Latin America Advisor

A Daily Publication of The Dialogue

What Does Varela’s Election as President Mean for Panama?

Jakob Polacsek / WEF / CC BY-NC-SA 2.0
Q: Juan Carlos Varela, Panama's vice president, was elected to the country's presidency on Sunday, defeating President Ricardo Martinelli's preferred candidate, José Domingo Arias, and former Panama City Mayor Juan Carlos Navarro. What factors propelled Varela to victory? What will be Varela's biggest challenges after taking office July 1? What does his election mean for businesses in Panama? A: Joaquín Jácome Diez, senior partner at Jácome & Jácome in Panama City and former trade minister of Panama: "According to most polls, Varela was the only candidate that had an upward trend in the weeks before the general elections, and this trend was magnified due to a massive negative campaign that was directed toward him. Varela's tough stance against the government in subjects like cost overruns in different projects and soaring prices of food products, plus some popular campaign proposals made him the viable opposition candidate to beat the government machinery. President-elect Varela's biggest challenge will be to form a coalition in the National Assembly in order to fulfill his campaign promises. National Assembly results shows the Cambio Democrático party controlling almost 32 seats out of 71. Therefore, President-elect Varela will be forced to choose between a political alliance with a historical adversary, the Partido Revolucionario Democrático, or President Martinelli's Cambio Democrático. Both scenarios require lots of negotiations in order to reach consensus. What is clear is that he cannot make legislators change political parties in order to have a majority; otherwise he would be making the same political error that he accused President Martinelli of committing. President-elect Varela's economic team consists of successful people from the private sector used to dealing with foreign direct investment and international financial institutions. Therefore, as a country we do not foresee any obstacle to the national or international business communities. However, if Varela succumbs to the wishes of some within Martinelli's administration and unleashes an indiscriminate witch hunt, Panama's economy and foreign direct investment could be severely affected." A: Joydeep Mukherji, senior director of Latin American Sovereign Ratings at Standard & Poor's in New York: "Varela inherits a booming economy with different challenges than those confronting most Latin American presidents. Panama's GDP grew more than 8 percent last year and may grow around 6 percent this year. Per capita GDP more than doubled in the past decade to nearly $10,000 and the poverty rate has fallen below 25 from more than 38 percent in 2006. Employment is booming, thanks in part to massive infrastructure projects undertaken by Martinelli's administration. Martinelli set Panama's political agenda thanks to his control of Congress. However, his leadership style, which some perceive as aggressive, weakened his popularity. Varela will likely display a less aggressive leadership style and, lacking a majority in Congress, will have to rely on other parties to pass laws. Moreover, he will face new political demands from a more affluent population that is increasingly concerned about social issues. We do not expect any significant changes in Panama's successful strategy of growth through investment in infrastructure and development of a regional hub for logistics and other services. However, the pace of public investment is likely to decline, after a huge spike in recent years. A test for the new government is its ability to manage the recently-created sovereign wealth fund (Fondo de Ahorro de Panama), which is slated to receive dividends from the Panama Canal above a defined amount (3.5 percent of GDP) that goes to the government. Proper implementation of the fund law would contain pressure for more spending once the Canal generates higher dividends, alleviate inflationary pressures and provide funds for counter-cyclical fiscal policy, potentially contributing to a higher credit rating." A: Jaime Figueroa Navarro, secretary of internal affairs and a member of the board of directors of the Panama Business Executives Association: "Several factors influenced the elections: First, Martinelli's stubborn selection of his wife as the vice presidential candidate on the government's ticket. Second, the grossly divisive, lengthy and negative campaign, including the obscene spending and overcharged marketing that turned people off. Third, the erosion of institutions that placed all the power in the presidency, à la Berlusconi. Finally, Varela himself, who handled false accusations and presented himself as a decent man for all the people and not just for selected interest groups, an insider responsible for major social legislation prior to being treacherously fired. One could sense it at the polls: the underdog was creeping up during the final weeks and there was no stopping the tide. The PRD and CD parties' associates ran frantically, offering free transportation for all on Election Day. At the end, at the moment of truth, the people, myself included, voted enthusiastically for Varela as the next president. Varela's biggest challenges after taking office are regaining institutionalism, placing an emphasis on all the social programs in his campaign plan and halting corruption while appointing able professionals to key posts in lieu of politicians. Given Varela's excellent ties with the business sector and the international arena as a result of his tenure as Panama's foreign minister, it is business as usual for the private sector where the new government will continue to encourage foreign investments and continued solid financial growth." A: Eric Jackson, editor of The Panama News: "Three main factors drove Varela to victory: the negative perceptions of his opponents as opposed to his amiable image, increasingly strident attacks by Ricardo Martinelli that got downright vicious at the end and his call for price controls on basic food staples that stood in contrast to the abstract of neoliberally-orthodox wonkery of his main opponents. In the end, people already uneasy about Martinelli's bid for proxy re-election were alarmed by the electronic attacks on news Web sites. Varela comes to office with the third-largest caucus in a legislature in which no party holds a majority and faces a looming debt crisis. However decent he may personally be, he operates in a context in which many of his supporters will be celebrating 'their turn to steal' and where popular wisdom has it that she or he who has the ability to hire and fire public employees and who fails to put all relatives on the public payroll has betrayed his or her family. Juan Carlos Varela is the scion of a family business, Panama's principal liquor distillery, which also owns vast tracks of the sugar cane from which rum is made. The Varelas are unlike many of Panama's oligarchs in that their fortune was not created by and does not much depend on either the government or foreign corporations. He will not be too radical in the economic sphere, but his call for food price controls is an indication of the limits of 'free trade' dogma in his upcoming administration."

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