By Matt Atlee

On July 1st Ricardo Martinelli will become President of Panama; this will begin what many Panamanians hope will be the most business-friendly government in Panama’s history. Panamanian voters are hoping that Martinelli can revive the flagging Panamanian economy and create conditions of law and order.

Martinelli is a businessman by profession, as are many of his cabinet ministers, so look for the new president to focus on finding new investors who are willing to put their money in Panama.

On May 3rd, 2009, the Panamanian public voted for more democracy and opportunity; the question now is how Martinelli will deliver on the promises he made in the campaign.

1. More security: More security will mean more police. It will also mean controlling who comes in and out of Panama. Panama’s borders and coastlines are not very well policed; President Martinelli will want to beef up security in the more remote sectors of Panama. In Panama City, the concern is with low-level crime like break-ins and robberies. Look for more police on the street.

2. Immigration controls in Panama right now are very expensive and slow. Some argue that the tougher immigration regulations have dampened the investment environment in Panama. Martinelli will want to make Panama more attractive to outside investors so look for him to try and deregulate immigration without lessening security.

3. External Relations: Martinelli’s government will strengthen ties with the U.S. Look for smooth relations between the U.S. and Panama over the next five years. One relationship that will be watched closely will be Panama’s relationship with Taiwan. Panama is one of the few countries that still has diplomatic relations with Taiwan. Other countries in Central America have cut ties with Taiwan, for example, Costa Rica recently cut ties with Taiwan. Panama has benefited from its relationship with Taiwan, but look for China to begin to assert its influence with the Martinelli government. Costa Rica cut ties with Taiwan at the beginning of Oscar Arias’s government which took power in 2006. The Chinese will want to strike while the iron is hot. They will want to cut a deal with Martinelli when he takes power. Taiwan’s government right now is leaning towards unification with China so don’t expect the Taiwanese to put up much of a fight to keep their relationship with Panama. The Taiwanese are already cutting back their diplomatic missions in Latin America. If China is successful in breaking the Taiwanese-Panamanian relationship, there should be a huge influx of Chinese money flowing into Panama.

4. Canal Project. It will be under Martinelli’s government that the largest chunk of the Canal expansion will occur. Martinelli was Minster of the Canal under the Moscoso government – 1999-2004 – so he knows the issues that surround the running of the Canal. The price of expanding the Canal is estimated at $5.25 billion. The main issue for his government will be the awarding of contracts, or renegotiating of contracts inherited from the outgoing government. There’s a lot of money in the Canal expansion and who gets what will be important to Martinelli.

5. Real Estate Market – The real estate market in Panama has faded over the last few months; sales in Boquete – one of the strongest real estate markets in the country – have dropped by 50% this year. That trend will probably continue as less and less people worldwide have money for second or third homes. There is a rumor that Disney wants to build a theme park in Panama. There are constant rumors about increased tourism around Coiba. But right now there is little demand for high end real estate or tourism. Most tourism investors are building small hotels rather than giant resorts. The new Panama Pacifico project could be one exception to the declining real estate market. Panama Pacifico is a new International Business Park that will offer international investors affordable office space right next to the Panama Canal. Investors will receive tax breaks for setting up operations in Panama Pacifico. Office space will be available in December 2009.

6. Banking and Trade – Panama’s banking sector has seen a decrease in deposits this year but there is still a lot of money in Panama’s banks. Russian investors have been investing in Panama’s banks. The Russians are building a new embassy in Albrook, the former home of the U.S. Air Force in Panama. Russians are putting their money into resorts in Panama and throughout the region. Look for the Russian presence to increase in Panama. Colombian money continues to pour into the country. The new Panamanian president Ricardo Martinelli is Italian; there is a rumor that Italian Prime Minister Silvio Berlusconi is planning to attend Martinelli’s inauguration. Look for Italian money to start flowing into Panama as well.

Trade out of the Colon Free Zone is down. Freight on the Panamanian railroad is only at 25% of its normal rate. As the world economy improves look for trade through Panama to increase, especially if Panama cuts ties with Taiwan, and strengthens ties with China. One question for the Free Zone will be what happens in Venezuela: Venezuela is a large market for the Free Zone and since Chavez was elected President of Venezuela, the flow of goods from the Colon Free Zone to Venezuela has dropped.

Martinelli is a businessman; attracting investors will be important. How Martinelli increases investment and at the same time keeps Panama secure, will define the success or failure of his presidency.

Written By Matt Atlee.

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