R E ST R I C T E D FILE COPy Report No. W.H. 39 This document was prepared for internal use in the Bank.. In making it available to others, the Bank assumes no responsibility to them for the accuracy or completeness of the information contained herein. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT THE CURRENT ECONOMIC POSITION AND, PROSPECTS OF PANAMA March 29, 1955 Department of Operations, Western Hemisphere TABLE OF CONTENTS Page BASIC DATA SUWI. IARY AND COMCLUSIONS i I. ECONOMIC DEVELOPMENT Population and Labor Force 1 National Income, Investment and Savings 2 II. CANAiL ZONE INFMEENCES 3 III. DOMESTIC PRODUCTION Agriculture and Processing 4 Industry 5 IV. PUBLIC FINANCE Recent Trends 7 Public Investment and Prospects 8 V. INTERKATIOI:L TRADE AND BALANCE CF PAThETNTS 10 VI. CREDITWICRTHINESS 12 STATISTICAL APPENDIX Table 1 - Summary of External Public Debt Table 2 - Estimated Contractual Interest and Amortization Payments on the External Public Debt Table 3 Population, Age Structure and Dependency Ratio Table 4 Industrial Distributicn of Labor Force Table 5 - Investment, Savings and Government Revenues in Relation to Gross National Produnt, 1944 - 1952 Table 6 - Composition of Gross Domestic Capital Formation by Type of Capital Goods, 1944 - 1952 Table 7 Gross Domestic Product by Industrial Origin, 1944 - 1952 Table 8 - Indices of Agricultural Production Table 9 - Imports of Foodstuff by Main Groups of Commodities, 1944 - 1954 Table 10 - Indices of Industrial Production, 1950 - 1954 Table 11 - Cash Operations of the National Government, 1950 - 1954 Table 12 - National Government Revenues, 1950 - 1954 Table 13 - National Goverrment Expenditures, 1950 - 1954 Table 14 - Composition of National Government Revenue and Expendi- tures, 1950 - 1954 Table 15 - Gross Public Investment, 1950 - 1954 Table 16 : International Transactions, 1946 - 1953 Table 17 - Imports by Commodities and Areas, 1947 - 1954 Table 18 - Exports by lvain Commodities, 1944 - 1954 Table 19 - Exports, Imports and Terr.s of Trade, 1944 - 1954 BASIC DATA Area 28,575 square miles Population - 1952 840.5 thousand National Income - 1952 $288.0 million (A factor cost) $343 per capita Balance of Payments - 1953 1illiona of U. S . -Net Income from the Canal Zone 44.2 -Other goods and services, and private donations -53. Net Current Account - 9.2 -Private Capital Movement 3.3 -Special Official Financing 0.4 Total - 5.5 -Net Errors and Omissions 6.8 Surplus 1.3 Imorts by Commodities -19 Percentages Live Animals 0.3 Foodstuffs 16.4 Beverages 2.6 Raw Materials and Semi-manufactures 11.1 14anufact.ures 67.7 Vinerals and Precious PFetals 0.8 Imrorts by Areas - 190 Percentages North America 66.9 South America 14.2 Europe 11.3 Africa and Asia 5.0 Colon Free Zone 2.6 Exports by rain Commodities - 1953 Percentages Bananas 52.7 Cacao 8.5 Abaca fiber 6.6 Shrimps 14.1 All others 18.1 i _IViARY AND CONCLUSIONS Economic Development 1. Notwithstanding a very high rate of population increase (2.6 per- cent), Panama is still sparsely settled. Heavy concentration in the tehmi- nal cities makes for a very uneven distribution of population which, to- gether with the preponderance of lower age groups, complicates problems of economic development. There is both urban unemployment and rural underem- ployment. Urban unemployment will continue to be a difficult problem. 2. Over the past ten years output has increased at an average annual rate of 4.5 per cent, or 1.9 rer cent on a per capita basis. By far the most marked improvement has occurred in agriculture and related industries. Since 1948 industry has been operating below capacity. Both saving and investment have been low. Investment, previously largely concentrated in construction, has been lately directed towards more productive employment. Private savings have tended to increase in recent years, and as lone a's a tavorable businiss' .climate it-naintined they can be expected to continue to iincrease. Domestic Production 3. igricultural producticn has expanded very satisfactorily in recent years. Complementary industries have followed the same trend, accocunting for an increasing share in agricultural income. Nevertheless, agricultural potentialities are far from fully developed. A determined government policy is required to solve such problems as the preponderance of subsistence farm- ing, the inadeouate land tenure system, and the prospect of a future short- age of rural manpower. Aside from food processing, industry is of minor importance and has not yet fully recovered from the sharp decline which took place after 1948. A survey of the possibilities in this field is needed. Lack of adequate comzmunity overhead capital still seriously hampers private enterprise. Publio Finance 4. Some improverment has been achieved in the past two years in the fiscal situation. The Treasury's cash position is more liquid, thanks to the liquidation of the floating debt, improved tax assessment and enforce- ment, revisions in income tax and inheritance laws, together with the in- - crease of taxable income in some sectors of the economy. Revenue is expec- ted to continue to increase, although more slowly. Government expenditures are still burdened by heavy administrative expenses and only partial efforts have been made to re-examine the entire administrative structure in order to release funds for development. 5. Annual public investment over the past five years has never exceeded 3 per cent of the gross nat'onal product. Moreover, a very large proportion of it was for social purposes, *^tith no immediate effect on output. Budget- ing for progress should be the most immediate task for the national govern- ment. Public agencies could increase their productive investment by an - ii - annual aggregate of at least 48 - 10 million vithin a year or so. Part of this investment could be financed by recourse to the potential market for government bonds as yet largely untapped. International Trade and Balance of Payments 6. Changes in the annual volume of imports have closely reflected changes in the national income. Despite the expansion of agriculture the commodities imported and their sources have not yet altered appreciably. Food imports have slightly declined, and capital goods imports have in- creased in proportion to the total. However, consumer goods of the luxury type still form three-fourths of total imports and thus reflect the persist- ing importance of the traditional "entrepot" trade. Recorded exports, largely bananas and cacao, have increased substantially, but they are still of little significance in the country's balance of payments. 7. The peculiar economic relationship between Panama and the Canal Zone makes it difficult to compile a realistic balance of payments. In recent years, the actual improvement in the balance or payments has probably been much greater than recorded figures indicate. Although vulnerable to external fluctuations owing to lack of an autonomous monetary system, Panama has important sources of economic strength, such as the fairly stable income originating in the Canal Lone, a freely convertible currency which presents no barriers to commercial relations and foreign investment, and a relative freedom frorim price variations. No lasting balance-of-payments t"problem" as such can arise, but there can be an equilibrium at a stagnat- ing level of national income. Creditworthiness 8. Panama's creditwforthiness depends not only on the potential rate of growrth of its real income and savings, but also on the adequacy of the government's investment policy. If proper adjustnents in public finance are carried out and if savings continue to increase in relation to national income, it should be possible for Panama to undertake substantial additional external borrowing for well-justified development purposes. 9. Because of the improved fiscal position there is now tooln for additional government borrowing for productive purposes. The rehabilitation of existing roads and the building of new primary and secondary roads is an indispensable task of first priority in the country's development. The Government is seeking a loan to finance the first part of a comprehensive road maintenance and construction program. This additional borrowing would be well within the capacity of the country. I. ECONOMIC DEVELOPPENT Population and Labor Force 1. The Republic of Panama, a country about the size of the state of Maine and with a population of 840,000 (1952), connects the South American continent with Central America. An S-shaped neck of land, 450 miles long and some 120 miles at its widest, Panama is cut in two by the Panama Canal. The western half of the country, which lies between the Canal and Costa Rica, includes the most populous and developed areas of the Republic. The southeastern half is mostly unexploited jungle where only a few aboribinal Indians live. 2. Panama is still sparsely populated, but in the fifty years of its independence population has increased almost threefold. In 1930 the population was less than half a million. Since then the rate of natural increase has averaged about 2.6 per cent per annum, with the average rate in the last fifteen years even higher. The growth of population is due to a substantial fall in the death rate; the birth rate has actually declined over the past ten years. Current estimates indicate that the population of Panama in 30 years' time will be more than double that in 1950. After Nicaragua and British Honduras, Panama with 11 persons per square kilometer, has the third lowest population density in Central America. Even if the present population were doubled (as it probably will be by 1980) the population density would still be very low. The economic impact of this very low over-all density of population is aggravated by its concentration in the terminal cities and in the Pacific coastal areas of the western half of the country. 3. This uneven distribution of population is the result of topographic and climatic, but mostly historical factors. It points to the likely possi- bility of shortages of rural manpower if Panama is to develop more fully the econornic potentialities offered by its countryside. A coordinated rural development policy for Panama should therefore encourage resettlement in rural areas. As it is doubtful that economic incentives will be sufficient to offset traditional modes of living and a preference for an urban environment -- the most that can be hoped for is that it will be possible to limit the country-to-city migration -- agricultural develop- ment policy should aim at the mechanization of agriculture and a selective colonization program to which foreign private capital and manpower may contribute. The fact that the Government holds large areas of cultivable land should greatly facilitate such a program. 4. in the cities, Panama still suffers from unemployment. It amounts at present to about 10 per cent of the total labor force and consists mostly of unskilled labor. It is possible that in the next few years a moderate revival of industrial and commercial activity together with the stepping up of public works will absorb part of the urban un- employment. A more effective solution would, hawever, arise out of a successful investment and employment policy to create new employment opportunities in the rural areas, combined with a vocational training program in the cities. 5. Between 1940 and 1950, the total labor force of Panama increased by 57,000 persons, of whom only 56 per cent found employment. Unemployment, practically nonexistent in 1940, had reached 22,000 by the end of 1950 and is probably now well above the 25,000 level. The largest absolute increase in employment occurred in agriculture and fishery, in which sectors unemployment proper is currently very low. Commerce, transportation and communications have continued to absorb an ever increasing number of new workers, as well as part of those displaced from the Canal Zone. The number of persons employed by the Panama Canal Company (local-rate workers), which had already decreased very sharply between 1946 and 1950 (from 22 to 15 thousand) has continued to decline. At present it is just above 11,000 persons, very close to the pre-war level. Although the possibility of some temporary increase in employment cannot be disregarded, in the long run the Canal Zone cannot be expected to expand its employment opportunities for local workers. Government employment, which under political pressure had risen to an unparalleled level during 1950-1952, has been substantially reduced during the past tvwo years. Public administration and public works would further gain in efficiency if it were possible to rid the government payroll of encumbrances. National Income, Investment and Savings 6. The per capita income of Panama is one of the highest in Latin America. By the end of 1952, income per head amounted to some 8:350 having increased at an average annual rate of 1.9 per cent since 1914. Uross national product grew at an average annual rate of 4.5 per cent over the same period as compared with a 2.6 per cent average yearly increase in total population. Although these rates are all expressed in current prices, on the basis of the information that is available with respect to changes in Panama's domestic prices and terms of trade, they would appear to oe broadly indicative of the changes in real income and output that have occurred. The improvement was not, however, even throughout the period. The largest increase in output was recorded in the immediate postwar years. Between 1944 and 1948, for instance, the gross product of Panama increased from ;227 to P281 million, or at an average annual rate of 5.5 per cent. After 1948, a severe recession ensued. Unsound government policies and political instability together with a sharp decline in Canal Zone commercial activities contri- buted to a significant reduction in national output in 1949-1950. since then, however, improved economic and administrative policies, and a growing tendency of the private sector to devote more capital and effort to the development of dorniestic resources have helped to increase output. By the end of 1952, the gross product had increased by more than 14 per cent over the 19h8 level, and stood at 0321 million. Agriculture and fisheries have accounted for, by far, the largest share of the recent increase in output. Industrial activity, including construction, has been lagging, though new lines of manufacturing, largely food processing, have been developed in very recent years. 7. Investment and savings in Panama have been lower than in nmany other Latin American countries. The ratio of gross investmient (excluding inventories) to gross national product was about 9% for the period 19L4-1952. - 3 - The apparent low investment-output ratio is associated with the fact that a large proportion of total investment was devoted to construction. Subject to the tentative nature of the statistical evidence, this would seem to suggest that in Panama, as in countries at Panama's stage of developmnent, construction has a much lower investment-output ratio than other types of investment. Changes in the volume of investment in construction and inventories strongly reflect the fluctuations in the general economic situation of the country. Investment in construction, after amounting to 45% and 65% of total investment in the years 1947 and 1948 respectively, declined substantially to slightly more than 23,0 in 1952. On the other hand, imports of machinery, equipnent and vehicles have followred an almost constant upward trend. Their increase to about 45% of investment in 1948-1952 is largely a reflection of slow changes in the investment pattern. 8. Private savings have shovfn a tendency to increase in more recent years. They still consist largely of savings of large commercial enter- prises, especially of importers and merchants. Lately, there has been a definite shift of investment towards more productive uses, especially in agriculture, and away from the traditional type of investment in luxury- type dwellings, comnercial buildings and inventories. 2hese new investments, however, have been carried out with only a very limited recourse to financial intermediaries. They have been largely self-financed. As long as a favorable business climate is maintained, business savings can be expected to continue to increase. There are already some develop- ments, however, such as the growing list of products which may not be imported, which indicate that public policy is often directed towards increasing the profit expectations of specific groups of large business investors without regard to the resulting distribution of investment. To minimize the misallocation of scarce resources, the Government, in addition to stimulating a higher volume of savings and investment, should also try to facilitate the pooling of the most diversified stream of private savings. By doing so, and by encouraging existing financial institutions to play a more active role as investment intermediaries, some of the resource allo- cation problems associated with the situations vwhere investments are entire- ly self-financed, could be avoided. At the same time, the range of investmiient possibilities could be expanded well beyond the interest or ability of any single.saver. II. CANAL ZONE INFLULNCES 9. Through its fifty years of history, all Panama's major economic pursuits have been related in a very high degree to demands arising from the Canal Lone. The Canal and related activities have absorbed for many years a large proportion of Panama's labor supply at comparatively high wage rates. Several lines of retail trade have continued to flourish because of the patronage of soldiers, sailors, American employees and tourists on the Isthmus because of the Canal. Wiholesale merchants and commercial farmers have been largely dependent upon balk purchases made by U. S. Government agencies especially of agricultural products grown in the Republic. kioreover, financial and transfer payments originated in the Canal, such as rents, payments to contractors, capital transfers particularly in the form of portfolio investment, and direct payments to the Panamanian Government, have alvways represented major sources of income for the public and business sectors of the Republic. - 4 - 10. The magnitude of these streams of income is best approximated in the statement of the country's international transactions (Table 16) which shows Panama's net receipts from the Done separately as offsetting her net payments to all other countries on account of goods and services. During the period 19b6-1953 Panama paid to all other countries on current account a net average of about 54 million per year. A1most 80% of these net international payments were covered by net receipts from the Zone. At present, the country imports merchandise worth almost twice the value of merchandise exported outside the Canal Zone. Almost one-third of per capita:income is spent on merchandise iimports. Panama is able to do this not only because of the purchasing power originating in the Done, but also because this purchasing power is expressed in a relatively stable and freely convertible currency, namely the U. S. dollar -- the de facto national currency in Panama. Except for a small amount of balboa coins, Panama has no autonomous monetary system. It relies on the U. S. dollar as the circulating mediuma and on the facilities offered by the branches of two large U. S. com;nercial banks for most of its requirement for short- term conmlercial credit and medium-term financing of domestic production. III. DQIVESTIC PRODUCTION Agriculture and Processing 11. Agriculture has always been the principal indigenous industry in Panama. Some 552' of the population is engaged in it and in livestock raising and fishing, and their combined output still accounts for about 35% of the gross national product. Since the early '40's the rapidly growing population (especially in the cities) in-creased purchasing power, and higher prices and governm.ent policy have encouraged increased domestic output. As a result, the production of basic crops has increased substantially since 1950, and for most crops the outlook for further increases is very favorable. Production of rice, a staple item in the Panamanian diet which is produced on about 85% of the farms, increased by more than 33% between 1950 and 1953, making the country self-sufficient in this cereal and allow- ing rice shipments to Venezuela in exchange for corn. buring the same period production of sugar and corn has expanded by 2LI and 30 per cent respectively. Coffee plantings are increasing end in the next four years production and exports are expected to increase twofold and fourfold respectively. Banana production is expandin: as the result of increasing world prices and the reclamation of vast areas of old banana lands abandoned some years ago because of"Panama disease!' For crops other than rice, sugar, corn, coffee and bananas statistics are fragnentary and unreliable. They indicate, however, that betwTeen 1950 and 195b production of such crops as yucca, plantains, avocados, tobacco, potatoes, oranges and tomatoes increased quite substantially. Tlhere are good prospects for an increased output of beans, vegetables and of fruits other than oranges, but for the time being no significant changes have occurred in the production of these commodities. 12. During the last decade the cattle population increased considerably. According to provisional estimates there are at the present around 600,000 head in comparison with 335,000 in 1913. As a result of this improvement, consumption requirements, at least for beef cattle, will be fully satisfied from domestic production in the very near future. Hog production on the other hand is still very deficient, notwithstanding recent improvements in quality and quantity brought about by imports of high-quality breeds. By all indications hog raising can easily increase in the next few years to meet national demand. Production of chickens h!ps lmost doubled since the early t'Ols. Poultry inports have been drastically reduced in recent years and egg inports had disappeared by the third quarter of 195h. 13. Because of the stepping up of production of many crops and the large increase in livestock population, complementary industries have continued to expand and to account for an increasing share of agricultural income. Milk processing has more than doubled since 1950. The production of evaporated and condensed canned milk - largely by the Nestle plant -- has been keeping pace with the fast growing domestic demand. The National Abattoir, with its modern equipment and sanitary conditions, has since 1952 made available increasing supplies of fresh meat for the civilian and military establishments of the Canal Zone. The sole vegetable oil plant could produce a much larger output if raw materials could be supplied steadily and in greater quantity. The Government has recently taken steps towards this end and expectations of rapidly rising output are well justi. fied. The fishing industry has successfully started to tap the potenti- ally vast resources of Panamanian waters. Commercial catch has more than doubled since 1950 and the shrimp industry, only organized on a commercial basis in 1952, has expanded rapidly and now yields an export income of about $3.0 million per year. 1T. The results achieved in a relatively short time in agricultural development have been quite satisfactory. Over the past ten years food imports have formed a high proportion -- almost 20 per cent -- of Panama's total imports. In more recent years, the proportion has tended to decrease slightly and the trend may be expected to continue. In 1948, for instance, imports of foodstuffs amounted to about 11 million. Slightly more than the same amount was paid for food imports in 1953 and 195b. Between 19L8 and 1954, however, population had increased by almost 17 per cent and per capita income an estimated 8 per cent. In the absence of significant declines in price and consumption levels, the increased availability of domestic products was, in fact, responsible for the comparative lessening of dependence on foreign supplies. 15. Notwithstanding these satisfactory results, the agricultural potentialities of the country are far from being fully developed. Govern- ment action, while effective as far as it has gone, so far has been limited to expansion of agricultural credit, establishment of extension service, price inducements, and import limitations. Steps are now being taken to develop an adequate road system to serve present and potential agricultural areas, to increase farm mechanization, and to expand storage and milling facilities. Wthat is still needed is a well conceived and balanced program, and a full appreciation of some institutional problems which have a serious retarding effect on agricultural development. The preponderance of subsistence farming, the inadequate land tenure system, and the prospect of a shortage of rural manpower deserve prompt attention from public authorities. A satisfactory solution to these problems is necessary for the sound developxnent of agriculture vwhich, in turn, is called for if Panama is to keep in step with the increasing consumption needs of a growing population and to exploit the yet largely untapped export potentialities to the Canal Zone, and to other foreign markets for specific products such as, for example, coffee and cacao. Industry 16. Aside from food processing, industrial activity in Panama is of minor importance. It is largely confined to construction materials, saw- mills, a large brewery, distilleries and soft drink plants, clothing and shoe factories, ceramic plants, etc., which produce mainly for the local market and the Canal Zone. It is difficult to obtain an accurate picture - 6 - of the development of these manufacturing industries. National income and product figures for 1950 put the contribution of manufacturing and construction to the gross domestic product at less than 18 per cent. Other information on industrial output is fragmentary and unreliable. It indicates, however, that with a few exceptions industrial activity has not as yet fully recovered from the sharp decline which took place in 19b8. This is particularly true for firms producing construction materials and sawmills, Most of them are presently equipped with modern machinery and able to handle an output much larger than is justified by current demand. The newly established cement plant, one of the most modern and best equipped in Central America, has experienced a drop in its gross sales since 1951. Three of the most important firms producing brick, tiles, pipes and other construction materials recorded a certain revival of activity only by the end of 1953. The same holds true for most of the sawmills, wrhich have been operating well below capacity. 17. The Government has encouraged industrial development by such mea- sures as a law exempting industries froml import duties on equipment, and import restrictions. Owing to the scarcity of known mineral, metal and fuel resources, among other limitations, Panama cannot hope to develop a balanced industrial structure. Hovwever, it does appear to have large potentialities for increasing its industrial production in those processing industries utilizing native agricultural, forest and fisheries products. An over-all technical survey of the possibilities in this fie&d, to serve as a basis for action by local industrialists and investors, is a recognized need. Government action is also needed to build an adequate over-head capital structure, ranging from roads to telecommunications and including electric power, the absence or insufficiency of which, especial- ly in the countryside, still seriously hampers private enterprise. 18. lWhile an adequate program for the improvement and expansion of the road system is now being actively undertaken, very little has so far been done to expand electric power capacity, especially in the rural areas. only the two cities and the province of Chiriqui are provided with adequate electric power. The main producer is the Cia. de Fuerza y Luz, a subsidiary of the American and Foreign Power Company, which operates in Panama City and Colon only. Its present capacity is about 30,000 kw, generated mostly from small and medium sized thermal plants. The company also provides the two cities with cooking gas and automatic telephone service. It is cautiously expanding its generating capacity as demand increases in the cities. The company, however, has expressed no interest in extending power facilities to the countryside. In Chiriqui, the main agricultural province, there is a small private Panamanian company whose total generating capacity, all hydro-power, is presently being extended to about 5,000 kw. This will probably satisfy demand in that province in the immediate future. In the Central Provinces there are small private and public municipal plants whose equipment is mostly old and in poor condition. These plants cannot satisfy present pbtential demand even vwithin the town limits in which they operate. In the present situation the main problem, therefore, is the improvement and expansion of povwer generation in these provinces. The problem is at the same time technical, financial and managerial. Hydro-power potentialities exist but they remain to be determined.i/ 1/ The Instituto de Fomento Economico is currently taking active steps to collect river flow data. - 7 - IV. PIBLIŁ FiIN^NC Recent Trends 19. For many years Government deficits have been one of the mnost impor- tant problems confronting the country. During the period 1945-1952, the cash deficit averaged $2.5 million per year, or about 7% of total cash expen- ditures. To cover these deficits the Government used up all cash balances accumulated during the war-time prosperity, increased its funded debt by a net amount of W13.0 million and accumulated unpaid bills to a record level of approximately $11.0 million by the end of June 1952. This deterioration of the fiscal situ-tion was essentially due to misiranaEement of public funds rather than to general econoraic conditions. It irnpaired the credit of the Government, undermined the confidence of the business community, and reduced the liquidity of the economy in general. 20. An imiprovement of the fiocal situation has been achieved in the past two years, and is reflected i:.i the Treasury's cash position. By the end of 1953 the cash ceficit had disappeared and 1954 is expected to record, for the first time in eight years, a srimall operating surplus. The Treasury has been able to nake substantial progress in liquidating the backlog of unpaid salaries and bills. At the beginning of the new year the Government was current on all salary payments and had paid all bills through December 15. The floating debt, which by the end of 1952 still amoumted to about $9.0 million, had been reduced to $4.0 million by September 15. This reduction *was made possible in part by the funding on a long-term basis of short-term Government obligations to the Social Security Fund ($5.0 million). But this funding operation was carried out mainly in 1953, at the same time as new floating cebt was still being actively created. The reduction of float- ing debt through cash repayments by the government during 1954 was thus still substantial and represented a commendable aclhievement in the adm,,inistration of Panama's public finances. 21. Budget revenues, one of the best iridicators of economic activity in the Republic, rose steadily from ~32.0 million in 1950 to a peak of $41.,' million in 1953. Ail types of revenues increased, but direct taxes rose most spectacularly. L-aproved tax assessment and enforcement, revisions in incorae tax and inheritance laws, together with the broadening of taxable income in some sectors of the economy, were largely responsible for the increase in this type of revenue. In the long run, increasing domestic production is expected to continue to expand the yield of income taxes, although 1954 *:dll probably record a slight decline due to the fact that the 1953 returns iwere iaoderately inflated by collection of unpaid taxes. The placing of all tax-payers on a pay-as-you-go basis alone resulted in windfall receipts of aLinost $1.0 million in 1953. At present, income and property taxes represent almost 23 per cent of total government revenues, as against 16 and 13 per cent in 1950 and 1945 respectively. This trend, which is exnected to continue, besides introducing new elasticity to the Panamanian revenue system, will undoubtedly make possible some substitution of income and property taxes for the customs duties and consular fees which still weigh heavily on the system. 22. Governvment exoenditures also have increased very rapidly over the past five years, although at a slower rate than government revenues. The record level of t42.7 million reached by budget expenditures in 1953 included some redemption of the floating debt and a carrying over of many "emergency workers" p)laced on the payroll during the previous election year. Government -8- expenditure is still burdened by unnecessarily heavy administrative expen- ditures, and only partial efforts have been made so far to re-examine the administrative structure in order to release funds for development projects. An attempted classification of budget expenditures by economic significance (cf. Table 14) shows that over the past five years the average outlays for general administration accounted for 25 per cent of total expenditures, while those for social welfare and economic development accounted for 41 and 17 per cent respectively. Administrative expenses are actually much higher than the above figure would indicate since, in addition to specific- appropriations for administrative purposes provided for in the budget, sub-- stantial sums snent for payrolls have been concealed under investment expen- ditures. In 1952 for instance, abQut $4.1 million was paid for wages out of a total investment of $55.5 million for road construction and maintenance. Public Investment and Prospects 23. Even disregarding the inflated nature of the recorded data, govern- ment investment for public works and economic development has always absorbed a minor part of total expenses. Total public investment (i.e. investment by the National Government and other public agencies) over the past five years has never amounted to more than 3 per cent of the gross national product. !'ioreover, a very large proportion of it was for social purposes, with no immediate effect on output. During the-period 1950-1954 expenditures for construction of hospitals, schools, low-cost residential houses and, above all, for government offices and other public buildings accounted on the average for $;i3.1 million, or more than 35 per cent of the 1>8.7 million of total public investment. Over the same period roads, water supply, and other public t-rorks accounted for 49 per cent, while expenditures for agri- cultural and industrial development absorbed 10 per cent. Of the "3.O mil- lion spent in the last two years to foster productive activities, $2.4 mil- lion was devoted to agriculture, largely in research and extension services. Agriculture has been the only sector which has absorbed an increasing but still a very moderate amount of new public investment. 24. Budgeting for economic development should be the most inmmediate task for the National Government. Public investment for roads, colonization of unexploited areas, agricultural credit for expansion of crops, grd for electric power and incdustrial development, are of the greatest importance for Panama's economic growth. Fiscal policy should be directed not only towards increasing revenues but also towards wiser expenditure. Even within the limits of present revenue of some '$40 - 41 million a much larger propor- tion than hitherto could be channelled into productive investment projects. Given the serious unemployment prevailing in the cities, the Government might find it impossible in the short run to reduce appreciably its inflated bureaucracy, or politically undesirable to set limits to expenditure for social welfare. There is still plenty of room, however, for greater effi- ciency and economy in operation, coordination of budgetary requirements, and diversion of present investment expenditures (like those for public buildings and government offices) to projects which would give substantial and rapid yields, and establish a base for further private investment. -9- 25. Important as these reforms are, most of them can hardly be expected to be immediately translated into proper budgetary terms. For the time being, however, the present situation and immediate prospect of public revenues would seem to suggest that all public agencies could potentially increase their productive investment by an annual aggregate of at least 4d8 - 10 million in a year or so if determined efforts were made in this direction. First, a small operating surplus in the current cash position plus the expected decline in expenditures for domestic debt redemption due to the disappearance of the floating debt should make available something like "P2 - 3 million. Second, new private investment in agricultural production and processing, together with the increasing activity of U. S. firms such as the Chiriqui Land Com- pany and those operating in the Colon Free Zone should expand government income from P1l.0 to ;2.0 million. Third, the treaty negotiations with the United States will result, apart from other benefits, in an increase in the Canal Annuity of 1.5 million. Fourth, the stepping up of the investment - activity of the Instituto de Foinento Economico, and a more rational utiliza- tion of the reserve funds of the Socill Security Fund could very well increase by an additional 1.0 - 1.5 million the flow of public investment for econo- mic development. Finally, there seems to exist within the private sector a potential market for government bonds as yet largely untapped. 26. As a matter of fact, until May 1954 the Government had never taken any active steps to sell its bonds to private investors. Aside from the Social Security Fund only a small amount of bonds were held by government banks, a few insurance companies and a small number of private investors. There is one Drivate Panamanian brokerage firm that does a small amount of over-the-counter business, but no real effort had been made to distribute securities and no general sales propaganda had been undertaken to assist in broadening the market. As of l'ay 1, 1954, the Government offered directly to the public an issue of 'il.0 million of 6% bonds due in 1970 for construc- tion of a new race track. A few newspaper advertisements along institutional advertising lines were placed and the banks sent a memorandum briefly describ- ing the issue to their depositors with their monthly statements. The result of this small propaganda effort has been very surprising to all concerned. The entire issue was sold in less than a month, primarily to small investors, orders ranging in amounts from $10.00 up. In October 1954 the Government offered another issue of the race track bonds, anounting to t51.5 million. This time sales propaganda w>ras handled professionally by a private firm and in other aspects of the operation the Government followred recommendations made by the IBRD Marketing Director during his visit in June. The entire issue was sold in three weeks. 27. The excellent results achieved in 1954 in placing new bond issues have convinced both the Government and the general public that a bond market does exist in Panama, and that substantial amounts of bonds can be sold. The ultimate absorptive capacity of the market is still difficult to esti- rmiate. TJith the general acceptance of bonds by private individuals both in Panama and in the Canal Zone, and by insurance companies and banks, a minimum of $2 million can be expected to be easily absorbed annually for development purposes receiving public approval. This amount does not include the amounts that the Social Security Fund, until recently the sole buyer of bonds, can absorb. Late in 1954 the Assembly authorized the Goverrment to borrow, - 10 - internally or externally, up to 'plO million for development purposes. Following a change in the management of the Banco NMacional a plan for concentrating all government bond operations in the Banco is being actively considered. V. IiNTElJUMTIO.NAL TRAER iL iD B.iLAJGE OF FPAI41ENTS 28. If the level of imports vere to be considered the only indica- tion of economic conditions, Panama could well be said to enjoy an ever increasing pro..erity. Over the past ten years, cb.-.nges in th~ nnrual volume of imports have clc.-ely reflected changes in the national income. Thus- in;morts reached a recr.rd lerel of 05.5 milli.cn in 19X7 --- largely reflecting the backlog of liquidZty accu.mulated during the wart-ae prosperitXy -- but decreased substantially in 19b8-1?49 when the :ountry faced difficult problens of economic adjustment. Bv the end of 1950, however. imports started to increase again and have increased since to almost '72 mil]ion in 1.953 and l195, preceding or accompanying a similar upwrard trend in national i.come. 29. Although the country is changing its pattern of production, no basic changes have yet occurred in the commodity conposition of imports, nor in the country's sources of supplies. Increased agricultural production is partly reflected in the gradual decline of imports of foodstuffs. Live animals and food products and beverages averaged 19 per cent of total imports in 1950-195h as against more than 22 per cent in 191X4-1987. M..oreover, under the stimulus of a sustained flow of investmen- in manufacturing and processing industries and public utilities the country has been increasing its imports of raw materials and semi-manufactures as well as of capital goods. These comnodities have recently accounted for almost 24 per cent of total imports as against 19 per cent in the imTrediate postwar period. But even with these changes, the outstanding feature of the over-all structure of Panama's imports is that it is basically the same as it was ten years ago: some three-fourths of the country's imports still consist of consumer goods, largely luxuries. 1Lhis is explained by the fact th-at the tradition- al "entrepot" trade remains substantial, even though its relative share in the national income has probably declined over the past ten years. In any appraisal of Panama's external position this (qualification is of the utmost importance. TIhe apparent trade deficit would be largely reduced if it were possible to deflate import figures by the amount of goods w.vhich a-.e not consumed by Panamanians but are sold to Canal Zone residents and foreign travelers. 30. Panama's trade figizres register only the amount of these goods that are ultimately re-exported tocother countries. Recorded exports increased more than fourfold over the past ten years to a peak level of almost $t18 million in 1953. Bananas, cacao and abaca fiber still account for more than three-fourths of the total. There has been a. spectacular increase in shrimp exports. They were nil or ii-significant up to 1950; now they represent a source of 43.0 million of net earnings foc the country or about 1 per cent of total exports. Abaca fiber exports have, however, continued to decline both absolutely and in relative terms, to less than 7 per cent of the total. iith higher banana and cacao prices, total exports will probably be maintained at an even higher level, exceeding perhaps qp20 million a year. In the irmmediate future, however, there will be an even greater concentration rather than diversification of exports, with bananas, cacao and shrimps accounting for something like 80 per cent of the total. 31. The unicue geographic position of Panama, the presence within its political boundaries of an important area under foreign administration with wrhich the Republic maintains the freest initercourse, and the use of the U. S. dollar as the de facto national currency makes it very diffiu.lt to present a comprehensive and acculrate statement of the country's balance of payments. Even the statement of the balance of payments, given in Table 16, focusing on Panama's compensatory financing, and showing separately the estimated transactions with the Canal Zone, is of limited value for a realistic apprai- sal of Panama's external position. The present balance of paynents compi- lation estimates the aggregate deficit of the Republic with the rest of the world on account of goods, services and donations at W40 mil'lion for the period 1950-1953. Over the rrevious four years (1946-1949) this deficit had totaled $63 million. There are reasons to believe, however, that the actual improvement in Panama's external position is much greater than the recorded figures would seem to indicate. If. for instance, allowance were made for underestimates and for the substantial current and capital transac- tions which still go unrecorded, and "net errors and omissions" were added to the deficit on current transactions, a much broader improvement would be revealed. it would then appear that the excess of the country's payments to the rest of the world over its receipts had been actually reduced from an aggregate $68 million for the period 1946-1949 to a raere total of 53 million for the last four years. 32. The disappearance of a deficit in the international transactions of the Republic is only partially reflected in the recorded increase in dollar currency and foreign balances held by the Panamanian banks, as well as in movements in other groups of transactions classified as "compensatory." The largest benefit has probably accrued to the private business sector. There are some indications that the country in general and particularly pri- vate individuals and bousiness concerns have been lately enjoying a greater degree of liquidity than the mere disappearance of a deficit in the balance of payments would seem to account for. DemrAnd deposits of 'ousinesses and individuals only have steadily increased from less than `p24 million in 1950 to :,i30 million in 1954. Time deposits have showm a somewhat smaller varia- tion but have closely followed the general trend having increased from $lE million to $20 million during the same period. To this must be added the net increase of some 510 million registered over the same years by deposits and short-term dollar holdings in U. S. banks for the account of Panamanian businesses and individuals. It is true that a great proportion of these balances are owmed by shipping companies and other foreign firms incorpo- rated in Panama which do virtually no business in the Republic. Yet it is generally believed that the recent improvement in the country's external position has benefited Panamanian residents as well as foreign firms. 33. Panama is vulnerable to external fluctuations in vieii of the fact that only within very narrow limits can it cormpensate by monetary and fiscal action variations in money supply brought about by changes in the balance of payments. The country is, however, in a stronger position than countries which have to rely almost exclusively on exports of a few primary products. It has a fairly stable income, originating from transactions with the Canal Zone and from transit trade, which pays for more than two-thirds of recorded imports. The monetary system can be regarded as an extension of the U. S. - 12 - monetary system. The relative stability and free convertibility of the currency not only tend to facilitate international trade but offer suffi- cient incentive to attract an increasing amount of foreign capital. Moreover, the bulk of Panama's foreign receipts, namely those from the Canal Zone, are largely impervious to variations in relative costs and price levels, being determined by Panama's geographical advantages and political and military considerations. Higher Panamanian prices would force a rise in U. S. expenditures, and thus increase rather than decrease Panama's foreign income. From a strict balance of payments point of view fluctuations in receipts from international transactions do not result in Panama in a balance of payments "problem" as such. These fluctuations, by acting directly on the income and expenditures of the Panamanian people, keep the country's demand for imports within the means of paying for them, with some time lag. 34. Although Panama does not have lasting difficulties in balancing her international transactions, there still remains the necessity of forestal- ling an equilibrium at a stagnating level of national income. In appraising Panama's development prospects this reservation is very important. There are indeed limited possibilities of increasing in the immediate future the already high earnings from external transactions. Confronted with the necessity of providing for the needs of a fast growing population, of solving urban unemployment and achieving a higher per capita income, the country must increase the rate of growth of its domestic output by means of an enlarged flow of savings and productive investment. To accomplish this the National Government, as stressed in other sections of this report, must be prepared to take effective and timely measures. VI. CREDITZiQRTHINESS 35. The present external debt is not a heavy burden either on govern- ment finance or upon foreign earnings. The outstanding amount at the end of June 1954 was 415.0 million, all in U. S. dollars. Of this, $9.9 million consisted of 3 per cent external bonds privately placed in the United States and secured by the Canal Annuity of $030,000 paid by the U. S. Govern- ment to the Republic of Panama. The remaining $5.1 million was composed of two Eximbank loans of 1948 and 1951, originally amounting to $2.5 and S1-5 million, to finance construction of a hotel, and two IBRD loans for a total amount of $1.5 million made in 1954 to the Development Institute (IFE). The $2.5 million EXcimbank loan was made to the hotel, guaranteed by the Government, while the $1.5 million loan was made to the Government, which gave the proceeds to the hotel as a subsidy. In September 1951 the hotel contracted, with the guarantee of the Government, a 4p2.5 million loan from the Chase National Bank to refinance the first Eximbank loan. All loans, including the bonds, are being serviced regularly. Total service payments on the present external debt amounted to 0834,000 in 1953, will rise to 4s0.3 million in 1957 and thereafter decline gradually to 17l7,000 in 1964. 36. As already mentioned, Panama has no independent monetary system. There exists a nominal currency, the balboa, at par with the U. S. dollar, but its issue is limited to a small part of the subsidiary coinage only. The U. S. dollar is, de facto, the circulating currency of Panama. - 13 - Dollar cash balances held privately are equivalent to holdings of foreign exchange. Because the currency in ciiculation and the means for foreign parments are one and the same., Panana cannot have a transfer problem in the usual meaningS of the term, any .;lore than a .iiunicipality or a state writhin a country can h-ave a transfer problem as such. From a credit- wjorthiness point of view, however, the country can still have a payment problem. In priniciple, for Panama as Lor any other country, an important distiLniction should be made between foreign and domestic borrowing. While a foreign loan represents a bulk injection of resources into the country and' its re-a,r.-ment represents a subtraction of resources spread over a number of years, no net clhanges in national resources are irvolved in dcom- estic borrowring. Because of the peculiar nature of Panama's monetary sys- tem, however, and from the point of view of the Government's ability to meet its debt obligations, it is imnaterial whether this debt is internal or ex- ternal. The assessment of Panama's creditworthiness must therefore take into account the total debt serviceand the adequacy of public revenues for meeting these obligratioins. To assesPanama's crecdtwo-rthiiness is thus in effect to assess the budgetary prospects of the Panamar.ian Government. 37. In view of all the important sources of potential economic strengt-h, and provided the Government achieves a higrher level of nroLuctive invesments, there is every prospect that Panama's real incosme and saving should continue to increase. Even with an unchanged tax structure, this should produce increased revenues for the government, and thus enlarge its capacity to service additional ddbt. Because of the improved fiscal pos- ition, achieved through the determined stabilization policy started in 1952, there is already room ior addit;ional goverLnent borrowing for prod'uctive purposes, either ao.mestically or from, abroad. As emphasized elsewrhere in this report, by channeling new public investment, within the limits of this miiargin, to development projects, such as road, hycro power and agricultural crecit, Panama would obtain a qcuick rise in national production. The rehab- iliation of .?anazials badly deteriorated roads and the building of new primary and seconcdary roads is a task of first priority in the country's aevelop- ment effort. Lack of adequate all-year -transportation from important rural areas to the terminal cities is the main obstacle to a continued expansion of a,riculture and related industries. 38. As a result of extensive discussions between the Government of Panama and the Bank, the Government is seeking a loan to finance equipment, materials and services needed to rehabilitate Panama's existing road system. The amount of the loan to be considered is about $4 million. This project is contemplated as a first phase in a comprehensive road construction pro- gram to be carried out over a period of at least six years. On the as- sumption of a term of between 6 and 9 years, service payments on this loan would amount to about $750,000 annually wlhich, added to service on present debt, internal and external, ($5.2 million) would give a total service of $6 rillion on the entire public debt. Of this amount, $1.8 million wvould represent service on external debt. On the basis of expected _rowth of inscome and savin2s in the Panamaniqn economy, it should be possible for the Panamanian Government to dischar;e these service obligations without strain- ing either the budgetary situation or the external payments position. lvIore- over so far as can at present be foreseen it should be possible for Panama to undertake substantial additioaJal external borrowring for well-justified 6evelopment purposes. T A B L E 1 SU15a1ARY OF EXTERIAL PUBLIC DEBT National and Government Guaranteed Debt (in thousands of U.S. dollars) Debt outstanding Major reported changes Item June 30, 19054 July 1, 195L - Jan. 31, 1955 Amount % Amount TOTAL (all U.S. dollars) 1U,962 100.00 219 Disbursed and still outstanding 13,732 91.78 Undisbursed 1,230 8.22 Privately-placed debt 9,912 66.25 1 2.&00 IBRD loans 1,990 979§ Disbursed and still outstanding 260 1T7h Undisbursed 1,230 8.22 U.S. Government loans 3,560 23.79 v 2,281 T AB LE 2 ESTIMATED CONTRACTUAL INTEREST AND AMORTIZATION PAYIENTS ON THE EXTERNAL PUBLIC DEBT National and Government Guaranteed Debt (in thousands of U.S. dollars) Year Debt outstanding Payments during year January 1 Amortization Interest Total 1955 14,962 521 496 1,017 1956 14,563 671 488 1,159 1957 13,892 844 458 1,302 1958 13,048 866 425 1,291 1959 12,182 892 388 1,280 1960 11,290 780 351 1,131 1961 10,510 633 324 957 1962 9,877 573 300 873 1963 9,304 443 282 725 1964 8,.861 451 266 717 1965 8,410 175 254 429 1966 8,235 181 249 430 1967 8,054 187 244 431 1968 7,867 191 238 429 1969 7,676 198 233 431 1970 7,478 203 227 430 1971 7,275 210 221 431 1972 7,065 215 214 429 1973 6,850 222 208 430 1974 6,628 229 201 430 1975 6,399 235 195 430 1976 6,164 243 188 431 1977 5,921 249 180 429 1978 5,672 257 173 430 1979 5,415 265 165 430 T AB L E 3 POPULATION, AGE STRUCTUrE AND DEPENDEI'iCY RATIO (in thousands 1910 1950 Number Per Cent NMumber Per Cent Population, Total 623 100 805 100 a) Urban 211 3)4,' 290 36% b) hural 412 66% 515 64% A) Of 10 years of age and over: 409 66% 528 65% (1) _ a) Gainfully occupied: 208 33% 2L1 30% - i) Agriculture 109 132 - ii) Industry 23 26 - iii) Services 76 83 b) Elconomically Unproductive 201 32% 287 36% of which: - Unemployed (1) 2 22 B) Below 10 years of age 214 34% 278 35% C) Dependency ratio (2) 200 234 Source: Calculated on the basis of materials submitted by the Contraloria General de la Republica - Direccion de Estadistica y Censo, Departamento de Censos. (1) For detailed break down see Table. . (2) Number of economically unproductive people per 100 persons gainfully occupied (AB) / B over Aa) ). Note: Details may not add to totals, because of rounding. T A B I! E 4 INDUSTRIAIL DISTRIBUTI(Y OF LABOR FORCE (in thousands) 1940 1/ . . 1950 Number Per cent Tot&l GaiDull- Occupied Unenrloyed Number Number Per cent Yumber Per cent LABOR FORCE. TOTAI 208 6m 100 22 100 1) Agriculture and Fishery 109 53 133 132 55 1 5 2) M4ining and Manufacturing 15 7 22 19 8 3 14 3) Construction 8 4 10 7 3 3 14 4) Commerce, Transport and Communic. 15 7 30 27 11 3 14 5) Government, Professi6ns, Personal Services 30 15 42 37 16 5 23 6) Panama Canal and Railroad 28 13 23 18 7 5 22 7) Unclassified 2 1 3 1 - 2 9 Source: Contraloria General de la Republica - Direccion de Estadistica y Censo, Departmento de Censos. l/ According to the 1940's Census less than 2000 people were regist'-red as unemployed. Because of its minor significance, only the "gainfully occupied" are shown for the year 1940. INVESTI-E1T. SAVINGS AIT, GOVr'F1R,TNBNT rEVENUES INRLTO TO GROSS NATIOA RDC: 94-15 - 1944 1S1945 124 947 4. 12 1 1952 Gross National Product 22Z 236 4 66 281 X62 321 at Market Prices (millions of dollars) Ratios to Gross Product: P E _ C E N T A G E S 1944-19_ 2 Average - Gross Domestic Invest- ment: Total -_3k° 1 7.1 179 9.0 9.4 18 9.6 10.7 8 3 of which: - Investment in Fixed Assets 6.6 9.3 10.2 12.7 10.6 7.9 8.7 7.3 6.2 8.8 - Gross Total 8.1 6A7 4.9 6.1 j.1-. U.3 14.4 11.2 109 8.7 - Private 5.0 4.8 3.2 3.0 3.1 9.1 12.9 9.6 10.2 6.8 - Public 3.1 1.9 1.7 3.1 2.0 2.2 1.5 1.4 0.7 1.9 - General Government Revenues (Current) 22.8 1 28.2 26.4 23.8 24.2 23.4 20.0 20.4 21.6 Source: Gross_Product. Public Savings and Government T.evenues: United Nations: "The Nationel Income and National Accounts of the Republic of Panama; 1944-1952". New York, 1953 Gross Investmert:Cf. other Table of Statistical Appendix Gross Savings:'Gross Domestic Investment plus Surplus (minus Deficit) on Current Account (excluding Donations) 7 Interest Payments on Official Loans # Net errors and omissions. Private Savings: Found as residual. T A BL E 6 COMPOSITION OF GROS'5 DOI7TSTIC CAvITAJ FORMATIOIT BY TYPE OF CAPITAL GODUS. 1944 - 1952 (in millions of dollars) 2L44 1945 i946 Ju.47 189429 122 .1241 125' Gross Domestic Cavital on:- Total A8 S!L, I17..0 25.2 1. Fixed Capital Formation 15.0 21.9 24.5 3323 221 19 A. Construction 11.7 17.3 14.8 20.8 16.6 8.4 11.2 9.1 8.1 a) Dwellings 5.8 7.5 9.2 9.6 4.7 4.7 6.2 4.3 4.9 b) Non-residen- tial buildings 4.0 4.7 2.8 4.4 8.5 2.2 1.7 3.1 2.1 c) Other Construc- tion and Works 1.9 5.1 2.8 6.8 3.4 1.5 3.3 1.7 1.1 B. AdJusted Net Imnorts of Capital Goods 3.3 .- 4.6 9.7 13.1 13-3 12.9 12.1 13.0 11.7 a) Transport Eouip- 0.8 1.2 2.8 4.0 4.4 5.1 4.1 4.9 4.5 ment b) Machinery and 1.6 2.1 4.1 5-3 5.1 4.1 4.5 4.4 3.9 other equipment c) Adjustment factor 0.9 1.3 2.8 3.8 3-8 3.7 3.5 3.7 3.3 (1) 2. Incriease in Stocks -21.8 -172 -75 13.8 -4.7 3.9 8.2 6.9 14.5 Source: Basj.c data were submitted by The Contraloria General de la Republica- Direccion de Estadistica y Censos. (1) Includesr 12% for freight and insurance plus 10% for profits to importers and an adaitional 15% for eosts of installation and transport. Adjustments made for these factors largely account for the difference between the revised data of this table and those which appear in the United Nations Study: "The National Income and National Accounts of the Republic of Panama: 1944-1952." T A B L E 7 GROSS D01ESTIC PRODUCT BY INDUSTRIA ORIGIN: 1944-19s2 (percentages) Gross Domestic Prod- General Government Private Sector Years uct at Pactor Cost & Public Enter=rises Total Agriculture Other Activi ties 1944 100 9.4 90.6 30.3 60.3 1945 100 10.6 89-3 33.2 56.1 1946 100 11.1 88.9 33.4 55,5 1947 100 10.6 89.4 31.9 57.5 1948 100 10.0 90.0 34.9 55.1 1949 100 10.6 89.4 34.1 55-3 1950 100 10.5 89.5 33.2 56.3 1951 100 9.5 90*5 37.0 53.5 1952 100 10.8 89.2 35.1 54.1 Average of Annual Percentage of Gross Product 100 10.3 89.7 33.7 56.0 Source: Based on data submitted by the Contraloria General de la Republica - Direccion de Estadistica y Censos. T AB LE 8 IINDICES OF AGRICULTURAL PRODUCTION (1950 .-100) Agricultural products 1951 1952 1953 Total (excluding milk) 102.0 109.9 117.0 Total (excluding milk, bananas and cocoa) 105.5 113.8 123.1 Rice 1/ 103.1 110.9 133.3 Corn / 109.2 115.6 124.1 Coffee 1/ 101.7 115.0 83.3 Oranges / 165.9 97.3 110.4 Sugar Cane / 113.7 133.3 130.1 Tomatoes / 128.4 218.6 324.3 Milk h/ 119.6 129.8 195.9 Bananas / 97.6 81.6 93.4 Cocoa 5/ 69.8 129.7 98.5 Source: Computed,by the Contraloria General de la Republica, Direccion de Estadistica y Censo. / Rice, corn and coffee production: excluding the Provinces of Bocas del Toro and Darien / Oranges: Amount registered at the customs in Arraijan / Sugar cane: Amount used by sugar mills 4/Tomatoes and milk: Amount purchased froma Compaila Panamena de Alimentos Lacteos, S.A. Bananas and cocoa: Exportation. T A B L E 9 IMPORTS OF FOODSTUFF BY MAINT GROUPS OF COMMODITIES. 1944-195& (percentages) 1944-1947 1948 1949 1950 1951 1952 1953 1954 Average First semester at_annual rate Imports of Foodstuff - 100 100 100 100 1 100 1) Animal Products. Total: 30.1 34.2 37 .3 3.A 32.1 3X-Q A-8 28.7 Meat, fresh 2.7 1.6 1.6 0.9 1.2 1.2 0.9 0.5 Meat, preserved 5.4 5.4 6.5 6.4 6.o 6.5 7.0 7.2 Dairy products 19.0 23.6 24.7 20.0 20.0 19.6 20.4 15.7 Seafood 3.0 3.6 4.5 5.0 4.9 5.7 5.5 5.3 2) Plant Products. Total: 69.9 65.8 62.7 L2 z 6. 8 66.2 210 Fruits and vegetables, fresh and dried 7.7 7.2 8.9 8.7 8.8 11.2 10.0 8.3 Grains 10.6 11.6 2.7 2.8 7.1 7.1 2.3 2.5 Grain preparations 14.0 16.9 16.6 13.3 14.3 14.9 16.1 18.0 Malt 6.3 4.6 1.3 6.5 3.1 4.4 1.2 2.9 Cocoa, coffee, tea, sugar 7.6 0.7 1.4 5.5 3.2 2.2 0.9 0.8 Condiments 1) 0.9 0.7 1.2 1.1 1.1 0.9 1.4 1.4 Oils and edible greases 9.1 9.5 11.3 11.5 12.2 10.3 13.2 18.9 Fruits and vepetables, canned or frozen, and 13.7 14.6 19.2 18.3 18.2 17.3 21.1 18.5 other foodstuff Source: Computed on the basis of the "Extracto Estadistico de la Republica de Panama" and other detailed materials submitted by the Contraloria General de la Re-oublica-Direccion de Estadistica y Censo. (1) Not all are of vegetable origin. T A B L E 10 INDICES OF INDUSTRIAL FRODUCTION,-195Q-1954 -',1950 ±U First semester ;/ 1951 1952 195 1 9Yli3 1954 General index / 101 lO 116 113 116 Sugar 114 134 130 130 139 Salt 119 130 87 87 140 Condensed milk 127 125 129 202 117 Evaporated milk 117 142 212 174 221 Tomato paste 105 182 276 n.a. n,a. Tomato sauce 176 393 569 n.a. n.a. Slaughtering, cattle 100 93 99 95 94 Slaughtering, hogs 94 103 126 119 125 Fisheries, annual catch 2/ 4 176 140 220 118 Alcoholic beverages 110 124 119 115 112 Industrial alcohol 69 92 89 112 79 Generation of electric power (kwh) 2 10i 110 118 120 125 Gas 95 97 96 98 93 Construction of dwellings and residential houses 5/ 87 63 114; 105 117 Source: Computed by the Contralorla General de la Republica, Direccion de Estadistica y Censo. % First semester of 1950 - 100. i/ Y!eighted indices according to the relative prices prevailing in 1950. 3/ Gulf of Panama only. 4J Panama and Colon. E/ Panama and Colon. T A B L E '11 CASH OPKRATIONS OF THE NITIONAL GOVERI"n'FIT, 1950-1954 (thousands of dollars) Item 1950 1951 1952 1953 1954 (first semester) Revenues 1/ 32,007 32,747 36,362 41,b23 22,005 L.xpenditures 2/ 36,597 33,272 37,899 41,b26 21,30) Surplus or deficit (-) -h,590 -525 -1,537 -3 701 Net domestic borrowing 3/ or debt redemption (-7 ,646 1,077 607 246 -41 Net external borrowing or debt redemption (-) -56 -553 932 -2L9 -192 Net debt transactions 4,590 524 1,539 -3 -233 Decrease or increase (-) in current account cash balances - 1 -2 6 -468 Total deficit financing or surplus allocation(-) 4 590 525 1,537 3 -701 Memorandum: "Cornprometidos")437h 6,111 8,666 6,155 3,847 Source: Computed on the basis of detailed information submitted by the Contraloria General and other public accounts. 1/ Exclude "devoluciones" (accrued revenues) and receipts from borrowing. 2/ Exclude expenditures financed by increase in floating debt ("comprome- tidos"-mostly unpaid bills and salaries), "devoluciones" and amortization payments. Not including changes in floating debt. T A B L E :12 NATIONAL GOVB2N'LNENT REVENUES, 1950-1954 i/ (thousands of dollars) Classification of Revenue 1950 1951 1952 1953 1954 (Budget) Total 3"2007 32,747 36,362 41,423 40,260 Direct taxes 5,000 5,585 5,778 9,307 8,525 Taxes on property transfer 144 208 264 -119 250 Import taxes 9,289 r)9,183 10,241 10,790 11,028 Export taxes 31 150 146 31)4 186 127 Consumption taxes 3,408 3,370 3,742 3,511 3,8100 Other taxes and services 8,546 9,209 9,569 11,281 11,352 Government enterprises 5,271 4,931 6,528 5,900 5,068 Sales of miscellaneous goods and property 199 115 126 329 100 Source: Contralorla General de la Republica, Direccion de Estadistica y Censo. I/ Excludes "devoluciones" and receipts from borrowing. 2/ Includes taxes on reexports. T A B L E 13 NATIONAL GOVERM ENT EXPENDITURES, 1950-1954 1/ thousands of dollars) Classification of Expenditures 1950 1951 1952 1953 1954 Budget) Total 36,963 34,481 39,232 L2,679 42,37t General Administration 2/ 9,073 7,963 8,637 10,387 lo,414 Cultural and Social Services 3/ 15,615 14,4L8 14,858 16,360 19,415 Economic Development and Public W1orks 4/ 6,135 6,231 9,580 6,4h32 7,112 Public Debt 4,157 5,664 6,157 8,554 4,379 Other 5/ 1,983 175 - 946 1,054 Source: Contraloria General de la nepublica, Direccion de Contabilidad. 1/ Excludes expenditures financed by increase in floating debt ("comprometidos" -mostly unpaid bills & salaries) and "devoluciones" (accrued revenues). Includes expenditures for redemption of floating debt. These were not included in Table 11. 2/ Found as residual between total expenditures and other items. 3/ Total "C. and S.S." expenditures less those considered as investment expenditures included under "Economic Development and Public 1!7orks.'1 4/ ,National Government" expenditures for economic developorent and public works "cf. Table 15 "Gross Public Investment"). / Includes the follovwing expenditures and contributions: 1950- 41.0 million to the Banco Agropecuario; V750 thousand to the Bancos Provinciales; $108 thousand as special contribution to the Caja de Seguro Social; and 4125,000 as capital subscription to the LEF. 1951- $175,000 as advance payment for services rendered by Canal Zone Authorities. 1953- Ul21,000 as special contribution to the Caja de Seguro Social and $825,000 as contribution to the Banco Agropecuario. 1954- 4100,000 to the Free Zone of Colon; $900,000 to IFE, and $54,000 for special indemnities to private citizens. T A B L E 14 COiKPOSITIO1N\ OF NiATIONAL GOVER> FNT REVEiNUE AiQ) EXPEN.DiTURES, 1950-1954 (percentages) 1950 1951 1952 1953 1954 - -' - - (BiL5-'t) Revenue 1/ 100.0 100lO 100.0 100,0 100.0 Direct taxes 16.1 17.7 16.6 22.7 21.8 Indirect taxes 59.0 58.1 57.6 52.2 56.4 Other receipts 24.9 21.2 25.8 25.1 21.8 Expenditures / 100.0 100.0 100.0 1O00'0 100.0 Investment and economic development 16.6 18.1 24.4 15.1 16.8 Social and Educational services 42.2 11.9 37.9 38.3 45.8 Public debt 11.2 16.4 15.7 20.1 10.3 General administration 24.6 2301 22.0 24.3 21.6 Other 5.14 0.5 - 2.2 2.5 Source: Contraloria General de la Republica, Direccion de Contabilidad. 1/ Excludes ltdevoluciones" (accrued revenues) and receipts from borrowine7. Percentages based on figures in Table 12. g/ Exclude expenditures financed by increase in floating debt ("compro- metidos" -mostly unpaid bills and salaries) and "devoluciones.1" Percentages based on figures in Table 13. T A B L E 15 GROSS PUBLIC INVESTirENr, I1Q-1954 (in thousands of dollars) 1950 1951 1952 1953 1954 . I. Transportation 2,72 3,045 5,692 3,543 2,231 Roads 2,392 2,967 5,527 2,720 2,083 Ports 332 78 165 823 148 II. Agricultural Development 458 211 777 945 1,393 Research and extension services 82 167 606 736 Construction 241 2 10 25 792 Colonization 16 22 159 111 534 Equipment 119 20 2 73 67 III. Electric Power 38 14 1 4 481 IV. Industrial Development 200 - - - 59 V. Public Buildings 3,839 3,356 3 0 4 1,392 3,902 Hospitals 47 268 39 29 588 Schools 1,475 1,029 645 469 462 Lovr cost housing 1,336 963 102 437 737 IvIisc. building and equipment 981 1,096 2,238 457 2,116 VI. Public l'.orks 62 1,080 363 973 891 Paving, sewerage and raiisc. 109 190 176 188 202 Water supply 516 890 187 785 689 VII. MAiscellaneous equipment and other investment Y 956 199 128 349 792 TOTAL 8,8O 7,905 9,985 7,206 9,749 of which lNational Government: 6,135 6,231 9,580 6,432 7,112 Source: Computed on the basis of detailed datg submitted by the Contraloria General de la Republica and other public agencies. l ootnotes on folloring page7 Table 15 cont'd - 2 - 1/ Actual investrent expenditures made by the "General Government." The 'General Government" is defined as to inc'ude the National Government, the Municipalities, the Social Security Fund (Caja de Seguro Social), the Instituto de Fomento Econoinico (for the year 1954 only), and the l'lational Railway of Chiriqui. Excluded are the investment made by the National Banks. The "National Government" includes, in its turn, the National Government proper, the University of Panama, the National Lottery, the National Hippodrome and the National Airports. / Includes only the National Government (1954 budget), estimated irvest- ment expenditures by the Seguro Social, and actual investment carried out by the IFE during the period January-November 1954. 3/ Includes some investment in lands (Seguro Social) and some commercial loans to individuals (IFE). T A B L E 16 INTLMNATIOAL ThAVISACTIOiNS, 1946-1953 (in millions of dollars) 1946 1917 1948 1919 1950 1951 1952 1953 A. Transactions with the Canal Zone Expenditures in Panama by. Foreigners residing in the C.Z.32.0 24.9 27.7 30.3 27.8 27.8 27.8 27.8 U.S. Ililitary establishments and Panama Canal Co. 5.6 4.9 6.7 7.5 7.0 7.3 7.8 8.0 V'orkers' earnings in the C.Z. (net) 11.7 11.6 11.0 11.0 9.3 15.4 17.0 1/16.8 Imports, transportation and miscellaneous services -1.9 -6.0 -6.4 -5.1 -6.4 -7.3 -8.1 -8.4 Total L742 1 . 39.0 3T.T 37.7 -3.2 1-T5 8.2, B. Other goods and services, and private donations Exports, f.o.b. 2/ 16.0 17.6 25.4 25.8 30.0 30.1 37.1 42.0 Imports, f.o.b. 2/ -53.6 -71.7 -59.7 -57.0 -61.9 -62.0 -77.9 -73.3 Trade balance -376 -5401 -3h.3 -31.2 -31.9 -31.9 -10.8 -31. Foreign travel -0.7 -0.9 -0.7 -0.7 -0.9 1.0 2.4 2.2 Investment income -6.2 -4.2 -5.8 -8.3 -7.5 -7.9 -7.8 -11.5 Other services and private donations -1.3 -12.0 -12.2 -12.0 -12.8 -8.1 -10.2 -12.8 Total -Ii87i -71.2 -53.0 -52.2 -53.1 - _9 7Ti W73T C. Private Capital lovement:- Direct Investment 8.0 9.5 6.8 5.0 -2.7 6.6 -1.8 6.1 Other -11.3 12.0 2.9 -8.8 -2.8 -8.6 2.8 -2.8 Total -3.3 21.5 97 - -5.5 -2.0 1.0 3.3 D. Special Official Financing Export-Import Bank loans - - - 1.1 1.1 0.3 1.5 - Chase Nat. Bank loan - - - - - 1.0 - Subscriptions to SIM and IBRD - - - - - 0.1 - - - Amortization of Public Debt -0.1 -0.1 -0.1 -0.1 -0.1 -1.0 -1.3 -0.5 II.A and Tech. Assist. grants 0.1 0.1 0.1 0.1 0.1 0.2 0.8 0.9 Total - - - 1.1 1.0 0.5 1.0 T0.T E. Total (A through D) -7.7 -14.3 -4.3 -11.5 -19.9 -5.2 -9.9 -5.5 F. Net errors and omissions -5.7 -1.4 -b.7 7.2 15.7 L.8 10.3 6.8 G. Compensatory Financing Dollar currency in circulation ... ... ... ... ... United Fruit Co. loan - - - - 3.0 - - Government borrowing - - - - 1.5 - - - Movement in Constitutional Fund - 0.1 - - 2.3 0.2 2.7 0.5 Comm. banks' short-term assets (increase-) 12.6 9.1 -1.0 1.5 4.o -11.3 -2.6 -0.1 Comm. banks' short-term liab. 1.7 6.0 8.2 2.9 -5.5 12.2 -0.4 -1.5 Other short-term assets(increase-)-0°9 0.5 1.8 -0.1 -1.1 - 0.7 -0.1 0.1 Total 13.F 1377 9.0 7 73 T.2 o.b - 0T ATE Source: Contraloria General de la Republica, Direccion de Estadistica y Censo. 1/ Data refer to fiscal year ~/ Including nonmonetary gold T A B L E 16 (ContId) CURFPETT AITD CAPITAL TRAisAcTioTs,_1246=1j (in million of dollars) 129k_ 1947 ,1948 1249 -I0 9S 19SL2 1951 N E T C R E D I T A. Current Transactions 1. Merchandise 1/ _.40.4 -58.0 -38.4 -34.5 -36.2 -37.2 -47.0 -37.7 2. Nonmonetary gold (net) -- - - - - - - 3. Foreign travel 31-3 24.0 27.0 29.6 26.9 28.7 30.2 30.0 4. Transportation (freight) - 1.4 - 6.9 - 5.1 - 5.1 - 6.4 - 5.3 - 7.2 - 6.7 5. Insurance - 0.8 - 1.1 - 1.1 - 1.2 - 1.4 - 1.4 - 1.8 - 2.0 6. Investment Income - 6.2 - 4.3 - 5.8 - 8.3 - 7.5 - 7.9 - 7.8 -11.6 7. Government (not included elsewhere) 7.5 6.9 7.7 8.5 7.9 10.0 9.5 9.0 8. Miscellaneous 9.9 c.. ._ 93 _ -.6 7.1 13.1 4. 5.S Total go_ds and services_ - 0.1 -30.1 - 6.4 - 2.4 _ 9.6 - -10.0 - 3.5 9. Donations - 4.2 ji7 7 -6.4 -3.8 - -4.9 10. Total Current Transactions - 4.3 -35.8 -13.8 8.8 --2.S.L-._3 _ _-113L8.4 Net errors and omissions (16--0) -5.6 - 1.5 - 4.9 7.3 15.5 4.8 10.2 6.9 NET ASSET-S B. Ca-ital Account Private: _2.3 -21.j -.4 _2.0 - 1.0 _..14 11. Long Term Capital - l- - 4 5 _2_8_ _ 1 - 11.1 Direct investment - 8.0 - 9.5 - 6.8 - 5.0 2.7 -6.6 1.8 .I 6.1 11.2-3 Portfolio securities 6.7 - 6.5 - 5.6 6.7 0.7 6.3 - 4.7 2.5 11.4 Amortization - 0.1 0.1 0.1 0.1 0.1 0.1 0.1 11.5 Other contr. repayts. - - - - - - - - 11.6 Other - 0.2 - 2.7 2.4 1.6 3.0 1.7 _ 2.0 12. Other Short-Term Capital 4.8 - 5.6 - 0.1 0.:04 0.3 -0.8 0.1 2.1 Official and Banking ILstiution1 _13.2 i1. 5 - 1.0 .1 .9 13. Long-Term CapiteLl 0.1 - 0.1 _ 1.0 - 7.7 - 0.7 - 3.2 0.1 14. Short-Term Capital - 13.3 -15.8 - 9.1 - .3 2.5 - 0-3 3.1 1.8 15. Monetary gold - - - - - - - - 16. Total Cap,tal Account -9.2 -37.3 -18.75 0.2 1.0 - 1.1 1.5 - 2 - Source: Detailed data submitted by the Contraloria General de la Republica, Direccion de Estadistica y Censo. l/ Including nonmonetary gold 2/ Includes reinvested earnings. T A B L E 17 IMPORTS BY C011Y-ODITIES AYD ARr.AS. 1947-1954 1/ (percentages) 1944-1947 1248 1949 1950 1251 12L2 1j23 1j54 Average First semeste: Total ImDorts 100,L0 100.0 100.0 100.0 100 0 1000 100.0 A. Commodities 1. Live Animals 1.2 1.0 0.2 0.7 0.2 0.2 0.3 0.2 2. Foodstuffs 18.6 17.5 16.3 15.4 16.4 17.7 16.4 16.2 3. Beverages 2.3 1.7 2.4 2.2 2.4 2.4 2.6 2.3 4. Raw materials and semim. 9.5 10.8 9.3 9.4 9.6 11.2 11.1 12.2 5. Manufactures 67.8 68.6 62.6 70-3 61.9 67.7 68.o 68.6 6. Minerals and precious metals 0.5 0.4 9.2 2.0 9.5 0.8 1.7 0.5 B. Areas 1. North America 69.5 76.4 77.8 67.5- 70.9 67.9 66.9 n.a. (of which: United States) (69.1) (74.9) (75.7) (64.7) (68.6) (65.5) (64.6) (n.a.) 2. South America 25.6 14.5 12.4 20.3 14.8 14.0 14.2 n.a. 3. Europe 4.5 6.3 7-3 8.9 10.6 11.7 11.3 n.a. 4. Africa and Asia 0.4 2.8 2.5 3.3 3.7 5-3 5.0 n.a. 5. Colon Free Zone - - - - 1.0 2.6 n.a. Source: Computed on the basis of detailed data submitted by the Contraloria General de la Republica, Direccion de Estadistica y Censo. 1/ Unadjusted customs returns figures. T A B L E 18 EXPORT, BY IAAIN COiViODITILS 1/, l9LIL-195b (percentages) Abaca All Period Bananas Cacao Coconuts Fiber Shrimps Others 194L-1907 average 46.9 8.6 6.9 17.8 - 19.8 198 Lg9.2 19.8 2.4 13.5 - 15.1 19L9 61.3 9.0 1.2 14.3 - 14.2 1950 54.9 11.9 2.9 14.0 1.6 14.7 1951 480 8.1 0.9 10.1 6.O 26.9 1952 38.L 1L.b 0.5 13.1 10.8 22.8 1953 52.7 8.5 0.8 6.6 U.1 17.3 1954 58.9 11.3 1.4 3.9 9.8 11.7 First semester Source: Computed on the basis of detailed data submitted by the Contraloria General de la hepublica, bireccion de Estadistica y Censo. 1/ Based on unadjusted customs returns figures. T A B L E 19 EXPORTS, IlAPORTS AND TERivIS OF TRADE, 19W. - 195L 3xports 1/ Dmports hxports Imports Terms of Year millions of U.S. w millions of U.S. Uit Value Indicesl Trade (including reexports) l948 = 100 19Ld 40. 38.3 66 75 ! 88 19b5 5.9 45.7 70 76 92 19L6 8.5 56.3 70 83 84 1907 11.4 75.5 85 99 86 19b8 15.0 63.8 100 100 100 1909 1.9 60.6 107 93 115 1950 18,6 67.0 107 88 122 1951 15.0 66.1 107 97 110 1952 16.1 73.6 105 96 109 1953 17.7 71.6 137 96 143 1954 (first semester) 8.9 35.7 1/ Based on customs returns figures. They are greatly understated for two reasons: a) most exports are not recorded at their commercial value but at an arbitrary "declared value" (bananas, abaca, cocoa, etc.); b) personal purchases in Panama by residents of the Canal Zone are unrecorded. 3stimates of the actual trade balances are shown in Table..16..bis.