Will a new President and ally be enough to boost the economy?

PANAMA - Report 28 Apr 2019 by Marco Fernandez and Alex Diamond

The Monthly Index of Economic Activity increased 3.65% YTD (the result of 3.57% in January and 3.74% in February), lower than what was expected by the market. The main concern for the first half of the year relates to the El Niño phenomenon and the drought that comes with it. The agricultural production is suffering the most, but the Panama Canal Authority has issued a new warning to the international maritime industry.

Panama’s traditional dry season affects the performance of the Panama Canal. Due to the El Niño effect in the Pacific Ocean, this year is no exception. It is expected that the weather will be drier than usual (in other countries, El Niño produces floods rather that droughts). The Panama Canal Authority was forced to decrease for the fifth time the allowable draft for ships that travel along the “Neopanamax” locks (the new canal expansion). With this action, the current 50 foot draft will be reduced to 45 feet by the end of April due to the lack of depth to travel safely, as the result of which vessels will have to reduce their load factor. These temporary -albeit costly- solutions could be avoided if there were enough water reserves. A potential solution that is being evaluated is the construction of a third reservoir. Sooner rather than later, the ACP (with the political backing of the Government) will have to address the issue of flooding areas in the current watershed to allow for increasing reserves and a solution to the trade-off between fresh water to the population and crude water for the canal.

Most pollsters have Laurentino Nito Cortizo as a clear winner (Panama has a winner-takes-all electoral system). Rómulo Roux of Cambio Democrático (the Ricardo Martinelli party) is in second place, and the independent Ricardo Lombana comes in between 10%-15%, a surprising result for an independent candidate with no name recognition (Ruben Blades, the author, actor and singer obtained 17% in 1994, but he was popular in all segments of the population). However, in straw polls in several companies in Panama City, Lombana comes first by a large margin over Cortizo. Lombana is attracting the young voters away from Cortizo at a rapid pace and he may climb further before May 5. His weakness is that he lacks organization in the countryside. José Blandón, the candidate of the official party is way behind in most polls.

Juan Carlos Varela´s legacy will be the improvement in the private investment environment, reduction in corruption (compared to the previous administration) and efforts to take Panama off the international lists of non-cooperating countries in matters related to money laundering.

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