The Republic of Panama is a presidential democracy in which the president is directly elected by the people for a five-year term. The president is not eligible for a subsequent term. The cabinet is composed by the president. The legislature consists of a Legislative Assembly, which has 78 directly elected members, also for a five-year term. The judicial process has the possibility of appeal up to the Supreme Court, the supreme power of justice. Nine judges, nominated by the President and approved by the Assembly, sit on this court for ten years.
Panama is divided into nine provinces (Bocas del Toro, Chiriqui, Cocle, Colon, Darién, Herrera, Los Santos, Panama, San Blas) and three autonomous Indian reservations. Each province has its own governor, appointed by the president.
The winner of the presidential elections of 2 May 2004 was Martin Torrijos, with 47.4% of the valid votes. He was a candidate for the Patria Nueva party, which was formed by a merger between the Partido Revolucionario Democrático (PRD) and the Partido Popular (PP).
Torrijos' popularity is mainly due to his promises to fight corruption in the country. The new president took office in September 2004 with a new government.
Although the president has pledged to make job creation a top priority, in 2006 the biggest priority is the planned expansion of the Panama Canal because of its economic importance. Construction is expected to begin in 2007 if the national referendum next October shows a positive result. The Cabinet and the judiciary already approved the expansion plans in June and July 2006 respectively.
According to the Constitution, approval by referendum is necessary before such a large-scale change in the construction of the Canal can be initiated. Social opposition to the expansion plans is mainly fed by the trade unions and has its origins more in dissatisfaction with (the lack of) social policies of the Torrijos government than in the actual expansion itself.
Drugs, especially cocaine, are a big problem, as they are in many other South and Central American countries. Panama is not a major drug producer, but because of its strategic location it is an important link in the distribution of drugs from Colombia and other South American countries to Central America and the US.
In the fight against drugs, the government has taken some specific measures. As early as 1986, the government introduced a 'Law Against Drugs'. This law focuses not only on preventing the trade and transit of drugs, but also on educating young people and rehabilitating drug addicts. In addition, the country is a member of the Inter American Drug Abuse Control Commission (CICAD). CICAD is a part of the Organisation of American States (OAS) that focuses mainly on drug prevention. Other members of CICAD include Honduras, Nicaragua and Costa Rica. Part of the government's drug control strategy is to create and implement a so-called 'National Plan against Drugs'. This plan provides for special measures against the production and trafficking of drugs. These preventive and educational activities are reasonably successful, although the supply of drugs remains a constant factor.
An additional problem is that Panamanian financial institutions are often used for money laundering in the drug trade. In the 1990s, the Permanent Presidential Commission and the Financial Analysis Unit were established to monitor and reduce this money laundering. Since the beginning of the current century, restructuring in the banking sector and stricter supervision have significantly reduced the problem of money laundering.
The current political situation is described in the history section.
Panama has a well-functioning economy. This is partly due to the fact that the national currency, the balboa, is linked to the dollar in a one-to-one ratio.
After a decline in the late 1990s (partly due to the closure of American bases), the economy has shown above-average growth over the past four years, the highest in the region.
Despite high oil prices and rising interest rates, economic growth in 2017 was 5.4%. The construction casino/lottery and export sectors in particular contribute to this growth. Panama Canal (ACP) toll revenues are rising due to higher tariffs and more passage, and the Colon free trade zone's revenue is growing by more than 20%.
The government tries to stimulate growth with the following instruments: export growth, poverty reduction and fight against unemployment. This is to be done through privatisation, tax increases and tariff increases on the import of goods.
The large-scale and ambitious 'Plan Puebla Panama' (an economic partnership between all Central American countries and Mexico), has not yet led to the economic impulse that was expected.
Foreign investment in Panama is the highest in Central America and is continuing. Currently, millions are being invested in the construction of Latin America's tallest skyscraper and Donald Trump's large office/hotel complex.
The GDP per capita is $25,400 per year (2017).
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