Expansion of canal to broaden economic appeal

President Martin Torrijos has been courting international support to bolster Panama’s expansion.

Ever since its completion in 1914, the Panama Canal has provided the backbone of the nation’s economy. Today, seven years after the U.S. officially returned full control of the waterway to the Panamanian people, the canal is about to enter a new epoch thanks to the launch of a major expansion program. “Never in the history of the country have we Panamanians taken a decision of this magnitude,” commented President Martin Torrijos as the results were announced. “We have laid the foundation for a better country.”

In a nationwide referendum held last October, people voted overwhelmingly by a margin of four to one to approve the ambitious plans to expand its famous canal and double its capacity. “Since colonial times, Panama has been a globalized nation with enormous potential for commercial development,” says Torrijos. “We are now making up for lost time in order to develop a country that holds promise for all Panamanians and to take advantage of our location and global circumstances so we can expand our potential.” In January, Panama began a two-year term as the newest member of the UN Security Council.

Elected in May 2004, Torrijos and his administration identified fiscal reform with transparent and coherent public policies, along with the reconstruction of the social security fund, as the spur to a social development program that would benefit everyone. The determination of the government to redefine Panama’s status in global markets is evidenced by a proactive attitude that has produced political, social and economic growth and evolution.

The Panama Canal handles an estimated 5 percent of world trade, with over 14,000 transits shipping 200 million tons of cargo per year. On average, 40 ships a day pass through the 50-mile (80.5 kilometer) shortcut between the Caribbean Sea and the Pacific Ocean, but its capacity is now stretched, partly because of surging exports from China. Traffic between Asia and the U.S. East Coast now accounts for more than 40 percent of shipping.

Panamax ships are specifically built to the maximum size that will pass through the canal. However, larger carriers, referred to as post-Panamax, are gaining in popularity. Panama faces the prospect of missing out on business from these more capacious transporters. A new generation of super-ships, which can carry up to twice as much cargo as normal vessels, are forced to look to other routes as the canal is too narrow to support them.

The $5.5-billion expansion project will widen and deepen the canal. It will also create a new set of giant locks, measuring more than 50 meters (164 feet) wide, to provide a third lane of traffic capable of handling greater loads, thus avoiding what could potentially become a bottleneck of world commerce.

The United States has long been a close trading partner of Panama, and regards it as a true ally in Latin America. In December last year, the two nations furthered their relationship by reaching a free-trade agreement (FTA), that promises to expand and secure trade and investment flows between the two nations. The FTA aims to put U.S.-Panamanian trade on a reciprocal, mutually beneficial footing. More than 88 percent of U.S. exports of consumer and industrial goods to Panama are to become duty-free immediately, with remaining tariffs phased out over the next 10 years.

“Panama has a very open economy, excellent port services, the Colon Free Zone, one of the largest offshore banking centers in the world, insurance, tourism and also a booming real estate sector. In December 1999, Panama fully regained control of the canal and its benefits. There is still great investment potential in the maritime sector that the country is starting to discover,” says Torrijos. “Currently, we have an investment of $1 billion to enlarge our ports and we are aiming to construct a new port on the Pacific coast. There’s investment potential in new shipyards and also in providing essential services to cargo ships as they pass through the canal. Our commercial policy seeks to open new markets.”

The government is in partnership with a private company to establish continual training of Panamanian workers to prepare the nation’s human resources for the new opportunities that are arising.

People are beginning to rediscover Panama. “I believe Panama is in the right place at the right time,” says the president. “It has major potential and its doors are open to new investments.”