New President of Panama inaugurated the 1st of July

07.07.2014 By: by the Embassy of the Kingdom of the Netherlands in Panama

Juan Carlos Varela was inaugurated as Panamas new President for 2014-2019 on the 1st of July. Varela promised amongst others a reduction of cost of living (by price controls and modernizing agriculture), safer neighborhoods, to improve water and sanitation, to improve education, and an end to the energy crisis. The president wants to continue developing Panama as the logistical hub for the region and he wants to start a number of large infrastructural works (such as the further expansion of the metro system in Panama and the third bridge over the Canal). Varela also promised to have more attention for sustainability and the environment and to increase transparency.

His first act as President was to freeze the prices of 22 basic food products. He also announced a plan to invest $500 mln in renovation of Colon on his first day in office. Moreover, Varela said that he will audit all large scale infrastructural projects tendered under the previous Martinelli government and he will investigate Martinelli’s alleged involvement in a corruption case with the Italian firm Finmeccanica.

The change of government comes at a time when the economy is being challenged. Economic growth is expected to slow down to 7% in 2014 (from 10,5% and 8,5% in previous two years). This slowdown might challenge Panama’s public debt ceilings because, together with GDP, absolute public debt increased substantially under Martinelli’s presidency. Moreover, the delay of the canal expansion has led to a downgrade of projected public income (from 7,9 billion USD to 5,3 billion USD for 2014-2018) and an increase in expenditures is expected due to completion of infrastructural works and outstanding debts of publicly owned companies. Economic forecasts, nevertheless, look stable and economic growth is expected to continue around 7% of GDP.

To succeed, the new president will have to take some difficult decisions. Solving the electricity crisis will most likely require raising consumer tariffs and the same goes for improving access to clean drinking water. Renewed importance of transparency and institutional checks and balances like a thorough environmental impact assessment, might slow the pace of new projects and thereby the high economic growth that Panama has seen in the last five years. The good news is that the president’s Panamanista Party has managed to secure a majority in parliament by forming a temporary political alliance with the Democratic Revolutionary Party (PRD).