Panama gets a lot of bad press. Last October, his name once again hit the headlines in the Pandora Papers. Nearly half of the hundreds of politicians and civil servants (including three former Panamanian presidents) mentioned in this data leak were clients of a Panamanian law firm.
These revelations come just five years after the so-called Panama Papers, which revealed the shady activities of Mossack Fonseca, the now-defunct Panamanian company that was once one of the largest offshore financial services firms in the world.
The tiny country has developed an inordinate reputation for facilitating the unsavory financial dealings of the world’s rich and powerful. Given these scandals, it may seem tempting to dismiss Panama as nothing more than a hub of corruption and illicit finance.
Yet Panama is one of Latin America’s most striking political and economic success stories of the past three decades. Not only has it remained a stable democracy, but it has also been the fastest growing economy in the region and today ranks among its most developed countries.
Its success defied conventional political science wisdom in surprising ways. Four features of his achievements are particularly puzzling.
First, Panama is a rare case of democratization by military invasion. While Operation Just Cause, launched by the United States in December 1989, claimed hundreds of lives and was widely denounced by the international community, one embarrassing fact remains: it worked.
The overthrow of dictator Manuel Noriega allowed Guillermo Endara, the winner of the presidential election of May 1989, to take office. Democracy quickly took root.
Panama has been classified as “free” by Freedom House since 1995. The country has also avoided many of the pitfalls of other Latin American democracies, such as military coups, elected strongmen, and the collapse of political systems. gone.
These are no small feats, especially since Panama and Grenada are the only two countries to have successfully democratized through military invasion since World War II.
Why success in Panama? Unlike Iraq and Afghanistan, Panama was a middle-income country without deep religious or linguistic divides when the United States invaded.
Moreover, he had decades of democratic experience before the 1968 military coup that brought Noriega’s predecessor, Omar Torrijos, to power. In a very real sense, the 1989 invasion resulted in the restoration of democracy, not its creation.
Second, the most successful party since democratization is none other than Noriega’s Democratic Revolutionary Party (PRD). Far from carrying out the equivalent of de-Baathification in Iraq, the United States allowed the PRD to continue to operate –
and even return to power in the first-ever post-invasion election.
The PRD subsequently won two more presidential races (the most recent with the election of current President Laurentino Cortizo in 2019) and garnered the most votes in all but one legislative election.
In a sense, the success of the PRD is not surprising. So-called authoritarian successor parties – parties that emerged from authoritarian regimes and continue to function after a democratic transition – have been present in almost three-quarters of new democracies since the third wave of democratization at the end of the 20th century. These parties have won re-election in more than half of third-wave democracies.
What is surprising is that the PRD thrived under the most adverse conditions. Few events are considered more damaging to the reputation of an authoritarian regime than a defeat in war. Yet, despite the end of the Panamanian dictatorship through a military invasion, the PRD has embraced that regime’s legacy – or more precisely, part of that legacy.
To this day, the party claims to adhere to the principles of its founder, Torrijos, who is still revered by many Panamanians for negotiating the handover of the Panama Canal. At the same time, the PRD threw Noriega under the bus. This “scapegoat to prosper” strategy gave the PRD the best of both worlds: it could take full advantage of its torrijo heritage while unloading its baggage on Noriega.
Third, Panama has managed to achieve rapid economic development despite very high levels of corruption. Between 1990 and 2019, the Panamanian economy grew on average at 5.9% per year, the fastest in Latin America.
Today, it has the highest GDP per capita in the region at purchasing power parity and is rated by the United Nations as a “very high” human development case. However, Panama is a grossly corrupt country: of the 53 countries ranked by the World
Bank as a “high earner” in 2019 for which data exists, it was by far the most corrupt according to the Corruption Perceptions Index. Corruption is widely seen as an inhibitor of economic growth, so how does Panama thrive?
It turns out that corruption comes in many forms, and some are more economically damaging than others. This may help clarify the implications of the 2016 Panama Papers scandal. As unethical as they may have been, it is not certain that the tax evasion and money laundering activities revealed by the scandal can be classified as corruption if by that we mean the abuse of public office for private gain.
Moreover, they do not seem to have harmed the Panamanian economy. Tax havens are, after all, some of the richest places on the planet. As such, one would expect the Pandora Papers 2021 to have little negative impact on the Panamanian economy.
Another factor behind Panama’s prosperity is the fourth puzzle: the successful management of the Panama Canal after the United States handed over Panama in 1999. While the developing world is replete with examples of Of nationalized industries that have collapsed (such as the oil industry in Venezuela), the Panama Canal, upon which the Panamanian economy is largely dependent, is a remarkable example of efficient resource management.
The canal’s contributions to the national treasury quadrupled between 2000 and 2008. According to researchers Noel Maurer and Carlos Yu, Panama “operated the canal much more efficiently and commercially than the United States ever did” after having taken control of the transoceanic passage.
To prevent political interference from undermining the canal’s effective management, successive Panamanian governments led by the country’s two main parties (and backed by strong public support) have taken stringent measures to guarantee the Authority’s autonomy. of the Panama Canal, property of the State, in particular through a constitutional amendment.
The agency exemplifies the concept of ‘islands of integrity’, in which public institutions maintain high levels of probity despite operating in a context of widespread corruption. The fact that the engine of Panama’s economy has remained politically isolated almost certainly helps explain Panama’s ability to achieve rapid economic growth despite high levels of corruption elsewhere in the country.
What can we learn from the Panamanian experience? A lesson that probably should not be learned concerns the advisability of promoting democratization through invasion. Even in Panama, a small country where the United States already had a military presence, the invasion resulted in significant bloodshed; in larger countries with more formidable armies, the consequences would likely be even more tragic.
A lesson from Panama relevant to countries like Cuba and Venezuela, however, is that authoritarian successor parties can thrive even in the most adverse of circumstances. The parties currently in power in these countries need not fear democracy.
By following the scapegoating strategy used by the Panamanian PRD, they could remain competitive – and even return to power – in free and fair elections. Venezuela’s United Socialist Party, for example, could campaign on the popular memory of the late Hugo Chávez while unloading its baggage on the country’s much-vilified current dictator, Nicolás Maduro.
The Panama experience also offers another simple but profound lesson. One of the main challenges posed by the rising tide of authoritarianism in the world is to prove that democracy can deliver on its promises. The example of Panama shows that it is possible: the remarkable economic growth of the country coincided with its passage as a democracy. It is a story worth telling.
James Loxton, senior lecturer in the Department of Government and International Relations at the University of Sydney.
Disclaimer: This article first appeared on Foreign Policy, and is edited and published by special syndication arrangement.