The five crises of Panama

Panama is mired in a social crisis probably without precedent in the democratic era. For two weeks, construction unions, indigenous organizations, agricultural producers, teaching and health unions, carriers, fishermen and other social elements have organized street closures throughout the country and rallies in front of public institutions.

The immediate reasons for the discontent are the same as in the rest of the continent and the world: the increase in the price of oil and the inflation that it has generated on basic necessities. The fold of requests ranges from the most circumstantial (price of gasoline, the basic basket and medicines) to the most structural (unemployment insurance, tax reform…).

The current crisis could hardly be a surprise. The last few months had given ample signs of citizen discontent. In October 2019, students from private and public universities and members of the Panamanian feminist and LGBT movements mobilized for weeks against constitutional reforms that, although necessary, did not meet the objective that public opinion polls pointed to: defend the poor.

After a pandemic that brought one of the worst recessions in the world to the country (-17.9%), sources of discontent resumed, for reasons as varied as the precarious situation of the social security fund, unemployment or an unpopular reform electoral.

The government’s proposals for dialogue and the palliative measures for inflation do not seem to have been enough to calm the anger. The organized groups are determined to continue with the blockades, while the level of tension in the population and the public forces rises. And this is because, beyond the price of gasoline, the country is mired in five crises.

1. The crisis of inequality

Panama has been one of the fastest growing countries in the world in recent decades. In the midst of the current huge protests, the government proudly announced that Panama was already considered a high-income country. However, this does not hide a huge inequality, the third largest in the continent.

The richest 10% obtain 37.3% of the national income, that is, almost 13 times more than the poorest 40%.

The wage mass in the production of wealth has decreased from 50% of GDP to less than 30% in 20 years. However, the differences in wealth are even more acute. In 2013, 115 billionaires totaled 16 billion dollars.

The pandemic has worsened this situation of inequality. 49.5% of people declare that their income decreased during the pandemic (data from the CIEPS Citizenship and Rights survey, 2021) and most of the people who have found a job in recent months have done so in the sector informal.

Added to that, the current inflationary situation makes it especially difficult for those who have just enough to survive. In addition, previous studies have shown that in Panama, the poorest deciles are affected by higher inflation, due to the central place that food has in their budget, which is also the item most subject to inflation.

Panama is also not a country that ignores its inequality. According to data from Latinobarómetro, 75.3% of Panamanians declare that the distribution of income is “unfair” or “very unfair” and 82.7% consider that the country is governed by “a few powerful groups in their own benefit”.

2. The crisis of representativeness and trust

There are serious problems of trust in Panamanian institutions. The National Assembly adds 84.2% of distrust, the government 77.2%, the judiciary 75.9% and the political parties 87.5%. However, not only public institutions face this problem. Interpersonal trust is practically non-existent (74.2% think that people “never or rarely are trustworthy”). With the pandemic, all institutions, both public and private, have lost the trust of citizens. This explains to a certain extent the difficulty of coordination that may have existed between the different mobilized groups.

It is worth saying a word about the Catholic Church, which the country’s president, Laurentino Cortizo, invited as a mediator in the current conflict. The religious institution is, indeed, as the president stressed, the one that enjoys the greatest confidence in the population (70.6% say they trust it). However, this frame hides the entire film: between the beginning of the 1990s, when the Catholic Church mediated all the pacts and dialogues in which the country’s economic and political project was designed, and today, the Catholic Church has lost 20 percentage points of confidence.

On the one hand, there are today sectors of society that advocate a greater separation between Church and State, and, on the other hand, people who have less access to goods and services, with whom the State is seeking to dialogue through mediation. of the Church, are precisely those who say they have less confidence in the Church.

This explains the failure of the dialogue called by President Laurentino Cortizo with the mediation of the Church, which leads us to the third crisis.

3. The crisis of collective bargaining systems

Since the transition to democracy, Panama has been characterized by multiplying dialogues, roundtables and pacts to lay the political and economic foundations of the country. These mechanisms reflected a political culture that values ​​consensus, but also very weak democratic institutions that were unable to channel these conversations. They have been characterized by placing the private sector at the center of policies, and seeking economic growth thanks to the classic liberal recipes of the 1990s.

However, these mechanisms have been less and less convincing the population of their usefulness. In 2021, organized workers got up from the dialogue table dedicated to the social security fund. The bicentennial pact, an online platform that brought together citizen proposals, failed to convince of its usefulness and the current negotiating tables have not been more successful. The crisis of confidence that we mentioned earlier is not alien to this situation, nor is the feeling of the mobilized groups of a dialogue of “me with me”, where political powers and economic powers are in collusion, and where the popular sectors are guests to endorse decisions that were already made without them.

4. The honesty crisis

The country also faces a deep crisis of probity. Two former presidents are being prosecuted in the Odebrecht case.

During the pandemic, the public ministry opened processes for no less than 18 cases of corruption related to the management of the pandemic, a scandal related to serious abuses in the child protection system broke out, a series of high-ranking officials resigned without any mediation. explanation to the citizens, the government forms were systematically questioned for responding to patronage interests, etc. The IDB estimates the bad spending of the public system at 3.8% of GDP, especially related to public purchases.

However, the honesty crisis is not only related to the public sector. In September 2021, the European Union decided to keep Panama on the black list of countries that “do not cooperate in tax matters.” According to the general director of income, tax evasion represents another 4% of GDP.

It is estimated that in 10 years nearly 35 billion dollars were evaded from the treasury, taking into account only the tax on legal entities. This crisis of probity in the public and private sectors, added to a liberal policy of gradual reduction of the tax rate, has led to the fifth crisis, that of public resources.

5. The crisis of public resources

In addition to corruption and tax evasion, tax avoidance (legal maneuvers to pay less or not pay taxes) and tax exemption policies have also contributed to diminishing the state’s capacity to execute public policies. Tax exemptions on all types of assets and activities such as new construction, share transfers, yachts, etc. They are proof of it.

In 2020, the collection rate was just 13.7% of GDP (against 22.9% on average in Latin America), having decreased by more than 3.5 points since the early 1990s. Economic growth used to offset this gradual decrease, but the current economic crisis has set tax collection back by almost 5 years.

In this context, a law was approved in June granting tax credits to luxury tourism projects for more than 400 million dollars, which has generated strong discontent in public opinion and in the tourism sector. The repeal of this law is part of the demands of one of the main unions currently mobilized in the country.

The situation is complex and, given its budget constraints, the government has little room for maneuver to negotiate with the protesters. So far, the negotiations have focused on a gasoline subsidy, which would be paid for with cuts to state operations, in particular with a 10% cut in civil service. However, it seems that part of the organizations are looking for more structural reforms that can provide more far-reaching responses to the five crises that we have described.

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