Panama Investor Blog

Why Panama must decouple from the U.S. Dollar

An article in Martes Financiero today tries to answer the questions many in Panama are asking today. Why are prices going up so much? The cost of food, fuel and every thing a family uses is escalating.

One major reason is inflation of the U.S. dollar which Panama is tied to and the other is the Panamanian governments efforts to keep workers salaries able to cover this decrease in the value of the dollar. Both cases are created by governments manipulation of the money supply either through printing presses or through enacting laws to artificially inflate income. Both of these actions just make the problem worse. As the dollar continues to devalue the cost of goods will appear to be higher. In reality it is only the value of the exchange medium that has changed. In the coming year the Panamanian government will be forced to enact another increase in wages to cover the increase in cost of goods and we will have a spiral that cannot be stopped until there is a breakdown entirely in the fiat currency.

Panama is somewhat unique in that it is tied to another sovereign's currency.  Because the Balboa is equal to the U.S. dollar it is subject to the whims of the U.S. governments currency manipulations. In times past this has been a good thing as the U.S. dollars relative strength has kept inflationary forces low. Being tied to the dollar was like being backed by gold and it kept the local politicians from printing their way into a Nigerian nightmare. But things have changed dramatically in the last year as U.S. spending is seen for what it is and many countries are divesting themselves of the dollar in favor of a stronger medium of exchange.

I remember as a boy how $20 from cutting and weeding my neighbors three acres seemed like a lot of money. It took two days, but when that paycheck came it went a very long way. A salary of $20k a year was considered very high and you could buy a VW beetle for about $2500. In other words now it takes ten times as much money to buy the same basic goods we used to buy 40 years ago. Of course our incomes have increased significantly as well, but surprisingly not nearly as fast as the increases in cost. We have technological advances, which seems to give us so much capability, but the cost of basic food, housing and transport has actually gone up in relation to incomes.

It is hard for many of us who grew up in the 1950s and 60s to pay $15 for a movie or $150 for a hotel room without thinking twice. I can remember as a kid traveling around the U.S. with my grandfather who raised me. We would stop at a Holiday Inn in some small town in Texas and they would charge $14 a night. My grandpa would say they wanted a months rent for a nights stay, because he used to pay $2 for a nights stay in a good hotel when he was growing up.

I keep telling myself that when I spend $80 to fill up my car it is really like $8. And when I pay $150 a night for a room it is really only $15 in my world view. But when I consider how I have to work to gain that $80 and $150 I realize I am right where I was growing up except now being a millionaire does not mean you are rich. I was better off just cutting my neighbors yard without the worries.

If you doubt what I am saying just look at this chart of inflation for the last 60 years.

This battle between income and costs of goods has been waged since the beginning of governments ability to inflate through coin clipping or printing.  It won't end until the we get to a point where we realize how a few can get control over the many through lending and central banking.

Panama has the ability to create its own currency backed by something of real value such a hard metals. It would make the country a magnet for investment in both its currency and its endeavors. If Panama wants to really break free of U.S. control it must break away from it's ties to its currency. But it must not fall into the trap of creating fiat because no one would have any faith in their ability to be responsible. Only a backing by gold or silver will give it the clout it would need to be successful.

I believe Panama would be wildly successful if it were to issue a gold backed Balboa. There would be no need to tax the populace to gain the ever important ratings from S&P. People and businesses would pour money into the country knowing their investment is backed by something more than a promise to pay. Yes it would take a discipline not seen before here in Panama, or anywhere else on the planet for for that matter, but it is the only way Panama can break away from the inflationary spiral they will be forced to endure on their present course.

Solution to airport security

After reading a number of stories about the new onerous air travel security measures being implemented by the U.S. and other governments after this weeks attempt to bring down a plane, I have come up with a perfect low tech solution to the security issue. Just clamp everyone down to their seats. It would not be hard to quickly retrofit aircraft seats to clamp arms and legs such that movement is limited to squirming. For the most part airline seating is so restrictive that this would not be a big change.

Everyone should come to the plane with adult diapers on in the event they just can't hold it.  You can still have TV and other entertainment on seat backs and have the channels changeable with passenger fingers. The flight attendants could charge a fee to scratch a passenger with a variably amount depending on the part of the body needing scratching and length of scratch time.

Flight attendants who feel verbally abused can just slap a complaining customer without fear of immediate  retribution. No need for air marshals and really no need for any security checks or carry-on luggage. Only need to inspect checked baggage for explosives with timers or pressure sensors. Just think, no more humiliating removal of belts and shoes at the security check points.

With the money the airlines saves they can provide free drinks which can be dispensed through a straw coming from the seat in front. Of course this may add to the necessity for extra thick adult diapers which can be dispensed at airport check in for a fee. (Buy stock now in Depend and dump x-ray and metal detectors)

The beauty of this concept is that it requires no technology development or expensive and time consuming implementation. This can be operational in a few weeks at most. Passengers will readily comply as they know it is for their own safety and getting free drinks again will be nostalgic.

It's best to not title ROP land

The much debated land law regarding coastal and islands right of possession (ROP)  land has been approved by the national assembly and will most likely be signed off by the president. As the article in today's La Prensa points out, many farmers will not be able to afford the cost of buying and titling the land so they will most likely leave things as they are. even if they hold less than 5 hectares this may be best for them as once the property is titled at these much higher values, a property tax will be required on a yearly basis. Unless you have an intention to sell the land I see no advantage at all to title it

A provision in the law is that in order to title, the applicant must have held ROP for at least 5 years which makes me question what happens to any recent purchases and transfers of ROP. Must the land revert back to the original holder, or can the new holder wait out the needed time and then apply for title. In either case it is going to cost them a lot more than they bargained for and I would imagine many will just do nothing. 

The price of coastal and island land will undoubtedly go up dramatically just at a time when the market is in the tank. If a farmer wants to sell this land in the future, he will first need  pay for it according to the newly establish values to get title. This will greatly reduce the amount he would receive from a sale as the government is now his partner in any transaction. If he wants to make a profit he will have to add to the government established price. With these new higher prices most likely very little land will be titled at all. Only low value land where no property taxes will need to be paid each year will probably get title, bringing little or nothing to the government for all its efforts in making this law.

This is really coming at a bad time in the real estate business as sales of new projects is very slow and money for development is extremely hard if not impossible to come by. Although I am sure there will be many unhappy foreigners who bought land in good faith from ROP holders, I hope this brings a close to the controversy and questions surrounding rights of possession land in Panama. The lesson here is don't trust what people tell you about transferring land they do not own and if you cannot get a title don't buy.

La Prensa: JOSÉ GONZÁLEZ PINILLA
  [email protected]

  The Assembly passed last night, third debate, the bill to reform the law on certification of islands and coasts, recognizing, in particular circumstances-possessory rights.

  The proposal, which requires the sanction of the executive to become law of the Republic, received 41 votes for and 21 against.

  The Minister of Economy and Finance, Alberto Vallarino, said the document was opposed to "big money interests who wanted to monopolize the nation wasteland for a song, but this law has been put on a high."

  The project owner may land on the nation's heritage assets, national waste lands, coasts and islands.  Who has more, shall pay to the State, as a fee.

  The proposal included a price chart divided into three zones-Pacific, Atlantic and Island-and, depending on the area, established a price range per hectare which is a thousand to 700 thousand dollars.

  This price table is valid for three years and will be updated after public consultation.

  Furthermore, if a person with a possessory right to the holder, must show that occupied the land for a continuous period of five years. Same is true for investors who have acquired land under that figure.

  The bill provides that all applications for land purchases to be made publicly accessible state.

  Opposition deputies criticized the proposal, after sustaining many farmers title to their lands shall not because of what they called "unaffordable prices.  "People with humility over 5 acres with possessory rights holder can not," said Rep. Elijah Castillo.

S However, Vallarino said that the prices provided in the table are "well below market prices.

Panama's ex-president on the run?

Since President Ricardo Martinelli has come to power, a number of past government officials have been under investigation for corruption and several are now in prison awaiting trial. I have not blogged about these matters because most new administrations accuse past politicians of being guilty of corruption for political purposes.

But the news in the paper this morning has surprised me, not because past President Ernest Balladares is on on the Lam, but because for the first time in the history of the Republic, a president is being arrested and may be prosecuted for corruption and money laundering. I heard there were road blocks in Boquete yesterday and that a search was on at his home here and that of his brother Mario in Volcancito.

I first met Toro (The Bull) my first year in Panama when he was president of the republic. We had a thanksgiving dinner in 1997 with him and his wife Dora, along with about 20-30 other locals at the Panamonte hotel in Boquete. The President has a home here in Boquete and spends a few days a month here enjoying the cool mountain air. He would frequently visit Valle Escondido during its construction and laughingly called me "Gringo Loco". He could not believe that anyone would really be interested in moving to Panama much less that a project in the middle of nowhere could attract an international buyer. I always found him to be a sober and straight talking person with a quiet yet powerful demeanor.

I held a great deal of respect for Toro, as in my opinion he had done much to bring Panama out from the shadow of Noriega's dictatorship by privatizing state run operations and opening the country up to international investment. Most people believed that in keeping with most politicians, he was enriching himself along the way, but accepted it as just part of being in power. Many Panamanians I know aspire to be in politics in order to enrich themselves beyond a public salary. It is just part of the deal. For many a five year stint in a political position may be their only chance in life to gain wealth. Working for the public good is rarely the intention when seeking political office. So if an official is doing some good and getting rich it is better than them doing bad and getting rich. This has been the gauge by which most politicians have been measured.

Now after 12 years and two administrations, Ernesto Balladares is the focus of a man hunt in regards to past deals that have recently come to light. Although I personally liked Toro, I would say that the country will greatly benefit if he is subjected to a transparent and fair trial. I hate to see someone I consider a "friend" being prosecuted, but if he is guilty of the crimes of which he is accused, he should pay a price for it. A very clear and loud message would be sent to all Panamanians that the rules of the game have drastically changed in Panama and the country will be much better for it.

The following is a machine English translation of La Prensa's articles with details and time lines of the investigation.

You can also read a English analysis of Eric Jackson on his website here.

For many ROP land just got real expensive

Although the final word won't be heard until this week, it is certain the there will be a significant cost to titling rights of possession land, especially along coastal areas. La Prensa came out with the story below which explains what the costs are expected to be and it will surly bring gnashing of teeth to many who have already paid for the land. From the governments point of view, they have always owned the land and were letting folks use it. Now they can buy it, but pay the market rate. There only advantage I see for those who bought ROP from the original holder is they are getting first right of refusal. For many that will be an expensive option.

New rules for land owner

José González Pinilla 1312866

  [email protected]

  The bill recognizes the rights of possession and regulates the degree in coastal and mainland on Wednesday approved in second reading, brings bad news to investors.

 People who hold over five hectares of land in coastal areas-under the guise of possessory right, under this law will have to pay a considerable sum of money to the government.

The congressman Jose Blandon said the proposal includes a price, and that is that the degree of the first five acres of right of possession will be free.  Those with more than five will have to pay between 3 thousand 500 dollars to 625 thousand dollars per hectare.  But that depends on the area where the lands are located.

  The price table, driven by the Direction of Cadastre of the Ministry of Economy and Finance (MEF) provides three regions. The first includes the Pacific coast, where there are developed tourism projects and hotels.  The second is the Atlantic coast and the third includes the insular region (see table).

  The opposition MPs rejected the proposal saying it that the Government intends to expropriate land. Freidi Congressman Torres said many farmers who have more than five hectares of land owner may not.

 But according to Blandon, many individuals and investors  hold hundreds of acres  for very little money.  He explained, for example, owner 10 hectares in the Pacific area by Act April 23, 2009 adopted by the PRD and repealed by this administration-would cost $ 500,000.  But with the new proposal, the investor will pay for those 10 acres 300 thousand U.S. dollars.

  The project will be approved on third reading next Monday, when the National Assembly begin a new session.

Army Honors Kurt Muse for freedom fighting in Panama

Last weeks 20th anniversary of operation just cause came and went with little fanfare by Panamanians. For many it was a painful reminder of something they would like to forget. But there are many Panamanians who risked it all to have Noriega over throne in order to restore freedom to the country. Some paid the ultimate price and others nearly so. As I hear some bemoan the U.S. for what it did that December in 1989, I  wonder where Panama would be if they had not. Would there be a democracy, freedom of the press, prosperity or would we be seeing regular photo ops of Noriega with Chavez, Ortega, Castro and the like.

I was honored last year to have Kurt Muse, a Panamanian/US citizen,  as a special mystery guest here in Valle Escondido. He shared his incredible story of capture and incarceration at the hands of Noriega and his thugs. You can read his story in his spellbinding book,  "Six minutes to freedom".

Now Kurt has received high honor from the U.S.  Army’s Freedom Team Salute Commendation for helping to overthrow Panamanian General Manuel Noriega.

Muse, an Army Veteran, operated a bandit radio station in Panama that broadcast messages of freedom to the Panamanian people. He was arrested and imprisoned for nine months.

The radio station, called Voice of Liberty, encouraged Panamanians to vote Noriega out of office. “We beseech you to vote,” one broadcast explained. “Together we can bury General Noriega’s dictatorship under a mountain of ballots.”

Twenty years ago on December 20, 1989, the U.S. Military launched Operation Just Cause, the liberation of Panama, involving the largest parachute combat jump since WWII and the largest military action following Vietnam. One of the initial actions involved freeing Muse.

Army Delta Force Soldiers landed by helicopter on the roof of Muse's prison and neutralized the guards. Next they blew the lock off Muse's cell and escorted him to the helicopter. Upon their departure, their aircraft took fire and eventually crashed. Soon an armored vehicle arrived and whisked Muse and his rescuers to safety. Muse was back in the United States in time to celebrate Christmas with his family.

“Kurt Muse is a patriot,” said Colonel David Griffith, the Director of Freedom Team Salute. “It is a privilege to be able to honor him for the sacrifices he made in the name of freedom.”

Freedom Team Salute is a Secretary of the Army and Army Chief of Staff program that gives anyone the opportunity to say “Thank You” to discharged Army Veterans or civilians who provide support to Soldiers. It also gives Soldiers the opportunity to honor their parents, spouse and other family members for their sacrifice and support. Further, National Guard and Reserve Soldiers can honor their employers. The Freedom Team Salute Commendation consists of Certificate of Appreciation and Letter of Thanks signed by the Secretary of the Army and Army Chief of Staff and a customized Army Lapel pin.

For more information about Freedom Team Salute and honoring Veterans or Civilians, go to www.freedomteamsalute.com.

Photos/Multimedia Gallery Available: http://www.businesswire.com/cgi-bin/mmg.cgi?eid=6127204&lang=en

Undesirables to be kept out of Panama?

Whenever I hear of big brothers all over the world working together to control borders I am torn between applauding their actions or denouncing their plans as more intrusion into our lives. Now Panama will be checking everyone well before they arrive to be sure they don't have someone after them. If you have nothing to hide, why should you care if they screen you before you enter the country? Maybe they will be able to stop all of the scammers and deadbeats from coming here to take advantage of the lax rule of laws and lack of investigative abilities.

On the other hand, as governments implement  these kinds of controls I believe we are losing more of our freedoms. Those intent on doing bad things always find a way around the controls and we all just end up paying for their misdeeds in the way of more over-site and intrusions into our lives. If they can deny you entry because of a judicial problem it is just a short step to checking if you have made your mortgage or car payments.  Did you file your taxes on time or did you make that child support payment. If not, forget about your vacation. It seems 1984 is closer than we think.

LA Prensa

For 2010, the National Customs Authority is planning to run an agreement with the airlines to know who the passengers before the plane touches down in Tocumen airport.  Through the World Customs Organization will be checked the lists of persons being sought as criminals, and detect if someone of this nature is on the aircraft, they be immediately returned to their country of origin.

  This system is intended to secure the borders, so that more people do not enter as "undesirables" to the country, say's the Customs Authority.  For example,  within 72 hours notice they will inform the shipping port terminals who are coming to the cruise ports or airports and they will review if passengers have any pending case.

Taiwan buys executive jet for Panama

This is what I call a nice gift to maintain recognition.

From La Prensa

  during the campaign, proposed to establish diplomatic relations with China

  Taiwan woos Martinelli

Taiwan is recognized as an independent, worldwide, by 24 countries (including the Vatican).  Panama is a member of that group.

  JARAMILLO OHIGGINIS ARCIA
[email protected] [email protected]

Presione para ampliar Click to enlarge

  In the political campaign, President Ricardo Martinelli, considered necessary to establish long-term diplomatic relations with China.  However, Taiwan launched a diplomatic offensive that included visits and donations of millions of dollars.

  The most recent was the donation of an Embraer Legacy 600 (EMB-135BJ), which will allow the Government transport service team Martinelli.  The cost of this aircraft is 22 million.

  Through this grant, the Taiwan government cured the headache of the President, after suspending the purchase of a presidential jet for the widespread negative reaction.

This aircraft can travel up to 6.019 miles, thanks to its extra fuel tank that allows you to get from Panama to any part of our continent, nonstop, and Europe with one stopover to refuel (see graphics).

  And with the purchase of this aircraft, the Taiwanese Government said the president Martinelli many amenities, and its working group.

  For example, the spacious main cabin is divided into three distinct areas.  It has leather chairs, couches, shelves, and a large dining table.

  The materials used in decoration are of the highest quality and personalized.

  Moreover, the country's president, Ma Ying-jeou, was commissioned personally start with this diplomatic offensive, to attend the inauguration of President Martinelli, last July.

  Since the arrival of Martinelli to power, Taiwanese diplomats have made numerous visits to Panama for the purpose of making grants to institutions like the National Police, the Ministry of Government and Justice, the Authority of Fisheries and Aquatic Resources, the Civil Aviation Authority, the Ministry of Public Works, and the Foreign Ministry, among others.

This year 2009, Taiwan has made donations to Panama reached an amount of approximately $ 40 million.

Why Mexicans would like to work in Panama

Our resort hired a hospitality consultant,  Jorge Calderon, from Mexico to work with us for the next month or so.  He has many years experience in the industry so I asked him if he would write a few of his observations from time to time that I would post on my blog. As many of my readers are hotel operators I thought his input may be of interest.

I am a native of Mexico and I have worked many years in hospitality, both in operations and as a consultant in the industry. Mexico is a very mature market for hospitality as we have been catering to the North American market now for many years. I came to Panama under a consulting contract and although I have been here only a few weeks, I have made some observations that you may find of interest.

 The dream of all men is to work less and make more and after reviewing the Panama labor laws I would say they have this concept down to a science.

Lets begin with a 30-day yearly vacation, an extra month pay each year, 11 paid holidays and 18 sick days. You can only work 3 hours extra on any given day and a total of only 9 hours a week. Any tips or commissions become a part of your salary for the purpose of your severance and social security benefits.  If you work on a holiday you get paid double and a half and if you work nights you get a bonus as well. Then there is the four months off if an employee gets pregnant. I see that a new minimum wage has been mandated starting in January of $416 a month which is a significant increase. I am sure there are more benefits that I have yet to discover, but let me say that although we have unions in just about all facets of work in Mexico, they have not gotten nearly this sweet a deal for their members.

 In my country you start with 6 days vacation after the first year and you receive 2 days more for each year thereafter up until you get to 20 days in total vacation time after working 20 or 24 years in the same company. You get 8 paid holidays, and a Christmas bonus equivalent to 15 days per year. There is no “extra month” pay and working night shift does not earn you any more income than if you work days. The minimum wage is $120, although a good employee can earn many times that in tips and bonuses based on performance.

 To succeed in the Mexican hospitality business you have to work long hours and sacrifice a lot of family time. Unfortunately Mexico is in a real tourism recession and if my people knew about your employee labor benefits, they would be clamoring to come and work here. Yet, I understand that Panama immigration law prohibits experienced foreign workers from benefiting from your wonderful labor laws. Such a deal! Panamanians don’t know how good they have it. Come to Mexico and experience what it is like to work in our industry and you would quickly run back home.

Jorge

The Climategate Timeline

The global warming wake-up post garnered many comments, some logical and most emotional. I think it is time to turn up the heat a bit more with this great time line of climategate going back 30 years.

You have to see this to believe it. Look up close and admire the detail while you despair at how long science has been going off the rails. To better appreciate the past and what was exposed by the CRU emails, the time-line chart consolidates and chronologically organizes the information uncovered and published about the CRU emails by many researchers along with some related contextual events. That the chart exists at all is yet another example of how skilled experts are flocking in to the skeptics position and dedicating hours of time pro bono because they are passionately motivated to fight against those who try to deceive us.

Try to be open minded when looking over the data presented. I understand how years of indoctrination has made folks passionate about the planet and the damage we have imposed on it. The powers that be are spending billions of your dollars to convince you that you are the problem. We  humans are guilty of many environment damaging things, but global warming is not one of them. Let go of this guilt and you will feel so much better!

Click here for the PDF

Click here to follow an interesting blog of global warming skeptics?