Panama Investor Blog

Canal toll increase plan in jeopardy

Although the headline for this story in the Taiwan News is on the positive note "Panama Canal gets loan for expansion", the sources quoted in the industry have viable concerns about the ability of the canal to raise tolls or get more financing. Seems I am not the only one who wonders how this project will get funded.

Excerpt: Relying on fees is a "matter of necessity" that may be a problem as transportation and oil costs drop, making it cheaper to use longer routes, Martin Stopford, London-based executive director at Clarkson Plc, the world's biggest ship broker, said in an interview. "There's nothing else they can do. No one has any money to loan."

Merry Christmas to all, and a happy new year

Well dear readers, I am off for a holiday in fantasy land, AKA Disney World. It is appropriate that we spend our Christmas this year in a world where dreams come true and every story has a happy ending. Checking the hotel occupancy rates show we can expect a lot of company. People are still spending on family entertainment, but I bet the spending at the Disney shops at the end of each ride will be down significantly. I will have an opportunity to spend some fun time with my three sons, two daughters and a brother I have not seen in a few years.

2009 promises to be an interesting year as the Chinese like to say. The challenges that lay ahead for us are unprecedented, but not beyond our abilities to endure and maybe even prosper. Although I am pessimistic about the worlds economic future, I am very optimistic about the ability of the individual to to overcome adversity. Most of the adversities we must deal with have to do with the actions or inaction of government. That is the cause for most of the booms and busts that continue to plague us throughout history. With that in mind I leave you with a few of my favorite quotes. Feel free to add your own. Merry Christmas!

Remember, democracy never lasts long. It soon wastes, exhausts, and murders itself. There never was a democracy yet that did not commit suicide. – John Adams (1814)

They that can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety. – Benjamin Franklin

Democracy must be something more than two wolves and a sheep voting on what to have for dinner. – James Bovard (1994)

The natural progress of things is for liberty to yield and government to gain ground. – Thomas Jefferson

None are more hopelessly enslaved than those who falsely believe they are free. – Goethe

When the government's boot is on your throat, whether it is a left boot or a right boot is of no consequence. – Gary Lloyd

The urge to save humanity is almost always a false front for the urge to rule. – H.L. Mencken

All that is necessary for the triumph of evil is that good men do nothing.' Edmund Burke

[On ancient Athens]: In the end, more than freedom, they wanted security. They wanted a comfortable life, and they lost it all – security, comfort, and freedom. When the Athenians finally wanted not to give to society but for society to give to them, when the freedom they wished for most was freedom from responsibility, then Athens ceased to be free and was never free again. – Edward Gibbon

A nation of sheep will beget a government of wolves. – Edward R. Murrow

Can our form of government, our system of justice, survive if one can be denied a freedom because he might abuse it? – Harlon Carter

It is dangerous to be right when the government is wrong. – Voltaire

A little government and a little luck are necessary in life, but only a fool trusts either of them. – P. J. O'Rourke

The most fundamental purpose of government is defense, not empire. – Joseph Sobran (1995)

The best government is the one that charges you the least blackmail for leaving you alone. – Thomas Rudmose-Brown (1996)

If you think health care is expensive now, wait until you see what it costs when it's free. – P.J. O'Rourke (1993)

Panama's trade deficit near $1000 per person

According to an article in La Prensa, Panama's trade deficit is standing at over $3.3 billion and growing. Wow, that' about $1000 for every man women and child in the country which is surprising given the amount of foreign investment in the country.   As the headline states, the government  hopes that foreign investment will balance out the deficit in the future, but as I point out in a post about foreign investors treatment by the courts, balancing the trade deficit may get even more difficult to achieve. You can't expect foreign investors to pile in when the ones who are already here are crying foul.

Excerpt: Foreign investment may bail out rising deficit

The consulting firm Indesa estimated that the Panamanian trade deficit will close this year with an amount equivalent to 5.5 percent of the gross domestic product (GDP), much higher than in 2007 (1.9 percent). Indesa further predicts that decreasing exports and stringent import requirements will send the trade deficit soaring well above 10 percent of the GDP over the next three years.

Read the whole story here

Are foreign developers treated equally in Panama?

The ministry of environment is again under fire for alleged damage to the mangroves during the construction of a golf course at the new Santa Maria residential project between the airport and Costa Del Este. What I find surprising about this is, who would trust an approval by the ministry after the Red Frog debacle? After all, Red Frog too had the ministry approval for their project, but were shut down by  a ruling of the Supreme court after millions were invested by the developer and home buyers.

But this time it will end differently. I doubt seriously if this project will be delayed because the investors/promoters behind it are some of the most powerful men in the country and they are Panamanian. That means they know the "right people" and will be able to work their way around the problem.

So, are foreign developers at a disadvantage? Absolutely! I have experienced this first hand and hear about the tales of woe from foreign developers trying to invest here regularly. It is not that the local developers hinder foreign developers, but their local knowledge and contacts help them avoid the legal problems that plague the foreigner who wrongly believes he will be treated equally under the law. I bring this up  in the hope that Panamanians will begin to realize that treating investors differently under the law will cost them dearly in the end. Foreign investors don't invest where the playing field is not equal for all players. Panama developers will do well as long as foreign investors are doing well too. In the end, without foreign investment, Panama will go back to what it was doing before the development boom, which was not selling real estate.

Excerpts from La Prensa;

The (environmental) groups say that the ministry violated its own directive when it approved the zoning for the proposed Santa Maria Golf & Country Club. The project calls for the removal of 18.5 hectares of mangroves to make way for the golf course.

In 1980, the ministry identified the area as an “ecological reserve.” Twenty years later, an executive decree stipulated that the mangroves in Juan Díaz “should be preserved.”

The ministry apparently had a change of heart in January 2007, when it zoned the area to allow the construction of residences, the golf course and commercial buildings.

The project’s environmental impact assessment (EIA) was approved by ANAM in February 2008.

Exporters on edge as trade act lapses

Panama has already lost the trade benefits with Europe by a simple governmental oversight  that will cost the agricultural exporters millions. Now an important trade agreement with the U.S is in the spot light again. Not the one that was derailed by the election of Pedro Miguel Gonzalas as head of the Panamanian assembly, but the existing trade pact called the Caribbean Basin Trade . These first two were symptoms of political ineptitude, but this trade agreement is beyond the control of Panama politicians, and may therefore have a Chance of renewal. As the article points out, the trade agreement is set to expire in January and needs the approval of the new U.S. administration. With another $400 million at stake for Panama agricultural exporters, we certainly hope that this one is seen positively by the new U.S. President.

La Prensa excerpt:

The tariff preferences offered to some 24 countries by the U.S.’ Caribbean Basin Trade Security Act since 1984 will expire on Jan. 31, 2009, putting into jeopardy the export of around $26 billion in agricultural products and manufactured goods, according to a report by the Office of U.S. Trade Representative.

For Panama, those trade incentives have come to represent nearly 40 percent of the country’s total exports, or about $400 million annually, according to U.S. government statistics.

Read the whole story

AN AMERICAN TRAGEDY

This is a must read, even if you are not an American. Many of the sobering statements in this article we have heard before, but they take on an even graver meaning when we make an honest appraisal of the downward spiral our country is in today.

Excerpt from James Quinn: “If you tell a lie big enough and keep repeating it, people will eventually come to believe it. The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State.” (Joseph Goebbels)

"A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship."

The average age of the world’s greatest civilizations from the beginning of history, has been about 200 years. During those 200 years, these nations always progressed through the following sequence:

• From bondage to spiritual faith;
• From spiritual faith to great courage;
• From courage to liberty;
• From liberty to abundance;
• From abundance to complacency;
• From complacency to apathy;
• From apathy to dependence;
• From dependence back into bondage

These words were written two years before George Washington became our first President. There is so much truth in these words it makes me shudder, especially since we are clearly in stage 7. An honest appraisal of our country’s downward spiral is necessary to begin the process of redemption. We have continually voted ourselves increased benefits, dependent upon the printing presses of the Federal Reserve to sustain our country’s ponzi scheme. We have pawned our future and the bill will eventually come due.

Read the rest of this important assessment here.

Panama calls for UN General Assembly session on financial crisis

I am a bit confused. Recent articles have the Panamanian president stating that things are fine and Panama will dodge the economic turmoil engulfing much of the world. Yet here is a report from China's People Daily that seems to contradict this exuberant position. Maybe he is just concerned about neighboring countries economies that might spill over into Panama.

Panamanian President Martin Torrijos on Wednesday called for the holding of an UN General Assembly session to discuss the global economic crisis.

During the final session of the Latin American Summit on integration and development here, Torrijos said the global crisis demands the region have better coordination mechanisms to face its negative effects.

The president also requested more transparency in the international markets and called for more infrastructure projects on the continent.

He also urged that joint efforts to aid each economy in the region be continued, while saluting Cuba's inclusion in the Rio Group.

Within the framework of the Latin American Summit, Panama, Mexico, Guatemala and Colombia agreed to hold a Presidential Summit on security to fight drug trafficking and organized crime in Panama City in January.

The security of these countries has been seriously affected by growing drug trafficking, Torrijos said.

Good news for Panama wage earners

La Prensa

Beginning Jan. 1, some 110,000 taxpayers earning between $801 and $2,390 each month will pay less income tax as the second phase of the government’s Consumer Support Program goes into effect.

According to an analysis by Goethals Consulting, someone with an annual income of $10,000 will see their income tax fall by about 86 percent next year; those earning $15,000 will pay 25 less; and incomes between $20,000 and $30,000 will enjoy reductions between 8 percent and 1 percent. That means that some people could keep up to $51.5 more each month, whereas those toward the higher end of the tax bracket will have to settle for a couple of dollars.

As a result of those reductions, the Treasury will lose about $35 million for that tax group next year.

Raul Molina, a member of the Freedom Foundation, commented that the tax relief provided in the Act 29 of 2008 is “minimal” and should be revised to achieve even greater impact in favor of people within that tax bracket.

“It’s a very small discount for people and does not solve any problems of substance in the midst of this global economic downturn,” said Molina. “What we should have is a general tax cut, one that includes businesses.”

Economist Frank De Lima commiserated with the plight of the middle class professional, who he claims “is being made to carry the bulk of the income tax burden” and will not receive much benefit from the tax cut.

President of the College of Economists, Raul Moreira, however, described the measure as “very positive” and feels that it will serve to help improve the income level of a “good number” of the country’s workers.

Tourism Industry unaffected by downturn?

That is the headline from La Prensa today and when you look at the overall numbers it appears to be correct. But of course one has to look more carefully at the numbers to determine what is really going on.

We tourism operators in the interior of the country would question how tourism can be up and yet all of our businesses are down?  You would think that we would all be experiencing higher occupancy rates, but just the opposite is true. Of course the recent flooding in the area has had a dramatic affect on Boquete business to the downside, but I am getting reports from other areas of the country that they are NOT experiencing any increase in tourism either and they have seen a significant drop in visitors from North America.

I don't doubt the numbers, but I doubt the use of the word tourist should apply to these many visitors. It is to the benefit of politicians to attribute the increase to their efforts so calling everyone tourists makes things appear as though those efforts are working. For example,  the 99,000 "tourists" who entered through Paso Canoa on the border with Costa Rica are mostly Costa Ricans coming to do shopping in David or heading to the city or free zone. Very few "tourists" enter through this point because most tourist travel by air and not by bus between Costa Rica and Panama.
As I have stated before, most of the people who come through Tocumen airport are here for business purposes or to visit family in the country and not here to go site seeing and vacationing as the ATP would have you believe.

It is very important to understand the differences between visitors and tourists in Panama because it helps to determine the type of marketing Panama should be doing and it helps investors make decisions on where and what kind of of tourism projects to develop.

Excerpts La Prensa:

The number of tourists who visited Panama from January to October 2008 amounted to 1.23 million, showing an increase of 153,000 or 14.2 percent compared to the same period last year, according to the national tourism authority.

In October alone, 25,000 more tourists entered Panama compared to the same month last year, representing a growth of 25.4 percent. Especially noteworthy was the figure of tourists entering by sea, which, coinciding with the October launching of the new cruise season, increased 83.5 percent in comparison to October 2007. This, despite an accumulated decrease by 12.2 percent in tourist arrivals by sea for the year.

Meanwhile, the transit of tourists by land through Paso Canoa, on the country’s border with Costa Rica, saw a rise of 13.9 percent, exceeding 99,000 visitors between January and October.

The main route of entry, nonetheless, continues to be the Tocumen airport, which welcomed 926,000 visitors, or 75 percent of the total number of tourists, during the first 10 months of the year.

This data seems to suggest that Panamanian tourism is not being affected by the global economic crisis, at least not at the moment. In fact, between August and October, when the financial crisis heightened, the arrival of tourists to Panama was 342,562, 19.7 percent higher than the same period last year.

On Thursday, Panama received its 1.5 millionth tourist for 2008. Tourism Deputy Director Carl-Fredrik Nordström predicts the arrival of another 100,000 tourists by December’s end.

Trouble for Trump Ocean Club

As the article points out, the project will get built and those at the most risk are the bond holders. But that having been said, it is obvious that pricing pressure are mounting especially with the problems in the overall condo market in the city. As prices go down there will be a lot of incentive for early buyers to walk away from paying the balance in two years, unless of course you believe that everything will be back to normal by then. Not long ago the name Trump meant a pretty sure thing but how things have changed. This is a very telling tale of woe for Panama.

CHICAGO, Dec 17, 2008 (BUSINESS WIRE) -- Fitch Ratings has downgraded the rating on Newland International Properties, Corp.'s $220 million senior secured notes to 'B+' from 'BB'. The action is a result of the significant deterioration in global real estate markets and an increase in liquidity risks associated with the timely payment of principal and interest on the notes. Newland International Properties, Corp. (Newland) is developing the Trump Ocean Club International Hotel & Tower, a multi-use tower located on the Punta Pacifica Peninsula in Panama City, Panama.

In conjunction with the repricing seen generally in all asset classes, real estate prices have fallen considerably in most global markets. Although to date, Trump Ocean Club (TOC) pricing has remained stable and some sales have continued, price declines within the Panama City submarket or at the project could lead to higher than expected default rates for existing buyers. Units are purchased at TOC utilizing a 30% down-payment scheme with the remaining 70% of the purchase-price due upon the delivery of the unit. To the extent units were purchased as investment properties or as second homes, the incentive to pay the outstanding balance of a purchase agreement could decline if global real estate values continue to be pressured. Noteworthy in this scenario, purchasers would forfeit all down payments to Newland. Price volatility could also curtail expectations of future sales.

The constraints in capital markets are expected to increase the difficulty of securing financing for real estate assets. Generally, real estate demand is affected by a lack of access to mortgage financing for prospective buyers. This risk is exacerbated by the target market of the project, which focuses on foreign buyers that do not intend to make the TOC their primary residence.

Given the downward trend in the real estate industry, a slowdown in sales at the TOC is not unexpected. Between August 2008 and October 2008 TOC experienced a significant decrease in project absorption rates. This sales pace has affected the cash position of Newland and heightened liquidity risks associated with timely payment on the notes. Liquidity on the notes is dependent on collections from future sales and on down-payment collections from previous sales to meet ongoing debt-service requirements.

Although the long-term solvency of the project appears strong (as evidenced by sales equaling approximately 80% of total available units and a construction escrow reserve sized to cover remaining build out costs), short-term liquidity stress could arise when cash on hand is not sufficient to cover timely payment of interest on the notes. Although permitted by the transaction structure, the two most recent interest payments were partially covered with draws from the Debt-Service Reserve Account. To quantify the potential liquidity risks Newland could face throughout the construction phase of this development, Fitch has analyzed the expected cash inflows and outflows of the project for the next six to twelve months.
It is important to note that all cash expected to be needed to complete construction on the TOC is held in a trustee-controlled reserve account and subject to certain transactional covenants. This construction escrow account had $157.8 million in proceeds at Oct. 31, 2008.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.