The Dirty Truth: Investing in Panama for Skeptics


The Dirty Truth: Investing in Panama for Skeptics

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Written by Matt Landau

Saturday, December 23 2006

Does Panama really have a strong middle class? Is the income gap in Panama really as bad as people say it is? Will the country's economy and ensuing political status collapse because of too much money over the next few years?

These are questions that we get here every day and up until now, we haven't been able to answer them with any sort of conviction or exactitude. There are plenty of sites that will post their opinions as though they've spent 40 years working for various nations, specializing in economic development but usually, that's just not the case. Thanks to a good and well-qualified friend of The Panama Report, we can finally put some of these issues to rest.

A friend of mine is an expat currently living in Panama. And he has in fact spent 40 years working in more than 40 nations of Africa, the Middle East, Asia, and Latin America for the UN, the US foreign aid program, as well as a whole long list of non-profit humanitarian groups. In each of these nations, he has focused on economic development and conveniently the various "classes", particularly those in the lower ranks. He is intimately familiar with stacks and stacks and stacks of statistics, the people who develop them, and the methods they use. Frankly though, while these statistics are presented as if they were fact, he knows the bulk of them, like the ones that address the 'middle class' in Panama, are nothing more than pure guesswork (and that's being generous). Many of them are "massaged' he reveals, to meet various professional, personal, and political agendas.

Investigating the claim made by a number of people that Panama has a large or strong middle class, I once asked him, what is the definition of “middle class”? (This being because I always felt like the middle class (whatever that means) was more evident and noticeable in, say, Costa Rica).

“There is no agreement on what "middle class" means" I learned. "But the definitions that are used vary greatly and are not supported statistically in any objective fashion. As just one example of many, the so-called "gini coefficient", used by many organizations to demonstrate income inequality, is an excellent example of an apparently objective number based on ignorance and numbers plucked from out of the air. By that measure, Azerbaijan is more egalitarian than Sweden and both India and Zimbabwe far more so than Panama."

People who work in these countries laugh at all this. He went on to add that the percentages given of those "below the poverty line" ignore the fact that 1) there is no agreement as to where to place that line and 2) there are no accurate statistics as to how many really fall below whatever artificial line is created. This too, applies to the United States where there is no exact quantifiable definition for the term 'middle class' or even 'poverty'.

I have always been approached with questions regarding the so-called income gap in Panama, so I asked how it compares to the rest of the world, and more importantly, its implications in Central America.

“The gap you see in Panama is nothing compared to the gap you can see in India...nothing. Yet no one is worried that India can't handle its rapid economic growth (the growth rate in Panama is at 7% annually which is roughly equal to that of India's). Belize is a basket case and the last place in the region I would live.

What about places in Mexico like Cabo San Lucas? They've got to have it together there right? Well, to begin Mexico has massive problems with powerful home-grown drug cartels. There's a sharp left-right divide, a sharp rich-poor divide, a sharp north-south regional divide, no party with anywhere near a majority of their legislature, a President hanging on as best as possible, a dependency on rapidly changing oil prices, a continuing problem with the US on immigration, the list goes on and on. I expect Mexico to work its way through this, but it's nowhere nearly as stable and solid as Panama. Costa Rica is yesterday's story and has nothing that Panama doesn't. To top that off, Panama has the Canal, the Free Trade Zone, a much better infrastructure, a lower crime rate (especially against expats), a better retiree package, and so forth."

"So, to put it bluntly, coming from an authority on the subject, there isn't a nation in Central America that wouldn't happily trade economies with Panama, to say nothing of socio-political stability status."

A lot of people ask, if Panama is equipped to handle this giant influx?

“Panama will absorb the coming money. How many nations collapse because of too much money? Even the weakest (Nigeria comes to mind) somehow manage to carry on. Panama is in much better shape than Nigeria and that is an understatement. Panama is not a "Third World" nation, it is an emerging market. Note the word "emerging". This is a human society. It will grow in human fashion, with all its fits and starts, just like every nation that has had to deal with success."

To sum this all up, every professional in the business with decades of experience working in a wide variety of nations, agrees about Panama. Of course you'll get your skeptics, the same guys who claim the Knicks will never win another NBA Finals and that Tupac will never come back to life. Pessimism is healthy. There are also those who believe that all problems and hitches can be solved with one all-encompassing remedy. The members of this magic bullet society are important too.

The majority of those qualified though, agrees that Panama definitely has a middle class and it is large and growing. They also agree that Panama has a lower class and poverty, but this is no surprise.

Like "poverty", "middle class" is a vague term, open to interpretation among professionals. But for laypeople like us, things are now a little bit more clear.

Thanks to our contributor for his expert opinion on the subject. For this, The Panama Report, and its unduly inquisitive readers are thankful.

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