Economy

Panama had an unemployment rate of 2.7%. A food surplus was registered in August 2008. On the Human Development Index Panama was ranked at number 60 (2008). In recent years, Panama's economy has experienced an economic boom, with growth in real gross domestic product (GDP) averaging over 10.4% from 2006–2008. The Panamanian economy has been among the fastest growing and best managed in Latin America. Latin Business Chronicle has predicted that Panama will be the fastest growing economy in Latin America in the five-year period 2010–14, matching Brazil's 10% rate.

Like most countries in the region, Panama is feeling the impact of the global financial crisis, which threatens to undermine the social gains made in the past few years.

The expansion project of the Panama Canal, combined with the conclusion of a free trade agreement with the United States, is expected to boost and extend economic expansion for some time.

Economic sectors

Panama's economy, because of its key geographic location, is mainly based on a well developed service sector heavily weighted towards banking, commerce, tourism, and trading. The handover of the Canal and military installations by the United States has given rise to large construction projects. A referendum regarding the building of a third set of locks for the Panama Canal was approved overwhelmingly (with low voter turnout, however) on October 22, 2006.

The official estimated cost of the building of the third set of locks is US$5.25 billion. The canal is of major economic importance since it pumps millions of dollars from toll revenue to the national economy and provides massive employment. The United States had a monopoly over the Panama Canal for 85 years but the Torrijos–Carter Treaties signed in 1977 began the process of returning the canal to the Panamanian government by 1999.

Copper and gold deposits are being developed by foreign investors, to the dismay of some environmental groups, as all of the projects are located within protected areas.

Tourism

Tourism in the Republic of Panama kept its growth during the past 5 years due to the government offering tax and price discounts to foreign guests and retirees. These economic incentives caused Panama to be regarded as a relatively good place to retire in the world. Real estate developers in Panama have increased the amount of tourism destinations in the past five years because of the interest for these visitor incentives. The amount of tourists arriving between January and September 2008 totalled 1,110,000. This was a significant increase of 13.1% (128,452) over the previous high of 982,640 during the same period in 2007.

The arrival of tourists from Europe to Panama grew by 23.1% during the first nine months of 2008. According to the Tourism Authority of Panama (ATP), between January and September, 71,154 tourists from the Old Continent entered the country that is 13,373 more than figures for same period last year. Most of the Europeans who have visited Panama were Spaniards (14,820), followed by Italians (13,216), French (10,174) and British (8,833). From Germany, the most populous country in the European Union, 6997 tourists arrived. Europe has become one of the key markets to promote Panama as a tourist destination.

In 2007, 1.445.5 million entered into the Panamanian economy as a result of tourism. This accounted for 9.5% of gross domestic product in the country, surpassing other productive sectors.

Panama's Law No. 9 is still the most modern and comprehensive law for the promotion of tourism investment in Latin America and the Caribbean. In so-called Special Tourism Zones, Law 8 offers incentives such as 100% exemption from income tax, real estate tax, import duties for construction materials and equipment, and other taxes. Panama has declared different parts of the country as Special Tourism Zones which are benefited with multiple tax exemptions and tax holidays.

Currency

The Panamanian currency is officially the balboa, fixed at parity with the United States dollar since independence in 1903. In practice, however, the country is dollarized; Panama has its own coinage but uses U.S. dollars for all its paper currency. According to the Economic Commission for Latin American and the Caribbean, Panama's inflation as measured by weight CPI was 2.0% in 2006. Panama has traditionally experienced low inflation, as it shares currencies with the U.S.

The balboa replaced the Colombian peso in 1904 following the country's independence. The balboa has been tied to the United States dollar (which is legal tender in Panama) at an exchange rate of 1:1 since its introduction and has always circulated alongside dollars.

Panamanian banknotes, denominated in balboas, were printed in 1941 by President Arnulfo Arias. They were recalled several days later, giving them the name "The Seven Day Dollar." The notes were burned after the seven days but occasionally balboa notes can be found with collectors. These were the only banknotes issued by Panama and U.S. notes have circulated both before and since.

International trade.

The high levels of Panamanian trade are in large part from the Colón Free Trade Zone, the largest free trade zone in the Western Hemisphere. Last year the zone accounted for 92% of Panama's exports and 64% of its imports, according to an analysis of figures from the Colon zone management and estimates of Panama's trade by the United Nations Economic Commission for Latin America and the Caribbean. Panama's economy is also very much supported by the trade and exportation of coffee and other agricultural products.

The Bilateral Investment Treaty (BIT) between the governments of the United States and Panama was signed on October 27, 1982. The treaty protects U.S. investment and assists Panama in its efforts to develop its economy by creating conditions more favorable for U.S. private investment and thereby strengthening the development of its private sector. The BIT with Panama was the first such treaty signed by the U.S. in the Western Hemisphere.

A Trade Promotion Agreement between the United States and Panama was signed by both governments in 2007.  In the 112th U.S. Congress, the ascendancy of the Republican Party in the House of Representative led to new pressures to approve all three pending free trade agreements (Colombia, Panama, and South Korea). Finally, in October 2011, President Obama submitted the three trade pacts to the Congress, and they were quickly passed. On October 12, 2011, the U.S.-Panama TPA was passed in the House by a vote of 300-129 (H.R. 3079) and in the Senate by a vote of 77-22 (S. 1643). President Obama signed the pact, but further regulatory formalities will need to be completed before the agreement enters into force.