Panama Investor Blog

Arab gold backed currency?

Looks like the Arabs are getting ready to dump the dollar for their own gold backed currency.

Excerpt from The market Oracle; That I have not heard about the Khaleeji until about a week go is surprising to me for two reasons. Firstly, the common currency for the GCC has apparently been mulled since at least 2002 by the IMF giving more than enough time for the word to spread. Secondly - and here is when it becomes interesting: speculation is about for the GCC currency to be backed by gold . And why shouldn't it ? Not only has the introduction of a then still called ‘ Islamic Gold Dinar ‘ as a global currecny been suggested since early 2001 . No, in addition a group of Saudi businessmen has purchased gold to the tune of $3.5 Billion in an off market transaction in November 2008. Add to that impressions of the world renowned Dubai Gold Souk and I would be very surprised if gold does not at least become a major component in the basket of goods lending punch to the new currency.

Read the rest of this story here

Car sales down nearly 30% for January

This is a sure sign of a slowing economy and restricted lending in the city. According to the article, car sales in Chiriqui increased over last year. I guess it pays to have an agricultural based economy. If this is the average number of cars sold each month, the limited number of roads are seeing about 35,000 new cars a year. No wonder the city is such a traffic mess.

Excerpts from La Prensa:

In January, car dealers sold 3,044 new vehicles across the country, a 28 percent decrease from the amount they sold in January 2008.

According to the Automobile Dealers' Association of Panama, among the 10 brands that lead the local market, only Hyundai and Ford reported a growth in sales, with their numbers rising by 4 percent and 18 percent respectively. The remaining eight brands reported a decrease.

It is the fourth consecutive month in which car sales fell as compared to the same period the previous year. The decrease is also more than analysts had predicted. Chiriquí and Coclé were the only provinces where sales rose. In Panama, sales declined by 31 percent, while the drop was 37 percent in Colón.

Although Nissan saw its overall figures drop, those losses were mitigated by a 51 percent increase in sales to the government. At the same time, Toyota saw its sales to the government fall by 14 percent.

Gold climbs a wall of worry

Gold continues to be seen as a safe haven in these troubling times. Today's signing of stimulus package by President Obama does not appear to be bringing a lot of confidence to investors. For the first time in a very long time we are seeing the gold market move the opposite direction as the stock market.

Excerpts from Bloomberg: Feb. 17  -- Gold climbed to the highest level in seven months on demand from investors to protect the value of their assets as stocks slump and the global recession deepens.

Gold has jumped 40 percent in almost four months as investor confidence in financial assets erodes and central banks spend trillions of dollars to prop up banks. The U.S. Treasury will likely borrow a record $2.5 trillion this fiscal year ending Sept. 30, according to Goldman Sachs Group Inc. Asian stocks slumped the most in three weeks today.

"There's a lot of money flowing into gold as the stock market continues to decline," said Ellison Chu, manager of precious metals at Standard Bank Asia Ltd., from Hong Kong.

Investors are increasing holdings of gold in exchange- traded funds, depository accounts and coins and bars. The value of gold held by investors at the Perth Mint in Western Australia has doubled to “comfortably over $2 billion” in the past year, with 80 percent from overseas, Nigel Moffatt, treasurer and manager of the mint, said last week.

Read the rest of the story here.

Property Rights, Rule of Law & Sound Money = Panama Prosperity

These three basic principals are the foundation of a countries prosperity. How does Panama rate in these areas? I used to believe that Panama had strong property rights and on the surface it appears to be the case. Panamanians are quick to point out their on-line  public registry and their corporation structures that help protect the owner by providing anonymity.

But when you look at the weak rule of law in Panama, you discover that it is this area where the rights of the property holder are most vulnerable. I have my own experience with corrupt judges and hear from readers regularly about the courts being paid to rule in favor of whoever pays the most for the decision. This corruption of the courts undermine any possibility of a solid right to ones property with equal protection under the law.

And how about sound money? Well, Panama uses the U.S. dollar as its currency which up until recently I would say was a strong foundation. Because they don't print their own money, they do not create inflation and maintained one of the lowest inflation levels of any country in the world. But, as I pointed out in a post earlier this week, the U.S. is printing money like never before and the buying power is decreasing proportionally. The cost of everything has and will continue to go up for Panama because of their dependency on the U.S. dollar.

So what can Panama do to clean up its act and become one of the top countries in the world for strong sustainable growth? First and foremost is to end corruption in the courts by implementing severe penalties for those who make and take bribes. In Roman times a judge caught taking a bribe would be cast of a high cliff along with the one paying the bribe. During that time in Roman history, corruption was nearly non-existent. Panama leadership must do much more than just talk about ending corruption. President Martin Torrijos made it central to his campaign 5 years ago because it ranked high on the list of complaints by the general population. Unfortunately, nothing came of it.

 The new leadership must get serious about corruption and put such fear into the legislature and judicial system that they dare not participate in any form. If Panama's new leadership makes headway in the areas of property rights, rule of law and sound money, Panama could rise to become the best country in the world to invest or to live.

Be sure to view this great video about these foundations.

Banks see more than 50% increase in bad consumer loans

As the economy slows down in Panama the banks begin to see the effects of too much lending. As this article in La Prensa points out, loan defaults are on the rise and the banks are being advised to tighten credit and get their balance sheets in order. This may be much higher than reported because the last statistical data comes from December. Extrapolating the data from September to December of a .7% increase we could be seeing well over 5% today.

Excerpt: According to statistics, delinquent and past-due loans accounted for 2.4 percent of the total loan portfolio held by Panama's banks in June 2008. In September, that figure rose to 2.7 percent, and in December, it increased again, to 3.4 percent.

Read the article here.

Panama video in New York

This is an excellent promotion done by our Minister of Tourism, Ruben Blades, for a New York TV program. I wish Mr. Blades had been doing more of this type of promotion for the country over the past 4 years rather than trying to administrate. He would have been much more effective and admired both inside and outside of the country, and I am sure he would have had a lot less frustrations. Thanks to Ellen in New York for sending me this tip.

http://link.brightcove.com/services/link/bcpid1785302606/bctid12400667001

Coming soon to Panama- Scam petition

A post on the International Herald Tribune Blog by Kevin Brass is about British expats demanding their government help them with the abuses they experienced in Spain. The number of emails I receive from property buyers asking for help with Panama developers makes me think that buyers in Panama may need to take a similar approach. What other options are left for those who feel they have been shafted? Forget the courts in Panama as they are expensive, take years to get through and the judges can easily be bought by developers. Although there are organizations set up to deal with consumer issues, they have little power and no real experience dealing with the tsunami of complaints Panama will soon be dealing with. When should we start the petition?

Excerpts:

In addition to asking the Prime Minister to “voice his disdain” for abuses, the petition calls on him to support European Union sanctions on Spain “until these abuses are stopped and justice is delivered.” It also requests an investigation of British real estate agents who have “continued to sell illegal properties in Spain.”

“Many of us feel like powerless hostages, while criminal actions are being legalized,” said Suzanne Wyatt, who is organizing the petition drive.

So far, about 550 people have signed the petition, representing €13.2 million ($17 million) in deposits for properties declared illegal, she says. Twenty-four percent have closed deals on illegal properties, which cannot be resold and face possible demolition.

“The figures quoted are just the very tip of the iceberg,” Wyatt said.

Read the whole story here

Ships begin to bypass the canal

As fuel prices decrease and canal tolls increase shipping companies naturally begin to look carefully at the high cost of transiting the canal. One shipping company has concluded it is cheaper to take the long way back rather than pay the $300,000 to take the shortcut. As the worlds economy continues to deteriorate, the speed at which products get to market is not nearly as important as it used to be. You can be sure more shipping companies will be taking the long way to market over the coming years.

It is clear from the statements put out by the ACP that they believe because they gave out the notice of toll increases two years ago, the industry had time to prepare and should be OK with it. Of course the industry is operating in the real world with a collapsing economy and low fuel prices. It is also clear that the canal authority will maintain the line that this economic downturn is just a bump in the road and things will be back on track within a few years. This line of thought would not be so flawed if it wern't for the fact that the canal expansion project depended heavily on increasing canal transits and toll increasing EVERY SINGLE YEAR to pay for the more than $5.25 billion dollar project. This is a perfect example of what happens when the real world economy meets fantasy and hopeful wishes. Somthing is going to give and I bet in the end it will be fantaseyland.

Excerpts from Journal of commerce online: The Panama Canal Authority is sticking to its scheduled May 1 toll increase in the face of plans by some of the world's largest container lines to route their vessels the long way around the Central American Isthmus.

"We have scheduled the toll increases that were agreed upon after a long period of consultation with the industry in 2006," Rodolfo Sabonge, the canal authority's director of corporate planning and marketing, said in an interview. "We make sure that everybody knows long ahead of time what we're doing. That has a lot of stability for the shipping industry and the shippers themselves."

"Our calculations do indicate that it might very well be beneficial to go south of the Horn with some of our vessels," Morten Englestoft, chief operating officer of Maersk Line in Copenhagen, said in a telephone interview earlier this month. "Given the significant cost of going through the (Panama) canal, we have to explore all the alternatives."

Excerpts from SeaTrade Asia:

Avoiding the Suez Canal by sailing round the Cape of Good Hope has become a common tactic to save transit fees and absorb excess tonnage in the current cargo slowdown but now CMA CGM has decided to bypass the Panama Canal on the homebound leg of its PEX2 service linking Asia to the Caribbean and sail east around Africa.

The PEX 2 service currently employs nine vessels of 4,000teu - eight from CMA CGM and one from China Shipping. The French carrier will add an extra vessel when the homebound leg changes direction this week, but will still achieve considerable savings given the approximate $350,000 cost of a Panama Canal transit for a vessel this size. 

Construction companies liable for collateral damage

Based on an article in today's La Prensa, the public may be protected from damages inflicted by construction companies. A number of private residences have been damaged by falling debris in the last few years.  With no laws to protect them they had little or no recourse except to file a law suite. In Panama, that is expensive and takes years. With the high probability of corruption you would probably lose the case in the end. Here is a move in the right direction.

Excerpt: Construction companies that disrupt residences or businesses may face fines of between $10,000 and $500,000, and will have to compensate those entities for any damage that they cause.

Lisandro Arias, the director of the Metropolitan Environmental Authority, said the new regulations will be one of the most important sections of the rules of environmental quality that will be submitted to the Executive Cabinet for approval this week.

According to Arias, the current laws do not provide any protection for third parties that experience damage caused by companies working on projects.

“These rules are expected to make the companies implement safety measures to protect the environment and the people around their projects,” Arias said.

The document was drafted by Integrated Technical Services, an engineering firm specializing in occupational health and safety issues. It was developed with input from various groups, including the National Council of Private Enterprises and the Panamanian Chamber of Construction.

The government has received numerous complaints from people living near construction sites, especially in Panama City. In San Francisco, for example, several residents have complained about damage from falling debris from high rises being constructed in the area.

Panama may move to a Flat Tax

One of the reforms that Ricardo Martinelli plans to implement when he takes office is a flat tax.  Foreign investment would be greatly attracted to a simple and straight forward tax scheme.

Excepts form La Prensa; Sources for the newly forged opposition party indicate tax reforms will be more than just Martinelli’s “cosmetic” promises to do away with the controversial CAIR tax on business revenues, increase the number of allowable deductions and grant a $600 tax credit per child for private school tuition. They are considering a flat tax.

The flat tax, a system that replaces graduated rates with a single percentage, has already been implemented in a number of European countries such as Ireland, Estonia and Russia with the idea of encouraging investment and creating jobs.

Financier for the Alianza Frank De Lima said that the party plan to gradually lower the income tax rate from 30 percent to 15 percent or even 10 percent, and likewise reduce the exemptions enjoyed by sectors that also enjoy tax incentives, such as the country’s banking industry.

The flat tax proposal has already received the backing of several trade associations and consulting firms in the private sector, including Panamanian Association of Business Executives and Goethals Consulting. Not surprisingly, one of the idea’s few detractors is ruling party presidential candidate Balbina Herrera, whose financial team criticized the end of progressive taxation for giving big business an unfair discount.

Read the complete article here

For more information on the Flat Tax clieck here