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Panama Approves Canal Expansion Plan

by Mike Godfrey, for, New York

25 October 2006

According to exit polls, 79% of Panamanian voters approved the $5.25bn plan to expand the Panama Canal last Sunday. The Panamanian legislature approved the plan in July, but made it subject to the binding nationwide referendum.

Panama's President Martin Torrijos said that the vote on expansion of the Panama Canal was the most important national vote since Panama gained its independence.

Morgan Stanley says that the vote is effectively a referendum on the Torrijos administration - currently enjoying a 65% approval rating - and that the good result supports the country's credit ratings.

Under the expansion plans, two 3-chamber locks will be constructed at both ends of the canal. This will create a third lane of traffic wide enough to handle the largest of modern container ships and tankers. New approach channels will also be prepared, whilst existing channels will be dredged to ensure large craft can enter the system.

The project will take about seven years and employ up to 8,000 people. Nearly five percent of total world trade transits the Panama Canal. Of this trade, 88% flows between the United States and Asia.

The canal is already operating near full capacity and forecasts are for increased demand from ever-larger vessels.

Current projects under development within the program include: the deepening of Gatun Lake and the Atlantic and Pacific entrances, the construction of a second Tie-up station in the Gaillard Cut and the further widening and straightening of the Gaillard Cut.

In June, the Panama Canal Authority announced second quarter operational metrics for fiscal year 2006. During Q2, there was an increase in net tonnage, total transits and transits of Panamax vessels. Total Canal transits increased 3.5% – to 3,862 transits from 3,730. Moreover, transits of Panamax vessels (100 feet or more in beam and the largest vessels that can pass through the Canal) increased 7.5% – to 1,501 transits from 1,396.

Last week the World Bank’s Board of Directors approved a $60 million loan for Panama to support the Government’s public finance reform program, which represents an important step in a long-term partnership between the Bank and the Government of Panama.

“Panama’s economy has grown at a rate of more than 6 percent during the past three years, and the growth rate is expected to reach 7 percent this year,” said Jane Armitage, World Bank director for Central America. “This excellent growth performance in part reflects the past efforts by the Government of Panama to restore greater fiscal discipline and thereby strengthen the overall foundation for sustaining broad-based economic growth.”

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