The official currency of Panama is the Panamanian balboa (PAB). One balboa consists of 100 centesimos. The currency is fixed at parity with the US dollar, meaning that 1 balboa is equal to 1 dollar. In practice, the currency situation is a bit more complicated. Since its independence in 1904, the Panama has been dollarized; the country mints its own coinage but uses the US dollar for all of its paper currency. As such, there is very little exchange rate volatility, and American tourists to Panama are at an advantage. Dollarization is also conducive to financial stability and low interest rate, and Ecuador and El Salvador adopted the practice in 2000 and 2001, respectively. The dollarized economy limits Panama 's exports to a certain extent but it also allows for cheaper imports and more foreign direct investment.
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Political Structure
The Republic of Panama is divided into nine provinces and five indigenous territories. On December 20, 1989, the United States military intervened in the country to remove dictator General Manuel Noriega. Since that time Panama 's politics have taken place within the framework mandated by the state constitution that was adopted on October 11, 1972. Panama is a presidential representative democratic republic, whereby the President of Panama is both the head of state and the head of government. The government operates under a pluriform multiparty system. Executive power is exercised by the presidential government, while legislative power is vested in both the government and the National Assembly. The judiciary is independent of the executive government and the legislature
Prominent Figures
The current President is Martin Torrijos Espino, who was elected in 2004 and is serving a 5-year term. Panama 's central bank is called the National Bank of Panama . The Governor General of the bank is Juan Ricardo De Dianous.
Unique Characteristics
Panama cannot boast of the same cost advantages as other developing countries because of its dollarization. The use of dollars eliminates any exchange rate advantage and can explain why the country, despite being the second most industrialized in Central America after El Salvador , has an economy that is service-based instead of manufacturing-based. Compared to the rest of its region, the Panamanian economy is performing rather well, but it still has an unemployment level of 8.8%. Even among those employed, there is a shortage of skilled labor and an oversupply of unskilled labor. More troubling is the fact that, according to the CIA World Factbook, 37% of the population was living below the poverty line in 1999. The Gini Coefficient of per capita income in Panama is 0.564, a high level of income inequality that does not bode well for future growth.
Key Economic Factors
Panama 's dollarized economy rests primarily on a well-developed services sector that accounts for ¾ of GDP. The services include operating the Panama Canal , banking the Colon Free Zone, insurance, container ports, flagship registry and tourism. Its geographic location as a gateway between the Atlantic and Pacific Oceans is important to its growth. The handover of the Panama Canal and other military installations by the United States has given rise to new construction projects. In October 2006, voters passed a referendum to expand the Panama Canal to accommodate ships that are now too large to transverse the transoceanic crossway.
Much of the Panamanian economy is dependent upon international trade. This is due in large part to the Colón Free Trade Zone, a 600 acre region located at the Atlantic Gateway of the Panama Canal . It is the largest free trade zone in the Western Hemisphere and the second largest in the world. In 2005, the zone accounted for 92% of Panama 's exports and 62% of its imports. Panama 's also fares well in tourism receipts and foreign direct investment as a percentage of GDP, ranking fourth in Latin America in both categories. Panama ranks eighth among all Latin American countries with regard to internet penetration. Along with this reliance on trade and commerce comes an ethnic diversity not always seen in this part of the world. Panama has some of the largest concentrations of Muslims, East Asians, South Asians and Jews in Latin America .
The one major concern regarding the economy currently is government spending. Public debt is at 61.3% of GDP (2006), and government expenditures regularly outpace government revenues. The enlargement of the Panama Canal is estimated to cost $5.25 billion, $1 billion more than the average annual budget of the Panamanian government. Because of dollarization, however, this has not affected the inflation rate, currently at 2.6% (2006). Panama is also not a CAFTA signatory, but it independently negotiated a free trade agreement with the United States in December 2006 that will help the country's economic growth
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