Candidates Pledge to Revive Lost Economic Miracle as Panama Votes for President

(Bloomberg) -- A substitute for a scandal-hit former president is favorite to win Panama’s election on Sunday, pledging to shut migration routes to the US, fight drug cartels, and restore the battered economy to its former glory.

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Jose Raul Mulino was originally running mate for ex-President Ricardo Martinelli. But Martinelli dropped out and took refuge in the Nicaraguan embassy after a court upheld a conviction for money laundering.

Mulino, a 64-year-old lawyer, says he’ll revitalize economic growth with investment in ports and highways, while restoring “fiscal order.” The nation was one of the top performers in emerging markets earlier this century, but has recently been hit by mass unrest, credit downgrades, low water levels in the Panama canal, and the closing of one of the world’s largest copper mines.

A poll published Thursday showed Mulino with 37.6% support, versus 16.4% for former president Martin Torrijos, an economist who has pledged to reduce inequality and crack down on nepotism in government. Attorney Romulo Roux was in third with 14.9%, with 12.7% for Ricardo Lombana, also an attorney.

Panama elects its leaders in a single round of voting, with no runoff.

Read more: Panama Presidential Election Poll Shows Mulino’s Lead Widening

Panama’s Asian-like growth rates this century have given it the highest gross domestic product per capita in Latin America after Uruguay. And a construction boom has endowed Panama City a skyline of glass towers that resembles Miami. But the economy is forecast to grow just 2.5% this year, according to the International Monetary Fund, which would be its worst performance since 2009, excluding the pandemic.

Mulino, who served as Martinelli’s security minister, is popular among investors, who hope he’ll find a way to reopen First Quantum Minerals Ltd’s $10 billion copper mine.

Following months of violent protests, the supreme court ruled in December that a contract for the mine violated the constitution, and ordered it shut. The project represented 5% of gross domestic product, and was a large source of tax revenue and exports. Fitch cut the country to junk in March citing large fiscal deficits aggravated by the loss of the copper revenue.

Read more: A $10 Billion Copper Mine Is Now Sitting Idle in the Jungle

Market Darling

S&P and Moody’s still rate the country one notch above junk, but the once market-darling risks further downgrades if the next government doesn’t pursue tax and pension reforms and seek to reopen the mine, said local economist Rene Quevedo.

To turn the economy around, the next president will need to build consensus for higher taxes and social security contributions, or increase the retirement age, and also renegotiate First Quantum’s contract, he said.

“It’s as though we lost our job, burned through our savings and now we are using the credit card to buy groceries,” he said. “Another downgrade is very likely.”

The economy is also reeling from the 2023 drought, which depleted water levels in the canal, choking vessel traffic.

Panama’s debt already trades as junk, and investors demand about 40 extra basis points to hold Panama compared to the average risk premium for BB-rated sovereign securities, according to JPMorgan Chase & Co. data.

Read more: Panama Pledges to Meet Fiscal Goal as Mine Closure Halves Growth

“The political and social backdrop for addressing difficult issues appears challenging given party fragmentation, recent social tensions and an economic slowdown,” Fitch wrote in March.

Migration Trails

Mulino also said he’ll shut down the migration trails through the dense jungle region between Colombia and Panama, improve security training for police. More than half a million migrants, mostly Venezuelan, passed through this route last year, making Panama one of the most important transit countries for people hoping to reach the US.

He also promised a “full-frontal assault” on drug trafficking.

President Laurentino Cortizo is not eligible for reelection and his party’s candidate is polling fifth. The nation’s 3 million voters are also electing congress and regional mayors.

Polls will open at 7 a.m. and close at 4 p.m. local time, with results expected later on Sunday night.

--With assistance from Vinícius Andrade.

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