Massive protests erupted in Panama in recent weeks against a new law that allows the Canadian mining company First Quantum Minerals to operate the country’s largest copper mine, Cobre Panama. Thousands took to the streets of Panama City to denounce the environmental impact of the mine and their sense that the mining company represents an infringement of national sovereignty. The strong opposition to the firm and the government’s response cast a cloud over Panama’s investor-friendly image.
The open pit mine, located in the province of Colon, produces about 1.5% of the world’s copper and has been a major source of revenues for the Panamanian government in recent years. President Laurentino Cortizo has tried unsuccessfully to appease protesters by modifying the original contract agreed in March.
Credit rating agency Moody’s has downgraded Panama’s sovereign debt to Baa3 from Baa2 (the lowest investment-grade rating) citing weak fiscal structures and social and political tensions. Likewise, J.P. Morgan warned that Panama’s chances of losing its investment-grade rating will increase significantly if the mining contract is revoked. On the other hand, if the contract goes through, there could be a major public outcry. Social instability would hinder investment attraction in 2024, as protests become increasingly violent. Tourism and trade may be particularly affected by disruptions to economic activity.
- On October 20, the administration of President Cortizo enacted Mining Law 406, granting the company First Quantum the right to produce copper for 20 years in the country, with the option to extend it for an additional 20 years. The new contract increased the royalties received by the Panamanian State to 16% from 2% and guaranteed a minimum annual contribution of US$ 375 million. Some controversial clauses that were present in the original contract were eliminated, such as the company’s power to expropriate land for exploitation and concessions for gold and silver exploration.
- However, protesters argue that the extension of the mining contract will harm the environment and benefit foreign corporations at the expense of Panamanians. They also demand greater transparency in the government’s negotiations with the company and a greater share of the profits from mining operations.
- Panama’s public ministry called the new law unconstitutional. The Administration Attorney, Rigoberto Gonzalez, denounced the lack of a transparent public bidding process and the absence of an effective and prior public consultation to guarantee citizen participation.
- In response to the demands, Congress held three extraordinary sessions to address the issue. The legislators desisted from repealing the mining law and instead declared an indefinite moratorium on metallic mining throughout the country.
- The effects of the protests are already being felt in the economy. The Panamanian Hotel Association (APATEL) estimates US$ 200 million in losses for the tourism sector. In Panama City, where the bulk of the protests are concentrated, hotel occupancy has fallen to 25%. Meanwhile, road blockades have led to shortages of food, fuel, and medicines, mainly in the interior provinces.
Congress reversed its decision to repeal the mining contract, as some legislators concluded that it would be preferable for the Supreme Court to rule over the matter. Either way, the consequences will be dire. If the court declares the contract unconstitutional and repeals it, Panama’s economic outlook could be turned upside down. According to the minister of economy and finance, Panama’s GDP would only grow by 1% in 2023, and not the projected 6%, if it were not for the mine’s activity, as copper extraction by First Quantum contributes approximately 4.8% of GDP and creates more than 49,000 direct and indirect jobs. The halt in the company’s operations would jeopardize the country’s second-largest source of income after the Panama Canal.
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