Panama Investor Blog

IMF gives Panama timely commendations

A report from the IMF this week gives Panama two thumbs up. This report is a result of a "consultation with Panama".  Panama needs this kind of positive report in order to get funding for the canal expansion.

Although last year they devoted a full paragraph to the canal expansion and the need to watch carefully the costs there was little mention of the canal in it this years report. Here is the excerpt from 2007 consultation.

"Directors welcomed the efforts of the authorities in managing the domestic impact of the canal expansion project, so that it does not create financial or economic imbalances. Directors supported, in particular, the authorities' intention to monitor implementation carefully and coordinate closely expenditure and borrowing strategies of the government and the PCA. They noted the need to remain vigilant, maintain adequate contingency reserves, and take action if expansion costs exceed projections or if domestic demand pressures build up. Directors recommended continued transparent bidding and procurement practices during the canal expansion."

Here is the one liner about the expansion in this years report.

"The Canal expansion is shifting into higher gear and remains within budget."

The only concern they raise is that of inflation and the affect it has on the economy and especially the poor. They recommend more spending in that area and less spending in others. You can read the whole report here or just the highlights below.

Excerpts from this latest report; The strong economic performance of the last few years continues, despite the deteriorating global environment. Panama was one of the fastest growing economies in the world in 2007 with real growth rising to 11.2 percent, following an average growth rate of nearly 8 percent in 2004-06.

Construction soared, and the well developed financial center quickly responded to new opportunities and has attracted significant new investment. At the same time, employment expanded significantly, leading to a decline in unemployment to an unprecedented low level.

Like in the rest of the region, inflation has sharply accelerated, reaching almost 9 percent in May, after averaging about 1½ percent in the last twenty years. Although the surge in inflation is mainly due to higher global food and fuel prices and distortions in the agricultural sector, core inflation (excluding food and fuel) is rising as well reflecting the buoyant economic growth and the emergence of some capacity constraints.

The public finances have remarkably strengthened. The overall balance of the nonfinancial public sector (NFPS), excluding the Panama Canal Authority (PCA), turned from a deficit of about 5 percent of GDP in 2004 into a surplus of 3.5 percent of GDP in 2007, despite a major increase in capital spending in 2007.

The strong fiscal performance combined with the fast pace of growth has led to a rapid decline in the public debt ratio. A new Fiscal Responsibility Law (FRL) that sets a deficit limit of 1 percent of GDP for the NFPS, excluding the PCA, and a debt target of 40 percent of GDP by 2015 was approved by the National Assembly in early May and should help sustain the improvements in public finances.

Directors commended the authorities for the strengthening of the public finances, noting the remarkable turnaround in the nonfinancial public sector balance excluding the Panama Canal Authority, notwithstanding a significant increase in capital expenditures. The strong fiscal performance and rapid economic growth has led to a falling public debt ratio and an improvement in Panama's credit ratings.

Directors observed that Panama's financial market has not been adversely affected by the global financial turmoil, and commended the authorities for stepping up the monitoring of banks' asset quality, liquidity, and risk management. They noted that capital adequacy and financial ratios remain strong and that the dynamic financial sector is expanding rapidly, reflecting foreign investment, consolidation, and regional integration. Directors welcomed the enactment of the new Bank Law, which will strengthen the national supervisory framework and should help enforce regional supervisory provisions. Nevertheless, Directors stressed the need for vigilance, in light of the easing monetary conditions against the background of a rapidly growing economy, a booming housing market, and volatile global financial markets.

IPAT launches misguided domestic marketing plan

The local advertising company Márquez Worldwide has been awarded a 4 year $4 million contract to market the country domestically. Their contract calls for them to  “provide marketing services, communication, promotion of domestic tourism and information and awareness about the benefits and the social and economic impact of tourism.

Kathy La Guardia Marketing director for IPAT say's  "They will develop a campaign encouraging residents to visit other provinces in the country. This campaign will also be effective in reaching foreigners living in Panama,”.

IMO
Our resort spends about $6,000 a month on domestic marketing and we have learned over the last few years the limitations of the domestic market. Of course IPAT has not bothered to ask us or any other hotel operator that I am aware of for their input, so they will make mistakes based on false assumptions.

Panama city is where the majority of the marketing campaign will be rightfully focused and the number of people living in the city who have the resources to travel into the interior is rather small, probably on the order of less than 25,000. On top of that they only travel on long weekends or holidays  because that is when the kids are out of school. Most of the hotels are already doing  well during those times and in fact we are at near capacity. It is the slow season that we need the help and it won't come from the domestic market. It must come from abroad.

Reaching the top few percentile is neither difficult or expensive. Spending nearly a $100,000 a month  in local magazines and TV will saturate the market in short order and bring little additional benefit. Those who can afford to travel domestically are already doing so. 

I am for anything that will help bring tourism into the interior, but if you were to ask the small number of hotel operators in the interior, they would by and large prefer to split that $4 million among themselves and do their own marketing. If you gave me that budget to manage I would fill all the hotels in the interior in low and high season.

ACP seeking financing for expansion

This short article tells us that the ACP is out looking for the funding from many sources including the regional stock market for the canal expansion. Last month the bidding on the largest contract of building the locks was postponed until December because of various reasons including a guaranty wanted by the contractors for increases in material costs. One wonders how they can seek funding when the bids arn't in, but why worry about those details. They state “We want to have those funds in place prior to the awarding of the bid for the design and construction of the third set of locks,”. Now of course you can bet any lender will be asking those questions as well. It will be interesting to see how many lenders step up to the plate in these troubling economic times when lending is at an all time low.

La Prensa

The Autoridad del Canal de Panamá (ACP) is planning to have $2.3 billion in external financing in place by December to pay for the expansion of the Panama Canal.

“We want to have those funds in place prior to the awarding of the bid for the design and construction of the third set of locks,” said José Barrios Ng, deputy administrator of the ACP.

Ng spoke yesterday to the Bolsas de Valores Centroamericanas (Bolcen), which was meeting in Panama City.

The ACP plans to seek funds from a variety of lenders, and wants to work with regional stock markets to finance the project.

The ACP is also seeking funds from the Inter-American Development Bank, the European Investment Bank and the Japanese Bank for International Cooperation. After finishing those negotiations, the ACP plans to open negotiations with private banks, which will provide a much smaller amount of financing for the project.

The expansion of the canal is expected to cost more than $5 billion and be completed by 2014.

U.S. and canal authority comment on Torrijos-Bush meeting

Statement by the Press Secretary                         

Visit by President Martin Torrijos of the       Republic of Panama        

WASHINGTON--(BUSINESS WIRE)--President Bush will welcome President Martin Torrijos of the Republic of       Panama to the White House on September 17, 2008. Panama is an important       friend and ally of the United States. The President looks forward to       discussing a range of issues with President Torrijos, including our       common commitment to the United States-Panama Trade Promotion Agreement,       expanding free trade and strengthening democracy throughout the region,       enhancing security cooperation, and strengthening cooperation in       international fora. This visit, following President Torrijos' visit last       May, underscores the on-going deep friendship and cooperation between       the United States and Panama.    

PANAMA CANAL AUTHORITY

NEWS RELEASE

PANAMA'S PRESIDENT TORRIJOS TO MEET WITH PRESIDENT BUSH DURING OFFICIAL WASHINGTON VISIT IN SEPTEMBER

Washington, D.C., USA, August 28,   2008: As part of an official visit to promote business and investment opportunities in Panama, President Martín Torrijos will travel to Washington, D.C. on a two-day official visit and will meet with U.S. President George W. Bush on September 17th. He will also meet with key administration officials and members of Congress. President Torrijos and President Bush will discuss the pending U.S.-Panama Trade Promotion Agreement, expanding free trade and democracy throughout the region, enhancing security cooperation, and strengthening cooperation in international fora.  The meeting marks the fifth time that the two leaders have met since President Torrijos took office in September 2004, and underscores the ongoing deep friendship and cooperation between the United States and Panama.       President Torrijos will be accompanied by First Vice-President and Minister of Foreign Affairs Samuel Lewis Navarro, Panama’s Minister of Commerce and Industry, Carmen Gisela Vergara and Panama Canal Administrator/CEO Alberto Alemán Zubieta. In addition to his meeting with President Bush, President Torrijos will hold bipartisan meetings with members of the House and the Senate on Capitol Hill.       President Torrijos will also be the featured speaker of the Panama Forum 2008, a Washington business conference co-hosted by the Embassy of Panama together with the Panama Chamber of Commerce. The conference entitled “Panama: Where Global Routes Intersect and Businesses   Connect,” brings together top decision-makers and private sector executives from the United States and Panama to strengthen cross-border dialogue and discuss bilateral investment opportunities.        With one of the   fastest growing economies in the Americas, a booming real estate sector, strong foreign investment and the historic expansion of the Panama Canal, the Panama Forum 2008 takes a closer look at the economic factors driving one of the most dynamic economies in Latin America today.        Buoyed by a strong, sophisticated services industry and a multimodal maritime and logistical transportation hub, Panama has taken advantage of global trade flows, recording an average annual GDP growth rate of 8.6 percent over the past four years and is now positioning itself as a “gateway to the Americas” and beyond.

Troubling numbers regarding education in Panama

An article from this morning's La Prensa hits home about the challenges that Panama faces as it struggles to find a labor force to build all the grand projects planned. In a recent study of Latin countries, Panama ranked last in a number of academic areas. With education levels so dismal, how can the people be expected to compete in the market. What is so frustrating is the fact that Panama is a relatively rich country with a small population, but Instead of investing in their greatest assets, the government continues to invest in mega projects that only exasperate the problems. If I were king........

Excerpts:

Moreover, between 30 and 70 percent of Panamanian students in third through sixth grade earned failing scores in subjects such as science, mathematics and Spanish.

Pedro Ravela, a consultant with United Nations Educational, Scientific and Cultural Organization (UNESCO), considered the test results a “serious” concern, since lacking these basic skills significantly reduces a student’s ability to acquire knowledge in other areas during their scholastic career.

Some 13,000 Panamanian students participated for the first time in the Segundo Estudio Regional Comparativo y Explicativo (Serce), along with students from 15 other countries in the region, including one Mexican state. Panamanian students ranked among the last places in most of the areas assessed. The highest scores for reading were earned by students from Argentina, Chile, Colombia, Costa Rica, México and Uruguay, and Nuevo León, México.

Panama’s low ranking, however, is not as telling as the fact that many Panamanian children leave the third grade barely able to read, commented Ravela.

Read the whole sorry story here at La Prensa

Panama inventor a leading light in developing greener energy

Looks like an inventor here in Chiriqui is taking things into his own hands and feet to solve the world energy crisis.
La Prensa

Excerpts:

Clement’s moral is, the sooner we stop relying on oil, the faster we’ll achieve a global society with “sustainable life” and a greater respect for the environment.

These ideas, incarnated in his many energy-saving inventions, have earned Clement a bevy of honors, including the third prize award in the “fire” category at the Energy Globe Awards, the so-called Environmental Oscars, and an open invitation to talk about renewable energy at the Universidad Autónoma de Chiriquí.

But it’s Clement’s low-cost bicycle generator for Panama’s rural regions, capable of illuminating four 60-watt lightbulbs for several hours, and a micro-hydroelectric project that functions with water from small streams and creeks, that have won the electromechanical engineer most acclaim recently.

These creations testify to Clement’s belief that wind and water generators are indispensable to ensuring sustainable sources of energy. In fact, instead of diverting the flow of a river and harming aquatic habitats, Clement explained that his mini-hydroelectric plant runs on a scant 10 percent of a creek’s total water channel.

“From now on, we must think more carefully about whether to approve hydroelectric plants requiring dams, or those that use only enough water to activate the generator’s equipment,” he said.

Protesters close pan-american highway

Another article about infrastructure problems. This time it is sewage treatment. Panamanians have learned that the only way to get anyone's attention is to take to the streets, which is why we see street protest on a regular basis. Nothing will be done about a problem until it gets to the point of becoming an embarrassment to the government.

Excerpt: Arraiján residents blocked the Pan-American Highway yesterday for four hours to protest the government's inaction toward the community’s sewage problems.

Residents said they reached their breaking point when a septic tank started leaking, causing an unbearable stench.

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Tourism master plan delayed again

This makes it the umpteenth time that the master plan is delayed and knowing what I do about the players involved there is a method to their madness and the method comes out in the article.

In the article it lists the various government and private organizations that are to "work on the plan". "The agencies that will work on the plan are Ipat, the Ministerio de Vivienda, the Autoridad Nacional del Ambiente, the Ministerio de Economía y Finanzas, the Cámara de Turismo, the Asociación Panameña de Hoteles, the Asociación Panameña de Operadores de Turismo and the Asociación de Líneas Aéreas en Panamá."

By delaying the project you limit the time available to "work on the plan" before it is implimented. Obviously someone does not want scrutiny which is why no local organizations or tourism operators have been consulted over the past year to my knowledge. By hiring outside consultants and feeding them the information you want them to have, you can get their recommendations to coincide with your agenda. Why is there no transparency in this 20 year masterplan? Why the secrecy? Why the delays? Because it serves their purpose!

Excerpts:

The Instituto Panameño de Turismo (Ipat) has postponed its plan to open public discussions on the Tourism Development Master Plan until October, confirmed Jaime Cornejo, national director of the project.

The first presentation had been scheduled to be held in Chiriquí last week.

The plan will manage tourism development in the country's 26 major destinations. It includes an evaluation of the existing products and the areas where more development needs to take place.

A major component of the study is examining the hotel facilities available to travelers.

In the case of municipalities that have already begun studies to adopt a development plan, such as Bocas del Toro, the plan will seek ways to help those efforts.

The country has experienced a large amount of growth in terms of the number of visitors, but the development of an infrastructure to accommodate that increase has lagged behind.

One way the government has sought to address that issue is by offering tax incentives to hotel developers. While that program has been successful in adding hotel rooms to Panama City, the same can’t be said for the country’s interior, where such facilities are still widely lacking.

Read the whole story here at La Prensa

Despite international crisis, Costa Rica continues to attract tourists

This article from the Guanacaste Journal in Costa Rica provides us with some insight into the tourism industry of Costa Rica that I have not seen before. The industry is concerned about a slowing growth rate and is taking steps to improve the situation through a $14 million dollar advertising budget for markets outside the  U.S.. Although the article points out that the industry is still growing despite a slowing growth rate, anecdotal evidence from tourist providers in Costa Rica I know tell me things are much worse than portrayed by the government statistics.

Excerpts: Despite the good news, the local tourism sector is beginning to feel the effects of the troubled world economy, as growth rates are down, particularly as reflected by arrivals at Liberia’s Daniel Oduber International Airport — which for the second month in a row saw a reduction in passengers compared to the same month in 2007 — reporting -3.3 percent in June 2008 and -1.9 percent in July of 2008, in relation to those same months last year.

Data from this year shows that as of April, accumulated growth was 15.5 percent; as of June it was 13 percent; and of July it was 12.2 percent. However, Vargas said, the country continues to experience a satisfactory increase in tourist visitation, especially compared to growth rates at other important destinations in Latin America during the first four months of the year.

According to Vargas, some of the factors that contribute to the decrease in tourism growth include the reduction in airline flights, the sustained increase in petroleum prices, the global food crisis, and the U.S. economic slowdown. That’s why both the public and private sectors are working together to attain a goal of 6.6 percent growth in the arrival of international tourists and approximately 1.8 percent increase in vacationing by local tourists, as outlined in the National Tourism Development Plan.

Among the key measures tourism officials have taken to deal with a possible recession are increasing the country’s tourism promotion budget to $14 million; rehiring an advertising agency in the United States to market Costa Rica as a destination; seeking alternative markets, particularly in Europe; and betting more on local tourism — through programs such as “Rediscover your Country at a Very Small Price,”

The Holy Grail- An investment bond rating

This one short article says it all. This is what the economic reforms that have been implemented over the last few years have been about. Social Security reforms, new taxes on goods and services, immigration, property taxes along with many other reforms can all be attributed to the need to get the bond rating up. Why does the country need the investment grade bond ratings? So it can borrow more money at more favorable rates. As my friend David Saied points out in the article below, it will bring additional investment into the country, but I believe all of these reforms been orchestrated for the purpose of being able to borrow money to expand the canal.

La Prensa
Excerpt:

Due to its growing economy, Panama is moving closer to receiving an “investment grade” bond rating . This level would allow the country to receive better interest rates on its outstanding debts.

“If Panama were able to achieve a rating of investment grade, that would bring many new investors to the country,” said David Saied, former director of public policy with the Ministerio de Economía y Finanzas (MEF).