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The Canadian Press - ONLINE EDITION

Panama's conservative president-elect takes page from Chavez playbook: price controls

PANAMA CITY - President-elect Juan Carlos Varela prides himself on a successful business career running Panama's biggest liquor company before entering politics. Yet when the conservative politician takes office July 1 he's promising to implement an economic policy from the playbook of the late Venezuelan socialist Hugo Chavez: price controls.

The economy of this Central American country has soared during the past five years and unemployment is at a record low, but frustration with the high cost of living has been building among Panama's 3.4 million people, especially the quarter living in poverty who haven't benefited as much from the boom.

Doing something about rising prices, especially for food, was Varela's No. 1 campaign pledge as he staged a surprising victory in a tight three-man race May 4. All major opinion polls had put him on the losing end.

Hours after his victory, Varela reaffirmed that his first order of business as president will be to sign a decree imposing emergency price controls on 22 basic goods, everything from rice and eggs to cuts of meat.

He said the move will save families $60 a month without costing the government a single penny. Instead he will demand "sacrifices" from wholesalers and retailers he accuses of charging "speculative" prices as Panama imports more than 60 per cent of its food.

Not everyone is thrilled, least of all outgoing President Ricardo Martinelli, the billionaire owner of the country's biggest supermarket chain, Super 99. In 2009, Varela was elected vice-president on Martinelli's ticket but they split acrimoniously two years later over Martinelli's effort to engineer a constitutional change that would have allowed him to seek re-election.

Inflation in Panama's dollarized economy is running at 4 per cent, which is low by Latin American standards but still twice what it was in 2009. More worrisome is the price of the basic food basket, about 50 products that officials say is enough to feed a family of four for a month. Its cost has jumped 25 per cent in the last four years to $335, according to government data.

That's a lot in a country where many people earn the minimum wage, which is $475 to $625 a month.

The strain on pocketbooks is felt in Boca la Caja, a one-time coastal village settled by poor migrants from the interior that has been engulfed by luxury skyscrapers during the past decade's real estate boom.

Linette Cortes says the $500 a month she earns as a hotel maid doesn't stretch far. The 45-year-old has to pool her income with other family members to feed the five adults and three grandchildren who live in her zinc-roofed home. Some neighbours have it worse and have been forced to give up lunch, the day's biggest meal, she said.

"We have three supermarkets nearby, including 99, but they're too expensive," Cortes said. "One hundred dollars no longer goes as far as it used to."

On the campaign trail, Varela liked to cite the example of lentils, which he said were being imported entirely from Canada at 26 cents per pound but he had seen sold at supermarkets for four times that amount. After his complaints, prices fell precipitously without affecting supplies, he says.

"You can't be allowed to mark up basic-need items 60, 70 or 80 per cent," Varela said in a meeting with foreign journalists two weeks before the vote.

Martinelli hasn't commented on Varela's plan since the election, but during the campaign he said price freezes would lead to shortages of goods like those seen in Venezuela, where controls implemented a decade ago have been gradually expanded to include less-essential items such as auto parts and car tires.

In Panama's case, nobody expects Varela to take the economy down the path of Chavez's 21st century socialism. Rather they see the controls as a populist bone in what is otherwise expected to be a very pro-business administration.

"He's not proposing a structural overhaul of the economy," said Rolando Gordon, an economics professor at the University of Panama.

Still, he said, Varela needs to be careful and make sure price cuts are agreed on through negotiation. Given the small number of players in Panama's food industry, Martinelli included, it wouldn't take much for the plan to backfire, he said.

"If they want to, they can provoke shortages just out of spite," Gordon said.

___

Associated Press writer Joshua Goodman in Caracas, Venezuela, contributed to this report.

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