Economy

Panama's economy is service-based, heavily weighted toward banking, commerce and tourism, due to its key geographic location. The handover of the canal and military installations by the USA has given rise to new construction projects. The Martín Torrijos administration has undertaken controversial structural reforms, such as a fiscal reform and a very difficult Social Security Reform. Furthermore, a referendum regarding the building of a third set of locks for the Panama Canal was approved overwhelmingly (though with low voter turnout) on 22 October 2006. The official estimate of the building of the third set of locks is US$5.25 billion.

The Panamanian economy grew 8% in 2006 and for the first time in the last ten years the public sector closed the year 2006 with a trade surplus of USD 88 million. Furthermore the GDP nominal revised in 2006 reached USD 16,704 billion.

The Panamanian currency is the balboa, fixed at parity with the United States dollar. In practice, however, the country is dollarized; Panama mints its own coinage but uses US dollars for all its paper currency. Panama is one of three countries in the region to have dollarized their economies, with the other two being Ecuador and El Salvador.

Globalism

The high levels of Panamanian trade are in large part due to the Colón Free Trade Zone, the largest free trade zone in the Western Hemisphere. Last year the zone accounted for 92% of Panama's exports and 65% of its imports, according to an analysis of figures from the Colon zone management and estimates of Panama's trade by the United Nations Economic Commission for Latin America and the Caribbean (ECLAC).

Panama fared decently in tourism receipts and foreign direct investment as a percent of GDP (the fourth-highest in Latin America in both categories) and Internet penetration (eighth-highest rate in Latin America).

Inflation

According to the Economic Commision for Latin American and the Caribbean (ECLAC, or CEPAL by its more-commonly used Spanish acronym), Panama's inflation as measured by CPI was 2.0 percent in 2006. Panama has traditionally experienced low inflation.