IV.     POLITICAL ENVIRONMENT

An independent nation since 1903, 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 U.S. military
intervention of December 1989  brought the
legitimately-elected government to power and
ousted narco-dictator General Manuel Noriega
and his military cohorts.  This move ushered in
a period of democracy building and national
recovery that culminated in May 1994 with the
first free and fair national elections in almost
three decades.  Panama no longer has military
forces.  Its democratic institutions are
continuing to develop to meet the social and
economic needs of Panama's 2.5 million
ethnically diverse citizens.

Ernesto "Toro" Perez Balladares was sworn in
as president on September 1, 1994, along with
his two vice presidents, Tomas "Fito"
Altamirano Duque and Felipe "Pipo" Virzi.  The
new president has broad powers under
Panama's current constitution, but must work
with a 72-member unicameral legislative
assembly in which his party, the Democratic
Revolutionary Party (PRD), and its political
allies have only a bare majority.  Although the
assembly lacks strong budgetary authority, it
does play a crucial role in designing political,
economic, and social initiatives; Perez
Balladares will need to woo shifting
constellations of the dozen-plus parties
represented in the assembly to build
consensus for important legislative projects.
Pressing the theme that his government will
stress "national reconciliation," Perez
Balladares has given about a third of his
cabinet posts to non-PRD figures.

The U.S.-Panamanian relationship dates to
1903, when a bilateral treaty gave the U.S. the
right to build and unilaterally control the
transisthmian canal that was completed in
1914.  That relationship was altered by mutual
agreement in the 1977-78 Panama Canal
Treaties, signed by President Jimmy Carter
and General Omar Torrijos, which stipulate
that Canal administration will pass to
Panamanian control and that all U.S. troops
will withdraw from Panama by December 31,
1999.  The current U.S.-Panamanian
relationship is businesslike as both partners
work to implement the 1977-78 Canal Treaties
by preparing for the U.S. withdrawal and the
Panamanian takeover of the Canal and the U.S.
base properties.  Managing this complex
turnover of what Panamanians call their
"national patrimony" will be one of the prime
challenges of the Perez Balladares
administration.

Panama was ruled from 1968-1989 by a military
regime which implemented a statist plan of
economic development based on the import-
substitution model.  Remnants of this statist,
parternalistic political-economic development
model still exist.  For example, price controls
still apply to several staple goods considered
part of a basic "market basket."  In addition,
the labor code is considered to be very pro-
organized labor and a major disincentive for
investors.  To the extent they persist, these
statist, populist, leanings negatively affect the
business climate.
On May 8, 1994, the PRD, the political party
established by that military regime, won in free
and fair elections, the presidency and the
largest block in the national Assembly.  Initial
impressions of the Perez Balladares
government are favorable.  It will take time,
however, to dispel the doubts of some who
worry about a return to the worst excesses of
the Noriega era.