Previous issues can be selected by viewing our Letter from Panama index page

Christmas came to Panama last year with temperatures around 28 Celsius whilst in many parts of Europe temperatures in the 20s could also be found, except that they were measured in Fahrenheit.  The city of Panama’s grand annual Christmas parade with its numerous floats and seemingly countless marching bands saw the streets along the 3-mile route lined with spectators sheltering as best they could from the heat.  The parade took some 5 hours to complete its route and after dark the night sky was illuminated with a cascade of dazzling colour as fireworks were lit. 

Elsewhere political, rather than festive, fireworks have been going off.  In nearby Venezuela the government of President Hugo Chávez has been experiencing parades of protest to his rule with many of the country’s population of over 24 million filling, rather than lining, the streets of Caracas.  The President’s opponents include those from private businesses, trade unions, the media and the church.  Last year I had commented that President Chávez had tempered his Bolivarian revolutionary reform programme in a move perhaps towards using think-tanks rather than army tanks.  But last Christmas it was oil tankers which took centre stage in Venezuela, the world’s fifth largest oil exporter.  Chávez, his detractors claim, has manipulated the constitution and has concentrated power in his own hands and those of his cohorts.  Importantly, he has alienated Petróleos de Venezuela (PDVSA) the state oil company, which was at the centre of an oil strike in April, 2002, when Chávez was temporarily removed from power.  Lessons seem not to have been learned since then and at the beginning of last December Venezuela’s fourth general strike in a period of just 12 months began.  At the beginning the oil industry’s involvement was fairly passive until armed men broke into the house of a prominent PDVSA manager and government dissident whose life was apparently threatened.  There followed a protest at which flags were waived and whistles were blown by a few hundred demonstrators which triggered, literally, an assault by a National Guard riot squad that responded with gas and plastic bullets. 

PDVSA provides the government with 50% of its income and handles 80% of exports and as the tension escalated tanker loadings started to be delayed with several PDVSA tanker captains refusing to sail.  The United States has been an anxious observer as the Organisation of American States has, metaphorically, tried to pour oil on troubled waters.  Venezuela is an important supplier of oil to the United States from which it gets 35% of its imports and to which it sends 60% of its exports.  The United States had been taking 1.5 million barrels per day of Venezuela’s daily 2 million barrels of crude exports until the crisis but this supply, like much of Venezuelan daily life, has been disrupted.  The fate of Venezuela now seems to rest with a toss of the political dice.

Until 2001, Latin America’s economic outlook gave cause for optimism.  But the world economy has faltered and as a consequence developing economies have taken the brunt of the impact.  Consequently, regional growth of 4.5 per cent in 2000 (excluding Argentina) fell to 1.2 per cent in 2001.  The forecast for 2002 is less than 1 per cent.  Argentina’s economy shrank 4.4 per cent in 2001 and J.P. Morgan thinks that the country’s economy might have contracted a further 11 per cent in 2002.  The volume of world trade shrank by 0.5 per cent in 2001 and commodity prices (with the exception of oil) fell 1.3 per cent in 2000, in dollar terms, and then by a further drop of just over 9 per cent in 2001.  Although there has been a recovery in commodity prices since then, the fact remains that commodity prices (excluding oil) are still a third below the levels which were reached in 1997. 

Although commodity price fluctuations can hit Latin America hard, it is the capricious capital markets that are causing concern.  Net private credit to Latin America was a shuddering minus $8 billion in 2001 with the figure for 2002 estimated at minus $6 billion.  It is a fact that Latin America, especially, is a hostage to both changes in the global environment as well as the availability of capital.  This time round those most affected will be Argentina, Uruguay and Venezuela.  In 2002 the region (including the Caribbean) transferred net financial resources abroad for the first time since the end of the 1980s and inflation rose to 12 per cent (which is twice what it was in 2001) after 8 years in which it had declined.  Panama, however, with the US dollar as its currency since 1903, saw a low inflationary figure and the consumer price index changed by 0.7 per cent in 2001.  Even so, Panama’s economy, like much of Latin America, has stagnated and after growing 2.6 per cent in 2000, it only grew by 0.5 per cent in 2001.  

This year’s Christmas parade in Panama will follow soon after the country’s 100^th birthday in November and so as the year ends we’ll see the country focusing on celebration, despite the economic gloom.  And for Venezuelans Christmas this year should be better.   A year after Christopher Columbus discovered Venezuela in 1498, Alonso de Ojeda found Lake Maracaibo and he was intrigued by the sight of the houses built on stilts in the lake prompting him to call the area “little Venice” or Venezuela.  The country has always managed to keep its head above water but whether President Chávez will be able to do the same is another matter.