August 8, 2016 B A R R O N ’ S 41

Other VoicesViews from beyond the Barron's staff n by Bob Adams

Lessons from Panama

T HE CONTROVERSY GENERATED THIS

year by the Panama Papers mayhave left many Americans with anegative impression of Panama.

The real story of fugitive capital is found notin Panama, but in Iceland, Russia, or any ofdozens of other nations.

The Papers data covered four decades,and recent years already showed a dramaticdecline in shadowy legal business as Panamastrengthened its laws and regulations. Someforeign critics predicted there would be a runon Panama’s banks, as panicked ne’er-do-wells pulled their money, and bank liquiditytook a dive. Nothing of the sort occurred.Bank liquidity actually improved slightly.

At the last moment, foreign critics lam-basted the Panama Canal expansion, one ofthe largest and most complex infrastructureprojects on the planet. The expanded Canalwas launched successfully, adjustments weremade in its opening days as the first ships ar-rived, and they are moving through the newlocks, helping Panama reach its target of 6%growth in gross domestic product for 2016, aslow growth rate by Panamanian standards.

Most annoying, the worst criticisms camefrom advanced economies whose banking sys-tems and critical infrastructure are in farworse shape than Panama’s and who have yetto address their own problems.

The real story of Panama in the 21st cen-tury is a story of a rapidly developing econ-omy that has nothing to do with offshore any-thing. For more than a decade, Panama’sGDP has averaged annual growth nearing8%, with a few double-digit years. Even atthe depth of the financial crisis in 2009, itbooked a respectable 4% GDP growth, whilenearly everyone else in the hemispherebooked red ink.

Foreign direct investment last year rose17% from the record set in 2014, which wasmore than 9% above the record set in 2013.In 2000, per-capita GDP was similar to thatin neighboring Costa Rica and Colombia,though well behind the two big Latin Ameri-can emerging markets, Brazil and Mexico. Asof the end of 2015, Panama’s per-capita GDPwas 24% higher than Mexico’s, 39% higherthan Brazil’s, 41% higher than Costa Rica’s,and 57% higher than Colombia’s.

Additionally, the massive improvement in

transportation, logistics, and communicationsinfrastructure has made Panama a leader inLatin America in those sectors.

Why Panama? What changed? Can welearn something from this? The nation and itscanal have been there for more than a cen-tury. Consider three lessons.

Panama’s economy is based on free enter-prise. The government and the people of Pan-ama have a commitment to free enterprisethat is rare in Latin America. In the 2014presidential elections, two candidates with asocialist perspective took part in the televiseddebates and ran campaigns, but barely col-lected 1% of the vote between them. Due tothe emphasis on private enterprise, the gov-ernment has the income to provide benefitsto the poor that can exceed those of LatinAmerican nations that claim to be socialist.You are not likely to meet a Panamanian whowould prefer to live in Venezuela.

The immigration issue has been dealt withintelligently in Panama. When Panama’s dra-matic economic growth began a decade ago,Panama’s small population and inadequatepublic-education system left the nation in abad spot. The challenge was to handle growthwhile improving the skills of their people.

A big part of Panama’s answer was to userelocation instead of immigration. Relocatorscan be residents and workers, but not citi-zens. Panamanian relocators include Ameri-can retirees, but also other Latin Americans,especially from Colombia and Venezuela.

Recently, they have been joined by agrowing number of Europeans. Last year,Italians and the Spanish receiving residencyvisas and work permits both outnumberedAmericans.

By taking citizenship out of the equation,Panama was able to absorb large numbers ofrelocators without the tension and riotingseen in Europe or the hate language too com-mon in the U.S. today.

Panama’s political leadership has a com-mon goal. I have been a relocator in Panamathrough two five-year presidential terms andI am in the middle of a third presidentialterm. Each president has had his own partic-ular style, issues, and policies. Each repre-sents a different political party and they arenot the best of friends.

Debate among the lead-ers can be very partisan,but they have one impor-tant thing in common:When it comes to economicgrowth, they pass the ball,they don’t drop it.

All the major projectssupporting economic devel-opment have continued un-der each president. Eachmakes some changes hereand there, and they mayagree on little else, but theyhave proven their dedica-tion to continuing economicgrowth to Panamanians andthe international invest-ment community.

The current President’sparty is only the third-largest in the NationalAssembly, but that hasn’t prevented themfrom getting important things done. Readthat, U.S. Congress.

Free enterprise, a common-sense ap-proach to foreigners, and a commitment togrowth through cooperation have been criti-cal to Panama’s growth.

In five decades of working in more than40 developing nations as a consultant focusedon socio-economic development, nothingmakes me happier than to reside full-time ina nation whose people pulled themselves to-gether in the midst of dramatic and unex-pected growth and dealt with it successfully.I am proud to call Panama my home.

There is one thing that both saddens andamuses me. I spent decades as an Americanpreaching the value of such lessons in politicsand economics to what was once called theThird World. Now I sit on the other side ofthe table and do the same thing, but in re-verse. They are preaching to me and to us.We need to listen.

BOB ADAMS is President and CEO of Panama WaveS.A., a marketing firm that also provides analyticalservices to private clients, located in Panama City.He is a U.S. citizen and a full-time resident of Pan-ama. His email is RAdams@panamawave.com.

The current President’s party is only the third-largest in the National Assembly, but that hasn’t prevented them from getting important things done.

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