The IMF worries about Panama’s inflation

PANAMA.The Executive Council of the International Monetary Fund warned in its last economic analysis of a “drastic increase” in Panama’s inflation, which reached 9 percent in May, compared to the 1.5% maintained the last 20 years.

The IMF attributed the high inflation to the rise in oil and food prices and to “an evident overheating of the economy.”

The IMF advises the Panamanian government to cut back on outlays to obtain a greater fiscal surplus and to reduce the level of debt.

According to IMF statistics, the surplus will fall this year under 1 percent of the Gross Domestic Product (GDP).

Felipe Chapman, director of Indesa, a financial consulting and services group, agrees with most of the recommendations of the IMF, except the point about the fiscal surplus.

According to Chapman, even though it would be ideal for the government to have financial results as good as in 2007, it is also true that 2007 was an extraordinary year.

In 2008, we are suffering from a strong rise in prices and this forces the government to financially support the most vulnerable groups against it, which reduces the fiscal surplus.

“Once the storm of price increases passes, the government should go back to the goal of inreasing its savings,” said Chapman.

The IMF feels positively about the measures taken to slow the impact of the price increases on the poor, but believes that the government can expand this plan and specifically suggested an extension of the subsidies for the purchase of houses. It also recommended lowering tariffs on food products and facilitating access to loans and insurance for the agriculture sector.

The President of the National College of Economists, Adolfo Quintero, is certain that inflation is due to speculation.

He suggests providing incentives to the agriculture sector as well.

The IMF projects that Panama will grow 8 percent this year, well under the 11.2 percent growth experienced in 2007.