Panama Votes to Widen Canal

Referenda to approve capital projects aren’t very interesting as a general rule. They tend to be disputes among various construction firms, ego-maniacal entrepreneurs and the “not-in-my-backyard” militants, arbitrated by an uninformed electorate. In Panama over the week-end, an exception to the rule was the referendum held on expanding the capacity of that nation’s canal connecting the Atlantic and Pacific Oceans. The $5 billion project won voter approval, and the entire world wins.

Given the huge inconvenience of sailing around Cape Horn, the Panama Canal was a project destined to happen. As early as the failed Darien project that bankrupted Scotland around 1600, using the isthmus to slash transportation costs made excellent sense. Less time at sea meant cheaper goods, which always enhances global trade. When the American-built canal opened in 1914, it was the most expensive project the US had ever undertaken. With the Panama Canal Treaty, the ditch is now Panama’s baby.

The success of the canal is readily measured – 5% of all world trade passes through it. Currently, though, the canal is restricted by its size. Since 1914, there have been ever-bigger ships built, and some simply can’t fit. The “Panamax” size, the upper limit that will fit in the locks, allows for 4,000 containers of 40 feet (about 66 cubic meters) on board. Many ships at sea these days have space for 12,000 such containers.

The challenge for Panama is to widen and deepen the canal without going broke, and recouping the costs through higher traffic and fees. Opponents had three arguments: that it is unnecessary, that it will cost more than the $5.2 billion forecast, and that the environment will be damaged. None really holds water. The necessity is clear given the 8,000 extra containers bigger ships could carry. Cost over-runs are almost certain, but the budgeted funds include 30% for cost over-runs, and the place isn’t a greenfield site; environmentally, the time to worry was 1914.

The Panamanians voted 75-25 to go ahead with the project. Many factors, not least of which is jobs, entered into their approval (on light turnout). However, one that always lurks on the horizon is the construction of a competing canal in Nicaragua. Not entirely by coincidence, Enrique Bolaños, Nicaragua’s president, pointed out last month that his country could (and implied should) build a canal there, at a price of $18 billion over 12 years. If for no other reason than to retain its monopoly, Panama made a wise choice for itself. And if the rest of the world gets a more useful canal out of the deal, then, so much the better.

© Copyright 2006 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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