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The Panamanian government's attempts to privatize a number of government agencies -- including power plants, the water system, and public transportation -- are generating a flurry of opposition among civil groups and political candidates.

The sale of the state phone company to the British firm Cable & Wireless led to interminable delays for customers seeking repairs or new service, as well as higher rates.

On November 18, Panama announced the sale of several pieces of the agency that provides electricity to the country, the National Institute of Hydraulic Resources and Electrification (IRHE), to three U.S.-based companies for $300 million. Last year, in preparation for the sell-off, the government split IRHE into eight companies, including the three thermal and hydroelectric plants which were privatized.

The latest privatization will sell off the government's potable water agency, IDAAN. Leading presidential candidate Martín Torrijos opposes the project (as did the candidate whom Torrijos bested in a party primary, Alfredo Oranges). A leader of IDAAN workers, Luis Ernesto Pedreschi, says the privatization will result in a 50 percent increase in consumer prices, as customers will be charged separately for sewage bills for the first time.

Sociologist Marco Gandásegui notes that Panama has very little experience in successful privatization. He says government officials want the short-term gains from privatization but are unaware that it brings a new set of responsibilities.

The Pérez Balladares government is also preparing a bill that would privatize the licenses for bus and taxi routes.

"Experience shows," Gandásegui quotes economists Terrance Lee and Andrei Jouraviev as saying, "that privatization does not end with the simple transfer of shares, but demands continuing regulatory action by the public sector."

Yet regulation is made difficult when the regulators have incomplete information. In the case of Panama, says Gandásegui, IDAAN does not even know what the system's productive capacity is, nor the sources of leakage, and it has never been able to collect overdue bills from some clients.

In the following essay, published in La Prensa on November 12, economist Roberto N. Méndez of the University of Panama critiques the neoliberal economic model on which the current wave of privatizations is based.

Neoliberalism and Demagogy

Recently the economist Carlos González of the Center for Strategic Studies declared that the next government should continue carrying the neoliberal policies of the Pérez Balladares administration, and that anyone claiming the contrary is talking "demagogy."

According to González, these policies, which include lowering tariffs, the elimination of regulations and privatization of government entities, is positive for the country because "they have slowed inflation."

Unfortunately, this is not true: according to the Comptroller, the consumer price index has increased by an average of 1.1% annually between 1994 and 1998 to date. The tariff reductions have not translated into lower prices, because the importers who control the national market work as a monopoly. If the government reduces tariffs, they maintain their prices and their profits increase. That is what has happened with medicines, flour, oil products and other cases which have become public in recent months. And in exchange for enriching these importers, the fiscal resources needed to address social problems decrease.

This is, besides, a liberalization "for the stupid," since the industrialized countries keep their tariff protection and subsidies to producers intact, in defiance of World Trade Organization resolutions. This has occurred in the banana industry since 1992, to mention just one example.

González argues that the last three years have seen huge investment in Panama. This is true; but about 14% of the economically active population is still unemployed, the same rate as existed in 1994. Investment has not reduced unemployment because opening the markets and other factors have brought ruin to many small businesses and farmers. This is also because this investment has primarily taken the form of purchases of state entities -- privatization of agencies such as Bayano Cement, the ports and the telephone company INTEL, in which a public monopoly was transformed into a private monopoly.

It was said that with privatization we would have "more efficiency," a higher quality product or service and lower prices. Instead we have had massive layoffs, the same or worse quality of product or service, and higher prices. What a way to make ourselves more competitive! Worse still, the government attempts to use the funds coming from privatization to pay off the public debt. These attempts could result in these funds leaving the country, never to return.

Besides privatization and public works carried out by the government itself, the other significant investments since 1994 have been the "Southern" and "Northern" highways. These have had nothing to do with neoliberal policies and are highly mechanized (and so generate little employment), not to mention their disastrous environmental consequences.

Finally, the incompetence, corruption and submission to multinational interests which have characterized the privatization process has cost the country an enormous amount of money. The case alone of the ports and [mismanagement of their sale to the Hong Kong developer] Hutchison caused Panama to lose $40 million.

In conclusion, neoliberal policies have not solved Panama's problems. On the contrary, they have thrown the country into a deep social and economic crisis, similar to that facing other countries in Europe, Asia and Latin America, whose peoples have plainly rejected the policies, just as the Panamanian people did in the referendum last August 30.

Sources: El Panamá América 10/30, 11/15, 11/20; La Prensa 11/11; 11/12; AP 11/18.