PANAMA: Unrest erupts as major mining contract approved
Thank you for reading LatinNews' chosen article from the Latin American Weekly Report, produced since 1967 - 26 October 2023
Thousands have taken to the streets across Panama to protest a new contract, recently greenlighted by the legislature, between the government led by President Laurentino Cortizo and Minera Panamá SA (MPSA), the subsidiary of Canadian mining company First Quantum Minerals (FQM), regarding copper mine Cobre Panamá. Panama’s single biggest foreign investment, the mining project is crucial to the country’s economy, representing some 4% of GDP. While signing off on the revised contract was a major priority for the Cortizo government, it remains contentious with civil society organisations, unions, and environmental lobby groups such as Centro de Incidencia Ambiental (CIAM), which are calling for it to be revoked. The protests - the biggest since the unrest which rocked the country in July 2022, precipitated by the rise in living costs [WR-22-28] - is threatening to prove a major challenge for the Cortizo government.
On 20 October the 71-member unicameral legislature ratified the new contract by 47 votes in favour, six against, and two abstentions. This appeared to conclude what had been a lengthy process. The contract had been renegotiated in March [WR-23-12] after CIAM had successfully filed a supreme court (CSJ) challenge in 2017. However, the contract required legislative approval, and, in a sign of its contentious nature, the government was already compelled to pull an initial version earlier this month from the legislature, amid protests over the terms.
The resubmitted version of the contract, which guarantees a minimum annual revenue of US$375m for the government – which the Cortizo administration has previously boasted is “more than?ten times?the amount” received between 2019 and 2021 – included various changes. Examples include the provision that MPSA can only explore, extract, and exploit copper and its derivatives in the concession area in the Donoso and Omar Torrijos districts in Colón province (where the mine, which began commercial operations in 2019, is located). Meanwhile, a clause was removed which said that the state would consider granting exploration rights for gold, silver, and molybdenum, along with another clause which would have allowed MPSA to request airspace restrictions. Other changes include the insertion of a new provision “reaffirming that nothing in the contract restricts nor limits Panama’s sovereignty over its territory”.
However, these amendments have failed to placate civil society groups like CIAM and unions such as the influential construction workers’ union Sindicato único Nacional de Trabajadores de la Construcción y Similares (Suntracs) which, in response, called nationwide protests on 23 October. Environmentalists, teachers’ unions, such as Asociación de Profesores (Asoprof), and indigenous groups have taken to the streets in Panama City as well as in other parts of the country, such as the provinces of Veraguas, Colón, and Chiriquí. The education ministry and Panama’s state university, Universidad de Panamá (UP), have suspended classes, and the media is also reporting that there have been blockades on part of the Pan-American highway, which is crucial to trade in the sub-region.
With the government facing persistent fiscal pressures – as recently reflected in the decision by international credit ratings agency Fitch to downgrade Panama’s outlook to negative from stable (see box next page) - President Cortizo has continued to defend the contract. In a televised address on 24 October, he highlighted the mine’s importance to the economy, maintaining that the new contract would safeguard 9,387 jobs directly linked to the mine, and provide US$161m in social security funds. He also appeared to show little sign of wavering in response to the protests. Urging “sanity”, he was clear that he would not “tolerate vandalism or calls for anarchy, nor the commission of any crime”, adding that any such actions would be prosecuted.
Yet this stance comes amid fears regarding repressive use of force by the national police (PN). A 24 October statement by the US embassy notes that “riot police are dispersing gas” and have used riot control munitions. A statement released four days earlier by the country’s human rights ombudsman’s office, which is accompanying the protests, has urged an investigation into the use of tear gas against protesters used on 19 October in the capital, in sporadic protests ahead of the nationwide demonstrations, which reportedly left a photographer injured in one eye. Meanwhile, on 24 October the PN reported that 48 people had been arrested for acts of vandalism, among other things.
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Fitch downgrades Panama
At the end of September, Fitch downgraded Panama’s rating outlook to negative from stable.?It says that this reflects “persistent fiscal pressures and uncertain prospects for consolidation”. It notes that the government hopes to receive two years’ worth of royalties amounting to US$770m (0.9% of GDP) from the renegotiated contract relating to Cobre Panamá. It highlights that these royalties have been committed to improve the reserves of the defined-benefit pension sub-regime and fund new pension benefits and infrastructure. However, it adds that this “appears increasingly doubtful to arrive in 2023 given the congress’ recent decision to send it back to the executive in light of popular opposition”.
Fiscal pressures
In a 29 September statement announcing its decision to downgrade Panama’s outlook from stable to negative, international credit ratings agency Fitch highlights the government has relied heavily on one-off measures and accounting manoeuvres to reduce the fiscal deficit over the last year. It adds that fuel and electricity subsidies and a rising interest bill are pressuring the fiscal deficit in 2023, and a large expansion of budgetary spending in 2024 increases the risk of further slippage that could result in a rising trajectory of government debt. Fitch projects a fiscal deficit of 3.7% of GDP. Yet Fitch notes that Panama “continues to showcase robust economic growth” after the deep economic shock resulting from the coronavirus (Covid-19) pandemic. Fitch expects GDP growth will reach 6.5% in 2023 after 10.8% in 2022 and 15% in 2021 following a contraction of 17.7% in 2020.
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