Panic already in the government now that they can't sell state assets such as the shares in companies like Cable & Wireless. Martinelli & Co wanted that money, and ministers are already threatening budget cuts and austerity and doom if the "dialog" doesn't result in them being allowed to have their yard sale anyway. A bit like how they were threatening daily power outages if they couldn't build a gazillion hydroelectric dams everywhere.
Except that this time they really need that money. Martinelli has been overspending dramatically on his mega-projects and corruption. Our friend Ricardo Ernesto Soto, Public Policy Advisor at Goethals Consulting, did the math for us.
The budget for next year is $15 billion. Now, according to Transparency International, in Latin America about 30% of public spending on contracted work is lost in corruption - in other words, officials steal that money. Inflated prices (radars, helicopters), payments under the table, skimming funds, etc. So, of that $15 billion budget, a couple of billion will be stolen.
Even if that number seems high - it's from the nineties - a 2004 study by the Inter-American Development Bank found that about 10% of GDP is eaten up by corruption. That's about three billion dollar in Panama every year.
Now here's Martinelli's problem: He faces a deficit of about $2.5 billion.
What can he do? He can issue bonds, but more debt will probably cost Panama its investment grade, make borrowing more expensive. Plus, investment grade or not, Panama isn't that hot anymore thanks to Martinelli's capers. So this is not really an option.
He could theoretically sell off each and every state asset and hope that that'll be enough to keep up with his spending until he's out of office in 2014/15. But Panamanians don't accept that, as recent events have shown.
He could reduce his kleptomania to the levels of the developed world, which would mean that very little of the budget disappears through corruption. Together with some minor budget cuts this would be a relatively easy way to balance his budget without the need for controversial measures.
But here's the problem: Martinelli's political and legal survival depends on corruption.
Monica Palm Flor Mizrachi reported today that one of the reasons Martinelli backed down Tuesday was that his own legislators demanded $5,000,000 for their votes to pass the laws he wanted. Martinelli doesn't have friends or fans; he has associates who want to be reimbursed for their support and who are getting more expensive as Martinelli's insanity and greed increase. In other words, Martinelli can not afford to reduce looting of public coffers even if he wanted to.
So what can Martinelli do? A diversion would of course be great, but unfortunately for him we don't have disputes about some islands with the Brits. Similarly, he can't just abandon the dollar and start printing balboas - not if he wants to keep his coveted investment grade.
He could of course pull a Noriega and have the narcos come up with the money he needs. But he would have to become a really big player to make the kind of money he needs to keep his illusion of government afloat.
So we'll either see some of these mega-projects slow down significantly or even be cancelled, or Martinelli is gonna go all-out to amass enough power to be able to sell assets of the state, like the shares of C&W, electricity companies, land owned by the state and so on. Then he'll probably dip into pension funds and whatever else he can get his hands on.
Despite all the political posturing of "opposition" charlatans lately, the protests yesterday and today have accomplished one important tactical victory against Martinelli: His funding has been cut off. This means that he won't be able to deliver on his promises. That leads to further loss of legitimacy. He gets isolated, and his government will fragment, lose its moral cohesion. It will then all disintegrate - a process we have been watching in slow motion for almost a year now - or he'll do something erratic and stupid. Bottom line is that it's all downhill from here.