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Varela Wins Panama’s Presidency After Ruling Party Feud

Varela Wins Panama’s Presidential Vote
Juan Carlos Varela, Panama's presidential candidate for the Panamenista party (PP), speaks after winning the presidential election in Panama City, on May 4, 2014. Photographer: Rodrigo Arangua/AFP/Getty Images

May 5 (Bloomberg) -- Panama Vice President Juan Carlos Varela upended pre-election polls showing him lagging behind to win the country’s presidential election, after publicly feuding with the ruling party over allegations of corruption.

Varela, 50, was declared the winner by the national electoral tribunal yesterday, which said his lead in the race was insurmountable. With 93 percent of the precincts counted, Varela had 39 percent. Former Housing Minister Jose Domingo Arias, who led in pre-election polls and had the backing of President Ricardo Martinelli, was second with 32 percent and conceded the race. Ex-Panama City Mayor Juan Carlos Navarro was third with 28 percent.

“This government is going to fight against inequality and is not going to tolerate corruption,” Varela told supporters at a hotel in Panama City after being declared the winner. “Better days will come to Panama, with a government that is human, decent and visionary.”

Varela will succeed 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, on July 1. With voters saying inflation was their top concern, Varela advocated price controls on basic foods and said he would be more open to talks with unions and indigenous groups, who have battled with Martinelli over mining and hydroelectric projects.

‘Martinelli Machine’

“Varela closed the campaign with a lot of momentum,” said Risa Grais-Targow, a Latin America analyst at Eurasia Group in New York. “He was able to beat the Martinelli machine due to voter perception that an Arias victory would be a de facto Martinelli re-election.”

Martinelli congratulated Varela for his “overwhelming victory” on his Twitter account. His Democratic Change party still won the most seats in the 71-member National Assembly, with 30 lawmakers compared with 12 aligned with Varela, according to preliminary estimates by the electoral tribunal.

A father of three, Varela received a bachelor’s degree in industrial engineering from the Georgia Institute of Technology in Atlanta and served on the board of his family’s company, Grupo Varela, whose investments include a brand of Panamanian rum.

$36 Billion Economy

A political alliance between Varela’s Panamenista Party and Martinelli began breaking down soon after the 2009 election. After publicly feuding over their political alliance in 2011, Varela repeatedly rebuked the president for allegedly consolidating state resources for political gain. That year he called on Martinelli to suspend a $250 million contract to buy radar equipment and helicopters from Italy, pending an investigation into allegations that officials took bribes. Martinelli rejected the accusations and said Varela, who he had already removed as foreign minister, should resign the vice presidency.

Fueled by government spending, Panama’s $36 billion economy has been among the world’s fastest-growing, with gross domestic product surging an average of more than 8 percent a year under Martinelli, who wasn’t eligible for re-election. Growth will slow to about 6 percent by 2015, prompting the need for “improved spending control,” Fitch Ratings said in a report today. Public spending accounted for a record 10 percent of GDP last year, Fitch said.

“We think tighter spending controls will be needed to meet targets set under the current fiscal responsibility law,” according to the report.

Corruption Index

The International Republican Institute, a Washington-based policy advocacy group, said in a report today that the campaign was “generally competitive” and met international standards. It called for greater transparency during the campaigns so that “parties disclose the origin of contributions and prevent the use of public funding for partisan propaganda.”

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.

Panama’s dollar bonds have returned 7.5 percent this year, compared with 5.5 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.

Construction projects throughout Panama have remained idle since April 23, when workers walked off the job in an effort to win a 35 percent salary increase. The strike threatens to further delay the canal’s expansion, designed to accommodate larger ships and help reduce transport costs for commodities such as liquefied natural gas.

“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.

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 Randall Woods

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