WINDS OF CHANGE

Panama 2015 | DIPLOMACY | REVIEW: DIPLOMACY

As a nexus for international trade, Panama is well positioned to ink deals that consolidate its trade and diplomatic position.

After almost a century of integrating global markets, Panama has established its diplomatic credentials by bringing closure to one of the longest running—and anachronistic—disputes in the region. Earlier this year in April, Cuban and US foreign ministers held a historic meeting marking the highest-level encounter between the Cold War-era adversaries in decades in the run up to a historic agreement that opened the door to a resumption of trade and travel between the two countries held during the seventh Summit of the Americas. With the agreement in place, Panama want to be the first through the door, and this September, President Juan Carlos Varela, arrived in Havana on an official visit with the aim of promoting and increasing trade links between Cuba and Panama. A significant amount of trade to and from Cuba already passes through the canal, as well as through the Colon Free Trade Zone (CFZ).

The Cuba agreement is the continuation of more than a decade of bilateral agreements that Panama is uniquely positioned to make. As a net energy importer, and lower on the manufacturing and industrial spectrum, Panama has few entrenched industries that it must protect. Transport and wholesale trade dominate its economy. In fact, with its primary revenues coming from trade and services, it can fling its markets wide open without undercutting domestic actors. This open disposition makes for some impressive numbers. As of 2013, Panama already had over 85 bilateral agreements relating to taxation, investment and trade on the books.

Two important agreements are worth mentioning starting with the agreement signed with Mexico in 2014 that set Panama on the road to membership in the Pacific Alliance. While the process is still underway, this alliance is crucial to Panama's long-term interests, and its diplomats are working hard to hammer out the terms and close the deal. While many regional economies slumped in recent years Pacific Alliance countries have outperformed the regional average, and since much of this economic growth has happened through trade and a rising middle class, Panama is an ideal candidate.

In August 2015, Indonesian Minister of Foreign Affairs, Retno L.P. Marsudi, held a bilateral meeting with Vice President Isabel de Saint Malo de Alvarado, at the Forum Ministerial Meeting of East Asia-Latin America Cooperation (FEALAC) in San Jose, Costa Rica. The two agreed, in principle, on ways to increase bilateral trade between Indonesia and Panama, which reached $149 million in 2014. With talks now planned to extend into 2016, two parties plan to address the implementation of an Indonesia-Panama bilateral consultation forum, cooperation in maritime affairs, the improvement of inter-community relations by providing visas on arrival, and the establishment of a mandatory consular notification.

In August of this year, South Korea's Foreign Minister Yun Byung-se, visited Panama in a bid to strengthen relations between the two nations. The visit is part of Panama's active engagement with the Forum for East Asia-Latin America Cooperation (FEALAC), which is composed of 20 states in the region and 16 from Asia. Due to its oversized role in facilitating trade with Asia and the rest of the world, Korea and its regional partners are keen to maintain strong ties to Panama. Thus, one important item on the agenda was negotiations towards a FTA between Central America and the Republic of Korea. The delegation also sought to enhance maritime relations, as South Korea ranks sixth in the hierarchy in cargo movements through the Panama Canal.

This year also saw the establishment of diplomatic relations with Turkmenistan, as the two sides signed a joint communiqué on establishing diplomatic relations. While the occasion took place at the Turkmenistan foreign office in New York, the two countries are hoping to enhance regional representation and cooperation, especially in international bodies such as the UN.

As a member of the Organization of American States, Panama hosted the seventh Summit of the Americas in Panama City. On this occasion, leaders of participating countries, which included the US, Mexico, and Argentina scrutinized the social and environmental development of the region and pledged meaningful improvements in areas like health, education, environmental protection and income inequality.

On the internal level, democracy is always a bumpy road and in Panama, the downfall of former president Ricardo Martinelli says as much about the country's commitment to fair governance as it does to the need for strong oversight. While worrying allegations have been raised, the case is still in courts and the verdict is far from in. What is clear is that the perception of immunity that many elites felt is falling away as the courts are established as a source of legitimacy and rule of law.

HOW IT WORKS

After decades of authoritarian leadership, Panama moved towards civilian leadership, which it consolidated throughout the late 1980s and 1990s. In the process, the power of the executivebranch was balanced against the legislative branch, although the executive remains the most concentrated base of power. After years of military dictatorship, a constitutional amendment officially abolished the military in 1994, with civilian bureaus handling essential security and oversight roles. There are now only three public forces: the Panamanian National Police, the National Air-Naval Service, and the National Border Service.

The executive branch initially was comprised of the president and two vice-presidents, however over the last decade, the second VP position has not been filled. Presidential positions are elected for five-year terms by direct popular vote. The constitution grants the president the right to appoint or remove ministers of state, maintain public order, appoint one of the three members of the Electoral Tribunal, veto laws passed by the Legislative Assembly, and conduct foreign relations.

12 ministers of state make up the Cabinet Council, which is granted important powers including decreeing a state of emergency and suspending constitutional guarantees, overseeing national finances such as the national debt, and nominating members of the Supreme Court. The president and council are supported by the General Council of State, which serves a purely advisory role. This body includes the FDP commander, solicitor general, attorney general, president of the Legislative Assembly, directors general of various autonomous and semiautonomous state agencies, and president of the provincial councils

In 1983, the constitution was amended to create the Legislative Assembly, a unicameral body comprised of 67 members. Members are elected for five-year terms that run concurrently with those of the president and vice presidents. The assembly has the power to create, modify, or repeal laws, declare war, ratify treaties, decree amnesty, manage the national currency, raise taxes, ratify government contracts, and sign off on the national budget. The assembly also has the authority to impeach members of the executive or judicial branches. However in both law and practice, their authority is stymied by party politics, executive intervention, and tax regulations to name just a few.

The Constitution establishes the Supreme Court as Panama's highest judicial body. The national judiciary is divided into three districts. The first includes the provinces of Panamá, Colón, and Darién; the second, Bocas del Toro and Chiriquí Veraguas, and the third being Los Santos, Herrera, and Coclé. Under the Supreme Court are four superior tribunals, two for the first judicial district and one each for the second and third districts. All provinces contain two circuit courts. While one handled civil matters, the other deals with criminal cases. On the lowest level, are municipal courts, located in each of the 65 municipal sub-divisions.

GO WITH THE FLOW

Some 500,000 Colombians currently live in Panama, and since 1924, the two neighbouring countries have maintained friendly bilateral relations. FDI is a reliable indicator of the financial nature of this relationship. Between 2000 and 2014 Panamanian entrepreneurs have invested $16.05 billion in the Colombian economy, making Colombia one of the preferred markets for Panamanian investors.According to ProColombia, after the US (with $27.499 billion invested) and the UK (with $16.827 billion), Panama is the 3rd country in terms of FDI in Colombia.The crisis did not affect Panamanian Investor's confidence in the neighbouring country: in 2007, before the financial crash, total investment had reached $838 million, the following year rising by a further $141 million. Meanwhile, the middle class (around 12 million people) is expected to grow by 60% over the coming decade.The signing of a FTA in 2013 between the two nations will support the mutual growth of the investment between the two nations. The hottest sectors for the Panamanian investors are finance, the franchising of luxury brands, restaurants, and technical equipment. And on the other end, Colombian investments in the Panama reached $3.2 billion, accounting for nearly 42% of the total Colombian FI. One of the focal points of cooperation between the two countries is the development of a new electrical connection crossing the border. Commenting on the project, Mr. Urrutia, National Secretary of Energy, stated that “We have developed a strong agreement framework to establish connectivity between the two countries, in which I perceive much potential. The facilities and institutions are there, but it is hard to get underway as there are certain environmentally sensitive areas to consider. We have long since formulated the economic dimension of the agreement, and we know what the potential and the operational situation will be. The political will is there, project feasibility has been established, and I know that we will make it environmentally acceptable."As far as the financial sector is concerned, in 2014 Colombian banks controlled 34% of the profit of Panama's SBN (Sistema Bancario Nacional). In June 2014, six Colombian banks operating in Panama controlled 19% of assets, 34% of the utilities, 19% of the credit portfolio, and 18% of deposits.