Panama: A Central American Singapore?

By Tom Long*

Singapore (left) and Panama City (right) / William Cho and Jim Nix / Flickr / Creative Commons

Singapore (left) and Panama City (right) / William Cho and Jim Nix / Flickr / Creative Commons

As a transportation hub, logistics center, and regional financial player, Panama has long been painted by investment bankers and Panamanian politicians as a potential “Singapore of Latin America,” but that vision still seems a way off.  In some respects, Panama’s story has been quite impressive.  For a decade, it has boasted GDP growth far beyond the regional average, even surpassing 10 percent in some recent years.  Unlike many of its neighbors, its dollar-based economy relies on services, not exports of commodities or low-value-added light manufacturing.  Since the 1989-1990 U.S. invasion to unseat General Manuel Noriega, the total size of the Panamanian economy has quadrupled in constant dollars.  It is also different from Singapore in important ways.  Singapore’s approach to planning and public housing might be helpful in Panama City, which has suffered traffic, environmental degradation, and inadequate housing for the poor as a consequence of poorly planned growth.

In other important ways, however, the Panama-Singapore comparison is less apt.

  • Singapore is a city, with nearly two million more people than Panama has spread across 100 times the landmass. Urban-rural divides are wide in Panama, with poor delivery of health and education services outside the cities, exacerbating inequality.  A Singapore-style strategy in Panama would leave the countryside behind – and indigenous and Afro-Caribbean populations would benefit much less.
  • Differences between the two countries in governance – for better and worse – are profound. The Panamanian people are much freer under the country’s democracy than they would be under a single-party-dominated system like Singapore’s.  In other ways, though, Panama’s governance leaves much to be desired.  Corruption is a massive problem, and watchdog groups highlight weakness in the rule of law, judicial independence, and press freedom.  Projects to expand the Panama Canal and build a capital city subway are over budget and behind schedule, and have suffered from strikes, contract disputes, and questionable bidding practices.  While it may seem easy to blame the corruption on former President Martinelli, who faces criminal charges, the problem has much deeper roots.
  • The two countries have very different policies toward education. Singapore invested, and continues to invest, heavily in world-class universities.  Panama lacks these, weakening its ability to compete globally in industries where innovation is key.  While Panama’s primary education has improved, its research and development lags.
  • A final difference is where the countries find themselves in their political and economic evolution. Singapore became independent 50 years ago, but it has been only a quarter century since Panama ended its kleptocratic, military rule.  It has been just 15 since the United States officially turned control of the canal over to Panamanian authorities.  The roots of its problems cannot be easily or quickly extirpated.

Panama’s boosters often use the comparison to highlight the areas in which Panama excels – economic growth, unique geography, and infrastructure crucial to global shipping and air transit.  The comparison might be more helpful in highlighting areas where Panama needs to improve.  These include dedicating resources to higher education and R&D, addressing inequality, rooting out corruption, and enhancing political and bureaucratic accountability.  Singaporean scholar Alan Chong argues that Singapore’s attempt to present itself as a model, global city is in part a foreign policy strategy of “virtual enlargement.”  The city-state’s wealth, reputation, and active role in international organizations allow it to “punch above its weight” in Southeast Asia and beyond.  Some chapters of Panama’s recent economic story might be the envy of neighbors with their own canal dreams, but the country will need to focus on governance and accountability if even its logistics-hub strategy is in fact going to deliver shared welfare at home and enhanced influence abroad – let alone become a Latin American equivalent of an Asian Tiger.

March 2, 2015

* Dr. Long is a visiting professor in International Relations at the Centro de Investigación y Docencia Económicas in Mexico City.  He is the author of Latin America Confronts the United States: Asymmetry and Influence, which is forthcoming with Cambridge University Press.

Nicaragua’s Canal: Great Leap (of Faith) Forward?

By CLALS Staff

Mike and Karen / Flickr / Creative Commons Attribution 2.0 Generic (CC BY 2.0)

Mike and Karen / Flickr / Creative Commons Attribution 2.0 Generic (CC BY 2.0)

The Nicaraguan government and a Chinese telecom tycoon took a big step on Monday toward the country’s long-held dream of having its own canal, but their prediction of supertanker traffic starting as soon as 2020 seems a bit far-fetched.  The project will cost $40 billion and, according to government officials, will create 50,000 jobs immediately, 1 million jobs over the life of the project, and will help lift another 400,000 people out of poverty.  President Daniel Ortega’s supporters claim the economy – currently projected to grow at 4.5 percent a year until 2020 without the project – will grow as much as 15 percent a year with it. The Chinese company, HKND, will enjoy a 100-year lease on the canal, with 1 percent of it reverting back to Nicaragua each year.  The proposed route for the canal is 278 kilometers long – about three times longer than the Panama Canal – and will be deep and wide enough to handle ships much larger than the “New Panamax” vessels.  Officials say the canal would “complement” the Panama waterway, which they say will be overcapacity even after its current expansion, and will save shippers some 800 miles on their way to the U.S. east coast.

Opposition from some politicians and environmentalists has been strong.  According to media reports, Nicaragua’s Supreme Council for Private Enterprise (COSEP) and other business organizations are generally positive but skeptical, with one leader calling Monday’s press conference “just an initial flow of information.”  Congressman Eliseo Núñez of the Independent Liberal Party (PLI), however, has been widely quoted as calling Monday’s announcement a “propaganda game” and blamed the media for generating “false hopes for the Nicaraguan people.”  Former Vice President Sergio Ramírez says that handing over national territory for development is a violation of the country’s sovereignty, and other critics claim the project violates 32 provisions of the Constitution.  Concerns about damage to Lake Nicaragua, an important source of fresh water that is already polluted, remain. Chinese investor Wang Jing told the press that avoiding environmentally sensitive areas was a major factor in determining the route, and he has promised that a full environmental impact study will be conducted before construction starts.  Opponents of the project doubt he will make the report public.

Ortega’s statement last year that a Nicaraguan canal “will bring wellbeing, prosperity, and happiness to the Nicaraguan people” may well be right – if the project gets off the ground and so many jobs are created.  However romantic that vision is, construction is still far from certain to begin this December, as claimed, or even within the next year or so.  Wang says that he has lined up “first-class investors,” but none has been identified yet.  In addition, criticism of his business record – opponents say his telecom company is poorly run – has hurt his credibility. And accusations that he’s a stalking horse for the Chinese government, which he says has had “no involvement,” will be difficult to dispel in view of Beijing’s other interests in the region and in shipping.  Equally troubling, as the ongoing expansion in Panama has shown, the shadow that corruption and inefficiency cast over any major project tempers optimism and argues against premature celebration.

Trans-Pacific Partnership: A Framework for U.S.-Latin America Relations?

By Eric Hershberg
Embed from Getty Images
President Obama’s desire to move forward with the Trans-Pacific Partnership (TPP) appears likely to founder amidst Congressional resistance to granting him “fast-track” authority, but it does signal a noteworthy initiative by an administration eager to grow trade relations with some Latin American countries.  Originally formed by Chile, New Zealand, Brunei and Singapore in 2006, TPP is currently negotiating the accession of five new members, including the United States and Peru.  Mexico, Colombia, Costa Rica, Panama, Canada, and Japan are also considering joining.  U.S. Undersecretary for International Trade Francisco Sanchez said last year that agreement on a framework for the United States to join TPP represents “a landmark accomplishment because it contains all of the elements of a modern trade accord.”  It eliminates all tariff and non-tariff trade barriers; takes a regional approach to promote development of production and supply chains; and eases regulatory red tape.  The White House’s senior official responsible for Latin America has also emphasized the importance of the Partnership.

The Administration for the most part has tried to sell the pact as a domestic economic issue – the argument being that more trade and harmonized regulations translate into more jobs – or as integral to a strategic focus on strengthening economic ties to the dynamic economies of Asia, rather than as a policy that has the potential to redefine economic relations with Latin America.  But lobbying on Capitol Hill has so far been ineffective, and Obama’s own Democratic Party has denied him the “fast-track authority” needed for an effective negotiation.  The Administration’s diplomatic strategy has not progressed smoothly either.  During Obama’s recent four-nation swing through Asia, he and Japanese Prime Minister Abe failed to sign an agreement widely seen as crucial for moving ahead with TPP.  Negotiators from all 12 TPP countries met in Vietnam last week, and – despite claims of progress – press reports generally suggest a gloomy prognosis for progress soon.

President Obama has made much of his “pivot” to Asia, and the push for TPP situates Latin America relations in Washington’s wider foreign policy agenda.  The emphasis on the TPP signals that liberalizing trade remains the core principle guiding U.S. thinking about economic relations in the hemisphere, in effect continuing a paradigm that has reigned for decades and that is embodied by proposals such as the now-abandoned Free Trade Area of the Americas.  Unable to secure broad South American buy-in for that U.S.-minted vision for economic cooperation, the administration seems to have settled on trying to work with a “coalition of the willing” comprised of Chile, Colombia, Mexico and Peru.  For governments elsewhere in the region, however, the not-so-particularly-new approach has elicited scant enthusiasm.  One could imagine ambitious proposals from Washington for hemispheric cooperation around energy, climate, infrastructure, technological innovation or even, eventually, labor market integration. But that would require visionary leadership, a commodity that is in strikingly short supply nowadays in the U.S. capital.  Rather than leading the articulation of a novel, shared agenda for a 21st century economic transformation of the Americas, Washington has chosen for now to repackage the last century’s prioritization of trade.

China in Latin America: Is the Dragon Here to Stay?

By Ivanova Reyes & Amy Ruddle

Source: Based on Gallagher et al. (2012).

Source: Based on Gallagher et al. (2012).

As China has become a major importer of Latin American & Caribbean commodities, it has significantly increased its financing and investment in the region.  Data on Chinese investment is not complete, but we estimate that it reached 38 percent of the combined financing from the IDB and World Bank to the region during 2005-11, with Venezuela getting the most.  In 2010 China became the third largest outside investor in the region (behind the United States and the Netherlands), and it provided an estimated $22 billion in 2011 – approximately 13 percent of total investment flows to Latin America and the Caribbean.

This investment is likely to continue to grow.  The Chinese government provides tax breaks, lines of credit and other incentives for companies to invest in key industries overseas, and a great deal of its lending corresponds to “finance for assured supply,” such as a  $10 billion loan from the Chinese Development Bank to Brazil’s Petrobras in 2009 in exchange for 200,000 barrels of oil per day.  Currently, according to Gallagher et al. (2012), 72 percent of the Chinese lending to the region is in the oil and mining industries and in related infrastructure projects.  The remaining funds lent in recent years have gone towards other infrastructural developments (21 percent), and towards trade, finance, and communications (7 percent).  Latin American countries have implemented policies aimed to attract Chinese investment.  They generally impose fewer conditions than those demanded by international financial institutions and require less compliance with environmental standards.

Recent surveys indicate that citizens overall view the growing influence of China in the region as a positive thing.  Indeed, Vanderbilt University’s AmericasBarometer found in 2012 that 20 percent of respondents viewed China as already the most influential country in the region, and an average of 63 percent said it had a positive influence.  However, respondents see China as less trustworthy than the United States.  Across those nations polled, roughly 38 percent viewed China as “very trustworthy” or “somewhat trustworthy,” whereas 45 percent had similarly positive views of the United States.

Although the growing Chinese investment and trade may give Latin America and the Caribbean a great opportunity to generate growth, there are several challenges.  If Chinese participation in the mining and oil industries results in environmental degradation, indigenous rights advocates and community organizations already skeptical of commodity driven growth will increasingly confront Latin American states as well as foreign enterprises. In addition, Chinese concentration in the commodities industries has generated strong structural changes in Latin American economies, further relegating manufacturing to a secondary role and raising the possibility of Dutch disease, in which high commodity prices harm other exports by reducing the country’s competitiveness.  It has become commonplace to observe that South America is building a 21st century economy on a 19th century logic of primary product exports. A third concern is that, since Latin America as a region is the smallest recipient of Chinese investment in the world, China will turn elsewhere if governments start putting conditions on Chinese projects.  Ultimately, these concerns make a strong case for Latin American countries to cultivate stronger ties with the Chinese economy while remembering that China’s strategic interest in extractive industries may collide with each country’s own development strategies.

 

 

References

ECLAC. 2010. “Chapter III: Direct investment by China in Latin America and the Caribbean.” In ForeignDirect Investment in Latin America and the Caribbean. Retrieved November 2013, from http://www.eclac.cl/publicaciones/xml/0/43290/Chapter_III._Direct_investment_by_China_in_Latin_America_and_the_Caribbean.pdf.

Faughnan, Brian M. and Elizabeth J. Zechmeister. 2013. “What do Citizens of the Americas Think of China?” AmericasBarometer: Topical Brief, June 13.

Gallagher, Kevin P., Amos Irwin, and Katherine Koleski. 2012. “The New Banks in Town: Chinese Finance in Latin America.” In 30 Years of Inter-American Dialogue Report: Shaping Policy Debate for Action.

Zechmeister, Elizabeth J., Mitchell A. Seligson, Dinorah Azpuru, and Kang Liu. 2013. “China in Latin America: Public Impressions and Policy Implications.” Presentation of the LAPOP.

U.S.-China: Competing over Central America and the Caribbean?

President Obama and President Chinchilla in Costa Rica | Photo by: The White House | Public domain

President Obama and President Chinchilla in Costa Rica | Photo by: The White House | Public domain

The recent visits to Central America, Mexico, and the Caribbean by Chinese President Xi Jinping and U.S. President Obama (and Vice President Biden to Trinidad and Tobago) suggest a handoff from Washington to Beijing of the role as the region’s sugar-daddy, but not a strategic shift in influence.  The presidents’ visits were similar in their innocuous itineraries.  Both got pompous welcomes; met with “real” citizens (Xi ate empanaditas de chiverre with a coffee farmer); and praised the bilateral relationships.  Both held sub-regional summits – Obama in San José and Xi in Port of Spain.  Both repackaged ongoing or recently negotiated projects as new “accords.”  Obama pledged another $150 million a year for funding the Central America Regional Security Initiative (CARSI), part of the strategy started under President Bush to counter the drug trade and related threats.  Xi got headlines in Costa Rica for providing more than $1.5 billion for refinery and road projects and to purchase replacement taxis and buses from Chinese manufacturers.  Significantly, China is also building Costa Rica’s new National Police Academy – the sort of project Washington used to thrive on.

President Chinchilla and President Xi Jinping | Photo credit: Presidencia de la República de Costa Rica / Foter.com / CC BY-NC-SA

President Chinchilla and President Xi Jinping | Photo credit: Presidencia de la República de Costa Rica / Foter.com / CC BY-NC-SA

Despite the similarities, the visits had different orientations and feel.  Xi’s principal task appeared to be to open his checkbook, while Obama’s main deliverable was a policy shift – the welcome word that Washington was pulling back from making its top regional priority the interdiction of narcotics produced in South America and transiting the isthmus on their way to consumers in the United States.  According to press reports, despite the continued CARSI funding, Obama had absorbed Costa Rican President Chinchilla’s complaint last year at a summit with Biden that it was unfair that Central Americans were dying in efforts to stop narcotics that Americans use.  The media tried to give the two presidents equal coverage, but the disparity became obvious.  The Chinese distributed copies of the China Daily (in English) even into the San José suburbs, whereas Obama didn’t need to do his own publicity.  Despite whiffs of resentment about airport and street closures, the papers covered all of Obama’s events with affectionate quotes from government and common folk alike – and showed people, including a kid dressed as Spider-Man, waving to his motorcade.  La Nación, on the other hand, reported that school children cheering a Chinese speaker couldn’t understand a word he was saying.

The goodies each president brought created little excitement – and no small amount of skepticism.  Important details about China’s offer to help repair the Costa Rican gasoline refinery remain unknown, and Chinese cars already have a bad reputation.  China’s handouts aren’t going to be turned down, of course, and Xi’s pledge to buy more Costa Rican coffee (now about 5 percent of what Japan buys) and to encourage Chinese tourists to travel to the country (now a micro-percentage of visitors) are welcome.  Obama’s CARSI funding looks like bureaucracy on autopilot.  Few Central Americans can cite concrete benefits from the seven-year-old Central American Free Trade Agreement (CAFTA) with the United States either, and the general impression – reinforced by Secretary Kerry’s recent reference to the region as the U.S. “backyard” – is that Washington is yielding the playing field to China.  But the natural ties and strategic mutual interests between Central America and the United States remain strong and give the United States, should it wish to fill it, ample space to play a positive role in the region’s future beyond programs on autopilot.