Envío Digital
Central American University - UCA  
  Number 139 | Abril 1993



Another day older and Deeper in Debt

The external debt continues to be a key instrument with which the North imposes economic policies on countries of the South. We don’t develop, but we do indeed pay. In Panama the government does not hide it: all the adjustments are aimed at increasing public saving and thus be able to pay the debt.

Panamanian Center for Studies and Social Action (CEASPA)

Since 1980, payment on its public debt has become the Panamanian government's number one priority. The final version of the Ford Plan recently reaffirmed that, in particular, payment on the foreign debt "is the condition necessary to achieving financial stability and creating the conditions by which Panama may be internationally recognized as a country without economic or financial risks." Government publicity tries to ensure that the population comprehend this economic policy priority by arguing that the country's "dignity" is at stake.

Panama's total public debt currently stands at $6.177 billion. Of that, $4.234 billion corresponds to the foreign debt, and 20% of that ($857.9 million) is owed to multilateral creditors such as the International Monetary Fund (IMF), the International Development Bank and the World Bank.

Between 1982 and 1984, the years in which Panama applied its first structural adjustment policies, the government paid $1.141 billion on its foreign debt. Between 1985 and 1987, the second structural adjustment phase, $1.646 billion went to debt payments. Thus, even though no payments at all were made in 1988 89, Panama paid a total $3.387 billion on its debt in the decade of the 1980s. In 1986 and 1987, debt service added up to over 50% of public spending, while spending in health, education and housing combined totaled barely 22%.

In 1990, the Endara government's first year, negotiations were initiated on payment of the arrears to the multilateral financial institutions. In 1991, the government paid out $341.1 million and in 1992, almost $1 billion, representing 35% of its total spending budget.

Renegotiating the Debt

In order to normalize relations with its international creditors, Panama had to pay out a total $645.8 million in 1990 to cover the arrears with the multilateral financial institutions accumulated up to December 31, 1989. It also paid $39.9 million of the debt pending with the Paris Club countries, as well as $227 million on the 1990 current debt. To recover its status as a "country subject to credit," Vice President Guillermo Ford negotiated the following to cover the debt service:
* $134 million of the funds that the United States had frozen during 1988, when Noriega was still in power;
* a $143 million bridge loan from the Federal Treasury;
* $133 million worth of donations ($130 from the United States and $3 million from France); and
* $23.8 million of fiscal year 1991 government income.

In exchange for that $645.8 million, Panama received a total $227.9 million ($207.7 million from multilateral creditors and $70.2 million from bilateral and official creditors). In addition, the IMF approved a 22 month contingency accord totaling another $130.35 million. That accord included as a condition quarterly reviews of foreign financing.

That IMF accord mortgaged Panama's future as well as its present, since it created the conditions for Panama to make a net resource transfer out of the country in foreign debt payments, keeps alive the mechanism for self perpetuating the debt and establishes conditions on Panama's economic policy that undercut the state's right to self determination. In other words, to pay off old loans, Panama is taking on new ones, negotiated under onerous payment terms. Furthermore, the very difficult economic policy conditions that were established translate into sacrificing years of national productive effort, shrinking the national business class' managerial ability, and essentially auctioning off the Panamanian worker's labor capacity.

The greatest danger, however, still lies ahead the moment when the Panama Canal is handed over to Panama, in accord with the Torrijos Carter treaties. At that time, a proposal will no doubt surface to resolve the debt problem by renting the military bases and renegotiating the canal treaties, offering the waterway back to the United States in exchange for some ridiculous concession.

Panama's economic Cabinet holds that the new credits will keep the economy growing and generate the employment so needed by the country. But if the majority of these new credits goes to debt refinancing, this will not have a such multiplier effect on the national economy. The small proportion of credits going into investment are not generating the number of qualitative jobs needed to really activate the economy. In addition, this low public investment level is happening in a context of structural adjustment that inhibits a multiplier effect. And, finally, foreign credit sources are not inexhaustible, nor is the country's capacity to take on more debt infinite. The international recession and monetary financial problems affect the availability of funds in the world financial system and make any resources that Panama might aspire to in the future scarcer.

To increase the country's income and satisfy its debt payments, the Ford Plan proposes increasing exports. To this end, it is promoting nontraditional exports, a project rife with uncertainties and ecological landmines, as is clearly demonstrated by Guatemala's "successful" example. The plan also offers incentives to maquila assembly zones for export. Generalizing such policies throughout the Central American region will only bring us to a dangerous competition that will, in the end, reduce the value of all our nontraditional and maquila exports. In addition, it has been proven that, even when exports rise, neither the job problem nor the imbalance in international financing is resolved.

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