Panama Election Tigthens as Canal Paralyzed Over Strike

Panama’s presidential contenders are winding down their campaigns ahead of the May 4 election as a strike by construction workers paralyzes the expansion of the country’s signature waterway, its biggest economic resource.

Former Housing Minister Jose Domingo Arias had 31 percent support in an April 19-22 poll published by newspaper La Prensa, giving him a four-point lead over ex-Panama City Mayor Juan Carlos Navarro. Vice President Juan Carlos Varela, who split from the ruling party, was third at 23 percent. The survey had a margin of error of 1.8 percentage points. A December poll by La Prensa had Arias at 37 percent to 28 percent for Navarro and 26 percent for Varela.

President Ricardo Martinelli, who helped oversee the Panama Canal’s $5.25 billion expansion, opened Central America’s first subway and pushed unemployment to a record low 4.1 percent last year, has struggled to convert public support of 60 percent into enthusiasm for Arias as Panamanians decry the rising cost of living and allegations of corruption.

“Growth has been impressive, but the income gap has grown as well,” said Lucila Broide, a Latin America analyst at Fitch Ratings in New York.

Fueled by the canal’s expansion, Panama’s $36 billion economy has been among the world’s fastest-growing, transforming the skyline of Panama City with hotels and condominiums as gross domestic product climbed an average of more than 8 percent a year under Martinelli. While the 62-year-old Martinelli is prohibited from running for a second consecutive term, his wife, Marta Linares, was named as Arias’s running mate.

35% Demands

With voters saying inflation is their top concern, construction workers walked off the job April 25 in an effort to win 35 percent salary increases. The move threatens to further delay the canal’s expansion, designed to let the 100-year-old waterway accommodate ships 1,200 feet (366 meters) long and 160 feet wide -- 25 percent longer and more than a third wider than the biggest ships that can use the canal today.

“Each day of the strike brings new delays that harm the reputation and trust in the country as reliable center for transport,” the Panama Canal Authority said in an April 25 statement. The project, which was beset by a dispute with the consortium undertaking the construction earlier this year, is due to be finished late next year.

Whoever gets the most votes in the seven-candidate race will take office July 1. There is no runoff.

Arias, 50, has vowed to continue public spending on infrastructure and to boost social security payments after the opposition criticized his ruling Democratic Change party for neglecting workers and the poor.

First Elective Office

At their final campaign rallies last weekend, both Navarro, 52, and Varela, 50, said they would be more open to talks with unions and indigenous groups, who have battled with Martinelli over mining and hydroelectric projects.

The Arias campaign has also faced criticism from the opposition for choosing Linares, who has never held elective office, as the vice presidential candidate.

While it’s not unusual for presidential wives to seek political office, the move is risky given Panama’s weak rule of law and reputation for corruption, said Larry Birns, the director of the Council on Hemispheric Affairs in Washington.

“The heart of the problem is that there’s so much money to be made in Panama now,” Birns said. “There’s nothing to prevent corruption.”

Panama ranked 102nd out of 177 nations in last year’s Corruption Perceptions Index compiled by Transparency International. In 2012, the World Economic Forum rated the country’s judiciary 132nd out of 144 countries in terms of political independence.

Policy Continuity

Panama’s dollar bonds have returned 7.1 percent this year, compared with 5.1 percent for emerging markets, according to JPMorgan Chase & Co.’s EMBIG index. Standard & Poor’s rates the country BBB, the second-lowest investment grade level, putting Panama in the same category as Colombia and Bahrain. Consumer prices rose 3.3 percent in April from a year earlier, led by health and food costs.

Investors expect policies that drove economic growth to continue with whoever wins the election, said Franco Uccelli, a Latin America and Caribbean analyst at JPMorgan in Miami.

“People have fully digested that there’s very little difference between the candidates,” Uccelli said. “Government spending has not been wasteful, but rather there’s something to show for it.”

World Bank Outlook

The World Bank forecasts that Panama will be the fastest growing economy in Latin America this year at almost 7 percent.

As growth slows, the main challenge for the next administration will be to rein in public spending that accounted for 10 percent of the nation’s GDP, according to a Fitch report published last month.

That may be difficult as the investments now affect current spending, from staffing hospitals to subsidizing subway fares, said Fitch’s Broide.

The infrastructure projects in the capital haven’t improved life in the slums along the canal’s route, where residents complain about crime and a lack of clean drinking water. Arias has said he’ll build better housing and fund community policing in areas such as Colon, at the Atlantic entrance to the canal.

“Yes the economy is growing, but the growth hasn’t reached the vast majority,” said Genaro Lopez, a union leader and presidential candidate who had 1 percent support in the latest poll. “We can’t continue on this path.”

To contact the reporter on this story: Eric Sabo in Panama City at esabo1@bloomberg.net

To contact the editors responsible for this story: Bill Faries at wfaries@bloomberg.net; Andre Soliani at asoliani@bloomberg.net Robert Jameson

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