• TABLE OF CONTENTS
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 Front Cover
 Title Page
 Table of Contents
 Introduction and summary
 Part I: Analysis
 Part II: Strategy
 Part III: Assistance planning...






Group Title: Country development strategy statement. Panama
Title: Country development strategy statement, FY 1981, Panama
CITATION THUMBNAILS PAGE IMAGE ZOOMABLE
Full Citation
STANDARD VIEW MARC VIEW
Permanent Link: http://ufdc.ufl.edu/UF00073346/00001
 Material Information
Title: Country development strategy statement, FY 1981, Panama
Alternate Title: Panama
Panama Country development strategy statement 1981-1985 (with a 1986-99 preview)
Physical Description: 57 p. : ; 28 cm.
Language: English
Creator: United States -- Agency for International Development
Publisher: Agency for International Development
Place of Publication: Washington D.C
Publication Date: 1979
 Subjects
Subject: Economic assistance, American -- Panama   ( lcsh )
Economic conditions -- Panama   ( lcsh )
Social conditions -- Panama   ( lcsh )
Genre: federal government publication   ( marcgt )
non-fiction   ( marcgt )
Spatial Coverage: Panama
 Notes
General Note: Cover title.
General Note: "January 1979."
General Note: Photocopy.
 Record Information
Bibliographic ID: UF00073346
Volume ID: VID00001
Source Institution: University of Florida
Rights Management: All rights reserved by the source institution and holding location.
Resource Identifier: oclc - 76903139

Table of Contents
    Front Cover
        Front Cover
    Title Page
        Title Page
    Table of Contents
        Table of Contents
    Introduction and summary
        Page 1
        Page 2
        Page 3
        Page 4
    Part I: Analysis
        Page 5
        Analytical description of the poor
            Page 21
            Page 5
            Page 20
            Page 19a
            Page 19
            Page 18
            Page 17
            Page 16
            Page 15
            Page 14
            Page 13
            Page 12
            Page 11
            Page 10
            Page 9
            Page 8a
            Page 8
            Page 7
            Page 6
        Identification of the causes of poverty
            Page 22
            Page 23
            Page 24
            Page 25
        Host country plans, commitment and progress
            Page 26
            Page 27
            Page 28
            Page 29
            Page 30
        Human rights
            Page 31
        Other donors
            Page 32
        Outlook
            Page 33
            Page 34
            Page 35
            Page 36
    Part II: Strategy
        Page 37
        Long range goals and intermediate targets
            Page 37
        AID assistance strategy
            Page 38
            Page 39
            Page 40
            Page 41
            Page 42
            Page 43
            Page 44
            Page 45
            Page 46
            Page 47
            Page 48
            Page 49
            Page 50
    Part III: Assistance planning level
        Page 51
        Justification
            Page 51
            Page 52
            Page 53
        Proposed assistance planning level
            Page 54
            Page 55
            Page 56
            Page 57
Full Text
UNCLASSIFIED


COUNTRY DEVELOPMENT

STRATEGY STATEMENT


FY l1981t



PANAMA


January _979_
-


UNCLASSIFIED


AGENCY FOR
INTERNATIONAL
DEVELOPMENT


i


'-! ;i








PA

Country
Strategy


NA


M/


A


Development
Statement


1981 1985


(with


U.S. Embassy
SAID Panama


a 1986 -99 preview)


Jan. 31, 1979









PANAMA

COUNTRY DEVELOPMENT STRATEGY STATEMENT


TABLE OF CONTENTS
Page

Introduction and Summary 1


Part I Analysis

Analytical Description of the Poor 5

Identification of the Causes of Poverty 22

Host Country Plans, Commitment and Progress 26

Human Rights 31

Other Donors 32

Outlook 33


Part II Strategy

Long Range Goals and Intermediate Targets 37

AID Assistance Strategy 38


Part III Assistance Planning Level

Indicative Planning Allocation 51

Proposed Assistance Planning Level 54


SAnnex I District Poverty Indicators


SAnnex II- Methodological Annex


*Annexes are available at LAC/CEN








PANAMA

COUNTRY DEVELOPMENT STRATEGY STATEMENT

1981-1985
1986-1999

Introduction and Summary

Panama's dominant role in the history of the Americas is common

knowledge. Especially recognized is its function as the crucial artery

of communications between North and South America and between the eastern

and western halves of the hemisphere. When one spends a few hours at the

Miraflores or Gatun locks, however, one learns of a lesser known but per-

haps still more important fact. Panama and the Canal provide also a

vital link between the Atlantic basin and Eastern Asia. With the re-

opening of China, this fact assumes tremendous new importance. A quarter

of all the world's population is being suddenly brought newly into world

commerce, and the Panama Canal is among international trade's most vital

organs.

Panama has done well in providing a healthful environment for its

heavily travelled path between the seas. From the mid 1950's until 1974,-

the country achieved an economic growth rate of 8% and during the past

decade the benefits of this growth have been remarkably well distributed.

Especially noteworthy are Panama's progress in alleviating rural poverty

and in reducing the population growth rate.

Since 1974,however, alarming developments have brought heavy clouds

down around the earlier achievements which, if not dispersed soon, could

put the country into a serious crisis situation. In a word, Panama has

for the past four years been the victim of a disease characteristic of

semi-developed countries: --growth arrest. The most crucial current fact






-2-


about the Panamanian economy and society today is not rural poverty but

its negative economic growth rate, which is itself the single most im-

portant cause of poverty. The rapid growth with equity enjoyed earlier

slowed to a halt in the early 1970's and per capital growth went negative

in 1974, where it remains today. Urban unemployment and underemployment

are high (35%). New private investment is at a standstill. The rural

economy, both subsi'stance and market, is stagnant, and rural families are

continuing to migrate to the cities. Meanwhile, the expansion of social

services, begun more than ten years ago, has continued at the same pace,

largely financed by external borrowing, mostly commercial. The result is

a crushing and still growing debt servicing burden, roughly half the

national budget.

If government investment in new social services were to continue at

present rates, financed by still further external commercial borrowing

while new private investment remains inert, financial crisis would

threaten.

The statement of the problem reveals the basic strategy essential to

its solution: a public sector austerity program on the one hand and the

promotion of massive new private investment and employment on the other.

Fortunately, the GOP has adopted such a strategy. It is important that we

all join in the difficult task of helping to make it work. Austerity is

fraught with problems, frustrations, and the risk of failure to progress

in meeting basic human needs. Promoting new investment is delicate and

difficult, with nolguarantee of success. Unhappily, no panaceas, like

oil, are known to exist. Panama simply has to reverse the downward spiral

by spending less, earning more, retiring or stretching out debt,





-3-


and getting back into a rapid economic growth posture, made possible by

new investment. Then the completion of the task of eliminating poverty

in Panama may be resumed. This is not to say that poverty alleviation

has to be abandoned until after growth has been revived, but the pace and

the costs must be reduced.

In the pages that follow we describe poverty, delineate its causes

and seek to outline a strategy of assistance that looks to the elimi-

nation of poverty from Panama by the year 2000. This strategy is essen-

tially one in support of Panama's own strategy whose aims and structure

we propose to support. We outline immediate, intermediate and long-term

goals and programs. There is poverty to be dealt with on both an im-

mediate and a long term basis. Then there is the opportunity for the

consummation of poverty's permanent eradication through the stabilization,

enhancement, and appropriate exploitation of Panama's natural and human

resource bases.

Under this strategy, USAID Panama will concentrate its resources as

follows:

I. On a short term, highly focused, terminal rural development

program to end in 1985.

II. On the further development of rural growth centers, to integrate

the countryside with its near-by urban hubs and to create jobs

that will serve to divert some of the rural migration now going

direct to Panama City and Colon. This program, already underway,

would terminate between 1985 and 1990.

III. On a series of long term programs aimed at solving the problems

of urban unemployment, underemployment, low incomes, and low





-4-


living standards in general. This program, focused on appro-

priate technologies and skills, would begin as soon as possible

and remain in effect throughout the rest of the century.

IV. On the problems of preserving and enhancing Panama's natural

resources!base: forests, soils, water and energy. This program,

already begun, would continue into the 21st century.

V. On a program to increase the capabilities of both the public

and private sectors better to plan, organize and manage the

nation's programs aimed at the elimination of poverty, the

establishment and maintenance of full employment and the en-

hancement of the environment.







-5-


PART I: ANALYSIS

A. Analytical Description of the Poor

1. Summary Description of the Poor

Of Panama's 1.8 million people, approximately 715,000 (39%) live

in poverty, as will be defined below. Some 385,000 (21%) live in an ex-

treme state of poverty, so extreme that their lives are in a deteriorat-

ing condition, similar to the most disadvantaged in the poorest countries

in the world. While the poor, and the extremely poor, are found in all

areas of the country, they are concentrated in two major areas the pri-

marily agricultural communities of the country's central and western

provinces and the major cities of the Metropolitan region (Panama, Colon,

Arraijan, and La Chorrera).

All of the key indicators provide ample evidence of the abject

poverty of the rural poor. Illiteracy rates are high; most houses lack

electricity, potable water, and sanitary facilities; and access to basic

health services is almost non-existent. The incidence of extreme mal-

nutrition among young children is high, and infant mortality, while some-

what lower than that in other nearby countries, remains well above the

national average.

While the urban poor have access to some of the basic services

that their isolated rural neighbors lack, their housing conditions, too,

are highly inadequate. They live in conditions of extreme crowding, with

access only to communal water sources and unsanitary waste disposal fa-

cilities. Of even more concern is the absolute lack of employment oppor-

tunities,compoundedbyanabsence of basic skills needed to compete in the

job market. Unlike their rural counterparts, who at least have their







SURVEYS OF LOW INCOME NEIGHBORHOODS IN PANAMA AND COLON


NEIGHBORHOOD DATE OF INHABITANTS FAMILIES PERCENT FAMILIES PERCENT HOUSEHOLD
STUDY WITH INCOME LESS HEADS EMPLOYED
THAN $200 A MONTH FULL TIME


PANAMA
Viejo Veranillo 1974 2262 459 59 69
Santa Cruz 1975 4439 1169 55 77
Boca la Caja 1975 939 182 52 --
Brooklyncito 1975 683 139 64 70
Chorrillo 1 1973 6043 1474 55 72 1
Chorrillo 2 1973 3635 869 58 --
CurundG 1970 7818 1525 72 52


COLON
Barrio Norte 1975 6557 1663 56 62
Barrio Sur 1975 635 239 65
Pueblo Nuevo 1975 1846 504 62 54
La Playita 1974 635 222 61 55
Manzana 44 1974 529 142 61 --
Bamboo Lane 1975 858 239 65 65


Source: Department of Social Affairs, Ministry of Housing







-5-


PART I: ANALYSIS

A. Analytical Description of the Poor

1. Summary Description of the Poor

Of Panama's 1.8 million people, approximately 715,000 (39%) live

in poverty, as will be defined below. Some 385,000 (21%) live in an ex-

treme state of poverty, so extreme that their lives are in a deteriorat-

ing condition, similar to the most disadvantaged in the poorest countries

in the world. While the poor, and the extremely poor, are found in all

areas of the country, they are concentrated in two major areas the pri-

marily agricultural communities of the country's central and western

provinces and the major cities of the Metropolitan region (Panama, Colon,

Arraijan, and La Chorrera).

All of the key indicators provide ample evidence of the abject

poverty of the rural poor. Illiteracy rates are high; most houses lack

electricity, potable water, and sanitary facilities; and access to basic

health services is almost non-existent. The incidence of extreme mal-

nutrition among young children is high, and infant mortality, while some-

what lower than that in other nearby countries, remains well above the

national average.

While the urban poor have access to some of the basic services

that their isolated rural neighbors lack, their housing conditions, too,

are highly inadequate. They live in conditions of extreme crowding, with

access only to communal water sources and unsanitary waste disposal fa-

cilities. Of even more concern is the absolute lack of employment oppor-

tunities,compoundedbyanabsence of basic skills needed to compete in the

job market. Unlike their rural counterparts, who at least have their






- 20 -


a communal facility. Significant proportions of both cities' populations

lacked sanitary facilities or shared sanitary facilities with their

neighbors.


Housing Conditions in Panama & Colon, 1970 Census

PANAMA COLON

Number % Number %

Total population 444,338 100 67,874 100

Inhabitants living in
substandard housing/ 143,352 32 41,980 61

Inhabitants with non-
approved or communal
water source 235,499 53 44,660 64

Inhabitants with non-
approved or communal
sanitary facilities 173,291 39 44,660 65


Summarized in the following table are a number of individual studies

carried out by the Ministry of Housing in 1974-75 of typical slum commu-

nities of Panama City and Colon, characterized by inadequate housing,

water supply and sanitary facilities. The majority of the 8,800 families

(36,900 people) living in these barriadas had family incomes below $200

per month,i.e. below the poverty line. Only about two thirds of the

heads of household reported they had full time employment. Informed

sources suggest that rather than decreasing the number of people living

in these types of communities has actually increased over recent years.


1/ Shacks or tenements with a ratio of 3 or more inhabitants per room.







- 19 -


concentrated overwhelmingly in the service sector, and wages paid to women

are both lower than those for males and increase at a much slower rate.

Unemployment rates among individuals 15 to 19 and 20 to 24 (1975 figures

including both men and women) were 20.9% and 14.7%, respectively. While

the data base necessary to calculate underemployment among those 25 and

younger is unavailable, it may be assumed that there is a high incidence

of underemployment in this group as well.

Both women and the young in the Metropolitan area are relatively low

participants in the labor force and their participation seems to fluctuate

strongly as the job market alternatively expands and contracts. 11 Given

the opportunity, however, both groups would join the labor force in far

greater numbers. Experience with the GOP's Emergency Employment Program2./

provides a case in point with regard to women: 42% of the 16,700 women

hired under the Program were not actively seeking employment at the time.

Housing Conditions

According to the 1970 Census, a significant portion of the inhabit-

ants of both cities lived in crowded conditions in shacks or tenements,

and over half either had no access to an approved water source or shared



1/ The percentage'of economically active women in the Metropolitan area
rose from 35.1% in 1970 to 40.8% in 1974 and declined to 37.9% in 1978
as a result of Panama's economic recession. The percentage of economi-
cally active 15 19 year olds in the Metropolitan region declined from
44.8% in 1970 to 25.8% in 1975. (Some of the latter decline is a reflec-
tion of increased'secondary and post-secondary education opportunities
over this period.)

2/ The Emergency Employment Plan was initiated in 1977 to serve as a
temporary stop gap measure to deal with the unemployment problem.
Public service jobs at monthly salaries of $100 were given to 24,000
individuals. Thelcompetition for these jobs was very high.






- 18 -


Underemployment, a chronic problem among the agricultural labor force

in rural areas, has also increased in the Metropolitan area in recent

years. In 1975 it was estimated that approximately 70,000 workers (28%)

in the Metropolitan labor force were underemployed. A high proportion

was concentrated in the service sector which, as is indicated below, is

the only major sector where the number of jobs has increased appreciably

over the last eight years.


Employment in the Metropolitan Area by Sector

1970 1978


Services
Industry
Commerce
Construction


Number

70,300
27,100
42,800
14,900


%

31.7
12.2
19.3
6.7


Number

96,720
32,460
48,460
18,690


%

34.7
11.6
17.4
6.7


This concentration of employment in services has important ramifica-

tions for the poor, as wages in this sector are not only low, they are

also not subject to much increase. 1/ Areas of the service sector such

as domestic services also have the major concentration of unskilled

workers. In 1975,70% of those employed in this area had a sixth grade

education or less.

Unemployment and underemployment are particularly high among women

and among the young. In 1977 14% of the female labor force was unemployed

and approximately 44% was underemployed. (the comparable figures for men

were 10% and 18%, respectively). Female employment in urban Panama is



1/ Between 1974 and 1976 average weekly wages in the non-government
services declined by 1%. Wages in commerce and industry, on the other
hand, increased 5% and 16%, respectively.






- 17 -


Population Projections for Urban Panama & Colon

Percentage of
Year Population Total Population

1960 383,000 34.9
1970 597,000 40.8
1980 864,000 45.6
1990 1,203,000 51.2
2000 1,600,000 56.7


In an economy with a rapid rate of economic growth such as Panama

enjoyed in the late 1960's and early 1970's, providing jobs for this

steadily increasing population is within the realm of the possible. How-

ever, since 1974 the number of jobs has actually declined and unemploy-

ment has soared. Moreover, equivalent unemployment (unemployment plus

estimated underemployment) in the Metropolitan areas is now over

35%. Equally as significant, the non-economically active population has

steadily increased.


Labor Force Trends for the Metropolitan Region
1974-1977

1974 1975 1976 1977

Total population 15 years & over 455,800 478,630 501,060 534,260
Economically Active Population 280,300 284,100 279,760 289,680
Percentage total 61.5 59.4 55.8 54.2
Employed 260,400 259,030 254,920 256,000
Unemployed 19,900 25,070 24,840 33,680
Percentage EAP 7.1 8.8 8.9 11.6
Non Economically Active Population 175,500 194,530 221,300 244,580
PercentaFg total 38.5 40.6 44.2 45.8


the job market with unskilled labor (in 1970 40% of migrants 15 and over
had either no education whatsoever or an incomplete primary education; the
comparable figure for Panama district was 33%). While migrants continue
to account for a sizable proportion of the population growth, it is
estimated that by the end of the next decade, the forces of natural growth
alone will be responsible for over 60% of urban Panama's population increase.







- 16 -


4. Urban Poverty

In addition to the poverty line data presented in Section 2,

above, three key sets of indicators unemployment, underemployment, and

housing conditions are used to describe poverty in urban Panama and

Colon. Unemployment and underemployment have been chosen as they have a

direct bearing on the welfare of the urban poor who depend on cash income

to fulfill the majority of their basic needs. General indicators of hous-

ing conditions (type of housing, crowding, existence of non-approved or

shared water and sanitary facilities) as well as access to housing and

employment services help shed further light on the extent to which the

urban poor are receiving the assistance they need in order to incorporate

themselves into the modern sector.

As is illustrated in the discussion below, urban Panama's number one

current problem is unemployment. Faced with a stagnation in the job

market plus a rapidly increasing population, Panama City and Colon are

confronted with a poverty problem that, if not checked, could reach

crisis proportions by the year 2000.

Unemployment and Underemployment

An estimated 790,000 people (43% of Panama's population) currently

live in the urban areas of Panama and Colon. Panama's Department of

Statistics and Census estimates that by the year 2000 approximately

1,600,000 people, or nearly 57% of the country's estimated population of

2,823,000 will be living in this area. 1/


1/ This rapid rate of population growth in urban Panama and Colon is due
both to the forces of natural growth and migration. During the 1960's and
earlier migrants accounted for the major part of this growth. Attracted
by both the jobs and services available in Panama City, migrants flooded






- 15 -


Results of a recent survey of malnutrition in the province of Vera-

guas indicate that a large proportion of the population (79% of the 1

through 4 year olds and 70% of the 5 through 17 year olds) were malnour-

ished. Malnutrition was particularly severe among the 1 to 4 old group -

29% were found to be in second degree malnutrition and 5% in third degree.

These figures were much higher than corresponding national level figures

obtained in 1967 (10.8% of the 1 to 4 year old group in second degree

malnutrition and 1.1% in third degree) and suggest that malnutrition,

rather than decreasing,actually may be increasing.

According to district level projections for 1975, over 45% of the

adult population ages 15-39 in this area was illiterate. Of the remain-

ing 55%, most had no more than two or three years of schooling. 1/

While it may be assumed that the major portion of this latter group can

read and write and do basic calculations, their low level of education

hardly prepares them adequately for employment in sectors that require a

minimum of certain basic skills.

Although the GOP has made strides in recent years in attending to the

educational needs of the primary school age population throughout rural

Panama (1977 enrollment data indicate that in this region most primary

school age children are in school), GOP activities oriented toward re-

ducing literacy among adults and increasing their skills remain very

limited.




1/ Opinion of Ministry of Education officials in the absence of
statistical data.







- 14 -


Houses with Dirt Floors


Houses without Electricity


NATIONAL
AVERAGE
O
E-i


Houses Lacking an Approved
Water Source


NATIONAL
AVERAGE


Houses Lacking Approved
Sanitary Facilities


NATIONAL
AVERAGE


W 4
0-


GRAPH 1


HOUSING CONDITIONS IN FOUR OF THE SEVENTEEN TARGET DISTRICTS, 1970
POPULATION CENSUS


NATIONAL
AVERAGE






- 13 -


Opportunities for off-farm employment for women are minimal, a factor that

contributes to the high incidence of out-migration among younger women,

mainly to Panama City. /

Future prospects for productive use of the natural resource basein this

area are limited. IPoor soils and steeply sloping terrain make this area

suitable primarily for natural forest and tree crops, with some areas

suitable for cattle grazing. However, increasing amounts of land are

being converted to!unappropriate uses. Forests are being cut and burned

by subsistence farmers to make way for small agricultural plots. Once

the soils on these'lands are exhausted the farmers move on to other areas,

often leaving the land open to exploitation by cattle ranchers. Outside

of the copper deposits in Tole, there are no other known mineral deposits

with marketable potential.

Selected Indicators

The majority of the houses in this area have dirt floors and they

still lack electricity, potable water, and sanitary facilities (see

Graph 1). Access -o health services in this area is also minimal. In

1970 these districts had an average of 0.6 doctors for every 10,000

inhabitants. By 1977 this figure had risen only to 0.8 (the national

average for 1977 was 6.0). Most births (67.6%) are still unattended by

either a physician or a nurse.


1/ Migration data from the 1970 Census reveal that in the province of
Veraguas women made up over half (53%) of the migrant population. Over
two thirds (65%) of these women were young (ages 15 to 24) and nearly
half (48%) either had never been to school or had an incomplete primary
education. The majority took extremely low paying jobs in the service
sector (as domestics). All or part of the salary earnings were sent
back home to help supplement family income.







- 12 -


The majority of the population in the eastern districts of Veraguas

as well as those of Colon and Code is Hispanic. The western districts

of Veraguas and the eastern districts of Chiriqui also have the nation's

major concentration of the country's 50,000 Guaymi Indians. /

Economic Activity of the Population

The vast majority (87%) of the farm population in this predominantly

agricultural area are dedicated to subsistence farming. Most subsistence

farm families occupy land that is inadequate for cultivation. / Very few

(less than 10%) have legal title to their land. Most farmers use slash

and burn techniques to clear land for cultivation. Seeds are sown by

hand without tilling, and no chemical products are utilized. In 1970,

only 16% of the farmers in this area received credit and 3% received

technical assistance. Virtually none use mechanical power of any kind.

While some families change the location of their homestead every few years

as they slash and burn further into the frontier area, most stay in the

same general vicinity and alternate production on various dispersed plots.

During the off-season male heads of household often obtain off-farm

wages for short, intermittent periods on neighbors'cattle ranches. Some

also migrate to western Chiriqui, where they obtain seasonal work for

several weeks to several months a year on sugar and coffee plantations.


1/ Given their extremely limited access to services, the Guaymi are a
group that merits study and possibly special attention. A FY 1979 Mission
grant project will finance studies of the Guaymi and pilot development
activities which should produce considerable new information on the
development needs of the Guaymi.
2/ Most of the terrain is mountainous and the majority (80%) of the soils
are unsuitable for cultivation (e.g. types VI, VII, and VIII).






6L/ S 1E 4 I'


CZEN1.T-?I'L


S<". '1










MAP 2
FOCUS FOR RURAL DEVELOPMENT


2-aGI N






METROPOLITAN
RFECGION


M MAP 1
INCIDENCE OF RURAL POVERTY


REGION


LJ 2 ST E ii ~I Ri6ro~J


CENTRAL RECIONm


EAST E RN





-9-


The results of the district by district analysis are shown on

Map 1. Fourteen districts (shown by cross-hatching) have the "least"

level of satisfaction of basic needs i.e. they are below national

averages on all three key indicators. All are in the Central and Western

regions. Sixteen additional districts (shown by vertical stripes) fall

below the national averages on two of the three indicators and thus have

serious deficiencies in the satisfaction of basic needs. Most of these

districts also lie in the Central and Western Regions. Tables 1 and 2,

Annex 1 summarize the district level data for all 30 districts. The major

concentrations of poverty are in Veraguas province and neighboring dis-

tricts in eastern Chiriqui, Code and Colon, Herrera and Los Santos.

Seventeen districts stand out. They have a number of factors in

common, including poor soils, mountainous terrain, highly dispersed popu-

lation and a lack of access roads. The widespread poverty in these dis-

tricts is further confirmed by a review of other indicators as well, such

as housing conditions, water, sanitation and access to health services.

These seventeen districts we now believe to be the proper focus for a

final rural development effort in Panama. They are illustrated on Map

2 and described in greater detail in the following sections.

Key Population Characteristics

As indicated by 1970 Census data, this area, with a population of

178,821, is primarily rural. The population density is low (an average

of 12.3 people per square kilometer) and the inhabitants are highly dis-

persed. Annual population growth rates are low, due in large part to a

tendency of the population to migrate out, especially to Panama City.!/

1/ Between 1960 and 1970,16 of the 17 districts had annual growth rates
of less than 2% (the national average for this period was 3.1%). Veraguas
and Chiriqui were the provinces with the highest level of outmigration.






-8-


Pop.'Below Extreme Population Below
Poverty Level Poverty Level
Provinces Total Rural Urban Total Rural Urban
Total 384,284 290,067 94,217 714,453 512,485 201,968

Veraguas 106,298 103,719 2,579 141,090 133,353 7,737
Panama 98,702 34,367 64,335 197,406 68,736 128,670
Chiriqui 49,495 41,562 7,933 106,923 83,124 23,799
Colon 42,873 35,098 7,775 85,750 70,200 15,550
Code 25,653 22,361 3,292 62,486 55,900 6,586
Herrera 19,295 16,419 2,876 46,939 38,311 8,628
Bocas del Toro 24,818 20,442 4,376 39,395 30,663 8,732
Darien 9,751 9,588 163 19,666 19,176 490
Los Santos 7.399 6,511 888 14,798 13,022 1,776

The province with the highest incidence of extreme poverty

is Veraguas with 61% of its population below the extreme poverty level,

almost all in the rural areas (94%).

3. Rural Poverty

In order to move from the more general description of poverty

provided by the income distribution and poverty line data to more loca-

tion specific and qualitative information, the Mission has analyzed social

indicators and access to services at the district level./ For the rural

areas, three key indicators infant mortality, birth rate and illiteracy -

were examined for'each district in the country. These indicators were

then compared to national averages. Those districts where all three

indicators are above national norms are considered areas of extreme pov-

erty of a large part of the population. These districts are all located

in the provinces which show the largest populations below the poverty

line, as described above. Districts where two of the three indicators

are above national norms have a lesser prevalence of poverty, although

the degree of poverty is similar to that found in the poorest districts.


1/ The country is divided into 9 provinces and 65 districts. In addition
-there is one special district set aside for the Cuna Indian tribe.







-7-


medical services, transport and miscellaneous. Incomes below these three

levels for the three geographic areas cannot meet basic human needs.

The second level of income is descriptive of the more than

1/5 of Panama's population living in extreme poverty, or in conditions

of serious vital deterioration. This income level has been calculated

at $270 annual per capital for the cities of Panama and Colon, $210 for

other urban areas, and $160 for the rural areas. The "extreme poverty

level" is roughly 48% below the poverty level. It includes the same

items in the basket of goods and services but at greatly reduced cost

levels. At and below this level, a family of 5 is in no way able to

provide for food, clothing or housing at adequate levels.l/

Population living in poverty

Application of the "poverty" and"extreme poverty" lines to

the estimated population distribution for 1978 yieldsthe following

population living in poverty:

Pop. Below Extreme Pop. Below Pop. Above Total
Poverty Level Poverty Level Poverty Level Population

Total 384,284 (21%) 714,453 (39%) 1,111,047 (61%) 1,825,500 (100%)
Rural 290,067 (16%) 512,485 (28%) 392,755 (22%) 905,240 ( 50%)
Urban 94,217 ( 5%) 201,968 (11%) 718,292 (39%) 920,260 ( 50%)

In absolute terms, the poor are most numerous in the provinces

of Veraguas, Panama, Chiriqui and Colon (531,169 or 74%) with the heaviest

concentration in the rural areas of Veraguas and Chiriqui and the urban

areas of Panama (345,147 or 48%):




1/ A detailed description of the methodology used to both develop these
lines and match them up with family income data in order to arrive at
estimates of the Panamanian population living in poverty may be found in
Annex II.





-6-


limited land to fall back upon in order to feed their families, the

urban poor are entirely dependent on a monetary economy with a cost of

living index among the highest in the Western Hemisphere. Seen in the

context of growing migration and the natural growth that are

rapidly making the Metropolitan region the major locus of Panama's

population, urban poverty, currently a source of concern, becomes a cause

for serious alarm in the coming years and decades. This switch from

predominantly rural to predominantly urban poverty appears increasingly

to be characteristic of countries in the intermediate stages of develop-

ment. And it is increasingly alarming that in Panama, as elsewhere, what

to do about urban poverty and unemployment is proving to be a tougher

problem than was what to do about rural poverty.

2. Income of the Poor

Poverty line analysis

Two levels of income have been calculated for the country

based on estimated minimum family consumption costs for 1978 for the

cities of Panama and Colon. These levels have been adjusted (1) for the

country's other urban centers and (2) for the rural areas to reflect the

lower living costs there.

The first level is the income barelyadequate to provide for

a family's basic needs. This income has been calculated at $517 per

capital annually for the cities of Panama and Colon, $402 for other urban

centers, and $304 for rural areas. These figures are based on a basket

of goods and services which permits a family of 5 persons to barely

satisfy its basic minimal needs. The basket includes a bare minimum diet

and clothing, very modest housing, minimal costs for primary education,






- 22 -


B. Identification of the causes of poverty

The discussion in Section A highlights, for the two target areas

selected for special attention, a number of characteristics of the poor

which while themselves descriptive of poverty are also factors con-

tributing to its existence. Three general causative factors stand out:

(1) An extremely'limited natural resource base.

(2) Extreme isolation of a large proportion of the rural population.

(3) Very limited education and skill levels in both rural and urban

areas.

The consequences of the above for the poor are obvious:

(1) Low quality soils which are rapidly becoming depleted of what

little nutrients they have, in combination with a lack of alternative

employment, severely limit the productive potential both present and

future of the majority of small farmers.

(2) Isolation makes access to vital education and health services

difficult. It also inhibits access to support services (e.g. inputs,

technical assistance, credit) needed to increase farm productivity.

(3) Low education and skill levels hold down productivity of both

the rural and urban poor by limiting opportunities for the rural poor to

utilize better technologies and expand into new activities, while locking

the urban poor into a limited array of employment opportunities, all in

areas where wages and opportunities for advancement are low.

These three factors limited natural resources, isolation, and low

skill levels are all keys to understanding the causes of poverty in

Panama. In order to further unravel the causal chain, it is necessary

also to consider a series of factors that are closely linked to Panama's







- 23 -


recent, severe, and continuing economic recession. This recession, which

began in 1974, has manifested itself in near zero economic growth since

1974, a trade deficit that climbed to $500 million in 1974 where it has

remained, a 7 percent drop in per capital GDP, and as already pointed

out in Section A a stagnant job market.

1. Concentration of Panama's economy in the tertiary sector.

Panama's strategic location and the presence of the Canal make it

a natural center for commerce and other service activities. Since the

turn of the century, Panama has exploited its location, promoting an open,

dynamic service sector clustered in the Metropolitan corridor along the

Canal. Of Panama's 1977 GDP of $2254 million, 53% was derived from

service activities. Manufacturing accounted for only 20%, agriculture
1/
16%, construction 5%, and the Canal Zone 6%.- Both commercial and other

services activities have benefited from the GOP's liberal banking policies
2/
which have made Panama a major regional financial center./

Panama's increased reliance on tertiary sector activities in place

of the primary and secondary sectors has had three negative consequences



1/ The Canal Zone 6% covers only wages of Panamanian employees; the $261
million direct balance of payments flow from the Canal Zone to Panama in
1977 was 11 percent of GDP. Applying an export multiplier plus inclusion
of other indirect benefits result in an overall contribution of the Canal
Zone to Panama's economy which is much greater than indicated by the
direct benefits.
2/ Panama has no central bank. A government owned commercial bank the
National Bank of Panama performs many of the normal functions of a central
bank; however, it does not issue Panama's currency,the Balboaa". Instead
the main medium the U.S. dollar circulates freely. While this provides
Panama with the monetary stability it needs both to attract outside private
investment (esp. private commercial banks of which there are now some 81 in
operation) and to finance many of its large scale development projects, it
has the marked disadvantage of restricting Panama's ability to use monetary
policy as an effective instrument of economic management.







- 24 -


for the poor: (a) That once represented a plentiful source of low-skilled

jobs, and thus a drawing card for rural migrants, has dried up. Neverthe-'

less thousands of migrants continue streaming into the Metropolitan

corridor in hopes of getting jobs in these areas. (b) Unlike agriculture

and industry, which as a rule tend to generate additional jobs in related

activities, new activities in the services sector do not result in the

spontaneous generation of secondary employment. (c) As already illustrated

in Section A, a significant proportion of services sector jobs pay very low

wages, thus further contributing to the underemployment problem.

2. Excessive dependence on imports and limited exports.

In keeping with its tradition of serving as a funnel for world

commerce, Panama h-s allowed goods to move in and out of the country quite

freely, keeping import quotas for many articles at a minimum. While this

has obviously benefited the commercial sector and permitted it (at least

until recently) to thrive, it has served as a deterrent to small, locally

oriented industry. and thus limited opportunities for creating additional

jobs. Dependence on imports, from basic commodities to finished consumer

products, has also!had a negative impact on the disposable income of the

poor. In 1974, when world oil prices skyrocketed, the consumer price

index in Panama leaped upwards correspondingly. Between 1973-1977,

consumer prices rose at an annual rate of over 8%. As described in

Section A, wage increases in sectors employing a large proportion of the

urban poor during this latter period ranged from 0 to only 2.7% per year.

Panama's dependence on a limited array of exports has also in

recent years had a negative impact on its balance of payments. Panama's

only recourse to date for redressing trade imbalances has been attempts







- 25 -


to increase exports of traditional, largely primary, products such as

bananas, petroleum products, shrimp, and sugar. However, the drastic

drop in the world price of sugar and declining demand for Panama's

petroleum products have made this difficult. Panama is currently making

a concerted effort further to expand its export base to include non-

traditional (both primary and secondary) products, but identifying

appropriate non-traditional exports, markets for these exports, and

attracting needed private investment remain a difficult challenge, due

in large part to Panama's increasing high wage structure which makes it

less competitive with nearby countries. Meanwhile the urban and rural

poor are losing out both on past job opportunities that actually crumbled

and on future job opportunities that have yet to materialize.

3. Decline in Private Investment

Private investment in Panama has declined steadily over the past

five years, to a 1977 level that in real terms was only one third of the

peak reached in 1973. This resulted in a stagnation of the economy and

a steadily shrinking job market, since the expansion of public sector

investment was not sufficient to prevent a drop in overall investment.

Private investor interest waned as promising commercial and industrial

investment prospects played out. Government policies further discouraged

investors.

The Labor Code was made highly pro-labor and more expensive to

employers in 1971, further raising Panama's already high cost labor

structure. The government took over ownership and operation of all

public utilities in recent years and made a few incursions into the

normal private sector arena (e.g. sugar, cement), causing private investor







- 26 -


apprehension over possible future public sector takeover in their areas

of investment interest. Uncertainty over Canal treaty negotiations, and

now treaty implementation concerns have also been unsettling factors.

Panama's new government, however, has made resumption of economic

growth a priority concern, clearly recognizing the predominant role of

private sector investment in generating that growth. In an attempt to

attract private investment, revisions of current economic and labor

policies are beingidesigned and the GOP is looking at the semi-autonomous

government enterprises, with a view to possibly reducing their role in

the economy. The government's fledgling industrial development financing

institution, COFINA, is steadily expanding its efforts to offer finan-

cial support to a Widening range of profitable new private investment

opportunities in Panama.

Rekindling private investment is, however, a challenging task

and one in which the GOP needs outside help. Profitable investment areas

and markets need to be researched and credit mechanisms expanded. In

addition, the Canal transition will offer some investment opportunities,

and if handled smoothly and efficiently it can contribute to restoring

private sector confidence.

C. Host Country Plans, Commitment and Progress

Development Plan

Despite Panama's economic stagnation, the GOP over the past ten years

has made a major, essentially successful effort to improve the lot of the

poor and disadvantaged. The "Revolutionary Government" which has been in

power since 1968 set as its general objectives a more complete integration

of the country, improved social and economic conditions of the poor through

income redistribution, and strengthened bases of economic growth.






- 27 -


In striving to accomplish these objectives, the government sub-

stantially increased its involvement in both the social and economic

life of the nation during that time. For example, education and health

programs were greatly expanded and extended into the provinces, and an

agrarian reform program was initiated. Major investments in economic

infrastructure were made, primarily in transportation, power, and

communications. A new labor code was instituted which was decidedly

pro-labor.

The GOP's overall development strategy was formalized in its National

Development Plan for 1976-1980. This plan defines development policies

with respect to six major objectives and identifies the means to be em-

ployed for their achievement. These policies cover (1) increased

popular participation and improved distribution of economic benefits;

(2) accelerated, diversified, sustained economic growth; (3) greater

regional integration; (4) more effective utilization of public finances;

(5) strengthened public sector institutions; (6) more autonomous and in-

dependent development.

With strong commitment backed by significantly increased public invest-

ment, the Government has made great strides towards achieving many of its

objectives. In general, the GOP's social programs have had considerable

success, whereas its production programs have produced mixed results.

Performance

With regard to social objectives, progress on the national level as

measured by key indicators has been impressive and is especially note-

worthy for rural areas. The following table presents data on important

health indicators, pointing up some results of the GOP's efforts to re-

duce rural/urban inequalities.







- 28 -


1967 1977
NaL ional Rural Nat ional Rural

1. Death rate 6.8 7.7 4.4 4.5

2. Infant mortality 42.7 49.7 28.1 29.3

3. % Population with
potable water 64.5 34.7 82.5 63.8

4. % Population with
sanitary facilities 73.2 62.2 88.3 78.9


Progress on other indicators for the national level over a similar

time frame show illiteracy decreasing from 26.7% to 13.8%, the birth

rate declining from 38.9 per thousand to 28.4, and population growth

rate from 3.3% to,2.6% per year.

Commitment to improved access by low income agricultural producers

has been strong, but progress has been slow. The GOP has established

a system of price supports and controlled marketing margins, and a gov-

ernment agency purchases several basic commodities from producers to

support the market for their crops. The government has supported some

200 asentamientosi with over 7,000 families participating in a program

which provides laud title, credit, technical assistance and other ser-

vices to these organized groups. To date, few asentamientos have

achieved financi1. viability, and the GOP absorbs their losses. The GOP

also assists the cooperative movement and other group arrangements.

The political system has been designed to increase the participation

of the less advantaged segments of the population in the decision-making

process. The elected representatives of the smallest political sub-

division (the corregimiento) both serve their local area and comprise the







- 29 -


.National Assembly. This political/administrative system is intentionally

biased towards the rural areas, where the bulk of the poor have tradi-

tionally been located.

The data on the key indicators show that most Panamanians are con-

siderably better off as a result of the development which has taken place

over the past ten years. There is no indication that development has

adversely affected any given group, although the recent economic stagna-

tion has obviously struck hardest at the poor, particularly the urban

poor.. Further detail on these topics may be found in the Mission's 102(d)

report in TOAID A-71 of October 23, 1978.

Development Budget

The GOP's consolidated national budget for 1979 calls for expenditures

of $854 million, comprising about one third of estimated GDP. Central

Government current revenues of $453 million are expected to cover only

current expenditures, leaving the investment program to be financed

principally by foreign borrowing, as has been the pattern in recent years.

Over one third of the current expenditure budget will be taken up by

interest and transfer payments. Among the ministries, the largest

allocation goes to education -- 18.5%. The health ministry receives

8.3% and agriculture 2.6%. An estimated 7% goes for defense spending,

which as usual will come to less than 1% of GDP. The largest allocations

in the public sector investment budget are for physical infrastructure --

18% for electricity (hydropower development) and 17% for transportation

(roads, ports, airports). Agriculture receives 15% and commerce and

industry 8%.

One of the most noteworthy characteristics of the development plan was

the continuing high level of public sector investment. In an attempt to







- 30 -


offset the effects of the severe decline in private investment which

began in 1975, the GOP stepped up public sector investment from $75

million per year in 1970-1975 (5% of GDP) to $400 million per year

during 1976-1978 (18% of GDP). This increased investment program re-

quired huge increases in public borrowing, mostly from abroad, since the

government felt constrained on both political and economic grounds to

attempt to self-finance much of the program through increased taxes

during a time ofi recession, although a 5% sales tax was instituted in

1977.

The high level of public investment and external financing has in-

creased the demands placed upon the public institutions which in turn

has required that they be made more effective and efficient. Moreover, the

burden on them will increase as Panama assumes its new responsibilities

for the Zone and the Canal. The government's planning and project devel-

opment capabilities are qiite impressive even as measured by strict uni-

versal standards. There are, however, still some weaknesses in project

management and administration when measured by absolute standards. By

relative standards the Panama Civil Service is already among the better,

though still not good enough for the high pressure and quality tasks

ahead. The major causes are inadequate coordination and cooperation among

the different public institutions, and the overburdening of the relatively

small group of qualified personnel. This cadre of competent professionals

are simply too few in number and inadequately backstopped at the middle

levels of service.

The GOP is aware of the challenge and has already taken positive steps.

The public enterprises (e.g. utilities, sugar) are to be self-financing,







- 31 -


reorganizations have produced new institutions (e.g., planning and

housing ministries) and government training programs are being coordi-

nated. Moreover, the GOP is now developing a major program which will

combine administrative reform with stepped up training of middle level

public officials.

D. Human Rights

Panama has a record of sustained human rights progress in the last

decade. The GOP has responded vigorously to the need to improve the

standard of living of the poor including free education, health care at

minimal cost, rural credit, price controls on essential foods, and

subsidized housing.

As to respect for integrity of person, reports of degrading treatment

and arbitrary arrest or imprisonment do occur, but such cases are not

common. The inviolability of the home is respected. Respect for civil

and political liberties has increased in the last two years, as witnessed

by a series of political reforms. In ordinary criminal cases, Panamanians

have the benefit of a fair and public trial. In politically sensitive

cases, the judiciary appears to have been susceptible to the influence

of the Executive Branch. Labor unions are free to organize and operate,

and the government frequently solicits labor's views before making domestic

policy decisions. While political participation has been limited, political

parties are now able to function again, greater freedom of expression is

allowed, and there is a genuine give-and-take at the local level. Locally

elected representatives comprise the National Assembly which funnels local

concerns to the national level and, in the recent past, elected the

President and Vice President of the country. Future presidential elec-

tions will be by direct popular vote.







- 32 -


E. Other Donors

Over the past few years, other donor activity in Panama has been

substantial. IFI lending reached a peak in 1977 when the IDB provided

$122 million for hydroelectric power and tourism development and the

IBRD provided $57.7 million for hydroelectric power, livestock develop-

ment and improvements in the fishing fleet. Assistance from the IDB and

IBRD was more limited in 1978, totalling $31 million for a pre-investment

fund, agricultural credit and highway maintenance. While both banks

generally finance capital intensive projects, with a concentration on

physical infrastructure, increasing attention is being given to social

projects, particularly by the IDB. Projects under development continue

this mix, including support of university education, tree crops, industrial

credit, urban development, and power distribution. Current plans for 1979

indicate a total lending level of about $50 million.

The UN system provided in 1977 about $1.6 million in technical

assistance, about evenly divided between the UNDP and the specialized

agencies. This assistance went to a number of sectors, with a concentra-

tion in the fields of health, agriculture, transportation and communications,

and social and economic planning. New UN projects emphasize agriculture,

industrial development, and regional planning. UNDP assistance increased

to over $1.3 million in 1978 and is programmed to remain over $1.0 million

through 1981.

Bilateral programs of the DAC countries consist primarily of procure-

ment credits and scholarships, with most programs being under $100,000

per year, accounting for about $1.6 million in 1977. OAS and IICA activ-

ities consist mainly of advisors and scholarships and represent about

$500,000 per year.







- 33 -


Donor activities are effectively coordinated in two ways. A strong

Ministry of Planning and Economic Policy is the major counterpart agency

for all donors at the policy level and coordinates all technical cooper-

ation activities. There are also formal and informal coordinating

mechanisms among the donors which are more than satisfactory.

All major donors pursue similar objectives, employing differing but

complementary means. The IDB and IBRD tend to concentrate their assis-

tance on infrastructure projects. The UNDP, OAS and other bilateral

donors focus on relatively small technical assistance activities. The

A.I.D. program fills a gap helping to assure that both the GOP and the

other donors do not ignore the interests of the poor in their consider-

ation of overall economic development needs.

F. Outlook

A newly elected government took office in October, 1978, and work on

a new five year development plan has already been initiated. The devel-

opment strategy revealed so far by the new government does not differ

significantly fromthatof the past ten years. The new President has

listed the high cost of living, unemployment and integrated national de-

velopment as primary concerns and defined the following medium term devel-

opment objectives: resumption of economic growth with better social and

regional distribution; expansion of employment and increased housing

construction; more political democratization; a more efficient public

sector; better quality of education; greater respect for human rights;

improved foreign relations, especially with the U.S.; and better utili-

zation and protection of natural resources. A basic policy of fiscal

austerity will be followed, in recognition of the government's continuing







- 34 -


financial problems. Social services, however, are to be further extend-

ed. The key role of private investment is emphasized. Greater efficiency

in public enterprises will be sought and additional resources will be

directed to Panama's agricultural development. Industrial, transportation,

and energy projects will continue to be developed, with emphasis on the

impact they will have on export promotion.

It is recognized that economic growth is pre-requisite to the attain-

ment of Panama's development goals. From the standpoint of poverty and

human suffering. the core problem for Panama has become the demise of

the growth of ies economy. This economy can no longer support the non-

productive poor'and jobless at levels recently achieved through the

government's redistribution efforts. In its own words: "Before we can

contemplate the'ideological choices for the distribution of our wealth,

we must first create that wealth. One cannot distribute imaginary

wealth".

The government recognizes that resumption of growth is a first step

if the problem of Panama's poverty is not to worsen. It also recognizes

the predominant role of the private sector in generating economic growth.

Accordingly, the government is making a major effort to assure the private

sector of its cooperation, and to enlist their support in a joint effort

to set the economy on a long term expansion path. One vehicle for an

improved government/business dialogue is a newly formed Economic Advisory

Council, composed of representatives of business, labor, and agriculture

whichis to study and make recommendations on economic policy.

In addition, the GOP is banking heavily on the resources it will

receive under the Canal treaties. Plans call for expansion of the rail-

road, construction of a modern container port, and expansion of the Free







- 35 -


Zone. These and other projects are expected to generate ancillary in-

vestment by the private sector. Also, tie increased revenue tlhe COP will

receive from the Canal operation should help relieve the financial pres-

sure currently facing the government. It should reduce the high level

of commercial financing which the Government has required to continue

the current level of public sector investment with the assistance of

additional concessional financing.

A new wave of private investment activity could, therefore, take

place in the near future if the GOP succeeds in gaining the confidence

and support of the business community, and if it does not stumble in

taking on its new responsibilities under the treaties. An increased in-

vestment level, however, is not likely to be sustained by these means

alone, since most of the same constraints on growth that have led to the

current economic stagnation will continue to exist. Nonetheless, ex-

pectations of increased employment opportunities will likely attract still

more workers from the provinces to the Metropolitan area seeking jobs

which are likely to prove temporary, adding to the already unmanageable

problems of urban housing, sanitation, and social services.

One of Panama's most serious obstacles to the achievement of sustained

economic growth has been high labor costs, which have limited export

expansion. High wages and benefits for Panamanian employees of the Canal

Zone will continue to exert upward pressures on wage levels throughout

Panama beyond what would normally develop from international or other

domestic causes. This will tend to further inhibit private investment,

particularly in labor intensive activities, and have the familiar negative

impact on employment and the balance of payments.







- 36 -


Under these circumstances, which are certain to be a permanent part

of the economic scene in Panama, it would appear to be futile policy for

Panama to strive to increase permanent employment opportunities for poor,

unskilled workers. Rather, GOP strategy for the longer run should aim

at an across-the-board upgrading of the skill level of the entire labor

force, including 'the minimum skill level of the mass of Panamanian work-

ers, both urban and rural. Only through higher productive capabilities

of Panamanian labor, in general, can the private sector justify the high

labor costs it mist pay, i.e., achieve lower real wage costs and thereby

improve its international competitiveness. This in turn means that GOP

development strategy should encourage primarily the development of those

industries or activities whose output requires relatively high skill

labor inputs. For maximum effectiveness, it will also require a more

flexible GOP labor/wage policy, in which the productivity issue should

be factored in as a major element.

This approach should steadily open up additional profitable investment

opportunities in Panama, create jobs, establish the economy on a firm

expansion path, and develop the bases for permanent, sustained growth.

The number of hard core unemployable, unskilled workers would be reduced

rapidly to levels constituting a lesser drag on the economy and on the

public sector in providing for the welfare needs of the poor. Ultimately,

the inhibiting load on both the economy and the public budget of poverty

and unemployment would be reduced to the lowest practicable limit.

In Part II which follows, we identify and describe five specific .courses

of action by which AID can help Panama achieve these goals.







- 37 -


PART II STRATEGY

A. Long range goals and intermediate targets

Panama is destined either to remain poor with a more urban

than rural complexion or to flourish as a hub of international

financial, communications and trade services, and as a producer of high

technology products for export, with a healthy balance and complemen-

tarity of roles among the two main cities, a dozen small cities, and

the rural areas.

The immediate goal is to bring all remaining rural poor into

the economy. The rural population is now almost evenly divided among

those who have crossed over the poverty line and those who have not.

There is momentum, however, so that the goal already half-won seems

progressively more attainable. The combination of a geographically

focused rural development program with an intermediate city-market

town program is intended both to complete the integration of all

families into the economy and to secure a permanently healthy economic

growth posture in the Panamanian countryside. Small, medium and

large scale farming on the one hand will interact profitably with

flourishing agro-industries and services and with a growing national

market on the other.

The long range goals are to return the Panamanian economy to

a condition of rapid, sustained growth and, on this basis, to share

the benefits of such growth among all Panamanians. Stated another way,

the aim is to attain and sustain full employment with the labor force

gaining its fair share of the proceeds of production.







- 37 -


PART II STRATEGY

A. Long range goals and intermediate targets

Panama is destined either to remain poor with a more urban

than rural complexion or to flourish as a hub of international

financial, communications and trade services, and as a producer of high

technology products for export, with a healthy balance and complemen-

tarity of roles among the two main cities, a dozen small cities, and

the rural areas.

The immediate goal is to bring all remaining rural poor into

the economy. The rural population is now almost evenly divided among

those who have crossed over the poverty line and those who have not.

There is momentum, however, so that the goal already half-won seems

progressively more attainable. The combination of a geographically

focused rural development program with an intermediate city-market

town program is intended both to complete the integration of all

families into the economy and to secure a permanently healthy economic

growth posture in the Panamanian countryside. Small, medium and

large scale farming on the one hand will interact profitably with

flourishing agro-industries and services and with a growing national

market on the other.

The long range goals are to return the Panamanian economy to

a condition of rapid, sustained growth and, on this basis, to share

the benefits of such growth among all Panamanians. Stated another way,

the aim is to attain and sustain full employment with the labor force

gaining its fair share of the proceeds of production.






- 38 -


Given Panama's size, location and natural and human resources

bases, we see no other way for the country to go than to aim to be a

high technology economy, strong in international financial trade

services, in a diversified program of exports of agricultural and agro-

industrial products and in manufactures competitive in world trade.

The Hong Kong,Singapore, and Taiwan models come to mind, as each has

been highly successful with strategies tailored to its own unique

circumstances. Panama and these island economies have much in common,

including an intrinsically talented human resource base. While its

maturation is yet incomplete,the human potential is there. So is the

superb geograpbhc location -- the world's Broadway and 42nd Street.,

B. AID Assistance Strategy

1. Areas and Sectors of Development

The Introduction and Summary made clear, and the data on

poverty demonstrated that development in Panama will be coursing along

5 main streams over the next 20 years. Two are of short and intermediate

term. Three are the long range development efforts necessary to establish

and make permanent a good quality of life for all Panamanians. As

planned by the GOP and supported by AID and other donors, some have

been initiated and all five will be operative during this current

CDSS period, 1981-85. How much longer the GOP and other donors may

find it necessary to continue with each such program is not now pre-

dictable. As for AID, we propose to conclude our participation in

Rural Area Development at the end of 1985, and in Rural Growth Centers

by the end of 1989. Employment Creation, Environmental Enhancement,

and Human Resources Development we see as needing also to be launched







- 39 -


in force now. They are as urgent as the others. But they are more

difficult, less is known about how to deal with them, and results

will be harder to achieve and slower in coming. By their nature they

are complex, conglomerates of problems and opportunities where the

best that the sciences have to offer needs to be woven into the de-

signs for their solutions. We see these three assuming growing

importance in AID's support activities during the decade of the 1980's

and as the principal foci of AID's efforts in the 1990's.

2. Role of Other Donors

We expect bi-lateral aid from other developed countries

to be of an ad hoc, targets of opportunity nature. The World Bank

and the IDB will continue to be the principal external sources of the

capital needed to complete the financing of high cost programs,

particularly infrastructure. In both rural development and in

employment creation, we would expect these I.F.I.'s to continue to

supply substantial external capital for highways, power, water,

industries, and transportation. UNDP, both because its funds are

limited, like ours, and because it is also similarly interested

in experimenting with new projects will be AID's closest collaborator.

While we expect the whole external aid complex to be complementary,

UNDP-AID collaboration will be from close to intimate, including

joint projects.

3. Intended Areas of AID Assistance and the Problems They

Address

I. Rural Development







- 40 -


The analytical description of the poor reveals a

number of interesting things about Panama's poverty and the country's

efforts to defeat it. There is less rural poverty than 10 years ago

or than in many other countries. Some 55% of rural families still live

below the poverty line, as described in IA, and the heaviest concen-

tration of these live in 17 districts of 5 Provinces which are

contiguous geographically and the people have 5 basic common character-

istics: (1) they live in the mountains beyond the roads; (2) they live

dispersed, not in villages, (3) they till poor soils; (4) they have low

Education and skill levels; and (5) they have limited access to medical

care.

Lack of access is the key to their substandard

condition. They do not have access to the services readily available

to the other half of the rural population, and the government has not

gained access to them, despite the desire to do so. Lack of roads,

dispersion and poor soils have thus kept 55% of the country's rural

population outside a system of economic opportunities and services

that, by developing country standards, is otherwise impressive. The

AID-GOP joint view of this problem is: let's finish the job; let's

face this toughest last portion of the task, identify the complex

issues (e.g. poor soils) and the less complex tasks requiring mainly

muscle and money (e.g. access roads, education and health services),

and bring to.these 17 districts the same standard of life the other

"half" of the country's rural families already enjoy. If the job

can be done in these 17 districts with the help of AID and others,

the GOP can do it in the remaining areas of rural poverty on its own.







- 41 -


Having made this basic decision, the composition of

the program needed to meet the goal is all but self-defining --credit,

extension, marketing, access roads, land tenure rationalization, small

farm systems, health, family planning, and nutrition services, role of

women, cooperatives, etc. all applied to the special problems of each

of the 17 districts. Two interrelated issues will stand out: (1) the

need for many to move to land with better soils -- or through applied re-

search, find ways to make better use of the soils they have; and (2) the

need for a more equitable land tenure pattern. There is much so-called

"government" land but little not claimed as the "possessory rights" of

someone. Five hectares of "possessory rights" land today brings the same

price as five hectares of titled land. Not an easy issue to resolve.

II. Rural Growth and Service Centers

This is a proposal to continue the effort tc lay a

sound economic base in the countryside in order to permit rural, small

farm family development to become self-sustaining. Rural development can-

not sustain itself where the country has only a single urban market. The

effort to bring subsistence farmers into the national economy will die on

the vine without the kind of intermediate regional development which the

GOP has already started and which AID is assisting in project No. 047,

Rural Growth and Service Centers (URBE). This project is just now

becoming operational. We propose that a similar project be phased in

during the CDSS period and that the whole process of intermediate city

development be followed closely to make certain that its objectives

are fully met, both those having to do with small farmer






- 42 -


benefits, and those relating to employment generation, including the

development of productive enterprises based on appropriate new techno-

logies aimed at producing goods for internal Panamanian markets, now

too dependent on imports. We are also interested in the interception

at intermediate points of the families who for the foreseeable future

will migrate because they continue to produce more of themselves than

profitable crops.

III. Employment Creation

Not all of Panama's relative success in dealing with

rural poverty is due to virtue and hard work. Many rural families

were not saved, nor re-cycled, nor brought into the market as producers.

They escaped tolPanama City and Colon. They got away, and now Panama

has a serious urban poverty and unemployment problem. The population

balance has become over one-half urban, mostly in Panama City and

Colon, and unemployment levels are high. Unofficial figures which

reflect the real situation suggest that unemployment plus underemploy-

ment are at 35% of the Metropolitan area labor force. Part I under-

scores the plight of the unskilled urban poor migrating into the

Metropolitan corridor. It is here that we find many of the poorest of

the poor. While migration continues, the formation of new jobs i

stopped 4 years ago when the economy stopped growing and investment

came to a halt.

In Part I.B we have suggested that the only known

solution is to bring about the resumption of economic growth through

the resumption ion a massive scale of private investment.

As noted in Part I B, many of the elements for a







- 43 -


resurgence of private investment are already in place. Government

policy favors it, assumption of Zone resources should encourage it,

there are ample tax and profit repatriation incentives, etc. But we

are convinced that all these favorable factors, including the receipt

of Canal revenues and Zone resources, will not suffice to create

enough permanent new jobs to match the present excess labor supply,

nor to keep up with its growth. Why? Because Panamanian industry

and commerce as constituted today and as they might be expanded with-

out redesign have too little to sell at internationally competitive

prices, and Panama is also as yet not utilizing enough intermediate

technology to supply national market needs that are now unnecessarily

met by imports.

What is needed, as the Part I B analysis shows, is

a new orientation of productive investment toward export oriented,

higher technology industries employing large numbers of highly skilled

workers and toward intermediate technology industries supplying many

potential local markets. Not only do we see that the solution for

Panama requires the resumption of a growing GNP, we do see that

happening primarily through the creation of high and intermediate

technology industries, including agro-industries, and in a diversified

export agriculture sector that does not leave out the small farmer.

Yes, it is a long way from here to there. And that

is where AID comes in. First, we justify our concern for the macro as

well as the micro issues under the mandate because economic stagnation

is, and will continue to be the principal creator of poverty in Panama.

If AID is really concerned about the poor majority in this country,






44 -

it must address the problem of employment creation, first, in the cities,

secondarily in the secondary cities, in agro-industry, and in a modernized

export agriculture sector.

How can AID address these needs? We propose to do so by

assisting with '3 parallel programs. The first is already underway --

small city-market town development integrated with rural development. The

second is a program to identify high technology investment opportunities

and to promote investment in them. The third is a massive program of

skills training 'ailored to the needs of the first two. The latter would

be carried out, with AID help, jointly by the Ministries of Education and

Labor in cooperation with the organized Private Sector. The MOE is already

actively involved in a massive program designed to provide applied skills

training within jthe formal education system starting in the primary grades.

The MOL efforts are complementary with a focus on out-of-school adults who

have low skills levels and are unemployed. While the institutions are

in place, the program will require careful planning and coordination.

The identifying and securing of investments in high

technology enterprises, however, is neither simple of conception nor

execution; nor are the necessary institutions in place. We therefore

propose the following:

1) The creation of the capability in an existing, or

possibly new institution to investigate, research, identify and architect

new high-technology investment opportunities -- a Panamanian Institute

for New Investment and Employment Creation (PINIEC). It would be the
I
joint creation of the Private Sector and the GOP, and it would have AID

technical and capital (R & D) assistance. One feasible pattern would







- 45 -


be to make the Institute a joint venture of the newly announced

Polytechnic University, the new Agricultural University and the Chambers

of Industry, Commerce and Agriculture.

The Institute would be strongly science and technology

oriented and would be the natural focus of collaboration with inter-

national activities, such as AID's proposed program for technology

exchange and cooperation. The Institute's functions would include

basic and applied research and pilot projects. Once feasible technologies

have been proven, the Institute would offer industrial extension services

and would have a promotion program jointly with its Private Sector

collaborators. Since high technology opportunities are in fact a

continuum from the already relatively well-known to the as yet unknown,

the Institute would have a major extension and promotion program as well

as a research program, from the start. Its long term significance,

however, will lie in the integral combination of the three: research,

extension and promotion. A key element in this program would revolve

around the development of profitable import substitution investment

opportunities, including alternative energy sources and food products.

2) The establishment in Panama of the Productive Credit

Guarantee Program. If the PCGP program is not extended by Congress,

USAID Panama will develop a sui generis project with COFINA and the

National Bank, based on a guarantee fund financed by the Panamanian

institutions and an AID development loan, along the lines of existing

AID land sale guarantee programs.

3) The creation, perhaps through a USAID Project

Agreement with the Chambers of Industry and Commerce, of a program of







- 46 -


USAID-Private Sector joint ventures. AID and private investors' funds

would be made available together to provide joint support to a single

project -- notably projects dealing with labor intensive industries and

social services. We would explore the commingling of AIDandprivate sec-

tor funds and the use of AID guarantees. Potential areas for collaboration

include health facilities in poor communities, assistance to small enter-

prises, day care facilities and other services to facilitate greater

participation of women in the labor market, etc.

4) The implementation of a Housing Investment Guarantee

program focused on the Metropolitan Corridor. This program will both

employ large numbers of people in actual construction and create opportu-

nities for small support businesses,e.g.,doors, window frames, furniture.

No strategy for employment creation would be complete

without addressing the need to slow the creation of employment seekers. As

indicated in Part I.A.,the workforce of the Metropolitan Corridor is:

expected to double by the year 2000. Any action which can hold down this

growth enhances the chances of success of the program. Panama haslad

notable success in reducing the population growth and birth rates. To

reinforce the downward trend, USAID will continue a family planning

program. A key focus of this program will be on adolescents who have

become the prime'contributors to Panama's population growth. By collabo-

rating in a vigorous campaign to help young women delay pregnancy, while

providing them with opportunities to upgrade their skills, USAID will be

helping to reduce both population growth and unemployment.

IV. Environmental Protection and Enhancement

The USAID's Watershed Management Project is only the







- 47 -


beginning of the Environment Program Panama wants to carry out. Panama's

natural resources are being depleted rapidly. The specter of resources

shrinking to the point of their being inadequate to support the population

is very real. Panama intends to reverse this trend. It has 9 critical

watersheds, of which the 1979 project deals with only 3. And there are

other environmental problems to be attacked, notably water pollution,

urban blight, and unsanitary sewage disposal. AID expects to assist in

these efforts, concerned about their "pilot" qualities as well as what

these projects can do for Panama alone. In this connection, the fact of

the ceding of the Zone to Panama creates an environmental enhancement

opportunity (or hazard) of great importance. The merger of a protected

Zone with an essentially blighted urban corridor needs to be carried out

so as to preserve the environmental quality of the Zone while solving

the blight problems of the corridor. A HIG program already projected

over the CDSS period will be used to deal with the housing and facilities

problems of the Metropolitan Corridor in this light, and we will provide

specialized T.A. to help the GOP with land use planning.

V. Human Resources Development

Panama's development objectives are ambitious. The re-

invigoration of the economy is a herculean task, and there are no easy

outs. Panama must approximate a Taiwan or a Hong Kong type achievement

by adopting a growth/development strategy suited to its special circumstances.

The private sector needs a quality and quantity of human resources far

beyond that contemplated, until recently. A special element here is the

opportunity Panama has to maximize the use of the resources ceded to it

by the Treaties: the ports, the railroad, the 1,000 square kilometers of







48 -


land replete with its resources, etc. These are assets for growth that

Panama can exploit -- if it has the skilled leadership and technicians

to do so.

The quality of human resources in the Public Sector is

crucial. Panama already has an excellent layer of top leaders and

technicians, It, however, lacks the depth the Public Sector must have

if it is to carry out all the development programs needed.

Specifically,we propose to work with Panama in the

development of a massive training program for both the Public and Private

Sectors -- focused on increasing the abilities of hundreds of Panamanians

to plan, organize, and implement development programs, particularly those

aimed at eliminating poverty, establishing and maintaining full employ-

ment, identifying and developing high technology enterprises, and reversing

the natural resource depletion process that, if not reversed, threatens

to make of the development effort a cruel mockery.

This Training Program will consist of the following kinds

of projects:

(1) Graduate level training in all the key fields -- the

training to be providedabroad.

(2) Assistance for curriculum improvement, R & D, etc.

(along with IDB & WB assistance for physical facilities) to build to a

level of excellence the teaching and research capabilities of the Poly-

technic and Agricultural Universities through the Masters degree level.

(3) Assistance to strengthen and improve the 5 Regional

University Branches being developed throughout the country in areas related

to development.







- 49 -


This program will form an integral part of the complex of

institutional and human resources required to strengthen the scientific

and technological capabilities needed to create and apply new solutions

to the causes of Panama's long term poverty problems. We see a natural

linkage of this complex to such AID-supported initiatives as science and

technology transfer collaboration and Title XII.

Proposal to Alter U.S.G. Organization for Implementing U.S.

Bi-lateral Assistance to Panama, After 1985.

As direct AID concerns with poverty projects per se are replaced,

in the next 8-10 years, by programs aimed at sustaining development, at

raising permanently the capability level of Panama to grapple with its

own problems, and at defending the physical environment and resources

base, the less appropriate seems the typical AID Country Mission of the

past 28 years. The number and diversity of technical subjects and

expertise involved could not be covered even by a very large resident

USAID staff. A wide range of pertinent U.S. technical resources would

need to be focused on particular Panamanian problems involving short and

medium term consultants from a variety of university, industrial, and

governmental sources. U. S. technicians needed for extended periods to

take part in programs of long duration might better work within the

Panamanian establishment, under Panamanian direction. What seems to be

needed on the U. S. side is a small unit attached to the U. S. Mission

that, on the one hand,performs a U. S. assistance programming function,

and,on the other,serves as liaison between U. S. technocracy and Panama's

needs for external expertise. It could appropriately be called the Office

of the Counsellor for Development Sciences and Technology. This may also







- 50 -


imply a need for a different role for AID/W in being able to identify

and supply to a much greater extent than at present resources from

outside its regular staff. This proposed change in organization is not

related to levels of U. S. assistance,which would not necessarily go

down.

One approach would be to create an autonomous Panamanian Develop-

ment Corporation with which the U.S. would enter into an International

(Executive) Agreement to provide technical and capital assistance as

agreed, either on a project basis, or on the basis of an annual program

budget funded jointly by both governments, or both. The P.D.C. could

also receive assistance from other governments and the I.F.I.'s.

While autonomous, it would be affiliated to the Ministry of Planning

and Economic Policy and would be regarded by the GOP as its principal

economic and social development R & D instrument.







- 51 -


PART III. ASSISTANCE PLANNING LEVEL

From the foregoing sections on poverty, its causes, and the proposed

USAID strategy, it is clear that a modest funding level can produce sig-

nificant results. A pattern can be set which will lead to the elimination

of extreme poverty in the foreseeable future, and assure that positive

action is taken to resolve the problems which would otherwise continue

to generate poverty. While the elimination of present poverty is, if

vigorously pursued, within grasp, the efforts to prevent future poverty

are only in their initial stages.

The Indicative Planning Allocation (IPA) proposed by AID/W for

USAID/Panama for 1985 is a paltry $5 million. This compares with a

program of $21 million in FY 1978, a proposed FY 1979 program of $17

million and similar levels in previous years. The proposed IPA in Pana-

ma represents so drastically rapid a reduction of assistance that it

seems explainable only as computer error.

The proposed IPA is totally inadequate to permit the strategy herein

proposed to be implemented. A five-year Proposed Assistance Planning

Level (PAPL) of $122 million for the CDSS period 1981-85 is the minimum

necessary to support the modest program planned to assist this resource-

poor country break out of its economic stagnation and establish the

bases needed to prevent the worsening of its poverty problems. Growing

urban unemployment and poverty and natural resources depletion, are

companion spectres that now threaten to reduce the imminent conquest of

rural poverty to but a pyrrhic victory.

Justification

An annual funding level of $20 million (adjusted for inflation) from

FY 1981 through FY 1985 will be sufficient to carry out our strategy.







- 51 -


PART III. ASSISTANCE PLANNING LEVEL

From the foregoing sections on poverty, its causes, and the proposed

USAID strategy, it is clear that a modest funding level can produce sig-

nificant results. A pattern can be set which will lead to the elimination

of extreme poverty in the foreseeable future, and assure that positive

action is taken to resolve the problems which would otherwise continue

to generate poverty. While the elimination of present poverty is, if

vigorously pursued, within grasp, the efforts to prevent future poverty

are only in their initial stages.

The Indicative Planning Allocation (IPA) proposed by AID/W for

USAID/Panama for 1985 is a paltry $5 million. This compares with a

program of $21 million in FY 1978, a proposed FY 1979 program of $17

million and similar levels in previous years. The proposed IPA in Pana-

ma represents so drastically rapid a reduction of assistance that it

seems explainable only as computer error.

The proposed IPA is totally inadequate to permit the strategy herein

proposed to be implemented. A five-year Proposed Assistance Planning

Level (PAPL) of $122 million for the CDSS period 1981-85 is the minimum

necessary to support the modest program planned to assist this resource-

poor country break out of its economic stagnation and establish the

bases needed to prevent the worsening of its poverty problems. Growing

urban unemployment and poverty and natural resources depletion, are

companion spectres that now threaten to reduce the imminent conquest of

rural poverty to but a pyrrhic victory.

Justification

An annual funding level of $20 million (adjusted for inflation) from

FY 1981 through FY 1985 will be sufficient to carry out our strategy.









52 -
After year five, with the changed character of the program and the

proposed new USAID structure, funding levels may be reconsidered.

We believe that the AID/W proposed IPA of $5 million is highly

unreasonable because:

1. The formula employed gives far too much weight to mean per

capital income (PCY). For most developing countries, the data

base for estimating PCY is highly unreliable. Moreover, reliable

or not, Ithe mean is a meaningless measure of poverty. In Latin

America the thin veneer of a growing modern sector masks a fragile,

vulnerable traditional economy in which the reality is that almost

everyone is poor and the poorer half are typically below even the

Asia-Africa poverty line. The distribution of income is the real

indicator of poverty, and PCY relates to this not at all. A country

like China, for example, is in much better shape with a PCY of

$400 and an income distribution of $250-500 than is the typical

Latin American countrywithaPCY of $1000, whose distribution is

from $40 to $400,000, with the lowest 50% earning from $40 to $150

per capital. We are convinced that PCY, as AID is using it, is highly

misleading. If we have to use a formula, in place of analysis, we

strongly suggest that it be the median or mode of the poorest 50%

adjusted as to rural and urban differences and as to the cost of

living variations among countries. The PCY measure is especially

inadequate as applied to Panama due to its dollar based monetary

system and the skewing of the income scale by the high (U.S.) level

wages paid to the employees of the Canal Zone.

2. TheiIPA factor of commitment should be given moreweight.AIDshould








- 53 -


take advantage of the opportunity to help those countries, like

Panama, that share our concern for the poor, to move as rapidly as

possible to eliminate poverty, especially where achieving this is

within our grasp. Countries who join us in this effort can serve

as models. Panama's record on commitment and solid, rapid progress

is superior. The GOP has clearly and unequivocally committed itself

to the elimination of poverty. This is a long term task, but for

many components the objective can be reached in a relatively short

period of time. Panama merits our assistance in these efforts.

3. Modest inputs at the level we propose can produce highly

significant results. Panama has the potential for being a model

of how to eliminate rural poverty and for being a laboratory for

discovering the means effectively to combat urban poverty.l/ The

Agency's broader interests will be served by being able to point

to countries like Panama as examples of successful AID programs.

Countries like Panama could then be listed along with Taiwan and

Korea as success stories, with no caveats about cultural heritage.




1/ With regard to the latter, in addition to their vital importance for
Panama's development, the kinds of programs we undertake here are aimed
at resolving development problems which other countries will need to address
in the next three, five, ten or fifteen years. The proposed efforts in such
areas as urban development, environmental management and alternative energy
will offer a chance to test new concepts based on recently developed approaches
These concepts call for, inter alia, promotion of labor intensive activities
as a key to improving income distribution. These programs offer AID and
other countries the benefit of valuable experience in testing these approaches
at a time when such experience will be particularly relevant to their own
development problems. The growing interest in these problems exhibited by
professional societies as well as private interest groups sponsored by
concerned citizens strengthens the case for responding to these problems.








- 54 -


4. Our assistance will be well used by Panama. Absorptive capacity is

high and will increase as our strategy, with its element of development

administration, is carried out. Assistance at the levels proposed here

can be accomodated without pipeline increases. We believe that absorptive

capacity should be a significant, if not the controlling factor in the

determination of the IPA.

5. Finally, we believe no determination of funding levels for a country

as vital to the U. S. as Panama can justifiably ignore U. S. interests. We

strongly believe the factor of U. S. interests belongs in the calculation

of the IPA. The security and economic interests represented by the Canal

need no exposition here. The safe and efficient operation of this vital

artery of world commerce, of immense importance to the U. S., would be

jeopardized by a socially and politically unstable Panama. The proposed

AID program can play an important role in assuring the essential economic

and social stability and well-being of this key crossroads country.

Proposed Assistan.ce Planning Levels

The following table presents the PAPL required to carry out our

strategy. A number of current and proposed FY 1979 and 1980 projects are

directly related!to the various categories shown on the table. These in-

clude ongoing projects in Integrated Rural Development and Rural Growth

and Service Centers. FY 1979 projects include Watershed Management and

Applied Agricultural Research loan projects and a pilot grantin Alternative

Energy Sources. FY 1980 proposals include loans for Workforce Development

(skills upgrading) and Development Planning and Management (public sector

training).








- 55 -


PROPOSED ASSISTANCE PLANNING LEVELS


Fiscal Years ($ Millions)


Categories:

I. Agriculture and
Rural Development

Integrated Rural
Development

Regional Development

Environmental Manage-
ment

II. Education and Human
Resources

Skills Upgrading

Public Sector Train-
ing

III. Selected Development
Activities

Alternative Energy

Investment stimulation/
employment creation

TOTALS


1981 1982 1983 1984 1985 TOTAL


12


-- 10


12


-10


12


-- 12


-14 24


- 12


5 10


In addition to the above amounts, $1.2 million is needed for

tinuing implementation during the FY 81-83 period of the FY 1979

Population II project. PL 480 assistance and Housing Investment

are not included here (see below).


con-

authorized

Guarantees











- 56 -


PL 480

The Mission's current PL-480, Title II activities consist of a Ma-

ternal/Child Health program reaching about 30,000 beneficiaries and a

school feeding program now at the mid-point of a planned phase out.

These activities are implemented through CARE and CRS. The limited re-

cent nutrition data on the USAID target group suggests that malnutrition

is increasing, particularly for children ages 1-4 (see part I. A.). The

Mission has programmed for early 1979 a nutrition study which should

help us better define the nature and size of a continuing Title II

program. It is, as yet, too early to provide planning levels, but we

expect that a MCH program will be needed throughout the period of this

CDSS. Panamanian officials believe that MCH activities are most effec-

tively implemented by relating them to a school feeding program, and this

is one possibility which will be studied.

Housing Investment Guarantees

A HIG program of $75.0 million is programmed over the 1979-1983

period, with its focus on the Metropolitan corridor. Given the size of

the low income housing shortage in the urban areas and the expected

continuation of rapid population growth in the Metropolitan region, we

expect that there will be a demand for HIG programs not only through the

--.-- period of this CDSS, but well beyond.

Considering the expected urban growth and the beneficial effects of

housing construction on primary and secondary employment creation, we

believe that this AID sponsored mechanism for attracting private invest-

ment to social overhead projects will continue to play a major role in

Panama's development. We see the HIG program as not merely complementary















- 57 -


to our strategy of employment creation and economic growth, but absolute-

ly essential. With the ever increasing need for low income housing and

the related employment potential, we propose to continue the HIG activ-

ities after 1983 at an annual rate of about $10.0 million for the fore-

seeable future.

Staffing Implications

During the early years of the period of this CDSS, we view the direct

hire requirements as being essentially what they are now i.e., about

30 USDH and 60 FNDH. As the program emphasis shifts from the more

traditional activities (rural development, growth poles) to those which

are more in the area of the unknown (urban problems, environmental man-

agement, heightened science and technology capability levels, high

technology industrial development), we see less need for regular direct

hire USAID staff and more need for the use of specialized contract

personnel. As discussed in Part II, we particularly see a need for large

numbers of consultants in the fields of science and technology. It is

probable that USDH staff could decline somewhat by 1985, with a propor-

tional reduction of FNDH, while non-USAID personnel needs would be

increasing. When the Panamanian Development Corporation becomes a

reality, direct hire staff could be even less, though with a significant

number of U.S. technicians assigned to the PDC.




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