Global Tensions Rise as Trump Threatens Panama’s Economic Lifeline
The Panama Canal, a vital artery of international trade, has become a flashpoint in a brewing dispute between President-elect Donald Trump and Panama. The repercussions are already being felt in the nation’s financial markets.
A Critical Source of Revenue Under Threat
Panama’s bonds took a hit on Monday, with notes due in 2036 plummeting 0.7 cents on the dollar. The cost of insuring against a sovereign default also surged to its highest level since February. This Perfect Storm of uncertainty has traders on edge, and it’s not hard to see why. The Panama Canal, built by the US Army Corps of Engineers over a century ago, is a cash cow for the government, generating significant revenue.
A Nation Already Under Pressure
Panama is still reeling from the sudden shutdown of a key copper mine last year, which has put a strain on its economy. To make matters worse, the country is teetering on the edge of losing its investment-grade credit score following a series of downgrades. The last thing Panama needs is additional pressure from the Trump administration.
A Warning Sign for Emerging Markets
The fallout from this dispute is not limited to Panama. Emerging-market bonds have been the worst performers this quarter, with losses totaling 8.5%. This trend is unlikely to reverse anytime soon, given the current climate of uncertainty.
A Diplomatic Spat with Far-Reaching Consequences
President José Raúl Mulino was quick to push back against Trump’s threat, but the damage may already be done. The developing spat has added to traders’ concerns over Panama’s outlook, and the nation’s assets are paying the price. As Nathalie Marshik, a managing director at HSBC in New York, noted, “It’s additional attention that Panama doesn’t need right now.”
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