When people think about independence, the words freedom, self-governance, self-determination, and sovereignty come to mind. Latin America is an interesting case study in the ways in which independence can manifest, and how it can fall short of its promises. When I visited Panama, I was overwhelmed by a country bursting with paradoxes.
I saw awe-inspiring, futuristic sky-scrapers on one hand juxtaposed with crumbling sidewalks and streets strewn with trash. A literal rain forest in the middle of a bustling city, yet compared to places like Colombia and Ecuador, a lack of diverse and fresh fruits in the market. Panama is a country that has been politically under the thumb of others since its inception. First Spain, then Colombia, and up until recently, the U.S. unofficially. Despite this lack of independence, it has one of the highest GDP’s in the region.
Because of its history, I would not consider Panama a fully independent nation. At least not until 1999 when the U.S. handed over control of what may be the country’s most important asset – the Panama Canal. The more I learned, the more I wondered what Panama represented. Was it a story of the possible virtues of dependence? Or was its relationship with its dominators, like the U.S., just another example of extracted resources and stifled potential.
I decided to use the Panama Canal as a focal point of this question. Since there is a clear “before U.S. control” and “after U.S control” delineation, I went to the data to get a better understanding of what U.S. control meant for the government and people of Panama. I have to admit that going into this project, I thought I would find data indicating that the U.S. extracted massive profits from the control of this asset and left Panama out in the cold. What I found was a bit more complicated.
My Experience in Panama
When I arrived at my apartment in a 19-story building in the San Francisco neighborhood of Panama City, I was ecstatic. It looked even better than the photos. The kitchen was well equipped. There was air conditioning. The washer/dryer was in the unit, and I had access to a pool and a gym. The furniture, including that on the balcony, was clean and new. When I stepped out onto the balcony, I could see other buildings jutting up around me. And out to the left, I could see a slither of the sea. I didn’t know what to expect in the month ahead.
During my stay, I explored that neighborhood a lot on foot. It was full of restaurants (which I always felt were over-priced) and cafes. The neighborhood also had a large mall, supermarkets, and produce markets. It had a huge park that contained tennis courts, a golf course, running track, picnic areas, and even a library. The neighborhood was always bustling with activity. And aside from the sidewalks that were in such disrepair that walking was at times precarious, it could have been a neighborhood in a city in the U.S.
I met several locals who told me that they lived in San Francisco. This included my teacher at the school where I took Spanish lessons, a woman I met in a coffee shop who also worked in tech, and the guide of a market/food tour I took. I thought this was great because oftentimes local people get priced out of neighborhoods like that. They told me that all of the tall buildings and development was relatively new. That a building boom happened in the early 2000’s when the U.S. relinquished control of the Panama Canal to the Panamanian government. I wondered what other changes had taken place since the handover.
Panama Canal Earnings
As I mentioned before, I went into this analysis believing that I would find that the U.S. had enjoyed great economic gains from ownership of the Panama Canal. And in the same vein, that Panama had not taken much part in those benefits. I looked at the financial statements of the canal from 1990 through 2019.
Before 1999, the statements were prepared by the U.S. government. They mainly indicated that the canal was not profitable, sometimes operating at a loss. The Panamanian government was paid a flat fee each year, which showed up as an expense in the financial statements. After the handover, the canal began ramping up its profitability. Payments to the Panamanian government were in step with this net revenue. Below we see the meteoric rise in profit after the U.S./Panama handover.
We see that during the period after the handover, average profit and payments to Panama were around one billion dollars. Before the handover, average profit was non-existent and payments to Panama averaged at ninety million dollars.
It’s clear from the profitability of the canal that there were some major differences in the way the U.S. operated it and the way that Panama operated it. For starters, I learned that the U.S. did not look at the canal itself as an income generating asset. It operated with a mandate to break even or charge only enough to cover costs. Tolls were deliberately kept low to benefit global shipping. The U.S. also regarded the canal and its presence in the surrounding area (the Canal Zone) as a strategic military and defense asset.
When Panama took over, profitability increased because the canal was treated as a commercial enterprise instead of a military asset. Tolls increased, operations expanded, and new locks to increase capacity and revenue were built and opened in 2016. Totally different operational mandates…totally different financial books.
Life Before and After the Panama Canal Handover
To put it into perspective, in 2019 the payments made to the Panamanian government from the canal was 1.8% of the country’s GDP. That signals a major infusion of cash. What did this mean, if anything, for the people of Panama?
It’s clear that after the handover of the canal, GDP grew immensely. We see steady growth after 1999 that was in line with that during U.S. control. But around 2005, GDP really begins to kick up a gear. I don’t think this is a coincidence. After the canal was put under Panamanian administration, it makes sense that there would be an adjustment period. A period that preceded new opportunities of earning for Panama. Gross capital formation captures how much of a country’s economy is invested rather than consumed and below we see consistently high rates of this after the U.S. handover.
Below we see that people’s incomes grew in line with the overall economy, indicated by gross national income. We also see that unemployment rates tended to be lower after the handover than before it. 2011-2013 show dramatically low rates, a phenomenon that deserves further investigation.
The data shows that inequality and poverty were also on steady declines. Unfortunately we only have data from 1997, which leaves a lack of context to understand if this decline was a shift or just a continued trend of the period during U.S. control of the canal. In my previous essay on independence and Puerto Rico, we noted that Panama had the lowest poverty rate amongst the Latin American countries mentioned in that analysis, such as Guatemala, Colombia, and Mexico, who gained their independence long ago.
A Lesson on Freedom
Panama is a small country of just 4.6 million people. Yet, its geographic location as a potential gateway between the Pacific and Atlantic oceans has always positioned it as a highly desired point of interest. In the last 25 years or so, we are just getting a glimpse of how the country operates without being contractually or politically beholden to another nation.
With the ceding of the Panama Canal by the U.S. to the Panamanian government in 1999, we see a huge addition of wealth and investment in the country. The United States may not have utilized this asset for direct financial gains for the U.S. government, but it benefited from decades of strategic military and commercial leverage. In the process, potential growth for Panama was stifled.
In the data, we see clear increases in GDP, income per capita, and investments after the handover. Anecdotally, we understand that Panama City, the epicenter of the country, experienced a huge construction boom during that period. This made it the Latin American country with the highest concentration of skyscrapers. The data also shows decreasing unemployment and poverty rates. These things point to the benefits of freedom and self-determination.
A Complicated Story
Now, I think it’s important not to be naive about cause and effect here. We don’t know if Panama would have been in a position to thrive and grow if the United States had not invested there to establish control in the region. We don’t know what path the country would have taken without decades of influence from the U.S.
What we do know is that given the freedom and opportunity, Panama has been able to make some major developmental strides with the assets they possess. I think that is what independence and freedom has always been about. Space and opportunity to take advantage of one’s own resources, abilities, and assets to forge a way forward according to one’s own vision. As I continue this series on independence in Latin America, I intend to keep this idea in mind. It’s important to stay aware of the varying degrees of independence in the region, and what that means for the people.
Sources
World Bank. https://databank.worldbank.org/source/world-development-indicators
Panama Canal Authority. https://pancanal.com/en/maritime-services/audited-financial-statements/
