Panama’s Critical Juncture: A Repeat Of Ecuadorian Debacle? – Analysis


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By Eloy Fisher

The political, economic and social background

Soon after Ricardo Martinelli became president of Panama in 2009, he began championing a distinctive no-holds-barred style of politics. Despite these political antics, the president’s ultimate objective was to overhaul what in earlier presidencies was labeled as the Endara framework After two decades of military rule, President Guillermo Endara (in office, 1989-1994) vowed to purge the political slate after the US invaded the country in 1989: he dismantled the façade of military rule and concurrently tailored a restrictive, multiparty political framework in order to return its power in a diluted form, to traditional ruling elites, without excluding those who were used to collaborating with the military regime in order keep an uneasy “peace.”

Panama

Panama

Endara also laid the groundwork to liberalize the economy, setting in motion the privatization of state-owned enterprises and scaled back national expectations with regards to poverty programs and overall social policy. But the Endara framework was a plan that worked best in austerity. With the creation of the Panama Canal Authority in 1997 to prepare the way for the Panama Canal transfer and the resources that this massive undertaking entailed, problems of coordination amongst the nation’s elites began to take place, with a fractious environment beginning to deteriorate during the waning days of the Balladares presidency (1994-1999) and the early days of the Moscoso (1999-2004) administration. As the economy roared back, the unprecedented influx of wealth now being provided by means of foreign direct investment and as a result of a mounting flood of Canal toll revenue, all under a weak institutional framework, created incentives to overhaul the existing informal social compact in hopes of the public securing a bigger share of the economic pie.

The election of Martinelli overthrew the PRD-Panameñista balance of power (a sort of puntofijismo lite), and set in motion new mechanisms aimed at guaranteeing the consolidation of his party as the ultimate arbiter of Panamanian politics. Indeed, many observers agree that the President is preparing full-time for re-election, reminiscent of what President Daniel Ortega pulled off in Nicaragua, although the former is far less certain at this juncture.

Martinelli’s hyper-energetic but always erratic administration has been characterized by murky transfer shenanigans, public investment projects and pandemic corruption scandals, where an unprecedented intrusion of legal proceedings has, more often than not, hindered the country’s Executive and the judicial branches. The president has already forced the resignation of his highly regarded Attorney General and survived the blowback from a failed Supreme Court appointment which was directly involved in the plan to oust the Attorney General. Additionally, he also deflected the botched attempt by other close associates to defalcate lucrative land titles in a variety of sweetheart deals and now is surfing at the crest of another legal scandal brought upon him when another of his explosive appointees to the Supreme Court, contrary to the most basic of legal principles, resuscitated a moribund law aimed at creating a new court chamber, that would facilitate his scheme to pack the Court. The defenestration of his once close allies, the right-of-center Panameñista party, even after the head of the party carries on, with one of its officials remaining as his Vice-President, has prompted some awkward moments and one of his most vocal opponents continues to play a hands – on role at raucous cabinet meetings.

Low unemployment in Panama has muted some of the obvious, deleterious effects of this questionable and complex political environment. As members of the middle-classes hasten to reap the rewards of growth and the elevation of their living standards, the weakness of civil society groups is fully apparent. However, behind closed doors one can hear whispers encircling the problems that inevitably are beginning to come home to roost as the Canal projects move closer to completion (around 2014). This project was deemed to be revenue-neutral as the debt that was issued would be backed by the prospective income generated from the new, larger, Panamanian class of vessels that would now be plying the waterway, along with other increased revenue streams coming from collateral projects. Nonetheless, many in Panama remain blissfully unaware that serious financial problems associated with the shipping industry ,as well as more modest prospects coming from international commercial investments, may derail the projections used to justify the sustainability of the expansion.

The Endara framework was enough to make one cringe from day one. Protests motivated by the various different political hues became a fairly common occurrence. Generally, construction unions, a significant wing of the healthcare workers associations, and the teachers’ union spearhead the street mobilizations; for example, these factions led the revolt when the government threatened to cut the country’s already watered-down social security and educational programs. The opposition-of-the-day generally ganged up against the party in power, only to reverse roles when it was forced to be alternate in power – indeed, this back and forth pattern played out during both the Moscoso and Torrijos (in office, 2004-2009) administrations. But, as time passed, indigenous groups, increasingly became a more intense and integral part of the broader protests that began with the 2010 uprising, rejecting an omnibus bill that would weaken the banana union’s power. (Most of these indigenous populations rely on that industry for wage earnings and the protection of their habitats).

The massive protests at the time, according to some accounts, resulted in four protesters dead and more than 400 wounded. The anti-government backlash prompted the government to backtrack and negotiate a truce in which a special commission appointed by the President promised not to undertake any large-scale mining nor hydroelectric projects in the region, and guaranteed the indigenous groups’ right of autonomous rule. Nonetheless, the Ngabe-Bugles have grown increasingly restless and frustrated with what they perceive as the government’s bad faith, especially when it comes to a new interpretation of the accords that omit plans for constructing hydroelectric facilities in the area. A few days ago, protests reignited once again as the government, under a not-so-subtle communications blackout, decided to ignore the peace-making part of the accords, resulting in the deaths of two more people and many more wounded. Although some sort of pact appeared most likely to be reached, the root causes of the conflict are still raw and it is likely to be just a matter of time until it bursts open again.

Quo Vadis Panama? The same route as Ecuador?

The circumstances in Panama today are somewhat reminiscent of a comparable situation that developed in Ecuador. Before the Tequila crisis of 1994, Ecuador averaged yearly growth rates in its economy of more than 4% (a robust rate considering the lost decade when regional growth averaged around 0.5%), and later averaged 3.5% until 1999. Despite the endemic corruption within the country, and the Cenepa War, which many saw as nit-witted, economic growth was considered by experts to remain positive within salutary field markings. Improved prospects prompted increased spending; inviting policies which further accelerated an inflationary cycle and revealing that the government’s growth strategy was ill-prepared and undisciplined.

When the crisis began to sharpen as foreign capital flows abruptly dried up, Ecuadorian President Abdalá Bucaram (in office 1996-1997, who, like Martinelli, was also eerily nicknamed “El Loco,” given his hyper-active political style) was forced to reverse his initial populist stance and rapidly resort to orthodox austerity politics. Nonetheless, the catalyst that led to the eruption of a crisis was the reckless mismanagement of the indigenous protests that broke out all around the country. As protracted protests paralyzed the countryside, one-time allies began to desert Bucaram. Eventually ousted from power (and exiled to Panama, of all places), the then-thriving political crisis in Quito unwound into a decade-long series of coups and counter-coups which fumbled across six Ecuadorian presidencies and one unsuccessful and short-lived constitution over a period of ten years, as well as a prolonged period of instability, tempered only by President Rafael Correa eventual rise to power, a process which was convincingly sealed after the 2007 constitutional overhaul.

Without a doubt, the Panamanian context is different from the context available in Ecuador. For one, the Panamanian banking sector is known for its fiscal conservatism and Martinelli’s power base has strongly taken root in the structures of the police and government. However, foreign inflows into Panama have fueled credit expansion, a situation which can be quickly reversed in case of a sudden stop warning prompted by a panic-driven series of events; for example, by a significant European financial breakdown. Additionally, the sins of the Panamanian government’s excessive spending are very similar to those of Ecuador, as Panama City relies on fleeting prospects of growth brought on by ambitious transfer programs that do not promise to solve structural tax financing gaps. Even more convincingly piled up against Panama’s success, its situation is highly dependent on the international context, where a sudden reversal may cause Panama’s booming growth ( which leads the region with an almost 11% figure, according to ECLAC) to come to a screeching halt.

Ways out of the crisis.

Although many are quick to single out President Martinelli, with some merit, as the root of all evil in modern Panamanian politics, that view may be somewhat misguided: although hardly a saint, President Martinelli more accurately symbolizes the climax of the political denouement of the Endara system, which cannot operate any longer under the weight of the extensive resources at play that have been largely generated from Canal expansion and prospects of bigger things to come. The economic boom, the mail-order venality of the Panamanian judiciary, and the inequities separating various elites, along with the unforgiving inequities among the poor, the working class and traditional power groups, must be properly assessed in the context of Panama’s corruption. More worrisome still are the tactics employed by the opposition parties, who naively think they can clean the slate once more upon coming to power, leaving the Endara framework intact and the country’s dysfunctional political mores unreformed.

The alternative floated by those nursing the clean-slate theory in Ecuador presents a somewhat different scenario. Their stance posits that a constituent assembly, even one operating in a polarized environment, would act as a natural reset button, yet the 1998 reforms architected in Ecuador render a number of these exits moot. Despite the biblical righteousness behind the call for a new Constitution to be drafted, it would add very well to a political unraveling not seen in the country since the fifties. In Panama, Martinelli did, in fact, let the genie out of the bottle, but unless smart politics are brought back into the fold, the “dogs of war” could once again routinely roam the political landscape, with their fangs bared and ready to bite.

At this juncture, the government has promised to maintain a dialogue with indigenous groups, yet most Panamanians do not take the authorities at their word – a recent poll underscored a serious credibility gap. The conflicting reports regarding the use of force (the worryingly autonomous police forces initially denied the use of live ammo being used to fire at protesters, despite the photosthat were released and displayed) and the Martinelli government’s botched attempt to blame the Catholic Church for the uprising (despite its important mediation role that proved useful in defusing violence) only added more fuel to already heightened tensions there to be found on both sides of the negotiation table. There are several indigenous needs that must be fulfilled for these talks to be considered fruitful. For one, indigenous populations must be granted the opportunity to conduct their affairs according to their customs and through recognizing their traditional channels of leadership. More importantly, any large-scale infrastructural projects must feature an indigenous seal of approval and must derive tangible benefits to indigenous communities affected by their construction.

But this is not the only problem the president has on his list – the Panamanian political system is under severe stress, and has become extremely vulnerable because of the waning economic boom. As unemployment inevitably returns to its natural level and the end of the Canal expansion is announced, Martinelli’s economic decisions will come under increasing scrutiny. This may come rather sooner than later – indeed, to some, the idea of creating a combined sovereign wealth/saving funds (which combines the revenues from the privatized companies and the Canal’s revenue streams) can be seen as the mainspring of governments preemptive economic ailot fund, furnished to deal with what political “bears” see as the inevitable manifestation of the so-called Panamanian economic miracle.

But, for Panama, that kind of fate is not inevitable. Smart politics are needed, but not more demagoguery. For one, electoral reforms may open needed exhaust vents for political participation and widen the compass for new actors, who, until now, have been living increasingly frustrated political lives and have tended to be radicalized in their largely failed attempts to garner political power. Sadly, the electoral reforms which were presented and propelled by civil society groups were tabled by Congress as these sought to increase term-limits for current legislators.

Perhaps counter-intuitively, political groups may also consider resisting the temptation to force out President Martinelli prematurely, which is very much on the mind of the venerable Roberto Eisenmann, emeritus president of La Prensa (a leading Panamanian newspaper) and formidable Martinelli opponent.Indeed, the question isn’t whether Martinelli is an egregious rogue – most Panamanians may be prepared to grant you that. If the opposition coalesces around the idea of forcing Martinelli out, armed only with this justification, which is based on his trademark authoritarian style of leadership, the excuse could be used to head in dangerous directions, which is hardly dissimilar to Ecuador’s current problems and past parade of political unrest. This could lead to a further weakening of some of the country’s basic institutions, and not necessarily to an improved administration. It is increasingly apparent that the Panamanian state lacks the capacity to sufficiently glue the make-shift social alliances which conveniently blend their constituent parts within reactive politics. Given their aforementioned failures in coordination, self-serving calls to weaken republican governance, with the hopes of someday making it better, will only exacerbate instability – opening a veritable pandora’s box which may well erase a decade of Panama’s history. In that case, we hope, but are not assured, that cooler heads will prevail.

Eloy Fisher is a COHA Research Fellow


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COHA, or Council on Hemispheric Affairs, was founded in 1975, the Council on Hemispheric Affairs (COHA), a nonprofit, tax-exempt independent research and information organization, was established to promote the common interests of the hemisphere, raise the visibility of regional affairs and increase the importance of the inter-American relationship, as well as encourage the formulation of rational and constructive U.S. policies towards Latin America.

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