Panama's economy is based primarily on a well-developed services sector that accounts for nearly 80% of GDP. Services include the Panama Canal, banking, the Colon Free Zone, insurance, container ports, flagship registry, medical and health, and other business.

A major challenge facing the current government under President Mireya Moscoso is turning to productive use the 70,000 acres of former U.S. military land and the more than 5,000 buildings that reverted to Panama at the end of 1999. Administratively, this job falls to the Panamanian Inter-Oceanic Regional Authority.

GDP growth for 2002 was about 0.8% compared to 0.3% in 2001. Though Panama has the highest GDP per capita in Central America, about 40% of its population lives in poverty. The unemployment rate surpassed 14% in 2002.

From March 2001 to February 2003, Panama served as host for the Free Trade Area of the Americas negotiations. Panama's first free trade agreement, with El Salvador, entered into force in early 2003, and in August 2003 Panama concluded negotiations on an FTA with Taiwan. Panama also is negotiating FTAs with its Central American neighbors.