The year that will come in 2021

Although there is still uncertainty about 2021, basically because of the resulting problems from COVID regrowth not only in Panama but in the rest of the world, and even though we do not yet have a date for vaccination to begin in our country (they have just announced that the first 40,000 doses arrive in 2 or 3 weeks), I always stay positive, I think that in this country, we can turn the bad situations around, and we can get our economy moving forward quickly.

After my forecast for the end of 2020 where I see a decline in GDP by order of 20%, unemployment of 18%, and inflation of -1%, 2021 may bring us a fundamental change in our main macroeconomic figures after a year of recession, but it did not get to become stagflation. My forecast for 2021 leads us to GDP growth in the order of 10%, unemployment of 10% thinking that the vaccine will arrive in the first quarter, and by the second half, we could be able to vaccinate the whole population (at least the vast majority of the 3 million Panamanians over 16 years old), and inflation of less than 1%, which would give us the advantage to face unemployment and decline.

How are we going to accomplish this? Let me explain. If we look at the GDP by quarter, I still expect a decline of at least 15% in the first quarter of 2021 (you have to remember that in 1Q 2020 we were still growing without pandemic), but from then on, we will see some growth in the second trimester, and with vaccination ahead at full speed, I can project that the third and fourth quarters will recover (growth from the same quarter last year in quarantine) from the dismal same periods in 2020. I estimate that Nominal GDP will grow from the 2015 level we were sent back in 2020, to at least the 2016 level with the 2021 results, about $5 billion, which puts us on the run so that by 2024 we will be at the 2019 level. This could allow us a real growth of at least 4% per annum, and reach unemployment of 5% by 2024, keeping inflation at levels of 1%.

Which sectors are going to lead us to this growth? In absolute numbers, the mining sector will lead this growth with about US$860 million more in 2021, followed by the construction sector with US$850 million (due to the large decline this sector suffered in 2020), US$510 million in the transportation sector, US$445 million in the trade sector, and US$365 million in the manufacturing sector. I am very optimistic that the agricultural sector will continue to grow, but as it was one of the few sectors that did not decline in 2020, its growth in 2021 is somewhat "modest", or about US$100 million.

If we look at GDP growth in terms of growth in percentages, the mining sector leads with a growth of 65%, there is a growth of 27% in the construction sector, we will also get a 24% growth in the tourism sector (because it was one of the hardest hit in 2020), the manufacturing sector will see an increase of 22% and a 9%increment in the agricultural sector.

However, and even though these growths, the government income in 2021 will not increase at all, basically due to 2020 losses by the majority of the companies in Panama, so the government will hardly be able to collect taxes, and for the same purpose, these losses take in 2020 will serve as deductibles for the taxes to be paid in 2021 by companies and depending on the real situation in 2021, the situation in 2022 could be something similar than in 2021. For the same reason, I advocate reducing the approved budget from US$24 billion to a more real US$20 billion figure, preventing additional state borrowing, and seeking efficiencies in state spending.

Employment is activated by economic activity. It's a domino effect. Private investment would also help, it will be activated if entrepreneurs see that the state is consistent in their actions and works in infrastructure to revitalize the private enterprise. It would also help if the government has a plan to take advantage of all the enclaves we have with great benefits for local and foreign investment – Colon Free Zone, Panama Pacific Area, and the City of Knowledge, in addition to the laws of SEM (multinational companies Headquarters) and EMMA (multinational manufacturing companies). We could also have good acceptance in both tourism and the agricultural sector, if the government facilitates and reactivates investment in these two sectors – they also generate jobs in the amounts needed to substantially lower unemployment.

As for government projects that have to be developed in 2021, Line 3 of the Metro system should be a priority for the government, as employment will be generated for Panamanians, and will also result in an increase in quality of life for the citizen of West Panama.

In addition to the construction of the fourth bridge over the Canal, and the smaller projects that the government had the idea to do to revive the economy throughout the country with the participation of local companies – fixing streets, infrastructure, etc. so that the money reaches everyone and does not leave the country.

One thing that is more long-term is the "educational" issue. It is impossible to arrange the country's education under the same conditions as we are right now. The education sector has been kidnapped by the teacher's associations (that work like unions) for a long time. Their demands have nothing to do with improving the knowledge of their students. To these retrogrades teachers and their "so-called" leaders, you have to put them aside and improve education with those who want to do something to take it forward. Virtual education left us with too many teachings that uncovered the country's great phalluses, and which we can still fix. If we can open the internet to these students and provide each of the 500,000 students in the public schools with a Tablet, we would be fixing a large percentage of the problem of virtual education, even in the long run (I hardly think it is appropriate to send boys to schools to teach face-to-face classes, if we still keep the population affected by the pandemic) on a budget of less than $60 million a year (changing all tablets annually).

Another major problem that we have to solve is that of the banking/financial system due to the pandemic and quarantines, which increased unemployment affected Panamanians and their companies with a bank and financial debts. All these debts need to be refinanced, with longer terms, lower interest rates, so that it is easier for them to recover in the financial sector. It is better to restructure all this debt, instead of sending all of these loans to losses, which if it would harm the financial sector and that could culminate with several bankrupt banks, something unprecedented in a banking system like ours. Bank shareholders have to make their decision to keep their bank for the future and not collect short-term dividends or continue to think they can continue with their short-term "profits," which are going to result in bank failures sooner rather than later.

The issue of social security is impossible too. The first thing is to divide it into two institutions, one that handles the health sector and the other a financial one that will handle the retirement fund, since they are two different monsters and where there is no human being who knows of both issues. Once separated, the health of the country must be unified into a single organization, i.e., the MINSA (Health Minister) must not manage hospitals or health centers or any other institution like that and move everything to the CSS (Social Security). The CSS must then serve everyone, insured and uninsured, with the state covering the amount of the uninsured ones through annual contributions (calculated by use of the system by the uninsured). The important thing would be to be able to assure all Panamanians, formal and informal, in some way, that we will speak in another letter so that this figure drops radically. The CSS must then enter into the rehabilitation of the health system (e.g., finish the City of Health already), to serve the population efficiently and productively, which will allow us preventive care without reactivation.

On the financial side of the CSS, the problems are linked to the revenue generated from the IVM (Retirement) fund. The first thing is to remember that the system is a pyramid (Ponzi Scheme), that for it to survive, we have to get in every year more workers than retirees/no paying insured to survive. Second, we need the fund to have the right yield. It is not possible to maintain an average return of less than 2%, if anything, while private funds and even SIACAP are earning more than 5%.  This requires a change in the law, so that the IVM can be managed in the same way as SIACAP (investing in all types of investment-grade financial instruments), for example, which is proven to be for public servants.

Third, we have to review the variables that can affect the retirement fund such as age, monthly contributions, % withdrawal, etc., so that we can have a strong fund that can survive any eventuality. The idea is that retirees have their future secured and that we are not needed to worry about the IVM every 10 or 15 years. It is clear that the Panamanian's average lifespan has increased from 50 to 78 years, so we cannot maintain a retirement age of 62 years, and that men and women have different retirement years. This would lead me to think that a fair age would be of at least 65 years for men and women, with a minimum of 480 installments (40 years of minimum work), keeping retirement for 60% of your average of the best wages of 10 years, and a cap of $3,500 (this amount should also be indexed with inflation), but also that the minimum could go up as well as the minimum wage rises (and that this should be indexed with inflation, for example, to avoid this minimum wage commission that never agrees). The other thing is to avoid having privileged public servers in the system, we must all have the same rules of the game.

2021 can be a year of change for both the population and the government, and we must all do our part. The government must set an example first, with more transparency (including, quickly investigating what needs to be investigated, and whether someone is guilty, paying, whomever they are), more assertive information, and even with fewer expenses and less debt. If the government succeeds in doing this, it will be easier for the population to do their part in every way, not only on the health side but also on the economic side. One leads by example, that is, for the population to do what I say it does, the first one that has to do it is the government. Simple.

We remain a small country, with a US$-based economy, with an unrivaled geographical position, with a transport/logistics sector developed (even if it needs adjustments), with a top financial system, with a tourism sector with great potential, but we have to believe that we can do things, be less negative, more assertive, seek efficiency, and work. There's nothing complicated about this. The laws are there, the enclaves exist and work, the opportunities exist, now we just have to convince ourselves that we can do it, just as we did our expansion of the Panama Canal, and we've handled the expansion of the Canal in the right way.