LegiStorm

Summary:

The Central American nation of Panama has had five successive elected civilian governments since its return to democratic rule in 1989, and a sixth is scheduled to assume power on July 1, 2014 with the inauguration of current Vice President Juan Carlos Varela as President. Hailing from the center-right Panameñista Party, Varela won the May 4, 2014 presidential election with 39% of the vote in a three-candidate race. Significantly, Varela defeated the candidate of the ruling Democratic Change party of current President Ricardo Martinelli, who was constitutionally prohibited from running for reelection. Elected in 2009, Martinelli remained generally popular during his presidency despite criticism at various junctures for his combative style of governing. Nevertheless, his popularity ultimately was not enough to convince voters to support his party's candidate. One controversy that emerged in the campaign was that Martinelli's wife became his party's vice presidential candidate. This led to some critics complaining of an attempt by Martinelli to extend his influence in the next government. Panama's largely services-based economy has been booming in recent years, spurred on by several large infrastructure projects, including, most significantly, the Panama Canal expansion project that began in 2007 and is expected to be completed in early 2016. A challenge for the Varela government will be how to contend with slower economic growth rates as the Canal expansion project winds down. Another challenge for the government is making more headway in combating poverty and inequality in Panama, which still remain relatively high. U.S. Relations The United States has close relations with Panama, stemming in large part from the extensive linkages developed when the Panama Canal was under U.S. control and Panama hosted major U.S. military installations. Relations have been strengthened by a bilateral free trade agreement that entered into force in October 2012. As noted by the State Department, Panama's central location in the hemisphere, its transportation infrastructure (most notably the Canal), and its financial sector make it an important hub for global trade and a key U.S. strategic partner, but these same characteristics also make Panama vulnerable to drug trafficking, money laundering, and organized criminal activity. Since Panama is relatively well developed economically compared to its Central American neighbors, the United States provides just small amounts of bilateral assistance to Panama. Nevertheless, the country receives additional assistance through the Central American Regional Security Initiative (CARSI), a U.S. regional security program begun in FY2008 to help Central American states reduce drug trafficking while advancing citizen security. Panama's anti-drug cooperation with the United States is strong. While the country has made progress in improving its anti-money laundering regime, there are several factors that hinder the country's efforts to combat such activity. The Panama Canal expansion project, which will accommodate a new generation of massive container ships, is expected to reduce shipping rates between Asia and the U.S. Gulf and East coasts, resulting in increased Canal transits and trade. A number of U.S. ports have begun readying themselves in order to take advantage of the expansion. This report provides background on the political and economic situation in Panama and U.S.-Panama relations. An appendix provides links to selected U.S. government reports on Panama. For additional information, see CRS Report R41731, Central America Regional Security Initiative: Background and Policy Issues for Congress, by Peter J. Meyer and Clare Ribando Seelke. For further historical background, see the following two archived CRS reports: CRS Report RL30981, Panama: Political and Economic Conditions and U.S. Relations Through 2012, by Mark P. Sullivan, and CRS Report RL32540, The U.S.-Panama Free Trade Agreement.