How and how severely will the US economic downturn affect Panama?

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(thepanamanews.com)They couch it in more optimistic terms, but Texas-based Dell Computers are in a bad way. They're closing a factory in Austin. They're also reorganizing their Latin American sales and service force, centralizing their consumer efforts to El Salvador and their sales and services for businesses in Panama. It adds up to about 400 layoffs at the Dell call center here. Dell's local spokeswoman Mercedes Morris, who awhile back left a similar job with the Panama Canal Authority for a better position in the private sector, calls it a “transition.” Those of us who used to live and work in the factory towns of the US Rust Belt are more likely to call it a “downsizing,” at least when polite euphemisms are called for.

The upper end Panama City real estate market has always been a bit overblown. There never were enough gringo millionaires interested in buying all those luxury apartments. Because of the decline of the US dollar in relation to the euro we are attracting a few more European millionaires, but a tiny number compared to all the young German backpackers who are visiting us. A political scene unfavorable to millionaires in Venezuela and a thriving illicit pharmaceutical industry bring in a few more high-end Latin American customers. However, the bulk of the foreigners seeking to buy property here are North Americans of middle class means, and to buy a house here they have to sell a house up there. There is no question that problems selling houses in many parts of the USA, or disappointing prices for those who can sell, are slowing down certain segments of the real estate market here. The extent that it is doing so remains a big question.

So what's the real deal, anyway? Are the problems in the wake of the US sub-prime mortgage crisis a passing blip, an issue that has already been resolved by a combination of corporate bailouts and economic stimulus legislation? Is this more serious and more long-lasting? Either way, what's it going to do to us?

The Center for Economic and Policy Research (CEPR), a Washington think tank, starts from the premise that when the US economy slows, countries that export to the United States are hurt.

That goes for places like Panama, whose exports to the USA are more likely to be services than is the case with most of our Latin American neighbors --- we “export” canal services to the United States every time a ship carrying containers from China to a US port passes through our canal, and another set of services every time that an American comes down here for a vacation, and yet more kinds of services every time a corrupt US politician or successful American gangster decides to park his or her ill-gotten gains in Panama.

We definitely know that, contrary to the 2006 referendum campaign promises made to sell the Torrijos - Alemán Zubieta canal expansion plan, less rather than more cargo is headed to the United States from China of late. Canal services are directly down because a US economy that has had vast sums of paper wealth erased by declining real estate and stock prices is importing less. Tourism is more difficult to gauge because some Americans who would have gone to Europe or farther afield are finding Panama a more affordable travel destination, and because with the US dollar down against the Canadian dollar and the euro we are attracting a different mix of tourists lately, and the net effect is that tourism is still up overall. Financial and investment services for underworld figures? They don't publish those sorts of figures, and those who know them tend to lie.

The CEPR's Mark Weisbrot told The Panama News that Panama's use of the dollar is a positive thing for our economy, making our exports more competitive right across the world due to the US currency's devaluation.

So how might the balance be struck? Well, consider that Panama's exports to the United States, including services, accounted for for 1.7 percent of our gross domestic product in 2007. However, our total exports for last year were 8.9 percent of our gross domestic product. Compare that with Costa Rica, where the figures were 17 and 66.5 percent respectively.

Panama is vulnerable to the US economic downturn, but less so that most of our neighbors.

In an interview with the IPS news service Francisco de Paula, the president of Costa Rica's central bank, said that the problems in the United States would probably hurt his nation's tourism sector, surely drive real estate prices down and reduce exports to the United States. As is the case with Panama, de Paula said that inflation is the biggest worry in Costa Rica. He also warned --- as Panamanian financial analysts have similarly warned with respect to this country --- that the banks in Costa Rica have too many questionable loans outstanding.

The collapse and quick bailout of Bear Stearns in the United States was an indication that those who minimized the seriousness of the bursting US housing bubble were wrong. Note that US Federal Reserve chairman Ben Bernanke said that his over-a-weekend move to find and subsidize a buyer for Bear Stearns was to avoid “chaos” and that he also said that the Fed would bail out any other troubled investment banking houses.

One might spin a reason to fear apocalyptic economic collapses in the United States, in Costa Rica or for that matter in Panama out of the words of men like de Paula and Bernanke. They are, however, basically advising people to remain calm and expect something substantially less catastrophic.

Some potentially important effects that the bad US economy could pass onto Panama are difficult to predict. Unless there is a remarkably fast turnaround, the combination of an unpopular war and a weak economy --- two facts that are related, given the enormous sums being spent on the Iraq War --- will likely put the White House back in Democratic hands and increase the Democrats' margins of control in both houses of Congress. Then we would see the extent to which there is any big difference between the two major US parties' economic policies, both in domestic affairs and in US relations with trading partners. The Bush and Clinton free trade agendas with Latin America were remarkably similar, even as their ideas about balancing the federal budget were very different. There are many unanswered questions about precisely where Senators Obama and McCain stand on US economic policies, some of which could directly or indirectly affect Panama's welfare, and it's unlikely that we will get many specific answers before the November election.