Panama Elects Leader Pledging to Restore Lost Economic Boom

(Bloomberg) -- Panama elected investor-favorite Jose Raul Mulino as its new president who pledges to revive the once-stellar economy, crack down on drug cartels and shut down migration routes to the US.

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Mulino ran as the substitute for fugitive former leader Ricardo Martinelli, who was banned from participating and sought asylum in the Nicaraguan embassy after a court upheld a conviction for money laundering.

With 94% of votes tallied on Sunday, Mulino, a 64-year-old lawyer, had 34% of the vote, to 25% for his nearest rival Ricardo Lombana. The electoral authority declared Mulino the winner, and the other main candidates all conceded.

“We’ll promote a government that’s pro-investment, and pro-private enterprise,” Mulino told supporters in his victory speech.

He will take office on July 1, replacing President Laurentino Cortizo, who was not eligible for reelection. Early results for congress indicated a fragmented legislature.

The nation has been battered by unrest, credit rating downgrades, low water levels in the Panama canal and the closing of a major copper mine. During the campaign, Mulino said he would use public works projects and incentives for foreign investors to target nominal economic growth of 7%.

For much of this century, Panama had the top performing economy in Latin America, but it will grow just 2.5% this year, according to the International Monetary Fund.

Investors are focused on whether Mulino will find a way to reopen First Quantum Minerals Ltd’s $10 billion copper mine. Following months of violent protests, the supreme court ruled in December that a contract for the mine violated the constitution, and ordered it shut. The project represented 5% of gross domestic product, and was a large source of tax revenue and exports.

In his concession speech, Lombana warned Mulino against attempting to renegotiate the mine contract, warning that this would bring people into the streets.

Fitch cut the country to junk in March citing large fiscal deficits aggravated by the loss of the copper revenue. S&P and Moody’s still rate the country one notch above junk, but the once market-darling risks further downgrades if the next government doesn’t pursue tax and pension reforms and seek to reopen the mine, according to local economist Rene Quevedo.

Read more: A $10 Billion Copper Mine Is Now Sitting Idle in the Jungle

Mulino will also need to weigh environmental concerns and community protests as the country seeks new sources of water for the Panama canal after a severe drought this year forced it to restrict transits through the waterway.

Panama’s debt already trades as though it were junk, and investors demand about 40 extra basis points to hold Panama compared to the average risk premium for BB-rated sovereign securities, according to JPMorgan Chase & Co. data.

US Election

Mulino’s policies could potentially have an impact on the US presidential election in November, at which migration is one of voters’ main concerns.

Read more: 10,000 Migrant Crossings a Day Upend US Presidential Election

He’s said he’ll shut the trails through the dense jungle region between Colombia and Panama. More than half a million migrants, mostly Venezuelan, passed through this route last year, making Panama one of the most important transit countries for people hoping to reach the US.

He also promised a “full-frontal assault” on drug trafficking. Mulino served as security minister during Martinelli’s administration from 2009-2014. A court upheld a money laundering conviction against Martinelli this year and barred him from running for president.

(Adds quote from Mulino’s victory speech in fourth paragraph)

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