Economics of Panama

[3iff]

Central America - Panama, Single Player, Full Game, Very Easy

Inspired by the Panama walkthrough by TexasDevilDog. Originally used as a teach myself economics, beginners course but I decided to continue the game to the end.

So, I followed the walkthrough (see economics thread or wiki) as far as it went. At this point, I was on my own. Research was going to be impossibly expensive so I decided to do no research. I also planned to build no units of my own unless attacked. My primary concern was to make my country solvent.

I was now hitting three economic problems. A shortage of electricity which I decided I had to solve by building another hydro plant in the SW on a river delta. That gave a boost of 14,000 units of 'free' electricity per day. Also by limiting the supply of electricity to around 110% of demand, I could avoid having the cities making their own power by burning petrol. This helped by reducing petrol demand. My autopricing for electricity meant that my price was well above the WM price so I was never able to sell any electricity (until late in the game) so overproducing was a waste.

Industrial goods were woefully underproduced. However, I decided to live with this situation and buy from the world market. I don't think I could afford the overheads of another industry unit. Consumer goods became a problem later on as demand for them grew to just outstrip supply. The WM was an adequate source though.

Life was a struggle. Cash trickled in and my options were limited. I had a few WM gifts, light infantry and a group of AMX13 tanks. I sold 3 tanks to boost my cash but kept the infantry as they would raise only a small part of their value. I kept everything in reserve, just incase of an attack. I had slashed military costs to perhaps 25% of recommended value and stopped army recruitment as another problem reared its head later in the game.

The WM came through again though with a gift of $4,000m+ Much of this went on slashing debt. I had worked on improving my credit ratings and had reduced most of my bonds to 3.7%. I worked those bonds hard. Taking a loan of say 60m at 3.4% and then repaying a bond of 50m at 3.8%. I could do something like this every day until I forced my daily interest payments ever lower. Dealing with the large bonds ($736m each) required that I take out a bond every day until I could repay a large bond, then working the smaller bonds replacing a higher interest rate with a lower rate. As I worked at this I took a break every so often to allow the credit rating to improve. Near the end of repaying the loan I was able to force rates down to 1.1% (credit rating of 165 or so). This measure reduced interest payment fees from about $500,000 per day to zero, a saving over a year of $180m, a lot in terms of Panama.

Consumer goods demand was now exceeding supply. As cash was still tight (before the bond repayments were in full swing) I experimented with tax rates. Increasing the treasury tax rate will apparently reduce disposable income (that basic effect anyway). This will reduce civilian demand for everything. This has the unwanted effect of lowering domestic sales and increasing the budget deficit. The only good thing it does is to reduce inflation.

The alternative is to increase the markup of specific goods. The increased price of those goods will reduce demand. So, by increasing the markup on consumer goods I was able to limit demand to my supply. In other areas, agriculture and water, I lowered the markup slightly to increase demand and eat into my growing stocks. What's more, sales to my people were at a higher price than to the WM, so more income for me.

El Salvador was now taking over the place. Crushing Guatemala, it later turned its attention to Honduras. This was a stalemate of sorts. Unfortunately, El Salvador was in third place in the polls (I led Costa Rica by 3%) but capturing new lands would help their cause. They had 17m people, I was marooned on 2.84m people. My DAR was 40-45% though and that helped a lot.

My friendliness helped me get some trades in, acquiring some artillery building capability. All the countries were relatively backward though and there was little to trade.

Unemployment was falling and other than destroying industries I had no way to stop the decline. At 3% I got the first warning. Inflation began to rise and it was over 10% now. I did raise taxes to 80-90% and this had a small affect on inflation but caused domestic demand to fall heavily and left me with an increased trade deficit. I decided to allow inflation a free hand and eventually dropped taxes to 55%. I fought increased domestic demand with heavier markups and inflation rose to 15%. I had to bump up efficiency subsidies as production costs rose and made goods more expensive to make than I could buy from the WM. Until the prices stabilised I had to stop autoselling otherwise I would be selling goods for less than the cost I spent to make them. A good way to go bankrupt quickly.

One benefit of this was a very healthy increase in the trade balance. Total income was $100m per day, expenses were $85-90m and trade balance was anywhere from +$6 to -$6m (mostly industrial goods). Markups were set so that I avoided WM purchases where possible. Consumer goods production was about 100 units per day short but I was buying for $36,000 per unit and selling them for about $85,000 per unit and making good profits.

So, cash was rising (ending at $3,500m), I had no debt, no enemies and a healthy lead in the polls. Unemployment was 2.5% and inflation about 15% but my industries were healthy and I had just acquired a large stock of petrol and military goods.

El Salvador was at a standstill with Honduras and Nicaragua (who had joined the battle). I had 50 units in reserve, all acquired via the WM free gifts and had sold about the same number, mostly supply trucks and some missile launchers. The game ended with me on 36%, Costa Rica on 28% and I hadn't fired a shot in anger.

What's more, I have more confidence in being able to manipulate the economy. I just need to find out how to control unemployment without conquering new territory.

[ozmono2005]

Unemployment was falling and other than destroying industries I had no way to stop the decline. At 3% I got the first warning. Inflation began to rise and it was over 10% now. I did raise taxes to 80-90% and this had a small affect on inflation but caused domestic demand to fall heavily and left me with an increased trade deficit. I decided to allow inflation a free hand and eventually dropped taxes to 55%. I fought increased domestic demand with heavier markups and inflation rose to 15%. I had to bump up efficiency subsidies as production costs rose and made goods more expensive to make than I could buy from the WM. Until the prices stabilised I had to stop autoselling otherwise I would be selling goods for less than the cost I spent to make them. A good way to go bankrupt quickly.

You know I haven't played it yet but raising interest rates and taxes might have slowed the inflation despite the complete unemployment

[3iff]

Yes, I did say that but it tended to damage my trade balance as selling produce became harder (domestic sales). Over a month or so inflation fell from 10.5% to 10% when I raised the general tax rate to 90% but I abandoned that idea and switched to 55% tax. That saw my income/expenses difference change to +$15m per day. Inflation grew but didn't seem to have so big an effect. I wasn't at war though so things might have played differently had I incurred that expense too...

There's no way to raise interest rates.