Panama Investor Blog

Tourism down 30% in Costa Rica

This article speaks to both the construction and tourism industry in Costa Rica. They have been hit much harder than originally thought and they will soon head into low season.

Excerpts from Canada.com:

Once-bustling construction sites on Costa Rica's Pacific coast are lying silent as a real-estate boom fuelled by tourists and U. S. expatriates slumps due to the global financial crisis.

At a dozen building sites around the picturesque Tamarindo resort town, where workers once crawled up and down hulking concrete structures, now only security guards stand vigil in the midday tropical sun.

Now the beach, normally crowded at this time of year, Costa Rica's busiest tourist season, is half-empty as cash-strapped travellers opt to stay at home.

Tourism is Costa Rica's No. 1 source of foreign-exchange earnings, so any dip can have a major economic impact on the country, also known for its eco-lodges in tropical jungles.

"We didn't expect this to happen, no one saw the crisis coming," said developer Guillermo Cubas, whose six-unit Brisas del Monte condominium stands idle.

U.N. panel says world should ditch dollar

This news from Reuters could certainly force Panama to rethink its currency link to the dollar.

Excerpts:

LUXEMBOURG (Reuters) - A U.N. panel will next week recommend that the world ditch the dollar as its reserve currency in favor of a shared basket of currencies, a member of the panel said on Wednesday, adding to pressure on the dollar.

Persaud, chairman of consultants Intelligence Capital and a former currency chief at JPMorgan, said the recommendation would be one of a number delivered to the United Nations on March 25 by the U.N. Commission of Experts on International Financial Reform.

"It is a good moment to move to a shared reserve currency," he said.

Central banks hold their reserves in a variety of currencies and gold, but the dollar has dominated as the most convincing store of value -- though its rate has wavered in recent years as the United States ran up huge twin budget and external deficits.

Read the rest of the story here...

Bank loans fall by 3 percent

According to bankers, the drop in loans has more to do with credit tightening by the banks rather than demand. According to these numbers in La Prensa, even though over loans are down only 3% certain sectors are down by between 20-30%.

La Prensa

Banks issued $1.4 billion in new loans in January, a decrease of 3 percent or $40 million over the same period in 2008.

There was also a decrease in bank deposits, which fell $74 million compared to December. Loans to farmers experienced the largest decrease, falling by about 50 percent. There was also a 26.5 percent decrease in loans to livestock producers.

Industrial loans and construction loans were also down by 31.3 percent and 21.3 percent respectively, while personal loans fell by 10.6 percent.

The general manager of Banco de Bogotá, Fabio Riaño, said that the drop is due to “the prudent behavior of banks.”

Gold for bread

Those who have followed the horrible situation over the last 10 years in Zimbabwe, formerly Southern Rhodesia, sympathize with those poor people who's leader Robert Mugabe has lead them down the road to hyperinflation and starvation. The once great country of Southern Rhodesia was hijacked by Mugabe and the most fertile lands owned and managed by white settlers were taken and divided up among those thugs who helped Mugabe into power. Now, the most prosperous and educated people of Africa are reduced to grubbing in the dirt for flakes of gold just to buy bread. Another example of forced redistribution, hyperinflation and in the end the only thing left standing is gold. And you can't eat it.

Check out this video

Panama bond sales off to rocky start

This week Panama took advantage of some credit easing and offered bonds which according to those in the industry was good for investors, but not for Panama. Surprisingly, the original amount of the offering was to be $120 million but was expanded to over $320 million. This debt is to carry its budget for 2009. At the end of the story they say Panama was sounding out the industry on a new 10 year bond indicating they will need more.

From Latin Finance
Panama left a large pile of cash on the table during a Wednesday bond reopening that was crippled by a surprise move from the US Fed, say investors and bankers. Just how much the Central American issuer could have saved by waiting is unclear, but the market was generally scathing of the reopening of a 7.25% coupon 2015 issue for $323m. “They gave away a lot of money,” says a banker not on the transaction. “It was good for investors. The issuer could have captured additional value,” says another. Coasting on a recent EM rally, the sovereign went out at 101 area guidance. This equated to a reopening premium of 35bp-50bp, based on pre-announcement trading bid levels of 102.5-103.5, according to investors. However, stating a price – rather than a yield/spread as in Panama’s June’s tap of the same issue – caused problems when US Treasuries snapped tighter after the Fed’s surprise announcement of a plan to purchase $300bn in T-bills. A dedicated EM investor who participated estimates UST tightening added 40bp-50bp to the reopening premium. Bankers on the deal counter that EM assets widened Wednesday, reducing the effect of treasury compression. Nonetheless, the 5 and 10-year UST contracted 40bp-50bp on the day, while the Panama 2015 was last heard at 102. And with the FOMC meeting clearly telegraphed, the sovereign might have been better off waiting. By contrast, Israel was hoping to bring a 10-year bond this week, but opted to suspend pricing and resume today. The tap marks the BB+ issuer’s third reopening of the 2015 since launch in 2004, according to Dealogic, and the total size now stands at nearly $1.5bn. The offer was more than twice oversubscribed, according to bookrunners, including orders from 50 accounts, roughly 75% in the US and 25% in Europe. Proceeds are aimed at financing the budget and restructuring debt. Morgan Stanley and UBS were the leads. Panama was also heard sounding out investors for a new 10-year, says an investor. The issuer did not return calls.

Panama wants off OECD black list

With all of the economic turmoil going on, the OECD continues its efforts to eliminate tax havens. There has been a lot of pressure on the Swiss who appear to be caving in to some degree. With the upcoming meeting of the G-20 on April 2nd, Panama wants to be seen in a better light by the powers who control the loans Panama badly needs for a canal expansion. Looks like Panama will eliminate bearer shares and probably be more open to tax examiners from foreign lands. The debtor becomes a slave to the money masters. Looks like a complete cave in to me.

La Prensa

Minister of Trade and Industry Gisela Álvarez de Porras met yesterday with leaders of business associations and government representatives seeking a consensus about how Panama will assume the commitments it made to the Organization for Economic Cooperation and Development (OECD.)

The country is trying to avoid being put on the OECD's blacklist of tax havens, a designation that could severely restrict its financial industry.

The Ministry of Trade and Industry reported that there is consensus that the country must do something before the G-20 economic summit that is scheduled for April 2, but a course of action has not yet been decided on.

Unofficially it was learned that the parties are evaluating a number of options, one of which is the possibility of making changes in the use of bearer shares. Other options include changing the country's banking secrecy regulations and allowing the exchange of tax information. “We are evaluating the impact that each of these things could have on the economic model of Panama,” a government source said. “We want to make the decision that best suits the country.”

Among the attendees of yesterday's meeting were Domingo Latorraca, who was vice minister of Economy during the Moscoso administration, Juan Ramón Varela, president of the Chamber of Commerce, and Otto Wolfshoong, of the Panama Banking Association.

“The important thing is to defend and maintain our territorial tax system,” said Adolfo Linares, vice president of the Chamber of Commerce.

The moves made by Switzerland in the field of banking and adjustments made in 2007 by the British Virgin Islands in respect to bearer shares are being considered as good models to follow.

 

The Big Takeover

Several readers have sent me this great article from the Rolling Stone about our current financial situation. It clearly lays out the situation that I believe most will understand. Our leaders have allowed us to be put into such a terrible situation by only a few very greedy individuals playing off the greed of us all. Now, the very same people who got us into this mess are put in charge of getting us out of it and that to me is the definition of insanity. We are in deep shit.

Read it and weep.

Excerpt from Rolling Stone; These people were never about anything except turning money into money, in order to get more money; valueswise they're on par with crack addicts, or obsessive sexual deviants who burgle homes to steal panties. Yet these are the people in whose hands our entire political future now rests.

Panama stimulus package 5 times that of the U.S.

An article in the Statesman has a fairly balanced view of the situation in Panama. I think it is an interesting analogy to compare the canal expansion as  a stimulus package equal to 25% of the Panama GDP as opposed to the U.S. package of 5%. With this kind of debt being burdened on a small country like Panama I really don't believe this is a good thing. Spending when your deep in debt and the economy is sinking seems contrary to logic. But when it comes to government spending, there is always little logic. I guess one thing will be settled in the long run. If Panama continues with the expansion, and booms, and is able to pay off the debt then spending your way to prosperity will be proven.

Excerpts: Percentage wise, the canal expansion dwarfs any stimulus project the United States is planning. The project represents nearly a quarter of Panama's $23 billion gross domestic product. By comparison, the $787 billion stimulus package in the U.S. represents about 5 percent of America's $14 trillion gross domestic product.

Read the whole story here...

Merida funding in Panama begins

Although a rather small sum compared to numbers we usually hear thrown about by the U.S. government, the $2 million initial funding for the Merida initiative has begun in Panama.

From the State Department
Bureau of Public Affairs

Office of the Spokesman

Washington, DC

March 13, 2009

U.S. Ambassador to Panama Barbara Stephenson and Panamanian Minister of the Presidency Rafael Mezquita today signed the first letter of agreement implementing the Merida Initiative, a multi-year regional effort to combat organized crime, gangs and the trafficking of narcotics and firearms. Today's signing provides an initial $2,011,000 in FY2008 funding for the first year of the Merida Initiative.
Under this agreement, the Panamanian Government will participate in the following four projects fully funded by the U.S. Government: Central American Fingerprint Exchange, $300,000; Central American Vetted and Sensitive Investigative Units (SIU), $1,000,000; Improved policing and police equipment, $613,000; and improved prison management, $100,000. A second letter of agreement to be signed in the future will cover projects including the targeting of at risk youth and anti-gang programs, community policing, and demand reduction.

Representatives of the Government of the United States and the Government of Panama will meet quarterly to review qualitative and quantitative progress towards achievement of the project goals and objectives. These evaluations are in addition to the ongoing monitoring of the programs and activities conducted by each government.

How do Property Taxes and Insurance affect your standard of living?

This article caught my eye because it quotes my blog from several years ago about the advantages of low property taxes and insurance in Panama. These advantages still hold true today.

excerpts from Local RE:

In Panama I have had people see home prices as an 'incredable bargain' or 'too pricey' based on where they are from. Some have even said, "I can buy a place in Florida for that!" Well, yes maybe you can but have you considered the true cost of ownership and how that affects your lifestyle?

In his Blog, developer Sam Taliaferro writes, "This weekend I had a visitor from Florida who shared with me that his insurance on his home in Boca Raton is over $7000 a year. On top of that the taxes have been increasing each year to where it is over $8000 for an under 2000 square foot home. When you compare Panama (And Valle Escondido specifically) where the insurance on a 2500 square foot home is about $450 and the property taxes are zero for the next 20 years, you can see why Panama has become so popular. You can actually live very comfortably here in a master planned community with great amenities just on the $1200 a month you save on these two expenses." (Sam Taliferro is an American expat many consider the pioneer who put Panama on the map with his first class development, Valle Escondido in the mountain town of Boquete.)

What would an extra $1,200 a month mean to your standard of lving?

Cheap Quality Health Care, Low, Low Insurance Rates, NO Property Taxes on new construction PLUS Fresh Produce, Groceries; Entertainment and Dining Out at about Half the cost of comparable American fare and you can see why Panama has become the number one retirement spot for the baby boomers!