To Woo Investors, Panama’s Cortizo Must Challenge Corruption

Panama's new president faces daunting struggle against corruption.

Panama’s new president, Laurentino Cortizo, vowed to crack the whip on the country’s endemic corruption and boost FDI, but he faces big challenges to achieve those goals as he starts his five-year term in July.

“Panama is the fastest-growing economy in all of Central America, but it does not improve its corruption indices and public funds management,” says Abelardo Medina, a senior economist at Central American think tank ICEFI.

The 55-year-old, US-educated Cortizo inherits a nation bruised by a string of public-works scandals that were a hot potato during the election, with antiestablishment protesters demanding more transparency into how the government awards building contracts.

Critics are puzzled that outgoing former President Varela has yet to cancel prominent contracts with Odebrecht, the Brazilian builder at the heart of Brazil’s Lava Jato (Carwash) scandal.

Cortizo will have to pursue a “real transformation of the public apparatus” to inject much-needed transparency to public funds management and government operations in general,” Medina says. “They also need to invest more in healthcare and education” in part to help lift 20% of the county’s four million citizens out of poverty.

While Panama gets the bulk of Central America’s FDI, greater visibility about how it runs its duty-free trade zones and global tax haven—and a reduction in institutional bureaucracy—may help bolster future flows.

“If you recall the Panama Papers, Europe listed Panama as one of the countries with the least compliance including BEPS [the OECD’s charter tackling global tax avoidance],” says Medina. “Europe could start questioning their transparency again and this could erode FDI. They have to strengthen transparency, cut bureaucracy and, ideally, start to fulfill BEPS.”

Lifting sluggish economic growth—once soaring at Chinese-like levels—is also a hot ticket. Panama’s $60 billion economy grew 3.7% last year, its lowest level in a decade, though still twice the Latin American average.