September's headlines: Q2 macroeconomic results, Odebrecht and the ILO pension evaluation

PANAMA - Report 05 Oct 2022 by Marco Fernandez

September's headlines were judicial and financial: (1) the end of the Odebrecht preliminary hearing and its possible outcome next year; and (2) the much-anticipated ILO evaluation of the financial conundrum of the defined benefits pension program (SEDB) administered by the Social Security Agency (CSS)

Accumulated growth for the first two quarters was 11.8%. Domestic demand slowed, with growth depending more on the external sector. Because the last two quarters of 2021 showed a considerable jump from the previous year, we anticipate a significant deceleration in Q3 and Q4 2022. Our projections for full-year 2022 remain close to the consensus of 6.5%.

The preliminary audience in the Odebrecht money laundering case ended last week. We anticipate that most of the accused would be summoned to trial next year, including former President Martinelli (the front-runner in the 2024 presidential elections). According to legal experts, the proceedings may last up to a year, perhaps coinciding with the official designation of the presidential candidates for the 2024 election.

The ILO report on the financial distress of the defined-benefit pension program concluded that by 2024, its reserves would be depleted. There is no simple solution, and all of those suggested require new government transfers. We evaluate one of them, which presents the lowest political risk and increases the NFPS deficit, but still leaves the system's structural deficiencies untouched.

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