Envío Digital
Central American University - UCA  
  Number 174 | Enero 1996



US Military Bases: Five Theses

The civil, rational use of the “returned areas” – the U.S. military bases – has an enormous potential for helping Panama move towards national development that is democratic, equitable and in harmony with nature.

Juan Jované

As part of national debate, the theme of the ongoing US military presence on Panamanian territory holds a prominent place. Mixed into this issue are the purest national and social interests, along with the most open material interests, even if they are dressed up in a supposed economic rationality.

Five theses can link US military presence in Panama to the economic sphere. Each one avails itself of a constellation of indicators and is the result of some recent investigative research. The five theses refer to the feasibility of the disappearance of the military bases, the recent costs of the foreign military presence, the potential beneficiaries of civilian use of the currently occupied areas, the urgency of this process and the conditions under which the process should be discussed so that the nation as a whole benefits.

Economic Impact

First Thesis: The economic impact of the presence of the US military bases is sufficiently modest that their orderly departure would not be an unmanageable negative blow to Panama's economy.

This thesis becomes evident by looking at the four basic indicators that measure the dynamic of the bases' economic impact (see chart). With respect to exports in current values, the military bases represent a total of not more than 8.4% of the economy as a whole. This statistic, which may at first seem exaggerated, is better understood by taking into account that from 1970 1993, the exports of goods and services from Panama rose to an average annual rate of 8% in current values, making it clear that there is a good possibility of rapidly reabsorbing the impact of demilitarizing the Canal Zone.

In terms of employment and remunerations, the situation would also seem to be manageable. In 1993, the military bases represented scarcely 0.64% of national employment, while the remunerations those jobs generate are barely 3.04% of those linked to generating the Gross Domestic Product (GDP). In the 1970 1993 period, employment and remuneration grew to average annual rates of 2.7% and 8%, respectively. The impact on the country is clearly manageable.

In terms of the US bases' overall impact on the Panamanian economy, the total spending they generated in 1993 was equivalent to 4.5% of the GDP. This statistic is also manageable if it is taken into account that, according to statistics from the Comptroller General's office, the economy grew in real terms at a rate of 3.7% annually between 1970 and 1993, even with the country's economic ups and downs and with the political and military events of the late 1980s. In a recent study by the Research Center of the School of Economics at the University of Panama, it was demonstrated that, rather than receiving blows, the Panamanian economy has posted an average real growth rate of 4.7% annually.

Some would argue that this estimate does not take into account the multiplier effects of the spending generated by the bases. But, using the Coherency Model for Panama a semi accounting model that contains a matrix of intersectoral transactions and uses a disaggregated focus to calculate the direct and indirect impact of the spending by military bases in 1994 the result is still barely 5% of the country's GDP. In any case, the real impact is far from the 10% of the GDP held up by certain politicians close to the current US administration.

Reality indicates that, based on adequate economic policies, it would be perfectly possible to absorb any negative impact of the withdrawal of the US bases situated along the canal. It would be even more possible if this goal were explicitly recognized as a national objective, as both a priority and an urgency.

Economic Costs

Second Thesis: The presence of the military bases in the country has had a high economic cost in recent years, since they have led to economic interventions that have been costly for the country to absorb.

The evidence for this thesis is in the effects of the economic sanctions imposed on our economy at the end of the 1980s and of the December 20, 1989 invasion. How to calculate this impact? Two methods were used.

The first was based on comparing the product resulting from the tendency the economy demonstrated before these events with the results that it actually had during this period. This calculation carried out in constant prices and later translated to current prices reflected an equivalent of 2.39 billion 1970 balboas for the 1988 1994 period. In current prices, it meant some 7.17 billion balboas, a highly significant rate if it is taken into account that the GDP, calculated provisionally for 1994 at current prices, reached approximately 5.6 billion balboas.

According to a recent calculation based on the temporal series method, which holds that the sanctions and invasion have had a persistent negative impact on the GDP, we could well be dealing with an even greater loss if looked at on an annual basis. Using this second method, at current prices the Panamanian economy may well find itself with a 1994 level inferior to the 1.98 billion it would have had without either the sanctions or the invasion.

Use of the Bases

Third Thesis: There is evidence that the military bases constitute inefficient utilization of one of Panama's scarce resources: its geographic position.

According to our calculations, the total spending generated in the military bases represents around 4.5% of the GDP, while its direct and indirect impact does not exceed 5%, despite the very extensive use of a territory strategically situated for economic activity related to international commerce.

These statistics contrast with those issued by the Colón Free Zone, which utilizes a much smaller portion of the scarce resource its geographical position and generates a greater impact on the economy. Even without considering indirect or multiplier effects, the aggregate value generated in the Colón Free Zone represented 8.8% of the GDP in 1993 and, according to preliminary calculations, jumped to 9.2% in 1994. It is evident that civilian use of the transit zone ends up being significantly greater than the military use from a strictly economic viewpoint.

A second argument is related to the use of infrastructure. In research carried out recently taking as a reference the 1970 1992 period and using diverse methods, it was clear that Panama posted a capital product ratio close to 4 during that period. This highly elevated level demonstrates the effort put into building infrastructure and the importance of being able to achieve development based on a lower capital product relationship, particularly if one takes into account that the ratio was calculated working with a potential GDP.

Civilian use of the so called "returned areas" would allow for better use of existing infrastructure, thus reducing the capital product relationship. In this way, space would be obtained to speed growth as well as possibly concentrating scarce resources on building infrastructure for alternative uses that, among other things, would allow for more articulated and balanced development from the regional point of view. The potential is great: the returned goods have a estimated value of over 30 billion balboas and an important part of them is infrastructure that could easily be converted to civilian use.

Panama Is not a Priority

Fourth Thesis: Converting the bases to civilian use is not only good, but necessary. US aims do not allow for economic benefits to accrue to Panama.

Given the profound fiscal crisis shaking it, the United States is in no condition to grant Panama any compensation (rent) for the use of part of its national territory for military ends. Even if it were to do so, it would have a minimal impact on Panama's economy.

For some time now, the United States has sought a military spending reduction, even internally, and designed a military strategy based largely on keeping its military power concentrated in its own territory, along with increased deployment capability towards foreign theaters of war. Just prior to the 1989 invasion, the US doubled its forces in Panama in a question of hours. In the case of the Gulf War, it took only a matter of months to mobilize more than 1,500 airplanes and 500,000 troops, including heavy artillery; the Mediterranean, Persian Gulf and Indian Ocean were jammed with US aircraft carriers.

With the new situation in Central America, the United States does not need as many troops as it now has on Panamanian soil. It only needs Panamanian territory to facilitate its projection and operations capacity in the area.

With the available unofficial information, analysts estimate that the US forces that would remain in the country and the nature of the military installations would lead to a significant drop in the level of purchases in our economy and also in the employment level. They calculate that residual employment at the US bases fluctuates between 500 and 1,000. Even if it were 1,000, it would be barely 0.12% of the country's total employment, taking 1994 as a base year. In GDP terms, the direct and indirect impact would probably be less than 1%, at 1994 levels.

The idea that preferential status in US Panamanian trade can be obtained on the basis of a new military commitment with the United States does not seem feasible. It is not very probable that the US, which in its international policy is presented as a promoter of free trade, is willing to break this image with an accord in which the norms of open and multilateral trade are explicitly conditioned to political reasons. Nor does it seem likely that the US wants to move away from its key agenda of liberalizing trade with Latin America, which implies a calendar of thorny negotiations in which Panama is hardly a priority.

Is the US presence absolutely crucial for attracting foreign capital? This is another argument that is often used, but it lacks weight in that it does not explain the growing international financial flows that, in recent years, have been directed to countries where no military presence exists. In 1991 and 1992, direct foreign investment in Latin America increased by 77%, for a total of $60 billion with no accompanying expansion of foreign military presence in the region. If today greater difficulties are observed in foreign investment flows, this is due not to military reasons but to the contradictions inherent to the structural adjustment model.

Panama Needs a New Development Style

Fifth Thesis: To be successful, civilian reconversion of the military bases needs a new style of development activities based on adequate productivity levels and a skilled work force with adequate pay.

In addition to compromising Panama's sovereignty, the idea of basing development on the cheap labor maquila military bases triangle also offers nothing more than a mediocre vision for Panamanians. This is made clear by comparing it to the wages paid by some maquiladoras in El Salvador: the equivalent of 107.45 balboas monthly, when the cost of a basic food basket in Panama in early 1995 was 427.9 balboas monthly.

What is needed is an alternative strategy centered on the rational use of the country's geographic position, along with the formation of a highly skilled work force. With these as foundations, relatively dynamic levels of productivity and advantages would take hold, allowing for development that was at once national, democratic, equitable and in harmony with nature.

Juan Jované is envío correspondent in Panama.

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