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Infrastructure projects in Panama equivalent to $8 trillion in the US

March 8, 2012
Panama City, Panama

I had dinner the other night with a bank executive in charge of government finance who told me that the aggregate spend of all the infrastructure projects in Panama totals more than $13 billion. This is roughly 50% of the entire Panamanian economy.

The equivalent in the United States would be the government announcing a ‘Rebuild America’ infrastructure spending initiative in the range of $8 TRILLION! No doubt, it’s a lot of money for this small country.

Panama (and particularly Panama City) has been in a seemingly perpetual state of construction for nearly 10-years. The long boom in residential construction created an impressive skyline of condo towers along the new Cinta Costera. But residential demand peaked and petered several years ago.

In an effort to keep the party going, the government has essentially swapped a residential construction boom for an infrastructure boom.

There are so many projects here, you’d think you were in Chonqing, China. And it’s made life miserable for anyone who has to get into an automobile– Panama City’s already dismal traffic has now become utterly hopeless.

The real issue is that Panama’s debt has been steadily rising to finance several projects. In many cases, the debt increase has outpaced the country’s dizzying GDP growth. For example, Panama’s debt rose 10.3% in 2010, while GDP only increased 7.5%.

According to some of my local attorneys who work on the deals, many of these infrastructure projects are now being creatively financed: selling bonds of off-the-books quasi-government entities that own securitized future cash flows.

It’s all an elaborate process to keep the debt from hitting the government balance sheet and obfuscating Panama’s true fiscal status. Official debt is now hovering near 50% of GDP, but the actual figure is much higher.

It’s possible that some of these projects will prove to be good investments– it’s not the same as Chinese ghost cities down here, Panama has legitimate infrastructure needs and is building accordingly.

What remains to be seen, though, is what happens after the infrastructure projects are complete in, say, another 5-years. The hope is that the real economy will have grown enough to absorb the loss of infrastructure spending. This supposition is not out of the question… but it’s definitely not guaranteed.

For now, nobody seems to mind. People are working, they’re making money, the country is improving… and except for the obvious and ridiculously high inflation rate, life is good.

To be clear, Panama is definitely a good news story. It has had one of the most resilient economies in Latin America over the past few years, and perhaps more than anywhere else in Central America, Panama has a very clear (and growing) middle class.

When you go out at night, you see Panamanians out on the town spending their discretionary income… and I mean regular Panamanians, not just the Porsche-driving 20-year olds who inherited papi’s business.

A strong middle class with disposable income is important in any healthy economy, and its emergence marks the transition from ‘developing’ to ‘developed’ nation. Panama still has a -long- way to go, but it’s moving in the right direction.

When I think back to how this place used to be 10-years ago (and all the years in between that I spent here) versus today, the positive change is overwhelming. When I think about how places like the US and Europe used to be 10-years ago, the change is resoundingly negative.

It’s this trend, by far, that’s most important.

About the author: Simon Black is an international investor, entrepreneur, permanent traveler, free man, and founder of Sovereign Man. His free daily e-letter and crash course is about using the experiences from his life and travels to help you achieve more freedom.

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Comments on this entry are closed.

  • the99th

    I’ve noted that inflation has brought cost bases in LatAm up to European and US levels, almost. I’ve been complaining about populist government spending and them setting themselves up for a fall, and indeed these economies are at risk if there’s another global ruffle. But on the other hand I’m accepting that these societies may be the new decent places to be, and even though they’re asking US prices for sub-US quality, they’ll catch up in a few years, probably after getting knocked back due to macro head-winds. 

    I’ve been living in Argentina for years and have been looking at Uruguay, but then I discovered the Start-up Chile program and am curious on your thoughts. 

  • PanaRes


    I just returned from Panama, and was wondering if the gov’t would bailout developers/banks if they started to lose vast amounts on property?

    Also, does Panama have a plan for moving away from the dollar when the time comes? Perhaps first, giving the balboa more circulation at a peg and then remove the peg?


  • Rpmorgan

    I go back to the 1980s in the service of my Uncle. All the people I worked with at the Canal have retired except for two.
     Both of them will retire this later year.  You may not be surprised to learn
    that all of these retirees, even the Panamanian citizens, own at least one house in Florida (except for one who owns a place in his native state
    of North Carolina; another, in Texas).  One of the Panamanian citizens
    did not even keep ownership of his home in Panama.

    Evidently, bribery is at an all-time high, which is really saying something.

  • Eunice Howe

    I don’t support your comments Simon…so many people..leaving Panama because too expensive…too hot in the Summer months….all that is going to happen in Panama…is a country…which will be only affordable to the Rich!    Most of the world…not in this league!  The same for Costa Rica…absolutely ridiculous the cost …yet the locals..poor!  Who is getting rich???   Definitely not the “average Joe”!   My two cents worth!

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