - traditional import substituting industries. In many cases, for example Japan, Korea, Hong Kong, trading companies were able to overcome this during the nascent stages of export oriented industrial development. Second, the CFZ companies have close links with suppliers 'in the Far East, many of whom have expressed considerable interest in investing in Panaaa to take advantage of the CBI provisions. Third, there are substantial financial resources among the CFZ entrepreneurs, currently lying idle because of the lack of effective demand for credit among the Zone's traditional customers, which could be used to finance CBI related export o'perations. Finally, closer links between the CFZ companies and domestic tariff area manufacturers could also be beneficial in more traditional markets. For example, where there is a market in common (the main export outlet for both Panamanian clothing .manufacturers and CFZ re-exporters, for example, is Venezuela), there could r [be scope for economies of scale. 6.34 In order to fully tap the CFZ's potential as a launching pad for exports of locally produced goods, a number of actions are required. first, few Zone merchants are aware of the CBI's detailed trade provisions and efforts need to be made to channel this information to them on a systematic basis. This could be done through the National Investment Council. Second, the Authorities should seriously consider the medium term need for more industrial space -and support facilities. This need not necessarily be restricted to,the Colon area but could also be developed elsewhere in the Reverted Canal Area. In view of the severe financial constraint on the Colon Free Zone public enterprise,8/ and the public sector in general, the Government could consider the leasing of undeveloped land to the private sector, and lifting the current prohibition on private subletting in the CFZ area. This leads on to discussion of the wider issue of the use of the reverted Canal Area and its assets. E. The Reverted Areas 6.35 As a result of the Torrijos-Carter Treaty of 1979, 147,400 ha of land reverted to the Government of Panama. Of this, about 17,000 ha are located near Panama City (7875 ha) and Colon (9185 ha). The total market value of this land in mid 1983 was estimated at B/.6.3 billion, almost 50 percent higher than 1983 GDP. Of this total, 86 percent corresponded to undeveloped land and the rest to areas already urbanized9/. As indicated in 8/ The enterprise's gross. cash revenues fell by 12 percent in 1983 in the wake of the decline in trading activities. 9/ The value per sq. mt. of 50 percent of the unimproved land in the Pacific (Panama) area is estimated using the lowest existing urban status market price for unimproved land in the city of Panama (US$5). The value of the remaining 50 percent has been estimated at che ongoing average market price for unimproved land in areas adjacent to reverted areas (US$100/ sq.mt.). A blanket US$25 cost per sq.mt. of urbanized (improved) is added to estimate the value of already developed reverted areas. Because the market information available is scanty regarding the Atlantic (Colon) area real estate market, the assumptions used for estimating land values there should be considered with caution. An average US$54/sq.mt. was used to establish the value of improved land. The value of 80 percent of the unimproved land in the Atlantic has been estimated at the ongoing market price for unimproved lands in the vicinity of Colon (US$5! sq.mt.). The US$29/sq.mt. value for the remaining 20 percent has been estimated at the ongoing market price of land in Colon, minus US$25/ sq.mt. improvement cost. - 113 - previous Bank reports,1O/ the reverted lands and assets present substantial economic potential. They include housing, warehouses and dry dock facilities. Many of the services already offered could be expanded and their range widened. Bunkering could be another growth source if petroleum refinery costs--30 percent higher than at other, nearby refineries--were cut. As noted above, current Free Zone activities could expand further into manufacturing for export while some sites near Panama City, such as Albrook Field, might be suitable for development of fruit and vegetable wholesale markets to replace those in the older part of the city. In short, the areas could be the base for an export-oriented industrial commercial complex which would not only be an important source of employment, but would achieve integration into the rest of the economy in the most productive way. 6.36 Because of their strategic location, the reverted lands are of critical importance, especially in Panama city. They are adjacent to the city's most highly valued commercial area. They also contain the major port of Balboa. New export-oriented industrial and commercial activities in the reverted areas would have a considerable cost advantage over those locating elsewhere. This is particularly so since most industrial development to date has taken place in the outskirts of the city. For such industries,-. transportation to the port of Balboa is only possible through congested central city areas. 6.37 To date, unfortunately, little progress has been made in using the lands and related assets for the country's economic benefit. An appropriate, precise assessment of the market value of reverted assets has not been made,' despite the need for such an assessment to form the basis for a rational land use policy. Five years after the Canal Treaty ratifications authorized their reversion, only 12 percent of the lands available for urbanization have .been allocated; a further 10 percent is in the process of being allocated. Moreover, of the amount allocated, less than 3 percent on the Pacific side, and none at all on the Atlantic side, is for productive activities by the private sector. The rest is for public administrationll/'(55 percent on.the Pacific and 79 percent on the Atlantic), housing, recreational and . institutional use. A similar picture emerges in the allocation of building space: only 16 percent on the Pacific and 12 percent on the Atlantic is for private sector productive use. On the Pacific side, requests for land allocations as of February 1984 show little private sector interest (13 percent of the total area requested), though the demand for building space is much stronger. On the Atlantic side, private interest in lands reflects their allocation to the Colon Free Zone and related export-oriented industries, 10/ See especially: Panama's Development in the 1980s--a Special Economic Report (2306-PAN). 11/ Including the port areas. - 114 - Table 6.10: ALLOCATION OF REVERTED ASSETS AS OF FEBRUARY 1984 Pacific Side Atlantic Side Panama Colon Land Buildings Land Buildings (Ha.) (sq.mt.) (ha) (sq.mt.) Public Sector Administration 246.20 a/ 114,385 1,271.3 b/ 33,987 Recreational 12.26 5,034 25.0 Housing 115.89 (635) 116.3 (637) Other 60.9 0 28 7 15.0 15,407 Private Sector Productive Activities 12.18 22,630 - 7 , 29 2 Institutional Activities - 7.5 5,875 Total 447.43 142,336 1,435.1 Request for Allocation Public Sector 1,163.7 18,967 38.5 11,540 Private Sector 208.8 79,511 279.3 7,474 a/ Includes the Port of Balboa. b/ Includes: Ports of Cristobal and Coco Solo, Mount Hope, Colon Free Zone and 327 ha allocated to the Municipality of Colon. Source: Ministry of Finance, Office for the Administration of the Canal Area Assets. 6.38 This heavy preponderance of the public sector is inconsistent with the new economic policy of relying to a greater extent on private sector initiative to meet future development goals. Moreover, the allocation of buildings and other developed assets to the public sector will increase public operating expenditures, while generating very little income in return. Even where allocation has been to the private sector the Government does not benefit from land sale receipts or land taxes. Rentals of existing structures are a fraction of current market values. 6.39 There are three main interrelated reasons for this slow pace and misdirected approach: political considerations, an uncoordinated planning effort, and fear of the impact of reverted land allocation on property values. - 115 - 6.40 The process in Panama which led to the Canal Treaties was laden with social, political and legal connotations reflected in the stated goal that the devolution should "serve the common good". But no further definition or explanation of what exactly constitutes the common good has evolved. This goal now weighs upon the decision-making process regarding the potential use of reverted assets, especially those not technically essential to the functioning of the Canal. Because the nature of some of these assets, and especially their location, places them as prime candidates for the urban expansion of the two major cities in the country, their potential land tenure system has become a matter of major concern--both within the Government and throughout the private sector. Furthermore, a feeling of proprietorship over Canal Area assets pervades among all Panamanians, whose individual definitions of the common good concept do not necessarily coincide, but who seem to agree that rental of the reverted land would be more acceptable than its sale. 6.41 The planning mechanism is also weak, leading to an approach of piecemeal allocation. Three Ministries are involved: MIPPE (overall planning), MIVI (specific physical planning and zoning), and Finance (formal administration and disposition of national assets). There is, in addition, the Canal Authority, created in 1979 but now effectively defunct due to a zero budget allocation. Unfortunately, only this Authority has the legal power to divest reverted land; legislation transferring this power to the Ministry of Finance failed to obtain Congressional approval in 1983 because of political difficulties stemming from the attitudes described in the previous paragraph. The three Ministries, and other public agencies involved, have been brought together into an Office of Canal Area Development (ODAC) under MIPPE. Since ODAC was formed in early 1983, it has been unable to perform important planning functions due to inadequate staffing. 6.42 The misallocation of the assets, which results from poor planning and coordination, is reinforced by treating thc.m as if they had no direct or--more importantly--opportunity costs. Within the planning process, there is an urgent need to establish a mechanism for estimating the economic value of the assets in detail. This activity should be continuous since their worth will vary in accordance with the pace of development and market conditions. The economic valuation process should include housing and assets used by the public sector in order that implicit subsidies and transfers should become explicit. In this context, it is noteworthy that many of the reverted assets already represent a fiscal drain. Canal Area housing units have been made available at heavily subsidized rents, not only to Panamanian employees of the former Canal Company, but also to other upper middle class persons; the rents collected do not pay for the units' maintenance costs. Similarly, the railroad, already losing money before reversion, is now losing more; industrial and administrative buildings are also draining resources; while ship repair facilities, stripped of much of their equipment, have lost an important part of their earning power. This is not a calculated fiscal sacrifice to promote national development, but rather the product of inadequate management and piecemeal planning. - 116 - 6.43 The piecemeal approach has proved readily acceptable to different interest groups because: (i) the size of each allocation of land, relative to the total availability, is not great and hence appears not to threaten the feasibility of developing a more rat-ional approach in the future; (ii) most allocations transfer assets with right of use but not with full ownership over the land; (iii) each request for allocation is justified and approved on the basis of its individually defined correspondence to the common good goal which allows for a wide range of non-conflicting interpretations; and (iv) it does not require major, sensitive decisions to be taken immediately. This process is also consistent with the "General Land Use Plan for the Panama Canal Area and its Watershed" adopted by the Government in 1979. This defines only in very broad terms the areas where urbanization or agricultural uses may develop, and indicates those which must be set aside for purposes of the Canal's watershed protection, operation, and defense. 6.44 Panama's real estate market is highly speculative. It works well for upper and upper-middle class residents and for commercial activities. It has, however, produced a chronic housing scarcity for lower and lower-middle income groups. The selective introduction into this market of well located reverted lands would have a very limited impact upon the value of land used for lower cost or low middle income housing. However, in the short term, it would reduce the scarcity of nearby, well-located land already in the market, and in decreasing degrees the successively adjacent areas. It would thus affect the market's most speculative holdings, many of them for upper income residential or commerCial use. Although a precise evaluation of this effect would require more detailed study, evidence indicates that rental values may fall by as much as 25 percent in areas immediately affected. While this would be a healthy development, given the evidence of speculative overvaluations, it would obviously be resisted by affected interest groups. A significant proportion of the properties concerned are financed by commercial bank mortgages. The total outstanding value of reportedly residential mortgages in September 1983 was B/.597 million, 17 percent of the banking system's total domestic portfolio. The nervousness of property owners and their banks is accentuated by fears, well founded to date, that reverted lands will be made available at less than market value. 6.45 If fuller advantage is to be taken of the reverted areas, a number of interrelated policy changes are required. First, use could be made of a variety of instruments to allow private exploitation of the assets without involving national loss of ownership. These include long term leases and concessions which could present an important but untapped source of fiscal revenue rather than, as at present, a fiscal drain. Second, the previous functions of the defunct Canal Authority could be vested in the Ministry of Finance, as the overall administrator of the nation's assets. The Ministry would be responsible for processing requests for land allocation, with sufficient powers to resist further public sector encroachment, Third, the current practice of renting assets (buildings and land) at well below market rates should cease. Instead, leases should be auctioned and given to the highest bidder consistent with land use zoning policies. Lease agreements should contain rental escalation clauses. Rents charged on already allocated - 117 - assets, to either public or private sector tenants, could be reviewed and, if necessary, increased to current market values. Fourth, a mechanism should be designed to encourage private investment in land development (including provision of basic sites and services) to implement the land use policy mentioned above. They could be permitted to recoup their investment through subletting. Fifth, a strategy could be developed to minimize the impact of release of the reverted areas on existing land values. This could use techniques such as zoning requirements and coordinated timing of land releases, preannounced to reduce market uncertainty. Finally, to coordinate these efforts, planning capability could be strengthened, both in terms of quality and quantity of staffing, and in terms of political backing. - 118 VII ECONOMIC PROSPECTS FOR THE REST OF THE 1980's A. Introduction 7.1 Panama's economic situation is serious. Real GDP per capita has declined since 1980, and total GDP has stagnated since 1982. Although the Authorities, in 1983 and 1984, made a major effort in short term stabilization, and have made a good beginning in tackling the fundamental problems of the economy, the public sector will remain tv,nder severe financial constraints; it cannot be expanded to stimulate the economy. On the other hand, Panama's capital base is underutilized and unemployment is high and rising. In view of the financial weakness of the public sector, Panama must look to private initiative as the driving force for future expansion. To stimulate private investment, the comprehensive attack on economic distortions and inefficiencies already begun must be continued and deepened. Even then, there is no guarantee of success. If domestic conditions permit and encourage private initiative, and if international conditions are reasonably favorable, then Panama could return to a rapid growth path by 1986 and remain there for at least the remainder of the decade. For this to occur, Panama would need a more open, export oriented economy in which the efficiency of the productive sectors would be on a par with that already achieved by Panama's international services. A more fully employed urban workforce would be dedicated to a broader variety of industrial and service tasks undertaken at competitive world costs. While the policies to pursue these ends are not without risk, there is some historical evidence that they may succeed. After all, Panama's private sector responded quite well to market signals in the 1960'se 7.2 On the other hand, Panama's policy makers do not have an independent monetary or exchange rate policy. Structural adjustment aimed at economic efficiency therefore means tackling every 4tstortion individually and at source. This exacts a high political price in that it involves the Government in a constant series of individual and highly visible confrontations with affected vested interests. To be realistic, economic projections must take account of the possibility that the Authorities may be unable to complete their medium term reform program. Moreover, the structural adjustment process can only be fully successful if the industrial economies continue their recovery, and Latin America begins to show signs of significant recuperation from 1985 onwards. Should these take longer than expected, or should their impact on Panama be weakened by other factors (e.g. higher protectionism, reluctance of commercial banks to extend credit), then structural adjustment would be-ome even more necessary, although the process would inevitably take longer to bear fruit. 7.3 These consi.derations underscore the uncertainties inherent in forecasting the future behavior of economic variables, especially in a country going through both a political and an economic transition period. To better assess the pro3pects for medium term recovery under such conditions, a macroeconomic model of the economy has been developed and used to explore various future scenarios. The characteristics and functioning of the model are explained in Annex I. -119- B. The Projected Scenarios 7.4 The principal driving forces for the model are the level of real investment, productivity, and exports. Since the amount of public sector investment forthcoming is limited by financial constraints, private sector investment therefore becomes a key variable. The levels and productivity or real private investment are assumed to be determined by the domestic policy environment and international economic conditions. Three scenarios are developed. 7.5 The assumed growth rates for exports are set out in Table 7.1. For the optimistic case, the international environment is assumed to be favorablel/. This permits traditional agricultural exports --shrimp, bananas, coffee, sugar and fishmeal-- to increase in real terms by 4.5 percent per year. Although this is well in excess of what can be expected for sugar and bananas, it reflects mainly the successful exploitation of the excellent prospects for shrimp; output of saltwater pond shrimp could increase fivefold in the medium term and world price prospects are good. Nontraditional agricultural exports are expected to perform well. Grass fed beef production for export is already incz-easing following the lifting of export quotas in March 1983 and the resumption of sales to the US market a year later. Also on the increase are exports of horticultural produce, especially some tropical fruits and citrus products. Provided an appropriate policy environment is maintained for these activities, chey should at least equal the performance of the traditional exports. For the base case, also, the domestic policy environment for exports is assumed to be encouraging. However, the international environment is less favorable; commodity prices are less buoyant and projected OECD growth lower. Consequently, the overall growth in agricultural exports would be reduced to a real 2.5 percent per year, though shrimps still perform strongly. Table 7e1: ASSUMED REAL ANNUAL AVERAGE GROWTH RATES FOR EXPORTS UNDER ALTERNATIVE SCEN.ARIOS 1984-89 Type of Export Base Case Optimistic Pessimistic Traditional agricultural goods a/ 2.5 4.5 1.1 Petroleum products b/ 1.5 2.5 0.1 Other agricul.tural goods 2.5 4.5 1.0 Manufactured goods 10.0 13.0 6.5 Non-factor services 4.0 7.0 2.5 a/ Bananas, sugar, shrimp, coffee, and fishmeal. b/ Mostly bunkers to ships transitting the Canal. 1/ The OECD countries are assumed to grow at 4.3 percent in accordance with the high case set out in the 1984 World Development Report, and the Latin American economies by 5 percent from 1985 onwards. - 120 - 7.6 In the case of manufactured goods, it is assumed t'- st significant policy actions are taken to encourage export oriented foreign and local investment in accordance with the recommendations set out in Chapter V. For the base case, these would fall short of mnajor changes to labor legislation while a regime of price controls would be maintained for most basic consumer goods. Nevertheless, the balance of incentives would be redressed by making it at least as profitable to export as to produce for the domestic market. Under these policy assumptions, and in a favorable international setting, it is assumed, for the base case, that manufactured exports increase by 10 percent per year in real-terms. This is modest compared to the achievements of many countries, especially taking account of the low base from which manufactured exports are starting. In the optimistic case, a 13 percent growth rate is assumed. 7.7 Panamanian exports are dominated by services, which account for nearly 75 percent of total exports of goods and non-factor services. These are assumed to expand at a real 4 percent per year in the base case and 7 percent in tlhe optimistic case, both somewhat lower growth rates .han the 8.4 percent experienced between 1975 and 1983. Recovery in the Colon Free Zone, and in the financial services subsector, will depend upon a resumption of growth in the Latin American Region. Value added from the Canal and related activities is expected to be relatively stagnant, although this will be compensated for by diversification into new service activities, stemming from greater efficiency in the land transportation and port systems, as well as more intensive use and development of the reverted Canal Area lands and assets. 7.8 It is assumed that the policy improvements implicit in the base case scenario encourage a significantly stronger private sector investment performance than in.the recent past. For reasons discussed in Chapter I, private investment in real terms fell between 1968/73 and 1978/83. Here it is assumed that after continuing to fall through 1986, it increases at a modest average annual rate of 2 percent over the period 1983-89. Public investment would be at a considerably lower relative level (on average, some 6.5 percent of GDP over the 1984--89 per'od, compared with 10 percent between 1980 and 1983), and financed to a larger extent from official sources afid an improved public savings performance. The greater preponderance of private over public capital expenditures would improve the productivity of investment: the incremental capital output ratio (ICOR) would fall from 7 (average 1977-82) to 5 between 1984 and 1986 and again to 4,5 between 1987 and 1989. 7.9 For the optimistic scenario, it is assumed that the Authorities carry out, in a swift xand com1irehensive manner, their full structural adjustment program. This means that, in addition to reorienting or the structure of incentives towards exports and continued fiscal discipline, issues such as labor market rigiditi:es, price controls, inefficiencies in the operation of public sector enterprises and other factors impeding competitiveness, are fully addressed. It is, moreover, assumed that the Government adopts a well-planned public investment-program in which scarce resources are directed at overcomLing infrastructure conistraints on export-oriented private sector investment. Even under these assumptions, private inivestment would initially stagnate in real terms. Time would be required to inculcate confidence in the permanence of the new economic policy - 121 - and the new "rules of the game". Once this confidence has been instilled, it is assumed that private investment by both local and foreign entrepreneurs increases by 10 percent annually between 1986 and 1989. Although rapid, this is still less than the 12.5 percent annual real increase attained during the 1960's. Because of accompanying measures to reduce labor market rigidities, this investment would likely be more labor intensive; accordingly the ICOR is projected to decline to just under 3 during the latter part of the period. The operational significance of this is that by permitting and encouraging private investment generating employment-intensive, export oriented activities, the Government would stimulate greater investment productivity, thereby using investable resources to absorb the rising labor force while maintaining a substantially high GDP growth rate. The reduced scope of the public sector enables, under this scenario, a 35 percent reduction in direct tax rates after 1987 while still reducing the public sector deficit to less than 2 percent of GDP by the end of the period. 7.10 The pessimistic scenario assumes that real growth in the OECD countries is restricted to 2.5 percent per year from 1985 onwards in accordance with the "low case" of the 1984 World Development Report. Exports of agricultural products are restricted to one percent real growth per year, while the assumed rate of growth of manufactured exports would be reduced to an annual 6.5 percent, and that for nonfactor services to 2.5 percent per year. Domestically, it is assumed that the Authorities are unable to complete their structural adjustment program. Private sector confidence, and hence investment, would remain at a very low ebb. The extent to which the public sector could compensate for this would be limited by the availability of credit. Under these circumstances, the inflow of external capital would be drastically reduced and private investment is projected to fall, in real terms, by 7 percent per year between 1984 and 1989. In the latter year, private investment would be B/.200 million less, in real terms, than in 1983. Furthermore, the investment that would take place would likely be far less efficient. The share of the public sector would increase to nearly half, while the private sector would be limited to services, and industries geared to the local market. The ICOR would remain at present high levels or could very well increase further. C. Results of tha 'i-ojections Economic Growth 7.11 The outcome of the three projections is summarized in Table 7.2 and in graphs 7.1 through 7.5. In the base case, total GDP growth is projected to ultimately recover to 3.5 percent per year during 1987-89. The implications for overall welfare are, however, unsatisfactory: per capita private consumption, after declining by 3 percent per year between 1980 and 1983, would increase only slowly over the projected period and would still be less, in real terms, in 1989 than In 1980. The unemployment rate would increase to 22 percent from the present level of about 11 percent. Clearly, in the absence of measures to address labor market rigidities, the growth rate would be inbufficient to generate a demand for labor large enough to match the projected increases in the labor force. Graph 7.1 PRIVATE CONSUMPTION PER CAPITA (CONSTANT 1980 BALBOAS) 1.7 - 1.7 1.4 -o> 1.2 80 81 82 83 84 85 86 87 88 89 Source: Annex 1 a Base Case + Optimlstic Pessimistic Graph 7.2 PUBLIC SECTOR SAVINGS (percent of GDP) 6- 5 4 0L 0 00 141 - IIJIII- 3 80 81 82 83 84 85 86 87 88 89 Source: Annex 1. i3 Base Case + Pessimistic o Optimistic - 122 - Table 7.2: ECONOMIC PERFORMANCE UNDER ALTERNATIVE SCENARIOS (Yearly averages for the period) Indicators Actual Base Case Optimistic Pessimistic 1980-83 1984-86 1987-89 1984-86 1987-89 1984-86 1987-89 GDP Growth 3.3 -1.7 3.5 2.4 8.1 -2.0 1.6 Per Capita Consumption Growth -2.9 -2.8 1.4 0.1 7.4 -4.2 -0.5 Growth in Real Private Investment -2.9 -7.2 2.O 0.0 9.5 -12.8 -1.2 Unemployment Rate. 9.0 17.0 21.9 15.4 10.3 18.2 25.6 Source: Annex 1. 7.12 The optimistic scenario yields a substantially better result. Not only would per capita consumption increase in the short run; it would be rising at an annual rate of over 7 percent by the end of the decade. Equally important, more rapid growth, stemming from greater and more productive levels of investment, would combine with labor market reforms to bring about a sharp reduction in the unemployment rate after 1986. Although the rate would still be slightly higher, at that time, than the 1980-83 average, it would be on a sharply declining rather than increasing trend. Furthermore, the positive effects of the structural adjustment program would continue to be felt well beyond 1990; it would be in that later period that full employment would be attained. 7.13 The pessimistic scenario clearly reaches long run crisis proportions. Per capita income declines steadily; unemployment continues on an increasing trend and reaches over one quarter of the labor force by 1989; real private investment falls sharply over the period as a whole; and real per capita consumption would be 15 percent less in 1989 than in 1980. Public Sector Performance 7.14 As explained elsewhere in this report, because of the monetary characteristics of the Panamanian economy, the public sector current and capital accounts play the key creditworthiness role normally assumed by the balance of payments. The effects of the three projections on public sector finances are summarized in Table 7.3. In the base and pessimistic cases, current consolidated public sector revenues are assumed to remain constant in relation to GDP. In the optimistic case, relative current expenditures would fall significantly, permitting a reduction in taxes from 1987 onwards. Public savings show considerable improvement by historical standards in both the base and especially the cptimistic scenarios. In all three cases, the level of public investment in relation to GDP is substantially lower than the 12.5 percent average prevailing since the mid 1970's. Graph 7.3 PROJECTED UNEMPLOYMENT RATES (percent of labor force) 24- 22- 20- 18 1 6 0 L.- ~ 14 - 0 So!rce StlitclAPexTbe11 4- 12 0 -4-, C-) 0 ~8 EL 6- 4- 2- 82 83 84 85 86 87 88 89 Source: Statistical Appndix Table 1.16 ZZIBase Case PRj Optimistic - 123 - Table 7.3: KEY PUBLIC SECTOR VARIABLES UNDER ALTERNATIVE SCENARIOS (Yearly averages for the period) Indicators (Percent of Actual Base Case Optimistic Pessimistic GDP) 1980-83 1984-86 1987-89 1984-86 1987-89 1984-86 1987-89 Current Revenuea/ 30.6 31.8 31.7 31.7 28.4 32.0 32.1 Current Expend- iture b/ 28.0 29.0 28.3 28.0 24.2 30.0 30.8 Public Saving 2.6 2.8 3.4 3.7 4.2 2.0 1.3 Public Invest- ment 9.8 6.8 6.3 6.6 5.9 7.0 6.9 Consolidated Deficit 7.2 4,0 2.9 3.6 1.7 5.0 5.6 Consolidated Deficit 288 183 172 140 81 224 304 (B/. millions) a/ Current revenue of the Central Government and decentralized agencies plus the operating surplus of the public enterprises. b/ Includinig interest Source: Annex I 7.15 According to l.he anialysis in Chapter III, the Authorities may encounter difficulties in financing even the historically low deficits projected for the 1984-86 period under the base case. The total borrowing requirement 2/ in the pessimistic case could be about B/.660 million in 1985 and B/.900 million in 1986; these amounts would be virtually unattainable against a background of economic stagnation. External Public Debt 7.16 The tlh-ree scenarios assume the same gross disbursements from official lending agencies as well as from grants and net direct foreign investment (a total annual average inflow of B/.211 million and B/.55 million respectively over the 1984-89 period). Since these flows are themselves dependent on the country's growth prospects, the difference among the scenarios is even more drainat[ tlhar shown. 7.17 The outlook for public sector medium and long term debt under the three scenarios is summarized in Table 7.4. 2/ Amortization obligatioi.s pltis the deficit. Graph 7.4 PUBLIC SECTOR DEFICIT (percent of GDP) 11 -- 1 0 9. 8 n- 7 6 0 c 21 5 0- 4 3 2 80 81 82 83 84 85. - 86 87 88 89 Source: Annex 1 U Base Case + Pessimistico Optimistic - 124- Table 7.4: EXTERNAL DEBT VARIABLES UNDER ALTERNATIVE SCENARIOS a/ (Yearly averages for the period) Indicators Actual Base Case Optimistic Pessimistic 1980-83 1984-86 1987-89 1984-86 1987-89 1984-86 1987-89 Interest/Govt Rev. (%) b/ 23.4 21.3 18.3 20.5 15.6 22.0 21.6 Debt Servicing/ Govt. Rev. (%) 39.7 42.7 51.6 41.2 44.8 50.5 58.8 Debt Outstanding /GDP(%) 71.1 74.6 65.7 70.6 49.7 78.3 79.1 | Commercial/ c/ Total Debt(T) 73.8 63.9 60.9 63.3 58.0 64.5 64.3 a/ Medium and long term debt only; does not include credits of less than 12 months, IMF, or credits from Venezuela and Mexico under the San Jose Accord. b/ In Panama's circumstances, debt servicing in relation to public sector revenues is more meaningful than in relation to export revenues. c/ Commercial banks, foreign bond holders and suppliers' credits. Source: Annex I 7.18 The base case and optimistic scenarios show similar results. On the positive side, interest payments fall in relation to public sector revenues, and the debt outstanding and disbursed falls in relation to GDP. This reflects essentially the improved public sector savings performance and the reduction of public sector investments as a proportion of national value added. The structure of the debt improves significantly with the proportion of commercial to total debt outstanding falling from 74 percent in 1980/83 to about 60 percent under both scenarios. On the other hand, due to heavy amortization obligations, the total debt servicing ratio rises sharply in the base case by 12 percent of public sector revenues; even in the optimistic scenario there is some increase. In both cases also, the absolute amount of commercial debt outstanding is greater in 1989 than in 1983. In the base case, the new commercial exposure is US$447 million (US$74 million per year) and in the optimistic scenario US$217 million (US$36 million per year). Both of these, particularly the latter, would seem to be feasible in the light of recent experience and of the economy's projected performance under these scenarios. - 125 7.19 Two key assumptions of the model are that the public sector deficit is always financed and that commercial amortization payments can be refinanced. As the deficit is larger in the pessimistic scenario, both in absolute terms and in relation to GDP, these assumptions paradoxically increase commercial bank exposure to the public sector more rapidly than in the base or optimistic cases. In this sense, the pessimistic scenario may be unrealistic; it is difficult to visualize commercial banks, in the international environment of the 1980's, lending a further US$1.2 billion to the Government of a stagnant economy. In all likelihood, therefore, the Authorities would have to adopt even more draconian austerity measures than those assumed. The resulting economic contraction would not only feed back on public sector revenues in a downward spir al, but would also lead to deepening social discontent. The point would likely soon be reached where the country would no longer be considered creditworthy and would be unable to meet its external interest obligations. 7.20 There is another sense in which the failure of the Government's program could degenerate into a self-perpetuating downward spiral for the economy. Traditionally, economic expansion in Panama has been fueled to a significant extent by foreign financial resources. This has been facilitated by the openness of the economy and the integration of its financial system with international capital markets. Now, however, with the era of easy access to commercial finance at an end, commercial banks are clearly anxious to limit their total exposure in the country. Greater demands on commercial credit for the public sector, especially against a background of stagtnation, would therefore likely limit its availability for the private sector. This would reduce private investment still further, depressing the productivity of total capital expenditures and hence reducing growth prospects. The Balance of Payments 7.21 The balance of payments in Panama assumes a lesser importance due to the prevailing monetary system. On the current account, all three projections show a positive and growing resource balance, due in the base and optimistic scenarios to strong export performance, but in the pessimistic case to low import growth. The terms of trade show little expected change over the period. The medium and long term capital account depends largely on fiscal policies; the higher inflows in the pessimistic case reflect the higher public borrowing requirement. Short term capital is related to profit remittances to and from the international banking center; to capital flight from neighboring countries; to changes in the domestic circulation of the US dollar; and to non-registered imports, mostly from the Colon Free Zone. Graph 7.5 INTEREST ON EXTERNAL DEBT (as a percent of public revenue) 26 25 24 23 22 21 20 19 1 8 17 1 6 1 5 14- -F -l I ~ - - 80 81 82 83 84 85 86 87 88 89 Source: Annex 1 DI Base Case + Pessimistic Optimistic - 126 Table 7.5: BALANCE OF PAYMENTS SCENARIOS (Yearly averages for the period) Indicators (US$ million) Actual Base Case Optimistic Pessimistic 1980-83 1984-86 1987--89 1984-86 1987-89 1984-86 1987-89 XGNFS a/ 1640 1948 2660 1996 2997 1873 2446 MGNFS F/ 1704 1662 2229 1724 2657 1611 2032 Resource Balance -64 286 431 272 340 262 414 Factor Payments (net) c/ -238 -296 -326 -294 -302 -298 -356 Net Cur.ent Trans. 26 35 43 35 43 35 43 Current Account Balance -276 26 148 13 °0 -2 101 Net Medium and Long Term Capital d/ 305 184 171 140 81 224 304 Net short term Capital e/ -29 -210 -319 -143 -161 -222 -405 a! Exports of goods and non factor services. bI Imports of goods and non factor services. cI Interest on medium and long term debt, and net receipts by the international banking sector. dI Net private and official borrowing by the public sector plus direct foreign investment. e/ Including IMF, capital not elsewhere identified and net errors and ommissions. Source: Annex I. D. Implications of the Economic Projections 7.22 The projections indicate that the Panamanian economy is highly sensitive to government polities regarding trade management, the incentive structure, public sector efficiency and relative price signals. 7.23 Export expansion of the goods sectors is now vital. The projections show that continued reliance on the service sector alone will not generate sufficient growth to absorb the rising labor force, even under favorable international conditions. This requires a v;eversal of the current structure of incentives as shown in Chapters I" and V. The current bias towards import substituting activities for a small, protected market must be 127 - reversed, and exporting must be made at least as profitable. This can most easily be accomplished by a general opening of the economy to international competition, thereby permitting entrepreneurs to obtain raw materials and intermediate goods at close to international prices. Indeed, those economies that have tried to graft _. efficient export sector onto a virtually unchanged import substituting one have not met with much success. This is because the high costs and inefficiencies in the protected parts of the economy inevitably erode the competitiveness of the exporters. By contrast, in many countries where general open economy policies have been followed, the results have far exceeded the expectations of the policies' most enthusiastic advocates. Countries such as Singapore and Korea achieved real GDP growth of about 10 percent per annum for over a decade. Their economies were transformed from sluggish, high cost, inward-looking ones into vibrant, rapid growth, export-oriented, industrial societies within two decades. They also moved rapidly from high unemployment to full employment conditions. Other success stories were similar. This is not to say that success is guaranteed; on the contrary, an export-oriented, market-based strategy is by definition a step into the unknown. But experience elsewhere, particularly in small economies with a powerful entrepot tradition to build upon, indicates that it is the best way to break out of the vicious circle of high cost and stagnation. 7.24 To become a successful exporter, however, it is not enough to restructure incentives; All the inefficiencies and sources of high cost which pervade the economy must be addressed if the goods sectors are to compete internationally. Here a distinction may be made between non-tradable and tradable goods and services. Among the non-tradables, the cost of basic public services such as electricity, water and telecommunications must be brought down. Since this cannot be done by direct subsidies, due to fiscal constraints, it must be tackled through reducing the operating costs of the entities concerned. Similarly, the cost of export-related services such as the ports and land transportation needs to be reduced. This can be achieved through improvements in infrastructure and equipment, increasing operating efficiency through concessions to the private sector under competitive "onditions, and through institutional reforms aimed at ending restrictive practices which pass high costs onto the user. 7.25 In the case of tradable goods, examples abound of the Panamanian economy paying very high prices for staple goods, which inevitably adds to upward cost pressures. Cement is produced domestically at over twice world costs and sold to the consumer at three times world prices; farmers pay a high price for fertilizers and chemical pest controls; the ex-refinery price of most petroleum products is about a third above that of other refineries in the Caribbean area; the high cost and inefficient agricultural and agroindustrial sectors, subsidized through a high support price policy, lead to upward pressure on urban wages, reinforcing labor market rigiditiee and high social security charges; and local industry, protected from outside competition, sells most of its products at prices well in excess of world levels. Ultimately, these costs can only be brought down through exposing the sectors concerned to international competition. Clearly this needs to be - 128 - done gradually to minimize the disruptive impact on employment; however, it must be done if the economy is to become cc.mpetitive. Panama can no longer afford the luxury of subsidizing these activities. 7.26 The formidable array of bureacratic controls on prices and marketing, particularly in agriculture and agroindustry, also needs to be dismantled since at present it constitutes a barrier to potential exporters. As shown in Chapter IV, exporters have to pass through some eight or ten complex administrative procedures in the case of many product groups; often the only legal way to overcome these barriers is to export through the state marketing institute, IMA. 7.27 The principal driving force of future expansion is investment. However, it must be emphasized that the quality of the investment is much more important than it£ quantity. Panama has had very high levels of investment, averaging over 20 percent of GDP since 1970. In a more conducive policy environment, some of the public sector investments, such as those in power, water supply, and transportation, might have laid the foundations for a more dynamic economy. However, much investment in productive facilities was concentrated in the state sector, while a significant proportion of private investments was geared to the local market in activities heavily subsidized, directly or indirectly, by the State. Productivity of capital was consequently low. New private investment needs to be encouraged in export-oriented, employment intensive activities, with much higher real output per unit of capital spent. 7.28 To achieve this, the investment climate must be improved. This is not only a matter of an appropriate legal framework and incentives; confidence must be engendered in the permanence of the new policy and the new "rules of the game". This can only be inculcated through public commltment at the highest political level, and through a well planned campaign of "public education" showing the necessity for, and advantages of, the new policy framework. For local investors eiven this may not be enough, at least initially. Efforts to attract foreign investment through the National Investment Council and similar initiatives must therefore be intensified. Successful investment for export requires iot merely capital but entrepreneurship, technology and management skills as well. This is particularly so for the relatively high value products on which Panama will have to concentrate, given its comparativri-yIc4 high labor costs. 7.29 In order for the economy to benefit fully from increased private i7vestment, two difficult political issues must be tackled. The first is p- ice controls. They not only lead directly to the misallocation of resources; their administration inevitably spreads into control of exports and imports, thereby impeding expansion of export-related activities. Fear is sometimes expressed of the impact of price control removal on the cost of living. In fact, currently, most price controls in Panama are floor rather than ceiling prices and are mechanisms of subsidizing prodacers by consumers. This does not prevent them from being a powerful disincentive to private investment: when circumstances clange, the controls may once again - 129 - reduce profitability and decrease entrepreneurial ability to adjust to changing market conditions. Where the removal of price controls may be expected to lead to the abuse of private monopoly power, this would be most appropriately addressed through opening up the market to competition from imports. 7.30 Second, the projections clearly demlonstrate that even good export-led growth rates would be unlikely to prevent employment from rising in the absence of measures to tackle labor market rigidities. The optimistic scenario assumes that fundamuental reforms to the Labor Code are made, and "hat there are no further real increases in social security contributions; this would increase marginal employment elasticities to levels closer to those of the 1960's. Only in these circumstances does rapid GDP growth lead to a declining trend in the unemployment rate. Wiithout such measures, unemployment would not fall, even with real annual growth of around 7 percent. 7.31 For the public sector, the projections confirm the analysis of Chapter III. Public savings performance must be substantially improved, principally through reduced costs and increased efficiency, while investment must be carefully restricted to support private sector initiatives. Heavy current obligations to social security beneficiaries will likely materialize in the medium term, while the Authorities will wish to increase outlays in the social sectors, particularly low cost housing. To enable this, strict control must be maintained on all expenditures. The burden of the State on the rest of the economy must be reduced to facilitate export-led expansion fuelled by private sector investment. PANAMA Structural Change and Growth Prospects Volume II: The Annexes Table of Contents Page No. Annex I - Macroeconomic Projections 130 A. Introduction 131 B. The Analytical Framework 131 Annex II - Public Investment 156 Statistical Appendix 173 PANAMA STRUCTURAL CHANGE AND GROWTH PROSPECTS MACROECONOMIC PROJECTIONS 131 - ANNEX I Macroeconomic Projections A. Introduction 1. This Annex describes the model developed for the macroeconomic projections used in this report. An analytical framework is developed for the economy, and a base case scenario discussed. This seeks to project the various economic aggregates under the assumption that changes in policy are sufficient to sustain a moderate expansion, while the external environment is relatively buoyant. B. The Analytical Framework 2. The analytical framework uses a consistent set of data for 1980. The principal accounts are given at Appendix A, and the details of the model at Appendix B. This is then developed into a social accounting matrix (SAM) for 1980. The choice of 1980 permits the inclusion of the effect of incorporating the Canal Zone into the GDP and it allows three years for tuning the model. The SAM structure is given in Table 1. It has.the following principal features: 7 sectors - agriculture; mining and manufacturing; construction; electricity, gas, water, transport and communication; banking and real estate; other services; and Colon free zone and Canal areas. 2 institutions - government (non-financial public sectorl/) and private. 2 capital accounts - government (public) and private. 2 financial acounts - domestic and foreign. 3. The data in the SAM framework is estimated. In general, the aggregates are close to the official national account figures, while external accounts are close to the IMF balance of payment values. The biggest difficulty arose in the coefficients for the input-output structure. This was developed from a variety of sources. There are a number of estimates for gross output for agriculture and manufacturing. These together with the - sectoral final demand estimates gave intermediate values. The distribution of these intermediate values was achieved through the use of input-output ratios for other countries such as Brazil and Colombia. 4. The model was developed from the basic SAM. It is primarily a demand driven Keynesian structure while the closure is by financing the deficit of the consolidated public sector. A demand driven model is justified by the current existence of a significant amount of excess capacity in the economy. The deficit of the consolidated public sector is the key stability variable. The model can be readily modified to include various supply side effects or to investigate alternate closures. 1/ The non-financial public sector includes the operations of the central Government, plus the decentralized and autonomous agencies except the National Bank of Panama and the Savings Bank. - 132 - 5. A simplified schematic is shown in Table 2 which gives the general flow of the model. The model solves one year at a time and is non recursive. All exogenous values are entered for the duration of the projection. In particular real investment, public consumption, export and import prices and export quantities are given together with the historic debt situation. 6. The model then makes a first estimate of private consumptiorn based on last year's income and prices. Other exogenous components of final demand are then added to provide an estimate of sectoral real output. A generalized Leontief system then provides a first estimate of gross physical output. This in turn generates an estimate of required sectoral imports. 7. The model then proceeds to the price module. Export, import and factor prices give an estimate of domestic prices. This in turn gives value added and labor demand estimates. From the value added one obtains an estimate for income. After various adjustments for direct taxes, social security payments, and savings, the model then proceeds to a second iteration to recompute consumption. The process continues until the savings generated are sufficient to finance the anticipated level of investment. 8. The model then proceeds to update the current account, labor and debt statutes. The overall deficit of the consolidated public sector must then be financed. It is assumed that this level of finance will be forthcoming. The model then proceeeds to the next year. 9. Because of prevailing uncertainties, the model was used to project three alternative scenarios: a base, optimistic, and pessimistic case. These are explained in Chapter VII of the main text. The resulting projections are shown in tables 3-5 of this Annex. PANAMA Tnble 1: Macroeconomic Balances, 19f0 (estima1es) (tillions of 'alboas) Export Expeoditure Production Factors Institutions Price Capital Final Financial Gross Receipts AGE H.M. CON EGW B/RE O.S. CFZ Intermediate Investment Wages Profits Depr. Tot Private Govt. Diff. CAT ROW IP IG SF De-and DOM FOR Output PRODUCTION 1. Agriculture 30.1 214.4 - - - - 17.1 261.6 202.1 13.2 0 13.8 244.8 - - 473.9 735.5 2. Mining and Manufacture 83.4 287.0 130.3 92.7 49.9 283.7 37.5 964.5 810.9 13.2 0 7.0 268.6 40.6 24.4 1164.7 2129.2 3. Construction - - 20.1 - - - - 20.1 - - - - - 319.1 183.9 503.0 523.1 4. EGOTC 43.5 178.2 21.7 46.4 12.5 132.1 17.1 451.5 208.0 65.9 - - - - - 273.9 725.4 5. Banking/ Real Estate - 44.3 - - 25.0 261.6 41.3 372.2 239.2 13.2 - - - - - 252.4 624.6 6. Other Services - 10.0 43.5 11.7 25.0 10.0 17.1 117.3 820.2 352.8 - - - - - 1173.0 1290.3 7. Colon Free Zonefa 17.1 28.2 43.5 11.7 12.5 17.1 40.7 170.8 - - - 1038.4 - - 1038.4 1209.2 IntenRediate 174.1 762.1 259.1 162.5 124.9 704.5 170.8 2358.0 2280.4 458.3 -O 20.8 1551.8 359.7 208.3 4879.3 7237.3 Investment Income -99.5 260.0 2107.3 2267.8 FACTORS Wages/Profits 297.5 247.7 242.2 421.7 458.4 304.0 783.5 2755.0 0 2755.0 Depreciation 26.8 22.3 21.8 38.0 41.3 27.4 70.7 248.3 248.3 324.3 270.0 264.0 459.7 499.7 331.4 854.2 3003.3 3003.3 INSTITUTIONS Private 27550. 248.3 3003.3 197.0 3200.3 Government Transfers - - - - - - - - 71.1 71.1 .on tax revenue - - - - - 254.4 - 254.4 -20.8 233.6 Direct tax - - - - - - - - 240.6 240.6 V-A - 88.6 - - - - - 88.6 88.6 V-A (imports) 12.6 53.5 - 5.5 - - - 71.6 11.4 5.6 88.6 Import/export 11.1 47.4 - 4.8 - - - 63.3 12.6 10.1 5.0 91.0 Soc. Sec. 219.1 219.1 Cov. Rev Total 23.7 189.5 - 10.3 - 254.4 - 477.9 1032.6 ROH 213.4 907.6 - 92.9 - - 184.2 1398.1 2267.8 58.4 - 194.7 95.1 289.8 4014.1 DIRECT INPUTS 561.4 1367.1 264.0 562.9 499.7 585.8 1038.4 4879.3 575.9 314.0 CAPITAL Savings private 501.3 322.9 -59.2 765.0 Savings government 117.3 -30.9 227.6 314.0 SavLngs foreign 271.3 FINANCIAL Domestic 189.1 102.9 292.0. Foreign 168.4 168.4 GROSS OUTPUT 735.5 2129.2 523.1 725.4 624.6 1290.3 1209.2 7237.3 2267.8 2755.0 248.3 3003.3 3200.3 1032.6 0 0 4014.1 .765.0 314.0 271.3 292.0 168.4 DIMC/b.d 07/19/84 -134- Table 2 .: SIM ED SCMATIC OF ODEL DEBT I LABOR. SUPPLY/DEMAND CONSbMPTIoN PUBLIC PRIVATE RS P DEKAND GROSS DUCTION IMPORT DEMD PRICES MORT IeoRT -FACTOR I PRICES VALUE ADDED LABOR DEMAND - - CEAGE IN LABOR SUPPLY CMCPTE CURRET ACCOUtT COMT OPERATING SULUS CONSOLIDATED PUBLIC SECTOR MM= GOVT. DEBT - 135 - Table 3: BASE CASE PROJECTIONS, 1980-1989 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 Account National Accounts US- su1T1o`c(in constant 1980 prices) GDP et market prices 3505.4 3vi86.8 3859.3 3865.0 3776.1 3756.3 3837.1 3977.6 4126.3 4249.7 Consumption, private 22806 2272.7 2229.0 2256.8 2241.7 2253.9 2278.6 2361.7 2449.8 2530.2 Consuoption, government 458.3 477.1 565.0 568.4 542.8 486.0 495.8 515.7 536.5 558.0 Investment, private 575.9 707.5 493.1 566.2 487.3 463.0 460.2 467.1 476.4 488.4 Investment, government 314.0 359.4 428.3 353.5 281.3 256.5 263.4 266.1 268.7 271.5 Annual Real Growth Rates (Percent per f anum) GDP a/ 5.1 4.6 0.1 -2.3 -0.5 2.1 3.6 3.7 2.9 Agriculture 2.5 0.9 3.0 -1.4 0.3 2.1 2.7 2.8 1.9 Industry 0.0 3.2 -2.8 -1.5 -O.4 1.9 3.1 3.5 0.5 Construction 12.4 6.1 -16.7 -19.2 -9.2 -0.2 0.9 1.2 1.6 Utilities and transport 0.5 3.6 -0.7 -2.4 -1.8 1.3 3.8 3.9 2.8 Financial services 0.3 3.0 1.9 -1.8 -1.3 1.3 4.3 4.4 3.8 Commerce 1.0 10.0 5.8 -1.4 -2.5 1.6 4.1 4.1 3.8 Other services 13.8 6.7 1.9 1.1 3.3 3.7 3.9 3.9 3.8 Consumption 0.3 1.6 1.1 -1.4 -1.6 1.2 3.7 3.7 3.4 Investment 19.9 -4.2 -9.9 -16.4 -6.3 0.5 1.3 1.6 1.9 Export GNFS 7.1 8.1 3.4 2.3 3.4 3.9 3.9 3.9 1.6 Import GNFS 7.0 -2.0 -0.7 -3.6 -0.4 2.1 3.1 3.2 1.6 Balance of Payments (US$ millions in current prices) Export GNFS 1564.4 1631.0 1677.0 1686.5 1777.5 1987.1 2079.9 2355.3 2468.2 2957.4 Import GNFS 1687.8 1809.4 1713.2 1604.4 1570.6 1667.5 1745.7 1972.3 2031,2 2485.7 Resouzce balance -123.4 -178.4 -36.2 82.1 206.9 319.6 334.2 383.0 436.9 471.7 Net factor payments -160.5 -215.2 -313.3 -263.1 -291.7 .-294.1 300.6 -311.2 -325.7 -341.4 Net transfers 12.4 29.1 30.1 32.0 33.1 35.7 35.7 38.9 42.4 46.2 Current account -271.2 0364.5 -319.3 -149.0 -51.8 60.9 69.3 110.7 153.6 176.6 Net MLT foreign borrowing 231.8 172.8 502.8 312.6 275.1 199.6 228.4 226.1 224.8 240.5 Gross borrowing requirement 196.7 221.5 454.9 264.1 226.8 149.0 175.2 174.2 160.1 178.8 Other capital flows b/ 39.4 191.7 -183.5 -163.6 -223.3 -260.5 -297.7 -336.8 -378.4 -417.1 Government Sector (US$ millions in current prices) Current revenue 1032.6 1178.4 1294.2 1386.8 1408.5 1474.3 1565.2 1733.0 1920.6 2111.1 Current expenditure 915.3 1029.9 1277.5 1260.9 1316,6 1318.5 1417.5 1553.4 1707.4 1878.4 Savings 117.3 148.6 16.7 125.9 91.9 155.8 147.,7 179.6 213.2 232.7 Capital expenditures 314.0 370.1 471.6 390.3 380.7 304.8 322.8 349.8 379.3 411.5 Consolidated deficit 196.7 221.5 554.9 264.1 226.8 149.0 175.2 170.2 166.1 178.8 Employment (thousands) Employment n.a n.a 561.1 565.1 558.3 553.6 558.6 569.3 580.5 589.3 Active labor force 609.0 615.0 621.0 627.0 648.9 671.6 694.4 718.1 742.5 767.0 Unemployment rate (percent) n.a n.a 9.6 9.8 13.9 17.5 19.5 20.7 21.8 23.1 a/ The model produces output for years beginning in 1980. Therefore, growth rates from 1979 to 1980 are not calculated. b/ Including errors and omissions. - 136 - Table 4: OPrIMISTIC CASE PRaECINS, 1980-1989 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 Azcamt National Acooumts US$ million (in astant 1980 prices) GDP at nrket prices 3505.4 3686.8 3859.3 3865.7 3812.3 3817.3 4151.2 4620.9 4993.3 5399.3 CcisumptIon, private 3380.6 2272.7 2229.0 2256.9 2260.8 2288.2 2524.3 2905.4 3134.3 3383.4 msumrption, goverrmt 458.3 477.1 565.0 568.4 542.8 486.0 503.4 539.3 578.0 619.6 Investment, private 575.9 707.5 593.1 566.2 487.2 493.2 566.1 630.3 683.4 743.6 Lwvestnnt, goverrment 314.0 359.4 428.3 353.5 281.3 256.5 274.9 289.8 305.8 '322.8 Amal Real Growth Rates (Percent per anns) CUP a/ 5.1 4.6 0.1 -1.3 0.1 8.7 11.3 8.0 8.1 Agriculture 2.5 0.9 3.2 -1.1 0.5 6.0 7.2 5.7 5.8 Industry 0.0 3.2 -2.8 -1.0 0.1 8.6 11.4 7.3 7.4 Construction 12.4 6.1 -16.7 -19.2 -5.7 12.3 12.4 12.5 12.6 UJtilties ar1 transport 0.5 3.6 -0.7 -1.7 -1.1 9.7 14.1 8.4 8.4 Financial services 0.3 3.0 1.9 -0.8 -0.6 10.9 16.2 9.3 9.3 Comrce 1.0 10.0 5.8 -0.8 -2.0 9.2 13.7 8.7 8.7 Other services 13.8 6.7 1.9 2.9 3.4 7.2 7.4 7.1 7.1 Casuption 0.3 1.6 1.1 -0.7 -1.0 9.1 13.7 7.7 7.8 Investnent 19.9 -4.2 -9.9 -16.4 -2.5 12.3 9.4 7.4 7.8 Export ' (FS 7.1 B.1 3.4 3.4 3.4 6.9 7.0 7.0 7.0 Tiport WS 7.0 -2.0 -0.7 -3.1 0.7 8.8 9.4 6.1 6.2 Balance of Payments (US$ miiHons in anrrent prices) Thirort (NFS 1687.7 1809.4 1713.1 1604.8 1580.3 1688.0 1895.2 2274.9 2647.2 3084.3 Export GoFS 1564.4 1630.9 1676.9 1687.0 1802.0 2)15.1 2171.2 2531.5 2953.0 3446.6 Resource balmace -123.3 -178.4 -36.1 82.1 222.5 317.1 275.9 256.5 305.7 362.2 Net factor paynents -160.5 -215.2 -313.2 -263.0 -291.7 -293.1 -296.6 -294.4 -303.5 -309.9 Net transfers 12.7 29.1 30.1 31.9 33.0 35,6 35.6 38.9 42.4 46.2 Oirrent balance -271.1 -364.5 -319.2 148.8 -36.1 59.6 15.0 1.0 44.6 98.5 Net MLT foreiga bon rg 231.8 172.8 502.8 312.6 275.6 178.5 128.5 183.1 144.9 91.3 Gross borrowing requireanpt 196.7 221.5 454.9 264.4 217.3 127.9 75.2 127.2 86.2 30.4 Othr capital flas b/ 39.4 191.7 -183.5 -163.6 -223.3 -238.1 -140.6 -184.2 -189.6 -189.8 Goverrment Sector (US$ milians in current prices) Current revenu 1032.6 1178.5 1294.2 1386.9 1418.0 1494.3 1687.9 1830.1 2103.6 2419.8 QTrrait ependiture 915.3 1029.9 1277.5 1260.9 1316.6 1317.3 1424.2 1571.0 1751.6 1951.7 Savings 117.3 148.6 16.7 126.0 101.4 177.0 263.7 259.1 352.0 468.1 Capital exitures 314.0 370.1 471.6 390.3 318.7 304.9 338.9 386.3 438.2 498.5 Consolidated deficit 196.7 221.5 454.9 264.4 217.3 127.9 75.2 127.2 86.2 30.4 Ea lo t (thousands) %ploynent n.a n.a 561.1 565.1 560.4 556a7 587.1 631.9 665.5 701.7 Labor force 609.0 615.0 621.0 627.0 648.9 671.6 694.4 718.1 724.5 767.0 tkalaym-t rate (percent) n.a n.a 9.6 9.8 13.6 17.1 15.4 12.0 10.3 8.5 a/ Ihe mndel produes output for years beginming in 1980. Toserefore, growth rates from 1979 to 1980 are not calailated. b/ I Uding errors and aoissimns. - 137 - Table 5: PESS1=C CAS RWXJECTICNS, 1980-1989 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 National kc.m ts TJS$ million (in constant 1980 prices) G)P at nurket prices 3505.4 3686.8 3859.3 3863.6 3741.7 3627.7 3636.9 3674.0 3744.3 3816.8 Contmption, private 2280.6 2278.7 2229.0 2256.0 2223.5 2183.3 2170.4 2196.3 2242.4 2290.0 Costmptio, governt 458.3 477.1 565.0 568.4 542.8 486.0 496.2 501.1 505.8 510.7 inveetnent, private 575.9 707.5 593.1 566.2 487.3 438.6 394.7 355.3 355,4 355.6 Investment, goverrment 314.0 359.4 428.3 353.5 281.3 256.5 263.4 266.1 268.7. 271.5 Armal Peal Growth Rates ( Pbreen per am) GDP a/ 5.1 4.6 0.1 -3.1 -3.0 0.2 1.0 1.9 1.9 Agrilculture 2.5 0.9 2.9 -1.6 -0.5 10 1.4 1.7 1.7 Irxltry 0.0 3.2 -2.9 -2.0 -2.3 0.2 1.0 1.9 1.9 Coistnucticu 12.4 6.1 -16.7 -19.2 -12.1 -5.8 -5.5 0.0 0.0 Utilities gid transprt 0.5 3.6 -0.8 -3.1 -4.0 -0.4 1.0 2.0 2.0 Financal services 0.3 3.0 1.9 -2.6 -3.9 -0.6 1.0 2.0 2.0 Comerce 1.0 10.0 5.8 -1.9 -4.3 0.0 0.8 1.5 1.5 Other services 13.8 6.7 1.9 -0.6 -0.3 2.1 2.2 2.4 2.4 Qxunvticui 0.3 1.6 1.0 -2.0 -3.5 -0.1 1.1 1.8 1.9 Investment 19.9 -4.2 -9.9 -16.4 -9.5 -5.3 -5.5 0.4 0.4 Export GNFS 7.1 8.1 3.3 0.7 0.5 2.2 2.2 2.3 2.3 Isport MIFS 7.0 -2.0 -0.8 -4.2 -2.7 -0.3 0,0 1.7 1.0 Balance of Payments (US$ millions in anrrent prices) iaport (PS 1687.7 1809.4 1713.1 1603.7 1561.3 1618.3 1653.6 1813.7 2023.4 2258.1 Export GNFS 1564.4 1630.9 1676.9 1685.1 1753.4 1904.3 1961.9 2186.1 2436.7 2716.6 Pescurce balance -123.3 -178.4 -36.1 81.3 192.0 286.0 308.2 372.4 413.3 458.5 Net factor payments -160.5 -215.2 -313.2 -263.0 -291.8 -295.6 -306.8 -326.7 -354.7 -387.3 Net transfers 12.7 29.1 30.1 21.9 33.0 35.6 35.6 38.9 42.4 46.2 Cnrent balance -271.1 -364.5 -319.2 -149.7 -66.6 26.0 37.1 84.5 100.9 117.4 Net MLT foreign borrcixxg 231.8 172.8 502.8 312.6 284.1 238.9 300.6 333.6 361.4 394.0 Ciross borrosN requirxnt 196.7 221.5 454.9 264.4 235.9 188.3 247.3 277.7 302.7 332.4 Other capital flow b/ 39.4 191.7 -193.5 162.8 -217.5 265.0 -337.7 -418.2 462.4 -511.5 Governamet Sector (US$ iillions in acrrent prices) O0rrent reverxi 1032.6 1178.5 1294.2 1386.9 1399.6 1436.3 1499.9 1619.1 1763.9 1922.5 irrent ependiture 915.3 1029.9 1277.5 1260.9 1316.6 1319.8 1424.3 1546.9 1687.2 1843.4 Saving 117.3 148.6 16.7 126.0 83.0 116.5 75.6 72.2 76.7 79.1 Capital expenditures 314.0 370.1 471.6 390.3 318.8 304.9 322.9 349.9 379.4 411.5 Consolidatel deficit 196.7 221.5 454.9 264.4 235.8 188.4 247.3 277.7 2.7 332.4 Faploy-nt (thousads) walsnt n.a n.a 561.1 565,0 556.3 545.6 545.3 547.4 552.2 557.1 labor for-.e 609.0 615.0 621.0 627.0 648.9 671.6 694.4 718.1 742.5 767.0 Unenployment rate (percent) n.a n.a 9.6 9.8 14.2 18.7 21.4 23.7 25.3 27.3 a! The model produes outptt for years beginnirg in 1980. Therefore, growth rates fr-m 1979 to 1980 are not calcalated. b/ T ltding errors and Cra8Sio . - 138 - APPENDIX A: BASIC DATA ACCOUNTS FOR SOCIAL ACCOUNTING MATRIX This appendix summarizes the principal accounts used in developing a consistcent data base for 1980. Adjustments were made to suit changes in definitions in some instances. Table A.1: CONSOLIDATED NATIONAL ACCOUNTS - 1980 (millions of US$ at current prices) 1. Consumption C 2739.8 Private PC (2280.7) Public GC (458.3) 2. Gross Investment I 889.9 3. Exports of goods and services E 1564.4 4. Imports of goods and services M 1687.8 5. Gross domestic product GDPMP 3505.5 (at market prices) 6. Factor service income (net) FSY -147.8 7. Gross national product (5 + 6) GNP 3357.7 8. Indirect taxes less subsidies * 501.8 9. Gross domestic product (5 - 8) GNPFC 3003.7 10. Depreciation 248.3 11. Net domestic product (9 - 10) NNPFC 2755.0 (factor cost) * This figure is obtained from government revenues (1032.6) less direct taxes :social security receipts and transfers (530.8) - see Table A.4. - 139 - Table A,2: PRIVATE SE("TOR a! 1980 - Millions U.S.$ RECEIPTS Factors 2755 Capital depletion 748.3 Net current transfers 197.0 INCOMIE 3200.3 EXPENDITURE S Agriculture 202.1 Manufactuee 810.9 Construction 0 elec., gas, .iater, transp., comm. 208.0 Banking, real estate 239.2 Services 820.2 Private Consumption 2280.4 Direct Tax 240.6 Social Security 219.1 Imports 58.4 Savings Private 501.3 TOTAL 3200.3 a! Includes households and corporations. - 140 Table A.3: PRIVATE SECTOR a/ CAPITAL/FINANCIAL ACCOUNT SOURCES OF FUND Savings Private 501.3 Borrowing Domestic Banking 322.9 Borrowing from Abroad -59.2 765.0 USES Inves tment 575e9 Change in Liquidity 189.1 765,0 a! Excludes consolidated non-financed public sector, i.e., includes households and private corporations. - 141 - Table A.4: OPERATIONS OF THE NON-FINANCIAL PUBLIC SECTOR 1980 - MILLION U.S.$ REVENUE Indirect Taxes 268.2 exports tax (12.6) import, tax (78.4) V'-A tax (177.2) Direct Taxes 240.6 Social Security 219.1 Transfers from rest of world 71.1 Non tax government revenues 254.4 Export subsidy (CAT) -20.8 1032.6 EXPENDITURE Goods, services, investment expenditure 718.3 Transfers (Soc. Sec.) 197.0 Government savings 117.3 1032 . 6 142 - Table A.5: GOVERNMENT (CENTRAL) - CAPITAL/FINANCIAL ACCOUNT SOURCBS OF FUNDS Saving government 117.3 Borrowing domestic banking -30.9 Borrowing from abroad 227.6 314.0 USE OF FUNDS Investment 314.0 - 143 - Table A.6: INVESTMENT 1980 - MILLION U.S.$ Private 575.9 Domes Lic (359.7) Foreign (216.2) GCv' rnipe nt 314.0 Domestic (208.3) Foreign (105.7) 889.9 Savivigs Private 501.3 Savings Government 117.3 Savings Foreign 271.3 889.9 - 144 - Table A.7: BALANCE OF PAYMENTS 1980 Million RD$ Exports Merchandise 526 Transportation 396.2 Investment income 2107.3 Services 462.5 Colon Free Zone (218.9) Rest of World (243.6) Other 179.7 Transfers 71.1 Deficit 271.3 4014.1 Imports Merchandise 1342.3 Freight and Insurance 161.4 Investment income 2267.8 Services 63.7 Other 120.5 Transfers 58.4 4014.1 145 - APPENDIX B: FORMAL STATEMENT OF MACRO MODEL rhis appendix gives a list of principal equations and the variables tised in the model. EXPORTS Constant $ by commodity Xi= Xi (-) (1 + GXi) i = 1, e..., 9 Current $ by commodity EX =X. XPIi i = 1, . ,. 9 Constant $ by sector 10 XGk XMAT X k = 1,6., 7 Current $ by sector 10 EXGk = XMATk EXPi k 1,.e, 7 i-I Exports Goods 9 EG= . EXP i=1 - 146 - Exports Total EXP = EG + INDTXE + INVIC + GTROW + SSEXP IMPORTS Price indices by sector in current $ 6 MPISk Z MMATik MPIRi k = 1, .., 9 Imports by sector in constant $ MPRk- MPRk GROP k = 1, re 7 Imports of capital goods in constant $ MPR. - MPRi (-) (1 + GMPRV i 8. 9 Imports by sector in current $ MPRVk = MPRk MPISk k 1, ..., 5 Imports by commodity in constant $ 6 M. MAT MPR k 6 1, ..., 6 I. ik k Tr1 TDotal imparts of goods $ -147- 9 IMPS = E IMP, i=1 Imports Total MP = IMPS + INVM + TPRW CONSUMPTION Goverrmnent constant/current GCi GCi (-) (1 + GGCi) i = 1,. e 7 CGCi = GCi PSi i = 1, ..ex 7 Total CGCT - ICGC. Government and private ci= PCi + GCi i = 1, .e*, 4 INVESTMEINT Domestic Private constant/current IPDi- IPDi (-) (1 + GIPD1i) i = 1, .., 7 CIPD IPD= PSi i 1,..., 7 Domestic Government constant/current IGi IGi (-) ( + GIGi) i= 1, ..., 7 CIDG1 IGDi P i = 1, P.S. 7 - 148 - Imports CM= Mi MPISi i - 8, 9 Total by sector IDi IPDi + IGi 1=1, ., 7 Total 7 CIPT = 1 CIPD + CM8 i=1 1 8 7 CIGT = T GIDG. + CM i. 9 CIT = CIPT + CIGT F INAL DEIAN D FD i= Ci + ID + EXGi i 1, e.. 7 GROSS PRODUCTION 4 GROP. £ A GROP + FDi = 1, . 7 FACTOR PRICES FACP = FACPi (-) (1 + GFACP i) i = 1,e * 7 - 149 - PRICES CLarrent $ 7 PS. E A. . PS. + MPR. MPIS. (1 MT.) + VS, FACFP. (1 + VATC. + DPR.) j + GRC; VALUE ADDED YNETi - VSi FACPi GROPi 1 NET DOMESTIC PRODUCT AT FACTOR COST 7 YNE YNET. 7 TDIF = E (PW. - PS.) XS j=1 NNPFC = YN13 + TDIF 7 DEPR a E DEPR YNET j=1 GNP = NNPFC + DEPR GOP AT FACTOR COST PDPFC = NDPFC + DEPR 150 - HOUSEHOLD INCOME HINC NNPFC + DEPR + GTPS Disposable Income HINCD = HINC (1 - DT) Household Saving SH = S.HIND Social Security SSP = SSC. HINC Expenditure on goods PCV = HINC - DT. HINC - S. HIND - S. SSC HINC - INVD - PT ROW Base Demand PCVO Z PCB PS. i=1 i Demand by Category (Sector) in Constant Pesos PCi PCB1 + SHSi (PCV PCVo)/PSi 7 GOVERNMENT REVENUE - CURRENT PESOS Import Taxes 7 INDTXM = E MDVT. MPIS. MPR. +M MDV +g MDVT8 j=1 J 3 Export Tariff INDTXE = XT EG Value Added Taxes 7 VATX = E VATC YNET. I-1 i l Indirect Taxes INDTX = INDTXM + INDTXE + VATX Non Tax Govern-ment Revenue 7 NTGREV= E GRC. GROP. j=1 J Direct Taxes DRTX = DT HNC + SSC HINC + NT GREV Export Price Differential 7 EXPDIF - XDI 1=1 I - 152 - Total Revenue GREV INDTX + DRTX + EXPDIF GOVERNMENT EXPENDITURE - CURRENT $ Consumption Goods and Services 7 CGC = 1 CGC. Transfers GT = GTIV + GTPS Total GEXD = CGC + GT Government Saving SAVG = GREV - GEXD Consolidated Public Sector Expenditure CPSEXP = GEXD + CIGT Surplus OVCSP = GREV - CPSEXP Foreign Saving SF = MP - EXP - 153 - Private Saving SAVP = S HINCD SAVINGS Total SSS = SAVP + SAVG + SAVF Gross National Saving GNS = SAVP + SAVG + NTFSY + NTCTR CURRENT ACCOUNT IN CURRENT U.S.$ Factor Service Payments FSP - INTMLT + INTSTP + DIIP + WR1PMP + OTHFSP Factor Service Receipts FSR = INTRES + INTSTR + WRKRMR + OTHRSR, Interest on Reserves INTRES = i * RESLEV (-) Exports of Goods and Services EXPGS = EXPGNF + FSR Imports of Goods and Services 154 - -vPGS = IMPGNF + FSP Current Balance CURBAL = EXPGS - IMPGS + NETCTR MEDIUM AND LONG-TERM DEBT Net disbursements NETMLT = DBTMLT - AMTMLT Debt Service DSMLT = AMMLT + INTMLT Debt Outstanding DODALT = DODMLT (-) + DBTMLT - AMTMLT Debt Outstanding Including tlndisbursed DOUMLT = DOUMLT (-) + COMMLT - AMTMLT Undisbursed UNDISB = DOUMLT - DODMIT Debt Service Ratio DSR DSML3T/FXPGS * 100 - 155 CAPITAL ACCOUNT Reserve Level RESLEV = M/12 * IMPGS Change in Reserves CHGRES = - (RESLEV - RESLEV (-)J Net Available Capital NETFLW = DBTGRT + NETDFI + NETMLT + SHTERM + NETIMF + CAPNEI + CHRES Additional Capital Requirement by Goverfnent GAPFIL - OVCSE - NETFLW E24PLOYMENT Labor Force LABOR = LABOR (-) (1 + GLAB) Emnployment by Sector EMPLOYi = EMPLOYi (-) (1 + ELASi GRSi) i=1, *.., 7 Total Employment 7 EMPLOY - MPWYi i=1 Unemployment Rate UNEMPL (1 - EMPLOY)/LABOR * 100 PANAMA STRUCTURAL CHANGE AND GROWTH PROSPECTS PUBLIC INVESTMENT - 157 - ANNEX II PUBLIC INVESTMENT Overview 1. The preparation of the public investment program in Panama is the responsibility of the Ministry of Planning and Economic Policy (MIPPE). This Ministry, and not that of Finance, also produces and monitors the current budget. The investment budgets are prepared with a reasonable standard of professional competence, and the institutional framework for the formulation of a coherent investment program is therefore in place. General development policy objectives are detailed on a sector by sector basis, and che total investment requirement for each sector determined accordingly. Estimates of financial requirements are prepared on a project by project basis by each Ministry or agency, but the overall responsibility for matching them with available financial resources belongs to MIPPE. Considerable importance is now attached to the calculation of economic rates of return, and the staff of MIPPE are well versed in the techniques of project appraisal. Controls have been tightened, and rare departures from the MIPPE budget must be approved by the Economic Cabinet, chaired by the Minister of the Presidency. These controls are applied not only to individual Ministries but also to each autonomous entity, while all public borrowing (short, medium and long-term) is now monitored by, and subject to the approval of, the new Director of Public Credit, also in MIPPE. The control of actual expenditures is the responsibility of the Directorate of Public Accounting in the Office of the Comptroller General. Individual expenditures are approved by this Office in coordination with MIPPE and the National Bank. 2. These procedures, which were strengthened in 1983, represent a considerable improvement on past practices. Previously, even if the Government's development program had been theoretically sound, control of investment expenditures was often poor in practice. A number of projects were initiated without economic justification, while others proceeded outside the budgetary process. These latter were frequently financed from the current savings of the entity concerned or from borrowed commercial funds. Improperly controlled expenditures still occur, but they are relatively rare. 3. During 1983, the Authorities prepared a three-year investment program covering the period 1983-85. Annual expenditures, at about B/.390 million, were to average about 8.5 percent of GDP compared to an average of 13 percent between 1975 and 1982. Detailed capital budgets are elaborated a:nually and incorporated into the general three year program. The 1983 capital budaet, at B/.389.5 million, involved a reduction of 26 percent from 1982 and 29 percent from the amount originally requested from the different Ministries and agencies. 4. Total actual expenditure in 1983 was B/.404 million, some 4 percent over the budget. There were, however, considerable clanges in the sectoral distribution of expenditures compared to those in the original 1983-85 Investment Program (Table 1). In particular, outlays on infrastructure increased from B/.145.7 million to about B/.200 million, due principally to: (i) an unbudgetted - 158 - expenditure of B/.25 million on a road between the Fortuna Dam site and Chiriqui Grande in Bocas del Toro Province; and (ii) an excess over expenditures budgetted by MIPPE of B/.38 million by the electricity company, IRHE. The budget was revised in September; most of these excesses were taken into account and other expenditures were reduced to keep the overall budgetted total the same. In the event, however, estImated actual outlays proved greater still. In the case of IRHE, this was due to the continuing influence of the cost overrun of the economically justified Fortuna hydroelectric project; the road expenditure, however, represents a breakdown of budgetary control procedures (para. 15). 5. The increased infrastructure expenditure was mostly balanced by reduced social sector outlays, especially in health and housing. In the latter, net lending by the National Mortgage Bank was only B/.2.6 million, while B/.23 million, or two thirds of the sector's total, was spent by the Social Security Agency in continuing the initial part of its Collective Housing Program. 6. In the directly productive sectors of agriculture and industry, net lending to the private sector by the Development Finance Company COFINA and the Agricultural Development Bank (BDA) fell sharply from originally budgetted levels; the demand for credit was reduced greatly by the recession. However, this was offset to a substantial extent by the capital expenditures of the Agricultural Marketing Institute (IMA) mainly in maintaining stocks of surplus rice (B/.28 million) and by repayment of previously incurred loan and commercial guarantees by COFINA (B/.1l million). 159 - Table 1: COMPARISON OF PROGRAMMED, BUDGETTED AND ACTUAL CAPITAL EXPENDITURES BY SECTOR, 1983 b/ (Millions of Balboas) Original Revised Actually Sector Budget a/ Percent Budget b/ Percent Spent c/ Percent Productive Sectors 96.6 24.8 49.6 12.7 81.6 20.2 Agriculture 68.9 17.7 42.5 10.9 57.7 14.3 Industry and Commerce 27.7 7.1 7.1 1.8 23.9d1 59 Social Sectors 115.6 29.7 100.6 25.9 80.4 18.5 Education 18.3 4.7 L6.0 4.1 18.5 4.6 Health 32.3 8.3 44.3 11.4 23.0 5.7 Housing 65.0 16.7 40.3 10.4 33.0 8.2 Infrastructure 145.7 37.4 200.9 51.7 203.7 50.4 Energy 78.3 20.1 107.7 27.7 116.0 28.7 Telecommunication 12.1 3.1 16.6 4.3 5.5 1.4 Transport 55.3 14.2 76.6 19.7 82.2 20.3 Multisectoral 31.6 8.1 38.4 9.9 44.3 10.9 TOTAL 389.5 100.0 389.5 100.0 404.1 100.0 a/ In accordance with the agreed 1983-85 Investmr-nt Program. 1/ As of September,1983. c/ Preliminary Estimate. dI Including the repayment of B/.10.9 million in loan and commercial guarantees by COFINA. Sources: MIPPE and World Bank estimates. 7. The detailed budget for 1984 was revised twice since the 1983-85 Investment Program was first prepared. The first, at the end of 1983, involved modifications in sectoral distribution of expenditures without changing the programmed outlays of B/.388 million. Those alterations made the 1984 budget more closely consistent with the revised 1983 sectoral distribuition. The second, in June 1984, reduced the total expected outlay to B/.360 million, a prudent adjustment in view of the depressive effects of the continued economic recession on anticipated public sector revenues, and severe limits on credit availability. The original and revised budgets are shown in the following table. - 160 - Table 2: REVISIONS OF THE 1984 PUBLIC INVESTMENT BUDGET (Millions of Balboas) Original Investment Revised Investment Budget 1984 a/ Budget 1984 Sector Amount Percent Amount Percent Productive Agriculture and Rural Development 77.0 19.8 45.4 12.6 Commerce and Industry 20.2 5.2 15.9 4.4 Subtotal 97.2 25.0 61.3 17.0 Infrastructure Energy 89.8 23.1 97.6 27.1 Transport 66.5 17.1 76.0 21.1 Telecommunications 10.9 2.8 14a1 3.9 Subtotal 167.2 43.0 187.7 52.0 Social Sector Education 14.8 3.8 19.3 5.4 Health 29.5 7.6 23.8 6.6 Housing 58.7 15.1 42.0 11.7 Subtotal 103.0 26.5 85.1 23.6 Other Tourism 0.5 0.1 0.5 0.2 Multisectoral and Community Projects 20.8 5.4 26.0 7.2 Subtotal 21.3 5.5 26.5 7.2 TOTAL 388.7 100.0 360.5 100.0 a/ In accordance with the agreed 198,-85 Investment Program. Sources: MIPPE and World Bank estimates. Public Capital Expenditure by Sector (i Agricult ..L e 8. Public capital outlays in agriculture have been substantially reduced in recent years. Between 1974 and 1979 total expenditures, Including the Agricultural Development Bank's (BDA) net lending, averaged over B/.80 million per year; this was the period of the construction of the La Victoria Sugar complex, the establishment of the Marketing Institute (IMA), heavy net lending to asentamientos by the BDA, and a considerable increase in the interventionist activities of the Agriculture Ministry itself (See Chapter IV). From 1980 onwards, as no new entities were created, and a period of more prudent fiscal policy began, capital expenditures were less than B/.50 million per year. - 161 - 9. In 1984, the total sectoral budgetted expenditure of B/.45.4 million includes B/.6.5 million in compensation for the nationalization, in 1975, of the Citricos del Chiriqui property owned by the United States interests (Chapter IV). Of the remainder, B/.17.5 million, or 45 percent, consists of net lending by the BDA. It is doubtful if this figure,5 which represents a 30 percent reduction from that originally budgetted, was fully spent: the recession has reduced the demand for credit; the Authorities used credit restrictions, rather than the price mechanism, in their attempt to reduce surplus rice acreage; and the BDA, due to internal problems, experienced delays in the drawing down of funds from international development institutions. 10. The remaining B/.21.4 million was spread over 18 projects, with an average expenditure of less than B/.1.2 million in each. The most significant of these projects, many of which are supported by multilateral and bilateral aid agencies are: (i) expenditures related to sanitary requirements for beef exports (B/.5.7 million); (ii) agricultural research and development, including seeds (B/.4.7 million); (iii) Canal watershed protection (B/.2.8 million); development of indigenous areas (B/.2.8 million); capital expenditures by the Cooperative Federation (B/.2.0 million) and by the asentamientos (B/.1.2 million); and extension services by the Agriculture Ministry (B/.1.4 million). While these outlays may be individually small, they represent some seven percent of total public capital expenditures; the return on similar activities in the past, measured by increased agricultural output consistent with the country's comparative advantages, has been very low (Chapter IV). It is also noteworthy that only small amounts are directed towards forestry and erosion control (B/.0.5 million) and fresh or saltwater fish farming (B/.0.4 million), both of which are areas of considerable potential for Panama. Finally the budget also includes some B/.8.5 million in expenditures that will not recur: the Citricos del Chiriqui compensation and some B/.1.5 million to complete construction of grain elevators for IMA partly financed by USAID. (ii) Commerce and Industry 11. During the 1970's, public investment in this sector was dominated by the- construction of a B/.95 million cement plant (Cemento Bayano), the only directly owmed stat: enterprise in the industrial sector. Investment costs were about B/.300 per ton of capacity which compares unfavorably with B/.70-190/ton plants of a larger size in other Latin American countries. Equipment was purchased oversize to allow low cost expansion at a later date; the construction contract was, moreover, turnkey which added about 20 percent to the investment cost. The kilns are oil fired; energy and fuel costs are over 30 percent of total production expenses. Although the plant was meant mostly for export, its high production costs ruled this out. The domestic price of cement rose from about B/.50 per ton in the mid 1970's to B/.120 per ton by mid 1983, some four times the FOB world price. The domestic market was divided by pre-arrangement with roughly half allocated to Cemento Bayano and the rest to a private company, Cemento Panama, even less efficient than the state owned plant. This arrangement ceased at the end of 1983. Both companies are currently investing in lower cost, coal fired klinker production which is due to come on stream at the end of 1984. This will hopefully permit a reduction in the domestic price of cement to the benefit of the construction industry. However, domestic cement production capacity will likely remain well in excess of consumption for the remainder of this decade. - 162 - 12. After Cemento Bayano, most public resources in the sector were directed into net lending by the state owned Development Finance Corporation, COFINA. From 1978 through 1982, COFINA's total capital expenditures were B/.94 million (B3.19 million per year), of which B/.89.3 million, or 95 percent, were in net lending to the private sector. A review of COFINA's accounts in November 1982, revealed that the DFC was bankrupt. Losses of B/.37 million had been accrued in bad debts and unpaid interest, wiping out the equity of B/.20 million. New lending was suspended and attempts are currently underway to restructure the DFC. 13. After these difficult experiences, the Authorities have limited their capital expenditures in the sector to about B/.16 million per year. In 1984, this was spread over 14 different projects and establishments; the most significant outlays were P/.3.6 million for development of the Colon Free Zone and B/1.r5 million to finance expansion of the National Investment Council. The budget also included some E/.5 million to be on-lent by COFINA from World Bank and USAID sources; because of delays in the DFC's restructuring, it is doubtful whether this has been fully spent. (iii) Transport 14. At B/.76.0 mllion, or 2'. percent of the total transport is second only to energy in the 1984 investment budget. B/.63 million (83 percent) was to be spent on roads, and B/.13 million (17 percent) on ports. Several of the proposed new road investments are of doubtful priority while others are shortly due for completion. There should therefore be ample scope for reduced expenditures in the road subsector in 1985 and 1986. 15. From 1982 through 1984, a total of some B/.55 million has been spent on a paved road between the La Fortuna Dam site and the Trans-Isthmian Oil Pipeline. The Government entered into a contractual obligation with the Oil Pipeline Company to build the road, with the Company contributing B/.17 million. Of the Government's share of B/.38 million, B3.25 million was spent in 1983, and B/.13 million is budgetted to comtplete the project in 1984. There are two major problems concerning this project: first, the design standards are too high for the likely forecast traffic; and second, the cost (at more than B/.1 million per kilometer) is very high even for the specified standards. Moreover, the substantial amount spent in 1983 represents a breakdown of budgetary control procedures. B/.9 million was budgetted by MIPPE in that year; this was less than the amount originally programmed in order to spread the cost of the road over a longer period. The extra expenditure of B/.16 million came from a special overdraft account at the National Bank, drawings from which were not given prior approval by either MIPPE or the Office of the Comptroller General. 16. Another major expenditure, the urban road improvements ("Pasos elevados") in Panama City was advanced in 1984 and B/.11 million were allocated for this purpose. Although the Bank has still to receive the corresponding feasibility studies, 1/ it is likely that this project may be economically 1/ The Ministry of Public Works has agreed to supply the Bank with technical and economic feasibility studies of any road projects costing more than B/.1 million each. This agreement is a covenant in the Road Rehabilitation Project Loan Agreement (Ln 2020-PAN). - 163 - viable since it will relieve substantial congestion-related delays to vehicles in the urban area. The construction was financed largely through suppliers credits. 17. A further B/.5 million of road improvements to the Panamerican and Trans-Isthmian Highways have also been finished, but the widening of the Arraijan-Rodman road near Panama City was postponed. 18. The expenditures in 1984 on these completed, or virtually completed, projects total about B/.33.5 million. Much of this could be saved in future years rather than spent on new projects; the greater part of those in the Ministry of Public Works pipeline are of less urgent priority. For example, the Ministry's Road Development Program for the Province of Bocas del Toro includes the following projects: (a) the Fortuna-Punta Pena-Chiriqui Grande road discussed above and completed in 1984; (b) Punta Pena-Casa de Maquina (70 km, B/.31.2 million) is a continuation of (a) above which will link Punta Pena with the Machine House of the proposed Hydroelectric Project, Changuinola I. According to a consultants' report, prepared in mid 1982, the project would have an internal rate of return of about 24 percent; lhowever, this assumed that the Changuinola I project, postponed until at least 1992, would commence construction in the late 1980s. Detailed design of the road project was completed by September 1983, and construction was due to start in 1984. Although the road was not included in the MIPPE budget, it was apparently promised during the election campaign; (c) the further extension of the road from Casa de Maquina to Almirante (8 km, B/.3 million) is planned for construction as part of the Changuinola Hydroelectric Project and would be under IRHE's responsibilicy; (d) Almirante-town of Changuinola (35 km, B/.9 million) was included in the Inter-American Development Bank's fourth highway project as part of the Development Roads Plan. 13.4 km at the Changuinola end was dropped from the project for lack of counterpart funds, but the remaining 21.6 km are being constructed at a cost of B/.5.2 million. The rest will be proposed for inclusion in IDB's fifth highway project. 19,. These projects were initiated at a time of considerably greater fiscal flexibility than is likely to prevail in the coming years. Under the new - 164 - conditions of sharply restricted public capital expenditure, they shotuld be carefully re-examined before funds are allocated to them. This examination should take full account of the need to gear infrastructure expenditures to the effort of increasing exports' of goods and services. Few of these will be generated in the remoter areas of the interior. It may be anticipated that in a relatively short space of time funds will be needed to develop the transport infrastructure in the Reverted Areas and other parts of the Trans-Isthmian corridor between Panama City and Colon. The opportunity cost of further major road developments in the interior should be viewed as probably having to forego these investments, which would have unfortunate consequences for the capacity to export and generate employment in the Metropolitan Area. Considerable sums have been spent on feeder and penetration highways in the last 10 years, and a well developed network of all weather roads covering most of the populated interior has resulted. By far the greater part of the limited funds available for investment in new transport infrastructure should now be concentrated in the Metropolitan Area, and expenditures elsewhere largely restricted to rehabilitation and maintenance. 20. Expenditures on ports, which together with highways account for practically all transport investments in 1984, were concentrated heavily on improvements in Cristobal and Coco Solo to the north of Colon. These projects, which the World Bank supports, will help to improve the country's potential as an exporter of both goods and services. In 1984, B/.11.7 anid B/.0.5 million have been allocated respectively to these projects by the National Port Authority. They are designed to enhance Panama's ability to handle container traffic efficiently, and hence help to reverse the loss of transshipment business in recent years to neighboring ports (Chapter VI). In addition, investments will be needed to upgrade container harndling at the port of Balboa. (iv) Energy 21. Capital outlays in energy continue to be dominated by the La Fortuna Hydroelectric Project which will have a total cost of over B/.500 million including interest during construction and a cost overrun of more than 70 percent. Despite this overrun, the project remains economically viable and will likely result in savings of some B/.60 million per year in imported petroleum. Expenditures related to Fortuna in 1983 were mainly responsible for IRHE's estimated excess of B/.13 million over originally budgetted capital expenditures in that year. In the 1984 budget, B/.73.7 million was allocated to the project, 76 percent of IRHE's total capital expenditure and over one-fifth of the entire public sector capital budget. Although the project is due for completion in late 1984, some capital expenditures will be incurred in 1985 in settlement of final accounts. - 165 - Table 3: IRHE: SUMMARY OF INVESTMENT PROGRAM 1984-89 (Millions of Balboas) Accumulated Capital Expenditures Budgeted Capital Expenditures 1975-1983a/ 1984 b/ 1985c/ 1986c/ 1987c/ 1988c./ 1989C/ On-going projects 691.1 100.1 63.8 16.6 - - - Of Which: Fortuna I (428.4) (73.7) (10.2) (-) (-) (-3 (-) Future projects 3.3 1.0 29.9 78.2 114.7 139.6 210.1 TOTAL 694.4 101.1 103.9 94.8 114.7 139.6 210.1 a/ Cash expenditures. -/ MIPPE Budget. c/ IRHE Program. Sources: Comptroller General, MIPPE and IRHE. 23. Other than Fortuna I the principal ongoing projects are improvements to the power transmission and distribution systems, supported by the World Bank, and a series of investments in the system of substations. The bulk of proposed new investment from 1985 onwards is in further hydroelectric projects; the first is Fortuna II (the raising of the dam) which is estimated to cost some B/.73 million including a proposed US$60 million World Bank loan and is due for completion in 1988. Fortuna I and II shculd permit 100 percent reliance on hydropower until 1990. The 'r-2truction cf Changuinola was to have been timed to enable this to continue. However, such a large project--it would likely cost more than Fortuna--would exceed both the Government's and IRHE's financing abilities in the 1980's. It was therefore decided to postpone Changuinola and replace it with smaller, financially more manageable power plants. The tentative construction program to commence at the end of 1985 after a series of studies, is the following: - 166 - Table 4: IRHE: CONSTRUCTION PROGRAM BY PROJECT Project Cost a/ Capacity Commence (B/.m,) (MW) Operations in (a) Firm construction program Fortuna 1 512.3 300 1984 Interconnection w/Cos-a Rica 8.0 - 1986 Fortuna II 73.9 - 1988 Bayano Hydro, Unit 3 12.5 75 1990 (b) Tentative Construction Program c/ Esti-Barrigon Hydroelectric 242.3 b/ 120 1990 (c) Later Construction Program c/ Colon and Fixed Steam Plant 35.2 150 1993 Changuinola I Hydro 49.1 300 1996 Teribe I Hydro - 237 2000 Tabarana Hydro - 220 2002 TOTAL 933.3 1,402 a/ For up to 1989 only. b/ Including the cost of a transmission line from David to Panama City. c/ To be delivered in accordance with study results. Sources: Comptroller General, MIPPE, and IRHE. 23. Total budgetted capital expenditures between 1984 and 1989 are B/.764.2 million, equivalent to B/.127.4 million per year in current prices and including interest during construction. For a period of tight fiscal constraints, this is a very heavy program of investments indeed, exceeding by 65 percent the annual amount spent during the 1975-83 period, which included Fortuna with its massive cost overruns. Although IRUE expects to finance a higher proportion of its investment from internally generated resources (65 percent from 1985 to 1989 compared to 46 percent between 1980 and 1983), the remainder will have to be met from further borrowing. Moreover, it is likely, in the light of previous experience, that the cost of the new projects will exceed the budgetted amounts by wide margins. Alternative ways of meeting demand in the 1990's should be thoroughly explored. (v) Telecommunications 24. INTEL, the Government-owned telephone corporation, has spent a total of B/.142 million, equivalent to some BI.16 million per year, on capital expenditures from 1975 through 1983. Most of this has been concentrated on: (a) extension of telephone services to the rural areas; (b) direct dialing services between - 167 - metropolitan and rural areas; (c) installation of an international exchange which permits INTEL to handle international services previously provided by private corporations; and (d) a national and international telex service to replace the telegraphic facilities previously provided by the National Directorate of Telecommunications. The investments have mostly been financed from internally generated resources. The remaining financing has come from suppliers' credits. Although Panama's national and international telephone services are still of a high standard compared to most countries of the Region, there is some evidence of deterioration compared to the quality of service a decade ago. Excellent communications are essential for Panama with its reliance on internationally- oriented services. A thorough study of INTEL could dstermine the extent to which current costs could be reduced without compromising service quality, as well as reviewing the entity's investment program for the remainder of the 1980's. (vi) The Social Sectors 25. Expenditure on health in Panama has traditionally been a high official priority. As well as heavy capital outlays, operating costs per patient are atnong the highest in the developing world. This expenditure has resulted in substantial improvements in health indicators since 1970, as the following table shows. Table 5: PUBLIC HEALTH INDICATORS 1970 1982 Number of inhabitants per doctor 1,674 1,007 Number of inhabitants per nurse 1,417 1,088 Number of inhabitants per hospital bed 288 271 Number of hospitals a/ 24 47 Number of other care centers 155 597 Infant mortality rate (per 1,000) 40.5 20.0 a/ Including integrated medical centers. Source- Comptroller General. 26. Over one-third of the total investments in the sector, which have averaged some B/.30 million per year since 1976, have been carried out through the water and sewerage agency, IDAAN. The agency's total spending of some B/.60 million from 1978 through 1983, has been related to a national sanitation program with the objective of eventually providing safe drinking water to at least 85 percent of the total population by 1985. The program aims at extending water and sewerage services to poor urban areas to meet the requirements of rural-urban migration; increasing services in rural areas; and providing adequate services to the industrial and commercial sectors. IDAAN has been partly supported by two World Bank loans which had important institution building components. - 168 - The Government has iriproved sectoral planning, as well as strengthening IDAAN's organization, management, operations and project preparation capabilities. Up to the late 1970's, water rates were not adequately adjusted, and much of the water used was not paid for. The Government, from 1976 onwards, took action on water pricing, so that a reasonable proportion (about 60 percent between 1978 and 1982) of new works could be financed from water sales, while maintaining cross-subsidization from high to low income consumers. 27. IDAAN plans total investments of B/4139 million during the period 1983-88. About 30 percent of this would come from IBRD and IDB lending, 55 percent from internally generated funds, and the remainder from Government equity contributions. This investment is modest in relation to subsectoral requirements and goals. These include: maintaining existing systems in good repair and expanding services to the 40,000 estimated annual additions to the urban population; expanding sewerage to reach a 90 percent service level in Panama's 15 largest urban centers and providing at least primary sewage treatment (oxidation ponids) in those urban centers where environmental pollution is most serious; providing adequate and safe water supply services through public systems to 85 percent of the rural population; and providing safe sewerage disposal facilities by individual means of disposal (septic tanks, latrines) to 90 percent of the rural population. Other investments, such as new sewerage treatment facilities for Panama City, would require much heavier outlays, and have been postponed until the above priorities have beern met. 28. Remaining sectoral investment is the responsibility of the Social Security Agency (CSS) and the Ministry of Health (MH). The former made some very substantial investments in new hospitals in the 1960's and early 1970's, mostly financed by suppliers' credits and by commercial bank borrowing. Since the mid - 1970's, however, the CSS has not invested significant sums in this sector. Average annual outlays of about B/.6 million have been concentrated on improving facilities in existing hospitals in major population centers, and in the non-Metropolitan Area where the CSS's health services are integrated with those of the MH. The CSS has started building a new hospital in a poor area of the Province of Panama (San Miguelito). B/.3.5 million were budgetted for this in 1984. Estimated total cost is some B/.18 million. The MH is not contemplating any major new investments in the short to medium-term. In a manner typical of recent years, its total outlay in the 1984 capital budget, of B/.5.4 million, is divided between 11 small projects. Other than the CSS's new facility at 'an Miguelito, new hospital const:uction does not therefore feature large in sectoral investment plans. Rather, the Authorities are studying ways of reducing unit operating costs in health and achieving better utilization of the already well developed physical infrastructure. 29. While the private market for middle and higher income housing works well, public sector provision of low cost shelter has been consistently impeded by major institutional problems for more than a decade. In 1970, the Government initiated an ambitious program for low cost housinig construction. After disappointingly slow progress in executing the program, the Government created two housing institutions in 1973: the Ministry of Housing (MIVI) and its financial arm, the National Mortgage Bank (BHN). Financed partly by contributions from international lending organizations, by the CSS, and by external commercial borrowing, MIVI/BHN housing schemes accelerated markedly from 1975 onwards: between then and 1978, a total of nearly B/.150 million (B/.37 million per year) - 169 6 was spent on low cost hous½ag projects, compared with only B/.4.3 million per year in the period 1971-1974. From 1979 onwards, however, the BHN encountered increasingly severe financial constraints: loan recovery rates were poor, the debt servicing burden was high, direct Government subsidies were reduced, and it became increasingly difficult for the institution to raise commercial credit. From 1979 through 1983, average annual outlavs fell by 64 percent to about B/.13.5 million per year. Practically the only significant sources of new funds for the BHN in these years were the CSS and USAID. 30. Partly in order to fill the gap created by the slowdown in the MIVI/BHN program, the CSS initiated its own housing construction program (the Programa Colectivo de Vivienda or PCV). The PCV, which first came to the notice of the central planning authorities in mid-1981, was very ambitious, involving the construction of some 8,000 units over a two year period at a cost of B/.220 million-2/ It went beyond the CSS's normal program of mortgage finance for its members in that it involved the agency as direct promoter of the venture. The scheme exceeded the CSS's management capabilities; by July 1982, when the project was halted, B/.90 million had already been spent and only some 2,500 units had been completed or started. According to a subsequent investigation by the CSS, a further amount of up to B/.30 million will have to be written off to complete units already started and to meet other obligations connected with the project, signifying an average unit cost of B/.48,000, 80 percent over the original estimate. These large cost overruns provoked a national scandals and the CSS management resigned in July 1982, amidst accusations of corruption. As part of its structural adjustment program, the Government declared that the PCV would not be reinitiated, and the CSS would restrict its participation in housing to the granting of mortgages to contributors and providing secondary mortgage finance through the BHN. 31. In 1982 and 1983, BHN/MIVI capital expenditures were some B/.28 million. Nearly all of this was financed by the USAID, the World Bank (the housing component of the Colon Urban Development project) and by contributions from the CSS. During this period, a number of important institutional reforms were achieved: project selection and monitoring procedures have been improved and interest rates on new BHN loans increased to 12 percent. However, the management capacity of both BHN and MIVI remains weak, while the former's financial position, already precarious, has been threatened still further by the loss of the thirteenth month "third part" contribution from the CSS (Chapter III). While the Authorities are aware of the shortage of adequate low cost shelter, both lack of financing and sectoral institutional weaknesses will likely limit spending to amounts similar to those of recent years. In the 1984 budget, B/.42 million were allocated to housing; of this B/.12 million was spent by the CSS in completing the PCV, B/.14 million by MIVI in the housing component of the Colon Urban Development Project, and B/.16 million by MIVI through the BHN in low cost housing projects financed by USAID. 32. Public education benefitted from very strong Government support in the early 1970's. The number of students enrolled in public schools at all 2/ The average cost of B/.27,500 per unit was to include the cost of urbanization and development of site services. - 170 - educational levels increased by nearly 60 percent between 1970 and 1974; particularly striking were the gains at secondary and university level of 57 percent and 154 percent respectively. At the same time there were improvements in the quality of education, as suggested by changes in the ratio of students per teacher and teachers per school (See Table 6). Primary education has been extended to even the poorest areas, and secondary, university, and adult literacy education have been expanded in both scope and depth. Table 6: PUBLIC EDUCATION INDICATORS Primary Secondary University 1960 1973 1982 1960 1973 1982 1960 1973 1982 Enrollment as % of relevant age group 85 93 96 24 36 37 n.a. n.a. n.a. Students/Teachers 30 30 27 23 20 19 27 27 14 Teachers/Schoolsa/ 4.1 5.0 5.3 13.4 23.8 28.4 96 335 786 Current cost per Student W. -/: Current prices 49 92 209 141 182 315 286 652 1,000 Constant 1960 prices c/ 49 70 82 141 138 124 286 493 394 a! Includes private schools. b/ Not including maintenance loans to students. c/ Deflated by the Consumer Price Index. Source: 7 710.7 Private Consumptlon 1010.0 1077.2 1078.2 1108.0 1229.3 1196.5 1200.3 1284.9 1431.7 1520.8 1532.4 1474.6 1495.5 1410.8 Investment 567.0 694.5 796.9 826.4 783.2 758.0 751.5 521.9 651,7 701.0 819.5 922.6 887.8 784.8 Fixed Investment 523.6 601.8 746.0 747.4 668.8 721.8 736.2 489.1 606.3 599.7 730.6 852.2 890.6 784.8 Changes in Stock 43.4 92.7 50.9 79.0 114.4 36.2 15.3 32.8 45.4 101.3 88.9 70.4 -2,8 - Domestic SavIngs 499.0 608.7 678.1 730.8 596,5 617.1 611.2 449.1 537.9 497.9 726.8 802.0 816.8 851.4 Net Factor Income -30.1 -42.2 -52.3 -40.9 -47.2 -25.5 -79.9 -87.6 -54.1 -81.3 -105.3 -151.6 -254.5 -301.6 Net Current Transfers 6.8 7.3 7.6 -5.9 -4.8 -6.0 -4.5 -2.5 -2.2 13.1 10.3 22.5 25.5 2G.2 Natlonal Savings 475.7 573.8 633.4 684.0 544.5 585.6 526.8 379.0 481.6 429,7 631.8 672,9 387.8 578.0 Deflators (1978-1ID) Gross Domestic Product 59.07 60.54 63.19 72.27 77.22 84.01 87.55 92.65 100.00 109.29 120.64 126.10 132.22 134.52 Imports GNFS 50.27 50.54 52.49 59.42 83.16 95.10 97.93 104.13 100.00 121.35 126.90 139.01 141.42 142.98 Exports GNFS 54.62 57.55 61.41 67.21 90.63 101.23 100.52 99.89 100,00 115.55 111.96 120.32 115.08 117.38 Total Expenditure 56.80 57.16 59.05 64.96 75.26 82.52 87.35 94.55 100.00 112.06 127.75 134.64 145.04 147.07 Total Cbnsumption 59.72 60.52 63.74 68.39 77.31 86.39 89.64 94.70 100.00 112.06 130.69 138.22 147.59 149.46 Government Consumption 54.16 56.38 60.76 65.82 76.39 81.67 86.76 89.12 100.00 114.15 129.38 133.73 150.43 138.79 Private Consumption 61.27 61.75 64.77 69.28 77.61 88.10 90.71 96.71 100.00 111.38 131.13 140.65 146.30 154.62 Total Investment 50.14 50.38 50.51 58.77 71.00 74.85 82.34 94.06 100.00 112.08 120.38 126.52 138.96 140.62 Fixed Investment 50.02 50.90 49.89 58.18 69.53 74.19 82.67 91.17 100.00 110.26 118.60 126.72 138.30 140.62 Change In Stocks 51.61 47.03 59.53 64.43 79.63 88.12 66.67 137.20 100,00 122.90 134.98 124.43 286.70 140.62 Exchange Rate 100.00 10(.00 100.00 100.00 100.00 100.03 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 a/ Preliminary Table 3: PANAMA - BALANCE OF PAYMENTS SUMMARY, 1975-1983 (US$ M; I I Ions) ~ ' a/ ACCOUNT 1975 1976 1977 1978 1979 1980 1981 1982 1983 Current Acoount Exports of Goods and Non Factor Services 865.4 837.8 921.1 986.4 1124.8 1567.2 1690,5 1782.7 18.J3. 0 Merchandise (folb) 330.8 270.6 287.0 385.8 453.0 526.0 493.5 488.2 436.7 Non Factor Services 534.6 567.2 634.1 600.6 671.8 1041.2 1197.0 1294.5 1368.3 Imports of Gbods and Non Factor Services 999.4 975.2 996.9 1100.2 1371.3 1684.8 1858.2 1883.2 1709.7 Merchandise (fob) 821.9 784.3 784.2 857.7 1078.4 1342.3 1469.5 1496.3 1353.0 Non Factor Services 177.5 190.9 212.7 242.5 292.9 342.5 388.7 386.9 356.7 Resource Balance -134.0 -137.4 -75.8 -113.8 -246,5 -117,6 -167,7 -100.5 95.3 Net FactorIncome -21.8 -53.8 -61.4 -54.1 -107,8 -160.5 -275.6 -372.1 -320.1 ReceIpts 373.3 411.2 482.2 794.6 1435,0 2107.3 878.7 941.3 1269D8 Payments 395.1 465.0 543.6 848.7 1542.8 2267.8 1154.3 1313.4 1589.8 1 Net Current Transfers -.5.0 -3.9 -2.3 -2.2 14.3 12.7 29.1 35.1 39.6 00 Receipts 23.7 27.3 32.5 36.4 57,0 71.1 84.8 99,0 111.0 Payments 28.7 31.2 34.8 38.6 42,7 58.4 55.7 71.4 Current Account Balance -160.8 -195.1 -139.5 -170,1 -340.0 265.4 -414.2 -437.e -185,2 CapItal Account Net Borrowing of the Non Financial Public Sector 79.2 29W 2 237.5 486.5 194.3 223.8 203.9 509.1 295.6 Inflows 106.7 332.1 317.0 1021.3 438.2 487.1 328.8 730.2 363.2 Outflows 27.5 41.": 79.5 534.8 243.9 263.3 124.9 221.1 67.6 Net Borrowing of the Official Banks bJ n.a. nJa. n.a. -82.8 55.9 39.1 -36.9 3.0 -88.2 Net Monetary Movaments of the Private Banks 175.7 30.7 4e9 -15.4 84,3 85.2 126.4 -91.5 5,5 Net Private Borrowing by Agents Outside the Banking Sector n.a. n.a. n.a, 12.2 30.9 9.1 124.0 90.3 -99.2 Direct Private Investment (Net) 7.6 10.8 10.9 -2.5 58.0 54.8 53.0 53.4 52.1 Capital Account (Net) 262.5 331.7 253.3 398.0 423.4 412,0 470.4 564.3 165.8 LnkidentifIed Private Capital Flows(Net) and Net Errors and Onmmisslons -101.7 -136.6 -113.8 -227.9 -83.4 -146,6 -56.2 -126.8 19.4 a/ Preliminary. b/ Principal ly National Bank of Panama. I. HUMAN RESOURCES Table 1.1: POPULATION BY METROPOLITAN AREA AND PROVINCE, 1911-2000 (Thousands) METROPOL I TAN AREA a/ PROVINCES YEAR TOTAL NUMBER PERCENT - (000) OF TOTAL BOCAS DEL COCLE COLON CHIRIQUI DARIEN HERRERA LOS SANTOS PANAMA VERAGUAS TORO 1911 336.7 94.0 27.9 22.7 35.0 32.1 63.4 9.0 23.0 30.1 61.9 59.6 1920 446.1 156.3 35.0 27.2 45.2 58.3 76.5 10.7 29.0 34.6 98.0 66.6 1930 467.5 171.3 36.6 15.9 48.2 57.2 76.9 13.4 31.0 41.2 114.1 69.5 1940 622.6 251.4 40.4 16.5 55.7 78.1 111.2 14.9 38.1 49.6 173.3 85.0 1950 805.3 338.4 42.0 22.4 73.1 90.1 138.1 14.7 50.1 61.4 248.3 107.0 1960 1,075.5 477.8 44.4 32.6 93.2 105.4 188.4 19.7 61.7 70.6 372.4 131.7 1970 b/ 1,487.3 734.4 49.4 46.7 123.4 138.7 245.9 25.2 76.0 75.4 595.7 160.3 1975 1,703.8 873.9 51.3 53.9 135.9 154.6 278.1 27.3 82.9 77.8 719.3 174.0 1980 1,956.4 1,046.1 53.5 63.2 147.2 17r.9 310.8 31.2 90.3 79.1 867.2 188.5 00 1981 C/ 1,998.8 1,072.9 53.7 65.2 149.2 182.4 317.5 32.1 91.9 79.4 890.5 191,6 1982 2,043.7 1,103.8 54.0 67.2 151.4 189.8 324.4 33.0 93.5 79.7 914.0 194.7 1983 2,088.7 1,127,2 54.0 69.2 153.9 189.3 331.5 34.0 95.1 80.0 937.9 197.8 1984 2,134.2 1,155.1 54.1 71.2 156.5 192.9 338.6 35.0 96.6 80.3 962.2 200.9 1985 2,180.5 1,183.5 54.3 73.3 159.1 196.4 345.8 36.1 98.2 80.6 987.1 203.9 1990 2,417.9 1,330.0 55.0 83.9 172.5 214.9 382.3 42.2 105.8 82.3 1,115.1 218.9 1995 2,659.0 1,484.6 55.8 95.4 182.3 234.3 418.1 49.5 112.7 83.2 1,250.3 233.2 2000 2,893.3 1,642.7 56.8 107.8 188.9 255.2 450.2 57.2 117.8 82.8 1,387.5 245.9 a/ Provinces of Panama and Colon. b/ Data for 1911 through 1960 are from the National Census of 1980. Data from 1970 through 2000 are from the Comptroller General. Therefore, there may be slight inconsistencies from 1960 to 1970. c/ Figures for 1981 through 2000 are projections. Source: Comptroller General, and National Census of 1980. Table 1.2: BIRIH AM MEALITrY RAtES, 1970-82 BDA3M a/ - ERAL RABIES (IMR 1 YEAR) R S _ b/_- TOM PER 1,000 PER 1,000 PER 1,000 PER 1, 000 TIrAL PER 1,000 I IIAN]S c/ TU[AL AAB3lANTS C TOAL LIVE BRlIS TOTAL LIVE BIRZMS INIABTANIS c/ 1970 53,287 37.1 10,225 7.1 2,156 40.5 72 1.4 43,062 30.0 1971 54,948 37.2 9,857 6.7 2,064 37.6 63 1.1 45,091 30.5 1972 54,910 36.0 9,076 6.0 1,848 33.6 61 1.1 45,834 30.0 1973 52,091 33.2 9,161 5.8 1,737 33.3 54 1.0 42,390 27.4 1974 52,772 32.6 9,001 5.6 1,663 31.5 43 0.8 43,771 27.0 1 i-A 1975 53,790 32.3 8,683 5.2 1,669 31.0 50 0.9 45,107 27.1 1976 53,002 30.8 8,564 5.0 1,951 36.8 51 1.0 44,438 25.8 1977 52,722 29.8 8,036 4.5 1,470 27.9 36 0.7 44,686 25.3 1978 53,040 29.1 7,555 4.1 1,294 24.4 48 0.9 45,485 25.0 1979 52,919 28.1 8,192 4.4 1,308 24.7 37 0.7 44S727 23.7 1980 52,626 27.1 7,959 4.1 1,144 21.7 37 0.7 44,667 23.0 1981 53,873 27.0 7,976 4.0 1,199 22.3 33 0.6 45,897 23.0 1982 54,491 26.7 8,142 4.0 1,090 20.0 49 0.9 46,349 22.7 a/ Excludes fetal deaths. b/ Refers to deaths due to prgacy, labor and pcstnatal coplicationS. c/ ed on population estlmates as of July 1. _/ Preldnary. Source: CoMtroller General. - 188 - Table 1.3: FERTILITY RATES, 1960-2025 PERIOD TOTAL FERTILITY RATE a/ 1960-65 5.9 b/ 1965-70 5.6 1970-75 4.9 1975-80 4.1 1980-85 3.5 C/ 1985-90 3.1 1990-95 2.8 1995-2000 2.5 2000-05 2.2 2005-10 2.1 2010-15 2.1 2015-20 2.1 2020-25 2.1 a/ Number of children that would be born per woman if she were to live to the end of her childbearing years and bear children at each age in accord with prevailing age-specific fertility rates. b/ Figures are annual averages for the five-year period. c/ Figures for 1980-85 and later years are projections. Sources: For 1960-80 figures: United Nations Population Division, 1983 Revision, Preliminary. For 1980-2025 figures: World Bank Population, Health and Nutrition Department projections. Page 1 of 2 Table 1.4: PUBLIC AND PRIVATE SCHOOLS, TEACHERS AND STUDENTS, 1970-1983 (Number) SPECIAL, SUPPLE- YEAR CATEGORY TOTAL PRE-PRDMARY PRIMARY a/ SECONDARY UNIVERSITY b/ MENTARY AND NON- UNIVERSITY 1970 Schools 2,150 130 1,784 192 2 42 Teachers 13,419 218 8,717 3,784 448 252 Students 353,730 6,921 255,287 78,466 8,947 4,109 1971 Schools 2,381 155 1,971 207 2 46 Teachers 15,610 257 10,004 4,460 566 323 Students 401,886 7,764 287,565 86,795 15,074 4,688 1972 Schools 2,562 170 2,127 .213 2 50 Teachers 17,030 329 10,689 5,066 606 340 Students 439,068 9,259 305,651 99,063 18,280 6,815 1973 Schools 2,576 185 2,116 227 2 46 Teachers 17,407 376 10,578 5,426 670 357 Students 470,184 10,249 319,124 111,929 21,761 7,121 1974 Schools 2,656 216 2,168 225 2 45 Teachers 18,152 389 10,731 5,803 843 386 Students 494,771 11,374 328,460 123,310 24,204 7,423 1975 Schools 2,654 224 2,171 209 2 48 Teachers 18,624 4i8 11,185 5,670 869 482 Students 516,128 12,398 342,043 125,745 26,219 9,723 1976 Schools 2,651 223 2,178 196 2 52 Teachers 19,639 375 11,943 5,701 1,082 538 Students 536,565 12,554 353,646 129,579 30,545 10,241 1977 Schools 2,658 220 2,193 192 2 51 Teachers 20,559 419 12,509 5,882 1,160 589 Students 554,344 13,177 357,753 137,185 35,144 11,085 Page 2 of 2 Table 1.4: PUBLIC AND PRIVATE SCHOOLS, TEACHERS AND STUDENTS, 1970-83 (Number) SPECIAL, SUPPLE- YEAR CATEGORY TOTAL PRE-PRIMARY PRIMARY a/ SECONDARY UNIVERSITY b/ MENTARY AND NON- UNIVERSITY 1978 Schools 2,812 301 2,260 193 2 56 Teachers 21,598 651 13,032 5,975 1,278 662 Students 571,701 15,702 368,738 139,323 34,966 12,972 1979 Schools 2,937 407 2,281 198 2 49 Teachers 22,563 730 13,730 6,202 1,310 635 Students 581,266 18,677 372,823 137,816 37,885 14,065 1980 Schools 3,027 365 2,306 301 2 53 Teachers 23,195 645 12,361 8,138 1,360 691 Students 582,700 18,136 337,522 171,273 40,446 15,323 1981 Schools 3,184 498 2,316 307 2 61 Teachers 24,299 851 12,598 8,610 1,586 654 Students 585,802 22,616 335,239 .174,078 42,816 ' 1,053 1982 Schools 3,288 539 2,347 313 3 78- Teachers 25,151 966 12,853 8,928 1,705 699 Students 596,390 24,656 336,740 174,791 46,189 14,014 1983 c/ Schools 3,391 612 2,376 321 3 79 Teachers 25,122 1,016 12,613 9,249 1,683 561 Students 593,613 24,963 335,950 176,916 45,824 9,960 a/ In 1975 the public school system began a major change. Whereas tne earlier system had been 1-6-6-4 (pre- primary, primary, secondary, university), there was a shift towards "basic cycle' schools, which have 9 grades and "medium" schools, which have 3 grades. Since the system is being implemented gradually, the old statistical format has been retained, although after 1974 stome students in "primary" schools are really in grades 7-9 of the "basic cycle" schools. b/ Includes public nursing schools, teachers and students. c/ Preliminary. Source: Comptroller General. Table 1.5: POPULATION 15 YEARS OF AGE AND OVER, ECONT(MICALLY ACTIVE POPULATION AND EMPLOYMENT, 1963-83 TOTAL POPULATION ECONOMtICALLY ACrIVE EMPLOYED UNEMLGYED NON-ECONOMICALLY 15 YEARS AND ABOVE POPULATION ACTIVE (0)NUMBER PARTICIPATION ( )NUMBER RATE() (0) RE(%) (000) (%) 1963 620.0 360.0 58.1 339.0 21.0 5.8 260.0 1965 659.0 379.0 57.5 350.0 29.0 7.6 280.0 1970 762.7 467.5 61.3 434.3 33.2 7.1 295.2 1971 786.8 477.6 60.7 441.3 36.3 7.6 309.2 1972 811.7 488.6 60.2 455.4 33.2 6.8 323.1 1973 835.8 499.0 59.7 464.1 34.9 7.0 336.8 1974 869.5 517.4 59.5 487.4 30.0 5.8 352.1 1975 896.1 492.8 55.0 461.2 31.6 6.4 403.3 1976 917.9 505.3 55.0 471.6 33.7 6.7 412.6 1977 950.5 515.5 54.2 470.5 45.0 8.7 435.0 1978 973.7 543.1 55.8 499.3 43.8 8.1 430.7 1979 1,002.9 577e8 57.6 527.0 50.7 8.8 425.2 1982 a/ 1,140.6 612.6 53.7 561.1 51.5 2.4 523.1 1983 b/ 1,183.1 661.8 55.9 599.0 62.8 9.5 521.2 Growth Rates 1963-72 3.0 3.5 na. 3.3 5.2 i.i.a. 2.4 (Percent per year) 1973-83 3.5 2.9 n.a. 2.6 6.1 n.a. 4.5 a/ lDta for 1980 and 1981 are not available. bI Preliminary. Source: Comptroller General. Table 1.6: EflM BY SER A) ATREA, 1976-82 (Bs) 1976 1977 1978 1979 19B2 AE BP E (A ) NTf M rA ARA NATFtAL ET AREA NATIONL HUr EAM NATIAL ET AM N4TMNIL Mr AM TCIfAL 471.6 254.4 470.5 256.0 499.3 281.2 527.0 301.8 561.1 311.0 2.9 3.4 Agriculture, sbhing and Uvestock 148.7 24.6 147.7 20.4 144.2 21.6 154.9 25.7 157.4 23.9 1.0 0.5 Miufa£turirg ad )fiMg 48.1 29.0 48.9 32.9 49.5 33.3 54.1 36.9 54.8 34.3 2.2 2.8 Mlctricty, Gw as 1d ter 5.6 4.1 5.7 4.2 7.0 5.3 6.4 4.8 7.7 5.6 5.5 5.3 ConstL ications FiTancial Services a/ b/ n.a. n.a. 9.5 0.1 -0.2 12.2 13.0 7.6 6.6 Ot1x.r Services 6.0 n.a. n.a. 3.4 -0.8 1.2 9.4 10.7 2.3 1.2 Canal Area 2.3 n.a. n.a. -3.8 -3.9 -3.9 -2.3 -2.2 -4.1 -4.1 a/ Includes real estate. / Included under 0tber Services. Sources: Dnptroller General and World Bank estimates. Table 1.13: EMPLOY'ENT ELASTICITIES BY SECTOR, 1960-82 (Elasticity) SECTOR 1960-82 1960-69 1970-82 1970-78 1979-82 Whole Economy 0.46 0.46 0.48 0.40 0.46 Economy less Agriculture 0.73 0.77 0.65 0.70 0.56 Manufacturing Industry 0.63 0.77 0,61 0.18 0.32 Construction 0.89 1.09 0.54 0.17 0.49 Electricity, Gas and Water 0.79 1.14 0.52 0.76 1.52 Transport, Storage and Comrnications 0.61 0.69 0.55 0.61 0.53 Conmerce 0.84 0.86 0.61 1.00 1.00 Financial Services and Real Estate a/ a/ 1.16 1.27 1.85 Other Services b/ 0.79 0.69 0.60 1.40 C/ 0,71 Agriculture, Fishing and Livestock -0.10 -0.02 -0.11 -0.40 0.36 a/ Included under Other Services. bI Includes public administration. c/ Includes the effects of the Emergency Employment Program. Sources: Comptroller General and World Bank estimates. Table 1.14: R4fDY4Wr ELCSM2IES, "R,EIRE?Y c/ AND ACML ?ASF C M (F CREAL VAUE AIME, 1960-1982 'WCpTRVC/ RAM C PERIOD RA CF (GE a/ RAM CF Qqf a/ 3FfMW RATE CF Ga/l a/ QMM CF RFAL OF IAB(R FRCE OF EMPffMMNI mAn b1 CF IWAL VAUE AEUE VAUE AIME 1960 - 1982 3.3 2.9 0.48 6.1 d/ 7.2 1960-1969 2.9 3.6 0.46 8.1 6.5 1970 - 1977 3.2 1.2 0.32 3.8 10.0 1978 - 1982 3.7 3.0 0.65 4.6 d/ 8.6 The EM Less Agqdastvwe 19601-1982 4.1 4,6 0.71 6.5 d/ 5.6 1960 - 1969 4.1 6.4 0.77 8.6 5.3 1970 - 1977 4.1 2.3 0.58 4.0 6.3 1978 - 1982 4.3 3.2 0.62 5.2 d/ 6.9 a/ A1l rates of grwth are In average percat per mum. J Cilated 1 least squares methadd. c R Rate of gr ih reqred to absorb aU additions to the labor force. d/ Adjusted to exclude t1e effects of incorporating tbe Panaa Canal into tbe GDP in 1980. Source: Cbptroller General and %rld Bank estlmates. Table 1.15: EMPLOYMENT BY CATEGORY, 1976-82 TOTAL PULIC SECTOR CANAL AREA EMPLOYEES OF EMPLOYEES OF SELFEPLOYED b/ EMPLOYMENT EMPLOYEES EMPLOYEES PRIVATE COMPANIES COOPERATIVES a/ NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT (000) OF TOTAL (000) OF TOTAL (000) OF TOTAL (000) OF TOTAL (000) OF TOTAL (000) OF TOTAL 1976 471.5 100.0 99.6 21.1 17.5 3.7 174.7 37.1 C/ C/ 179.7 38.1 1977 470.5 100.0 101.9 21.7 18.4 3.7 187.3 39.9 4.5 1.0 158.4 33.7 1978 499.2 100.0 127.2 25.5 18.3 3.6 188.6 37,8 2.6 0.5 162,5 32.6 1979 527.0 100.0 128.1 24.3 17.3 3.3 192.2 36.5 2.7 0.5 186.7 35.4 1982 d/ 561.1 100.0 136.5 24.3 15.5 2.8 216.3 38.5 C/ C/ 192.8 344 a/ Including cammunity orgenizations. b/ IncludIng owners and directors of companies. c/ Included among self-employed. d/ Data for 1980 and 1981 are not available. Source: Comptroller General. Table 1.16: 1FRaFJ) 91 M INDI.CA¶S, 1979-89 N A T I O N A L N E T R O P O L I T A N A R E A Cacy 1 ilWnt 'i al' Uq1o3mlt WAR a For Acti-ve ticxi fql, Rate (Z) Labor Force Active EM22!Ic Fap1cled d Rate (Z) A. W~th labor, wIr rigidtie 1979 a/ 1,003.0 577.8 527.0 50.7 &8 574.3 342.5 301.8 40.7 11.9 1982Wt 1,140.6 612.6 561.1 51.5 8.4 636.0 346.2 311.0 35.2 10.2 1983 El 1,183.1 661.8 599.0 62.8 9.5 661.4 375.8 331.1 44.7 11.9 1984 1,226.8 685.8 604.5 81.3 11.9 687.9 391.5 334.8 56.7 14.5 1985 1,272.1 711.1 614.2 96.9 13.6 715.4 407.1 341.4 65.7 16.1 1986 1,319.0 737.3 626.9 110.4 15.0 744.0 423.4 350.0 73.4 17.3 1987 1,365.2 763.1 641.3 121.8 16.0 773.8 440.4 359.8 80.6 18.3 1988 1,411.6 789.1 656.0 133.1 16.9 804.7 458.0 369.9 88.1 19.2 1989 1,458.2 815.1 671.1 144.0 17.7 836.9 476.2 380.3 95.9 20.2 B. .ttut labr arket rIgities 1979 1,003.0 577.8 527.0 50.7 8.8 574.3 342.5 301.8 40.7 11.9 1982 1,140.6 612.6 561.1 51.5 8.4 636.0 346.2 311.0 35.2 10.2 98I:Žl bJ 661.8 9.0 bt 6.8 b/ 9.5 661.4 375.8 331.1 44.7 11.9 1984 1,226.8 685.8 604.5 81.3 11.9 687.9 391.5 334.8 56.7 14.5 1985 1,272.1 711.1 616.3 94.8 13.3 715.4 407.1 342.5 64.6 15.9 1986 1,319.0 737.3 634.6 102.7 13.9 744.0 423.4 354.4 69.0 16.3 1987 1,365.2 763.1 655.5 107.6 14.1 773.8 440.4 368.0 72.4 16.4 1 1988 1,411.6 789.1 678.4 110.7 14.0 804.7 458.0 382.2 75.8 16.6 ° 1989 1,458.2 815.1 704.5 110.6 13.6 836.9 476.2 396.9 79.3 16.7 af Oe A projectixs assume xmtaxt eq it fides 0.46 for the ezmow as a isole and 0.56 for the *tropolita. Aea. case B asums en1loymst elticit nes rease as foUlim: 1) Natkml: 1985,0.56;1986,0.66;1987,0.66;1988,0.70;1989,0.77. 2) !*UgtCklitaa: 1985,0.66;1986 thrxgh 1989,0.77. both pruJwetmsu asse the fOUudiu eal rates Of grcwth of QW: 1984, 2%; 1985, 3.5%; 1986, 4.5%; 1987-89, 5%. bI ktml flgaes. A Atl induInarT fgwres for ?tj , projeted for Iopltan kAre. Source: lbrld &.k estimtes. - 203 - Table 1,17: COLLECTIVE BARGAINING CONTRACTS, 1979-83 1979 1980 1981 1982 1983 I. Number of Contracts Total number 170 108 46 90 100 Agriculture, forestry, andf isheries 4 3 3 1 1 Mining 0 0 0 0 1 Manufacturing 94 66 14 51 53 Construction 2 0 0 2 4 Commercial--retail, wholesale, hotels, and restaurants 48 34 25 23 31 Financial services 0 0 0 0 0 Transport and communi- cation 9 2 2 7 3 Other services 13 3 2 6 7 II. Average Percentage Wage Increase Total a/ 7 8 7 11 7 Agriculture, forestry and fisheries 3 4 5 6 6 Mining 0 0 0 0 n.a. Manufacturing 7 7 6 8 7 Construction 12 12 7 15 5 Commercial--retail, wholesale, hotels, and res taurants 7 7 6 6 4 Financial services 0 0 0 0 0 Transport and communi- cation 14 13 12 17 11 Other services 9 7 7 9 7 a/ Simple arithmetic average. Source: Ministry of Labor. II. NATIONAL ACCOUNTS I - - Table 2.1: GROSS DISC FMXT AND (I)S DOWSC EXPIDUE, 1970-82 (MILicns of Balboas) 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 Dolstic Factor Incce 889.4 1,001.4 1,094.3 1,258.0 1,436.7 1,609.4 1,709.9 1,776.3 2,101.6 2,391.2 3,038.5 3,316.7 3,665.5 lICYM 511.0 594.0 680.8 762.2 893.1 942.8 1,006.9 1,052.3 1,218.7 1,392.8 1,624.6 1,800.2 2,034.6 Profits 378.4 407.4 413.5 495.8 543.6 666.6 703.0 724.0 882.9 998.4 1,413.9 1,516.5 1,630.9 Csupticx of Fixed Capital 53.0 59.9 67.5 73.2 80.5 91.8 100.4 111.6 134.9 157.3 252.1 279.7 313.7 Indirect Taxs 81.4 91.4 106.0 115.8 138.5 142.5 147.4 183.6 221.7 255.1 269.7 285.4 313.7 less: Subsidies 2.6 0.8 2.9 0.4 1.6 2.9 1.4 1.7 5,7 3.4 1.5 3.8 5.8 GROS DXESrIC dIU= 1,021.2 1,151.9 1,264.9 1,446.6 1,654.1 1,840.8 1,956.3 2,069.8 2,452.5 2,800.2 3,558.8 3,878.0 4,287.1 Publc Cxisumptim 152.3 180.2 226.5 250.1 299.3 353.3 386.1 412.1 482.9 567.2 680.5 812.9 965.3 Privae Cswumtimi 618.8 665.2 698.3 767.6 954.0 1,054.1 1,088.8 1,242.6 1,431.7 1,693.8 2,009.5 2,107.4 2,286.9 Gross Capital Formtim 261.9 3D6.3 372.2 434.8 465.0 535.5 608.6 445.9 606.3 661.2 866.4 1,079.6 1,231.5 Qung in Stocks 22.4 43.6 30.3 50.9 91.1 31.9 10.2 45.o 45.4 124.5 130.5 87.6 -0.1 Eports of Goods and Nox- Factor Servic 388.2 426.4 460.7 528.1 761.8 865.4 837.8 921.1 986.4 1,124.8 1,567.1 1,632.0 1,676.9 Less: laports of Goods and Nan-Factor Services 422.4 469.8 523.1 584.9 917.1 999.4 975.2 996.9 1,100.2 1,371.3 1,685.2 1,841.5 1,873.4 (GM6S DW3ESflC lEYD2TURE 1,021.2 1,151.9 1,264.9 1,446.6 1,654.1 1,840.8 1,956.3 2,069.8 2,452.5 2,800.2 3,558.8 3,878.0 4,287.1 SQcuce: Coptmller (eneral. Table 2.2: DISPOSABLE NATIOHAL INCOME AND ITS ASSIGNMSENT, 1970-82 (Millions of Balboas) 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 a/ Public Consumption 152.3 180.2 226.5 250.1 299.3 353.3 386.1 412.1 482.9 567.2 680.5 812.9 965.3 Private Consumption 618.8 665.2 698.3 767.6 954.0 1,054.1 1,088.1 1,242.6 1,431.7 1,693.8 2,009.5 2,107.4 2,286.9 Savings 168.8 215.4 238.8 303.4 252.2 306.3 311.3 226.2 327.3 274.7 521.0 630.6 629.6 Assignment of Disposable Inoome 939.9 1,060.8 1,163.6 1,321.1 1,505.5 1,713.7 1,786.2 1,880.9 2,241.9 2,535.7 3,211.0 3,550.9 3,881.8 Domestic Factor Income 889.4 1,001.4 1,094.3 1,258.0 1 436.7 1,609.4 1,709.9 1,776.3 2,101,6 2,391.2 3,038.5 3,316.7 3,665.5 Employeest Compensation 511.0 594.0 680.8 762.2 893.1 942.8 1,006.9 1,052.3 1,218.7 1,292.8 1,624.6 1,800.2 2,034.6 Profits 378.4 407.4 413.5 495.8 543.6 666.6 703.0 724.0 882.9 998.4 1,413.9 1,516.5 1,630.9 0 Net Workerst Remittances from Abroad ... ... ... ... ** ...* ... 62.8 58.6 72.1 Net Prop"rly Rents and Prof Its from Abroad -26.5 -29.6 -31.9 -39.1 -54.4 -19.5 -55.5 -63.1 -57.4 -102.8 -172.8 -137.2 -198.9 Indirect Taxes 81.4 91.4 106.0 115.8 138.5 142.5 147.4 183.6 221.7 255.1 269.7 285.4 313.7 Less Subsidies 2.6 0.8 2.9 0.4 1.6 2.9 1.4 1.7 5.7 3.4 1.5 3.8 5.8 Other Transfers from the Rest of the World (Net) -1.8 -1.6 -1.9 -13.2 -13.7 -15.8 -14.2 -14.2 -18.3 -4.4 14.3 31.2 35.2 Disposable Income 939.9 _1060.8 1_t13.6 1,321.1 1,505.5 713.7 1,786.2 J§8809 2,j2419 2,535.7 3,211O0 3,550.9 31881.8 at Preliminary Sourc, Comptroller General. Table 2.3: GROSS DOMESTIC INVESTMENT AND ITS FIMANCIM, 1970-82 (Millions of Balboas) 1970 1971 1972 1973 19 74 1975 1976 19 77 1978 19 79 1980 1981 1982 GROSS DOM4ESTIC INVES7ThENT Gross Fixed Capitol Formation 261.9 306.3 372.2 434.8 465.0 535.5 608.6 445.9 606.3 661.2 866.5 1,079.9 1,231.7 Changes In Stock 22.4 43.6 30.3 50.9 91.1 31.9 10.2 45.0 4 5.4 124.5 120.5 87.6 1. 5 Gross Domestic Investment 284.3 349.9 402.5 485.7 556.1 567.4 618.8 490.9 651.7 iff5,7 9.86.5 1,167.3 1,233.2 FINANCED BY Savings 168.8 215.4 238.8 303.4 252.2 306.3 311.3 226.2 327.3 274.7 469.0 456.1 438.9 Consumpticn of Fixed Capital 53.0 59.9 67.5 73.2 80.5 91.8 100.4 111,6 134.9 157,3 252.1 279.7 313.7 Current Account Deficit 62.5 74.6 96.2 109.1 223.4 169.3 207.1 153.1 189.5 353.7 265.4 431.5 480.6 Financing of Gross Domestic investment 284.3 349.9 402.5 485.7 556.1 567.4 618.8 490.9 651.7 785.%7 986.5 1,167.3 1,233.2 Sources: Comptroller GeneralI and IW. Table 2.4: GROSS DMESTIC PRODUCT AT MARKET PRICES BY SECTOR, 1970-82 (Millions of Balboas) Sector 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 b/ Agriculture, Forestry and Fishing 149.1 164.2 170.9 184.9 184.5 205.6 231.1 263.5 288.5 304.2 320.4 359.3 376.4 Mining and Quarrying 1.9 2.4 2.8 4.0 3.0 3.2 2.9 3.8 4.1 4.4 6.8 8.7 9.3 Manufacturing 127.3 135.9 141.0 161.0 202.0 236.0 217.3 234.0 252.6 293.3 356.0 375.6 397.2 Electricity, Gas and Water 21.8 21.8 20.3 28.1 29.8 41.4 46,9 63.7 82.5 95.0 113.8 142.4 152.6 Construction 68.2 87.4 95.7 125.2 129.2 151.5 164.2 122.6 172.7 194.4 258.4 295,2 380.6 Commroe, Hotels, and Restaurants 161.0 183.6 204.6 236.5 306.6 318.4 333.1 362.3 422.7 493.6 618.2 667.6 679.4 Transport, Warehousing and Communication 61.2 74.0 85.3 96.5 126,7 129.3 151.1 172,4 217.8 263.6 408.2 427.4 496.5 Financial Establishments, Insurance, Real Estate 122.1 138.5 163.1 191.6 203.4 242.7 277.3 306.9 346.5 430,1 503.2 587.4 66&8 Social and Community Services 68.2 80.5 100.0 113.9 129.7 141.0 153.0 164.5 181,2 206.5 246,9 273.1 344.2 o Canal Area Services a/ 75.0 78.7 81.4 90.0 96.5 104.7 108.8 119.6 140.7 158.9 0,0 0.0 0.0 Panama Canal Conmission a/ 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 312.4 330.5 353.2 Less: Inputed Commission of the Banking Sector 10.6 10.6 22.0 25.8 42.2 42.4 55.9 87.9 70.4 141.6 147.5 183.7 240,7 INDUSTRY SUBTOTAL 845.2 956.4 1,043.1 1,205.9 1,369.2 1,531.4 1,629.8 1,725.4 2,038.9 2,302.4 2,996.8 3,283.5 3,6i7.5 Government Services 117.8 132.9 158.3 174.4 212.2 241.8 260.8 277.6 329.7 399.4 446.4 468.3 532.3 Domestic Services 21.3 21.8 21.5 22.1 21.9 23.4 21.1 21.3 26,9 30.3 37.2 42.4 46.2 Plus: Import Duties 36.9 40.8 42.0 44e2 50.8 44.2 44.6 45.5 57H0 68.1 78.4 83.6 91.1 GROSS DOMESTIC PRODUCT AT MARKET PRICES 1,021.2 1,151.9 1,264.9 1,446.6 1,654.1 1,840.8 1,956.3 2,069.8 2,452.5 2,800.2 3,558.8 3878.0 4,287.1 a! In 1980 the Panama Canai Treaties became effective, which Incorporated Canal activities Into the GDP accounts. b/ Preolm;nary Source: Comptroller General. Table 2.5: GROSS DOMESTIC PRODUCT AT WIRKET PRICES BY SECTR, 1970 PRICES, 1970-85 (Milliorns of 1970 Balboas) Sector 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 198i b/ Agriculture, Forestry, and Fishing 149.1 160.7 155.4 157.1 147.9 158.6 167.1 175.5 189.1 181.0 173.7 1881 188.7 194.6 Min!ng and Quarrying 1.9 2.2 2.4 2.9 2.7 2.5 2.2 2.1 2.2 2.4 3.1 3.8 4.1 4.4 Manufacturing 127.3 135.4 141.6 150.5 152.5 147.0 150.7 152.5 154.9 172.0 182.1 176.1 180.3 176.1 Electricity, Gas and Water 21.8 23.8 24.9 31.7 33.1 38.3 42.6 44.0 46.7 52.4 53.5 56.2 99.2 65.1 Construction 68.2 850 87.0 99.6 87.9 96.9 99.6 73.8 102.5 102.4 124.3 128.3 19t.1 114.8 Coimwrce, Hotels and Restaurants 161.0 176.3 185.2 193.3 202.6 191.0 197.9 202.3 219.6 240.9 256.4 252.9 251.1 235.2 Transport, Wai-ehouslng and Coeunications 61.2 69.7 80.5 90.7 118.2 116.0 109.7 121.6 145.1 155.4 207.6 216.5 247.0 307.8 Flnancial Establishments, Insurance and Real Estate 122.1 136.3 150.1 165.7 170.7 178.8 184.2 193.8 199.7 222.9 227.2 243.5 251.4 260.C Social and Comunity Services 68.2 76.2 88.5 92.3 97.3 102.0 105.9 109.9 118.3 127.8 142.6 150.1 161.8 165.1 Servlic to Panama Canal Area a/ 75.0 75.5 74.4 75.1 77.8 74.7 70.0 71.4 74.3 76.4 0.0 0.0 0.0 010 Panama Canal Co isson a 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 175.5 188.4 204.7 175.7 Less: Inputed Comisslon of Banking Sector 10.6 11.4 20.6 24.1 30.5 30.1 33.8 43.6 33.3 56.4 47.2 54.2 67.9 69.7 INDUSTRY SUBTOTAL 845.2 929.7 969.4 1,034.8 1,060.2 1,075.7 1,096.1 1,103.3 1 2i9*1 1,277.2 1,498.8 1,549.7 1,639.5 1,629.9 Governmnt Services 117.8 127.5 138.7 141.5 157,2 169.9 172.1 181.7 187.6 196.5 201.2 222.9 232.1 242.3 Domstic Services 21.3 21.6 21.0 20.6 18.,5 19.2 17.2 16.3 17.6 16.3 17.7 18.5 19.3 19.5 Less: imort lDutles 36.9 40.6 41.6 36.6 27.8 .20.9 21.7 20.1 26.5 26.3 28.1 27.7 28.1 30.7 GROSS DOMESTIC PROCT AT MARKET PRICES 1,021.2 1,119.4 1,170.7 1,233.5 1,263.7 1,285.7 1,307.1 1,321.4 1,450.8 1,516.3 1,745.8 1,818.8 1,919.0 1,922.4 a/ In 1980 the Panama Canal Treaties became effective which Incorporated Caral activities Into the GOP accounts. b/ Preliminary. Source: Comptroller General. Table 2.6: GROSS DOMESTIC PRODUCT AT MARKET PRICES BY SECTOR 1970 PRICEtS, ANNUAL CHANGE, 1971-83 (Annual Percent Change from Previous Year) Sector 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 Agriculture, Fc,rest -y,, and Fishing 7.8 -3.3 1.1 -5.9 7.2 5.4 5.0 7.7 -4.3 -4.0 8.3 0.3 3.1 Mining and Quarrying 15.8 9.1 20.8 -6.9 -7.4 -12.0 -4.5 4.8 9.1 29.2 22.6 7.9 7.3 1hnufacturing 6.4 4.6 6.3 1.3 -3.6 2.5 1.2 1.6 11.0 5.9 -3.3 2.4 -2,3 Electricity, Gas and Water 9.2 4.6 27.3 4.4 15.7 11.2 3.3 6.1 12.2 2.1 5.1 5.3 10.0 Construction 24.6 2.4 14.5 -11.7 10.2 2.8 -25.9 38.9 -0.1 21.4 3.2 24.0 -27.8 Cowere, Hiteis and Restaurants 9.5 5.0 4.4 4.8 -5.7 3.6 2.2 8.6 9.7 6.4 -1.4 -0.7 -6,3 Transport, Warehousing and Counicat lon 13.9 15.5 12.7 30.3 -1.9 -5.4 10.8 19.3 7.1 33.6 4.3 14.1 24,6 Financlai Establishments, Insurance and Real Estate 11.6 10.1 10.4 3.0 4.7 3.0 5.2 3.0 11.6 1.9 7.2 3.2 3.7 SDclal and Oammunity Services 11.7 16.1 4.3 5.4 4.8 3.8 3.8 7.6 8.0 11.6 5.3 *7.8 2.0 Services to the Panama Canal Araa a/ * 0.7 -1.5 0.9 3.6 -4.0 -6.3 2.0 4.1 2.8 n.a 0.0 0.0 0.0 Fanama Canal Commission !/ 0.0 0.0 0.0 0.0 0.0 0.0 Q.0 0.0 0.0 n.e 7.4 8.7 -14.2 Inputed Cbnmuission of the BankIng Sector 7.5 80.7 17.0 2F.6 -1.3 12.3 29.0 -23.6 69.4 -16.3 14.8 25.3 2.7 I'CiJSTRY SUBTOTAL 10.0 4.3 6.7 2.5 1.5 1.9 0.7 10.5 4.8 17.4 3.4 5.8 -0.6 GDvernnent Services 8.2 8.8 2.0 11.1 8,1 1.3 5.6 3.2 4.7 2.4 10.8 4.1 4.4 DEmestic Services 1.4 -2.8 -1.9 -10.2 3.8 -10.4 -5.2 8,0 -7.4 8.6 4.5 4.3 1.0 Import Duties 10.0 2.5 -12.0 -24.0 -24.8 3.8 -7.4 31.8 -0.8 6.8 -1.4 1.4 9.3 GROSS DOMESTIC PRODUCT 9.6 4.6 5.4 2.4 1.7 1.7 1.1 9.8 4.5 15.1 b/ 4.2 5.5 0.2 a/ In 1980 the Panama Canal Treaties became effective which Incorporated Canal activities into the GDP accounts. b/ If the Canal activities had not b.en tncorporated Into the GDP accounts In 1980. change would have been 5.3 percent. Source: Office of the Comptroller General. Table 2.7: GROSS DOMESTIC EXPENDITURE: ANNUAL CHANGE, 1971-82 (Annual Percent Change from Previous Year) Expenditure 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 Public ConsumptIo,, 18.3 25.7 10.4 19.7 18.0 9.3 6.7 17.2 17.5 20.0 19.5 18.7 Private Consumption 7.5 5.0 9.9 24.3 10.5 3.3 14.1 15.2 18.3 18.6 4.9 8.5 Gross Fixed Capital Formation 17.0 21.5 16.8 6.9 15.2 13.7 -26.7 36.0 9.1 31.0 24.6 14.1 Changes In Stocks 94.6 -30.5 68.0 79.0 -65.0 -68.0 341.2 0.9 174.2 -3.2 -27.3 -X00.0 Exports of Goods and Non-Factor Services 9.8 8.0 14.6 44.3 13.6 -3.2 9.9 7.1 14.0 39.3 4.7 2.8 Less: Imports of Goods and Non-Factor Services 11.2 11,3 11.8 56.8 9.0 -2.4 2.2 0.4 24.6 22.9 9.3 1.7 GROSS DOMESTIC EXPENDITURE 12.8 9.8 14.4 14.3 11.3 6.3 5.8 18,5 14.2 27.1 9..0 10.6 Source: Statistical Appendix Table 2.1 Table 2.8: GROSS DOMESTIC PRODUICT AT 1970 PRICES BY EXPENDITURE, AND ODRRESPONDING PRICE INDICES, 1970-82 (Millions of Balboas) EXPENDITLRE 1970 1971 19 72 19 73 1974 1975 1976 1977 1978 19 79 1980 1981 19 82 Public Consumption 152.3 173.1 201.9 205.8 212.2 234.3 241.0 250.4 261.5 269.1 284.8 334.9 361.4 Private Consumption 618.8 660.0 660.6 678.8 753.1 733.0 735.3 787.1 877.0 931.6 952.4 945.7 981.4 Gross Flxed C.apital Formation 261.9 301.0 373.1 373.8 334.5 361.0 368.2 244.6 303.2 299.9 365.3 426.1 445.3 Changes In Stocks 22.4 47,9 26.3 40.8 5.1 18.7 7.9 16.9 23.4 52.2 46.3 37.3 0.6 Exports of Goods and Non Factor Services 388.2 404.7 409.8 429.2 4!9.2 467.0 455.3 503.7 538.8 531.6 764.5 740.7 795.9 Less: Imports of Goods and Non Factor Services 422.4 467.3 501.0 494.9 554.4 528.3 500.6 481.3 553.1 568,1 667.5 665.9 665.6 GROSS DOMESTIC PRODUCT AT MARKET PRICES 1,021.2 1,119.4 1,170.7 1,233.5 1,263.7 1,285.7 1,307.1 1,321,4 1,450.8 1,516.3 1,745.8 1,818.8 1,919.0 CORRESPONDING PRICE INDICES Public Consumption 100.0 104.1 112.2 121.5 141.0 150.8 160.2 164.6 184.7 210.8 238.9 242.7 267.1 Private Consumption 100.0 100.8 105.7 113.1 126.7 143.8 148.1 159.9 163.2 181.8 211.0 222.8 233,0 Gross Capital Formation 100.0 101.8 99.8 116.3 139.0 148.3 165.3 182.3 200.0 220.5 237.2 253.4 276.6 Changes In Stock 100.0 91.0 115.2 124.8 154.1 170.6 129.1 266.3 194.0 238.5 260.2 234.9 n.a. Exports of Goods and Non Factor Services 100,0 105.4 112.4 123.0 165.9 185.3 184.0 182.9 183.1 211.6 205.0 220.3 210.7 Less: Imports of Goods and Non Factor Servlces 100.0 '100.5 104.4 118.2 165.4 189.2 194.8 207.1 198.9 241.4 252.4 276.5 281.5 GROSS DOMESTIC PRODUCT AT MARKET PRICES 100.0 102.9 108.0 117.3 130.9 143.2 149,7 156.6 169.0 184.7 203.8 213.2 223,4 Source: Comptroller General. Table 2.9: GROSS DOMESTIC INVESTMENT: COMPOSITION BY TYPE AND SECTOR, 1970-82 (Milltons of Balboas) Type of Investmsent and Sector 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 a/ GROSS DOMESTIC INVESTMENT 284.3 349.9 402.5 485.7 556.1 567.4 618.8 490.9 651.7 785.7 986.9 1.167.2 1,231.4 Construction 148.4 189.2 208.8 275.4 280.1 328.3 360.0 265.0 377.5 419.6 564.4 682.2 876.0 Housing 54.4 71.4 76.2 119.5 71.1 69.7 57.5 84.8 86.2 96.4 93.3 117.4 121.5 Oft:ar Buildings 48.4 64.7 67.7 69.9 95.0 109.8 65.6 77.4 115.1 187.1 219.7 225.8 218.4 Ct%pr Cnstruction 45.6 53.1 64.9 86.0 114.0 148.8 236.9 102.8 176.2 136.1 251.4 339.0 536.1 Capital Goods 113.5 117.1 163.4 159.4 184.9 207.2 248.6 180.9 228.8 241.6 302.0 397.4 355.5 Machinery and Equlpsent 64.4 77.9 122.6 95.0 110.4 144.1 166.3 133.8 155.6 149.9 188.7 263.7 201.8 Transport and Oommunicatlons 49.1 39.2 40.8 64.4 74.5 63.1 82.3 47.1 73.2 91.7 113.3 133.7 153.7 Changes In Stocks 22.4 43.6 30.3 50.9 91.1 31.9 10.2 45.0 45.4 124.5 :20.5 87.6 -0.1 PUBLIC SECTOR 70.4 70.1 166.4 118.4 176.7 283.7 399.9 277.4 357,9 274.9 379.8 349.9 504.3 Construction 47.7 59,4 70.6 71.3 121.5 190.9 269.8 169.9 263.4 180. 253.5 251.3 347.3 Housing 6.1 9.1 3.0 5.1 2.8 21.7 19.3 43.1 37.7 24.0 15.2 17.6 18.5 Other Building 9.0 14.1 21.3 8.4 24.6 36.4 24.5 35.6 63.6 47.3 20.5 21.0 29.9 Other Construction 32.6 36.2 46.3 57.8 94.1 132.8 226.0 91.2 162.1 109.0 217.8 212.7 298.9 Capital Goods 22.8 8.7 93.4 48,2 48.0 72.7 118.1 102.4 89.5 74.4 99.1 95.0 142.3 Machinery and Equipment 16.8 6.9 92.0 41.1 31.4 58.0 103.5 81.7 61.3 50.0 74.0 61.2 104.4 Transport and CammunIcatlon 6.0 1.8 1.4 7.1 16.6 14.7 14.6 20.7 28.2 24.4 25.1 33.8 37.9 Changes In Stocks -0.1 2.0 2.4 -1.1 7.2 20.1 12.0 5.1 5.0 20.2 27.2 3.6 14.7 PRIVATE SECTOR 213.9 279.8 236.1 367.3 379.4 283.7 218.9 213.5 293.8 510.8 607.1 817.3 727.1 Construction 100.7 129.8 138.2 204.1 158.6 137.4 90.2 95.1 114.1 239.3 310.9 430.9 528.7 Housing 48.3 62.3 73.2 114.4 68.3 48.0 38.2 41.7 48.5 72.4 78.1 99.8 103.0 Other Buliding 39.4 50.6 46.4 61.5 70.4 73.4 41.1 41.8 51.5 139.8 199.2 204.8 188.5 Other Construction 13.0 16.9 18.6 28.2 19.9 16.0 10.9 11.6 14.1 27.1 33.6 126.3 237.2 Capital Goods 90.7 108.4 70.0 111.2 136.9 134.5 130.5 78,5 139.3 167.2 202.9 302.4 213.2 Machinery and Equipment 47.6 71.0 30.6 53.9 79.0 86.1 62.8 52.1 94.3 99.9 114.7 202.5 97.4 Transport and Comanlcations 43.1 37.4 39.4 57.3 57.9 48.4 67.7 26.4 45.0 67.3 88.2 99.9 115.8 Changes In Stocks 22.5 41.6 27.9 52.0 83.9 11.8 -1.8 39.9 40.4 104.3 93.3 84.0 -14.8 a, Preliminary. Source: Comptroller General. Table 2.10: GROSS DOMESTIC INVESTMENT: COPOSITION BY TYPE AND SECTOR, 1970 PRICES, 1970-82 (Millions of 1970 Baiboas) Type of Investment and Sector 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 a/ GROSS DOMESTIC INVESTMENT 284.3 348.9 399.4 414.6 393.6 379.7 376.1 261.5 326.6 352.1 411.6 463.4 445.9 Construction 148.4 187.8 203.1 229.0 183.3 209.4 201.8 140.1 192.6 185.4 224.0 248.6 308.0 Housing 54.4 70.9 74.1 99.4 46.5 44.5 32.2 44.8 44.0 42.6 37.0 42.8 42.7 Other Building 48.4 64.2 65.9 58.1 62.2 70.0 36.8 40.9 58.7 82.7 87.2 82.3 76.8 Other Construction 45.6 52.7 63.1 71.5 74.6 94.9 132.8 54.4 89.9 60.1 99.8 123.5 188.5 Capital Goods 113.5 113.2 170.0 144.8 151.2 151.6 166.4 104.5 110.6 114.5 141.3 177.5 137.3 Mschinery and Equipment 64.4 71.6 127.4 87.3 87.1 99.9 101.4 75.5 78.0 72.6 106.0 116.8 88.1 Transport and Comunications 49.1 41.6 42.6 57.5 64.1 51.7 65.0 29.0 32.6 41.9 35.3 60.7 49.2 Changes In Stocks 22.4 47.9 26.3 40.8 59.1 18.7 7.9 16.9 23.4 52.2 46.3 37.3 0.6 PUBLIC SECTOR 70.4 69.0 167.8 102.3 124.2 185.7 232.1 152.1 180.4 125.2 162.3 133.7 182.! Constructicn 47.7 58.9 68.7 59.2 79.5 121.8 151.3 89.8 134.3 79.7 100.6 91.6 122.1 Housing 6.1 9.0 2.9 4.2 1.8 13.9 10.8 22.6 19.2 10.6 6.0 6.4 6.5 Other BulildIng 9.0 14.0 20.7 7.0 16.1 23.2 13.8 18,8 32.4 20.9 5.1 7.7 10,5 Other Construction 32.6 35.9 4,i.1 48.0 61.6 84.7 126.7 48.2 82.7 48.2 86.5 77.5 105.1 41- Capital Goods 22.8 8.3 97.0 44.3 39.2 52.1 74.6 59.3 44.0 34.9 49.4 42.4 57.7 1 Machinery and Equipment 16,8 6.4 95.5 37.8 24.8 40.2 63.1 46.1 30.7 24.2 41.6 27.1 45.6 Transport and uoomnication 6.0 1.9 1.5 6.5 14.4 11.9 11.5 13.2 13,3 10.7 7.8 15.3 12.1 Changes In Stocks -0.1 1.8 2.1 -1.2 5.5 11,8 6.2 3.0 2.1 10.6 12.3 -0.3 2.4 PRIVATE SECTOR 213.9 279.9 231.6 312.3 269.4 194.0 144.0 109.4 146,2 226.9 249.3 329.7 263,7 Constructlon 100.7 128.9 134.4 169.8 103.8 87.6 50.5 50.3 58.3 105.7 123.4 157.0 185.9 Housing 48.3 61.9 71.2 95.2 44.7 30.6 21.4 22.0 24.8 32.0 31.0 36.'1 36.2 Other Building 39.4 50.2 45.2 51.1 46.1 46.8 23.0 22.1 26.3 61.8 79.1 74.6 66.3 Other Construction 13.0 16.8 18.0 23.5 13.0 10.2 6.1 6.2 7.2 11.9 13.3 46.0 83.4 Capital Goods 90.7 104.9 73.0 110.5 112.0 99.5 91.8 45.2 456.6 79.6 91.9 -135.1 79.6 MachInery and Equipent 47.6 65.2 31.9 49.5 62.3 59.7 38.3 29.4 47.3 48.4 64.4 89.7 42.5 Transport and Communications 43.1 39.7 41.1 51.0 49.7 39.8 53.5 15.8 19.3 31.2 27.5 45.4 37.1 Changes In Stocks 22.5 46.1 24.2 42.0 53.6 6.9 1.7 13.9 21.3 41.6 34.0 37.6 -1.8 a' Preliminary. Source: Comptroller General. Page 1 of 5 1970-72 Table 2.11: PUIBLIC CONSUMPTION BY COST COWPOSITION, 1970-82 (Millions of Balboas) COMPOSITION OF COSTS CLASS YEAR AND EXPENDITURE TOTAL CONSUWTION LESS: SALE OF COMPENSATION OF FIXED INTERMEDIATE OTHER GOODS CAPITAL CONSUWPTION AND SERVICES 1970 1 & 2 General Public Services and Defense 45.2 35.4 0.0 10.0 0.2 3 Education 44.9 40.8 0.5 4.0 0.4 4 Health 16.7 12.6 0,e 5.0 1,0 5 Social Security and Social Welfare 21.1 13.8 0.8 6.9 0.4 6 Housing and Urban and Rural lmprovemnts 3.5 2.2 0.1 1.2 0.0 7 Other S-cial and Community Services 5.0 2.8 ... 2.7 0.5 8 Economic Services 14.8 8.3 0.2 7.0 0.7 9 Other 1.1 0.2 ... 0.9 ... TOTAL 152.3 116.1 1.7 37.7 3.2 1971 , 1 & 2 General Public Services and Defense 47.6 36.9 1,. 10.9 0.2 3 Education 51.9 47.5 0.6 4.3 0.5 4 Health 19.8 14.0 0.0 6.8 i,0 5 Social Security and Social Welfare 27.0 16.7 0.9 10.0 0.6 6 Housing and Urban and Rural Improvoemnts 4.9 2.6 0.1 2.3 0.1 7 Other Social and Community Services 4.9 3.7 . 1.3 0.1 8 Economic Services 23.8 9.3 0.4 15.0 0.9 9 Other 0.3 0.2 .... 0.1 TOTAL 180.2 130.9 2.0 50.7 3.4 1972 1 & 2 General Public Services and Defense 79.9 40.7 ... 39.5 0.3 3 Education 62.7 55.6 0.7 7,9 1.5 4 Health 22.3 17.1 0.1 6.3 1.2 5 Social Security and Social Welfare 33,2 22.0 1.1 10.9 0.8 6 Housing and Urban and Rural Improvements 3.9 3.0 0.1 0.9 0.1 7 Other Social and Comunity Services 4.6 2.9 0.6 1.4 003 8 Economic Services 19.1 13.9 0.4 5.9 1.1 9 Other 0.8 ... ... 0.8 ... TOTAL 220e5 155.2 3.0 73.6 5.3 Page 2 of 5 1973-75 Table 2.11: PUBLIC CONSUMPTION BY COST COMPOSITION, 1970-82 (Millions of Balboas) COMPOSITION OF COSTS CLASS YEAR AND EXPENDITURE TOTAL CONSUMPTION LESS: SALE OF COMPENSATION OF FIXED INTERMEDIATE OTHER GOODS CAPITAL CONSUMPTION AND SERVICES 1973 1 & 2 General Public Servtces and Defense 87.2 45.3 ... 42.1 0.2 3 Education 71.3 62.6 0.7 9.0 1.0 4 Health 24.4 19.0 0.1 6.4 5 Social Security and Social Welfare 38.4 23.9 1.0 14.4 0.9 6 Housing and Urban and Rural Improveiients 3.4 2.9 0.1 0.6 0.2 7 Other Social and Community Services 5.5 3.2 0.6 1.8 0.1 8 Economic Services 19.2 14.3 0.7 5.8 1.6 9 Other 0.7 ... ... 0.7 ... TOTAL 250.1 171.2 3.2 80.8 5.1 1974 1 & 2 General Public Services and Defense 109.5 53.7 .. 56.0 0,2 3 Education 78.7 71.9 0.7 6.7 C.6 4 Health 27.5 20.9 0.1 8.0 1.5 5 Social Security and Social Welfare 38.6 28.1 1.1 10.3 0.9 6 Housing and Urban and Rural Improvements 7.9 6.1 0.1 1.9 0.2 7 Other Social and Conmunity Services 4.7 2.9 ... 2.0 0.2 8 Economic Services 23.3 17.1 1.2 7.0 2.0 9 Other 9.1 8.3 ... 0.8 ... TOTAL 299.3 209.0 3.2 92.7 5.6 1975 1 & 2 General Public Services and Defense 122.6 61.2 ... 61.6 0.2 3 Education 91.3 82.7 0.8 8.2 0.4 4 Health 27.1 18.7 0.1 9.7 1.4 5 Social Security and Social Welfare 52.3 33.1 1.3 18.7 0.8 6 Housing and Urban and Rural Improvements 12.5 9.8 0.0 2.9 0.2 7 Other Social and Community Services 6.2 4.1 0.7 1.7 0.3 8 Economic Servlces 31.6 19.5 0.8 13.1 1.8 9 Other 9.7 9.0 0.7 ... TOTAL 353.3 238.1 3.7 116.6 5.1 Page 3 of 5 1976-78 Table 2.11: PUBLIC CONSUMPTION BY COST COMPOSITION, 1970-82 (Millions of Balboas) COMPOSITION OF COSTS CLASS YEAR AND EXPENDITURE TOTAL CONSUWTION LESS: SALE OF COMPENSATION OF FIXED INTERMEDIATE OTHER GOODS CAPITAL CONSUMPTtON AND SERVICES 1976 1 & 2 General Public Services and Defense 142.1 63.0 ... 79.4 0.3 3 Education 96.1 89.2 0.8 7.5 1.4 4 Health 34,8 24,2. 0.1 11.6 1.1 5 Social Security and Social Welfare 61.8 38e3 1.4 22.3 0.7 6 Housing and Urban and Rural Improvements 13.8 10.5 0.3 3.2 0.2 7 Other Social and Community Services 5.1 3.5 0.7 1.3 0.4 8 Economic Services 22.7 18.2 0.8 5.8 2.1 9 Other 10.2 9.7 ... 0.5 ... TOTAL 386.1 256.6 4.1 131.6 6.2 1977 I & 2 General Public Services and Defense 146.9 68.3 ... 78.9 0.3 3 Education 103.4 95.7 0.8 7.7 0.8 4 Health 36.5 24.7 0.1 12.9 1.2 5 Social Security and Social Welfare 66.4 41.2 1.9 24.2 0.9 6 Housing and Urban and Rural lmprover z-.'. .. 12.9 9.8 0.4 3.0 0.3 7 Other Social and Cominity Services 5.9 3.8 0.7 1.8 0.4 8 Economlc Services 29.7 19.1 1.2 12.0 2.6 9 Other 10.4 10.0 ... 0.4 .. TOTAL 412.1 272.6 5.1 140.9 6.5 1978 I & 2 General Public Services and Defense 184,3 102.1 ... 82.4 0.2 3 Education 114.9 101.8 1.2 12.9 1.0 4 Health 40.0 26.3 0.1 14.8 1.2 5 Social Security and Social Welfare 78.4 44.5 2.9 32.3 1.3 6 Housing and Urban and Rural Improvemnts 14.5 10.5 0.5 3.7 0.2 7 Other Social and Community Services 6.3 4.0 0.7 1.9 0.3 8 Economlc Sorvicis 33.7 22.0 2.6 12.6 3.5 9 Other 10.8 10.4 sW 0.4 TOTAL 482.9 321.6 8.0 161.0 7.7 Page 4 of 5 1979-81 Table 2.11: PUBLIC CONSUWTION BY ODST COMPOSITION, 1970-82 (Millions of Balboas) COMPOSITION OF COSTS CLASS YEAR AND EXPENDITURE TOTAL CONSUMPTION LESS: SALE OF COMPENSATION OF FIXED INTERMEDiATE OTHER GOODS CAPITAL CONSUWTPION AND SERVICES 1979 1 & 2 General Public Services and Defense 217.2 113.2 ... 104.2 0.2 3 Education 133.6 122.2 1.3 11.3 1,2 4 Health 49.6 34.2 0.1 16.6 1.3 5 Social Security and Social Welfare 81.6 53.4 2.7 26,8 1.3 6 Housing and Urban and Rural Improvements 17.8 14.0 0.5 3.6 0.3 7 Other Social and Community Services 7.7 4.8 0.7 2.6 0.4 8 Economic Services 46.7 34.6 5.0 11.8 4,7 9 Other 13.0 12.6 ... 0.4 TOTAL 567.2 389.0 10.3 177.3 9.4 1980 i & 2 General Public Services and Defense 275.3 135.1 0.0 141.6 1.4 3 Education 157.0 145.1 1.4 13.7 3.2 4 Health 54.9 40.5 0.1 16.1 1.8 5 Social Security and Soclal Welfare 101.8 61.5 2.7 39.8 2.2 6 HousIng and Urban and Rural Improvements 14.8 10.9 0.3 3.8 0.2 7 Other Social and Community Services 13.2 10.6 0.7 2.3 0.4 8 Economic Services 63.5 32.4 5.1 32.1 6.1 9 Other ... ... .. ... .. TOTAL 680.5 436.1 10.3 249,4 15.3 1981 1 & 2 General Public Services and Defense 372.8 127.7 0.0 247.3 372.8 2.2 3 Education 174.8 165.0 1.4 12.2 3.8 4 Health 57.5 43.3 0.2 16.0 2.0 5 Social Security and Social Welfare 116.2 72.2 2.8 44.1 2.9 6 Housing and Urban and Rural lmprovewnts 12.2 8.4 0.4 3.6 0.2 7 Other Soclal and Community Services 19.1 13.7 0.7 5.1 0.4 8 Economic Services 60.3 27.9 4.8 33.7 6.1 9 Other . ... ... ... TOTAL 812.9 458.2 10.3 362.0 17.6 Page 5 of 5 1982 Table 2,11: PUBLIC CONSUMPTION BY COST COMPOSITION, 1970-82 (Millions of Balboas) COMPOSITION OF COSTS CLASS YEAR AND EXPENDITURE TOTAL CONSUMPTION LESS: SALE OF COMPENSATION OF FIXED INTERMEDIATE OTHER GOODS CAPITAL CONSUMPTION AND SERVICES 1982 a/ 1 & 2 General Public Services and Defense 444.5 146.7 0.0 301.5 3.7 3 Education 192,0 173.0 1.9 22.2 5.1 4 Health 74.2 49.5 0.5 25,7 1.5 5 Soclal Security and Social Welfare 134.1 83.6 2.9 50.9 3.3 6 Housing and Urban and Rural Improvements 17.0 9.0 0.4 7.7 0e1 7 Other Social and Community Services 25.3 18.4 0.8 6.6 0.5 8 Economic Services 78.2 40.7 4.9 39.6 7.0 9 Other e* *0@ *0e .. TOTAL 965.3 520.9 11.4 454,2 21.2 a/ Preliminary. Source: Comptroller General. IIITb TRADE I- 221 - Table 3.1: BALANCE OF PAYMENTS, 1975-83 Page 1 of 4 (US$ Millions) ACCOUNT 1975 1976 1977 CREDIT DEBIT BALANCE CREDIT DEBIT BALANCE CREDIT DEBIT BALANCE GOODS AND SERVICES 1238.7 1394.5 -155.8 1249.0 1440.2 -191.2 1403.3 1540.5 -137.2 Merchandise, FOB 330.8 821.9 -491.1 270.6 784.3 -513.7 287.0 784.2 -497.2 Canal Area 64.3 4.8 59.5 49.7 4.3 45.4 51.4 5.6 45.8 Petroleum 34.2 0.0 34.2 27.8 0.0 27.8 24.9 0.0 24.9 Non-Petroleum 30.1 4.8 25.3 21.9 '4.3 17.6 26.5 5.6 20.9 Rest of World 266.5 817.1 550.6 220.9 780.0 -559.1 235.6 778.6 -543.0 Petroleum 94.1 334.5 240.4 38.5 269.2 -230.7 43.4 268.2 -224.8 of which: Bunker and aviation fuel n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Non-Petroleum 172.4 482.6 -310.2 182.4 510.8 -328.4 192.2 510.4 318.2 Non-Monetary Gold 0.1 1.1 -1.0 0,0 6.4 -6.4 0.0 8.1 -8.1 Freight and Insurance 0.1 78.8 -78.7 0.2 70.2 -70.0 0.2 85.5 -85.3 Canal Area 0.0 1.2 -1.2 0.0 0.9 -0.9 0.0 0.9 -0.9 Rest of World 0.1 77.6 -77.5 0.2 69.3 -69.1 0.2 84.6 -84.4 Transportation 155.5 21.2 134.3 144.4 25.3 119.1 136.5 26.3 110.2 Canal Area 0.0 0.3 -0.3 0.0 0.2 -0.2 0.0 0.2 -0.2 Rest of World 155.5 20.9 -134.6 144.4 25.1 119.3 136.5 26.1 110.4 Travel 133.0 32.2 100.8 150.3 33.7 116.6 174.0 34.7 139.3 Canal Area 39.6 0.0 39.6 39.7 0.0 39.7 42.5 0.0 42.5 Rest of World 93.4 32.2 61.2 110.6 33.7 76.9 131.5 34.7 96.8 Investment Income 373.3 395.1 -21.8 411.2 465.0 -53.8 482,2 543.6 -61.4 of which: Interest on Public Debt 0.0 42.2 -42.2 0.0 60.0 -60.0 0.0 79.0 -79.0 Government n.i.e. 18.4 9.9 8.5 17.7 10.3 7.4 18.2 11.9 6.3 Canal Area 10.0 0.0 10.0 9.0 0.0 9.0 8.7 0,0 8.7 Rest of World 8.4 9.9 -1.5 8.7 10.3 -1.6 9.5 11.9 -2.4 Other Services 227.5 34.3 193.2 196.7 242.9 -46.2 305.2 46.2 259.0 Canal Area 115.5 2.9 112.6 112.9 114,2 -1.3 130.0 13.8 116.2 Colon Free Zone 66.7 0.0 66.7 65.8 79.6 -13.8 106.5 0.0 106.5 Rest of World 45.3 31.4 13.9 18.0 49.1 -31.1 68.7 32.4 36.3 UNREQUITED TRANSFERS 23.7 28.7 -5.0 27.3 31.2 -3.9 32.5 34.8 -2.3 Priv&te 15.1 26.4 -11.3 16.1 28.7 -12.6 21.0 32.3 -11.3 Canal Area 14.4 0.0 14.4 15.1 0.0 15.1 18.4 0.0 18.4 Rest of the World 0.7 26.4 -25.7 1.0 28.7 -27.7 2.6 32.3 -29.7 Official 8.6 2.3 6.3 11.2 2.5 8.7 11.5 2.5 9.0 CURRENT ACCOUNT 1262.4 1423.2 -160.8 1276.3 1471.4 -195.1 1435.8 1575.3 -139.5 CAPITAL ACCOUNT 1973.0 1710.5 262.5 1654.9 1323.2 331.7 2668.1 2414.8 253.3 Official Capital 106.7 27.5 79.2 332.1 41.9 290.2 317.0 79.5 237.5 Non-Financial n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Official Banks n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Use of IMF Resources n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Other Liabilities 52.5 0.0 52.5 2.5 22.5 -20.0 92,3 0.1 92.2 FIVEN n.a n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. PEMEX n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Other n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Other Official Bank Transactions n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Reserve Position with IMF n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. SDR Holding n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. SDR Allocation n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Other n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a, n.a. Private Capital n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Direct Investment 7.6 0.0 7.6 10.8 0.0 10.8 10.9 0.0 10.9 Direct Private borrowing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a, n.a. Private Bank's net Monetary Movements 1858.7 1683.0 175.7 1312.0 1281.3 30.7 2340.2 2335.3 4.9 Foreign Asset 0.0 1683.0 -1683.0 0.0 1258.8 -1258.8 0.0 2335.Z 2335.2 Foreign Liability 1793.6 0.0 1793.6 1280.5 0.0 1280.5 2246.2 0.0 2246.2 Capital Surplus 12.6 0.0 12.6 29.0 0.0 29.0 1.7 0.0 1.7 UNIDENTIFIED PRIVATE CAPITAL AND NET ERRORS AND OMISSIONS -101.7 -136.6 -113.8 - 222 - Page 2 of 4 Table 3.1: BALANCE CF PAYMUS, 1975-83 (US Millions) AOCOUNr 1978 1979 1980 a/ CEEDIT IEBIF BAIN2E (EEDIT EEBrT BAIANCE aCEDrr DEBrr B.LACE GOODS AND SEOIVICES 1781.0 1948.9 -167.9 1731.9 2014.6 -282.7 2335.5 2736.3 -400.8 Merchardise, FOB 385.8 857.7 471.9 453.1 1078.6 -625.5 526.0 1342.3 -816.3 Canal Area 63.3 6.5 56.8 84.9 7.3 77.6 0.0 0.0 0.0 Petroleum 27.7 0.0 27.0 45.4 0.0 45.4 0.0 0.0 0.0 Non-Petroleunr 35.6 6.5 29.1 39.5 7.3 32.2 0.0 0.0 0.0 Pest of Tbrld 322.5 851.2 -528.7 368.1 1071.1 703.0 526.0 1342.3 -816.3 Petroleum 113.8 223.1 -109.3 124.6 324.7 -200.1 233.2 424.4 -191.2 of which: Bunker ard aviation fuel 81.4 3.9 77.5 97.0 5.3 91.7 151.4 9.6 141.8 Non-Petroleum 208.7 628.1 -419.4 243.5 746.4 -502.9 292.8 917.9 -625.1 Ifn-ionetary Gold 0.0 8.3 -8.3 0.1 15.8 -15,7 0.0 1.0 1.0 Freight and Isurance 1.0 99.8 -98.8 0.6 123.2 -122.6 1.1 161.4 -160.3 Canal Area 0.0 0.9 -0.9 0.0 0.7 -0.7 0.0 0.0 0.0 Rest of World 1.0 98.9 -97.9 0.6 122.5 -121.9 1.1 161.4 -160.3 Transportation 26.6 23.7 2.9 51.3 28.5 22.8 396.2 47.0 349.2 Canal L-ea 0.0 0.3 -0.3 0.0 0.2 -0.2 0.0 0.0 0.0 Rest of World 26.6 23.4 3.2 51.3 28.3 23.0 396.2 47.0 349.2 Travel 197.2 37.2 160.0 213.6 48.4 165.2 168.4 56.0 112.4 Canal Area 53.5 0.0 53.5 50.7 0.0 50.7 0.0 0.0 0.0 Rest of Wrld 143.7 37.2 106.5 162.9 48.4 114.5 168.4 56.0 112.4 vestment Icom 794.6 848.7 -54.1 607.0 643.1 -36.1 768.3 1051.5 -283.2 of hiich: Interest on Pblie Debt 0.0 131.4 -131.4 0.0 203.0 -203.0 0.0 255.3 -255.3 Goverrmint n.i.e. 20.3 19.7 0.6 39.5 15.5 24.0 10.2 16.5 -6.3 Canal Area 8.7 0.0 8.7 15.6 0.0 15.6 0.0 0.0 0.0 Rest of Wbrld 11.6 19.7 -8.1 23.9 15.5 8.4 10.2 16.5 -6.3 Other Services 355.5 53.8 301.7 366.7 61.5 3)5.2 465.3 60.6 404.7 Canal Area 151.6 15.4 136.2 134.8 15.9 118.9 0.0 0.0 0.0 Calon Free Zone 125.9 0.0 125.9 159.8 0.0 159.8 220.3 0.0 220.3 Rest of WAbrld 78.0 38.4 39.6 72.1 45.6 26.5 245.0 60.6 184.4 UNREQIM TIRANSFERS 36.4 38.6 -2.2 57.0 42.7 14.3 71.1 58.4 12.7 Private 20.8 35.9 -15.1 40.5 39.7 0.8 0.3 54.0 -53.7 Canal Area 18.3 0.0 18.3 37.9 0.0 37.9 0.0 0.0 0.0 Rest of World 2.5 35.9 -33.4 2.6 39.7 -37.1 0.3 54.0 -53.7 Official 15.6 2.7 12.9 16.5 3.0 13.5 70.8 4.4 66.4 CURRBElT A(CO1T 1817.4 1987.5 -170.1 1788.9 2057.3 -268.4 2406.6 2794.7 -388.1 CAPITAL ACOCtFli 2388.9 2003.1 385.8 2232.4 1809.9 422.5 1280.0 868.0 412.0 Official Capital 1021.3 534.8 486.5 438.2 243.9 194.3 487.1 263.3 223.8 Non-Financial 1008.7 529.2 479.5 427.4 231.3 196.1 470.6 243.0 227.6 Official Banks 12.6 5.6 7.0 10.8 12.6 -1.8 16.5 20.3 -3.8 Uke of 1MF Resources 1.3 0.0 1.3 0.0 11.1 -11.1 0.0 18.4 -18.4 Other Liabilities 11.3 5.6 5.7 10.8 1.5 9.3 16.5 1.9 14.6 FIVEN 0.0 0.0 0.0 4.0 0.0 4.0 6.0 0.0 6.0 PEMEI 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other 11.3 5.6 5.7 6.8 1.5 5.3 10.5 1.9 8.6 Other Official Bank Traasctions 1.4 84.2 -82.8 55.9 0.0 55.9 46.1 7.0 39.1 Reserve Position with 1DF 0.0 4.9 -4.9 1.6 0.0 1.6 0.0 7.0 -7.0 SDR Holding 0.3 0.0 0.3 n.a. n.a. n.a. 3.8 0.0 3.8 SIR Allocation 1.1 0.0 1.1 6.4 0.0 6.4 5.2 0.0 5.2 Other 0.0 79.3 -79.3 47.9 0.0 47.9 37.1 0.0 37.1 Private Capital 1366.2 1384.1 -17.9 1738.3 1565.1 173.2 746.8 597.7 149.1 Direct Ivestment 0.0 2.5 -2.5 58.0 0.0 58.0 54.8 0.0 54.8 Direct Private borrowng 0.0 0.0 0.0 30.9 0.0 30.9 21.1 12.0 9.1 Private Bank's Net M.netary 1bvaeM!nts 1366.2 1381.6 -15.4 1649.4 1565.1 84.3 670.9 585.7 85.2 Foreign Asset 0.0 1428.7 -1428.7 0.0 6614.6 -1614.6 507.4 0.0 507.4 Foreign Liahility 1328.5 7,1 1321.4 1550.8 -49.5 1600.3 -47.9 585.7 -633.6 Capital Surplus 37.7 0.0 37.7 96.6 00 96.6 211.4 0.0 211.4 UNIC FIED ERIVAIE CAPIAL AND NET EROES AND aMISSICNS -215.7 -154.1 -23.9 - 223 - Page 3 of 4 TABLE 3.1; BALANCE OF PAYMENTS, 1975-83 (US$ Millions) 1981 1982 1983 ACCOUNT CREDIT DEBIT BALANCE CREDIT DEBIT BALANCE CREDIT DEBIT BALANCE GOODS AND SERVICES 2569.2 3012.5 -443.3 2724.0 3196.6 -472.6 3074.8 3299.6 -224.8 Merchandise, FOB 493.9 1469.5 -975.6 488.2 1496.3 -1008.1 436.7 1353.0 -916.3 Canal Area 0.0 0.0 0.0 0.0 0.0 °.0 0.0 0.0 0.0 Petroleum 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Non-Petroleum 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Rest of World 493.9 1469.5 -975.6 488.2 1496.3 -1008.1 436.7 1353.0 -916.3 Petroleum 208.9 428.5 -219.6 166.6 408.1 -241.5 131.2 384.5 -253.3 of which: Bunker and aviation fuel 150.5 10.7 139.8 104.0 11.8 92.2 95.4 9.9 85.5 Non-Petroleum 285.0 1041.0 -756.0 321.6 1088.2 -766.2 305.5 968.5 -663.0 Non-Monetary Gold 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.2 -0.2 Freight and Insurance 1.3 176.7 -175.4 1.3 159.1 -157.8 1.3 138.3 -137.0 Canal Area 0.0 0.0 0.0 0.0 0°0 0.0 0.0 0.0 0.0 Rest of World 1.3 176.7 -175.4 1.3 159.1 -157.8 1.3 138.3 -13740 Transportation 442.6 51.3 391.3 523.2 54.3 468.9 648.0 49.3 598.7 Canal Area 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Rest of World 442.6 51.3 391.3 523.2 54.3 468.9 648.0 49.3 598.7 Travel 170.8 65.1 105.7 173.8 80.6 93.2 171.4 71.4 100.0 Canal Area 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Rest of World 170.8 65.1 105.7 173.8 80.6 93.2 171.4 71.4 100.0 Investment Income 878.7 1154.3 -275.6 941.3 1313.4 -372.1 1269.8 1589.9 -320.1 of which: Interest on Public Debt 0.0 283.5 -283.5 0.0 350.3 -350.3 0.0 288.5 -288.5 Government n.i.e. 11.5 20.0 -8.5 12.9 25.5 -12.6 11.5 30.9 -19.4 Canal Area 0.0 0.0 0,0 0.0 0.0 0.0 0.0 0.0 0.0 Rest of World 11.5 20.0 -8.5 12.9 25.5 -12.6 11.5 30.9 -19.4 Other Services 570.4 75.6 494.8 583.3 67.4 515.5 536.1 66.6 469.5 Canal Area 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Colon Free Zone 258.1 0.0 253.1 220.9 0.0 220.9 164.8 0.0 164.8 Rest of World 312.3 58.8 203.2 362.4 67.4 295.0 371.3 66.6 304.7 UN1REQUITED TRANSFERS 84.8 55.7 29.1 99.0 63.9 35.1 111.0 71.4 39.6 Private 0.9 49.8 -48.9 2.6 57.6 -55.0 2.9 63.0 -60.1 Canal Area 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Rest of World 0.9 49.8 -48.9 2.6 57.6 -55,0 2.9 63.0 -60.1 Official 83.9 5.9 78.0 96.4 6.3 90.1 108.1 8.4 99.7 CURRENT ACCOUNT 2654.0 3068.2 -414.2 2823.0 3260.5 -437.5 3185.8 3371.0 -185.2 CAPITAL ACCOUNT 1940.1 1469.7 470.4 2267.0 1702.7 564.3 3063.5 2897.7 165.8 Official Capital 520.3 316.4 203.9 910.0 400.9 509.1 564.4 268.8 295.6 Non-Financial 376.6 315.0 61.6 824.3 388.5 435.8 408.4 265.2 143.2 Official Banks 143.7 1.4 142.3 85.7 12.4 73.3 156.0 3.6 152.4 Use of IMF Resources 70.6 0.0 70.6 0.0 9.5 -9.5 108.7 0.0 108.7 Other Liabilities 73,1 1.4 71.7 85.7 2.9 82.8 47.3 3.6 43.7 FIVEN 43.2 0.0 43.2 34.6 0.0 34.6 25.5 0.0 25.5 PEMEX 18.2 0.0 18.2 37.7 0.0 37.7 15.0 0.0 15.0 Other 11.7 1.4 10.3 13.4 2.9 10.5 6.8 3.6 3.2 Other Official Bank Transactions 13.3 50.2 -36.9 22.9 19.9 3.0 22.3 110.5 -88.2 Reserve Position with IMF 10.3 0.0 10.3 0,0 0.0 0.0 0.0 9.1 -9.1 SDR Holding 0.0 1.9 -1.9 0.0 0.9 -0.9 3.8 0.0 3.8 SDR Allocation 3.0 0.0 3.0 0.0 1.7 -1.7 0.0 1.4 -1.4 Other 0.0 48.3 -48.3 22.9 17.3 3.0 18.5 100.0 -81.5 Private Capital 1406.5 1103.1 303.4 1334.1 1281.9 52.2 2476.8 2518.4 -41.6 Direct Investment 53.0 0.0 53.0 53.4 0.0 53.4 52.1 0.0 52.1 Direct Private borrowing 164.0 40.0 124.0 126.0 35.7 90.3 0.0 99.2 -99.2 Private Bank's net Monetary Movements 1189.5 1063.1 126.4 1154.7 1246.2 -91.5 2424.7 2419.2 5.5 Foreign Asset 0.0 1069.9 -1069.9 0.0 1246.2 -1246.2 2432.1 0.0 2432.1 Foreign Liability 1104.4 -6.8 1111.2 884.4 0.0 884.4 -42.7 2419.2 -2461.9 Capital Surplus 85.1 0.0 85.1 270.3 0.0 270.3 35.5 0.0 35.5 UNIDENTIFIED PRIVATE CAPITAL AND NET ERRORS AND OMISSIONS -56.2 -126.8 19.4 Table 3.2: AGRI Lt AlND CER OM 2E( a/, 1970-83 EPxprt niLt 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 i980 1981 1982 1983 mUtils of bows b/ 21.0 22.9 23.6 23,1 18.5 20.6 10.6 22.4 34.6 31.1 27.9 31.4 31.0 35.9 million d s 60.8 62.9 64.7 63.8 49.5 59.5 61.5 66.5 71.9 65.7 61.6 69.2 66.0 75.0 unit value (doUas) C/ 2.90 2.74 2.74 2.76 2.68 2.88 2.98 2.9 2.08 2.11 2.22 2.20 2.13 2.09 (bffee tlbuaind atric tons 1.6 1.8 2.5 1.8 1.4 1.6 1.9 1.4 2.4 2.8 3.1 5.1 4.4 5.8 mllio dollars 1.7 1.6 2.5 2.1 2.1 2.3 3.4 5.5 8.9 9.6 10.2 13.5 12.4 16.0 unit valt (dllars/kilo) 1.09 0.87 1.02 1.17 1.47 1.44 1.77 3.99 3.71 3.43 3.29 2.65 2.75 2.74 sgar ttdand metric tow 32.0 49.5 35.4 45.5 58.4 80.8 84.4 114.4 118.7 135.4 130.3 97.1 107.0 120.0 ailijon dollars 5.0 6.3 5.9 8.8 27.5 49.4 28.3 21.9 2D.3 26.1 65.8 52.6 23.' 41.3 urdt vaiue (cents/kilo) 15.6 15.6 16.7 19.3 47.1 61.1 33.5 19.2 17.1 19.2 50.5 54.2 22.- 34.4 cam trlc toiw 19 n.a. 461 452 453 723 779 610 1,025 1,283 837 48 0.0 75 tbxsaad dollars 12 n.a 250 296 624 848 1,339 2,115 3,122 3,936.8 2,118.1 94.7 0.0 154 wdt value (dollars/kilo) 0.62 n.a. 0.54 0.65 1.38 1.17 1.72 3.47 3.05 3.08 2.53 1.99 na. 2.07 ^ Ped *-at tisd metri.c tos 2.1 1.2 2.4 1.0 1.2 1.2 3.0 1.1 0.3 0.6 1.3 2.2 4.5 2.0 mii1on dollars 2.2 1.4 3.1 1.6 1.8 1.6 3.8 1.5 0.5 1.5 3.1 5.1 9.4 4.1 uit value (dollars/kilo) 1.02 1.15 1.30 1.59 1.47 1.28 1.27 1.39 1.67 2.36 2.33 2.28 2.09 2.08 tlousad ietric ton 5.0 5.0 4.5 4.4 4.2 4.4 5.1 5.0 4.8 5.5 6.2 6.4 6.8 6.1 million dollars 10.2 12.0 14.6 16.7 15.2 19.0 33.5 30.0 30.2 45.0 43.7 42.7 52.9 51.4 wit valu (dollarsAkIlo) 2.01 2.40 3.24 3.79 3.58 4.29 6.55 5.94 6.29 8.18 7.16 6.66 7.78 8.46 Fish Heal thosaid metric toms 4.6 5.8 7.3 7.8 3.9 7.0 15.4 30.4 10.4 22.6 281 11.7 4.4 14.8 m14ilon doills 0.8 1.0 1.4 3.1 1.3 1.7 4.5 10.5 4.2 7.9 10.1 4.3 1.6 5.5 uait valUe (cents/kilo) 17.1 16.8 19.6 40.0 33.3 23.9 28.9 34.4 40.3 34.9 35.9 36.7 36.4 36.9 P?etroleu r&t d/ smll gal - 276.9 290.1 193.6 155.1 152.5 301.9 103.6 117.7 186.2 142.2 114.0 72.3 109.0 57.0 th*uaid dollars 21,465 25,126 19,266 21,929 52,797 94,015 38,540 43,324 60,115 72,383 81,800 58,400 70,300 35,800 Otier Ep rts e/ 6,075 4,Y46 9,928 18,674 37,316 39,017 44,988 40,361 n.a. na. 34,600 34,200 73,200 58,700 TO EAL ; 108,21 114,7 121,770 136,961 18B,2D7 267,332 217,847 1,535 246,85 294,739 353,377 319,42D 310,239 303,545 a/ Exciuies exports of mirhwidioe to Qmwl Zom aid from Coln Free ZDa. i' 1970 tlhrot 1977 mdlli of l!A'bes. F/ 1970 throgh 1977 doll per badi. i luies petroleau produrts exported for bmkerirg shdpe In Cena 7ce. e/ I les adjuszunts mde for balnce of pfymns cosolidation and reexports. SDurce: qiLler G^eral mid DW. - 225 - TABLE 3.3: TERMS OF TRADE, 1970-83 Unit Value Terms of Trade 1978=100 1978=100 Year Exportsa/ Importsa/ 1970 54.62 50.27 108.65 1971 57e55 50.54 113.87 1972 61e41 52.49 116.99 1973 67.21 59.42 113.11 1974 90.63 83.16 108.98 1975 101.23 95.10 106.45 1976 100.52 97.93 105.70 1977 99.89 104.13 95.93 1978 100.00 100.00 100.00 1979 115.55 121.35 95.22 1980 11196 126.90 88.23 1981 120.32 139.01 86.55 1982b/ 115.08 141.53 81.31 1983Bf/ 117.38 142.97 82.10 a/ Includes petroleum b/ Preliminary Source: Comptroller Generale - 226 - Table 3.4: PETROLEUM TRADE, 1977-83 (Values in US$ Millions, Volumes in Millions of Barrels, Unit Values in US$ per Barrel) 1977 1978 1979 1980 1981 1982 1983 Total imports, c.i.f. 283.1 229.2 334.9 441.7 441.6 398.5 371.5 Crude and partially refined oil Value 268.1 216.7 316.4 407.9 361.0 373.5 333.^2 From: Ecuador 128.1 140.4 165.5 33.8 17.9 86.4 109.9 Venezuela 66.5 53.3 60.1 105.4 120.8 152.5 109.7 Saudi Arabia 64.5 11.0 90.8 268.7 119.2 0.0 0.0 Mexico 0.0 0.0 0.0 0.0 103.1 134.4 113.7 Other countries 9.0 12.0 0.0 0.0 0.0 0.0 0.0 Volume 20.5 16.7 15.6 13.8 10.7 11.8 11.8 Unit value 13.1 13.0 20.3 29.5 33.8 31.8 28.2 Refined products 15.0 12.5 18.5 33.8 80.6 25.0 38.3 Total ex:ports, f.o.b. 181.3 141.6 170.0 233.3 209.1 166.6 131.2 To Canal Zone Value 24A9 27.7 45.4 50.7 15.9 56.1 32.8 Volume 1.9 2.5 2.4 1.7 0.4 2.0 1.3 Unit value 13.0 13.2 18.9 29.1 37.0 27.5 26.0 To other countries Value 42.2 32.4 27.0 31.1 42.5 14.1 3.0 Volume 2.7 2.3 1.0 1.0 1.3 06 0.1 Unit value 16.2 14.1 27.3 32.1 32.9 25.6 33.3 Bunker for ships Value 100.7 65.9 70.0 116.5 1.16.7 68.4 64.3 Volume 8.3 4.9 3.0 4.1 3.6 2.3 n.a Unlit value 12.1 13.4 23.3 28.4 32.4 29.7 n.a. Fuel for aircraft Value 13.5 15.5 27.6 35.0 34.0 28.0 31.1 Volume 0.9 1.0 1,0 1.0a/ 0.9a/ 0.8a/ n.a. Unit value 15.0 15.2 27.6 35. iw/ 37.8x/ 35.AW/ n.a. a/ Estimated. Sources: Ministry of Commerce and Industry, Comptroller General and IMF. TABLE 3.5: EXPORTS OF PRINCIPAL MERCHANDISE, 1970-82 (Millions of Balboas) Product 1970 1975 1977 1978 1979 1980 1981 1982 a/ Meat 2.2 1.6 1.5 0.5 1.5 3.1 5.1 9.4 Condensed and evaporated milk ... 0.3 1.4 2.3 3.3 6.5 5.9 2.2 Fresh and refrig. shrimp 10.2 19.0 30.0 30.3 45.0 43.7 42.7 52.9 Canned sardines ... 0.6 1.3 1.5 1.4 1.3 1.3 1.0 Bananas 60.8 60.0 66.5 71.9 65.7 61.6 69.2 66.0 Banana puree ... 1.2 2.2 1.8 2.5 2.2 3.7 2.0 Fruit extract 0.1 0.7 1.6 1.9 2.1 1.3 1.1 1.1 Sugar 4.4 49.4 21.9 20.3 26.1 65.8 51.0 23.7 Syrup and molasses O. 1.4 1.7 2.3 4.0 3.9 1.6 0.8 Coffee 1.7 2.3 5.5 8.9 9.6 10.2 13.5 12.1 Cocoa 0.8 2.1 3.1 4.0 2.1 0.1 ... Fish flour 0.8 1.7 10.5 4.2 7.9 10.1 4.3 1.6 Mayonnaise and mustard ... 0.4 0.8 1.1 1.5 2.1 0.7 0.5 Rum ... 0.3 1.1 1.4 2.3 3.8 3.0 2.0 Tobacco ... 0.8 1.0 1.2 1.7 1.4 1.9 2.3 Oil derivatives 21.5 128.3 68.3 60.1 72.4 81.8 58.4 70.1 Fish oil 0.1 1.2 4.5 1.5 1.4 4.7 1.3 0.3 Leather ... 0.5 3.5 2.2 5.2 2.0 2.4 5.1 Cardboard boxes ... 0.4 1.0 1.6 1.7 2.8 1.2 1.5 Clothing 0.2 3.2 6.1 8.6 8.6 10.4 14.0 17.3 Others 4.2 6.9 12.3 20.1 27.0 32.6 34.4 37.2 TOTAL 106.3 280.2 244.6 246.8 294.7 353.4 316.9 309.1 a/ Preliminary. Source: Comptroller General. - 228 - Table 3.6: TRAVELLERS TO PANAMA, 1970-83 (Thousands) Year Total Tourist and Transit a/ Other b/ Business 1970 498.3 116.2 367e5 14.6 1971 507.6 143.9 354.8 8.9 1972 526.0 146.6 358.5 20.8 1973 558.4 165.4 354.4 38.6 1974 579.2 200.1 341.3 38.1 1975 598.1 202.7 350.3 45.2 1976 641.1 223.6 368.1 49.5 1977 697.0 320.1 374.0 2.9 1978 725.3 376.2 349.1 0.0 Cf 1979 795.3 371.0 424.3 0.0 1980 734.8 377.6 357.2 0.0 1981 699.0 346.7 352.3 0.0 1982 634.0 336.3 297.7 0.0 1983 594.0 300.8 293.2 0.0 a/ Includes travellers only changing planes and those who remained in Panama up to 48 hours. bI Includes Panamanians living abroad returning for temporary stay; travellers arriving for medical attention, and others. c/ After 1977 "Other" is included in "Tourist and Business". Source: Comptroller General. - 229 Table 3.7: TRAVEL RECEIPTS AND EXPENDITURES, 1979-83 (US$ Millions) 1979 1980 1981 i982 1983 a/ Net travel receipts 114e5 112.4 105.7 93.2 100.0 Expenditure of visitors 127.0 133.5 132.5 133.1 126.3 Tourists 101.1 103.7 100.4 97.0 92.9 Business, official, and education-related travel 25,9 29.8 32n1 36.1 33.4 Travelers in transit 35.9 34.9 38.3 40.7 38.3 Expenditure of Panamanians traveling abroad -48.4 -56.0 -65e1 -80,6 -71.4 a/ Estimates Source: Comptroller General. 230 - Table 3.8: OPERATIONS OF THE COLON FREE ZONE, 1979-83 (US$ Millions and number of employees) Jan-Sept 1979 1980 1981 1982 1982 1983 a/ Total net receipts from Colon Free Zone 179.8 218.9 258.1 220.9 165.7 123.6 Wages and salaries 33.3 44.6 59.0 n.a. n.a. n.a. Depreciation 2.9 4.2 4.6 n.a. n.a. n.a. Profits 85.9 128.6 97.7 n,a. n.a. n.a. Indirect taxes 2.5 1.3 0.8 n.aO n.a. n.a. Other services 55.2 40.2 96.0 n.a. n.a. n.a. Imports (f.o.b.) by Free Zone 1,325.0 1,781.2 1,992.0 1,703.6 1,289.1 847.5 Food products 24.4 20.3 9.9 15.1 10.3 15.0 Beverages and tobacco 50.7 61.9 58.2 86.9 63.0 49.1 Chemical products 154 4 201.2 197.3 186.3 141.8 139.4 Manufactures 721.0 947.0 1,199.3 1,076.9 810.0 499.3 Machinery and transport goods 327.2 498.1 521.8 335.0 261.2 142.9 Other 47.3 52.6 5.5 3.4 2.8 1.8 Exports (f.o.b.) by Free Zone 1,529.1 2,055.8 2,328.1 2,149.3 1,596.5 1,074.4 Food products 46.5 39.4 16.6 19.9 11.0 23.1 Beverage and tobacco 56.7 70.1 68.7 101.7 67.7 52.5 Chemical products 221.3 270.0 291.8 268.2 204.1 210.7 Manufactures 818.5 1,103.2 1,366.7 1,325.7 978.2 576.2 Machinery and transport goods 379.2 562.9 583.7 430.5 332.9- 209.6 Other 6.9 10.2 0.5 3.3 2.6 2.3 Residual b/ 24.3 55.8 77.9 445.7 141.7 103.2 Number of Employees Panamanians employed in Colon Free Zone 5,263 6,254 6,918 6,974 7,018 6,147 a/ Estimated. -/ Changes in inventories and nonresident value added. Sources: Comptroller General and IMF. Table 3.9: NONTRADITIONAL EXPORTS AND ISSUE OF TAX CREDIT CERTIFICATES (CATs), 1977-83 (US$ Millions) 1977 1978 1979 1980 1981 1982 1983 a/ Nontraditional exports, f.o.b. 10.3 12.3 16.3 20.7 24.1 53.5 33.9 Food 0.3 1.3 1.5 4.2 5.9 21.5 13.9 Beverages and tobacco 1.0 1.2 1.5 1.5 2.2 2.3 2.7 Raw materials 0.0 0.0 0.1 0.0 0.0 0.0 0.0 Chemicals 0.0 0.2 0.2 0.3 0.2 0.3 0.5 Manufactures 4.9 2.7 4.9 5.1 6.4 11.8 6.6 Machinery and transportation equipment 0.0 0.0 0.0 0.0 0.1 0.0 0.0 Miscellaneous manufactures 4.1 6.9 8.1 9.6 9.3 17.6 10.2 Issue of tax credit certificates 1.4 1.4 2.1 2.8 3.1 7.3 6.4 Food 0.1 0.2 0.2 0.7 0.8 2.9 2.9 Beverages and tobacco 0.2 0.2 0.3 0.3 O.4 0.5 0.5 Raw materials 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Chemicals 0.0 0.0 0.1 0.1 0.1 0.1 0.0 Mauufactures 0.7 0.3 0.7 0.7 0.9 2.2 1.7 Machinery and transportation equipment 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Miscellaneous maniufactures 0.4 0.7 0.8 1.0 0.9 1.6 1.3 Ratio of tax credit certificates to exports (in percent) 13.6 11.4 12.9 13.5 12e9 13.6 18.9 a/ Estimated. Source: Ministry of Industry and Commerce. IV. DEBT - 233 Table 4,1: TOTAL PUBLIC DEBT OUTSTANDING, 1979-83 (US$ Millions) Debt 1979 1980 1981 1982 1983 a/ Non-Financial Public Sector 2,064.0 2,300.8 2,3603 90.3 2,933.5 Medium and Long Trm 2,037.6 2,229.6 2,315.2 2,726.3 2,898.5 Short erm. b/ 26.4 71.2 45.1 64.0 35.0 Financial Institutions neae 217.5 320.4 376.2 479.8 Liabilities to DI:F 41.4 23.0 93.6 83.9 200.7 Liabilities to Venezuela and Mixico Cf 3703 43.3 104.7 177.0 221.5 Otbar bdimui and Long Term 25.0 33.6 43.9 54.4 57.6 Short erm d/ neas 117.6 78.2 60.9 60.0 TOTAL OUTSTANDING n.a . 2 ,518.3 2,680.7 3,166.5 3,413.3 a/ Preliminary. b/ Mturities of less than 12 moaths. c/ Uhder the San Jose Oil Agreement. d/ Excluding demaad deposits but including interbank lines. Sources: Comptroller General, Ntional snk, IDP' and World Bank Extemal Debt Division. Table 4.2: MEDIUM AND LONG-TERM EXTERNAL PUBLIC DEBT OUTSTANDING BY DEBTOR, 1975-83 (US$ Millions) Debtor 1975 1976 1977 1978 1979 1980 1981 1982 1983 Central Government 452.6 568.1 677.8 1,154.0 1,458.7 1,671.6 1,753.4 2,072.9 2,174,2 INTEL a, 23.3 24.2 22.0 23.9 39.6 45.5 46.2 45.2 41.0 IRHE 6, 89.1 132.7 179.2 203.8 186.7 187.7 212.7 303.9 362.8 Agricultural Development Bank fJ f_ 8.8 16.3 20.0 29.3 28.3 52.2 64.1 National Martgage Bank 24.7 64.7 98.0 94.6 82.0 77.6 75.1 61.2 62.6 IDAA.' c1 45.4 49.1 48.2 48.1 47.8 49.1 51.8 53.9 53.2 La Victoria Sugar COrporation 64.2 132.2 166.0 177.8 68.8 41.5 24.5 13.6 5.2 Bayano CeRKmt Company 4.0 22.7 40.8 59.4 50.4 36.2 30.5 26.6 21.8 ODFINA dJ f/ f/ 0.9 1.2 10.7 17.3 15.4 13.9 23.0 Others 55.9 84.1 73.0 72.5 13.1 73.8 77.3 82.9 90.6 Sub-Total, NDn-Financial Public Sector 759.2 1,077.8 1,314.7 1,851.6 2,037.8 2,229.6 2,315.2 2,726.3 2,898.5 Financial Institutions e/ 15.0 g/ 25.0 g/ 14.0 g/ 19.7 g/ 25.0 g/ 33.6 g/ 43.9 g/ 55.4 g/ 57.6 g/ TOTAL 774.2 1,102.8 1,328.7 1,871.3 2,062.8 2,263.2 2,359.1 2,781.7 2,956.1 a/ National Teleonwnunications Company. b/ National Electricity Company. c/ Water and Sewage Company. d/ National Finance Corporation. e/ National Bank of Panama and Savings Bank. f/ Included in "Others". s( Excludes National Bank liabilities to the IMF, FIVEN and PEMEX. Sources: Comptroller General, National Bank, IMF and World Bank External Debt Division. Table 4.3: MEDIUM AND LONG-TERM EXTERNAL PUBLIC DEBT OUTSTANDING BY CREDITOR, 1974-83 a/ (US$ Millions) CREDITOR 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 Multilateral Agencies 99.8 135.1 168.3 192.2 230.0 269.1 329.0 360.4 442.2 587.4 Bilateral Concessional a/ 96.0 127.2 168.4 184.3 227.3 237.6 242.3 255.7 287.2 323.8 Sub-Total Concessional 195.8 262.3 336.7 376.5 457.3 506.7 571.3 616.1 729.4 911.2 Bonds 26.4 25.6 38.6 62.3 316.2 360.4 351.1 344.6 298.8 278.8 Commercial Banks 285.0 440.5 684.6 858.9 1,059.0 1,155.8 1,305.2 1,369.2 1,723.7 1,819.3 Suppliers' Credits 31.4 45.8 43.0 31.0 38.8 39.9 35.6 29.2 28.8 33.5 Sub-Total Com2ercial 342.8 511.9 766.2 952.2 1,414.0 1556.1 1,691.9 1,743.0 2,052.3 2,131.6 TOTAL 538.6 774.2 1,102.9 1,328.7 1,871.3 2,062.8 2,263.2 2,359.1 2,781.7 3,042.8 a/ Excluding IMF, FIVEN and PEMEX credits to the National Bank of Panama. Sources: Comptroller General, National Bank, IMF, and World Bank External Debt Division. Table 4.4: Service Payments, Commitments, Disbursements and External Public Debt Outstanding, 1974-98 (US$ Thousands) YEAR : DEBT OUTSTANDING AT T R A N S A C T I O N S D U R I N G P E R I O D OTHER CHANGES : BEGINNING OF PERIOD ---------------------------- ----------------------------------------------------------- ----------------------- DISBURSED : INCLUDING COMMIT- DISBURSE- S E R V I C E P A Y M E N T S CANCEL- ADJUST- ONLY :UNDISBURSED: MENTS MENTS -----------:-----------:----------- LATIONS MENT a/ PRINCIPAL INTEREST TOTAL (1) (2) (3) (4) (5) (6) (7) (8) (9) 1974 457,468 697,795 150,847 194,936 91,438 44,119 135,557 1,339 3,849 1975 564,836 759,714 380,736 222,227 31,186 41,184 72,370 8,573 23,373 1976 770.745 1,124,064 341,712 352,586 44,666 55,865 100,531 1,838 16,141 1977 1,092,968 1,435.413 476.063 316,597 88,223 73,219 161,442 5,718 15,308 1978 1,333,476 1,832,843 951,495 962,173 443,267 121,965 565,232 1,330 28,423 1979 1,880,463 2.368,164 395,955 396,668 190,142 196,362 386,504 3,511 -860 1980 2,078,421 2,569,606 518,727 390,785 213,795 251,526 465,321 37,724 11,846 1981 2,265,941 2,348,660 533,539 333,715 213,925 279,423 493,348 18,906 -5,903 1982 2,379,032 3,143,465 559,250 731,716 282,289 331,607 613,896 5,703 -11,816 1983 2,821,885 3,402,907 689,030 358,219 188,145 282,251 470,396 40,565 -12,764 1984 2,983,483 3,850,463 THE FOLLOWING FIGURES ARE PROJECTED bI 1984 2,983,483 3,850,463 - 373,743 252,366 299,060 551,426 - -209 1985 3,104.651 3,597,888 - 165,924 347,175 294,706 641,881 - 4 1986 2,923,403 3,250,717 - 130,747 499,334 266,675 766,009 - 4 1987 2,554,819 2,751,387 - 84,315 564,083 218,163 782,276 - 2 1988 2,075,051 2,187,306 - 50,736 529,560 162,740 692,300 - -2 1989 1.596,223 1,657.744 - 28,161 401,297 111,931 513,228 - 9 1990 1,223,096 1,256,456 - 17,217 213,401 80,098 293,499 - -8 1991 1,026,904 1,043,047 - 11,825 135,636 64,955 200,591 - 5 1992 903,098 907,416 - 4,318 117,090 55,723 172,813 - 5 1993 790,331 790,331 - - 133,271 46,763 180,034 - 3 1994 657,063 657,063 - - 109,111 37,314 146,425 - -2 1995 547,950 547,950 - - 85,757 30,061 115,818 - 7 1996 462,200 462,200 - - 78,889 24,029 102,918 - - 1997 383,311 383,311 - - 71,177 18,541 89,718 - 1 1998 312,135 312,135 - - 54,796 13,797 68,593 - -1 a/ THIS COLUMN SHOWS THE AMOUNT OF ARITHMETIC IMBALANCE IN THE AMOUNT OUTSTANDING INCLUDING UNDISBURSED FROM ONE YEAR TO THE NEXT. THE MOST COMMON CAUSES OF IMBALANCES ARE CHANGES IN EXCHANGE RATES AND TRANSFER OF DEBTS FROM ONE CATEGORY TO ANOTHER IN THE TABLE. b/Projections based on debt outstanding including undisbursed as of December 31, 1984. Table 4.5: Terms and Structure of External Public Debt, 1970-83 `US$ Thousands) AVERAGE TERMS INTEREST MATURITY GRACE GRANT GRANT PERIOD ENDING AMDUNT (%M (YRS) (YRS) ELEMENT(%) EQUIVALENT -------------------------------- S-- --------- -------,- -------- ----- --.-------- ---------- 7012 111,238 6.862 15.1 4.0 17.1 19.037 7112 137.808 6.858 15.2 3.4 19.0 26,123 7212 105,873 7.445 11.0 3.6 13.6 14,374 7312 282,049 8.445 13.6 4.5 9.9 27,850 , 7412 150,847 9.232 17.0 4.5 10.7 16,206 7512 380.736 8.092 13.5 4.3 12.3 46,967 - 7612 341.712 8.203 9.1 3.0 7.9 26.932 7712 476,063 8.178 12.7 3.9 8.6 40,952 7812 951,495 9.16a 10 9 4.i 4.6 43,691 7912 395,955 9.692 1347 5.3 3.2 12.844 8012 518,727 11.408 13.4 4.5 -2.9 -15,022 8112 533,539 14.403 . 11.6 4.4 -18.6 -99,484 8212 559,250 13.017 11.0 4.2 -11.5 -64,105 8312 689.030 i1.3?8 10.2 3.2 -5.6 -38,299 B--------------------------- ---- --- ---------------------------------- -----------------------------------. TOTAL EXTERNAL PUBLISC DEBT 5,634,322 10.i70 12.0 4.1l 1.0 58.068 GA h t-e Table 5.1: C2LIRAL O ER16EN 0PERATIa61S, 1971-83 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 (HIllons of Balbo,as) QIRRIif _ED8181.2. 197.9 225.0 268.0 297.1 295.0 369.0 405.4 477.0 707.8 791.1 865.3 906.2 Tax rev-e 145.0 157.5 175.4 214.3 231.0 233.5 303.3 338.8 405.1 537.8 581.7 614.7 683.9 Inrome tax 60.0 60.0 71.4 88.9 101.8 95.0 117.7 120.9 152.1 205.0 256.5 270.9 302.6 a O,ther direct tae .a. n.a. n.a. n.a. n.a. n.a. 28.9 24.0 31.1 35.6 48&3 51.5 54.3 Taxes oni foreign tra& 41.5 42.7 44.9 61.0 58.2 56.0 56.4 70.1 80.2 91.0 99.1- 106.0 115.1 -mm dosestic transactions 27.5 37.4 39.4 44.8 48.9 58.4 100.3 7.23.8 141.7 206.2 177.8 186.3 211.9 Ilnstax reverm 36.1 40.4 49.6 53.7 66.1 61.5 65.7 66.6 71.9 110.0 b/ 208.8 233.6 222.3 Pearm Canal 1.9 1.9 2.1 7.3 2.3 2.3 2.3 2.3 2.3 83.8 75.8 79.3 59.7 011 pipeline royalties aisd taxes 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 12.2 Transfers frtam Tcst of pj1l.c sector 0.0 0.0 0.0 6.2 14.7 6.5 7.0 6.2 4.3 18.4 15.3 27.8 22.4 GE tAich: f,r-n Social Security Agency n..a. n.e. n.a. n.a. n.a. n.a. 3.9 2.1 2.5 0.0 6.1 0.0 0.0 free decentralze agencies n.a. n.a. n.a. n.a. n.a. n.e. 0.0 0.0 0.0 4.4 5.0 4.3 4.4 from public enterprises n.a. n.a. n.a. n.e. n... n.a. 3.1 4.1 1.8 14.0 4.2 23.5 18.0 Other n.e. n.a. n.a. n.a. n.a. n.a. 36.4 58.1 65.3 67.8 88.3 96.0 130.0 tOtA RICPEII)195 216.8 250.2 292.6 353.7 441.2 425.0 467.8 596.3 763.5 917.1 984.6 1,*147 .6 1,1340 tUL5S35 E2M!I)THW 167.0 193.5 203.6 266.1 280.9 308.0 353.0 450.4 533.8 681.7 767.4 919.8 909.5 tjes ara alre 91.6 109.0 119.6 149.7 166.0 n.e. 184.4 196.5 235.2 280.8 296.5 317.8 353.7 Q,d n services 28.0 23.9 20.6 32.3 25.1 n.a. 25.7 30.8 33.0 40.5 54.5 106.9 118.8 Pensions and transfers 50.2 36.4 36.2 37.5 43.3 n.e.- 74.8 107.7 130.6 142.0 175.5 171.0 161.5 Of aidch: to rest of public sector n.e. n.e. n.e. n.a. n.a. n.e. 37.7 52.0 58.9 71.6 82.2 91.0 71.5 to Social Security Agency n..a. n.a. n.a. n.e. n.- n.e. 13.8 17.5 22.5 16.6 41.2 35.( 46.9 to decenital.ized agencies n.e. n.e. n.e. n.ea. n.e. n.e. 21.0 26.8 27.1 30.7 32.7 45.8 36.4 toPubic entrprise n.e. n.e. n.e. n,e. Pn.a. n.e. 2.9 7.7 9.3 24.3 8.3 9.6 6.7 Interest n.e. n.e. n.e. n.e. n.e. n.e. 63.5 85.0 133.2 196.7 236.5 ZX.8 263.2 Internal n.a. n.a. n.e. nra. n.e. n.e. 19.4 19,6 13.5 16.7 21.9 20.0 32.3 EFbTeral n.e. n.e. n.a. n.e. n.e., n.e. 44.1 65.4 119.7 180.0 214.6 288.8 230.9 Other current oepedit~irea .e n.e. n.e. n.e. n.a. n.a. 4.6 31... 21.8 21.7 4.4 15.3 12.3 a3i838 A13o558 sUR'Us rRt mEFicIT (- 14.1 4.4 21.4 1.9 16.2 -13.0O 16.0 -45.0 -76.8 26.1 23.1 -54.5 -3.3. Grants-in-aid 0.0 0.0 0.0 5.1 8.6 22.0 7.7 4.7 5.0 1.8 0.6 0.0 0.0 I CAPITL EXENI0'0f0 49.8 56.7 65.3 87.6 129.5 117.0 114.8 145.9 229.7 236.1 217.2 227.8 224.5 Fixed capital. fortici n.. a.. n.. ne .. ne 6. 91 178 34. 3. 6. 8. Tranafers to rest of the consolidated public sector n.e. n.e. n.e. n.e. n.a. -a.e. 45.5 66.8 121.9 116.6 79.0 67.4 42.5 To deontr=ied agencies n.e. n..e. n.a. n.e. n.e. n.e. 10.1 10.0 2.5.4 27.3 36.3 46.7 24.8 To public enterprises n.e. n.a. n.e. n.e. n.e. n.e. 35.4 36.8 98.5 84.3 42.7 20.7 17.7 Of vhich to la Victoria n.e. n.ea. n.e. n.e. n.e. n.e. 0.0 0.0 47.5 62.6 17.3 7.7 1.5.0 OVERAL =MM10 ORt 1mIC1(- -35.7 -52.3 --66.6 -80.6 -135.5 -106.0 -91.1 -188.2 -301.5 -208.2 -193.5 -282.3 -227.8 TItmer-el financing n.. ne .. ne .. ne 2. 8. 8. 3. 73 307.2 101.2 Natitsial Bank n.a. n.e. n.e. n.e. n.e. n.a. -37.1 -96.4 120.7 -23.5 132.3 -22.2 329.3 Otber c/ n.a. n.a. n.e. n.e. n.e. n.e. 0.8 -4.0 -4.4 -4.4 -6.1 -Z.7 -2.7 Charnel percenag diang) Ozrtent xem.r n.e. 9.3 13.7 19.1 10.9 -0.7 24.3 9.9 17.7 48.4 11.8 9.4 4.7 Tax revemee n.e. n.e. n.e. n.e. n.e. n.e. 25.8 11.7 19.6 32.7 8.2 5.7 6.0 Nont-x revensm n.a. n.a. n.e. n.e, n.e. n.e. 18.2 1.4 8.0 136.4 22.8 11.9 1.0 Total eseltren.e. n.e. n.e. n.e. n.e. n.e. 2.7 27.5 28.4 20.1 7.4 16.6 -1.2 Qwrrent expenditure n.e. 15.9 5.2 30.7 5.6 9.6 9.0 27.6 23.0 23.1 32.6 19.9 -1.1I Capital espndiirue n.e 13.9 15.2 36.2 47.8 -9.7 -12.8 27.1 57.4 2.8 -8.0 4.9 -1.4 (Ae per rent of GDiP) Qirrent re,,mm 15.7 15.2 15.3 14.6 13.1 12.2 17.8 16.5 17.0 20.2 20.4 20.5 21.0 Tax revesm . n.e. n.a. n.e. n.e. n.e. n.e. 14.7 13.8 14.5 15.4 15.0 14.5 15.9 Nnoctax revenue n.e. n.e. n..a. n.a. n.e. n.e. 3.1 2.7 2.5 4.8 5.4 5.5 5,1 nT.el expesiines n.e. n.e. n.e. n.e. n.e. n.e. 22.6 24.3 27.3 26.1 25.4 27.1 26.3 Qirent Teoeditsoe 14.4 14.9 13.8 14.5 12.4 12.7 17.1 18.4 19.8 19.4 19.8 21.8 21.1 Cqaptal expenditur n.n. n.a. n.e. n.e. n.e. n.e. 5.5 5.9 8.2 6.7 5.6 5.4 9.2 Oarrent acmnmt ezrplu or deficit (31.2 0.3 1.5 0.1 0.7 -0.5 0.7 -1.9 -2.8 0.8 0.6 -1.3 . Overall surplus or deficit (3-3.1 -4.0 -4.5 -4.4 -6.0 -4.5 -4.4 -7.6 -10.8 -5.9 -5.0 4.7 .-5.3 a! -1le discountiig of incree t-ax prnmslsory sDedan issued byr oil pipeline c.Wnc~y. hiIncludes B/. 32.5 zillio. in pe7.-enta deferred fire 1960. ~?Includes bonids placed locally. Saarres: Gc.Vtroller Generl. Ministry of PLantin eed Ero.i. Policy andi DIM. Tabe 5.2: CRMAL OD/ 2 REVI, 1971-83 (MllLions of Balboas) 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 7XYEAL REVENUE 181.1 197.9 225.0 268.0 297.1 295.0 369.0 405.4 477.0 707.8 790.5 865.3 906.2 TAX REVENUE 145.0 157.5 175.4 214.3 231.0 233.5 303.3 338.8 405.1 537.8 611.1 645.2 683.9 Direct ta.s n.a. 'n.a. n.a. n.a. n.a. n.a. 146.6 144.9 183.2 240.6 299.6 316.5 356.9 Itxw tax 60.0 60.0 71.4 88.9 101.8 95.0 117.7 120.9 152.1 205.0 256.5 270.9 302.6 b/ Wev'lth tax 9.6 9.6 10.4 11.4 12.6 13.2 12.4 13.3 15.2 16.4 18.1 18.7 26.5 0twr n.a. n.a. n.a. n.a. n.a. n.a. 16.5 10.7 15.9 19.2 25.0 26.9 27.8 5 oa foreign trae 41.5 42.7 44.9 61.0 58.2 56.0 56.4 70.1 80.2 91.0 99.1 106.0 115.1 i9xrt tma 0.7 0.7 0.7 10.2 14.0 11.0 9.8 11.2 12.1 12.6 15.5 14.9 18.8 1mprt taxs 30.2 31.0 32.3 37.0 30.6 30.0 30.6 37.8 43.6 48.9 52.9 59.1 65.3 rAx,-1ar dues 10.6 11.0 1.9 13.8 13.6 15.0 16.0 21.1 24.5 29.5 30.7 32.0 31.1 Taws on domstic Trtt cxi 27.5 37.4 39.4 44.8 48.9 58.4 100.3 123.8 141.7 206.2 212.4 222.7 211.9 Tobacco and bev 13.5 16.6 15.9 17.5 19.9 19.6 20.4 23.2 25.7 27.8 29.5 31.2 31.5 Valmu added tax n.a. n.a. n.a. n.a. n.a. n.a. 31.1 48.3 55.3 66.4 73.8 79.4 73.1 Petrolem products 8.9 14.8 16.4 17.9 19.7 27.8 28.4 31.3 34.1 73.9 68.5 68.3 68.7 Ship registration fees 1.6 2.3 3.0 4.1 4.2 4.3 4.8 5.0 5.9 9.6 10.2 9.2 9.8 Stamp tam 6.4 7.8 9.3 8.8 9.5 10.9 9.9 10.0 11.1 13.6 13.7 13.9 19.5 Ot 3.5 3.7 4.1 4.7 5.1 6.7 5.7 6.0 9.6 14.9 16.7 20.7 9.3 NONAXeEVERE 36.1 40.4 49.6 53.7 66.1 61.5 65.7 66.6 71.9 170.0 179.4 220.1 222.3 aE nl axIdty 1.9 19 2.1 2.3 2.3 2.3 2.3 2.3 2.3 83.8 ap73O 79.3 59.7 Oil p4eliue royalties and taxs 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 417.0 12.2 Survices 9.3 10.7 1ll9 11.6 11.6 11.7 17.0 19.6 18.5 24.3 30.9 43.0 55.0 Gekrl erdnlg 20.0 23.3 28.7 28.3 31.5 34.0 35.3 35.3 38.5 43.0 45.7 49.1 53.5 Traifers frn ret of publl sector 0.0 0.0 0.0 6.2 14.7 6.5 7.0 6.2 4.3 18.4 15.3 27.8 22.4 other 4.9 4.5 6.9 5.3 6.0 7.0 4.1 3.2 8.3 0.5 11.7 3.9 19.5 a/ Irclxles B!, 12.5 Millioan accrued in 1979 it reeiAed in 1980. bI .udes d-w; 'tg of Incame tax prcmissory notes issued by ol pipelxe coony. Sources: nist,- -f Lning and Emmic Policy, C oller eral and IW. Table 5.3: CO)NSOLTDATED OPERATIONS OF THE DECENTRALIZED AGENCIES, 1977-83 a/ (Millions of Balboas) 1977 1978 1979 1980 1981 1982 1983 OPERATING REVENUE 17.8 34.7 43.2 54.5 64.1 67.1 111.8 b/ OPERATING EXPENDITURES 43.7 58.8 76.1 83.9 92.7 112.8 115.7 Interest payments 9.5 11.0 19.5 14.3 19.2 25.7 30.4 Other current expenditures 34.2 47.8 56.6 69.6 73.5 87.1 85.3 OPERATING SURPLUS OR DEFICIT (-) -25.9 -24.1 -32.9 -29.4 -28.6 -45.7 -3.9 Current transfers (net) 21.0 26.8 27.1 26.3 27.7 41.5 32.0 Transfers from Central Government 21.0 26.8 27.1 30.7 32.7 45.8 36.4 Transfers to Central Government 0.0 0.0 0.0 -4.4 -5.0 -4.3 -4.4 CU3URERT ACCOUNT SURPLUS OR DEFICIT (-) -4.9 2.7 -5.8 -3.i -0.9 -4.2 28.1 Capital transfers from Central Goverment 10.1 10.0 23.4 27.3 36.3 46.7 24.8 Transfers from Social Security Fund 12.0 12.1 0.0 10.9 14.2 16.7 4.8 CAPITAL EXPENDITURE 62.1 67.0 44.2 60.6 65.6 99.9 57.2 Fixed investment c/ 49.2 45.6 19.9 17.4 32.1 57.5 45.1 Other 13.0 21.4 24.3 43.2 33.5 42.4 12.1 OVERALL SUTRPLUS OR DEFICIT (-) -45.0 -42.2 -26.6 -25.5 -16.0 -40.7 0.5 External financing (net) n.a. n.a. 0.6 28.6 7.0 39.9 -15.4 National Bank financing (net) n.a. n.a. 26.0 -2.3 9.4 O08 14.9 Other n.a. n.a. 0.0 -0.8 -0.4 00 n.a. a! Includes the operations of the University of Panama, Human Development Institute (IFARHU), Agricultural and Marketing Institute (A), National Finance Corporation (COFN), and National Morgage Bank (BHN), and Agricultural Development Bank (BDA). b/ Includes B/. 34.0 million in proceeds of sale of hotel by COFINA. c/ Includes investment expenditures of the Housing Ministry. Sources: Comptroller General, Ministry of Planning and Economic Policy, National Bank of Panama and MFf. Table 5,4: CONSOLIDATED OPERATIONS OF THE STATE ENTERPRISES, 1975-83 a/ (Millions of Balboas) 1975 1976 1977 1978 1979 1980 1901 1982 1983 OPERATING REVENUE 129.4 n.a. 159.1 183.7 234.9 361.9 427.1 436.0 501.1 OPERATING EXPENDITURES 97.1 nla. 151.3 186.7 238t,9 318.4 364.7 394.8 430,7 Interest paymtents n.a. n.a. 34.6 50.9 61.2 68.8 67.0 60.5 64.7 Other current zxpenditures n.a. n.a. 116.7 135.8 177.7 249.6 297.7 334.3 366.0 OPERATING SURPLUS OR DEFICIT 32.8 n.. 7,8 -3.0 -4.0 43.5 62.4 41.2 70.4 Transfers net of taxes n.a. n.a. -0.2 3.6 7.5 10.3 4.1 -13.9 -11.3 Current transfers from Central Government 0.5 n.a. 2.9 7,7 9,3 24,3 8.3 9.6 6.7 Transfers to Central Government n.a. n.a. -3.1 -4.1 -8.1 -14.0 -4.2 -23.5 -18.0 CURRENT ACCOUNT SURPLUS OR DEFICIT n.a. n.a. 7,6 0.6 3.5 53.8 66.5 27.3 59.1 Capital transfers 23.5 n.a. 35.4 56.8 98.5 84.3 42.7 20.7 17.7 CAPITAL EXPENDITURE 136.8 n.a. 175.1 181,6 142.6 116.1 117.1 179.4 126.0 Flxed Investment n.a. n.a. 175,1 187.6 142,6 116.1 117.1 180.3 120.0 Other na. n.a. 0.0 .0 0.0 0.0 7.0 -0.9 0.0 OVERALL SURPLUS OR DEFICIT -80.5 n.a. -132.1 -130.2 -40.6 22.0 -7.9 -131.4 -49.2 External financing (not) 53.5 n.a. n.a. n.a. 10.7 -23.1 -9.9 90.6 57.0 National Bank financing (net) 32.0 n.a. n.a. n,a. 30.2 1.2 17.9 40.9 -7.8 Other 0l0 n.a. n.a. n.a. -0.3 -0.1 -0,1 -0.1 n.a. a! Includes the operations of Hydraulic Resources and Electricity Institute tIHRE), National Telecommunications Institute (INTEL), National Water and Sewerage Institute (IDAAU), La Victoria Sugar Corporation, Colon Free Zone, Civil Aviation Authority, Tourism Institute, Bayano Cement Plant, and Port Authority. b/ Includes credit from FIVEN, PEMEX and IMF intermedlated through the National Bank. Sources: Comptroller General, Ministry of Planning and Economic Policy, National Bank of Panama and IMF. Table 5.5: OPERATIONS OF THE SOCIAL SECURITY AGENCY, 1971-83 (MIllions of Balboas) 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 CURRENT REVENUE 58.1 72.2 83.6 94.3 133.2 165.4 138.9 151.7 181.9 219.i 266.7 318.7 333.1 Contrlbutlions 48.6 62.3 73.1 83.4 115.4 144.6 104.9 114.0 139.0 165.8 201.3 236.1 248.1 From workers n.a. n.a. n.a. n.e. n.a. n.a. 48.0 52r4 65.4 78.5 93.7 109.4 n.a. From employers n.a. n.a. n.a. n.a. n.a. n.e. 51.1 55.4 66.9 80.3 99.5 117.7 n.a. Other quotes n.ea. n.a. n.a. n.a. n.a. n.a. 5.8 6.2 6.7 7.0 8.1 9.0 n.a. Professional risk premium n.a. n.a. n.a. n.a. n.a. n.a. 7.9 8.5 10.4 12.9 15.7 19.4 17.7 Thirteenth month contrIbutlon n.e. n.a. n.a. n.a. n.a. n.a. 11.1 13.0 15.8 19.2 22.9 27.0 27.3 Oontrlbutlons to public employees' compens- ation pension fund n.a. n.e. n.a. n.a. n.a. n.a. 5.1 5.6 6.6 8.3 10.2 11.4 13.1 Income from investments 8.6 8.6 9.1 9.3 10.9 12.0 6.7 6.4 4.2 6.8 11.3 14.8 15.0 Other n.a. n.a. n.a. n.a. n.a. n.a. 3.2 4.2 5.9 6.1 5.3 10.0 11.9 CURRENT EXPENDITURES 53.3 61.6 68.9 77.0 99.0 115.8 133.6 155.6 170.3 197.0 235.7 266.5 314.7 Administration 5.1 6.0 6.4 7.1 7.4 6.2 9.0 10.9 9.8 11.4 12.3 16.4 21.9 Payments of benefits and other 48.2 55.6 62.5 69.9 91.6 109.6 124.6 144.7 160.5 185.6 223.4 250.1 292.8 CURRENT OPERATING SUR- PLUS OR DEFICIT (-) n.a. n.a. n.a. n.a. n.a. n.e. 5.3 -3.9 11.6 22.1 31.0 52.2 18.4 Current transfers (net) n.a. n.e. n.e. n.e. n.e. n.e. 9.9 15.4 20.0 16.6 35.1 5.6 40.9 Current transfer from Central Government n.a. n.e. n.a. n.a. n.a. n.a. 13.8 17.5 22.5 16.6 41.2 35.6 40.9 Transfers to Central Government n.a. n.a. n.a. n.e. n.a. n.a. -3.9 -2.1 -2.5 0.0 -6.1 0.0 0.0 CURRENT ACCOUNT SUR- PLUS OR DEFICIT (-) 7.9 14.1 18.9 22.0 39.5 56.9 15.2 11.5 31.6 38.7 66.1 87.8 59.3 CAPITAL EXPENDITURES 3.8 5.0 4.5 5.2 3.9 7.8 17.6 18.6 9.0 23.7 63.2 95.4 47.5 Fixed investment n.e. n.a. n.a. n.a. n.a. n.e. 3.6 4.7 6.0 4.5 5.5 8.9 4.8 Financial investment n.a. - a. n.a. n.a. n.a. n.a. 2.0 1.8 3.0 6.0 4.9 9.0 14.9 Net lending io National 14rtgage Bank n.a. n.a. n.a. n,a. n.a. n.a. 12.0 12.1 0.0 10.9 14.2 16.7 4.8 Hiuslng program and others n.a. n.e. n.a. n.as n.,, n.e. 0.0 0.0 0.0 2.3 38.6 60.8 23.0 OVERALL SURPLUS OR DEFICIT (-) 2.2 7.5 11.4 14.3 33.V 46.6 -2.4 -7.1 22.6 15.0 2.9 -7.6 11.8 External fInancIng (net) 0.0 10., -0.7 -1.4 -1.4 n.e. n.a. n.a. -2.5 -1.3 21.8~/ 0.0 0.0 Natlonal bank financ- Ing (net) -2.2 19.8 -0.9 16.4 21.4 m.a. n.a. n.a. -20.1 -16.0 -24.7 7.6 -11.8 Other 0.0 -37.3 -9.8 -29.3 53.1 n,n. n.e n.a. n.a. 2.3 0.0 0.0 0.0 a/ Bonds placed domestically. Sources: SocIal Security A9j6:)y, Comptroller General, Ministry of Planning and EconomIc Policy, National Bank and IMF estimates. - 244 - Table 5.6: CE ICZ OF THE TM NW INAL PUBLIC SEC1XR, 1977-83 1977 1978 1979 1980 1981 1982 1983 (tl4lons of Balboas) REVEE OfF a 1LJJE PUBLIC SECl 537.1 595.0 708.2 1,032.6 1,177.3 1,274.1 1408 General goyernnt rev x 521.8 589.7 699.6 977.0 1,110.2 1,246.8 1,346.7 Central Goverrmnt a/ 365.1 403.3 474.5 703.4 779.4 861.0 n.a. Social Secrity Asemy 138.9 151.7 181.9 219.1 266.7 318.7 a.a. Rest of general governent 17.8 34.7 43.2 54.5 64.1 67.1 n.a. ftants-in-aid 7.7 4.7 5.0 1.8 0.6 0.0 n.ae. Public enterprises current account surplus or deficit (-) 7.6 0.6 3.6 53.8 66.5 27.3 59.1 Of which: interest paymnts 34.6 50.9 61.2 68.8 67.0 n.a. n.a. EXPIEDlMRE OF CONSa A PUBLIC SE(T1R 807.7 960.7 1,054.2 1,229.3 1,391.8 1,736.1 1,670.5 General gcvernWeit current 495.5 620.6 750.6 915.3 1,021.9 1,217.7 1,262.6 Central GverWInt a/ 318.2 406.1 504.2 634.4 693.5 838.4 n.a. Socia1 Security AgEncy 133.6 155.6 170.3 197.0 235.7 266.5 n.a. Rest of general goverment 43.7 58.8 76.1 83.9 92.7 112.8 n.a. Capital expenditure 312.2 340.2 303.6 314.0 369.9 518.4 407.9 Fixsd inwstent 297.2 317.0 276.3 264.8 331.5 486.1 n.a. Net lending to private sector 15.0 23.2 27.3 49.2 38.4 32.3 n.a. PLIC SECIR SAVISS b/ 41.6 -25.5 -42.4 117.3 155.4 56.4 143.2 OVERALL CIC O C 0MF SPUBLIC SEC= -270.6 -365.7 -346.0 -196.7 -214.5 462.0 264.7 Overall surplus or defidt (-) of nanconsolidated phUblic sector 13,1 -11.5 15.4 12.6 6.6 - 2.0 17.6 OVERAI DEFICIT OF PULIC SEC1XJR -257.5 -377.2 -330.6 -184.1d/ -207.9 -464.0 -247.3 External financing 281.9 479.5 196.1 227.6 20B.i7/ 495,7/ -298.4d Natioral Bank -32.5 -100.7 139.9 -40.5 - 0.8e/ -31.6e/ - 51.1e/ Other c/ 8.1 -1.6 -5.4 -3.0 n.. n.a. n.a. (Aml percetage cag) Revenue of cosolidated public sector 15.8 10.8 19.0 45.8 14.0 8.2 10.3 Ew&ture of consolidated public sector -3.5 18.9 10.0 16.6 13.2 24.7 -3.8 Currnt expenditure of geeral goverment 6.5 25.2 21.0 21.9 11.6 19.2 3.7 Capital expe"Jituree -16.3 9.0 -10.1 3.4 17e8 40.1 -21.3 (As per cent of GDP) Revenue of oonsolidated public sector 25.9 24.3 25.3 29.4 31.0 30.2 32.8 Expenditure of conslidated public sector 39.0 39.2 37.6 35.0 36.7 41.2 39.0 G al govxr t acrent expenditure 23.9 25.3 26.8 26.1 26.9 28.9 29.5 Capital expeniture 15.1 13.9 10.8 8.9 9.8 12.3 9.5 Cosolidated public sector savings 2.0 -1.0 -1.5 3.3 4.1 1.3 3.3 Overall public sector deficit -12.4 -15.4 -11.8 -5.2 -5.5 -11.0 5.8 a/ Ewludes trPnsfers to and irom the rest of the general goverront. b nluies grants- aid I ncudes bonds placed locally. / Ildes net dishbrsalents of the IMF, FIEM and PEWX intermediated through the National Bank, met. e Net. Sources: Comptroller General, Ministry of Plaming and EconoiLc PolUcy and IDF. Table 5.7: CERMAL (XVERNT AND SOCIAL SCURITY REVENUES, 1971-63 (illlmons of Balboas and Percent) Social Tax N1-tax Total Central Security Total Nominal Anrmal Growth Rates Revenwes Revemes Gavermunt ributions a/ Taxation (P A as pereent A and D as (percent per annum) Year (A) (B) (C) (D) (A + D) (E) OfE percent of E A D A + D E 1971-83 1971 145.0 36.1 181.1 48.5 193.5 1,151.9 12.6 16.8 13.8 16.6 14.6 11.8 1972 157.5 40.4 197.9 62.3 219.8 1,264.9 12.5 17.4 1971-75 1973 175.4 49.6 225.0 73.1 248.5 1,446.4 12.1 17 .2 1974 214.3 53.7 268.0 83.4 297.7 1,654.1 13.0 18.0 12.3 24.2 15.7 12.4 1975 231.0 66.1 297.1 115.3 346.3 1,840.8 12.5 18.8 1976 233.5 61.5 295.0 120.4 353.9 1,956.3 11.9 18.1 1976-79 1977 303.3 65.7 369.0 129.0 432.3 2,069.8 14.7 20.9 1978 338.8 66.6 405.4 141.1 479.9 2,452.5 13.8 19.6 20.2 12.6 17.7 12.7 1979 405.1 71L9 477.0 171.8 576.9 2,800.2 14.5 20.6 1980 537.8 170.O 707.8 206.2 745.o0 3,558.8 15.1 20.9 1980-83 1981 611.1 179.4 790.5 250.1 861.2 3,878.0 15.8 22.2 1982 645.2 220.1 865.3 293.9 939.1 4,287.1 15.0 21.9 8.3 14.1 9.9 7.1 1983 683.9 222.3 906.2 306.2 990.1 4,369.6 15.7 22.7 al inluding professioial risk premium, thirteenth month coxtribution and contributians to public employes' compensatimn pension fund. Sources: Ciqtroller General and ff. I. BANKING - 247 - Table 6.1: BANKING INSTITUTIONS: NUMBER REGISTERED IN PANAMA BY CATEGORY, 1976-83 Year General a/ Internacional Representative Total License License Offices 1976 47 18 6 71 1977 47 20 9 76 1978 50 24 10 84 1979 52 28 10 90 1980 59 33 12 104 1981 66 40 10 116 1982 71 43 13 127 1983 b/ 71 c/ 44 13 128 a/ Including Banco Nacional de Panama and Caja de Ahorros. b/ As of June 30, 1983. c/ Including a Venezuelan bank which ceased operations in mid 1983 but remains registered. Sources: National Banking Commission and World Bank estimates. Table 6.2: BANKING SECTOR EMPLOYMENT AND WAGES, 1976-83 a/ 1976 1977 1978 1979 1980 1981 1982 1983 Total Number of Employees 5,759 5,912 6,180 6,573 7,178 7,919 9,826 9,007 Nationals 5,612 5,754 6,011 6,373 6,976 7,665 8,477 8,742 Foreigners 147 158 169 200 202 254 249 265 Average Salary b/ (US$ per month) 444 484 523 569 601 636 694 740 Official Banks: NK mber of Employees 1,909 2,032 2,151 2,300 2,523 2,778 3,120 3,276 Average Salary b/ (US$ per month) 324 352 371 398 399 404 445 475 General Licensed Banks: Number of Employees 3,692 3,672 3,740 3,895 4,203 4,615 5,018 5,106 Average Salary b/ (US$ per month) 501 54r 599 646 69 3 739 805 872 International Licensed Banks: Number of Employees 158 200 267 358 425 504 569 610 Average Salary b/ (US$ per month) 565 631 660 818 880 945 1,072 1,078 Representation Licensed Banks: Number of Employees n.a. n.a. 8 22 20 22 19 16 Average Salary b/ (US$ per month) n.a. n.a. 802 716 725 746 789 795 Number of employees per Institution Official Banks 955 1,016 1,076 1,150 1,262 1,389 1,560 1,638 General Licensed Banks 82 82 78 78 74 78 78 74 International Licensed Banks 9 10 11 13 13 12 13 14 Representation Licensed Banks n.a. n.a. 1 2 2 2 2 1 Total 81 78 74 73 69 71 72 70 a/ Until June 30. b/ Excluding Social Charges. Source: National Banking Commission. Table 6.3: LOAN PORTFOLIO BY AREA OF BANKS REGISTERED IN PANAMA, 1976-82 (US$ Millions) AREA 1976 % 1980 % 1981 % 1982 Z Total International Loans 6,050.8 100.0 20,425.9 100.0 27,433.2 100.0 29,288.2 100.0 North America 1,440.2 23.8 5,477.5 26.8 8,280.4 30.2 7,332.3 25.0 South America 2,974.2 49.2 10,151.1 49.7 14,411.9 52.5 16,707.4 57.0 Central America 719.1 11.9 2,398.2 10.3 1,906.3 7.0 2,229.9 7.6 6 Caribbean Area 83.2 1.4 299.1 1.5 339.4 1.2 328.3 1.1 Ettrope 565.1 9.2 1,884.9 9.2 2,128.3 7'.8 2,186.6 7.6 Otlher Areas 269.0 4.5 515.1 2.5 367.0 1.3 503.7 1.7 Source: National Banking Commission. Table 6.4: CONSOLIDATED BALArCE SHEETS OF THE BANKING SECTOR, 1976-83, (US$ Millions) a! 1976 1977 1978 1979 1980 1981 1982 1983 Total Assets 12,703.8 16,583.7 22,166.0 35,414.1 38A439.6 46,359.9 49,002.6 45,545.7 Liquid assets 4,589.7 5,862.8 7,820.5 15,013.7 12.444.0 11,840.6 12,401.3 12,279.5 Loans 7,679.1 9,958.1 13,504.9 18,939.9 22,956.5 30, 579.2 32,639.1 29,634.8 Local (1,628.3) (1,765.5) (1,643.3) (2,133.2) (2,530.6) (3,146.0) (3,350.9) (3,502.5) Foreign (6,050.8) (8,192.6)(11,661.6) (16,806.7) (20,425.9) (27,433.2) (29,288.2) (26,132.3) Securities 140.9 244.2 206.1 345,0 1,625.7 1,708.3 1,731.6 1,680.6 Other Assets b/ 294.1 518.6 634.5 1,115.5 1,413.4 2,231.8 2,230.6 1,950.8 LlablllfIes and Capital 12,703.8 16,583.7 22,166,0 35,414.1 38,439.6 46,359.9 49,002.6 45,545.7 Deposits 11,345,2 15,212.2 20,708.2 32,179.6 33,899.2 39,683.1 40,331.8 37,370.6 Local (994.8) (1,199.4) (1,5.53.0) (1,802.4) (2.406.0) (3,201.5) (3,526.8) (3,224.4) -Demand (265.0) (354.3) (496.5) (456.3) (513.91 (644.1) (705.7) (615.0) -Fixed Term (729.8) (845.1) (1,056.5) (1,346.1) (1,892.1) (2,557,4) (2,821.1) (2,609.4) Foreign (10,350.4) (14,012.8)(19,155.2) (30,377.2) (31,493.2) (36,481.6) (36,805.0) (34,146.2) -Demand (406.0) (412,9) (445.8) (842.6) (820.8) (952.2) (888.5) (1,097.7) -Fixed Term (9,944.4) (13,.T9.9)(18,709.4) (29,534.6) (30,J72.4) (35,529.4) (35,916,5) (33,048.5) Guarantees 768.5 390.3 404.2 1,524.8 2,147.8 2,918.4 4,076.1 3,890.0 Other Liabilities c/ 286.3 565.5 567,! 1,078.2 1,469.5 2,626.0 3,052.1 2,698.4 Capital and Reserves 303.8 415.7 486.5 631.5 923.1 1,132.4 1,542.6 1,595.7 a/ Preliminary. b/ Principally real state and branch offices. cf Prlncipally transactlons with head office and guaranteed and certified checks, Source: National Banking Commnission. - 251 - Table 6,5: OFFSHORE BANKING CENTERS IN THE EURODOLLAR MARKET: GROWTH IN TOTAL ASSETS, 1976-83 (US$ Billions) Eurocurrency Hong Cayman Year Market Kong Slngapore Bahrain Bahamas island 3/ Panama 1976 n.a. 9.2 15.0 6.0 78.7 12.0 11.1 1977 740,0 13.1 18.3 14.1 89. 8 16.3 14.7 1978 949.0 16.4 23, 5 20.9 105.5 18.3 19.8 19 79 1,333.0 21.1 31.2 23.7 112.5 26.6 32.5 1980 1,524.0 32,6 43.5 31.0 125.5 33.0 34.6 1981 1,861.0 45.3 69.6 41.4 150.4 42,1 41.3 1982 2,057.0 54.1 82.8 48.6 132.4 46.7 42,9 1983 b/ 2,133.0 63.1 86.5 50.1 131.2 46.3 40.8 Growth Rates (in percent per annum) 1976-83 19.3 31.7 28.4 35.4 7.6 21.3 20.4 19 76-80 27.2 37.2 30,5 50.8 12.4 28.8 32.9 19 80-83 11.9 24.6 2 5. 8 17.4 1.5 12.0 5.7 a/ US banks only. b/ Gross foreign currency Ilabilities. c/ As of September 30. Sources: IMF, Morgan Guaranty Trust Company and World Bank estimates. - 252 - Table 6.6: THE EIGHT LEADING GENERAL LICENSE BANKS: LOCAL LOANS AND DEPOSITS, 1979-8 2 (US$ Millions) 1979 1980 1981 198 2 Deposits Bank of America 152.1 124.2 121.4 123.1 Citibank 93.6 118.2 142.8 172.5 Banco Nacional de Panama 414.5 518.5 686.6 608.9 Banco de Colombia 108.1 134.1 157.6 175.8 Chase Manhattan 189.6 218.9 284.9 289.3 Banco Fiduciario 78.3 86.2 92.1 89.3 Banco Santander a/ 101.8 115.9 118.4 Caia de Ahorros 199.2 143.1 159.1 19 0.9 Total 1,235.4 1,445.0 1,760.4 1,768.2 Percentage of Total Local Deposits 68.5 60.1 55.0 50.1 Loans b/ Bank of America 167.0 215.5 247.7 259.1 Citibank 187.1 213.0 243.1 236.4 Banco Nacional de Panama 379.7 408.0 648.2 741.8 Banco de Colombia 84.0 93.5 101.2 113.3 Chase Manhattan 286.8 343.7 350.2 349.8 Banco Fiduciario 105.8 102.3 107.3 122.9 Banco Santander a! 120.1 122.7 99.5 Caja de Ahorros 122.3 137.9 149.2 158.2 Total 1,332.7 1,654.0 1,969.6 2,081.0 Percentage of Total Local Loans 62.5 64.6 62.6 62.1 a/ Not registered b/ Gross Sources: Bank's published balance sheets. 253- Table 6.7: NET DOMESTIC CREDIT OF THE GENERAL LICENSED BANKS: CHANGES BY DESTINATION AND FINANCING, 1979-83 (US$ Millions) 1979 1980 1981 1982 1983 a/ Total net domestic assets 392.5 397.4 615.4 204.9 151.6 Origin National Bank of Panama Credit 158.9 28.3 240.2 93.6 n.a. Savings Bank Credit 13.3 15.6 11.3 9.0 n.a. Private Banks Credit 203.7 348.9 355.6 67.8 n.a. Other (net) b/ 16.6 4.6 8.3 34.5 n.a. Destination Public Sector 9 0.4 39.9 18 0.9 127.8 138.6 Private Sector 302.1 357.5 434.5 77.1 13.0 Financing Domestic Deposits 217.5 312.0 264.3 208.6 -54.5 Foreign rinancing 175.0 85.4 351.1 -3.7 206.1 Net Foreign Indebtedness c/ (76.4) (-1.33.8) (258.1) (-287.3) (189.5) Private Capital and Surplus (98.6) (219.2) (93.0) (283.6) (16.6) a/ Preliminary; up to September 30. b/ Including variations in interbank overnight deposits. cI Includes SDR deposits. Sources: National Banking Commission, National Bank of Panama and World Bank. - 254 - Mable 6.8: W1SA]IML D()TC CREDITS BY C- OF TMDIE BAN I SYST0M, 1976-83 (US$ MUllods) 1976 1977 1978 1979 1980 1981 1982 1983 Total 1,628.3 1,765.5 1,843.3 2,133.2 2,530.6 3,146.0 3,350.9 3,502.5 Public Sector entities 340.2 401.3 365.1 351.2 391.1 572.0 699.8 838.4 Finance and Insurance comparies 41.6 42.3 48.4 75.2 68.1 77.3 70.3 63.5 Agriculture 35.1 49.6 50.0 55.8 66.1 89.4 104.8 97.1 Livestock 70.8 72.5 75.8 83.2 89.1 104.9 104.4 106.0 Fishintg 5.3 5.9 6.8 6.0 7.0 11.4 7.7 12.6 Mining 1.7 1.9 1.3 1.1 1.0 0.0 0.0 0.4 Ccnerce 551.4 570.5 612.1 752.3 952.9 1,196.6 1,224.5 1,146.2 ndustry 133.3 136.8 184.7 214.0 265.2 283.3 263.1 264.3 Housing 292.3 335.8 352.6 420.9 465.9 512.5 552.0 616.8 Other constructicn 78.4 72.9 64.3 66.5 97.0 147.4 150.5 164.2 Personal 78.2 76.1 82.2 106.8 126.9 150.7 172.4 179.9 Non profit organizations 0.0 0.7 O.6 0.6 0.4 0.5 1.4 0.5 Source: National Baukdng Commission. - 255 - Table 6.9: INTEREST RATES: EVOLUTION AND STRUCTURE, 1979-84 (Annual Averages) 1979 1980 1981 1982 1983 1984 8/ Rates pald on: Dsmand deposits 0.0 0.0 0.0 0.0 0.0 0.0 Savings deposits of less than $14,000 -By Commercial Banks b/ 4.5 4.5. 4.5 4.5 4.5 4.5 -By Caja de Ahorros C/ 5.5 5.5 5.5 5.5 5.5 5.5 -By Savings and Loan Associations 5.5 5.5 5.5-7.5 5.5-7.5 5.5-7.5 5.5-7,5 Fixed Term Deposits by Commercial Banks 12.2 14.0 17.0 13.2 n.a. n.a. Rates changed for: Loan to Industry up to one year d, 14.3 16.4 19.8 15.3 12.8 12.4 Loan to Industry up to five years d/ 14.5 16.6 17.9 15.9 13,4 12.6 Loans to the agricultural sector up to one year 6/ 11.4 12.9 13.3 11.1 Loans to the agrtcultural sector up to five years.!/ 11.0 12,6 13.8 10.7 %,8 9.5 Personal loans by the finance companies n.a. n.a. n.a. n.a. na.. 19.7 Term loans to Industry by Banco Nacional de Panama f 11.0 11.0 11.0 11.0 14.0 14.0 Agricultural credits by Banco Nacional de Panana Term Loans by COFINA 14.0 14.0 15.5 15.5 k/ Agricultural credits from Banco de Desarrollo Agropecuarlo Mortgages supplied by Banco Hipotecarlo Naclonal g/ n.a. n.a. n.a. n.a. 12.0 12.0 Mortgages supplied by Caja do Ahorros h/ n.a. n.a. n.a. n.a. 12.0 12,0 Mortgages supplied by private housIng Banks I n.a. n.a. n.a. n.a. 13.0 12.5 Mortgages supplied by other commercial Banks J/ n.a. n.a. n.e. n.a. 14.0 13.0 Memorandum Items: Percentage change In consumer price Index 10.0 11.1 6.3 4.0 1.8 n.a. Six month LIBOR (annual average) 12.3 14.1 16.9 13,6 9.8 n.. a/ Up to end February. b/ Including Banco Nacional de Panama. c/ Also the private housing banks. d/ By Commercial &anks. e/ By Commercial Banks at the preferenclal rate. f/ Up to 10 years. A/ New mortgages. h/ New mortgages. 1/ On loans between $20,000 and $50,000. I/ Primer Banco do Ahorros, Banco General and Banoo Panameno de la Vivienda. k/ COFINA extended no new loans In these years. Source: National Banking Commission. Table 6.10: DEPOSIT STRUCTRE AT GENERAL LICENSED BANKS a/, 1970-1983 (US$ Millions) Year Demand Deposits % Time Deposits % Savings Deposits % Total Savings % 1970 99.1 34 103.6 36 86.1 30 288.8 100 1971 103.8 30 139.6 41 101.2 29 344.6 100 1972 142.3 32 177.6 40 125.4 29 445.3 100 1973 154.0 30 224.4 44 133.4 26 511.8 100 1974 191.3 32 274.9 45 138.9 23 605.1 100 1975 169.9 27 30.3 49 155.3 24 634.5 100 1976 185.9 27 321.8 47 175.8 26 683.5 100 1977 208.9 26 392.8 49 195.6 25 797.3 100 1978 242.2 26 490.3 52 217.2 22 949.7 100 1979 295.9 25 623.1 54 243.4 21 1,162.4 100 1980 329.8 23 876.1 60 248.5 17 1,454.4 100 1981 353.7 21 1,109.7 65 256.5 15 1,719.9 100 1982 375.5 19 1,294.1 66 278.1 15 1,947.7 100 1983-/ 366.4 19 1,318.0 68 283.5 14 1,967.9 100 a/ Excluding deposits by Government agencies and banks. b/ September 30. Source: National Banking Commission. Table 6.11: SAVMIGS ACCXNlS BY SIZE, 1979 and 1982 1979 1982 Size (US$) Number % Airt % Average Nunber xun t A h ierage ( - ($000) ($) less thaa 250 503,017 80.7 33,995 14.0 68 635,290 81.1 33,384 11.6 53 251 - 500 48,297 7.7 14,299 5.9 296 52,007 6.6 19,758 6.8 380 501 - 1,000 27,546 4.4 17,639 7.2 640 31,283 4.0 25,669 8.9 821 1,001 - 5,000 35,183 5.6 73,721 30.3 2,095 53,965 6.9 94,835 32.8 1,757 5,001 - 10,000 5,786 0.9 38,290 15.7 6,618 6,986 0.9 49,032 17.0 7,019 10,001 - 14,000 1,613 0.3 18,226 7.5 11,299 2,027 0.3 21,193 7.4 10,521 14,001 - 20,000 788 0.1 12,599 5.2 15,989 1,008 0.1 15,593 5.4 15,369 Over 20,000 1,014 0.2 34,676 14.2 34,197 928 0.1 29,193 10.1 31,458 Total 623,244 100.0 243,445 100.0 71,202 783,494 100.0 288,657 100.0 67,378 Source: Nahtional Bankng Commssion. - 258 - Table 6.12: HOUSING FINANCE: TERMS AND CONDITIONS, 1983 a/ Institution Average Loan Average Annual Average Interest Terms (Balboas) (Percent) (Years) National Mortgage Bank 12,300 12.0 f/ 15 Savings and Loan Associations 15,600 9.0 t/ 15 Social Security Agency 20,000 12.0 C/ 25 Caja de Ahorros 30,000 11.5 tI 15 Private Mortgages Banks 60,000 12.5 t/ 15 e/ Commercial Banks 60,000 13.0 It/ 15 7/ a/ As of December 1983. '/ Plus an administrative fee of 2 percent r/ For new mortgages granted after September 1983. t/ Variable. F/ Renewal every five years; closing fee of 2 or 3 percent payable at renewal. t' After January 1984 this will be reduced by 3 or 4 percent for mortgages of B/. 20,000 or less. Sources: National Banking Commission, USAID and World Bank estimates. Table 6.13: CREDITS AND DEPOSITS OF THE GENERAL LICENSED BANKS, 1976-1983 (US$ million) a! 1976 1977 1978 1979 1980 1981 1982 1983 Total Loans 6,370.9 8,045.5 10,338.5 13,062.4 15,278.0 20,445.7 21,232.9 19,983.5 Internal (1,628.3) (1,765.5) (1,843.3) (2,133.2) (2,530.6) (3,146.0) (3,350.9) (3,502.5) External (4,742.6) (6,280.0) (8,695.2) (10,909.2) (12,747.4) (17,299.7) (17,882.0) (16,48i.0) Total DeposIts 8,879.4 11,551.6 15,204.3 21,634.0 21,144.9 27,242.0 28,986.9 27,335.2 Internal (994.8) (1,199.4) (1,553.0) (1,802.4) (2,406.0) (3,201.5) (3,526.8) (3,224,4) External (7,884.6) (10,352.2) (13,651.3) (19,831.6) (18,738.9) (24,040.5) (25,660.1) (24,110.8) Ratio Between Internal Deposits and Internal Loans 1.64 1.47 1.19 1.18 1.05 0.98 0.95 1.09 Ln a! PrelIminary. Source: National Banking Oommission. - 260 - Table 6.14: CONSOLIDATED BALANCE SHEET OF THE GENERAL LICENSED BANKS,a/ 1979-83 (US$ Millions) 1979 1980 1981 1982 1983 b/ TOTAL ASSETS 23,014.6 23,064.7 29,907.2 32,585.4 31,363.3 Liquid Assets 8,886.5 6,114.2 6,967.0 8,463.5 8,721.6 Loans 13,042.4 15,278.0 20,445.7 21,232.9 19,983.5 Credit to non-residents 10,909.2 12,747.4 17,299.7 17,882.0 16,481.0 Domestic credit 2,133.2 2,530.6 3,146.0 3,350.9 3,502.5 Private Sector 1,782.0 2,139.5 2,574.0 2,651.1 2,664.1 Public Sector 351.2 391.1 572.0 699.8 838.4 Securities 268.6 646.7 904.2 1,290.5 1,347.6 Other Assets 817.1 1,025.8 1,590.3 1,598.5 1,310.6 TOTAL LIABILITIES 23,014.6 23,066.7 29,907.7 32,585.4 31,363.3 Deposits 21,634.0 21,144.9 27,242.0 28,986.9 27,335.2 Domestic Deposits 1,802.4 2,406.0 3,201.5 3,526.8 3,224.4 Public Sector 110.5 127.1 195.2 222.4 240.5 Private Sector (non-bank) 1,164.6 1,476.6 1,740.9 1,949.5 1,895.0 Demand Deposits 295.6 329.3 353.4 375.4 308.7 Fixed term deposits 625.6 898.8 1,130.8 1,296.0 1,302.8 Savings 243.4 248.5 256.5 278.1 283.5 Banks 527.3 802.3 1,265.4 1,356.9 1,088.9 Liabilities to non-residents 19,831.6 18,738.9 24,040.5 25,460.1 24,110.8 Private (non-bank) 2,290.0 2,563.4 3,696.0 4,102.6 4,235.9 Banks 17,541.6 16,175.5 20,344.5 21,357.5 19,874.9 Other Liabilities 950.6 1,270.6 1,923.0 2,572.7 2,985.7 Capital arxd reserves 430.0 649.2 742.2 1,025.8 1,042.4 a! Including Banco Nacional de Panama and Caja de Ahorros. b/ September 30, 1983. Source: National Banking Commission. - 261 - Table 6.15: SAVINGS ACCOUNTS IN THE OFFICIAL AND PRIVATE GENERAL LICENSED BANKS: PERCENT DISTRIBUTION BY SIZF, 1982 (as of December 31, 1982) Savings Account Size Percent in (Balboas) Official Banks Private Banks By Number By Amount By Number By Amount Less than 250 88.6 21.0 62.4 5.0 251 - 500 .5.2 8.7 10.1 5.5 501 - 1,000 2.6 11.1 7.5 7.4 1,001 - 5,000 3a1 34.0 16.2 32.0 5,001- 10,000 0.3 10.5 2.4 21.5 10),001 - 14,000 0.1 4.1 0.7 9.6 14,001 - 20,000 0.1 4.1 0.4 6.4 Over 20,000 0.0 6.5 0.3 12.3 Total 100.0 100.G 100.0 100.0 Source: National Banking Commission. 1IIA Table 7.1: PRINCIPAL STAPLE CROPS: AREA, PROOUCTION, YIELDS AND GROWTH RATES, 1970-83 Compound Average Growth Rates a/ 70-71 71-72 72-73 73-74 74-75 75-76 76-77 77-78 78-79 79-80 80-81 81-82 82-83 61/63-70/72 70/72-75/77 77/80-80/83 (9 years) (5 years) (7 years) RIce Area (000 ha.) 93.1 95.6 105.2 105.4 112.2 115.4 122.4 110.0 99.1 98.5 100.7 104.2 106.1 -0.2% 3.4% 1.1% % change n.a. 2.6 10.0 1.9 6.5 2.9 6.1 10.3 -g*9 -0.6 2.2 3.5 1.8 Production (000 cvt) 2,891.5 3,002.1 2,760.6 3,514.6 3,932.4 4,074.9 3,184.9 4,104.7 3,579.9 3,539.4 3,762.1 4,302.5 3,887.0 2.1% 5.6% 6.5% % change n.a. 3.8 -8.0 29.5 10.0 3.6 21.8 28.9 -12.8 -1.1 6.3 14.4 -9.7 Avg. yield par ha (cwt) 31.0 31,4 26.2 33.9 35.0 35.3 26.0 37.3 36.1 35.9 37.4 41.3 36.6 2.3% 8.4% 5.5% % change n.a. 1.3 -16,6 29.4 3.2 0.9 -26.3 43.5 -3.2 -0.6 4.1 10.4 -11.4 Corn Area (000 ha.) 64.9 63.1 65.7 67.6 75.5 74.3 83.2 82.8 68.6 69.6 58.2 60.4 68.8 -2.6% 21.4T -15.2% % change n.a. -2.8 4.1 2.9 11.7 -1.6 12.0 -0.5 -17.1 1.5 -16,4 -3.8 13.9 Productlon (000 cut) 1,243.8 1,192.2 977.7 1,208.0 1,308.7 1,437.7 1,410.3 1,757.0 1,421.8 1,395.9 1,189.3 1,256.0 1,364.7 -2.7% 6.2% -16.7% % change n.a. -4.1 -18.0 26.6 8.3 9.9 -1.9 24.6 -19.1 -1.8 -14.8 5.6 8.7 Avg. yield par ha (cwt) 19.2 18.9 14.9 17.9 17.3 19.3 17.0 21.2 20.7 20.0 20.4 20.8 19.8 -0.2% 1.8% -1.5% % change n.a. -1.6 -21.2 20.1 -3.4 11.6 -11.9 24.7 -2.4 -3.4 2.0 2,0 -4.8 Dry Beans Area (000 ha.) 13.6 12.0 10.3 12.1 16.1 16.6 15.6 14.8 11.8 11.0 9.5 9.3 8.7 -6.5% 5.5% -26.9% % change n.a, -11.8 14.2 17.5 33.1 3.1 6.0 5.1 -20.3 -6.8 -13.6 -2.1 -6.5 Production (000 cwt) 72.7 72.9 68.8 77.1 89.4 92.5 72.7 88.9 72.0 81.9 54.6 73.7 43.7 -6.5% 3.5% -29.2% % change n.a. 0.3 -5.6 12.1 16.0 3.5 -21.4 22.3 -19.0 13.8 -33.3 35.0 -40.7 Avg. yield per ha (cwt) 5.4 6.1 6.7 6.4 5.6 5.6 4.7 6.0 6.1 7.4 5.7 7.9 5.0 n.a. 7.1% -4,6% % change n.a. 13.0 9.8 -4.5 -12.5 0.0 16,1 27.7 1.7 21.3 -23.0 38.6 -36.7 a/ Based on three-yea;- averages. Source: Comptrollor General. - 264 - Table 7.2: WHOLESALE PRICES FOR SELECTED PRODUCE IN PANAMA CITY, FEB. 29, 198 4 PRODUCE ITEM PRICE a/ Potatoes 32.00 Onions 27.00 Red Beets 23.00 Eggplant 23.00 Lettuce 18.00 Otoe 17.00 Tomatoes 15.00 Name 15.00 Carrots 15.00 Cabbage 13.00 Yuca 5.50 Plantains 3.50 Oranges, navel (out of season) 8.00 per 100 Oranges, juice 2.00 per 100 Chayote 5.00 per 100 Pineapple (high season) 5.00 per dozen Watermelon 2.50-3.00 each Melon (Cantaloupe) 0.40 each a/ Balboas per cwt except as noted. Source: World Bank estimates. - 265 - Table 7.3: SELECTED PRICE INDICES, 1983 (1982 = 100) WHOLESALE General 102.4 Agricultural products 104.0 Food 103.8 Drink & Tobacco 112.7 CONSUMERS (Panama City) General 102.1 Food & Drink 103.8 Source: World Bank estimates. Table 7.4: AVERG P1DDUER PRICES WEIE BY FAIOS a 1970-83 (Balboas per unit) Unit 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 Rice. b/ 100 lb. 5.63 5.86 5.84 5.88 6.98 8.92 9.07 9.49 9.74 9.84 10.98 14.05 13.31 12.18 Corn 100 lb. 4.40 4.78 4.75 5.02 6.66 8.05 8.12 8.13 9.13 9.43 10.43 11.21 12.21 12.87 op-Ceas/ 100 lb. 11.10 10.89 11.84 13.01 20.64 22.63 14.92 16.22 19.29 20.61 24.50 24.74 27.65 29.60 Yuca 100 lb. 1.93 2.08 2.18 2.20 2.41 2.91 3.00 3.10 n.a. n.a. n.a. n.a. n.a. n.a. Potatoes 100 lb. 6.87 6.74 7.22 7.79 8.92 9.82 10.28 12.28 11.90 14.27 19.75 18.92 16.81 26.00 Coffee 100 lb. 33.58 1 14 34.05 35.66 49.12 47.99 49.08 58.06 n.a. n.a. n.a. n.a. n.a. n.a. Tohbac b/ 100 lb. 44.73 50.28 49.19 56.30 75.14 72.33 71.12 69.72 n.a. n.a. n.a. n.a. n.a. n.a. G:x 1 lb. 0.28 0.22 0.20 0.32 0.48 0.45 0.;4 0.94 n.a. n.a. G..a. n.a. n.a. n.a. Gmnes 10 lb. 0.90 0.93 1.10 1.14 1.32 1.37 1.45 1.72 n.a. n.a. n.a. n.a. n.a. n.a. B3anas- stalk 0.74 0.78 0.79 0.78 0.86 0.96 1.00 1.11 1.38 1.34 1.52 1.62 1.72 1.84 Taatoes d/ 1 lb. 0.18 0.16 0.17 0.18 0.22 0.26 0.26 0.29 n.a. n.a. n.a. n.a. n.a. n.a. C E 1 lb. 0.09 0.08 0.08 0.11 0.12 0.12 0.15 0.15 n.a. n.a. n.a. n.a. n.a. n.a. Cerrots 1 lb. 0.09 0MIl 0.09 0.13 0.15 0.15 0.15 0.16 n.a. n.a. n.a. n.a. n.a. n.a. lettuce American 1 lb. 0.12 0.09 0.11 0.15 0.19 0.22 0.21 0.21 n.a. n.a. n.a. n.a. n.a. n.a. Oxicleco 1 lb. 0.46 0.49 0.52 0.54 0.62 0.70 0.71 0.72 0.77 0.83 o.94 1.03 1.08 1.12 Mi Fresh bottle 0.12 0.12 0.12 0.14 0.16 0.17 0.18 0.19 0.21 0.21 0.22. 0.24 0.23 0.27 Eggs doza 0.54 0.56 0.59 0.60 0.69 0.72 0.71 0.73 n.a. n.a. n.a. n.a. n.a. n.a. a/ At mrket, not at faumete. b/ First Graile. c/ Cobora or Cifricano. d/1az#. Source: Clptroller Ceneral. Table 7.5: INDEX CF AVWAE ER(WJCER IRICES EIEVrED BY FARMERS, 1970-83 a/ (1970 - 100) 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 General idex 100.0 102.8 105.2 110.6 129.8 146.7 150.9 161.4 180.4 185.9 204.5 231.5 236.9 n.a Rice 100.0 104.1 103.7 104.4 124.0 13.4 161.1 168.6 173.0 174.8 195.0 210.6 236.4 Zi6.3 COrr 100.0 1B3.6 1(8.0 114.1 151.4 183.0 184.6 184.8 207.5 214.3 237.1 254.8 277.5 292.5 Ccipes 100.0 98.1 106.7, 117.2 186.0 203.9 134.4 146.1 173.8 185.7 220.7 222.9 210.1 266.7 Yuca 100.0 107.8 113.0 114.0 124.9 150.8 155.4 160.6 n.a. n.a. n.a. n.a. n.a. n.a. Potatoes 100.0 98.1 105.1 113.4 129.8 142.9 140.6 178.8 173.2 207.7 287.5 275.4 244.7 378.5 Coffee 100.0 104.7 101.4 106.2 146.3 142.9 146.2 172.9 n.a. n.a. n.a. n.a. n.a. n.a. Tobacco 100.0 112.4 110.0 125.9 168.0 161.7 15.0 155.9 n.a. n.a. n.a. n.a. n.a. n.a. Coca 100.0 78.6 71.4 114.3 171.4 160.7 192.9 335.7 n.a. n.a. n.a. n.a. n.a. n.a. Or 100.0 103.3 122.2 126.7 146.7 152.2 161.1' 191.1 n.a. n.a. n.a. n.a. n.a. n.a. Bas 100.0 105.4 106.8 105.4 116.2 129.7 135.1 150.0 186.5 181.1 205.4 218.9 232.4 240.6 Tontoes 100.0 88.9 94.4 100.0 122.2 144.4 144.4 161.1 n.a. n.a. n.a. n.a. n.a. n.a. Cabbag 100.0 88.9 88.9 122.2 133.3 133.3 166.7 166.7 n.a. n.a. n.a. n.a. n.a. n.a. Carrots 100.0 77.8 100.0 144.4 166.7 166.7 166.7 177.8 n.a. n.a. n.a. n.a. n.a. n.a. American lattuce 100.0 75.0 91.7 125.0 15.3 183.3 175.0 175.0 n.a. n.a. n.a. n.a. n.a. n.a. Cacka 100.0 106.5 113.0 117.4 134.8 152.2 154.3 156.5 167.4 180.4 204.3 223.9 234.8 243.5 Fresh M1k 100.0 100.0 100.0 116.7 133.3 141.7 150.0 13.3 175.0 175.0 183.3 200.0 191.7 225.0 Egs 100.0 103.7 1(9.3 111.1 127.8 133.3 131.5 135.2 n.a. n.a. n.a. n.a. n.a. n.a. a/ At market, not at farrgate. Sources: Statistical Appenix Table 7.4 and (ontroller Genral. Table 7.6: MINIMUM PRODUCER PRICES FOR SELECTED C-ROPS AND LIVESTOCK PRODUCTS, 1975-83 (Balboas per Unit) 1975 1976 1977 1978 1979 1980 1981 1982 1983 Crops (100 lb) a/ Rice 10.00 10.50 10.50 10.00 10.25 14.00 14.00 14.00 13.00 Corn 8.50 8.50 8.50 8.50 9.00 10.80 11.25 11.25 11.25 Beans 22.50 15.00 15.00 15.00 15.00 15.00 20.00 20.00 20.00 Peas 45.00 45.00 45.00 45.00 46.50 46.50 46.50 46.50 47.00 Sorghum 7.50 7.50 7.50 7.50 8.25 10.00 10.25 10.25 10.25 Potatoes 11.00 11.40 14.00 14.00 14.50 18.50 18.50 18.50 C/ Onions 15.50 13.00 13.00 13.00 13.00 16.00 17.00 18.50 19.50 Coffee High quality n.a. n.a. n.a. n.a. 100.00 100.00 100.00 100.00 100.00 Low Quality n.a. n.a. n.a. n.a. 75.00 75.00 75.00 75.00 75.00 Soybean n.a. n.a. n.a. 12.50 12.50 16.00 16.00 16.00 16.00 Livestock products Beef (lb)b/ 0.25 0.25 0.25 0.30 0.40 0.40 0.40 0.40 n.a. Milk, grade A (liter) 0.22 0.24 0.24 0.24 0.24 0.28 0.30 0.36 0.37 a/ Prices effective at the beginning of the crop year (October 1 for most crops). bI For live animals weighing 900 pounds or more. c/ Freed of Price Controls by Resolution of MIDA N°ALP-27 March, 1983. Source: Agricultural Marketing Institute (IMA). Table 7.7: POTATOES: AVERAGE MONTHLY WHOLESALE PRICES, 1982-1984 (cents per lb.) JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC 1982 20.1 20.1 21.5 21.3 18.6 19.9 17.6 17.6 20.8 20.8 18.8 17,2 1983 16.0 13.3 14.4 18.0 19.7 22.5 29.4 29.0 24.0 25.3 28.0 31.0 1984 30.3a/ 35.3 a/ Office of Price Regulation. Source: IMA. Table 7.8: BANANA EXPORTS BY PRODUCER, 1975-83 (million boxes of 40 to 42 lbs.) 1975 1976 1977 1978 1979 1980 1981 1982 1983 TOTAL 27.6 28.9 31.5 35.0 30.9 27.6 30.2 31.1 36.0 Pacific: 14.1 14.8 18.1 20.3 15.6 11.1 13.5 12.9 16.7 COBAPA 0.2 0.9 2.4 2.9 1.1 0.8 0.9 n.a. n.a. Independent Prod. 3.1 2.9 4.0 4.5 4.4 4.2 3.9 4.4 5.9 Chiriqui Land Co. 10.8 11.0 11.7 12.9 10.1 6.1 8.7 8.5 10.8 Atlantic: 13,5 14.1 13.4 14.7 15.3 16.5 16.7 18.2 19.3 COBANA 0.6 0.7 0.8 0.8 1.0 1.0 0.8 0.8 1.1 Independent Prod. 1.2 1.4 1.4 1.6 1.8 1.4 1.9 2.2 2.3 Chriqui Land Co. 11.7 12.0 11.2 12.3 12.5 14.1 14.0 15.2 15.9 Source: Weekly Reports of Chiriqui Land Co. - 271 - Table 7.9: EXPORTS OF PRINCIPAL AGRICULTURAL PRODUCTS CONTROLLED BY IMA, 1983 QUANTITY VALUE, FOB PRODUCT net (MT) (000 $) UNITS TRADED Rice, paddy 3,689 732 a/ Rice, milled 3,296 945 a/ Cacao butter 494 1,924 / Cacao powder 175 82 a/ Watermelons 33 8 1,600 boxes Melons 386 175 31,000 boxes Green plantains 547 100 21,763 boxes Bananas (1000 boxes) 36,172 69,450 a/ Hides, raw salted 1,702 733 35,950 hides Hides, chrome tanned 85 91 129,250 hides Leather, finished 176 1,045 1,464,000 sq. ft. Leather, semifinished 1,954 2,474 4,576,400 sq. ft. Cattle, live 2,825 3,471 9,342 head Beef carcasses 968 1,831 a/ Beef, boneless 897 2,052 Coffee 2,254 6,202 a/ Same as given in Quantity Column. Source: IMA. - 272 Table 7.10: IMPORTS OF PRINCIPAL AGRICULTURAL PRODUCTS CONTROLLED BY IMA, 1983 QUANTITY V A L U E PRODUCT (MT) FOB CIF Wheat 73,970 13,240 14,978 Maize 37,971 5,260 6,052 Soybean meal 12,359 3,399 4,074 Ingredients for feed preparation 1,774 986 1,206 Kidney beans 1,231 749 862 Cowpeas 93 82 94 Onions 1,181 161 323 Crude soybean oil 23,497 13,060 14,030 Crude coconut oil 649 461 517 Refined soybean oil 207 139 170 Other edible oil 433 538 616 Fish meal 560 254 296 Dried skim milk 2,500 2,111 2,517 Dried whole milk 1,841 3,054 3,443 Butterfat 1,815 4,152 4,551 Cottage cheese 1,533 2,537 3,137 Frozen meat 27 223 234 Tallow 1,517 716 876 Cacao powder 466 924 1,065 Cacao beans 370 785 837 Maize gluten 3,552 1,486 1,748 Hand tools n.a. 515 630 Farm mach. & spares n.a. 865 1,065 Fertilizer 11,366 1,627 2,018 Herbicide & pesticide 339 860 979 Source: IMA. Table 7.11: RICE AND CORN PURCHASES BY IMA, 1971-83 a/ (Thousands . Quintales) RICE CORN IMA Purchases IMA Purchases Total DIA as Percett Total IMA as Perce.at Sales Purchases of Total Sales Sales Purchases of Total Sales 1971/72 2,038.4 134.0 6.6 387.5 102.4 26.4 1972173 2,020.8 111.0 5.5 244.4 152.9 62.6 1973/74 2,479.9 491.6 19.8 326,2 81.1 24.9 1974/75 2,976.8 725.8 24.4 405.7 144.8 35.7 1975/76 2,795.4 1,218.2 43.6 485.9 257.5 53.0 1976/77 2,179.6 156.5 7.2 563.3 123r4 21.9 1977/78 2,705.9 361.8 13.4 661.5 258.6 39.1 1978/79 2,560.5 395.2 15.4 578.2 133,3 23.1 1 1979/80 2,418.5 421.9 17.4 549.5 154,4 28.1 1980/81 2,926.7 283.1 9.7 541.5 141.5 26.1 L 1981/82 3,136.6 760.2 24.2 500.4 165.8 33.1 1982/83 3,201.3 609.2 19.0 600.0 174.5 27.2 1983/84 b/ 3,105.3 375.3 12.1 750.0 174.5 23.2 a/ Years ended June 30. b/ Estimates. Source: Agricultural Marketing Institute (IMA). - 274 - TABLE 7.12: IMPORT DUTIES IMPOSED ON SELECTED FOOD PRODUCTS FREED FROM QUOTAS, AS OF MARCH, 1984. IMPORT DUTY Ad valorem Specific (%) ($ per gross kg) PRODUCT Beef, fresh, frozen or chilled n.a. 2.50 Pork, fresh, frozen o.r chilled n.a. 2.50 Poultry, fresh, frozeii or chilled 95 2.00 Hams, dried, salted, etc. n.a. 4.00 Pork, other, prepared 82 4.50 Sausages, etc., not canned n.a. 3.50 Bacon & ham, canned n.a. 4.00 Deviled ham 3 0.10 Yogurt 70 1.25 Condensed milk 95 3.00 Cheese, proc. American type 35 1.16 Fresh eggs n.a. 1.25 per doz. Wheat 25 0.05 Wheat flour 45 0.40 Pastas 88 1.00 Oranges & tangerines 150 1.00 Fresh plantains 150 1.50 Fresh coconuts n.a. 0.40 Grated coconuts, edible n.a. 1.25 Jams, jellies, etc. 66-97 1.00-1.10 Fruit juices & nectars 75 0.80 Starchy root vegetables 75 0.75 Various fresh vegetables n.a. 1.25 Potato chips 76 1.95 Mustard & mayonnaise 56-73 0.9 0-1.92 Source: Ministry of Commerce and Industry. Table 7.13: PRODUCTION AND DISTRIBUTION OF SEED, 1982. (Quintales and Percent) a/ ENASEM PRIVATE FIRMS TRADERS MILLS & COMMERCIAL PROD. TOTAL RICE 30,000 45,000 0 75,000 1501,000 (20%) (30%) (0%) (50%) (100%) MAIZE 850 n4a 4,000 b/ n.ae 5,000 (17%) (n.a.) (80%) (n.a.) (100%) SORGHUM 1,000 b/ 0 5,000 b/ 0 6,000 (15%) (0%) (85%) (0%) (100%) BEANS 200 0 0 800 1,000 LJ (20%) (0%) (0%) (80%) (100%) POTATOES 0 0 20,000 bt 15,000 35,000 (0%) (0%) (60%) (40%) (100%) a/ National Seed Company. b/ Imported seed. Source: National Seed Company. Table 7.14: AGRICULTURAL PRODUCTION, 1970-82 (Thousands of M^tric Tons) Sugar Poultry Year anaaas Cane Rice Mize Sorghbn Tobacco Coffee Potatoes Tomatoes Beef Milk Pork Eggs Mat 1970 947 1185 127 56 n.a. 0.6 5.1 5 29 34 73 9 7.0 7 1971 940 1350 136 54 n.a. 1.2 5.6 5 27 37 76 9 9.0 8 1972 920 1600 102 49 2.5 1.2 5.6 5 27 42 70 10 10.0 9 1973 964 1354 162 55 7.5 0.5 4.3 13 30 39 66 n.a. 12.6 6 1974 977 1433 178 59 13.0 0.7 4.5 13 22 41 64 n.a. 10.8 6 1975 977 1722 178 61 19.3 0.8 4.2 13 22 42 66 n.a. 11.1 6 1976 999 1925 144 64 18.9 1.0 5.0 11 19 48 75 5 13.9 11 1977 1028 2396 186 80 22.7 1.0 6.0 11 20 48 86 6 12.8 10 1978 742 2757 211 83 45.0 1.0 5.0 11 20 52 75 6 12.8 10 1979 1000 2624 170 63 39.1 2.0 6.0 10 25 38 95 7 14.8 12 1980 1050b/ 2386 162a/ 63 a/ 26.9 1.0 7.0 a/ 12 a/ 26 b/ 41 98 7 14.2 13 b/ 1981 1080-V/ 2795a/ 192a/ 63 aW 17.5 1.0 a/ 7.0 / 11 a, 27 '/ 49 a/ 98 b/ 8a/ 15.0b, 13 l/ 1982 1100l 1 2800/ 150t15 63 'V/ n.a. 2.0 W/ 8.0 a/ 11 V/ 28 6/ 55 a/ 98 '1/ al/ 15.56/ 14 '61 a/ Preliminary. Sour EstiUrtea Source: UN Fooxd and Agriculture Oganlization. - 277 - Table 7.15: Bananas: Panama's Exports, Share of World and U.S. Markets, and Prices, 1970-82 Share of. Real Real Real World Share of Panama World US Import Exports Exports US lmportsa/ Export Priceb/ Market Pricec/ Price d/ Year (lOOOMT) (Percent) (Percent) ($/ton) ($/ton) ($/ton) 1970 601 10,1 32.6 200 186 222 1971 623 9,6 32.5 196 173 198 1972 684 9,9 35.3 192 176 194 1973 555 8,0 28.4 197 175 187 1974 472 7.2 23.0 154 170 170 1975 496 7,6 25,,2 167 194 180 1976 524 7.9 24,1 157 194 191 1977 547 3,3 25.1 155 196 200 1978 562 8.0 24.4 156 199 195 1979 565 8.0 23.5 132 190 190 1980 505 7.3 20,8 122 184 177 1981 573 8.3 22.6 113 182 194 1982 524 705 19,7 n.a. n.a. n.a. a/ Panamafs exports of bananas divided by U.S. Imports. b/ Value of Panama exports divided by Panama tonnage, deflated by Panama CPI, 1980 = 100, c/ Value of World exports divided by World tonnage, deflated by U.S. CPI, 1980 = 100. d/ Value of U.S. imports divided by tonnage and deflated by the U.S. CPI, 1980 = 100. Source't United Nations, FAQ, Trade Yearbook respective years, - 278 - Table 7.16: REAL AVERAGE PRODUCER PRICES RECEIVED BY FARMERS,a/ 1977-83 (1975 - 100) 1977 1978 1979 1980 1981 1982 1983 Rice 92.1 89.6 79.5 76.8 89.4 78.2 68.9 Corn 87.4 93.1 84.4 80.9 79.0 79.5 80.7 Beans 62.1 70.0 65.6 67.6 62.0 64.0 66.0 Potatoes 108.3 99.5 104.7 125.5 109.3 89.7 133.6 Bananas 100.1 118.0 100.6 98.8 95.8 93.9 96.7 Chicken 89.1 90.3 85.4 83.8 83.5 80.9 80.7 Milk 96.8 101.4 89.0 80.8 80.1 70.9 80.1 a/ Deflated by wholesale price index. Source: IMF. - 279 - Table 7.17: REAL GROSS VALUE OF AGRICULTURAL PRODUCTION, 1978-83 (Millions of 1970 Balboas) 1978 1979 198Oa/ 1981a/ 1982a1 1983b/ Total Crops 161.9 158.5 159.7 175.5 172.4 177.0 Rice 19.5 19.3 21.1 25.2 22.8 27.9 Corn 6.7 6.6 7.4 801 7.4 7.6 Plantains 4.3 4.2 4.2 4.2 4.5 5.2 Bananas 68.4 63.5 57.4 64.9 65.5 65.9 Sugarcane 16.1 14.7 19.1 20.9 19.8 17.1 Oranges 3.4 3.4 3.4 3.4 3.7 3.7 Tomatoes 2.3 2.7 2.5 2.1 2.4 2.4 Coffee 7.0 7.3 7.4 10.6 11.0 10.3 Other 34.2 36.8 37.2 36.1 35.3 41.9 Livestock 76.1 75.4 80.1 81.5 85.7 88.2 Forestry 6.5 6.7 6.7 6.8 7.1 7.4 Fish 9.9 11.3 13.8 13.0 13.0 13.3 a/ Preliminary. b/ Estimate. Sources: Comptroller General, Ministry of Agricultural Development, and IME. VIII. MANUFACTURING AND OTHER SECTORS TABLE 8.1: MANUFACTURING: GROSS VALUE BY SUBSECTOR, 1970-81 (MlIllons of Balboas) CODE i/ SUBSECTOR 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 311-312 Food processing 110.0 132.5 153.2 178.2 232.0 294.8 300.9 319.4 330.9 390.3 513.2 332.9 313 Beverages 29.5 31.3 37.7 41.3 46.2 48.0 51.3 52.3 64.1 83.8 84,3 109.6 314 Tobacco 10.0 11,4 12.3 14.3 15.6 19.7 20.6 22.3 25.1 28.6 29.4 37.8 321 Textiles n.a. 1.5 2.2 3.3 3.5 5.8 5.1 4.6 6.4 7.6 5.1 9.8 322 Clothing 17.4 20.0 23.7 27.1 27.7 32.2 36a0 38.4 44.4 51.7 54.0 65.0 323 Leather prod. 1,0 1.2 1.5 1.9 2.1 2.4 4.3 4.9 6.1 9.5 5.8 7.2 324 Footwear 5.3 6. 1 5.9 6.3 6.8 8.4 7.7 9,6 14,0 17.6 16.8 19.6 331 Wood products 5.9 6.7 6.6 8.6 9.6 7.9 8.9 10.4 10.0 12.4 12.3 17.5 332 Furniture 8.9 10.8 11.1 12.2 14.0 13.8 12.0 10.8 13.0 15.2 16.0 15.4 341 Paper & paper products 14.6 16.7, 18.5 19.0 24.9 32.5 36.1 37.8 44.4 49.6 55.9 66.9 342 Prlnting & publishing 12.1 15.9 15.4 16.2 18.3 19.2 20.3 23.8 26.2 27.5 29.0 38.5 351 Industrial chem. 1.1 2.1 2.9 3.2 4.0 5.4 7.5 9.9 11.0 12.2 17.7 58.2 1 352 Other chemicals 12.6 13.9 17.4 20.3 23.1 29.5 34.4 34.7 '40.5 42.2 51.8 66.1 00 355 Rubber products. 0.7 0.8 0.9 0.9 1.0 1.4 1.9 2.4 3.1 3.0 2.4 3.6 356 Plastic products 4.3 4.9 6.7 8.0 11.1 12.2 15.0 15.9 20.0 25.5 28.9 35.7 362 Glass & glass products 0.8 1.2 1.2 1.6 1.7 1.6 1.4 1.0 1.4 1.5 .0 10.7 369 Other non-metallic min. 21.2 26.3 28.0 37.1 42.4 38.1 38.5 41.5 40.8 55.4 72.9 83.4 371 Iron & steel 4.0 6.4 6.3 6.9 10.8 7.8 4.3 4.9 6.0 8.5 17.9 17.0 372 Basic non-ferrous metals 3.5 n.a. n.a. n.a. n.a. n.a. 2.5 3.0 2.5 4.3 ,, 6.2 381 Metal products 14.8 21.8 22.5 27.9 36.7 31.6 28.2 29.1 30.3 40.4 47.7 50.5 382 Men-electrIc machinery 0.6 0.6 0.9 , 0.7 0.7 0.7 1.7 1.2 1.0 1.1 ... 1.8 383 Electric machin. & appl. 1.2 2.2 2.2 3.0 3.5 3.8 4.9 4.0 4.9 6.6 ... 8.9 384 Transport equlpment 1.2 0.8 1.4 3.4 3.6 2.8 2.9 3.0 2.6 3.0 .. 7.4 390 Other manufacturing 75.6 103.1 104.5 137.7 321.8 355.8 296.3 305.5 249.0 371.6 446.6 459.1 ThTAL GROSS VALUE OF PRODUCTS 356.5 438.3 483.2 579.1 861.3 975.5 942.3 990.7 997.8 1,269.0 1,514.4 1,729.0 a/ International Standard Industrial Classification. Source: Comptroller General. TAKE 8.2: UNUFAfUlR1N: VALUE A1EI) IN 1970 PRICES BY SUBSECTOR, 1970-83 (1970 US$ Millcis) llBSECIDR 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982b/ 1983b/ CC[E a/ 311-312 Food-processing 31.8 36.5 39.3 41.7 43.1 44.3 48.0 51.6 49.2 58.2 62.1 60.4 61.9 63.0 313 Beverages 13.4 13.6 13.8 15.2 15.2 16.3 16.9 17.1 19.0 21.7 22.4 22.1 23.4 22.7 314 Tobcc products 6.0 6.1 5.9 6.2 6.4 6.7 6.6 6.0 6.6 6.4 6.6 6.4 6.2 5.9 321 Textiles 1.1 1.1 1.6 1.7 2.2 1.7 1.8 1.6 1.4 1.7 1.8 1.6 2.0 n.a. 322 ClothIng 10.5 11.1 13.1 13.3 12.4 11.8 13.2 12.5 14.1 14.7 15.8 15.2 1-5.3 n.a. 323 Leather products 0.6 0.8 0.7 0.8 0.9 0.9 1.8 1.9 1.8 2.2 1.5 2.0 1.5 n.a. 324 Footwear 2.7 2.4 2.3 2.5 2.3 2.5 2.6 2.4 2.7 3.1 3.2 3.1 3.0 n.a. 331 W,od products 3.0 3.2 3.1 3.2 3.0 2.2 2.3 2.5 2.3 2.5 2.4 2.1 2.3 n.a. 332 Furniture 4.6 6.1 6.0 4.8 5.8 4.3 4.2 3.3 2.6 3.3 3.8 3.9 3.7 n.a. 341 Paper & paper prod. 3.8 4.2 4.3 4.1 3.8 4.7 5.3 5.4 6.0 7.0 8.2 7.1 7.2 7.9 342 Printing & publishing 6.0 6.5 5.8 6.4 5.4 3.3 4.9 4.1 5.3 4.4 4.3 3.9 4.3 5.1 351 dlal micals 0.6 1.1 1.1 1.5 1.7 2.0 1.9 2.2 2.2 2.4 2.8 2.8 3.1 n.a. 352 Other c1emicaLs 4.4 3.6 4.1 6.2 6.2 7.1 7.1 7.2 7.5 8.3 9.2 9.5 9.5 n.a. c 353 011 refining 12.9 12.8 .13.2 12.2 11.7 13.5 9.7 9.5 7.9 7.4 6.4 4.9 5.5 n.a. 355 Rubber products 0.5 0.3 0.4 0.2 0.5 0.5 0.5 0.4 0.4 0.3 0.4 0.3 0.3 n.a. 356 Plastic products 1.8 1.7 2.2 2.7 2.9 3.2 3.2 3.8 4.0 4.6 4.8 4.6 4.9 n.a. 361 Pottery chdm 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1 n.a. 362 Glass & glass products 0.3 0.5 0.5 0.6 0.4 0.3 0.3 0.3 ).4 0.3 2.1 2.2 1.8 n.a. 369 Other nn-nmetalic mldn. 9.7 10.5 10.8 13.3 13.7 10.7 9.3 9.1 10.0 11.2 11.2 10.4 11.4 n.a. 371 Irou & steel 2.0 1.6 1.4 1.1 1.2 0.9 0.9 0.4 0.5 0.6 0.9 0.8 0.8 n.a. 372 Basic Earc-ferrous mntals 0.3 0.3 0.4 0.4 0.4 0.3 0.3 0.3 0.3 0.5 O04 0.4 0.4 n.a. 381 Mital products 7.3 7.4 7.8 7.7 8.1 4.9 4.6 6.0 5.5 5.3 5.8 4.9 5.5 n.a. 382 NmIe1ctri l madhnery 0.7 0.7 0.5 0.5 0.7 0.6 0.8 0.6 0.5 0.5 0.4 0.5 0.5 n.a. 383 Electrical mchinery 0.6 0.6 0.6 0.6 0.6 0.8 0.9 1.0 1.1 1.3 1.3 1.8 1.8 n.a. 384 Transport eqtdpmnt 1.0 0.9 1.1 2.1 2.2 1.8 1.8 1.5 1.4 1.6 2.0 2.2 2.1 n.a. 385 Sclestific & other equip. 0.4 0.4 0.4 0.4 0.5 0.5 0.6 0.6 0.6 0.9 0.7 0.7 0.6 n.a. 390 Othber arg 1.3 1.4 1.2 1.1 1.2 1.2 1.2 1.2 1.5 1.7 1.4 2.2 1.8 n.a. TAL C ANTE VAIIUE AIDM 127.3 135.4 141.6 150.5 152.5 147.0 150.7 152.5 154.9 172.9 182.1 176.1 180.3 176.1 a/ Sta1 sandard Lxstrlal Classificatim. Note: 1970 figures in Statistical Appendix Tables 8.2 and 8.3 disagree because hy use different sources of . Value 4dded at cctstant prices wa determLned from Natiocal Accounts data, while Value Added in current prices was determLred fran a mnaifaccuring surrey. The tw sets of informatiac am not ccmpatible. Source: Comptroler Geeral. Table 8.3: MANUFACTURING: VALUE ADDED BY SUBSECTOR, 1970-81 1/ (Millions of Balbbos) ISIC b/ CODE SUBSECTOR 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1981 311-312 Food Processing 37.2 42.11 45.3 58.8 80.0 116.1 97.2 105.0 92.6 113.9 161.8 313 Beverages 15.8 15.7 18,8 20.1 21.2 21.4 27.2 24.8 32.1 51.0 58a4 314 Tobacoo 7.0 7.9 8.8 10.3 11.2 15.2 14.0 16.4 17.9 17.3 29.2 321 rextiles n.a. 0.7 1,2 1.3 1.6 2.6 2.5 2.1 2,7 2.6 4.2 322 Clothing 9.4 10.0 11.9 13.5 13.7 14,8 16.3 18.4 20.8 25.5 31.7 323 Leather prod. 0.6 0.7 0.7 0.9 0.9 1.2 2.1 2.2 2.9 4.0 3.2 324 Footwear 3.0 2.9 3.1 3.2 3.5 4.4 4.0 5.1 6.1 6.2 7.3 331 Wood products 3.2 3.7 3.5 4.6 5.0 4.1 4.4 4.8 4.8 6.1 8.4 332 Furniture 5.0 5.3 5.3 5.8 6.6 7.1 6.1 4.9 5.3 5.7 7.9 341 Paper & paper products 5.0 5.6 6.6 5.6 0.4 7.3 11.2 12.6 16.6 17.1 23.0 342 Printing & publishing 6.9 9.7 9.8 10.5 11.4 ri2.5 12.6 15.4 16.4 18.4 23.8 351 Industrial chem. 0.9 1.2 1.4 1.5 1.9 2.3 2.7 3.0 2.6 2,9 16.8 352 Other chemicals 6.2 6.0 8.0 10.3 9.8 13.1 15.9 15,0 19.3 18.2 27.5 355 Rubber products 0.5 0,4 0.5 0.3 0.6 0,9 0.9 0.9 1.4 1.4 1.9 356 Plastic products 2.0 2.1 3.2 3.4 4.5 3.7 6.3 6.4 9.0 9.2 14.2 362 Glass & glass products 0.4 0.7 0.6 0.8 0.9 1.0 0.7 0.5 0.7 0.7 4.8 369 Other non-mtallic min. 11.2 13.7 15.6 19.9 22.0 16.2 15.4 , 17.3 17.0 27.3 33.8 371 Iron & steel 2.2 3.1 2.8 3.8 6.4 1.8 2.8 1,9 3.0 2.5 6.0 372 Basic non-ferrous metals 1.4 n.a. n.a. n.a. n.a. n.a. 1.1 1.4 1.2 2,1 3.3 381 Metal products 7.3 10.2 8.5 12.1 17.5 13.2 14.1 12.9 12.9 20.2 21.4 382 Non-electric machinery 0.4 0.5 0.7 0.6 0.5 0.6 1.0 0.9 0.8 0.7 0,9 383 Electric machin. & appl, 0.7 1.3 1.4 1.6 ' 1.6 1.7 2.3 1.8 2.1 3.3 3.1 384 Transport equipment 0.9 0.7 1.0 1.4 1.8 1.9 2.0 2.4 1.8 2.0 5.9 390 Other manufacturing 19.7 19.7 15.2 22.9 24.5 9.2 5.2 17.1 10.4 32.5 29.9 TOTAL VLUE ADDED 146.7 163.9 173.9 213.0 257.6 272.2 267.9 293.2 300.2 390.8 528.4 a/ No data for 1980 are available because no Manufacturing Industry Survey was conducted that year. b/ International Standard Industrial Classification. Note: 1970 figures In Statistical Appendix Tables 8.2 and 8.3 disagree because they use different sources of Information. Value added at constant prices was determined from National Accounts data, while Value added In current prices was determined from a Manufacturing Survey. The two sets of informatlon are not compatible. Source: Comptrolier General. 284 - Table 8.4: MANUFACTURING EXPORTS BY SITC: 1970-1982 SITC CODE 1970 1975 1980 1981 1982 Chemical Products 106 549 4,566 3,745 4P185 Manufactured Products (classified chiefly by material) 1,042 3,519 11,393 10,442 12,719 Leather, leather manufactures n.e.s. 312 827 2,407 2,561 5,224 Rubber manufactures n.e.s. - - 26 952 1,256 Wood and cork manuf. (excl. furniture) 3 57 409 548 378 Paper, paperboard 369 806 5,827 3,369 4,039 Textile yarn, fabrics 64 1,472 651 402 137 Non-metallic mineral manuf. n.e.s. 39 83 134 1,573 926 Iron and steel - - - 8 - Manufacturcs of metal n.e.s. 255 274 1,939 1,029 759 Machinery and Transport Equipment 21 26 462 423 351 Machinery, other than electric 21 - - 66 9 Electrical mach., and appliances - 26 462 357 342 Transport equipment Miscellaneous Manufactures 381 4,032 14,776 16,688 21,213 Sanitary, plumbing 8 2 122 20 - Furniture - 50 14 76 67 4 Travel goods, handbags - 3 93 132 81 Clothing 150 3,164 10,442 13,978 17,288 Footwear 10 36 1,217 768 1,718 Professional, scientific instruments - - - - Miscellaneous manufactures n.e.s. 163 813 2,826 1,723 2,122 Total 1,550 8,126 31,197 31,298 38,468 Sourcet Comptroller General - 285 - Table 8.5: MANUFACTURING: STRUCTURE OF EXPORTS a/ BY SUBSECTOR, 1970-83 (Percent of Total Annual Value) ISIC D/ Jan-Sept. CODE SUBSECTOR 1970 1975 1980 1981 1982 1983 311-312 Processed Food 43.0 39.9 29.1 23.0 13.5 34.0 313 Beverages 0.5 1.9 10.0 7.6 4.9 4.6 314 Tobacco 0.2 5.1 3.6 4.7 5.7 9.0 321 Textiles 1.6 9.2 1.7 1.6 1.9 0.2 322 Clothing 3.8 19.8 27.2 35.5 43.2 10.0 323 Leather goods 7.9 5.2 5.2 6.2 12.8 7.9 324 Footwear 0.3 0.2 0.3 0.2 0.3 1.9 331 Wood products 0.1 0.4 0.5 0.6 0.3 1.3 332 Furniture 1.3 0Q 1 ... . 341 Paper & paper prod. 11.9 5.0 7.4 3.1 3.7 5.9 342 Printing & publish. 0.8 0.5 0.1 .. 0.4 1.1 351 Other chemicals 2.7 3.4 4.8 6.6 8.3 10.7 353 Rubber ... ... ... ..e 1.0 3.1 356 Plastic products ... ... e13 0.7 ... 0.7 36 Non-metallic minerals 1.0 0.5 ... 3.6 0.1 2.4 37 Basic metals 14.5 4.2 3.3 1.9 2.0 2.4 38 Metal prod., machinery 7,0 1.9 5.5 2.7 1.9 3.0 39 Others 3.6 2.6 .. 1.8 ... 2.0 TOTAL 100.0 100.0 100.0 100.0 100.0 100.0 a/ Excludes processed meat, shrimp, and petroleum products. b/ International Standard Industrial Classification. Source: Statistical Appendix Table 8.4. TABLE 8.6: MANUFACTURING: EMPLOYMENT BY SUBSECTOR, 1970-81 a/ (Number of Employees) isic b_ CODE SUBSECTOR 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1981 311-112 Food processing 5,780 6,416 6,689 7,422 7,326 7,981 7,981 8,613 8,789 9,636 10,562 313 Beverages 1,593 t,697 1,722 1,818 1,845 1,770 1,889 1,765 1,611 1.701 1,939 314 Tobacco 325 322 315 309 316 336 388 416 451 457 474 321 Textiles n.a. 187 228 241 263 454 364 360 364 439 387 322 Clothing 2,957 3,565 3,648 3,749 3,452 3,673 3,870 3,688 3,971 4,110 4,886 323 Leather prod. 157 197 226 247 228 220 237 257 251 295 301 324 Footwear 861 954 865 850 825 884 683 898 1,044 1,120 1,098 331 Wood products 1,083 1,131 1,091 1,099 1,077 877 940 939 901 970 1,041 332 Furniture 1,164 1,404 1,341 1,323 1,255 1,176 1,057 969 1,076 1,082 1,315 341 Paper & paper products 1,759 847 894 835 792 832 855 864 919 919 1,155 342 Printing & publishing 1,666 1,809 1,710 1,743 1,802 1,712 1,701 1,696 1,733 1,715 2,110 351 Industrial chem. 56 75 102 101 138 152 165 166 170 171 233 352 Other chemicals 723 737 806 895 902 908 929 995 1,127 1,204 1,359 355 Rubber products 50 54 53 59 56 62 77 92 118 116 119 co 356 Plastic products 329 345 379 412 422 431 483 63 649 711 988 362 Glass & glass products 82 148 162 192 132 122 78 536 76 70 296 369 Other non-metallic min. 1,921 2,227 2,604 2,638 2,623 2,232 1,912 1,865 1,890 1,994 2,223 371 Iron & steel 293 465 413 481 436 368 231 254 288 368 392 372 Basic non-ferrous metals 139 n.a. n.a. n.a. n.a. n.a. 116 118 126 138 146 381 Metal products 1,239 1,754 1,678 1,921 1,755 1,500 1,282 1,281 1,457 1,287 1,423 382 Nbn-electric machinery 77 III 119 91 105 93 120 100 99 97 141 383 Electric machIn. & appl. 81 142 156 186 169 173 162 194 192 215 226 384 Transport equipment 105 110 107 237 244 182 179 190 180 169 269 390 Other manufacturing 741 968 950 1,006 1,019 1,020 969 949 949 964 1,143 TOTAL 23,181 25,665 26,258 27,855 27,182 27,158 26,668 27,268 28,430 29,948 34,226 a/ No data for 1980 are available because no Manufacturing Industry Survey was conducted that year, k/ International Standard Industrial Classification. Source: Comptroller General. - 287 - TABLE 8.7: ELECTRIC POWER: UNIT COST BY COUNTRY, 1980 (US cents per kilowatt-hour) COUNTRY AVERAGE 1980 COST a/ PANAMA: Colon 8.0 Sri Lanka 2.O Jamaica 3.2 USA: Miami 3.3 El Salvador 3.6 Honduras 3.8 Mexico: Juarez 4.4 Colombia 4.4 Dominican Rep.: La Romana 5.1 Costa Rica 5.4 Barbados 6.5 Puerto Rico 7.0 Philippines 7.0 Haiti 9.3 Guatemala 12.3 Curacao 13.4 a/ All figures are as of year end 1980, except that of El Salvador, which applies to 1979. Source: Information for Investment Decisions, Inc.: Rate Study for the CN,lc Free Zone. - 288 - TABLE 8.8: ELECTRICITY AND PETROLEUM DOMESTIC PRICES, 1975-84 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 (Baiboas per megawatt-hour) Electricity prices Average 55.9 57.5 66.8 73.5 75.5 97,2 105.7 114.5 126.8 129.8 Residential 59.7 60.6 73.2 78.8 83.4 105.6 114.8 127.1 133.4 141.5 Commercial 55.7 56.4 67.8 72.8 77.7 95,2 109.2 114.2 123,9 130.8 Industrial 48.7 52.0 65.7 68.5 72.9 89.3 97,9 105.4 118,0 121.6 Government 53.9 56,7 69.3 71.8 76.8 93.3 99.4 107.7 116.4 123X1 (Balboas per gallon) Petroleum prices Gasoline premium 0.87 1.00 1.10 1.10 1.32 1.99 2.29 2.32 2.28 2.28 Gasoline regular 0.81 0.90 1.00 1.00 1,22 1.86 2.15 2.18 2.14 2.14 Diesel 0,37 0.50 0.55 0.55 0.70 1.15 1.37 1.40 1.33 1.33 Kerosene 0.41 0.50 0.55 0.55 0.71 1.06 1.29 1.30 1.20 1.20 Sources: Price Regulation Board (ORP) and IRHE. - 289 - Table 8.9: Petroleum: Trade and Domestic Sales, 1977-83 1977 1978 1979 1980 1981 1982 1983a/ (US$ Millions) Imports, f o.b. n.a. n.a. 319.4 414.8 415.4 399.2 374.6 Crude and partially refined nn.a . n.a. 301.7 386.1 346.9 364.4 326.7 Refined n.a. n,a. 17.7 28.7 68.5 34.8 47.9 Exports, f.o.b. 181.3 141.6 170.0 233.3 209.1 166.6 131.2 Domestic sales 108.8 106.2 152.5 247.6 272.2 304.3 331.7 Gasoline 36.8 38.1 54.9 98.1 113.0 112.5 109.5 Diesel 32.1 33.4 45,3 75.4 92.0 96.7 132.6 IRHE 8.0 6.2 3.2 3.3 3.9 4.8 48.1 Otber users 24.1 27.2 42.1 72.1 88.1 91.9 84.5 Fuel oil 29.4 23.5 38.3 55.0 46.6 74.5 72.6 IRHE 23.0 16.1 26.2 42.0 33.0 60.4 59.1 Otber users 6.4 7.4 12.1 13.0 13.6 14.1 13.5 Kerosene 1.4 1.3 1.7 2.2 2.9 2.7 2.2 LP gas 7.5 8.0 9.2 13.5 14.4 13.9 12.7 Other products 1.6 1.9 3.1 3.4 3.5 4.0 2.0 (Millions of Barrels) Imports of crude and partially refined oil, c.i.f. 20.5 16.7 15.6 13.8 10.7 11.7 11.8 Imports of refined products, c.i.f* n.a. n.a. n.a. n.a. n,a. 0.6 1.0 Exports 12.9 10.3 7.3 7.7 6.3 5.7 3.7 Refinery output 20.4 17.0 14.4 13.4 10.4 11.8 11.8 Domestic sales 6.9 6.6 6.9 6.4 5.8 6.6 7.5 Gasoline 2.0 2.1 2.0 1.9 1.8 1.8 1.7 Diesel 1.8 1.9 1.9 18 1.9 1.9 2.7 IREE 0.4 0.3 0.1 0,1 0.1 0.1 1.0 Otber users 1.4 1.6 1.8 1.7 1.8 1.8 1.7 Fuel oil 2.4 1.9 2.3 2.0 1.4 2.2 2.4 IEHE 1,8 1.3 1,7 1.6 1.0 1.8 1.9 Other users 0.6 0.6 0.6 0.4 0.4 0.4 0,5 Kerosene 0.1 0.1 0.1 01 0.1 01 0.1 LP gas 0.4 0.5 0,5 0.5 0.5 0.5 0.5 Otber products 0.2 0.2 01 0.1 0.1 0.1 0.1 a/ Estimates. Sources: IRHE, Ministry of Industry and Commerce and Comptroller General. TABLE 8.10: CANAL TRAFFIC: TRANSITS, TOLLS AND CARGO, 1964-84 (1964 = 100) TRANSITS TOLL REVENUES CARGO TONNAGE AVERAGE TOLL Millions of US$ per Fiscal Year Thousands Index US$ Millions Index Long Tans Index Long Ton Index 1964 12.9 100 62.5 100 72.2 100 0.87 100 1965 12.9 100 67.1 107 78.9 109 0.85 98 1966 13.3 103 72.6 116 85.3 118 0,85 98 1967 14.1 109 82.3 132 93.0 129 0.89 102 1968 15.5 120 93.2 149 105.5 146 0.88 101 1969 15.3 119 95.9 153 108.8 151 0.88 101 1970 15.5 120 100.9 161 118.9 165 0.85 98 1i71 15.3 119 100,6 161 121.0 168 0.83 95 1972 15.2 118 101.5 162 111.1 154 0.91 105 1973 15.1 117 113.4 181 127.6 177 0.89 102 1974 15.3 119 121.3 194 149.8 208 0.81 93 1975 14.7 114 143.3 229 140.6 195 1.02 117 1976 a/ 13.2 102 135.0 216 117.4 163 1.15 132 1977 13.1 102 164.7 264 123.2 171 1.34 154 1978 13.8 107 195.7 313 142.8 198 1.37 15'8 1979 14.4 112 209.5 335 154.5 214 1.36 156 1980 14.7 114 293,4 469 167.6 232 1.75 201 1981 15.1 117 303.1 485 171,5 238 1.77 203 1982 15.3 119 325,i6 521 185.7 257 1.75 201 1983 13.0 101 287.8 461 145.9 202 1.97 226 1984 12.4 96 285.0 456 138.5 192 2.06 237 a/ On October 1, 1976 the fiscal year of the U.S. Government changed from July 1 through June 30 to October 1 through September 30. The data for the "Transition Quarter" of July, August and September 1976 has been omitted. Source: Panama Canal Commission. TABLE 8.11: CANAL TRAFFIC: SHIWENTS OF PRINCIPAL COMMODITIES, 1980-84 (Millions of long Tons) Atlantic to Pacific Pacific to Atlantic 1980 1981 1982 1983 1984 1980 1981 1982 1983 1984 Total 84.7 89.3 96.6 87.8 78.1 82.5 81.9 88.9 57.8 60.2 Agricultural 29.8 31.9 36.0 37.2 27.0 10.4 11.6 11.1 8.0 9.2 Canned and refrigerated foods 0.5 0.6 0.6 0.5 0.6 3.5 3.3 3.3 2.9 2.8 Grains 27.5 29.7 33.3 34.8 24.5 2.8 4.6 4.2 1.7 2.6 Other 1.7 1.6 2.0 1.9 1.9 4.0 3.7 3.5 3.4 3.8 Mining products 27.0 28.9 30.5 20.7 19.8 15.0 12.0 12.3 10.7 10.3 Minerals 0.3 0.2 0.2 0.2 0.2 3.5 3.4 3.9 3.0 3e5 Fertilizers 8.0 7.3 6.9 8.0 8.0 1.8 1.3 1.6 1.5 1.2 Ores and metals 4.0 2.8 2.2 3.4 3.6 7.6 5.8 5.7 4.6 4.4 Coke and coal 14.7 18.5 21.2 9.1 8.0 2.3 1.7 1.3 1.6 1.2 Petroleum products 12.0 11.4 13.7 13.7 13.2 35.4 38.0 45.3 20.2 18.3 Chemicals 3.7 3.8 3.9 4.1 4.5 0.5 0.7 1.0 0.8 1.2 Manufactures of iron and steel 1.8 2.3 1.9 1.6 1.8 5.6 4.9 5.2 3.6 5.5 Machinery and equipment 0.8 0.9 0.7 0.5 0.6 1.6 1.6 1.5 1.5 1.6 lumber products 0.6 0.6 0.4 0.5 0.7 6.6 5.6 4.8 5.3 5.6 Miscellaneous 9.0 9.6 9.4 9.3 10.5 7.3 7.4 7.8 7.6 8.5 a/ Estimates. Source: Panama Canal Commission. Table 8.12: Construction: Private Sector Construction Permits in District of Panama City, 1975-83 (Thousand Square Mters) 1975 1976 1977 1978 1979 1980 1981 1982 1983 Total 175.8 172.1 131.9 205.5 411.5 400.9 396.5 574.4 323.2 Residential 94.0 101.2 99.1 131.6 203.2 208.2 259.6 304.4 175.3 Commercial 56.9 42.1 23.2 45.5 161.6 136.6 90.3 226.3 128.5 Industrial 3.5 17.9 7.5 26.9 40.4 21.9 9.1 19.6 8.1 Other 21.4 10.9 2.1 1.5 6.3 34.2 37.5 24,1 11.3 Source: Comptroller General. IX. PRICES Table 9.1: AVERAGE MONTHLY SALARY BY EWPLOYER, 1970-83 (Number of Employees, Average Monthly Salary In Brlboas) TOTAL PRIVATE COM4PANIESa/ BANANA ZONESb/ CENTRAL GOVERNMENT PUBLIC AUTONOMOUS ENTITIESC/ CANAL ZONE YEAR _ _ _ __ _ _ __ ____ ____ ____ ____ Employees Salary Employees Salary Employees Salary Employees Salary Enployees Salary Employees Salary 1978 172,100 198.02 86,437 183.30 15,738 144.31 41,380 177.14 14,178 204.22 14,367 399.47 1971 190,647 202.03 102,330 187.99 14,868 140.36 43,932 185.22 16,819 221.20 12,698 420.12 1972 201,249 204.23 107,283 182.85 12,272 149.90 48,317 185.62 19,418 229.82 13,959 444.97 1973 213,127 212.89 114,171 191.52 11,129 156.28 49,250 195.72 24,543 227.46 14,034 466.45 1974 226,600 250.13 119,639 231.88 10,168 202.47 53,317 231.16 28,843 251.80 14,633 498.20 1975 231,281 264.15 117,344 241.34 11,176 187.99 54,823 239.33 33,491 263.90 14,447 590.50 1976 229,240 277.34 124,747 262.83 11,966 197.75 55,811 242.31 31,966 276.6-3 12,618 607.75 1977 227,258 293.52 118,995 280.61 12,849 207.77 58,680 247.25 32,309 288.38 13,028 661.40 > 1978 215,265 312.19 99,628 288.16 14,321 223.53 61,253 251.98 35,961 302.02 14,278 788.39 1979 268,268 331.82 144,037 306.53 14,459 257.06 63,714 290.15 41,648 316.96 14,834 821.65 1980 296,503 369.02 166,986 336.69 14,295 335.10 63,909 317.25 46,378 349.03 14,919 1,036.22 1981 339,842 384.64 199,929 356.41 14,694 361.15 69,122 327.32 51,305 372.20 14,902 1,057.24 1982 374,212 408.40 226,907 373.00 14,140 340.03 73,056 330.70 54,937 406,19 14,775 1,271.70 1983 n.a. n.a. n.a. 392.30 n.a. 360.40 n.a. 367.00 n.a. n.c. n.e. 1,322.60 a/ From Social Security reports. As Social Security overmage was extended from 8 urban centers In 1958 to virtually 311 towns and cities by 1971, the average salary became mre a national sampl, than a Colon/Panama City sample. Excludes banana oempany. b/ Since 1966 includes wages of independent producers. c/ Includes municipalitles. SDurces: Comptroller General. Table 9.2: NUMBER OF PUtLIC AND PRIVATE SECTOR EW.PLOYEES BY MONTHLY SALARY, 1970-82 BALSOAS PER MONTH 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 TOTAL 157,733 177,949 187,290 199,093 212,006 216,834 216,622 214.230 200,987 253,434 276.830 301.564 319,572 Less than 75.00 15,901 17,290 19,174 19,547 12,303 11,930 10,934 10,599 9,258 10,865 8,892 10,662 10,735 75.00 - 99.99 18,081 20,455 18,392 19,348 12,473 9,767 8,376 7,107 5,792 6,067 5,413 5,661 5,807 100.00- 149.99 55,157 55,276 60,296 58,579 47,327 46,814 43,606 39,274 33,549 25,359 21,584 22,755 23,090 150.00 - 199.99 30,542 38,183 40,120 42,747 52,760 50,703 48,602 48,244 43,922 53,682 48,213 44,590 46,530 200.00 - 299.99 19,859 24,33B 24,964 30,377 46,359 51,501 54,428 55,404 55,651 81,200 91,684 95,514 95,734 300.00 - 499.99 11,627 14,391 15,699 18,275 26,105 28,996 30,940 32,407 32,422 46,322 61,377 74,407 80,298 More than 500.00 6,566 7,956 8,645 10,220 14,679 17,123 19,736 21,195 20,393 29,939 36,667 47,975 57,378 Source: Comptroller General. Table 9.3: NIJ4BER OF PRIVATE SECTOR EMPLOYEES BY MONTHLY SALARY, 1970-82 BALBOAS PER MON4TH 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 Total Private Sector 102,175 117,198 119555 125,300 129,846 128,520 124,747 118.995 99,628 144,037 162,232 176r553 187,042 Less than 75.00 13,308 14,678 16,942 16,828 18,891 10,592 9,792 9,337 8,449 9,887 8,166 9,816 9,936 75.00 - 99.99 12,569 13,034 13,917 14,467 9,880 8,321 7,094 6,370 4,749 5,115 4,781 5,107 5,072 100.00 - 149.99 35,687 40,594 40,314 39,628 32,156 29,810 26,319 23,315 17,337 20,353 17,046 17,111 18,549 150.00 - 199.99 17,203 20,551 20,048 21,251 28,289 28,544 26,456 24,305 19,932 30,209 29,941 25,715 26,588 200.00 - 299.99 12,077 14,747 14,096 16,397 24,113 24,929 25,200 24,754 22,319 36,160 45,231 51,250 50,342 300.00 - 499.99 6,811 8,065 8,460 9,887 14,680 15,527 16,754 17,250 15,488 23,875 32,522 38,294 41,600 500.00 and Over 4,520 5,529 5,778 6,842 9,837 10,797 13,132 13,664 11,354 18,438 24,545 29,260 34,955 PrIvate Companies s86437 102,330 107,283 114,171 119t678 117,344 112,781 106,146 855307 a/ 129,578 147,937 161,859 172,902 Less than 75.00 12,467 14,329 16,715 16,625 10,818 10,506 9,689 8,512 7,635 9,019 7,473 8,939 9,449 75.00 - 99.99 9,793 10,330 12,552 13,573 9,669 8,109 7,013 5,634 4,110 4,513 4,508 4,363 4,692 100.00 - 149.99 27,890 32,328 33,536 33,762 29,662 26,163 22,765 19,025 12,744 17,420 15,896 15,079 17,436 150.00 - 199.99 14,838 18,438 17,361 18,605 24,307 23,984 21,749 20,429 15,403 25,640 27,560 23,214 24,457 200.00 - 299,99 10,806 13,828 13,301 15,353 21,754. 23,056 22,664 22,508 19,771 32,140 39,895 46,156 44,408 300.00 - 499.99 6,315 7,707 8,180 9,534 13,838 14,882 16,109 16,633 14,604 22,808 29,049 35,811 38,585 500.00 and Over 4,328 5,370 5,638 6,719 9,630 10,644 12,792 13,405 11,040 18,038 23,556 28,297 33,875 Banana Zones (Bocas del Toro, Puerto Armuelles) 15,738 14,868 12,272 11,129 10,168 11,176 11r966 12,849 121 14,459 14,295 16,694 14,140 Less than 75.00 841 349 227 203 73 86 103 825 814 868 693 877 487 75.00 - 99.99 2,776 2,704 1,365 894 211 212 81 736 639 602 273 744 380 100.00 - 149.99 7,797 8,266 6,778 5,866 2,494 3,647 3,554 4,290 4,593 2,933 1,150 2,032 1,113 150.00 - 199.99 2,365 2,113 2,687 2,646 3,982 4,560 4,707 3,876 4,529 4,569 2,381 2,501 2,131 200.00 - 299.99 1,271 9;9 795 1,044 2,359 1,873 2,536 2,246 2,548 4,020 5,336 5,094 5,934 300.00 - 499.99 496 358 280 353 842 645 645 617 884 1,067 3,473 2,483 3,015 300.00 and Over 192 159 140 123 207 153 340 259 314 400 989 963 1,080 a/ The marked fluctuation in 1978 compared to 1977 and 1979 Is due principally to lack of registration wIth the Social Security Agency and closure of some businesses. Source: Comptroller General. Table 9.4: NUMBER OF PUBLIC SECTOR EMPLOYEES BY MONTIhLY SALARY, 1970-82 BALBOAS PER 1H1ONTF 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 Total Public Sector 55,558 60,751 67,735 73,793 82,160 88,314 91,875 95,235 101,359 109,397 114,598 125,011 132,530 Less than 75.00 2,593 2,612 2,232 2,719 1,412 1,338 1,142 1,262 809 978 726 846 799 75.00- 99.99 5,512 7,421 4,475 4,881 2,593 1,446 1,282 737 1,043 952 632 554 735 100.00 - 149.99 19,470 14,682 19,982 18,951 15,171 17,004 17,287 15,959 16,212 5,006 4,538 5,644 4,541 150.00 - 199.99 13,339 17,632 20,072 21,496 24,471 22,159 22,146 23,939 23,990 23,473 18,272 18,875 19,942 200.00 - 299.99 7,782 9,651 10,868 13,980 22,246 26,572 29,228 30,650 33,332 45,040 46,453 44,264 45,392 300.00 - 499.99 4,816 6,326 7,239 8,388 11,425 13,469 14,186 15,157 16,934 22,447 28,855 36,113 38,698 500.00 and Over 2,046 2,427 2,867 3,378 4,842 6,326 6,604 7,531 9,039 11,501 15,122 18,715 22,423 National Government 41,380 43,932 48,373 49,250 53,317 54,823 55,811 58,680 61,253 63,714 63,909 69,122 73,056 Less than 75.00 1,637 1,695 1,272 439 491 341 190 247 55 11 10 .. 120 75.00- 99.99 4,409 6,219 3,385 3,460 262 112 58 80 40 52 26 ... 2 100.00 - 149.99 14,885 9,539 14,603 13,280 10,413 10,695 10,769 10,650 10,904 1,328 1,162 2,198 2,209 150.00- 199.99 10,486 14,079 15,555 15,956 17,094 13,764 12,730 13,573 13,010 12,599 10,903 11,043 12,256 200.00 - 299.99 5,671 6,923 7,520 9,272 15,567 19,045 20,819 21,780 23,689 31,567 28,215 25,896 26,691 300.00 - 499.99 3,277 4,338 4,695 5,356 7,215 8,135 8,355 8,895 9,699 12,690 16,441 21,679 22,589 , 500.00 and Over 1,015 1,139 1,287 1,487 2,275 2,731 2-,890 3,455 3,856 5,467 7,152 8,306 9,189 9 Autonioous and Semi-Autonomous 11,883 14,066 16,708 21,573 25,704 29,929 31,996 32,309 35,961 41,648 46,378 51,305 54,397 Less than 75.00 Z17 192 352 1,694 523 596 531 645 430 659 429 607 508 75.00 - 99.99 790 848 745 1,097 2,118 1,078 1,019 460 816 785 488 449 564 100.00 - 149.99 3,930 4,271 4,605 4,720 3,883 5,454 5,506 4,221 4,197 2,967 2,489 2,662 1,740 150.00 - 199.99 2,590 3,191 4,053 5,007 6,634 7,415 8,259 9,133 9,698 9,564 6,595 6,802 6,473 200.00 - 299.99 1,903 2,447 3,043 4,364 6,099 6,873 7,613 8,001 8,398 12,366 16,642 16,689 17,098 300.00 - 499.99 1,453 1,880 2,387 2,860 3,965 5,025 5,474 5,906 6,880 9,385 11,905 13,833 15,490 500.00 and Over 1,000 1,237 1,523 1,831 2,482 3,488 3,594 3,943 5,042 5,922 7,830 10,263 13,064 Nunicipalities 2,295 2,753 2,710 2,970 3,139 3,562 4,068 4,246 4,145 4,035 4,311 4,584 4,537 less than 75.00 739 725 608 586 398 401 421 370 324 308 287 239 171 75.00 - 99.99 313 354 345 324 213 256 205 197 187 115 118 105 169 100.00 - 149.99 655 872 774 951 875 855 1,012 1,088 1,111 711 887 784 592 150.00 - 199,99 263 362 464 533 743 980 1,157 1,233 1,282 1,310 774 1,030 1,213 200.00 - 299.99 208 281 305 344 580 654 796 869 745 1,107 1596 1,679 1,603 300.00 - 499.99 86 108 157 172 245 309 357 356 355 372 509 601 619 500.00 and Over 31 51 57 60 85 107 120 133 141 112 140 146 170 Source: Comptroller General. - 298 - Table 9.5: CONSUMER PRICES OF SELECTED ITEMS SUBJECT TO PRICE CONTROL, 1977-83 (Balboas per unit) 1977 1978 1979 1980 1981 1982 1983 Rice (1 lb.) 0.23 0.22 0.22 0.32 0.32 0.32 0.32 Sugar (1 lb.) 0.20 0.20 0.20 0.24 0.24 0.31 0.31 Coffee (1 lb.) 0.90 0.90 1.36 1.36 1.36 1.36 1.36 Onions (1 lb.) 0.18 0.18 0.18 0.23 0.23 0.23 0.26 Potatoes (1 lb.) 0.19 0.19 0.23 0.25 0.25 0.25 0.50 Eggs (each) 0.09 0.09 0.09 0.11 0.11 0.11 0.11 Milk (1/2 gal.) 0.73 0.73 0.73 0.85 0.92 0.92 1.06 Beef (1 lb.) 1.2' 1.25 1.55 1.55 1.55 1.55 1.55 Bread (18 oz.) 0.34 0.34 0.34 0.42 0.44 0.44 0.44 Flour (2 lbs.) 0.45 0.45 0.45 0.59 0.60 0.60 0.60 Cooking oil (1 gallon) 3.85 3.85 5.04 5.54 5.54 5.54 5.54 Cement (94 lbs.) 3.01 3.03 3.68 4.53a/ 5.12a/5.12a/ 5.12a/ Chicken (1 lb.) 0.79 0.79 0.79 0.94 0.98 0.98 0.98 a/ Includes 5 percent value-added tax. Source: Price Regulation Board (ORP). - 299 - Table 9.6: WAGES: REAL AND NOMINAL INCREASES BY SECTOR, 1974-82 (Percent Per Annum) Total Employees Public Sector Private Sector Canal Area Year Nominal Real Nominal Real Nominal Real Nominal Real 1974 17.5 0.3 15.6 -1.3 21.9 4.1 6.8 -9.7 1975 5.6 0.0 4.3 -1.3 5.1 -0.6 18.5 12.2 1976 5.0 2.4 1.3 -1.3 8.9 6.3 2.9 0.4 1977 5.8 1.2 2.7 -1.8 6.8 2.1 8.8 4.1 1978 6.4 2.1 3.3 -0.9 2.7 -1.4 19.2 14.4 1979 6.3 -1.6 11.2 3.0 6.4 -1.6 4.2 -3.6 1980 11.2 -2.3 9.9 -3.7 9.9 -3.6 26,1 10.8 1981 4.2 -3.0 4.9 -2.3 5.9 -1.4 2.0 -5.1 1982 6.2 1Q 8 4.6 0.4 5.1 0.9 20.3 15.4 1973-82 Annual Average 7.5 0.1 6.3 -1.0 7.9 0.5 11.8 4.1 Source: Comptroller General and World Bank estimates. - 300 - Table 9.7: AVERAGE REAL WAGES, 1973-82 (Constant 1980 Balboas Per Month) Year Total Private Sector Public Sector a/ Canal Area 1973 361.4 320.1 350.5 792.2 1974 362.5 333.2 345.9 722.5 1975 362.5 331.3 341.4 810,4 1976 371.2 352.1 337.2 813.6 1977 375.5 359.4 331,2 846.9 1978 383.5 354.3 328.4 968.9 1979 377.3 348.9 338.2 935.6 1980 369.0 336.7 326.3 1,036.2 1981 358.2 332.2 318.9 985.5 1982 364.7 335.1 320.3 1,136,8 a! Excluding Canal Area. Source: Comptroller General. Table 9.8: LABOR PROOLCTIVITY, REAL WAGES AND PRODUCTIVITY IN MANUFACTURING INDUSTRY, 1968-1979 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 Index 1967 = 100 Real output of manufacturing Industry a, 109.7 122.9 127.9 136.0 142.3 151.2 153.2 147.7 151.4 153.2 155.6 173.7 Real wage bill b/ 119.2 129.0 150.2 171.8 185.3 197.3 186.7 191.1 193.2 196.9 199.9 207.8 Emplorment 107.8 116,2 125.3 138.8 142.1 150.7 147.1 146.9 144.3 147.5 149.3 165.4 Real wage per employee 110.6 111.0 120.1 123.8 130.4 130.9 126,9 130.1 133.9 133.5 133.9 125.6 Output per employee 101.8 105.8 102.1 98.0 100.1 100.3 104.2 100.5 104.9' 103.9 104.2 105.2 Unit labor cost 108.7 105.0 117.4 126.3 130.2 130.5 121.9 129.4 127.6 128.5 128.5 119.6 Percentage Change from Previous Year Real output of manufacturing Industry8/ 9.7 12.0 4.1 6.3 4.6 6.3 1.3 -3.6 2.5 1.2 1.6 11.6 Real wage bill b/ 19.2 8.2 16.4 14.4 7.9 6.5 -5.4 2.4 1.1 1.9 1.5 4.0 Employment 7,8 7.8 7.8 10.8 2.4 6.1 -2.4 -0.1 -1.8 2.2 1.2 10.8 Real wage per employee 10.6 0,4 8.2 3,1 5.3 0.4 -3.1 2.5 2.9 -0.3 0.3 -6.2 Output per employee 1.8 3.9 -3.5 -4.0 2.1 0.2 3.9 -3.6 4.4 -1.0 0.3 1.0 Unit labor cost 8.7 -3.4 11.8 7.6 3.1 0.2 -6.6 6.2 -1.4 0.7 0.0 -6.9 a/ Real output was derived from natlonal accounts data. Data on wages, salaries, and employment were derived from a survey of industrial firms In the Panama City and Colon areas and from household surveys. b/ Deflated by the Consumer Price Index. Source: Comptroller General Table 9.9: AVERAGE MONTHLY WAGES AND NOMINAL AND REAL WAGE INDICES BY SECTOR, 1973-1982 (Wages in Balboas per Month, Indices 1973-100) 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 Total Employees' Wages 212.9 250.1 264.2 277.3 293.5 312.2 331.8 369.0 384.6 408.4 Nominal Wage Index 100.0 117.5 124.1 130.3 137.9 146.6 155.9 173.3 180.7 191.8 Real Wage Index -/ 100.0 100.3 100.3 102.7 103.9 106.1 104.4 102.1 99.1 100.9 Public Sector Employees' Wages b/ (i) Total Wages 206.3 238.4 248.6 251.7 258.6 267.2 297.0 326.3 342.2 358.0 Nominal Wage Index 100.0 115.6 120.5 122.0 125.4 129.5 144.0 158.2 165.9 173.5 Real Wage Index 100.0 98.7 97.4 96.2 94.5 93.7 96.5 93.1 91.0 91.4 (ii) Central Government's Wages 195.7 231.2 239.3 242.3 247.3 252.0 290.2 317.3 327.3 330.7 Nominal Wage Index 100.0 118.4 122.3 123.8 126.4 128.8 148.3 162.1 167.3 169.0 Real Wage Index 100.0 100.9 98.8 97.6 95.3 93.2 99.4 95.4 91.8 89.0 (iii) Autonomous Agencies' Wages 238.6 260.8 273.6 276.6 288.4 302.0 317.0 349.0 373.2 406.2 Nominal Wage Index 100.0 109.3 114.7 115.9 120.9 126.6 132.9 146.3 156.4 170.2 Real Wage Index 100.0 93.3 92.7 91.4 91.1 91.6 89.0 86.1 85.8 89.6 (iv) Municipalities' Wages 146.5 179.1 182.4 183.9 187.8 189.5 200.1 215.6 219.9 223.5 0 Nominal Wage Index 100.0 122.3 124.5 125.5 128.2 129.4 136.6 147.2 150.1 152.6 Real Wage Index 100.0 104.4 100.6 99.0 96.6 93.6 91.5 86.6 82.4 80.3 ! Private Sector Employees (i) Total Wages 188.4 229.6 241.3 262.8 280.6 288.2 306.5 336.7 356.4 374.7 Nominal Wage Index 100.0 121.9 128.1 139.5 148.9 153.0 162.7 178.7 189.2 198.9 Real Wage Index 100.0 104.1 103.5 110.0 112.3 110.7 109.0 105.2 103.8 104.7 (ii) Banana Plantations' Wages 156.3 202.5 188.0 197.8 207.8 223.5 257.1 335.1 361.2 340.0 Nominal Wage Index 100.0 129.6 120.3 126.6 133.0 143.0 164.5 214.4 231.1 217.5 Real Wage Index 100.0 110.6 97.2 99.8 100.2 103.5 110.2 126,2 126.8 114.5 (iii) Rest of Private Sector Wages 191.5 231.9 246.3 269.7 285.6 294.0 309.3 336.8 356.3 376.2 Nominal Wage Index 100.0 121.1 128.6 140.8 149.1 153.5 161.5 175.9 186.1 196.5 Real Wage Index 100.0 103.4 103.9 111.0 112.4 111.1 108.2 103.5 102.1 103.4 Canal Area Employees' Wages 466.4 498.2 590.5 607.8 661.4 788.4 821.7 1,036.2 1,057.2 1,271.7 Nominal Wage Index 100.0 106.8 126.6 130.3 141.8 169.0 176.2 222.2 226.7 272.7 Real Wage Index 100.0 91.2 102.3 102.7 106.9 122.3 118.1 130.8 124 4 143.5 a/ All Real Wage Indices are found by deflating the Consumer Price Index (1973=100). b/ Excluding Canal Area. Source: Comptroller General and World Bank estimates. - 303 - Table 9.10: COST OF LIVING INDEX, 1976-83 (1975 - 100)' Panama City (low- and middle-income) Total Food Housing Clothing Miscellaneous Weights (per cent) 100.0 39.4 23.0 9.3 28.3 (Period average) 1976 102.5 100.9 104.0 102.6 103.0 1977 107.2 103.9 112.1 128.8 107.1 1978 111.7 110.3 119.5 111.2 108.1 1979 120.6 120.4 123.2 116.1 120.1 1980 137.3 135.7 133.5 128.7 143.6 1981 147.3 148.1 139.7 135.6 154.5 1982 153.5 156.9 146.7 142.4 157.8 1983 158.8 162.3 153.0 146.0 162.5 (End of period) 1976 103.3 102.4 104.9 103.0 103.3 1977 108.3 105.1 113.9 108.8 107.5 1978 113.7 114.7 121.4 112.7 108.5 1979 March 116.8 116.6 121.5 113.8 114.9 June 121.7 121.8 122.9 116.7 121.9 September 123.4 122.8 124.8 115.8 125.0 December 125.0 123.7 126.2 120.6 126.6 1980 March 134.4 130.9 131.9 123.7 142.2 June 137.8 136.3 134.6 130.8 143.2 September 140.5 138.6 136.1 131.4 147.7 December 143.1 142.9 137.2 132.8 150.0 1981 March 145.7 144.7 138.9 134.7 154.1 June 147.0 148.5 138.3 135.1 154.2 September 148.4 150.4 141.0 136.0 154.5 December 150.0 152.2 142.4 138.9 155.9 1982 March 152.0 154.7 144.7 141.4 156.9 June 153.6 156.1 147.6 142.9 158.1 September 155.1 159.2 148.7 143.1 158.5 December 155.5 159.6 149.3 143.3 158.8 1983 March 158.2 161.2 152.4 146.0 162.2 June 157.7 161.0 152.4 145.5 161.1 September 160.2 164.1 154.3 146.3 163.8 December 159.0 162.8 153.1 146.2 162.7 Source: Comptroller General. - 304 - Table 9.11: COST OF LIVING INDEX: ANNUAL PERCENT CHANGE, 1979-83 (Percent) Total Food Housing Clothing Miscellaneous (Period average) 1979 8.0 9.2 3.1 4.4 11.1 1980 13.8 12.2 8.4 10.9 19.6 1981 7.3 9.6 4.6 5.4 7.6 1982 4.2 5.9 5.0 5.0 2.1 1983 3.6 3.7 4.4 2.7 3.1 (End of period) 1979 9.9 7.8 4.0 7.0 16.7 1980 14.5 15.5 8.7 10.1 18.5 1981 4.8 6.5 3.8 4.6 3.9 1982 3.7 4.9 4.8 3.2 1.9 1983 2.3 2.0 2.5 2.0 2.5 1984 January 1.9 1.4 2.4 1.2 2.2 February 2.0 1.8 2.4 1.2 2.2 March 1.8 1.6 2.4 1.4 1.7 April 2.0 1.4 3.0 1.2 2.0 May 1.6 1.3 1.9 1.2 1.7 Source: Comptroller General. 305 - Table 9.12: WHOLESALE PRICE INDEX, 1976-84 (1975 - 100) Total Imports Industrial Agricultural Weights (per cent) 100.0 37.5 , 46.4 16.1 (Period average) 1976 107.8 105.8 105.9 106.4 1977 115.5 115.7 116.7 111.2 1978 121.8 122.0 121.8 121.1 1979 138.8 130.9 145.2 138.8 1980 160.2 148.1 171.3 156.9 1981 176.2 168.2 185.9 166.6 1982 190.8 177.9 203.8 183.0 1983 198.2 186.6 208.8 194.6 (End of period.) 1976 107.8 106.5 108.9 108.2 1977 117.6 118.6 117.8 114.9 1978 125.8 124.9 126.9 124.5 1979 March 128.7 125.6 130.5 130.5 June 138.8 129.6 145.4 141.6 September 142.4 132.3 151.8 138.8 December 145.6 136.4 153.3 144.4 1980 March 153.7 141.1 166.0 147.6 June 158.3 148.2 168.4 152.9 September 162.9 150.9 175.2 155.7 December 165.7 152.2 175.7 167.8 1981 March 172.7 164.3 182.1 164.9 June 174.7 167.1 184.2 165.5 September 177.0 169.4 186.7 167.1 December 180.2 172.4 190.4 169.1 1982 March 185.2 175.7 195.8 176.9 June 192.0 178.4 206.1 183.2 September 192.1 178.2 205.9 184.7 December 193.6 179.6 207.1 187.1 1983 March 195.9 181.2 211.3 185.6 June 198.8 186.4 209.6 196.4 September 199.0 187.8 2J8.6 197.3 December 199.1 190.8 205.7 199.0 1984 March 194.8 188.7 198.0 199.3 Source: Comptroller General. - 306 - Table 9,13: WHOLESALE PRICE INDEX: ANNUAL PERCENT CHANGE, 1979-84 (Percent) Total Imports Industrial Agricultural (Period average) 1979 14.0 7.3 19.2 14.6 1980 15,4 13.1 18.0 13.0 1981 10.0 13.6 8.5 6.2 1982 8.3 5.8 9.6 9.8 1983 (.End of perilod) 1 979 15,7 9.2 20,8 16.0 1980 13,8 11.6 14.6 16.2 1981 8.8 13.3 8.4 0.8 1982 7.4 4.2 8,8 10.6 1983 March 5.8 .1 7.9 4.9 June 3.5 4.5 1.7 7.2 September 3.6 5.4 1e3 6.8 December 2.8 6.2 -0.7 6.4 1984 March -0.6 4.1 -6.3 7.4 Source: Comptrol ler General. 307 - Table 9.14: SELECTED PRICE INDICES, 1979-83 1979 1980 1981 1982 1983a/ Period Averages 1975 = 100 Wholesale prices 138.8 160.2 176.2 190.8 198.2 Cost of living 1 2 0. 6 1 3 7. 3 14 7. 3 1 5 3. 5 159.0 GDP deflator 129.0 142.3 148,9 156.0 161.0 Percentage change over previous year Wholesale prices 14.0 15.4 10.0 8.3 3.9 Cost of living 8.0 13.8 7.3 4.2 3.6 GDP deflator 9. 3 10.3 6.1 4.8 3.2 End of Period 1975 = 100 Wholesale prices 145.6 165.7 180,2 198. 2 203.7 Cost of living 1 2 5. 0 143.1 1 5 0. 0 1 5 5, 5 159.1 Percentage change over previour 12 months Wholesale prices 15.7 13.8 8,8 7.4 2.8 Cost of living 9,9 14.5 4.8 3.7 2.3 a/ Estimates. Sources: Comptroller General and IMF. World Bank Plublications of Relatec Interest Bangladesh: Current Trends NEW NEW and Development Issues Carl A. B. Jayar.-.ah, chief of Bhutan: Development in a Brazil: Country Economic mission, and others- Himalayan Kingdom Memorandum Provides an update on current devel- This is a landmark World Bank report Fred Levy, Lorene Yap, and others opment with emphasis on rural and on the Kingdom of Bhutan. Provides Provides a macroeconomic overview of industrial development and domestic an overview of the economy. Analyzes Brazil's economy during the 1970s. resource mobilization and suggests key sectors: agriculture, forestry, in- Looks at the macroeconomics of the that more funds should be channeled dustry, tourism, energy, transport, hu- fedkeral public sector, labor market de- into agriculture, education, health, and man resources, and communications. velopments and wage policy, and the population control. Examines current stage of develop- changing patters of poverty and in- 1979. 126 pages (including map, annexes, ment. Reviews development planning come inequalitv. appendix). (1961-1987) and identifies constraints 1984 400 pa to growth-manpower, physical, ma- 98.00pges. Stck N. BK 91565. . a terial, financial-and the role of exter- ISBN 0-8213-0330-9. Stock NVo. BK 0330. nal assistance. Outlines strategies for $15. NEW economic growth. Brazil: Human Resources 1983. 177 pages. Bral RepoRt Belize: Economic Report Stock No. BK 0306. $5. Special Report Analvzes current economic policies, deveiopment issues, and the public Brazil: A Review of Ricardo J. Moran, denuty chief, sector investment program. 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Stresses dations for policy changes. has left large differences in indices of the importance of expert-oriented ac- economic welfare and basic neec.s sat- tivities to promote development. 1982. 259 pages (including annex, statisti- isfaction among various population 1984. to page cal appendix). groups; that policies to increase pro- ISBN 0-8213-0095-4. Stock No. BK 0095. ductivity outside the modem sector of Stock No.' BK 0308, $5. S10. the economy will be crucial to achiev- with special attention paid to unem- BK 9168) for $40 and save $10 over the ing more equitable socioeconomic de- ployment and mechanisms crucial to cost of volumes ordered separately. velopment; and that accelerating prog- the success of such instruments as the ress in the provision of basic services Caribbean Free Trade Association and Colombia: Economic will require not only increased finan- the Caribbean Common Market. Development and Policy under cial backing but considerable efforts to The Johns Hopkins Uniiversity Press, 1978. Changing Conditions overcome institutional problems. 5.36 pages (including appendixes, statistictIl Jose B. Sokol, chief of mission, Volume II examines important sectors: appendix, index). and others health, nutrition, and education. Pro- LC 77-17246. ISBN 0-8018-2089-8, Stock Provides a survey and analysis of Col- vides information about general health No. JH 2089, $30 hardcover; ISBN 0- ombia's developmental experience and conditions, malnutrition, and emerg- 8018-2090-1, Stock No. JH 2090, 510.95 its prncipal features. Focuses on de- ing policy issues. paperback. mograpic trends, emplovment, wages, 1979. 560 pages (including map, 4 an- ,i. price stabilization, financial policies, rexes). Chile An Economy ir public expenditure, agricultural devel- ISBN 0-8213-9119-4. Stock No. BK 9119. Transition opment, and issues and policies in the $20, Fred D. Levy, chief of rniission, manufacturing industry. Examines re- and others cent economic developments and out- NEW Traces the development of the Chilean look for the future. NEW economy since the Great Depression of 1984. 320 pages. Brazil: Industrial Policies and the 1930s and emphasizes economic ISBN 0-8213-0329-5. Stock No. BK 0329. Manufactured Exports policies and events of the 1970s and S15. their effects on Chile's economic pros- Discusses Brazil's trade policy on man- pects. Finds that the ultimate success The Comoros: Current ufactured goods and its impact on in- of the government's policies depends Eooi iuto n dustral efficiency and growth of man- on its ability to demonstrate that effi- Prosoects ufactured exports. Describes industrial cient resource allocation and acceler- Prospects development in the country during the ated growth can be made consistent Updates an earlier World Bank eco- pas' decade. Presents an overview of with an equitable distribution of in- nomic report on this densely popu- Brazilian policy on technology, includ- come and the relief of absolute pov- lated archipelago of four islands in the ing d-velopment of human re5ources, erty. Mozambique channel. Describes the basic regulation and development, in- 1980. 601 pages (including map, 2 appen- painful path to self-sufficiency since dustrial technology, and technology dixes, 96 tables, g?.jssary). The Comoros declared their indepeo- transfer. ' ' dence in 1975. Recovery from revolu- 1983. 308 pages (including 4 annexes). Stock No. BK 9124. $20 tionary changes is underway but the ISBN 0-8213-0156-X.Stock No. BK 0156. China: Socialist Economic East African nation remains one of the $10. Dvlp etworld's poorest. Forecasts continuing Development need for outside financial and techni- Brazil: lItegrated Development Vol. 1. The Economy, Statistical Sys- cal assistance. of the Northwest Frontier tem, and Basic Data (408 pages, ISBN 1983. 180 pages. Dennis J. Mahar, chief of mission, 0-8213-0245-0, Stock No. BK 0245, $23.) ISBN 0-8213-0157-8. Stock No. BK 0157. and others Vol. II. The Economic Sectors: Agricul- $5 Points out that the Brazilian northwest ture, Industry, Energy, Transport, and hs mthe poutentia thebecomean import t Extemal Trade and Finance (476 pages, The Comoros: Problems and tant atepoulteral tobticombe an imp or- ISBN 0-8213-0246-9, Stock No. BK Prospects of a Small, Island region, as well as a place where mi- ' ' Economy grants from other parts of the country Vol. III The Social Sectors: Population. Pierre Landell-Mills, chief of may be productively and permanently Health, Nutrition, and Education (128 rnission, and others settled on small-scale farms. Thus, ags, ISBN 0-8213-0247-7, Stock No. Descbes the principal features of the economic developmen of the region is 027economy and summarizes the main currently one of the high priorities of The Bank's first Country Study cover- sectoral and structurai constraints to the Brazilian govemment. Outlines de- ing China raises the curtain on development. Notes that, in view of velopment plans for the area; exam- Chinese economic progress since 1949 its extreme poverty, the Comoros will ines population, migration, and social and on its prospects for the next gen- require a substantial inflow of re- indicators; and considers issues and eration. It forecasts a substantial in- sources and technical assistance in the recommendations reiated to the identi- crease in the living standards of its future. A statistical annex provides a ficatior and protection of Indian lands, people-if the country's immense comprehensive compilanon of social land settlement, and environmental wealth of human talents effort and and economic data not otherwise concems. disciphne are marshaled effectively. available. 1981. 107 pages (including annex). But, the report warns, China is eniter- Stock No. BK 9140. n g e ing a difficult p,eariod. A successful 1979. 184 pages (including J maps, 3 an- oransition requires policies that in- nexes). English, French, and Spanisih. The Commonwealth crease the efficiency with which all re- Stock Nos. BK 9115 (English). BK 9158 haribbean: The Integration sources are used. (French), BK 9159 (Spanish). $5. e TEveryone with interests in develop- Experience ment and trade will want a personal Sidnev E. Chernick and others set of this three-volume study. Prices subject to change wvithout notice Broad issues of regional integration Order the three-volume set (Stock No. and may vary by country. Ecuador: aDPevelopment NEW 1979. 178 pages {including map, 3 an- Problenis and Prospects -nexes, 3 graphs, organization cihart), Alexander G. Nowicki, chief of Stock No. BK 9122. 5, mission, and others Ghana: Policies and Program Reviews the country's main socioeco- for Adjustment Indonesia: Employment and nomic sectors and focuses on the tra- Ishrat Husain, chief of mission, Income Distribution in ditional quality of Ecuador's economy and others Indonesia which makes it difficult to bring the Analyzes Ghana's economy since 1970. Mark Leiserson, mission chief and benerits of modem development to a Outlines policies and programs for ad- coordinating author majoritv of the poor. Discusses the ex- justment. Focuses on growth and effi- Examines demographic, employment, pected shortfall in foreign exchange ciency, the external sector, domestic and fiscal revenues compared to the resources, and human resources and wage, and income trends; analyzes the countrv's needs, which can be alle- social development. A detailed statisti- functioning of rural and urban labor viated if aided by a vigorous effort in cal appendix provides background pa- markets; and formulates employment explraton ad areviionand income policy issues that are im- petroleum exploration and a revision pers that review major sectors, includ- ant inc ade ssi esia's of the domestic price policy for petro- inig agriculture, mining, energy, portant in addressing Indonesia's leum derivatives. manufacturing, population, and trans- longer-term development strategy. 1979. 660 Pages (including 4 technical an- port. 1980. 198 pages (including appendix, 2 nexes, statistical appendix). English and 1984. 224 pages. annexes). Spanish. ISBN 0-8213-0358-9. Stock No. BK 0358. Stock No. BK 9132. $5. Stock NQs, BK 9160 (English) and BK $10. Ivory Coast: The Challenge of 9161 (Spanish). $20. Ccess Egypt: Economic Management SoGcatlaPosctionad dProspects Bastiaan A. den Tuinder and inhalPeriod ofra Tan siot is John R. Hansen, chief of - sion, oters Khalid lkram and others and Investigates the so-called "Ivorian Mir- The most detailed examination of the Cocue tacle" anrd ways to maintain growth Egyptian economy to appear since the C l t current prob- while reducing or eliminating gaps in 1960s and the first to lay heavy em- lesdet '. .in coffee prices inome levels and opportunities for phasis on economic management and the econri3 Q nnancily sound and idvancement. policies. has ,-.,tr growth prospects.Th onHpksUivrtyPe,198 The Johns Hopkins University Press, 1980. 1978. 18l pages (including statistical an- 464 pages (Jnsins University Press, 1978s 464 pages (including statistical appendix, nex, map annex). appendix, index). index). Stoc No. BK 9150. $5. LC 76-47395, ISBN 0-8018-1939-3, Stock LC 80-552. ISBN 0-8018-2418-4, Stock _ No. JH 1939, $28.50 hardcover; ISBN 0- No. JH 2418, $32.50 hardcover; ISBN 0- NEW 8018-2099-5, Stock No. -H 2099, $12.95 8018-2419-2, Stock No. JH 2479, $11.50 paperback. paperback. Hungary: EconomicKey:Pplto an The Gambia: Basic Needs in Developments and Reforms D)evelopment The Gambia The World Bank's first analysis of the Rashid Faruqee, chief of mission, Heinz B. Bachmann, mission chief economy of the Hungarian People's and others and coordinating author, Rene Republic. Examines aspects of the eco- S Vandendries, and Ann nomic structure of Hungary and the States that fertility in Kenya is high, MacNamara nature and evolution of its economic appears to be inceasing, and shows This report outlines a basic needs management system. Reviews princi- considerable variation by region, tribal strategy designed to guide the Gam- pal sectors - agriculture, i2adustry, group, and socioeconomic status. Rec- bian govemment and the World Bank energy. Discusses policv issues and in- ognizes that rapid population groeth" in making policy decisions that will in- dicates medium-term perspectives for is resultig in the need for increased crease the chances of base survival for thr economy. services, such as education, health, that country's people. The Gambia is 1983. 296 pages. water, and housing. Argues that a extremely poor; the rural population is Stock No, BK 0307. $10. rapid decline in fertility wil facilitate worse off than those living in urban the implementation of the govern- areas; and women and children, who India: Economic Issues in the ment's commitment to the provision of make up 30 to 40 percent of the popu- Power Sector basic needs, but that the satisfaction of lation, are the most isadvantaged C. Taylor basic needs, such as education, is an health and malnutrition. A strategy is Reviewing the country's demand for important instrument for secunng proposed that is aimed at improving electricity, points out that economic lower fertility. Explores the socioeco- the health and nutritional status of growth in India depends critically on nomic determinants of fertilitv, the pregnant women and lactating moth- the development of the power sector current status of the country's family ers by combating endemic disease, im- and suggests that pubLic funds be sup- planning program, the social status of ers v cmbaingendeic isese,im-wome an fetiltv,and makes rec- proving the supplv and distribution of plemented by increased tariffs to aug- women and fertilityradmksive food, improving eating habits, and ment the internal cash generation of ommendations for a comprehensive supplving clean water in rural areas. the State Electricitv Boards, as well as population policy. 1981. 153 pages (including 2 annexes). provide for a more efficient use of 1980. 226 pages (including bibliography). Stock No. BK 9167. $5. power resources. Stock No. BK 9134. $10, Korea: Policy Issues for Long- The Maldives: An Introductory key sectors such as agriculture, indus- Term Development Economic Report try, tourism, energy, and transporta- Parvez Hasan and D. C. Rao K. Sarwar Lateef, chief of mission, tion, as well as human resource devel- Can Korea's growth rate continue with and others opment. greater considerations of equity, struc- Provides a brief introduction to the 2979. 234 pages (including map, 2 an- tural changes to maintain the compar- Maldives, a nation that is among the nexes, statistical appendix). ative advantages of Korean exports, twenty poorest countries in the world, Stock No. BK 9123. S5. the new roles for government in re- and points out that the fisheries sector Papua New Guinea: Its sponse to changing domestic and ex- accounts for 44 percent of employment Economic Situation and temal conditions? and nearly all visible export earnings The Johns Hopkins University Press, 1979. and discusses other important sec- Prospects for Development D58 pages (including map, appendixes, in- tors-agriculture, tourism, cottage in- George B. Baldwin and others dex). dustries, health, and education. Out- Assesses prospects for increasing eco- LC 78-21399. ISBN 0-8018-2228-9, Stock lines the development priorities for the nomic self-reliance and financial credit- hardcover; ISBN 0- country in the 1980s and the role of worthiness by developing considerable No. 8 H 2228, $35 toco. JH 2 - external assistance. natural resources. perback. 1980. 178 pages (including 5 annexes, sta- The Johns Hopkins Llniversity Press, 1978. t tistical appendix). 38 pages (including appendixes, statistical Madagascar: Recent Economic Stock No. BK 9139. $5. appendix., bibliography). Development and Future LC 77-1,7242. ISBN 0-8018-2091-X, Stock Prospects Mauritius. Economic No. IH 2091, $6.50 paperback. P.C. Joshi, mission chief, and Memtorandum: Recent others Developments and Prospects Neo IueS Examines, in the light of recent eco- Michel J. C. Devaux, mission Development Issues nomic developments and the govern- chief, and others aril others ment's objectives, the strategy under- Report of a November-December 1981 TI eotcntttspr facn lying both the 1978-80 Development mission to review the economic situa- Tlis report constitutes part of a con- Plan and those plans to be imple- tion of Mauritius and to assess prog- 1.r.nLAikg dialogue betweern the World mented subsequently. Points out that ress under the structural adjustment 0eawGk and the govemrment of Papua the overall performance of the econ- loan approved by the World Bank in Nimew Guinea on a iside range of econ omv has been disappointing in recent 1981. rLomic and sector Issues. It focuses on years, but that the government has a few specific areas that were agreed been able to focus on certain important 1983. 122 pages. to be among the most important for social objectives; the satisfaction of ISBN 0-8213-0122-5.Stock No. BK 0122. the country's development during the basic needs, reduction of urban-rural $5. 1980s. Points out that the major goal income disparities, and the protection facing the country in the 1980s will be of living standards of low-income ur- Morocco: Economic and Social to provide rising incomes for its peo- ban groups. Proposes a policy frame- Development Report ple and productive livelihood for its wvork characterized by increased reli- Christian Merat, coordinating growing labor force. Discusses, in par- ance on extemal assistance, vigorous author, and others ticular, the emplovment, agriculture, export promotion, and a general relax- forestry, fisheries, and industrv sec- ation of economic controls, and COn- This study examines the growth and tors. siders the feasibilitv and appropriate- structural changes the Moroccan econ- 280 pages (including 4 annexes). ness or -his strategy in relation to the omy has experienced durIng the ten- resources of the economy arid long- year period, 1968-77. It seeks to deter- Stock No. BK 0096. $20. term development goals of the coun- mine the results that can be expected Paraguay: Regional trv. from the annual plans of financial ad- Development in Eastern justment that dominate the period 1980, 307 pages (including 6 annexes, 4 1978-80 and looks ahead to the overall Paraguay appendixes), Engli.,,: and French. prospects for the economy during the Alfredo Gutierrez, chief of Stock Nos. BK 9157 (English) and BK period 1981-90. Considers growth mission, and others 9164 (French). $15. problems at the sector level and out- Reviews recent economic develop- Malaysia Growth and Equity lines the general employmextt situation ments and provides a framework for Malaysia: and the social development strategy policy actions and investment projects in a Multiracial Society the country is pursuing. designed to make maximum use of de- Kevin Young, Willem Bussink, and 1981. 454 pages (including statistical ap- . velopment possibilities, and suggests Parvez Hasan pendix). English and French. the need to coordinate public-sector Rapid growth is essential to achieving Stock Nos. BK 9165 (English) and BK activities in a geographic and sectoral Malavsia's economic and social objec- 9266 (French). $20 dimension to exploit the eastern re- tives; favorable resource prospects are gion's natural resources. conducive to such growth.. Nepal: Development 1978. 58 pages (includitig maps. .tatistica Tire Johns Hopkins University Press, 1980. Performance and Prospects appendix). EngiiJh. 364 pages (including appendixes, index). Yukon Huang, chief of Stock No. BK 9103 tEngliSlh) and BK 9l52 LC 79-3677. ISBN 0-8018-2384-6; Stock mission, and others (Spanishi). $3. No. IH 2384, S25 hardcover; ISBN 0- Reviews Nepal's achievements during 8018-2385-4, Stock No. IH 2385, $12.95 the Fifth Development Plan and its Prices subject to change icithtout notice paperback. strategy options for the Sixth Plan for and may vary by country. The Philippines: Housing Portugal: Current and 1980. 73 pages (including statistical ap- Finance Prospective Economic Trends pendix). Madhusudan Joshi, mission chief, Basil Kavalsky, chief of mission, Stock No. BK 9133. $3. and others and Surendra Agarwal Thailand: Income Growth and Reports thl findings of a 1981 study Discusses Portugal's difficult transition Poverty Alleviation requested by the government of the after the revolution of 1974/75 and John Shilling, chief of mission, and Philippines focusing on resource mobi- notes that the country has a sound others lization and its macroeconomic impli- economic base, but will have to come Synthesizes the results of four special cations, the development of appropri- to terms with the senrous unemploy- studies on poverty-related issues and ate institutions and instruments, and ment problem, increase investment discusses some of the determinants of access to housing finance. and output in export-oriented manu- poverty, the determic 1983. 737 pages (including appendices). facturing, and improve agricultural and povihtcal fact ors oon theponomic ISBN 0-8213-0108-X. Stock No. BK 0108. productivity. the relationship between basic needs $5. 1978. 58 pages (including statistical ap- and poverty. Formulates guidelines for pendix, map). - polices aimed at alleviating poverty Philippines: Industrial Stock No. BK 9106. $3. and promoting equitable growth. Development Strategy and Companion paper to Thailand: Toward a Policies Romania: The Industrialization Development Strategy of Full Participa- Barend A. de Vries, chief of of an Agrarian Economy under tion, March 1980. mission, and others Socialist Planning 1980. 64 pages (including 2 annexes, Outlines the country's industrial de- Andreas C. Tsantis and Roy maps). velopment strategy, its major objec- Pepper Stock No. BK 9135. $3. tives, and industrial investment priori- The first comprehensive study of the Thailand: Industrial ties and determines that the Romanian economy, the study con- Development Strategy in nontraditional manufa-ctured export tains a data base of the economy and Thailand drive should continue with increased describes the planning and manage- Bela Balassa, chief of mission, and participation by industries, firms, and ment system. others regions and that policies for the home The Johns Hopkins University Press, 1979. Notes that the country had an out- industries should be reoriented toward 742 pages (including maps, appendixes, standing economic record during the better use of capital and domestic re- bibliography). postwar period, especially between sources and more employment crea- LC 79-84315. ISBN 0-8018-2269-6, Stock 1960 and 1973, but points out :hat tion. No. JH 2269, $35 hardcover; ISBN 0- there is a slowdown in the growth of 1980. 310 pages (including statistical ap- 8018-2262-9, Stcck No. JH 2262, $15 pa-* Thai exports that will have a negative pendix, 9 annexes). erback. effect on the economy. Examines the Stock No. BK 9131. $15. Seycelles: Economic prospects for future exports of pro- Portugal: Agricultural Sector Memorandum and analyzes themcoufactrured goods Survey Robert Maubouche and Naimeh tive. advantage in these products. Con- Jacques Kozub, chief of Hadjii'arkhani siders the need for the economic eval- mission, and others Traces the development of Seychelles' uation of large government-sponsored Analyzes the main issues of agricul- economy from its primary dependence projects; examines measures of import thiral development and identifies on the export of copra and cinnamon protection and export promotion irvestor needs for future World Bank to service economy with tourism as its schemes and questions relating to re- consideration. major industry. Concludes that the gional development. Provides recom- country's management capability is mendations for a coherent industrial 1978. 328 pages (including 2 appendixes, imnpressive and its development strat- development strategy for the country 10 annexes, maps). egy well designed, but that it is likely that is aimed at increasing industrial Stock No. BK 9105. S15. to be confronted with financial con- employment, expanding small and straints in the near future, and its in- vestment program will require in- creased domestic efforts, as well as substantial levels of extemal capital aid. medium-sized firms, and improving Turkey: Policies and Prospects NEW the living standards of the poor for GrowthN 1980. 69 pages: Vinod Dubey, mission chief Yugoslavia: Adjustment Stock No. BK 9155. 53. Shakil Faruqi, deputy mission Policies and Development NEW chief, and others Perspectives States that overall economic growth Reviews Yugoslavia's adjustment dur- Thailand: Rural Growth and during the 1960s and most of the 1970s ing the strenuous economic period of was good compared with other devel- 1976-80. Based on the findings of a Employment oping countries. Concludes, however, World Bank economic mission to Yu- Examines the high rate of economic that the sharp increase in oil prices goslavia in 1981, this report is espe- growth in Thailand with respect to ag- had an unfavorable impact on the cially useful to economists, country ricultural growth. Concludes that agri- country and that resumption of sus- planners, and those interested in eco- cultural growth has a great effect on tainable growth depends on the adop- nomic trends and institutional change. rural development. Supports develop- tion of an export-oriented strategy; on The first section of the report deals ment of programs to alleviate the policies aimed at increasing domestic with issues of adjustmentt strategy and pockets of rural poverty. Discusses savings and at keeping aggregate de- policy across the economy. The second supplv-side factors in rural nonfarm mand for resources in line with aggre- part explores issues in agriculture, in- activities and the effect of industrial gate supply; and on the support for dustry, employment, and regional pol- policies on provincial manufactunng, these policiEs by various donors and icy. Includes more than 100 tables of' 1983. 212 pages (including appendixes). the financial community. statistics from 1965 through estimates ISBN 0-8213-0203-5. Stock No. BK 0203. 1980. 347 pages (including 6 appendixes, for 1985, $10. statistical annex). 1983. 464 pages. Thailand: Toward a Stock No. BK 9151. $15. ISBN 0-8213-0189-6. Stock No. BK Development Strategy of Full Uganda: Country Economic 0189. $20. Participation Memorandum Yugoslavia: Self-Management E.R. Lim, chief of mission, John Mark Baird, mission leader, and Socialism and the Challenges Shilling, deputy chief, and others others of Development Shows that rapid and sustained This is the first economic report pre- Martin Schrenk, Cyrus Ardalan, growth has helped a substantial pro- pared by the World Bank on Uganda and Nawal A. El Tatawy portion of the population, but that, to since 1969. It reviews events prior to Describes major development issues a large extent, the rural population has the 1978-79 war and developments and the overall performance of the not benefited. Stresses that the coun- since the war, including the govern- economy, showing that the new eco- trv should not follow a type of "trickle ment's new financial program. Out- nomic framework of the 1970s down" development strategy, but lines the priority areas for further ac- strengthens decisionmaking at the should fcocus on raising the productiv- tion and the implications of the lowest microeconomic level and at the itv and incomes of the poorest farm- balance-of-payments outlook for aid same time allows greater coordination ers. This strategy would be a logical requirements. A more detailed review of economic activity bv extending self- continuation of the economic change of the problems and issues in five ma- management principles to the macroe- that began in the middle of the 19th jor sectors-agriculture, industry, conomic level. century, with development based pri- transport, energy, and education-is The Johns Hopkins University Press, 1979. marnly on indigenous capital and skills also discussed. 410 pages (including map, appendix, glos- and the gradual assimilation of foreign 1982. 166 pages (including statistical ap- sary,.index). technology. pendix). LC 79-84316. ISBN 0-8018-2263-7, Stock 1980. 246 pages (including statistical ap- ISBN 0-8213-0027-X. Stock No. BK 0027. No. JH 2263, $27.50 hardcover; ISBN 0- pendix). S5. 8018-2278-5, Stock No. JH 2278, $12.95 Stock No. BK 9125. $10. paperback. Turkey: Industrialization and Yemen Arab Republic: Zaire: Current Economic Trade Strategy Development of a Traditional Situation and Constraints Bela Balassa, mission chief and Economy Bension Varon, chief of mission, principal author Otto Maiss, chief of mission, and and others Reports the findings of a special eco- Presents ah integrated analysis of the nomic mission that visited Turkey in Outlines the far-reaching changes in difficulties experienced bv the Zairian .M1av-June 1981. Includes production the socioeconomic and political struc- economv between 1975 and the first incentives, financing of economic ac- ture of the Yemen Arab Republic since half of 1979 and suggests that the tivitv, taxation and investment incen- the 1962 revolution and discusses ma- country needs to revamp its institu- tives, industrial development and ex- jor development issues of the late tions and its system of incentives and ports, state economic enterprises in 1970s and the 1980s. adopt polices that will lay the founda- manufacturing agriculture develop- 1979. 333 pages (including 3 maps, 7 an- tion for a development pattem that ment and exports, and tourism. Con- nexes, statistical appendix. selected bibliog- will render it less vulnerable to cludes with policv recommendations. raphy). changes in the world economv. 1983. .'i - 455 pages (including append- Stock No. BK 9109. S15. 1980. 196 pages (including map, annex, ices and statistical tables) statistical appendix). English and French. ISB.N' 0-8213-0046-6. Stock No. BSK 0046. Prices subject to change without notice Stock Nos. BK 9128 (English) and BK 520. and may vaary by country. 9154 (French), $5. TnewDrdBank : Publications Order Form SEND TO: YOUR LOCAL DISTRIBUTOR OR TO WORLD BANK PUBLICATIONS (See the olh3r side of thisform.) P,O. BOX 37525 WASHINGTON, D.C. 20013 U.S.A. Date Name Ship to: (Enter if different from purchaser) Title - Name -_- Firn i Title . _ -_-- Address_ Firm City State__ Postal Code_ Address Country Tlephone ( City State- Postal Code Purchaser Reference No. . Country Telephone ( ) Check your method of payment. Enclosed is my El Check El International Money Order O Unesco Coupons al Intermational Postal Coupon. Make payable to World Bank Publications for U. S. dollars unless you are ordering from your local distributor. Charge my rO VISA El MasterCard F] American Express O Choice. (Credit cards accepted only for orders addressed to World Bank Publications.) 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'A PACIF/ PANAMA (7 Ftilabeio N S ' ee ' a C>Ci! 4V COLOMBIA LOSMrTa eds /-t u t BRAZII j /o f btJA 5 wb- * T1', W111dsl 8a,,ks ,Isafi Lexcfs,.epy Q tar thle cor,,n,eneca of tile .-l readers and ,s eacousIve tar the L eUtueot The wVofl LTsnk I$O OH i j fjl,eon,5 ; II 5and the Inlernational Finance -:. Corporation. The denominations 0 used and the boundaries shown Cermok +'L 'oan th,s mao do not imply, an the - 4, CerroAzul ' ~part ot t'e Wadd Bank end the C A IC e .International Finance Corporation, ' - y /any judgment on thte legal status * lOCATe - / of any territory or anly Juan Di'az -0PA '',*suhbudre.9 AraJ PANAMA suc bunaris,9o Ve-Mra -- , 'cboq.e . ' .~. Capi'.' '.,\\>4t' L.d;c -csI,a i gr cN'l OONZLEZ M105t E 5.. J- $' t G.ro&7 -;: \ Geoce 't X "\ \ \. 8' 0edoit 1, 2, 3p 4 5 7p 8p 90 100 / \ L \I KILOMETERS ' o 10 20 30 40 Sj0 60 '-e MILES 8p' 797' JULY 1984