Sunday, October 3, 2010

A Banana Republic No More

Buried deep in the obscure pages of our newspapers, a former banana republic is predicted to see some stunning growth next year. When you think of a country with a 7% GDP increase, China, India or Brazil come to mind. But no, it's Panama. Huh? Not a typo. This country has made dazzling progress since the days of Manuel Noreiga's military rule some 20 years ago. Connecting Central America to South America, Panama has the fastest growing economy in Latin America. With a recent election, the most important canal in the world and the second largest free trade zone in the world; this nation has a lot going for it.

During the 1990's, Panama started one of the most successful privatization experiments the region has ever seen. Sectors as diverse as communications, railroads, highways, ports and cement were sold off by the state. The benefits of that operation have been long lasting. Companies from all over the globe showcased their skill and improved the way of life for Panama's citizens. Corporations like Kansas City Southern from the United States, the U.K.'s Cable & Wireless and Hutchinson Whampoa from Hong Kong all cooperated in this effort. Panama must be commended for realizing they didn't have the technology or resources to move their country into the fast growing future and in the process developed strong ties internationally. It's a win-win that's still paying dividends to this day.

Panama obvioulsy reaps the rewards of the famous Canal that connects the Atlantic and Pacific Oceans. The Canal, finished in 1914, has been wholly controlled by Panama since 1999. Shipping toll charges from international trade have been a big success for the country. The nation also enjoys the benefits from the Colon Free Trade Zone. The second largest free trading zone in the world, it's primarily used by Latin American countries. Business transactions are done solely in US dollars and the tax structure is extremely advantageous. Corporations must only pay taxes on business done inside the country. Revenues derived from outside the borders are tax free.

Panama's last election, which took place in May of 2009, was won in a landslide by conservative candidate Ricardo Martinelli whose win ended a long streak of left wing rulers. The supermarket mogul, who owns the Super 99 chain, has promised to fight crime and bolster education and transporation. He's also pursuing a 10% flat tax - a proven growth generator. A successful entrepreneur, Martinelli's election has aroused a trend of Central and South American politicians who demonstrate a real understanding of how business and economy truly work. In these fragile fiscal times, it's no wonder voters are running to the polls for real change.

When are we going to finally realize that shrinking taxes, free trade, and little government interference in the private sector are a recipe for real sustainable economic growth? Panama is a shining example of this success. As America de-privatizes companies like Citibank and GM (aka Government Motors) and Congress languishes on free trade pacts with both Panama and Colombia, the global marketplace is leaving us behind. Thank goodness November is only weeks away.

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