One of the challenges that Panama faces is to achieve economic growth, development and prosperity in an environmentally compatible and sustainable manner. Ensuring protection and management of the Panama Canal Watershed is critical to safeguarding the fresh water necessary for Canal operations, which underlines economic and strategic interests in the efficient functioning of this vital waterway. The significance of the Canal is evident given the importance of trade-led growth for the region. As a main maritime crossroads of world commerce, the Canal is necessary to the economies of developing countries in the region and free trade in the Americas. Over 7,000 commercial ships carry 130 million tons of cargo a year through the Canal. Fourteen percent of all U.S. trade transits the Panama Canal on its way to or from U.S. ports.

In 2004, a new Country Plan was approved for FY 2004-2008. It contributes to the achievement of three major U.S. foreign policy objectives: Infrastructure Network Protection, Democratic Systems and Practices, and Trade and Investment. The USAID program that protects the Canal watershed supports the security and economic interests of the United States, as well as the regional and hemispheric economy.
 
USAID programs support the consolidation of democracy, environmental stewardship, community empowerment and trade competitiveness for poverty reduction and conflict mitigation. Programs support policy reforms, best practices, community participation, and strengthening civil society organizations for advocacy and holding government accountable.

In Panama, USAID currently pursues two Strategic Objectives: Ruling Justly: More Responsive, Transparent Governance, and Economic Freedom: An Open, Diversified, and Expanding Economy. The bilateral program also supports activities to strengthen select Darien communities. In addition, the USAID Regional Programs include HIV/AIDs Prevention, Environmental Protection, and Disaster Preparedness.

Activities under Ruling Justly seek to help Panama develop more accountable and transparent government institutions and businesses by supporting reform of the legal framework for transparency, and by developing Panamanian capacity to curtail, investigate, and prosecute corruption cases; and strengthen citizen watchdog groups and promote ethical values in public and private institutions. The focus is on improving transparency and accountability in government and strengthening civil society oversight through social audits. By strengthening civil society organizations, Panamanian citizens will have a greater voice in determining public policy and be better able to oversee government programs.

Activities under Economic Freedom are improving management and conservation of critical watersheds for biodiversity conservation. USAID assistance also aims to enhance the competitiveness of small and medium enterprises in support of a bilateral Free Trade Agreement between the United States and Panama. Sound environmental stewardship in the Panama Canal Watershed is crucial to biodiversity conservation, economic prosperity and international security. USAID supports activities that foment environmental governance and eco-tourism in protected areas, as well as stakeholder participation, policy changes and legal reforms.  USAID funds trade capacity building activities to help small and medium-sized enterprise benefit from new trade opportunities that will arise under a Free Trade Agreement.

USAID assistance helped to empower indigenous communities and legitimize local government authority in the Darien, the economically least-developed province in Panama. USAID built numerous social and productive infrastructures while promoting community strengthening and self-help activities. As a result, the quality of life and well-being of 64 participating communities (25% of the population) in the Darien has improved.