Andrew Work (Club Lusitano, 9 July 2007)
Carmina Valdizan, co-founder of the Fundacion Libertad, spoke to an audience of mostly shipping, ports and bank people on the future of the Panama Canal.
Panama itself is an interesting historical anomaly. With a little over 3 million people, it has been politically stable (ie. dictator free) for only about 20 years. Panama has no national currency and uses the dollar as its principle means of economic exchange. Coins, called ‘balboa’s are equivalent in value to the dollar, but the paper currency is the US dollar. In that time, their economy has, as one would expect, tracked the US inflation rates in lockstep. Except that is, at a rate about 1.5% lower than the US. This has stayed true even when radically different economic and political environments have prevailed. Ms. Valdizan made the subtle distinction that the economy is not truly dollarised, in that it has no central bank. The ‘bank’, as it were, are the pockets of the people – the ultimate safeguard against politician meddling.
The Panamanian government sold their people on the idea that the Canal’s capacity could be doubled and they wouldn’t have to pay for it. So who will? As one of the astute financiers picked up from one of the slides in the powerpoint, projections show that tonnage shipped will increase by 100% – but revenues are expected to go up 5 times. Additional fees will be introduced to cover the cost.
Almost half of the Canal’s business comes from goods being shipped from Asia to the US East Coast. The Canal competes primarily with intermodal US transport – rail and roads, for this business. Union troubles causing congestion at US and Canadian ports, as well as a stretched rail system, raise costs and slow down delivery times. Canada has even had major transnational rail lines blocked by native terrorists demanding money and land, sometimes for months at a stretch. Waiting times at some US ports can be as high as one month. Panama has been winning traffic from the US intermodal system at a steadily increasing rate for the last 10 years. Whether they will continue to do so with a radically altered fee structure is a bet they (and their financial backers) is open to question – but the Canal Authority and Panamanian government have made their bet. Shippers can expect significant changes in the economics of trans-Pacific shipping for years to come.
Ms Valdizan also questioned the continuing dominance of the Panamanian government of all aspects of the Canal. While current government is stable, she expressed a concern that a detoriation of political stablity could open the door to a Chavez style problem should there be a economic downturn or a rise in populism, not unheard of in Latin America.
The Institute was honoured to host Ms. Valdizan and looks forward to more interesting speakers like her in the months to come.