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Diplomacy in Action

Panama (04/01)


For the most current version of this Note, see Background Notes A-Z.


Official Name:
Republic of Panama

Nationality: Noun and adjective--Panamanian(s).
Population (July 2000 est.): 2.808 million.
Annual growth rate: 1.34%.
Ethnic groups: Mestizo (mixed Indian and European ancestry) 70%,
West Indian 14%, Caucasian 10%, Indian 6%.
Religions: Roman Catholic 85%, Protestant (Evangelical) 15%.
Languages: Spanish (official); 14% speak English as their native tongue; various
Indian languages.
Education: Years compulsory--6. Attendance--95% for primary school-age children,
96% for secondary. Literacy--about 90% overall: urban 94%, rural 62%.
Health: Infant mortality rate--17/1,000. Life expectancy--75 yrs.
Work force (1,086,598): Commerce (wholesale and retail)--19.1%;
agriculture, cattle, hunting, silviculture--14%; industries (manufactures)--8.8%;
construction--7.7%; transportation, storage, communications--7.2%; public and
defense administration--6.9%; other community and social activities--5.8%; hotels
and restaurants--3.7%; financial intermediation--2.6%.

Area: 77,381 sq. km. (29,762 sq. mi.); slightly smaller than South Carolina. Panama
occupies the southeastern end of the isthmus forming the land bridge between North
and South America.
Cities: Capital--Panama City (827,828). Other cities--Colon (140,908), David (102,678).
Terrain: Mountainous (highest elevation Cerro Volcan, 3,475 m.--11,468 ft.);
coastline 2,857 km. (1,786 mi.).
Climate: Tropical, with average daily rainfall 28 mm. (1 in.) in winter.

Type: Constitutional democracy.
Independence: November 3, 1903.
Constitution: October 11, 1972; amended 1983 and 1994.
Branches: Executive--president (chief of state), two vice presidents. Legislative--
Legislative Assembly (unicameral, 72 members). Judicial--Supreme Court.
Subdivisions: Nine provinces and two (Indian) territories.
Political parties: President Mireya Moscoso belongs to the Arnulfista Party (PA).
Principal opposition parties include the Democratic Revolutionary Party (PRD)
of the former president, Ernesto Perez Balladares. The PRD, in coalition with
smaller parties, holds a slim majority in the Legislative Assembly.
Suffrage: Universal and compulsory at 18.

GDP (1998): (PPP) $8.96 billion.
Annual growth rate (2000 est.): 2.3%; 3.0% (1999).
Per capita GDP (1998): (PPP) $3,199.
Natural resources: Timber, seafood, copper.
Services (76.5% of GDP): Finance, insurance, canal-related services,
Colon Free Zone.
Agriculture (7% of GDP): Products--bananas and other fruit, corn, sugar,
rice, coffee, shrimp, timber, vegetables, livestock.
Industry (16.5% of GDP): Types--food and drink processing, metalworking,
petroleum refining and products, chemicals, paper and paper products, printing,
mining, refined sugar, clothing, furniture, construction.
Trade: Exports (1999)--$707 million: bananas, shrimp, sugar, coffee, clothing.
Major markets--U.S. 42%. Imports (1999)--$3.5 billion: capital goods, crude
oil, foodstuffs, chemicals, other consumer and intermediate goods. Major
suppliers--U.S. 35.3%.

The culture, customs, and language of the Panamanians are predominantly Caribbean
Spanish. Ethnically, the majority of the population is mestizo (mixed Spanish and Indian)
or mixed Spanish, Indian, Chinese, and West Indian. Spanish is the official and dominant
language; English is a common second language spoken by the West Indians and by
many in business and the professions. More than half the population lives in the Panama City-Colon metropolitan corridor.

Panama is rich in folklore and popular traditions. Brightly colored national dress is worn during local festivals and the pre-Lenten carnival season, especially for traditional folk dances like the tanborito. Lively salsa--a mixture of Latin American popular music, rhythm and blues, jazz, and rock--is a Panamanian specialty. Indian influences dominate handicrafts such as the famous Kuna textile molas. Artist Roberto Lewis' Presidential Palace murals and his restoration work and ceiling in the National Theater are well known and admired.

More than 65,000 Panamanian students attend the University of Panama, the Technological University, and the University of Santa Maria La Antigua, a private Catholic institution. Including smaller colleges, there are 14 institutions of higher education in Panama.

The first 6 years of primary education are compulsory, and there are about 357,000 students currently enrolled in grades one through six. The total enrollment in the six secondary grades is about 207,000. Nearly 90% of Panamanians are literate.

Panama's history has been shaped by the evolution of the world economy and the ambitions of great powers. Rodrigo de Bastidas, sailing westward from Venezuela in 1501 in search of gold, was the first European to explore the isthmus of Panama. A year later, Christopher Columbus visited the isthmus and established a short-lived settlement in the Darien. Vasco Nunez de Balboa's tortuous trek from the Atlantic to the Pacific in 1513 demonstrated that the isthmus was, indeed, the path between the seas, and Panama quickly became the crossroads and marketplace of Spain's empire in the New World. Gold and silver were brought by ship from South America, hauled across the isthmus, and loaded aboard ships for Spain. The route became known as the Camino Real, or Royal Road.

Panama was part of the Spanish empire for 300 years (1538-1821). From the outset, Panamanian identity was based on a sense of "geographic destiny," and Panamanian fortunes fluctuated with the geopolitical importance of the isthmus. The colonial experience also spawned Panamanian nationalism as well as a racially complex and highly stratified society, the source of internal conflicts that ran counter to the unifying force of nationalism.

Building the Canal
Modern Panamanian history has been shaped by its transisthmian canal, which had been a dream since the beginning of Spanish colonization. From 1880 to 1900, a French company under Ferdinand de Lesseps attempted unsuccessfully to construct a sea-level canal on the site of the present Panama Canal. In November 1903, with U.S. encouragement and French financial support, Panama proclaimed its independence and concluded the Hay/Bunau-Varilla Treaty with the United States.

The treaty granted rights to the United States "as if it were sovereign" in a zone roughly 10 miles wide and 50 miles long. In that zone, the U.S. would build a canal, then administer, fortify, and defend it "in perpetuity." In 1914, the United States completed the existing 83-kilometer (50-mi.) lock canal, which today is one of the world's greatest engineering triumphs. The early 1960s saw the beginning of sustained pressure in Panama for the renegotiation of this treaty. (See discussion of United States-Panama relations and the 1977 Panama Canal Treaties below.)

Military Coups and Coalitions
From 1903 until 1968, Panama was a constitutional democracy dominated by a commercially oriented oligarchy. During the 1950s, the Panamanian military began to challenge the oligarchy's political hegemony. In October 1968, Dr. Arnulfo Arias Madrid, twice elected president and twice ousted by the Panamanian military, was again ousted as president by the National Guard after only 10 days in office. A military junta government was established, and the commander of the National Guard, Brig. Gen. Omar Torrijos, emerged as the principal power in Panamanian political life. Torrijos' regime was harsh and corrupt, but he was a charismatic leader whose populist domestic programs and nationalist foreign policy appealed to the rural and urban constituencies largely ignored by the oligarchy.

Torrijos' death in 1981 altered the tone but not the direction of Panama's political evolution. Despite 1983 constitutional amendments which appeared to proscribe a political role for the military, the Panama Defense Force (PDF), as they were then known, continued to dominate Panamanian political life behind a facade of civilian government. The PDF's hand-picked candidate won the presidential election in 1984. Progovernment parties also won a majority of Legislative Assembly seats, in races tainted by charges of corruption. By this time, Gen. Manuel Noriega was firmly in control of both the PDF and the civilian government.

The rivalry between civilian elites and the Panamanian military, a recurring theme in Panamanian political life since the 1950s, developed into a grave crisis in the 1980s. Prompted by government restrictions on media and civil liberties, in the summer of 1987 more than 100 business, civic, and religious groups formed a loose coalition that organized widespread anti-government demonstrations.

Panama's developing domestic crisis was paralleled by rising tensions between the Panamanian Government and the United States. The United States froze economic and military assistance to Panama in the summer of 1987 in response to the political crisis and an attack on the U.S. embassy. The Government of Panama countered by ousting the U.S. Agency for International Development in December 1987; before the end of the year, the U.S. Congress cut off all assistance to Panama. General Noriega's February 1988 indictment in U.S. courts on drug-trafficking charges sharpened tensions. In April 1988, President Reagan invoked the International Emergency Economic Powers Act, freezing Panamanian Government assets in U.S. banks and prohibiting payments by American agencies, firms, and individuals to the Noriega regime.

When national elections were held in May 1989, Panamanians voted for the anti-Noriega candidates by a margin of over three-to-one. Although the size of the opposition victory and the presence of international observers thwarted regime efforts to control the outcome of the vote, the Norieiga regime promptly annulled the election and embarked on a new round of repression.

By the fall of 1989, the regime was barely clinging to power. An unsuccessful PDF coup attempt in October produced bloody reprisals. Deserted by all but a small number of cronies, and distrustful of a shaken and demoralized PDF, Noriega began increasingly to rely on irregular paramilitary units called Dignity Battalions. In December 1989, the regime's paranoia made daily existence unsafe for U.S. forces and other U.S. citizens.

On December 20, President Bush ordered the U.S. military into Panama to protect U.S. lives and property, to fulfill U.S. treaty responsibilities to operate and defend the Canal, to assist the Panamanian people in restoring democracy, and to bring Noriega to justice. The U.S. troops involved in Operation Just Cause achieved their primary objectives quickly, and troop withdrawal began on December 27. Norieiga eventually surrendered to U.S. authorities voluntarily. He is now serving a 40-year sentence for drug trafficking.

Rebuilding Democracy
Panamanians moved quickly to rebuild their civilian constitutional government. On December 27, 1989, Panama's Electoral Tribunal invalidated the Norieiga regime's annulment of the May 1989 election and confirmed the victory of opposition candidates under the leadership of President Guillermo Endara and Vice Presidents Guillermo Ford and Ricardo Arias Calderon.

President Endara took office as the head of a four-party minority government, pledging to foster Panama's economic recovery, transform the Panamanian military into a political force under civilian control, and strengthen democratic institutions. During its 5-year term, the Endara government struggled to meet the public's high expectations. Its new police force proved to be a major improvement in outlook and behavior over its thuggish predecessor but was not fully able to deter crime. Its overall record was not enough to convince a skeptical public that it deserved re-election in 1994.

Ernesto Perez Balladares was sworn in as President on September 1, 1994, after an internationally monitored election campaign. The campaign was Panama's largest, with seven candidates for the presidency; over 2,500 for the legislature; 2,000 for mayoral posts; and more than 10,000 at the local level and was peaceful, orderly, and efficient.

Ernesto Perez Balladares ran as the candidate for a three-party coalition dominated by the Democratic Revolutionary Party (PRD), the erstwhile political arm of the military dictatorship during the Torrijos and Norieiga years. A long-time member of the PRD, Perez Balladares worked skillfully during the campaign to rehabilitate the PRD's image, emphasizing the party's populist Torrijos roots rather than its association with Noriega. He won the election with only 33% of the vote when the major non-PRD forces, unable to agree on a joint candidate, splintered into competing factions.

Perez Balladares governed with a multiparty cabinet that included prominent experts in their fields as well as several members who publicly opposed Noriega. His administration carried out economic reforms and often worked closely with the U.S. on implementation on the Canal treaties. In August 1998, a Perez Balladares-blocked referendum to allow presidential reelection failed by a large margin. Soon after, the Government of Panama asked that the 2-year-long negotiations to establish a multilateral counter-narcotics center be ended.

On May 2, 1999, Mireya Moscoso, the widow of former President Arnulfo Arias Madrid who had lost narrowly to Perez Balladares in 1994, defeated PRD candidate Martin Torrijos, son of the late dictator. The elections were considered free and fair. Moscoso took office on September 1, 1999.

Panama is a representative democracy with three branches of government: executive and legislative branches elected by direct, secret vote for 5-year terms, and an independent appointed judiciary. The executive branch includes a president and two vice presidents. The legislative branch consists of a 72-member unicameral Legislative Assembly. The judicial branch is organized under a nine-member Supreme Court and includes all tribunals and municipal courts. An autonomous Electoral Tribunal supervises voter registration, the election process, and the activities of political parties. Everyone over the age of 18 is required to vote, although those who fail to do so are not penalized.

National Security
The Panamanian Government has converted the former Panama Defense Forces (PDF) into a civilian "public force," subordinate to civilian officials and composed of four independent units: the Panamanian National Police, the National Maritime Service (Coast Guard), the National Air Service, and the Institutional Protective Service (VIP Security). A constitutional amendment, passed in 1994, abolished the military permanently.

Law enforcement units that have been separated from the public force, such as the Technical Judicial Police, also are directly subordinate to civilian authorities. The public force budget--in contrast to the former PDF--is on public record and under control of the executive.

The United States, with congressional approval, is delivering assistance to help develop and maintain truly professional law enforcement agencies.

Principal Government Officials
President--Mireya E. MOSCOSO Rodriguez
First Vice President--Arturo VALLARINO Bartuano
Second Vice President--Dominador "Kaiser" BAZAN
Ministry of Foreign Affairs--Jose Miguel ALEMAN Healy
Ambassador to the United States--Guillermo FORD
Ambassador to the United Nations--Aquilino BOYD
Ambassador to the Organization of American States--Lawrence CHEWNING Fabrega

Panama maintains an embassy in the United States at 2862 McGill Terrace, N.W., Washington, D.C. 20008 (tel: 202-483-1407).

Panama's economy is based primarily on a well-developed services sector that accounts for nearly 80% of GDP. Services include the Panama Canal, banking, the Colon Free Zone, insurance, container ports, and flagship registry. Tourism is becoming increasingly important.

Panama's previous government under Ernesto Perez Balladares made important advances toward opening its economy to trade and free competition, in part by embarking on a major privatization program that attracted over $1 billion worth of U.S. investment. Though this privatization mostly has been concluded, more U.S. investment is anticipated with the signing of the OPIC Agreement and the amendment to the Bilateral Investment Treaty in 2000.

However, a slump in Colon Free Zone and agricultural exports, high oil prices, and the withdrawal of U.S. military forces precipitated an economic slowdown in 2000. A major challenge facing the current government under President Mireya Moscoso is turning to productive use the 70,000 acres of former U.S. military land and the more than 5,000 buildings that reverted to Panama at the end of 1999. Administratively, this job falls to the Panamanian Inter-Oceanic Regional Authority (ARI). Estimates of U.S. Department of Defense contribution to the Panamanian economy through employing Panamanians, local procurement, and expenditures by personnel range from $170 to $350 million.

GDP growth for 2000 was about 2.3%, compared to 3.0% in 1999. Though Panama has the highest GDP per capita in Central America, approximately 37% of its population lives in poverty. The unemployment rate in 2000 was 13. 3%.

Beginning March 1, 2001, Panama will serve as host for the 2001-03 Free Trade Area of the Americas negotiations. Additionally, Panama is negotiating free trade areas with Costa Rica and Mexico, among others.

Panama is a member of the UN General Assembly, most major UN agencies, and has served three terms as a member of the UN Security Council. It maintains membership in several international financial institutions, including the World Bank, the Inter-American Development Bank, and the International Monetary Fund.

Panama is a member of the Organization of American States and was a founding member of the Rio Group. Although it was suspended from the Latin American Economic System--known informally both as the Group of Eight and the Rio Group--in 1988 due to its internal political system under Noriega, Panama was readmitted in September 1994 as an acknowledgment of its present democratic credentials.

Panama also is one of the founding members of the Union of Banana Exporting Countries and belongs to the Inter-American Tropical Tuna Commission. Panama is an active participant in Central American regional meetings, although it is not a formal participant in integration activities. Panama is a member of the Central American Parliament (PARLACEN) as well as the Central American Integration System (SICA). Panama joined its six Central American neighbors at the 1994 Summit of the Americas in signing the Alliance for Sustainable Development known as the Conjunta Centroamerica-USA or CONCAUSA to promote sustainable economic development in the region and participates in some Miami summit follow-on meetings.

Panama strongly backed efforts by the United States to implement UN Security Council Resolution 940, which was designed to facilitate the departure of Haiti's de facto authorities from power. Panama offered to contribute personnel to the Multinational Force, which restored the democratically elected government to Haiti in October 1994, and granted asylum to some former Haitian military leaders. Also in 1994, Panama agreed to accept 9,000 Cuban "rafters," who were housed temporarily on U.S. military range areas until 1995.

The Panama Canal Treaties provided the foundation for an enduring partnership. The U.S. and Panama implemented the treaties by preparing for the transfer to Panama of the Canal and the U.S. base properties. Headquarters of the U.S. Southern Command transferred to Miami in 1997 and the withdrawal of all U.S. military forces from Panama was completed in 1999.

The United States cooperates with the Panamanian Government in promoting economic, political, and social development through U.S. and international agencies. Cultural ties between the two countries are strong, and many Panamanians come to the United States for higher education and advanced training. About 6,000 Americans reside in Panama, most of whom are retirees from the Panama Canal Commission and individuals who hold dual nationality.

Panama continues to fight against illegal narcotics. The country's proximity to major cocaine-producing nations and its role as a commercial and financial crossroads make it a country of special importance in this regard. Although money laundering remains a problem, Panama passed significant reforms in 2000 intended to strengthen its cooperation against international financial crimes. Panama has worked closely with the U.S. Treasury Department's Financial Crimes Enforcement Network and is a member of the Egmont Group.

The Panama Canal Treaties 
The 1977 Panama Canal Treaties entered into force on October 1, 1979. They replaced the 1903 Hay/Bunau-Varilla Treaty between the United States and Panama, and all other U.S.-Panama agreements concerning the Panama Canal which were in force on that date. The treaties comprise:

  • A basic treaty governing the operation and defense of the Canal from October 1, 1979, to December 31, 1999 (Panama Canal Treaty); and
  • A treaty guaranteeing the permanent neutrality of the Canal (Neutrality Treaty). The details of the arrangements for U.S. operation and defense of the Canal under the Panama Canal Treaty are spelled out in separate implementing agreements.

Purpose of the Treaties
In negotiating the Panama Canal Treaties, four successive U.S. administrations acted to protect a fundamental national interest in long-term access to a secure and efficient Canal. Panama's cooperation is fundamental to this objective. By meeting Panamanian aspirations for eventual control of the Canal, the United States sought a new relationship with Panama based on friendship and mutual respect. The treaties make Panama a partner in the continued safe and efficient operation of the Canal. In serving the best interests of both nations, the treaties serve the interests of all users of the Canal.

History of the Negotiations
Our bilateral relationship with Panama has centered on the Panama Canal since the beginning of the century. Under the 1903 treaty, the United States acquired unilateral rights to build and operate a canal in perpetuity. It also acquired the Canal Zone--a 553-square mile area in which the United States exercised the rights, power, and authority of a sovereign state. In January 1964, Panamanian dissatisfaction with this relationship boiled over into riots that resulted in the deaths of four U.S. Marines and more than 20 Panamanians. A 3-month suspension of diplomatic relations followed.

The growing bilateral tension in the 1960s gave weight to the views of those who believed that a new Canal Treaty was needed to replace the 1903 treaty and to establish a new relationship with Panama. In June 1967, United States and Panamanian negotiators completed draft treaties dealing with the existing Canal, a possible sea-level Canal through Panama, and defense matters. Neither country ratified the treaties, however, and they were publicly rejected by the new Torrijos government in 1970.

A resumption of treaty negotiations led to a declaration of principles signed in 1973 by Secretary of State Henry Kissinger and his Panamanian counterpart, Juan Antonio Tack. On September 7, 1977, President Carter and General Torrijos signed the Panama Canal Treaties at the headquarters of the Organization of American States in Washington, DC. The Panamanian people approved the new treaties in a plebiscite held on October 23, 1977. The U.S. Senate ratified the Neutrality Treaty on March 16, 1978, and the Panama Canal Treaty on April 18, 1978. The treaties entered into force on October 1, 1979. The protocol to the Neutrality Treaty is open to accession by all nations, and more than 35 have subscribed.

Basic Provisions of the Treaties
The United States had primary responsibility for the operation and defense of the Canal until December 31, 1999. At noon on that date, Panama assumed sole responsibility for operating the waterway. The United States and Panama continue to maintain a regime of neutrality for the Canal, including nondiscriminatory access and tolls for merchant and naval vessels of all nations. A U.S. Senate condition attached to the instruments of ratification allows the U.S. and Panama to negotiate a post-1999 defense-sites treaty, if both countries find such a treaty in their mutual interest. Negotiations for a possible post-1999 U.S. presence in Panama in a proposed multinational counter-narcotics center (MCC) ended in September 1998, and no further negotiations are planned.

Under the terms of the Neutrality Treaty, U.S. warships are entitled to expeditious passage through the Canal at all times, and the United States continues to have the obligation to ensure that the Canal remains open and secure.

The United States operated the Canal through the Panama Canal Commission (PCC), which was a U.S. Government agency supervised by a Board of Directors consisting of five American and four Panamanian members, appointed by the President (the Panamanian members are initially nominated by their government). Until 1990, the Canal Administrator was an American, and the Deputy Administrator was Panamanian; these nationalities reversed for the final decade of the treaty on September 20, 1990, when Gilberto Guardia was installed as the first Panamanian Administrator. He was succeeded in 1996 by another Panamanian, Alberto Aleman Zubieta. Pursuant to treaty obligations, the PCC trained Panamanians in all areas of Canal operations prior to the transfer of the Canal in 1999. In 1997 President Perez Balladares named the members of the Panama Canal Authority (PCA), which became the successor agency to the PCC. During the life of the treaty, Panama received the following payments from Canal revenues:

  • A fixed annual payment of $10 million;
  • An annual payment of $10 million, adjustable for inflation, for public services provided to Canal operating areas by the Government of Panama (the Canal Zone and its government ceased to exist when the treaties entered into force, and Panama assumed jurisdiction over Canal Zone territories and functions);
  • An annual percentage of toll revenues assessed at $0.39 (since October 1, 1996) per Panama Canal net ton transiting the Canal, worth $84.6 million in 1996; and
  • A payment of up to $10 million in the event that revenues exceeded PCC expenditures in a given year.

Under U.S. implementing legislation (the Panama Canal Act), the PCC was required to be self-sustaining; its costs could not exceed its revenues, nor could U.S. taxpayer funds be used for Canal operations or payments to Panama.

Principal U.S. Officials
U.S. Embassy
Deputy Chief of Mission--Frederick A. Becker
Counselor for Political and Economic Affairs --Gene E. Bigler
Counselor for Public Affairs--Donald E. Terpstra
Counselor for Administrative Affairs--Trevor A. Snellgrove
Consul General--Robert J. Blohm
Smithsonian Tropical Research Institute
Director--Dr. Ira Rubinoff

The U.S. Embassy in Panama is located at Avenida Balboa y Calle 38, Panama City (tel: 507-207-7000). Personal and official mail for the Embassy and members of the mission may be sent to: U.S. Embassy Panama, Unit 0945, APO AA 34002.

E-mail: U.S. Information Service (USIS): Political/Economic

Other Contact Information
American Chamber of Commerce & Industry in Panama

Estafeta Balboa
Apartado 168
Panama, Republica de Panama
Tel: (507) 269-3881
Fax: (507) 223-3508

U.S. Department of Commerce
International Trade Administration
Office of Latin American and the Caribbean
14th and Constitution, NW
Washington, D.C. 20230
Tel: (202) 482-0057
Fax: (202) 482-0464

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