Panama - Politics, government, and taxation

For most of the 20th century, Panama was a constitutional democracy. However, a coup in 1968 brought the military to power. During the 1980s, Panamanian General Manuel Noriega assumed control of the government. After diplomatic and economic pressure failed to remove Noriega, U.S. president George Bush used American troops to remove the dictator from power and restore democracy in 1991 in a military operation known as "Just Cause."

Panama is now a constitutional representative democracy. The government is divided into 3 branches: executive, legislative, and judicial. The executive branch is led by an elected president who serves as both the head of state and the head of the government. The president is elected for a 5-year term and appoints the national cabinet. There are also 2 elected vice-presidents who also serve 5-year terms. The legislative branch of government is made-up of a 1 chamber legislature. It has 71 members who are elected for 5-year terms. The judicial branch consists of a national supreme court, 5 superior courts and 3 courts of appeal. The judicial system is plagued by corruption and inefficiency.

The largest political party in Panama is the Democratic Revolutionary Party (PRD). The PRD is conservative on economic matters and appeals mainly to the country's young and urban poor. The Arnulfista Party (PA) is the party of the nation's current president and its base is among the Panama's rural population. The Popular Block is a coalition of former Christian Democrats and pro-business groups, as is the National Liberal Republican Movement and Democratic Change. These parties appeal to the middle and upper classes and tend to have strong ties to the business community.

In 1997, the government's budget was US$2.4 billion and it had revenues of US$2.4 billion. Government spending accounts for about 30 percent of the nation's GDP. In 1999, Panama's official foreign debt exceeded US$7 billion. Currently there are over 50 different forms of taxes, but plans are underway for reforms to reduce that number to 10. These reforms are designed to simplify the tax code in order to increase efficiency and make the tax system more friendly to business with reductions in some forms of corporate taxes. The maximum personal income tax is 33 percent, and the maximum corporate tax rate is 30 percent. The government's tax collection system is very inefficient, and collection rates of some forms of taxes fall below 50 percent.

Because of its history of military interference in the government, the nation adopted a constitutional amendment in 1994 which abolished the military. Security is now in the hands of the national police force, the coast guard, and a national air service. In 1997, the government spent 1.9 percent of the nation's GDP on security or about US$132 million. About 150,000 people work for the government in some capacity.

During the 1990s, the government was engaged in a variety of programs to liberalize the economy. It enacted reforms in banking, labor regulation, and taxes. In 1996, the government passed the first anti- monopoly laws. This legislation created 4 special commercial courts to hear cases related to patent, trademark, and anti-trust cases. It also created a consumer protection agency known as the Free Competition and Consumer Affairs Commission. New laws levy fines against companies that engage in practices that are harmful to consumers, including the sale of expired products and price fixing. However, there remain a number of problems in Panamanian business law. For instance, there is no bankruptcy law that allows companies to restructure themselves rather than go out of business.

A number of previously government-owned businesses were privatized. These include the ports of Cristobal and Balboa; the nation's telecommunications company, INTEL; power generation facilities; and a cement company. In addition, the government has privatized the nation's 17 casinos and slot-machine companies. Plans to privatize the electric and water companies were halted by a new government in 1999. Because the nation uses the U.S. dollar, it cannot control its monetary policy .

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