Panama Sets Aside Millions for Legal Defence as Arbitration Claims Pile Up
PANAMA · ECONOMY
Key Facts
—What happened: The cabinet approved B/.7.88 million (US$7.88 million) to hire law firms for the state’s arbitration defence.
—How big the fight: Local media put total investment arbitration claims against the state at about US$33 billion.
—The catch: Claims are demands, not expected losses, and states rarely pay anything close to the full amount claimed.
—The biggest case: The 2023 shutdown of the Cobre Panamá copper mine triggered claims by First Quantum reported near US$20 billion.
—Also shelved: The finance ministry froze a planned 7 percent value-added tax on digital platforms after public pressure.
—Meanwhile: Drought has left 11 river basins in water stress, and the interoceanic canal has cut daily ship transits to 32.
Panama faces arbitration claims worth about US$33 billion, according to figures cited in local media, and the government is now paying millions for elite legal defence. A drought emergency and a shelved digital tax round out a punishing month for the treasury.
Millions for the defence
The Cabinet Council has approved a supplementary credit of B/.7,882,484, about US$7.88 million, for the 2026 budget. The balboa is pegged one-to-one to the US dollar, which circulates as legal tender.
The money goes to the Ministry of Economy and Finance, known as the MEF. Specifically, it funds the ministry’s Investment Arbitration Office.
The purpose is narrow and explicit. The office will use the funds to formalise contracts with specialised external law firms.
Those firms litigate before bodies such as ICSID, the World Bank’s arbitration centre, and the International Chamber of Commerce. Senior partners in this market can bill more than US$1,000 an hour, according to local reports.
The credit, set out in Resolution 86-26, cleared the National Economic Council and won a favourable viability report from the Comptroller General. One step remains, approval by the National Assembly’s budget commission.
A wall of claims
The defence budget exists because the exposure is enormous. Panamanian media put the state’s total pending arbitration claims at about US$33 billion.
For foreign readers, this is investor-state dispute settlement. Treaties let foreign companies sue governments before international tribunals, outside national courts.
The largest exposure dates from November 2023. The Supreme Court then killed the contract for Cobre Panamá, one of the biggest new copper mines in the world, after weeks of street protests.
The mine’s owner, Canada’s First Quantum Minerals, answered with arbitration claims reported at the time at around US$20 billion. The mine has been shut ever since.
A claim is not a bill. Tribunals regularly award a fraction of what investors demand, and some cases fail entirely, but the legal costs arrive either way.
The tax that died quietly
The same ministry has retreated on revenue. The MEF has frozen plans to apply the 7 percent ITBMS, the national value-added tax, to digital platforms, according to local reports.
Finance minister Felipe Chapman ruled out applying the levy in the short term after public pressure. Streaming services and app platforms keep their tax-free status for now.
The retreat matters because the treasury needs money. A government paying millions to lawyers is a government that cannot easily abandon new taxes, yet it just did.
Drought on top of it all
On 25 August, the government declared a national state of emergency over El Niño. The climate pattern is bringing too much rain to some provinces and too little to others.
Floods have affected 15,643 people since January, mostly in Bocas del Toro and Colón. At the other extreme, 11 river basins are now in water stress, the meteorology institute IMHPA says.
Five more basins, including the Chiriquí Viejo river, sit in moderate drought. Forecasters expect the rain deficit to last from October to March 2027.
The Bayano reservoir, key for hydropower, is running low. Authorities warn of risks to electricity generation and drinking water.
Then there is the canal. The canal authority is cutting daily transits to 32 ships from an average of 36, on top of draft limits already in force.
The precedent is fresh. In the strong 2023 El Niño, daily transits fell to 22 by November, and the world’s shipping queues made headlines for months.
What to watch from here
The first marker is the Assembly’s budget commission. Its debate will show how much appetite deputies have for external legal spending.
The second is any movement on Cobre Panamá. Talk of reopening the mine under a new model has circulated for months, and any settlement would change the arbitration map.
The third is the October rain. If the deficit arrives as forecast, canal restrictions will tighten before they loosen.
Frequently Asked Questions
How much does the country face in arbitration claims?
Local media put total investment arbitration claims against the state at about US$33 billion. Claims are demands, not final awards, and tribunals often grant far less.
What is the US$7.88 million approved by the cabinet for?
It funds the finance ministry’s Investment Arbitration Office, which will hire specialised external law firms to defend the state before tribunals such as ICSID and the International Chamber of Commerce.
What is the biggest arbitration case against Panama?
The claims arising from the November 2023 shutdown of the Cobre Panamá copper mine. Owner First Quantum Minerals filed claims reported at around US$20 billion at the time.
Was the digital services tax cancelled in Panama?
It was frozen, not formally repealed. Finance minister Felipe Chapman ruled out applying the 7 percent value-added tax to digital platforms in the short term, after public pressure.
How is the drought affecting the Panama Canal?
The canal is cutting daily transits to 32 ships from an average of 36, with draft limits already in force. In the 2023 El Niño, transits fell as low as 22 a day.
Connected Coverage
We covered the canal’s recovery in Panama Canal Traffic Rises as Cargo Tonnage Climbs 7% and the earlier drought cycle in The Panama Canal Bounced Back from Drought — But El Nino Looms.
Sources: Crítica, 11 August 2026; Panama Noticias Network, 12 August 2026; Gaceta Oficial; La Prensa, 28 August 2026; EFE, 25 August 2026; Infobae, 29 July 2026.
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