A 

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P A N A

Country Deve

Strategy State

1981 - 1985

(with a 1986 -99 

U.S S. AID Embassy Panama Jan. 
P A N A M A

COUNTRY DEVELOPMENT STRATEGY STATEMENT

TABLE OF CONTENTS

Introduction and Summary

Part I - Analysis

Analytical Description of the Poor 

Identification of the Causes of Poverty 

Host Country Plans, Commitment and Progress 

Human Rights 

Other Donors 

Outlook 

Part Il - Strategy

Long Range Goals and Intermediate Targets 

AID Assistance Strategy 

Part III - Assistance Planning Level

Indicative Planning Allocation 

Proposed Assistance Planning Level 

Annex I - District Poverty Indicators

Annex II- Methodological Annex *Annexes are available at LAC/CEN
P A N A M A

COUNTRY DEVELOPMENT STRATEGY STATEMENT

1981-1985

1986-1999

Introduction and Summary

Panama's dominant role in the history of the.Americas is co

knowledge. Especially recognized is its function as the crucial 

of communications between North and South America and between th

and western halves of the hemisphere. When one spends a few hou

Miraflores or Gatun locks, however, one learns of a lesser known 

haps still more important fact. Panama and the Canal provide al

vital link between the Atlantic basin and Eastern Asia. With th

opening of China, this fact assumes tremendous new importance. 

of all the world's population is being suddenly brought newly in

commerce, and the Panama Canal is among international trade's mo

organs.

Panama has done well in providing a healthful environment 

heavily travelled path between the seas. From the mid 1950's un

the country achieved an economic growth rate of 8% and during th

decade the benefits of this growth have been remarkably well di

Especially noteworthy are Panama's progress in alleviating rural 

and in reducing the population growth rate.

Since 1974,however, alarming developments have brought heav

down put forsemi-developed the around country past the four countries: earlier into years a serious achievements been --growth the crisis victim arrest. which, situation. of a The if disease not most Indispersed a charactericrucial word, sooPacu
- 2 

about the Panamanian economy and society today is not rural pove

its negative economic growth rate, which is itself the single mo

portant cause of poverty. The rapid growth with equity enjoyed 

slowed to a halt inithe early 1970's and per capita growth went 

in 1974, where it remains today. Urban unemployment and underem

are high (35%). New private investment is at a standstill. The 

economy, both subsi'stance and market, is stagnant, and rural fam

continuing to migra Ite to the cities. Meanwhile, the expansion o

services, begun mor e than ten years ago, has continued at the sa

largely financed by external borrowing, mostly commercial. The 

a crushing and still growing debt servicing burden, roughly half 

national budget.

If government investment in new social services were to con

present rates, financed by still further external commercial bor

while new private investment remains inert, financial crisis wou

threaten.

The statement of the problem reveals the basic strategy ess

its solution: a public sector austerity program on the one hand 

promotion of massive new private investment and employment on th

Fortunately, the G6P has adopted such a strategy. It is importa

all join in the difficult task of helping to make it work. Aus

fraught with problems, frustrations, and the risk of failure to 

by oil, in difficult, meeting spending are known basic with less, to no human exist. earning guarantee needs. Panama more, of Promoting retiring success. simply has new or Unhappily, to stretching investment reverse no the out panaceasis downwdebt, delic
- 3 

and getting back into a rapid economic growth posture, made pos

new investment. Then the completion of the task of eliminating 

in Panama may be resumed. This is not to say that poverty alle

has to be abandoned until after growth has been revived, but th

the costs must be reduced.

In the pages that follow we describe poverty, delineate it

and seek to outline a strategy of assistance that looks to the 

nation of poverty from Panama by the year 2000. This strategy 

tially one in support of Panama's own strategy whose aims and s

we propose to support. We outline immediate, intermediate and 

goals and programs. There is poverty to be dealt with on both 

mediate and a long term basis. Then there is the opportunity f

consummation of poverty's permanent eradication through the sta

enhancement, and appropriate exploitation of Panama's natural a

resource bases.

Under this strategy, USAID Panama will concentrate its res

follows:

I. On a short term, highly focused, terminal rural develo

program to end in 1985.

II. On the further development of rural growth centers, to 

the countryside with its near-by urban hubs and to cre

that will serve to divert some of the rural migration 

III. would On direct of a urban series terminate to unemployment, Panama of long between City term and underemployment, 1985 programs Colon. and 1990. This aimed program, at low solving incomes, alreadthe a
living standards in general. This program, focused on 

priate technologies and skills, would begin as soon as 

and remain in effect throughout the rest of the century

IV. On the problems of preserving and enhancing Panama's n

resourcesibase: forests, soils, water and energy. Thi

already begun, would continue into the 21st century.

V. On a progr-am to increase the capabilities of both the 

and private sectors better to plan, organize and manag

nation's rograms aimed at thd elimination of poverty, 

establishment and maintenance of full employment and t

hancement of the environment.
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PART I: ANALYSIS

A. Analytical Description of the Poor

1. Summary Description of the Poor

Of Panama's 1.8 million people, approximately 715,000 

in poverty, as will be defined below. Some 385,000 (21%) live 

treme state of poverty, so extreme that their lives are in a d

ing condition, similar to the most disadvantaged in the poores

in the world. While the poor, and the extremely poor, are fou

areas of the country, they are concentrated in two major areas 

marily agricultural communities of the country's central and w

provinces and the major cities of the Metropolitan region (Pa

Arraijan, and La Chorrera).

All of the key indicators provide ample evidence of t

poverty of the rural poor. Illiteracy rates are high; most h

electricity, potable water, and sanitary facilities; and acce

health services is almost non-existent. The incidence of ext

nutrition among young children is high, and infant mortality, 

what lower than that in other nearby countries, remains well 

national average.

While the urban poor have access to some of the basic 

that their isolated rural neighbors lack, their housing condi

are highly inadequate. They live in conditions of extreme craccess cilities. tunities,compounded job market. onlyOf to Unlike even communal moreby their an water concern absence ruralsources is ofcounterparts, the basic and absolutekills unsanitary who lack needed at waste of least to emplocomdih
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limited land to fail back upon in order to feed their families, 

urban poor are entirely dependent on a monetary economy with a 

living index amongithe highest in the Western Hemisphere. Seen 

context of growingimigration a n d t h e natural growth t

rapidly making the Metropolitan region the major locus of Panam

population, urbanlpoverty, currently a source of concern, becom

for serious alarm lin the coming years and decades. This switch 

predominantly rural to predominantly urban poverty appears incr

to be characteristic of countries in the intermediate stages of 

ment. And it is increasingly alarming that in Panama, as elsew

to do about urban~poverty and unemployment is proving to be a t

problem than was what to do about rural poverty.

2. Income of fthe Poor

Poverty line analysis

Two levels of income have been calculated for the c

based on estimated minimum family consumption costs for 1978 fo

cities of Panama'and Colon. These levels have been adjusted (1

country's other urban centers and (2) for the rural areas to re

lower living cost s there.

The first level is the income barely. adequate to pr

a family's basicineeds. This income has been calculated at $51

capita annually for the cities of Panama and Colon,- $402 for ot

centers, of satisfy and goods clothing, its and basic ser-vices $304 ve i y minimal for modest which ruralneeds. housing, areas.permits The minimal These a basket familyfigures costs of includes 5 for ae persons primary based a bare toon mibaed
medical services, transport and miscellaneous. Incomes below 

levels for the three geographic areas cannot meet basic human 

The second level of income is descriptive of the m

1/5 of Panama's population living in extreme poverty, or in co

of serious vital deterioration. This income level has been ca

at $270 annual per capita for the cities of Panama and Colon, 

other urban areas, and $160 for the rural areas. The "extreme 

level" is roughly 48% below the poverty level. It includes th

items in the basket of goods and services but at greatly reduce

levels. At and below this level, a family of 5 is in no way a

provide for food, clothing or housing at adequate levels.

Population living in poverty

Application of the "poverty" and' Iextreme poverty" 

the estimated population distribution for 1978 yields the follo

population living in poverty:

Pop. Below Extreme Pop. Below Pop. Above 

Poverty Level Poverty Level Poverty Level 

Total - 384,284 (21%) 714,453 (39%) 1,111,047 (61%) 1,

Rural 290,067 (16%) 512,485 (28%) 392,755 (22%) 

Urban 94,217 ( 5%) 201,968 (11%) 718,292 (39%) 

In absolute terms, the poor are most numerous in t

of Veraguas, Panama, Chiriqui and Colon (531,169 or 74%) with 

concentration in the rural areas of Veraguas and Chiriqui and 

Annex l/ fines estimates areas A detailed and of II. Panama match of te dscription them Panamanian (345,147 up with ofor population family 48%): the methodology income living data used in in poverty torderboth may to devearb
- 8--

Pop.' Below Extreme Population Below

Poverty Level Poverty Level

Provinces Total Rural Urban Total Rural 

Total 384,284 290,067 94,217 714,453 512,485 2

Veraguas 106,298 103,719 2,579 141,090 133,353 

Panama 98,702 34,367 64,335 197,406 68,736 1

Chiriqui 49,495 41,562 7,933 106,923 83,124 

Colon 42,873 35,098 7,775 85,750 70,200 

Cocle 25,653 22,361 3,292 62,486 55,900 

Herrera 19,295 16,419 2,876 46,939 38,311 

Bocas del Toro 24,818 20,442 4,376 39,395 30,663 

Darien 9,751 9,588 163 19,666 19,176 

Los Santos 7.e399 6,511 888 14,798 13,022 

The province with the highest incidence of extreme 

is Veraguas with 61% of its population below the extreme povert

almost all in the rural areas (94%).

3. Rural Poverty

In order to move from the more general description of p

provided by the income distribution and poverty line data to mo

tion specific and qual itative information, the Mission has ana

indicators and access to services at the district level.-l For 

areas, three key indicators - infant mortality, birth rate and 

were examined for! each district in the country. These indicato

then compared to national averages. Those districts where all 

indicators are above national norms are considered areas of ex

erty of a large part of the population. These districts are a

in the provinces which show the largest populations below the 

line, are thl/ -there The above degree as country described is national of one poverty ispecial divided above. norms isdistrict have similarnto Districts a 9 lesser to provinces set that where aside prvalence found twoand forof in 65 the the the districts. Cuna of three poorest povertyIndian iI
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The results of the district by district analysis are sho

Map 1. Fourteen districts (shown by cross-hatching) have the "

level of satisfaction of basic needs i.e. they are below natio

averages on all three key indicators. All are in the Central a

regions. Sixteen additional districts (shown by vertical stripe

below the national averages on two of the three indicators and 

serious deficiencies in the satisfaction of basic needs. Most 

districts also lie in the Central and Western Regions. Tables 

Annex I summarize the district level data for all 30 districts. 

concentrations of poverty are in Veraguas province and neighbor

tricts in eastern Chiriqui, Cocle and Colon, Herrera and Los Sa

Seventeen districts stand out. They have a number of f

common, including poor soils, mountainous terrain, highly dispe

lation and a lack of access roads. The widespread poverty in t

tricts is further confirmed by a review of other indicators as 

as housing conditions, water, sanitation and access to health s

These seventeen districts we now believe to be the proper focus 

final rural development effort in Panama. They are illustrated 

2 and described in greater detail in the following sections.

Key Population Characteristics

As indicated by 1970 Census data, this area, with a populat

178,821, is primarily rural. The population density is low (an 

of persed. tendency o and 1/ f Between 12.3 less Chiriqui people than Anual of 1960 the wre 2% pr population population and (the the square 1970, national provinces 16 kilometer) growth to of migrate average the with rates 17 and the out, districts for are highest the thisspecially low, inhabitants period had due level annual in to was oflargee Panama out3.1%)growhip
CEN.iTRAL REGc-IO, METROPOLITAN EASTERN REGION

M A 0

I N C I D E N C E 0 F R U R A L P 0VE
S STEN ES. CEI AL/EGO

M A P2

F 0 C U S F 0 R R U R A L D E V E L 0 P M E N T
2-

The majority of the population in the eastern districts of V

as well as those of Colon and Cocle is Hispanic. The western di

of Veraguas and the eastern districts of Chiriqui also have the 

major concentration of the country's 50,000 Guaymi Indians.

Economic Activity of the Population

The vast majority (87%) of the farm population in this predo

agricultural area are dedicated to subsistence farming. Most su

farm families occupy land that is inadequate for cultivation. V

(less than 10%) have legal title to their land. Most farmers us

and burn techniques to clear land for cultivation. Seeds are so

hand without tilling, and no chemical products are utilized. In 

only 16% of the farmers in this area received credit and 3% rece

technical assistance. Virtually none use mechanical power of an

While some families change the location of their homestead every 

as they slash and burn further into the frontier area, most stay 

same general vicinity and alternate production on various disper

During the off-season male heads of household often obtain o

wages for short, intermittent periods on neighbors' cattle ranche

also migrate to western Chiriqui, where they obtain seasonal wor

several weeks to several months a year on sugar and coffee plant

1_/ Given their extremely limited access to services, the Guaymi 

group grant activities development are 2/ Most unsuitable that projectf merits which the neds will terrain for should stdyof cultivation finance the is and produce Guaymi. mountainous studies possibly (e.g. considerable of special types and theGuaymi the VI, attention. new majority VII, and iformation and pilot (80%) VIII). A FY devel

onf 19
13

Opportunities for off-farm employment for women are minimal, a f

contributes to the high incidence of out-migration among younger 

mainly to Panama City.

Future prospects for productive use of the natural resource 

area are limited. !Poor soils and steeply sloping terrain make t

suitable primarily ifor natural forest and tree crops, with some 

suitable for cattle grazing. However, increasing amounts of lan

being converted to lunappropriate uses. Forests are being cut an

by subsistence farmers to make way for small agricultural plots. 

the soils on these 'lands are exhausted the farmers move on to ot

often leaving the land open to exploitation by cattle ranchers. 

of the copper deposits in Tole, there are no other known mineral 

with marketable potential.

Selected Indicators

The majority of the houses in this area have dirt floors and 

still lack electricity, potable water, and sanitary facilities (

Graph 1). Access t-o health services in this area is also minima

1970 these districts had an average of 0.6 doctors for every 10,

inhabitants. By 1477 this figure had risen only to 0.8 (the nat

average for 1977 was 6.0). Most births (67.6%) are still unatte

either a physician'or a nurse.

Veraguas half education. sector bak I_/ two Migration thirds home (48%) (as women to domestics). either (65%) Thelp data made maj ofhad supplement from ,ority up these never othe All took wmen 1970 half been or family extremely part were Census to (53%) school of income. young reveal of the low the orsalary (ges paying mgrant had that 15 an earnings jobs in to incomplete population

the 24) in were provi

and the ns
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Houses with Dirt Floors Houses without Elect

10 100

80-

60 6

40- 40

20 2

NATIONAL W r NATIONAL t 

AVRAEAVERAGE 

00 0

0 0

Houses Lacking an Approved Houses Lacking Appr

Water Source Sanitary Faciliti

100- 100-

80 - 80-

60. 60.-

40 40

20 2-

NATIONAL NATIONAL

AVERAGE AVERAGE W

HOUSING CONDITIONS IN POPULATION FOUR GRAPH OF THE CENSUS 1SEVENTEEN TARGET DISTRICTS, 
015 

Results of a recent survey of malnutrition in the province 

guas indicate that a large proportion of the population (79% of 

through 4 year olds and 70% of the 5 through 17 year olds) were 

ished. Malnutrition was particularly severe among the to 4 o

29% were found to be in second degree malnutrition and 5% in th

These figures were much higher than corresponding national leve

obtained in 1967 (10.8% of the I to 4 year old group in second 

malnutrition and 1.1% in third degree) and suggest that malnutr

rather than decreasing,actually may be increasing.

According to district level projections for 1975, over 45% 

adult population ages i5-39 in this area was illiterate. Of th

ing 55%, most had no more than two or three years of schooling. 

While it may be assumed that the major portion of this latter g

read and write and do basic calculations, their low level of ed

hardly prepares them adequately for employment in sectors that 

minimum of certain basic skills.

Although the GOP has made strides in recent years in attendi

educational needs of the primary school age population throughou

Panama (1977 enrollment data indicate that in this region most 

school age childreAi are in school), GOP activities oriented towa

ducing literacy among adults and increasing their skills remain 

limited.

statistical 1/ Opinion of data. Ministry of Education officials in the absence of

** * :. .- -. 5 4 5!
-16 

4. Urban Poverty

In addition to the poverty line data presented in Sectio

above, three key sets of indicators - unemployment,*underemployme

housing conditions - are used to describe poverty in urban Panama 

Colon. Unemployment and underemployment have been chosen as they 

direct bearing on the welfare of the urban poor who depend on cas

to fulfill the majority of their basic needs. General indicators 

ing conditions (type of housing, crowding, existence of non-appro

shared water and sanitary facilities) as well as access to housin

employment services help shed further light on the extent to whic

urban poor are receiving the assistance they need in order to inc

themselves into the modern sector.

As is illustrated in the discussion below, urban Panama's num

current problem is unemployment. Faced with a stagnation in the 

market plus a rapidly increasing population, Panama City and Colo

confronted with a poverty problem that, if not checked, could re

crisis proportions by the year 2000.

Unemployment and Underemployment

An estimated 790,000 people (43% of Panama's population) cur

live in the urban areas of Panama and Colon. Panama's Departmen

Statistics and Census estimates that by the year 2000 approximat

by -1/ both earlier 2,823,000 1,600,000 This both tomigrants rapid the will people, jobs forces rate be accounted and orliving of nearly srvices population natural in for 57% this growth available the ofarea. growth major the and country's in migration. part urban Panma of estimated Panama this Cty, During gowth. migrants and populaColon the At

*4 .5 
-17 

Population Projections for Urban Panama & Colon

Percentage of

Year Population Total Populati

1960 383,000 34.9

1970 597,000 40.8

1980 864,000 45.6

1990 1,203,000 51.2

2000 1,600,000 56.7

In an economy with a rapid rate of economic growth such as 

enjoyed in the late 1960's and early 1970's, providing jobs for 

steadily increasing population is within the realm of the possi

ever, since 19/4 the number of jobs has actually declined and u

ment has soared. Moreover, equivalent unemployment (unemployme

estimated underemployment) in the Metropolitan areas is now ove

35%. Equally as significant, the non-economically active popul

steadily increased.

Labor Force Trends for the Metropolitan Region

1974-1977

1974 1975 1976 

Total population 15 years & over 455,800 478,630 501,060 

Economically Active Population 280,300 284,100 279,760 

Percentage total 61.5 59.4 155.8 

Employed 260,400 259,030 254,920 

Unemployed 19,900 25,070 24,840 

Percentage EAP 7.1 8.8 8.9 

Non Economically Active Population 175,500 194,530 221,300 

Percenta- total 38.5 40.6 44.2 

had comparable alone theo estimated account job either willmarket thano be figure for education responsible with a by sizable for the unskilled Panama end whatsoever proportion of for district the labor over next or60% of (in was decade, an the of 1970 incomplete 33%). urban population 40% the Panama's of While forces migrants primary growth, migrants of populaedunat15 i
- 18 

Underemployment, a chronic problem among the agricultural lab

in rural areas, has also increased in the Metropolitan area in re

years. In 1975 it was estimated that approximately 70,00 worker

in the Metropolitan labor force were underemployed. A high propo

was concentrated in the service sector which, as is indicated be

the only major sector where the number of jobs has increased appr

over the last eight years.

Employment in the Metropolitan Area by Sector

1970 1978

Number % Number 

Services 70,300 31.7 96,720 3

Industry 27,100 12.2 32,460 1

Commerce 42,800 19.3 48,460 1

Construction 14,900 6.7 18,690 

This concentration of employment in services has important ra

tions for the poor, as wages in this sector are not only low, the

also not subject to much increase. Areas of the service secto

as domestic services also have the major concentration of unskill

workers. In 1975,70% of those employed in this area had a sixth 

education or less.

Unemployment and underemployment are particularly high among 

and among the young. In 1977 14% of the female labor force was u

and approximately 44% was underemployed. (the comparable figures 

were services hand, 1/ Between 10% increased and declined 1974 18%, and 5% by respectively). and 1976 1%. 16%, average Wages respectively. in weekly Female commerce wages employment and in industry, the in non-governmeurban on Panathe 
* . 6 - - 

- 19

concentrated overwhelmingly in the service sector, and wages pa

are both lower than those for males and increase at a much slowe

unemployment rateslamong individuals 15 to 19 and 20 to 24 (197

including both men and women) were 20.9% and 14.7%, respectively

the data base necessary to calculate underemployment among thos

younger is unavailable, it may be assumed that there is a high 

of underemployment in this group as well.

Both women and the young in the Metropolitan area are relat

participants in th e labor force and their participation seems t

strongly as the job market alternatively expands and contracts. 

the opportunity, however, both groups would join the labor forc

greater numbers. Experience with the GOP's Emergency Employmen

provides a case in point with regard to women: 42% of the 16,7

hired under the Program were not actively seeking employment at 

Housing Conditiions

According to the 1970 Census, a significant portion of the 

ants of both cities lived in crowded conditions in shacks or te

and over half either had no access to an approved water source 

1/ The percentage'of economically active women in the Metropoli

rose from 35.1% in' 1970 to 40.8% in 1974 and declined to 37.9% 

as a result of Panama's economic recession. The percentage of 

cally active 15 - 19 year olds in the Metropolitan region decli

44.8% in 1970 to 25.8% in 1975. (Some of the latter decline is over Public tion 2/ temporary individuals. The of this Emergency service increased'secondary period.) stop Thelcompetition gap jobs Employment measure at monthly to and Planeal for salaries post-secondary was these withinitiated of the jobs $100 unemployment was education in were very 1977 given high. to opportproblserve to 
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a communal facility. Significant proportions of both cities' p

lacked sanitary facilities or shared sanitary facilities with t

neighbors.

Housing Conditions in Panama & Colon, 1970 Census

PANAMA COL

Number % Number 

Total population 444,338 100 67,874 

Inhabitants living in

substandard housing 143,352 32 41,980 

Inhabitants with nonapproved or communal

water source 235,499 53 44,660 

Inhabitants with nonapproved or communal

sanitary facilities 173,291 39 44,660 

Summarized in the following table are a number of individua

carried out by the Ministry of Housing in 1974-75 of typical s

nities of Panama City and Colon, characterized by inadequate h

water supply and sanitary facilities. The majority of the 8,8

(36,900 people) living in these barriadas had family incomes 

per month,i.e. below the poverty line. Only about two thirds 

heads of household reported they had full time employment. In

sources suggest that rather than decreasing the number of peop

in 1/ these Shacks types or tenements of communities wh a has ratio actually of 3 or increased more inhabitants over recep
SURVEYS OF LOW INCOME NEIGHBORHOODS IN PANAMA AND COLON

NEIGHBORHOOD DATE OF INHABITANTS FAMILIES PERCENT FAMILIES PERCENT HOUSEHOLD

STUDY WITH INCOME LESS HEADS EMPLOYED

THAN $200 A MONTH FULL TIME

PANAMA

Viejo Veranillo 1974 2262 459 59 69

Santa Cruz 1975 4439 1169 55 77

Boca la Caja 1975 939 182 52 --

Brooklyncito 1975 683. 139 64 70

Chorrillo 1 1973 6043 1474 55 72

Chorrillo 2 1973 3635 869 58 --

Curund 1970 7818 1525 72 52

COLON

Barrio Norte 1975 6557 1663 56 62

Barrio Sur 1975 635 239 65 --

Pueblo Nuevo 1975 1846 504 62 54

La Playita 1974 635 222 61 55

Manzana 44 1974 529 142 61 --

Bamboo Lane 1975 858 239 65 65

Source: Department of Social Affairs, Ministry of Housing
B. Identification of the causes ofpoverty

The discussion in Section A highlights, for the two target ar

selected for special~attention, a number of characteristics of th

which - while themselves descriptive of poverty - are also factors 

tributing to its existence. Three general causative factors stand 

(1) An extremelyllimited natural resource base.

(2) Extreme isolation of a large proportion of the rural popu

(3) Very limited'education and skill levels in both rural and 

areas.

The consequences of the above for the poor are obvious:

(1) Low quality soils which are rapidly becoming depleted of w

little nutrients they have, in combination with a lack of alternat

employment, severely limit the productive potential - both present 

future - of the majority of small farmers.

(2) Isolation makes access to vital. education and health servi

difficult. It also inhibits access to support services (e.g. inpu

technical assistance, credit) needed to increase farm productivity

(3) Low educatiori and skill levels hold down productivity of b

the rural and urban Poor by limiting opportunities for the rural p

utilize better technologies and expand into new activities, while 

the urban poor into a limited array of employment opportunities, a

areas where wages and opportunities for advancement are low. Panama. also skill These to levels conider I three order - ae factors a to all series further keys - of limited to unravel factors understanding natural that the causalre resources, the closely chain, cuses isolation, linked it of is poverty neces

to Paan
recent, severe, and continuing economic recession. This reces

began in 1974, has manifested itself in near zero economic gro

1974, a trade deficit that climbed to $500 million in 1974 whe

remained, a 7 percent drop in per capita GDP, and -as already 

out in Section A - a stagnant job market.

1. Concentration of Panama's economy in the tertiary sect

Panama's strategic location and the presence of the Ca

a natural center for commerce and other service activities. S

turn of the century, Panama has exploited its location, promot

dynamic service sector clustered in the Metropolitan corridor 

Canal. Of Panama's 1977 GDP of $2254 million, 53% was derived 

service activities. Manufacturing accounted for only 20%, agr

16%, construction 5%, and the Canal Zone 6%.- Both commercia

services activities have benefited from the GOP's liberal bank

which have made Panama a major regional financial center.

Panama's increased reliance on tertiary sector activit

of the primary and secondary sectors has had three negative co

I/ The Canal Zone 6% covers only wages of Panamanian employees

million direct balance of payments flow from the Canal Zone to 

1977 was 11 percent of GDP. Applying an export multiplier plu

of other indirect benefits result in an overall contribution o

Zone to Panama's economy which is much greater than indicated 

direct benefits.

bank; Pnama operation) has policy 2/ the investment -ational Panama main the however, with as marked medium Bank hasan and (esp. the effective no ofdisadvantage it tomonetary - central Panama private does the finance U.S. not instrument - bank. stability commercial performs many issue dollar of of restricting A Panama's government -of its many it circulates banks economic needs largeof currency, of Panama's the both scale owned which management. normal freely. to development commercial there attract ability function"balboaWhile are outo n
- 24 

for the poor: (a) That once represented a plentiful source of l

jobs, and thus a drawing card for rural migrants, has dried up. 

less thousands of migrants continue streaming into the Metropol

corridor in hopes of getting jobs in these areas. (b) Unlike ag

and industry, which as a rule tend to generate additional jobs 

activities, new are~ivities in the services sector do not result 

spontaneous generation of secondary employment. (c) As already 

in Section A, a significant proportion of services sector jobs p

wages, thus furthe-r contributing to the underemployment problem

2. Excessive dependence on imports and limited exports.

In keeping with its tradition of serving as a funnel fo

commerce, Panama 1-s allowed goods to move in and out of the co

freely, keeping import quotas for many articles at a minimum. 

has obviously benefited the commercial sector and permitted it 

until recently) to'thrive, it has served as a deterrent to smal

oriented industry. and thus limited opportunities for creating 

jobs. Dependence on imports, from basic commodities to finishe

products, has also had'a negative impact on the disposable inco

poor. In 1974, when world oil prices skyrocketed, the consumer 

index in Panama leaped upwards correspondingly. Between 1973-1

consumer prices rose at an annual rate of -over. 8%,., .As described 

Section urban recet only recourse poor years A, Panama's wage during had to increases dependence negative date thislatter for in redressing on impact sectors period a limited on employing ranged trade its array balance imbalanc from a of large 0 exports of to es payments. only has proporti

has been 2.7% a
- 25 

to increase exports of traditional, largely primary, products 

bananas, petroleum products, shrimp, and sugar. However, the 

drop in the world price of sugar and declining demand for Pana

petroleum products have made this difficult. Panama is curren

a concerted effort further to expand its export base to includ

traditional (both primary and secondary) products, but identif

appropriate non-traditional exports, markets for these exports

attracting needed private investment remain a difficult challe

in large part to Panama's increasing high wage structure which 

less competitive with nearby countries. Meanwhile the urban a

poor are losing out both on past job opportunities that actual

and on future job opportunities that have yet to materialize.

3. Decline in Private Investment

Private investment in Panama has declined steadily ove

five years, to a 1977 level that in real terms was only one th

peak reached in 1973. This resulted in a stagnation of the ec

a steadily shrinking job market, since the expansion of public 

investment was not sufficient to prevent a drop in overall inv

Private investor interest waned as promising commercial and in

investment prospects played out. Government policies further 

investors.

employers structure. public normalutilities private The in Labor The 1971, sector govenment in Code further recentarena was made rising took years (e.g. highly over andsugar, Panama's mde ownrship pro-labor cement), a already few and incursions and causing operation high more cost expeprivinto
- 26S

apprehension over possible future public sector takeover in thei

of investment interest. Uncertainty over Canal treaty negotiati

now treaty implementation concerns have also been unsettling fac

Panama's new government, however, has made resumption of 

growth a priority concern, clearly recognizing the predominant r

private sector investment in generating that growth. In an atte

attract private investment, revisions of current economic and la

policies are beingidesigned and the GOP is looking at the semi-a

government enterprises, with a view to possibly reducing their r

the economy. The government's fledgling industrial development 

institution, COFINA, is steadily expanding its efforts to offer 

cial support to a widening range of profitable new private inves

opportunities in Panama.

Rekindling private investment is, however, a challenging 

and one in which the GOP needs outside help. Profitable investm

and markets need to be researched and credit mechanisms expanded

addition, the Canal transition will offer some investment opport

and if handled smordthly and efficiently it can contribute to res

private sector confidence.

C. Host Country Plans, Commitment and Progress

-Development Plan

has poor power of income thDespite made and since redistribution, country, a disadvantoaed. major, Panama' 1968 improved setssentially s economic as and its The social strengthened general "Revolutionary stagnation, successful and objectives e conomic bases effort the Government" conditions of GOP ato more economic over improve complete the which of growthpas the has pli
27 

In striving to accomplish these objectives, the government 

stantially increased its involvement in both the social and econ

life of the nation during that time. For example, education and 

programs were greatly expanded and extended into the provinces, 

agrarian reform program was initiated. Major investments in eco

infrastructure were made, primarily in transportation, power, an

communications. A new labor code was instituted which was decid

pro-labor.

The GOP's overall development strategy was formalized in its 

Development Plan for 1976-1980. This plan defines development p

with respect to six major objectives and identifies the means to 

ployed for their achievement. These policies cover (1) increase

popular participation and improved distribution of economic bene

(2) accelerated, diversified, sustained economic growth; (3) gre

regional integration; (4) more effective utilization of public f

(5) strengthened public sector institutions; (6) more autonomous 

dependent development.

With strong commitment backed by significantly increased pub

ment, the Government has made great strides towards achieving ma

objectives. In general, the GOP's social programs have had cons

success, whereas its production programs have produced mixed res

Performance

worthy healthduce measured Withrural/urban for indicators, by regard rural key to indicators areas. inqualities. pointing social The objectives, has upfollowing been someresults impressive progress table of presents on ad thethe GOP's is national data especially efforts on impl
- 28 

1967 1977

N;t'i oilalI Rura I Nat ionial Rur

1. Death rate 6.8 7.7 4.4 4.

2. Infan t mortality 42.7 49.7 28.1 29.

3. % Population with

potable wate : 64.5 34.7 82.5 63.

4. % Population with

sanitary facilities 73.2 62.2 88.3 78.

Progress on other indicators for the national level over a 

time frame show illiteracy decreasing from 26.7% to 13.8%, the 

rate declining from 38.9 per thousand to 28.4, and population g

rate from 3.3% to:2.6% per year.

Commitment to improved access by low income agricultural pr

has been strong, but progress has been slow. The GOP has estab

a system of price supports and controlled marketing margins, an

ernment agency purchases several basic commodities from produce

support the market for their crops. The government has support

200 asentamientos with over 7,000 families participating in a p

which provides lnid title, credit, technical assistance and oth

vices to these or ganized groups. To date, few asentamientos ha

achieved financial viability, and the GOP absorbs their losses. 

also of process. division the The assists less political (the Tadvarntaged the elected corregimiento) cooperative system representatives segments has movement been both of designed serve the and of population their the othero smallest increase local group in area thearrangemepolitical the decisiand partco
- 29 

National Assembly. This political/administrative system is in

biased towards the rural areas, where the bulk of the poor hav

tionally been located.

The data on the key indicators show that most Panamanians 

siderably better off as a result of the development which has 

over the past ten years. There is no indication that developm

adversely affected any given group, although the recent econom

tion has obviously struck hardest at the poor, particularly th

-poor. Further detail on these topics may be found in the Miss

report in TOAID A-71 of October 23, 1978.

Development Budget

The GOP's -consolidated national budget for 1979 calls for 

of $854 million, comprising about one third of estimated GDP. 

Government current revenues of $453 million are expected to co

current expenditures, leaving the investment program to be-fin

principally by foreign borrowing, as has been the pattern in r

Over one third of the current expenditure budget will be taken 

interest and transfer payments. Among the ministries, the lar

allocation goes to education -- 18.5%. The health ministry re

8.3% and agriculture 2.6%. An estimated 7% goes for defense s

which as usual will come to less than 1% of GDP. The largest 

18% in industry the (roads, the for Onecntinuing public ports, electricity of 8%.the sector most higharports). noteworthy level (hydropower investment of Agriculture public characteristics budget development) sector are receives for investment. and physical of 15% 17% the and forevelopminfrascommerIn transan 
- 30 

offset the effects of the severe decline in private investment 

began in 1975, the GOP stepped up public sector investment. fr

million per year in 1970-1975 (5% of GDP) to $400 million per 

during 1976-19 (18% of GDP). This increased investment prog

quired huge increases in public borrowing, mostly from abroad

government felt constrained on both political and economic gr

attempt to self-finance much of the program through increased 

during a time ofirecession, although a 5% sales tax was insti

1977.

The high lellel of public investment and external financin

creased the demands placed upon the public institutionswhich 

has required that they be made more effective and efficient. 

burden on them will increase as Panama assumes its new respon

for the Zone and the Canal. The government's planning and pr

opment capabilities areqAite impressive even as measured by 

versal standards. There are, however,.still some weaknesses 

management and administration when measured by absolute stand

relative standards the Panama Civil Service is already among 

though still nor good enough for the high pressure and quali

ahead. The major causes are inadequate coordination and coo

different public institutions, and the overburdening of 

are small levels The simply The public group of GOP service. too enterprises of is qualified few aware in of number (e.g.the personnel. challenge and utilities,nadequately This and sugar) cadre has backstopped already a of competent to taken be selat 
- 310-

reorganizations have produced new institutions (e.g., planning 

housing ministries) and government training programs are being 

nated. Moreover, the GOP is now developing a major program whi

combine administrative reform with stepped up training of middl

public officials.

D. Human Rights

Panama has a record of sustained human rights progress in t

decade. The GOP has responded vigorously to the need to improv

standard of living of the poor including free education, health 

minimal cost, rural credit, price controls on essential foods, 

subsidized housing.

As to respect for integrity of person, reports of degrading 

and arbitrary arrest or imprisonment do occur, but such cases a

common. The inviolability of the home is respected. Respect 

and political liberties has increased in the last two years, a

by a series of political reforms. In ordinary criminal cases, 

have the benefit of a fair and public trial. In politically s

cases, the judiciary appears to have been susceptible to the i

of the Executive Branch. Labor unions are free to organize an

and the government frequently solicits labor's views before ma

policy decisions.-While political participation has been limi

parties allowed, elected concerns President tions will are representatives and to and benow the there Vicby able national direct is President to a genuine function comprise popular level of and, give-and-take the vote. again, the in country. National the greater recent at Assembly Future fredom the past, local presidentwhich of electe

exp

levf
- 2

E. Other Donors

Over the past few years, other donor activity in Panama h

substantial. IFI lending reached a peak in 1977 when the IDB 

$122 million for hydroelectric power and tourism development 

IBRD provided $57.7 million for hydroelectric power, livestoc

ment and improvements in the fishing fleet. Assistance from 

IBRD was more limited in 1978, totalling $31 million for a pr

fund, agricultural credit and highway maintenance. While bot

generally finance capital intensive projects, with a concentr

physical infrastructure, increasing attention is being given 

projects, particularly by the IDB. Projects under developmen

this mix, including support of university education, tree cro

credit, urban development, and power distribution. Current p

indicate a total lending level of about $50 million.

The UN system provided in 1977 about $1.6 million in tech

assistance, about evenly divided between the UNDP and the spe

agencies. This assistance went to a number of sectors, with 

tion in the fiel ds of health, agriculture, transportation and 

and social andleconomic planning. New UN projects emphasize 

industrial development, and regional planning. UNDP assistan

to over $1.3 million in 1978 and is programmed to remain over 

ment $500,000 per ities through year, Bilateral credits consit 1981. per accounting year. and msainly programs scholarships, for of of advisors about the DAC with $1.6 and countries mostillion scholarships programs consist in 1977. and being primarily OAS represeundand 
-

Donor activities are effectively coordinated in two ways. 

Ministry of Planning and Economic Policy is the major counterp

for all donors at the policy level and coordinates all techni

ation activities. There are also formal and informal coordin

mechanisms among the donors which are more than satisfactory.

All major donors pursue similar objectives, employing dif

complementary means. The IDB and IBRD tend to concentrate th

tance on infrastructure projects. The UNDP, OAS and other bi

donors focus on relatively small technical assistance activiti

A.I.D. program fills a gap helping to assure that both the GO

other donors do not ignore the interests of the poor in their 

ation of overall economic development needs.

F. Outlook

A newly elected government took office in October, 1978, a

a new five year development plan has already been initiated. 

opment strategy revealed so far by the new government does not 

significantly from that of the past ten years. The new Presiden

listed the high cost of living, unemployment and integrated na

velopment as primary concerns and defined the following medium 

opment objectives: resumption of economic growth with better 

regional distribution; expansion of employment and increased h

austerity sector; improved zation construction; and better forign will protection more be quality relations, followed, political of of natural eduction; especially in democratization; recognition resources. greater wih of the A rspect the a basic U.S.; more government's policy effient for and human bettof 
-34 

financial problems. Social services, however, are to be furt

ed. The key role of private investment is emphasized. Grea

in public enterprises will be sought and additional resources 

directed to Panama's agricultural development. Industrial, t

and energy projects will continue to be developed, with empha

impact they will have on export promotion.

It is recognized that economic growth is pre-requisite to 

ment of Panama's development goals. From the standpoint of p

human suffering'. the core problem for Panama has become the d

the growth of its economy. This economy can no longer suppor

productive poor and jobless at levels recently achieved throu

government's redistribution efforts. In its own words: "Befo

contemplate thel ideological choices for the distribution of 

we must first rteate that wealth. One cannot distribute imag

wealth".

The governm ient recognizes that resumption of growth is a 

if the problem of Panama's poverty is not to worsen. It also 

the predominant role of the private sector in generating eco

Accordingly, the government is making a major effort to assu

sector of its cooperation, and to enlist their support in a 

to set the economy on a long term expansion path. One vehicl

whichis improved Council, receive road, In construction addition, to under government/business composed study the and theofCanal of make representatives GOP a modern treaties. is recommendations banking dialoue container Plansheavily of is business, a call port,newly on economic for the andformed labor, expansion resources expansion policy

Econ

and 
5- 

Zone. These and other projects are expected to generate ancil

vestment by the private sector. Also, the increased revenue t

receive from the Canal operation should help relieve the finan

sure currently facing the government. It should reduce the hi

of commercial financing which the Government has required to c

the current level of public sector investment with the assista

additional concessional financing.

A new wave of private investment activity could, therefore

place in the near future if the GOP succeeds in gaining the co

and support of the business community, and if it does not stum

taking on its new responsibilities under the treaties. An inc

vestment level, however, is not likely to be sustained by thes

alone, since most of the same constraints on growth that have 

current economic stagnation will continue to exist. Nonethele

pectations of increased employment opportunities will likely a

more workers from the provinces to the Metropolitan area seeki

which are likely to prove temporary, adding to the already unm

problems of urban housing, sanitation, and social services.I

one of Panama's most serious obstacles to the achievement 

economic growth has been high labor costs, which have limited 

expansion. High wages and benefits for Panamanian employees o

Zone will continue to exert upward pressures on wage levels th

Panama prticularly domestic impact beyond on causes. employment in what labor This would an intensive will normally the tend balance activities, to develop further of payments. from and inhibitnternational have private the familino
- 36.-

Under these circumstances, which are certain to be a perma

of the economic scene in Panama, it would appear to be futile 

Panama to strivel(to increase permanent employment opportunitie

unskilled workers. Rather, GOP strategy for the longer run sh

at an across-the-board upgrading of the skill level of the ent

force, including 'the minimum skill level of the mass of Panama

ers, both urban And rural. Only through higher productive cap

of Panamanian lador, in general, can the private sector justif

labor costs it mist pay, i.e., achieve lower real wage costs a

improve its international competitiveness. This in turn means 

development strategy should encourage primarily the developmen

industries or activities whose output requires relatively high 

labor inputs. For maximum effectiveness, it Vill also require 

flexible GOP labor/wage policy, in which the productivity issu

be factored in as a major element.I

This approach should steadily open up additional profitabl

opportunities in iPanama, create jobs, establish the economy on 

expansion path, and develop the bases for permanent, sustained 

The number of hard core unemployable, unskilled workers would 

rapidly to level constituting a lesser drag on the economy an

public sector in providing for the welfare needs of the poor. 

the and of action unemployment inhibiting In Part by II which which l6ad 'would AID on follows, both be can reduced help the we economy Panama identify to the achieve and lowest and the describe these public practicable gols. budget five li

sp
- 37

PART II - STRATEGY

A. Long range goals and intermediate targets

Panama is destined either to remain poor with a mor

than rural complexion or to flourish as a hub of internationa

financial, communications and trade services, and as a produc

technology products for export, with a healthy balance and co

tarity of roles among the two main cities, a dozen small citi

the rural areas.

The immediate goal is to bring all remaining rural 

the economy. The rural population is now almost evenly divided 

those who have crossed over the poverty line and those who ha

There is momentum, however, so that the goal already half-Won 

progressively more attainable. The combination of a geograph

focused rural development program with an intermediate city-m

town program is intended both to complete the integration of 

families into the economy and to secure a permanently healthy 

growth posture in the Panamanian countryside. Small, medium 

large scale farming on the one hand will interact profitably w

flourishing agro-industries and services and with a growing n

market on the other.

The long range goals are to return the Panamanian e

gaining a the condition benefits aim ists to of fair of attain rapid, such share growth and sustained of sustain the among proceeds growth full aPanamanians. employment and, of production. on this with basis, Stated the labon

to 
- 38 

Given Panama*s size, location and natural and human 

bases, we see no other way for the country to go than to aim 

high technology economy, strong in international fi nancial tr

services, in a diversified program of exports of agricultural 

industrial prodi its and in manufactures competitive in world 

The Hong Kong, Singapore, and Taiwan models come to mind, as 

been highly successful with strategies tailored to its own un

circumstances. Panama and these island economies have much 

including aninrinsically talented human resource base. Whi

maturation is yet incomplete,the human potential is there. 

superb geograpbac location -- the world's Broadway and 42nd 

B. AID Assistance Strategy

1. Areas and Sectors of Development

The Introduction and Summary made clear, and th

poverty demonstrated that development in Panama will be cour

5 main streams over the next 20 years. Two are of short and 

term. Three are the long range development efforts necessary 

and make permapnt a good quality of life for all Panamanian

planned by the G0P and supported by AID and other donors, som

been initiated and all five will be operative during this cu

CDSS period, 198i-85. How much longer the GOP and other don

find dictable. Rural by and the Human it Area endnecessary Resources As Deveiopment of for 1989. AID, to Development Employment continue we at propose the with end we Creation, to of each see conclude 1985, as such Environmental needing an program our in participati

Rural also is to not GrowEnhabe n
39

in force now. They are as urgent as the others. But they a

difficult, less is known about how to deal with them, and re

will be harder to achieve and slower in coming. By their nat

are complex, conglomerates of problems and opportunities whe

best that the sciences have to offer needs to be woven into 

signs for their solutions. We see these three assuming grow

importance in AID's support activities during the decade of 

and as the principal foci of AID's efforts in the 1990's.

2. Role of Other Donors

We expect bi-lateral aid from other developed 

to be of an ad hoc, targets of q-portunity nature. The World 

and the IDB will continue to be the principal external sourc

capital needed to complete the financing ofhigh cost program

particularly infrastructure. In both rural development and 

employment creation, we would expect these I.F.I.'s to conti

supply substantial external capital for highways, powe r, wat

industries, and transportation. UNDP, both because its fund

limited, like ours, and because it is also similarly interes

in experimenting with new projects will be AID's closest col

While we expect the whole external aid complex to be complem

UNDP-AID collaboration will be from close to intimate, inclu

joint projects. 3. Address I.ntended Rural Areas Develo of ment AID Assistance and the Proble

3g * - 0- 5 - - - - II 
4o 

The analytical description of the poor rev

number of interesting things about Panama's poverty and the 

efforts to defeat it. There is less rural poverty than 10 y

or than in many other countries. Some 55% of rural families 

below the poverty line, as described in IA, and the heaviest 

tration of thee live in 17 districts of 5 Provinces which a

contiguous geographically and the people have 5 basic common 

istics: (1) they live in the mountains beyond the roads; (2

dispersed, not in villages, (3) they till poor soils; (4) th

education and skill levels; and (5) they have limited access 

care.

Lack of access is the key to their substan

condition. They do not have access to the services readily 

to the other-.half of the rural population, and the governmen

gained access to them, despite the desire to do so. Lack of 

dispersion and poor soils have thus kept 55% of the country'

population outside a system of economic opportunities and se

that, by developing country standards, is otherwise impressiv

AID-GOP joint view of this problem is: - let's finish the jo

face this toughest last portion of the task, identify the co

issues (e.g. poor soils) and the less complex tasks requiri

muscle and "half" can thebringe GOP and of done cantohe money do in ,these country's these it (e.g. in 17 17 the districts access rural districts remaining roads, families the with areas sameeducation already the standard of help rural and ejoy. of poverty of AID health lifeIfand on se

tho
- 41 

Having made this basic decision, the composi

the program needed to meet the goal is all but self-defining -- 

extension, marketing, access roads, land tenure rationalization

farm systems, health, family p lanning, and nutrition services, 

women, cooperatives, etc. all applied to the special problems 

of the 17 districts. Two interrelated issues will stand out: (

need for many to move to land with better soils - or through a

search, find ways to make better use of the soils they have; and 

need for a more equitable land tenure pattern. There is much s

governmentn" land but little not claimed as the "possessory righ

someone. Five hectares of "possessory rights" land today brings 

price as five hectares of titled land. Not an easy issue to res

II. Rural Growth and Service Centers

This is a proposal to continue the effort te 

sound economic base in the countryside in order to permit rural, 

farm family development to become self-sustaining. Rural develop

not sustain itself where the country has only a single urban mar

effort to bring subsistance farmers into the national economy wi

the vine without the kind of intermediate regional development w

GOP has already started and which AID is assisting in project No

RuralGrowt~h and Service Centers (URBE). This project is just 

are 

becoming 

duringevelopment fully the operational. met, CDSS be both followed period those We and closely having propose that to the to that make whole do with a certain similar process smallthat project of farmer intermediate its objectiv

be phase
- 42-

benefits, and th ose relating to employment generation, includ

development of productive enterprises based on appropriate ne

logies aimed atiproducing goods for internal Panamanian marke

too dependent on imports. We are also interested in the inte

at intermediate points o f the families who for the foreseeabl

will migrate because they continue to produce more of themsel

profitable crops.

III. Employment Creation

Not all of Panama's relativ e success in de

rural poverty is due to virtue and hard work. Many rural fam

were not saved, nor re-cycled, nor brought into the market as 

They escaped tolPanama City and Colon. They got away, and no

has a serious urban poverty and unemployment problem. The p

balance has become over- one-half urban, mostly in Panama City 

Colon, and unemployment levels are high. Unofficial figures 

reflect the real situation suggest that unemployment plus und

ment are at 35% of the Metropolitan area labor force. Part 

scores the plight of the unskilled urban poor migrating into 

Metropolitan coiridor. It is here that we find many of the p

the poor. Whil e migration continues, the formation of new jo

stopped 4 years ago when the economy stopped growing and inve

came solution the resumption to a is halt.4 to bring on a As In massivebout Parnoted I.B thescale in Part resumption we of have I private B, suggested many of economic investment. of the that elements growth the on
-43 

resurgence of private investment are already in place. Gov

policy favors it, assumption of Zone resources should encou

there are ample tax and profit repatriation incentives, etc

are convinced that all these favorable factors, including t

of Canal revenues and Zone resources, will not suffice to c

enough permanent new jobs to match the present excess labor 

nor to keep up with its growth. Why? Because Panamanian i

and commerce as constituted today and as they might be expa

out redesign have too little to sell at internationally com

prices, and Panama is also as yet not utilizing enough inte

technology to supply national market needs that are now unn

met by imports.

What is needed, as the Part I B analysis 

a new orientation of productive investment toward export or

higher technology industries employing large numbers of hig

workers and toward intermediate technology industries suppl

potential local markets. Not only do we see that the solut

Panama requires the resumption of a growing GNP, we do see 

happening primarily through the creation of high and interm

technology industries, including agro-industries, and in a 

export agriculture sector that does not leave out the small 

well is, If AID where and asis will the AID really micro continue comes concerned issues Yes, in. to it First, be under about is the a we long the principal the justify mandate way poor from majority our creator because here concern of toin economipovertthrefor this t
it must address the problem of employment creation, first, in 

secondarily in the secondary cities, in agro-industry, and in 

export agriculture sector.

How can AID address these needs? We propose 

assisting with '3 parallel programs. The first is already un

small city-market town development integrated with rural deve

second is a program to identify high technology investment op

and to promote investment in them. The third is a massive pr

skills training tailored to the needs of the first two. The l

be carried out, Iwith AID help, jointly by the Ministries of E

Labor in cooperation with the organized Private Sector. The 

actively involved in a massive program designed to provide ap

training within the formal education system starting in the p

The MOL efforts are complementary with a focus on out-of-schoo

have low skillsilevels and are unemployed. While the institu

in place, the program will require careful planning and coord

The identifying and securing of investments 

technology enterprises, however, is neither simple of concept

execution; nor are the necessary institutions in place. We t

propose the following:

1) The creation of the capability in an exi

possibly new institution to investigate, research, identify a

new high-technology investment opportunities -- a Panamanian 

joint fr technical New creation Investme and capital of Int the and Private (R EmployMent & D) assistance. Sector Ceation and the One (PINIEC). GOP, feasible and It ipattewoul
-*45.-

be to make the Institute a joint venture of the newly announce

Polytechnic University, the new Agricultural University and th

of Industry, Commerce and Agriculture.

The Institute would be strongly science and te

oriented and would be the natural focus of collaboration with 

national activities, such as AID's proposed program for techno

exchange and cooperation. The Institute's fu nctions would inc

basic and applied research and pilot projects. Once feasible 

have been proven, the Institute would offer industrial extensi

and would have a promotion program jointly with its Private Se

collaborators. Since hig h technology opportunities are in fac

continuum from the already relatively well-known to the as yet 

the Institute would have a major extension and promotion progr

as a research program, from the start. Its long term signific

however, will lie in the integral combination of the three: r

extension and promotion. A key element in this program would 

around the development of profitable import substitution inves

opportunities, including alternative-energy sources and food p

2) The establishment in Panama of the Product

Guarantee Program. If the PCGP program is not extended by Con

USAID Panama will develop a sui generis project with COFINA an

National Bank, based on a guarantee fund financed by the Panam

AIDgreement institutions land sale with and guarantee the 3) an Chambers AIP Thedevelopment programs. creation, of Industry perhaps loan, and along through Cmmerce, the a lines USAID of of a Projproex
46

USAID-Private Sector joint ventures. AID and private investor

would be made available together to provide joint support to a 

project -- notably projects dealing with labor intensive ind us

social services. We would explore the commingling of AIDand pr

tor funds and the use'of AID guarantees. Potential areas for 

include health facilities in poor communities, assistance to s

prises, day care facilities and other ser vices to facilitate g

participation of women in the labor market, etc.

4) The implementation of a Housing Investment 

program focused on the Metropolitan Corridor. This program wi

employ large numbers of people in actual construction and crea

nities for small support businesses, e.g., doors, window frames, 

No strategy for employment creation would be c

without addressing the need to slow the creation of employment 

indicated in Part I.A., the workforce of the Metropolitan Corri

expected to double by the year 2000. Any action which can hol

growth enhances the chances of success of the program. Panama 

notable success in reducing the population growth and birth ra

reinforce the downward trend, USAID will continue a family pla

program. A key focus of this program will be on adolescents w

become the primelcontributors to Panama's population growth. 

rating providing helping in to a them rduce vigorous IV. with TheEnvironmental both opportunities USAID's campaign population Watershed to Protection help growth to upgrade young Management and and women unmployment. their Enhancement Project delay skills, pregnais USAon
beginning of the Environment Program Panama wants to carry ou

natural resources are being depleted rapidly. The specter of 

shrinking to the point of their being inadequate to support t

is very real. Panama intends to reverse this trend. It has 

watersheds, of which the 1979 project deals with only 3. And 

other environmental problems to be attacked, notably water po

urban blight, and unsanitary sewage disposal. AID expects to 

these efforts, concerned about their "pilot" qualities as wel

these projects can do for Panama alone. In this connection, 

the ceding of the Zone to Panama creates an environmental en

opportunity (or hazard) of great importance. The merger of a 

Zone with an essentially blighted urban corridor needs to be 

so as to preserve the environmental quality of the Zone while 

the blight problems of the corridor. A HIG program already p

over the CDSS period will be used to deal with the housing an

problems of the Metropolitan Corridor in this light, and we w

specialized T.A. to help the GOP with land use planning.

V. Human Resources Development

Panama's development objectives are ambitious

invigoration of the economy is a herculean task, and there ar

outs. Panama must approximate a Taiwan or a Hong Kong type ac

by by The beyond opportunity adopting the private Treaties: that contemplated, Panama a sector growth/development the needs has ports, to a maximize until quality the recently. railroad, strategy and the use quantity suited the A ofspecial 1,000 the of to resources human square its element speciaresoukiceh
-

land replete With its resources, etc. These are assets for 

Panama can exploit -- if it has the skilled leadership and 

to do so.

The quality of human resources in the Public 

crucial. Panama already has an excellent layer of top lead

technicians, 'It, however, lacks the depth the Public Secto

if it is to carry out all the development programs needed.

Specifically, we propose to work with Panama 

development of a massive training program for both the Publ

Sectors -- focused on increasing the abilities of hundreds 

to plan, organize, and implement development programs, part

aimed at eliminating poverty, establishing and maintaining 

ment, identifying and developing high technology enterprise

the natural resource depletion process that, if not reverse

to make of th6 development effort a cruel mockery.

This Training Program will consist of the fo

of projects:

(1) Graduate level training in all the key 

training to be providedabroad.

(2) Assistance for curriculum improvement, 

(along with IDB & WB assistance for physical facilities) to 

University to level tchnic development. of and excellence Branches Agricultural '3)' Assistance being the teaching Universities developed to and strengthen throughout research through and capabilities the the improve Masters country thd
- 9

This program will form an integral part of 

institutional and human resources required to strengthen t

and technological capabilities needed to create and apply 

to the causes of Panama's long term poverty problems. We 

linkage of this complex to such AID-supported initiatives a

technology transfer collaboration and Title XII.

Proosa toAltr US.G Oraniation orImplementin

Bi-lterl Asistnceto anaa, Af ter 1985.

As direct AID concerns with poverty projects per se a

in the next 8-10 years, by programs aimed at sustaining dev

raising permanently the capability level of Panama to grapp

own problems, and at defending the physical environment and 

base, the less appropriate seems the typical AID Country Mi

past 28 years. The number and diversity of technical subje

expertise involved could not be covered even by a very lar

USAID staff. A wide range of pertinent U.S. technical reso

need to be focused on particular Panamanian problems involv

medium term consultants from a variety of university, indus

governmental sources. U. S. technicians needed for extende

take part in programs of long duration might better work wi

Panamanian establishment, under Panamanian direction. What 

of needs and,on needed that, the for on Counsellor on the the external the other, one U. serves hand, S. for expertise. side Development performs as is liaison a small a It U. Sciences could between unit S. assistance appropriately attached and U. S. Technology. technocracy programminto the be calU. 
- 50 0

imply a need for a different role for AID/W in being able 

and supply to a much greater extent than at present resour

outside its regular staff. This proposed change in organi

related to levels of U. S. assistancewhich would not nece

down.

One approach would be to create an autonomous Panama

ment Corporation with which the U.S. would enter into an I

(Executive) Agreement to provide technical and capital ass

agreed, either on a project basis, or on the basis of an a

budget funded jointly by both governments, or both. The P

a lso receive Iassistance from other governments and the I.F

While autonomous, it would be affiliated to the Ministry of 

and Economic Policy and would be regarded by the GOP as it

economic and 'Social development R & D instrument.
-51 

PART III. ASSISTANCE PLANNING LEVEL

From the foregoing sections on poverty, its causes, and 

USAID strategy, it is clear that a modest funding level can 

nificant results. A pattern can be set which will lead to th

of extreme poverty in the foreseeable future, and assure tha

action is taken to resolve the problems which would otherwis

to generate poverty. While the elimination of present pover

vigorously pursued, within grasp, the efforts to prevent fut

are only in their initial stages.

The Indicative Planning Allocation (IPA) proposed by AID

USAID/Panama for 1985 is a paltry $5 million. This compares 

program of $21 million in FY 1978, a proposed FY 1979 progra

million and similar levels in previous years. The proposed 

ma represents so drastically rapid a reduction of assistance 

seems explainable only as computer error.

The proposed IPA is totally inadequate to permit the str

proposed to be implemented. A five-year Proposed Assistance 

Level (PAPL) of $122 million for the CDSS period 1981-85 is 

necessary to support the modest program planned to assist th

poor country break out of its economic stagnation and establ

bases needed to prevent the worsening of its poverty problem

urban companion rural Jstification FY 1981 An unemployment poverty annual through spectres to funding FY but and that 1985 a level poverty pyrrhic now will of threaten be victory. and $20 sufficient natural million to reduce resources (adjusted to carry the imminent out depletifor our inf
After year fiv6, with the changed character of the program a

proposed new USAID structure, funding levels may be reconsid

We believe that the AID/W proposed IPA of $5 million 

unreasonable because:

1. The lformula employed gives far too much weight to 

capita income (PCY). For most developing countries, 

base for estimating PCY is highly unreliable. Moreov

or not, Ithe mean is a meaningless measure of poverty. 

America lthe thin veneer of a growing modern sector ma

vulnerable traditional economy in which the reality i

everyone is poor and the poorer half are typically be

Asia-Afiica poverty line. The distribution of income 

indicator of poverty, and PCY relates to this not at 

like China, for example, is in much better shape wit

$400 and an income distribution of $250-500 than is t

Latin American countrywithaPCY of $1000, whose distri

from $40 to $400,000, with the lowest 50% earning fro

per capita. We are convinced that PCY, as AID is usi

misleading. If we have to use a formula, in place of 

strongly suggest that it be the median or mode of the 

adjusted as to rural and urban differences and as to 

wages 2. living inadequate system The paid variations and IPA as theofactor applied the skewing employees among of commitment tof countries. Panama the of income the due should Canal The to scale itsbPCY Zone. by given dollar measure the moreubasehigh is
I,. 4 0 4 - . s S d n * S i s ai a a l*& a S P . ~a S P s al-~ . u 

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Um. alq 0. ru~aa A00nole 4q -T~ -oaa x -n -q a jvI

saqovoad0 2UI a UT OO a aa x , JO4 .sq a q a 4jv~ a u 

pu -II Saj s* a~a asq *0~qqaIT .4lOU .U~a l -l .0~ V SP

-a z ad p ad**&a Al u0a uo p a u sia0o 4a - 0 1 a * uq v. 

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S., ~ la .vnIn 2nq sqav ou .55m I.ial 4son su S . 0 

pup um~v aIST lq~m aquaq SOTU 

*~~P~o u-uv DNT Sel *- 4 50 .- 0

*sr~a QI Tnsozn JO -Odmx s?* V.uv -NT saauo S oi

iuo o2 a 2Ua Aq 0 -5.4 - S Tqv~ TT. slSau aroqsAJa -q 

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Ia~~~~q~ v S v AIaq q laomD4u. 0TAIU8 

.044 *n . sv .4 a 2uo v s. 04 q -Aaao JO -I.UTTj0

JT991T~~ ~ ~ ~ ~ Pal4O Tuo&nanppAa'9OsqI il -oran

ss a*a p -p 55TO Pu - u mTM O - 040~a 4~mu u -se O Se . . 4

ata s uu la.~ s- q u. sn TO o.1 SUalno od a ao 0 SO 

ST Sq3 8lqm UT,&TRD ATU~edsa4Aia~o alUTMTa olalqsso

S? -~~v .p .~o . q 0.oo aq. .5 j 44z~o .ri .xq 0445 l

*AT 6s~ ln- as* .lu dSI 0. iod 0q JO - 4 20- IVP -
-054 

4. Our assistance will be well used by Panama. Absorptive c

high and will increase as our strategy, with its element of d

administration, i carried out. Assistance at the levels pro

can be accommodate without pipeline increases. We believe th

capacity should be a significant, if not the controlling fact

determination of the IPA.

5. Finally,y.e believe no determination of funding levels fo

as vital to the U. S. as Panama can justifiably ignore U. S. 

strongly believe the factor of U. S. interests belongs in the 

of the IPA. The security and economic interests represented 

need no exposition here. The safe and efficient operation of 

artery of world commerce, of immense importance to the U. S., 

jeopardized by a socially and politically unstable Panama. T

AID program can pitay an important role in assuring the essent

and social stability and well-being of this key crossroads c

Proposed Assistaince Planning Levels

The following table presents the PAPL required to carry 

strategy. A number of current and proposed FY 1979 and 1980 

directly related to the various categories shown on the table

clude ongoing projects in Integrated Rural Development and R

and Service Centers. FY 1979 projects include Watershed Man

Applied Energy training). (skills Sources. Agricultilral upgrading,) FY and 1980 Research Dvelopment proposals loan projects include Planning loans and Management a for pilot Workforgran(
- 55

PROPOSED ASSISTANCE PLANNING LEVELS

Fiscal Years ($ Million

Categories: 1981 1982 1983 1984 

I. Agriculture and

Rural Development

Integrated Rural

Development 12 

Regional Development 12 

Environmental Management -- 12 

II. Education and Human

Resources

Skills Upgrading 10 

Public Sector Training 12 

III. Selected Development

Activities

Alternative Energy 5 

Investment stimulation/-

employment creation 15 15 

TOTALS 20 22 24 27 

In addition to the above amounts, $1.2 million is neede

tinuing implementation during the FY 81-83 period of the FY 

Population are not included II project. hre (see PL480 below). assistance and Housing Inves
- 56 

PL 480

The Mission's current PL-480, Title II activities cons

ternal/Child Health program reaching about 30,000 benefici

school feeding program now at the mid-point of a planned p

These activitie s are implemented through CARE and CRS. Th

cent nutrition 'ata on the USAID target group suggests tha

is increasing, particularly for children ages 1-4 (see par

Mission has programmed for early 1979 a nutrition study wh

help us better define the nature and size of a continuing 

program. It is', as yet, too early to provide planning lev

expect that a MCH program will be needed throughout the pe

CDSS, Panamanian officials believe that MCH activities ar

tively implemented by relating them to a school feeding pr

is one possibility which will be studied.

Housing Investment Guarantees

A HIG program of $75.0 million is programmed over the 

period, with its focus on the Metropolitan corridor. Given 

the low income housing shortage in the urban areas and the 

continuation ofirapid population growth in the Metropolita

expect that there will be a demand for HIG programs not on

-period believe ment Paama's housing Considering to of construction that social deveopment. this this overhead CDSS. the AID expected but on sponsored We primary projects well see urban beyond. the mechanism and will BIGgrowth secondary program continue ad foremployment attracting as the tonot beneficia

play merely a macp
- 57 

to our strategy of employme nt creation and economic growth, bu

ly essential. With the ever increasing need for low income ho

the related employment potential, we propose to continue the H

ities after 1983 at an annual rate of about $10.0 million for 

seeable future.

Staffing Implications

During the early years of the period of this CDSS, we vie

hire requirements as being essentially what they are now - i.

30 USDH and 60 FNDH. As the program emphasis shifts from the 

traditional activities (rural development, growth poles) to t

are more in the area of the unknown (urban problems, environm

agement, heightened science and technology capability levels, 

technology industrial development), we see less need for regu

hire USAID staff and more need for the use of specialized con

personnel. As discussed in Part II, we particularly see a ne

numbers of consultants in the fields of science and technolog

probable that USDH staff could decline somewhat by 1985, wit

tional reduction of FNDH, while non-USAID personnel needs wo

increasing. reality, number of direct U.S. When technicians hire the staff Pnamanian could assigned Development be even to the less, PDC.Corporation though with beca