This program document describes a single-tranche Public Finance  and Institutional Development Policy Loan (DPL) to the Republic of Panama for US$60 million equivalent. This operation is conceived as   a one-time operation, based on passage and implementation of fiscal stabilization and public financial management reforms which will achieve substantial measurable outcomes by the end o f 2006. To reflect the medium-term nature of the Government’s public finance management program, this DPL also indicates and assesses the Government’s future planned actions, and notes its medium-term benchmark indicators (end- 2009).

The Panamanian Government’s new development strategy seeks to recapture momentum on the broad-based reform agenda that was started in the second half o f the 1990s. At that time, trade barriers and price controls were largely dismantled, a farreaching privatization program and anti-trust legislation were introduced, and fiscal adjustments coupled with debt reduction permitted Panama to regain the access to international financial markets that had been lost during the economic debacle that accompanied the Noriega regime in the 1980s. Those reforms were supported by the Bank through several loans and various analytical reports. After 1999, facing economic recession and popular discontent to privatization, the new administration distanced itself from the agenda of the preceding administration and further progress on broad-based reform was  stalled. The Government also moved away from the Bank as a development partner, leaving much o f the Bank’s previous Country Assistance Strategy (FY99-01) unimplemented, with no major analytical work carried out and a policy dialogue that shrank to a few areas covered by ongoing projects.