Panama Table of Contents
Because of its domestic use of the United States dollar, Panama had no short-term transfer problem and no foreign exchange constraint. Capital flows and changes in the banking system's foreign assets were less dependent on the current account than was the case in other countries; these items responded mostly to the government's fiscal situation and to conditions affecting international banking.
Panama's balance of payments has always been characterized by a large negative imbalance in its merchandise trade. In the 1970s, this imbalance grew almost uninterruptedly, to a large degree because of rising international prices for crude oil. In the 1980s, the merchandise trade balance continued to be negative; in 1985 merchandise imports exceeded exports by US$904 million (see table 17, Appendix A).
Panama's current account balance has been negative since the 1970s because of large deficits in merchandise trade. In 1982, the current account balance registered a negative US$405.4 million and the merchandise trade deficit was US$973.8 million. Since 1983, Panama has had to adjust to its heavy external obligations, and the current account, though still negative, improved to a negative US$172.6 million in 1985. The current account has benefited from the large surpluses in services (US$1.02 billion in 1985), which have nearly compensated for the deficits in merchandise trade. Transportation contributed the largest share to the services surplus--US$384 million in 1985. Other sources of services income included official transactions in the canal area, banking, insurance, and shipping. One of the largest drains on the current account was interest payments on the foreign debt.
In 1985 Panama experienced a net capital inflow of US$32.2 million and negative errors and omissions of US$136 million. The foreign reserves in the banking system declined by US$134.7 million. Direct foreign investment in Panama fluctuated in the early 1980s; in 1985, it totalled US$68 million. Panama was open to foreign investment, although it restricted activities in retailing, broadcasting, and mining.
Data as of December 1987