On March 28, Fitch Ratings cut Panama’s credit rating to junk status (BB+) from investment grade (BBB-). Fitch reported Panama’s fiscal and governance challenges spiked in late 2023 when Cobre Panama—the country’s largest mine—ceased operations due to massive strikes, including blockades. Copper production from the mine contributed 5 percent of GDP.
Cobre Panama’s closure, if not reversed in short order (which appears unlikely), will set a negative precedent for the country. That means jeopardizing Panama’s reputation as a friendly destination for foreign capital and ending decades of efforts to attract investment. According to the World Bank, Panama’s foreign direct investment in 2022 was $3 billion—around 2.5 percent of GDP. In 2023, however, it declined by one-third to $2.01 billion.
The Panamanian economy grew by 7.3 percent in 2023, but recent projections anticipate a modest increase of 2.5 percent in 2024. Despite the importance of both mining and foreign investment for Panama, the hope of a new government authorizing mining operations is fading. On May 5, Panama will host general elections, and keeping the mine closed is almost a consensus view among the leading presidential candidates.
No Reopening on the Horizon
On November 27, 2023, Panama’s Supreme Court of Justice ordered the closure of Cobre Panama and forbade the issuance of new permits for metallic mining. The decision responded to five months of protests and riots against mining, which collapsed the country’s infrastructure and productivity.
First Quantum Minerals (FQM)—the Canadian company that owns the mine and has a subsidiary operating it—lost 40 percent of its market capitalization after the mine’s closure. The damage, however, is far from over.
Despite investing around $10 billion in Cobre Panama, FQM cannot even take and sell previous copper production. In the first nine months of 2023, the mine produced 268,000 tonnes of copper—2 percent of the global offer.
FQM has initiated two international arbitration proceedings. One refers to an infringement of the Canada-Panama Free Trade Agreement, and the other refers to the arbitration clause of the contract signed between the company and the Panamanian state. If Panama loses, the compensation could be up to $20 billion—around 15 percent of GDP.
Politicians Turn Blind Eye to Economic Wreckage
While politicos have largely ignored the economic harm of closing the Cobre Mine, demonization of the project has run wild. In addition to environmental concerns, mining opponents often falsely perceive that politicians have favored mining companies over citizens by allowing them to pay no or low taxes. Albeit not true, demonstrators have argued that mining companies take natural resources from Panama without contributing to the nation’s development.
On May 5, eight candidates will face each other in a fierce single round of balloting. Polls have revealed that four of them have the potential to win the election. Two have already agreed with the mine’s closure, and one has proposed to convene a public consultation. José Mulino, who is leading the presidential race, has reserved his position.
Saúl Méndez, leader of the country’s most active and powerful union (SUNTRACS), argues there is no way for a new administration to resume the operations of Minera Panama. The issue was already “judged by the people on the streets,” Méndez said to Reuters.
In contrast, Sabino Ayarza, a representative of a fishing association that led the blockade of the mine’s port, agrees with a public consultation. Ayarza has stated that, if the people vote in favor of mining, his association would not oppose the mine’s reactivation. However, if the government greenlights its operations without the people’s authorization, they “would aggressively close it again.”
According to a survey conducted by local media La Prensa in 10 provinces from January 26 to February 2, 90 percent of the respondents opposed metallic mining. Convening a public consultation shortly after the social turmoil would be the end for the industry in Panama.
The End of Panama’s Stellar Growth
Averaging an annual growth rate of 6 percent of the GDP over the last three decades, Panama has been a beacon of economic growth in Latin America. Even after suffering a steep decline of 17.7 percent in 2020, its economy recovered fast when international markets opened.
In 2023, with a growth rate of 7.3 percent, economic expansion exceeded projections. This happened despite the circulation of vessels in the Panama Canal—which accounts for 10 percent of the GDP—halved due to the droughts provoked by the El Niño phenomenon. To appease the impact, toll fees at the canal increased.
Nevertheless, the economic landscape looks less optimistic with the closure of Minera Panama. According to the last estimations of the International Monetary Fund, Panama would only grow by 2.5 percent of its GDP in 2024.
As a direct impact, the government would halt receiving the annual $375 million that Minera Panama agreed to pay in royalties and taxes. Further, the closure of the mine would also imply a loss of 31,413 jobs—1.5 percent of the national workforce—and dissuade private local and foreign investment, the main source of job creation.
Panama, in contrast to its neighboring countries, is a dynamic and diversified economy, so it has more opportunities to recover over the next five to 10 years without the mining industry. However, the controversial closure of the mine will take its toll by leaving a hard-to-forget precedent. Panama would need to double its efforts to prove to international markets that it continues to be a friendly destination for foreign investment and fiscal sustainability.
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