The new economic team is (almost) in place…facing a tight fiscal situation and a slow real activity

PANAMA - Report 30 May 2019 by Marco Fernandez and Alex Diamond

Héctor Alexander, former Minister of Economy and Finance (MEF) from 2007-2009, and University of Chicago graduate, will be in charge again of this office, presumably until January when the MEF might split into two separate entities: MEF itself will likely transform into the Ministry of Treasury (in charge of treasury operations, and public sector debt management) whereas the responsibilities of advising the President on economic matters will be transferred to a new planning unit with a seat in the Cabinet. The likely outcome of this division -although not yet official- is that Alexander will move to the planning office and David Saied, slated to be vice-Minister of MEF in July, will head the Ministry of Treasury. Saied may be appointed in July as MEF Vice-Minister while the transition takes place (there are legal and practical issues that must be dealt with to implement the required institutional changes). Alexander´s appointment is good news to the markets and to the local economy.

The new Minister of Foreign Affairs (Cancillería) is the private sector lawyer Alejandro (“Andy”) Ferrer who was Deputy Minister of Foreign Affairs during 1996-1997 and Minister of Commerce from 2004-2008. He was the head negotiator of the TPA with the United States during the latter period. Ferrer will oversee the new agency in charge of Foreign Investment Promotion (a task that in years past was under the umbrella of the Minister of Commerce). He is pro-business and free trade.

The sectorial emphasis of the new President will be on agriculture and livestock activities that he promised to protect during his Administration. However, we discuss in this report the reasons why the primary sector will not be an engine of growth in the foreseeable future. The first three months of the year performed below expectations. IMAE grew only 3.4% (2.9% in March), while other indicators are showing negative numbers, including Central Government revenues. The 2019 growth rate of 4.9% we projected in March may be revised downwards depending on the performance during the second half of the year by the new mining project, whose viability has been legally challenged in the Supreme Court.

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