Panama Investor Blog

A Currency Crisis is coming

This editorial appeared in La Prensa today. I hope it begins to wake up some Panamanian officials to the danger of total dependency on the U.S. dollar.

Crisis 'real' is coming

1495743 JOEY LEVY JOEY 1495743 LEVY
[email protected] [email protected]

 OPINION

 One of the most important messages of my talk "The Dollar Crisis" is that no two financial crises, no one should worry us in Panama.

 The first began in late 2007 when the bubble burst in the U.S. real estate (EU).

 But this crisis was serious, but I always said that this was not what really bothered me.  What really made me lose sleep was the reaction of U.S. government and Federal Reserve to this situation. My fear was that these entities would not let the economy corrects itself, but that they would intervene and try to revive an economy based on an economic model of unsustainable consumerism.  My concern was (and remains) that all these interventions eventually going to cause another crisis: a currency crisis.

The monetary crisis which I refer is a run on the dollar. Currency crises are always caused by the same reason: a lack of confidence in the country's ability to solve its economic problems and concerns that will not stop printing money without backing to finance its persistent budget deficit.  Perceiving this, obviously people decide they do not want to keep their investments in a currency loses its purchasing power than at any time and start the run.

The cold reality is that if we examine the situation in the U.S. see that sounds pretty similar to what I described above.  In the case of EU this event could start with a sovereign debt crisis that would begin to question the EU's ability to repay their debts. This is already seeing multiple news (in prestigious journals like The New York Times, etc.) That have come out comparing the U.S. deficit with countries like Greece and threats of credit rating agencies have said that it is possible that the bonds U.S. losing its AAA rating.

 Obviously nobody knows exactly when it would start a run.  But there are signs that we can continue to tell us that this event is near.  For example, I follow the performance or U.S. bond yield and the price of precious metals. In the last 4 months, the U.S. bond yield has risen about 30%.

This means that investors are demanding higher performance to the country to compensate for the loss of purchasing power of payments (interest and principal) will receive in the future. And as for precious metals, gold last year rose 30% and 70% silver.  Both metals have seen demand soar for the possibility of a currency crisis.

 More and more people are realizing that the situation in the U.S. is much more serious than initially thought.  I hope this puts us to thinking, both personally and as a country, whether we are sufficiently prepared for a scenario of monetary crisis with each passing day more lies ahead.

 The author is a specialist in financial planning.

 

Panama inflation at 5% for 2010

The average consumer price index increased just shy of 5% in 2010. All of this is a direct result of increased cost of imported items and the increase in minimum wage. Now the increase in wages hardly keep up with the increases in price of goods and services.

Raul A. Bernal Bernal
[email protected] [email protected]

 The Panamanians have just closed a series of generalized increases in goods and services.

 The Consumer Price Index (CPI) ended last December with an increase of 4.9% compared with December 2009.

 Goods and services (6.7%), transport (6.5%), food and beverages (5.1%) were the three main components of the CPI rise last December that reported increased compared to December 2009, according to the Comptroller General the Republic.

When analyzing the behavior of annual price increases are a constant, since 2010 the CPI recorded an increase of 3.5% compared to the year 2009.

 Domestic policies such as increased taxes, higher minimum wage and the projection of new social insurance charges are able to pass on the increases of 2010.

 Gaspar García de Paredes, director of the Chamber of Commerce and Industry, warns that the increases are merely a reflection of a country whose economy depends heavily on expensive imports.

"We are a country that depends on a number of commodities, like oil, grains and finished products that are affected by the situation of soaring international prices," he said.

. This 2011 could be another year of setting up, because oil has continued to rise and climate change have pushed for some raw materials more expensive.The business sector is in favor of that working to improve the competitiveness of the country and not be so dependent on external sources.

 Pedro Acosta, a leader of consumers indicates that the best advice to citizens in these times of inflation is to be more responsible, rational and intelligent at the time of consumption.

2011 Index of Economic Freedom

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Panama improves slightly at #56 while the U.S. continues its decline at #7 in this year index. Amoazing that Hong Kong, a Chinese city/country continues to be ranked #1 in econoic freedom with Singapore at #2. Panama has a long way to go!

For over a decade, The Wall Street Journal and The Heritage Foundation, Washington's preeminent think tank, have tracked the march of economic freedom around the world with the influential Index of Economic Freedom.

What is economic freedom?

Economic freedom is the fundamental right of every human to control his or her own labor and property. In an economically free society, individuals are free to work, produce, consume, and invest in any way they please, with that freedom both protected by the state and unconstrained by the state. In economically free societies, governments allow labor, capital and goods to move freely, and refrain from coercion or constraint of liberty beyond the extent necessary to protect and maintain liberty itself.

How do you measure economic freedom?

We measure ten components of economic freedom, assigning a grade in each using a scale from 0 to 100, where 100 represents the maximum freedom. The ten component scores are then averaged to give an overall economic freedom score for each country. The ten components of economic freedom are:

• Business Freedom
• Trade Freedom
• Fiscal Freedom
• Government Spending
• Monetary Freedom

• Investment Freedom
• Financial Freedom
• Property Rights
• Freedom from Corruption
• Labor Freedom

 

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Overseas Banks May Shun U.S. Investors

According to Bloomberg, overseas banks may no longer cater to US. clients. Tell us something we don't know. More and more banks here in Panama see the handwriting on the wall and are making it a policy to no longer handle U.S. customers. The cost of complying with U.S. regulations is just getting to expensive. One might think this was a plan by the U.S. treasury and IRS to keep money from leaving the U.S. and force those abroad to repatriate their funds.

January 13, 2011 (Bloomberg News) U.S. citizens may become global “pariahs” when a law forcing foreign banks to report their accounts takes effect, according to Switzerland’s oldest bank.

Americans “risk becoming pariahs of the global banking system through the fault of their own government,” Konrad Hummler, managing partner of Wegelin & Co., said in the copy of a speech presented today in the Swiss capital, Bern.

The U.S. law will require all foreign financial companies to supply information on American clients to the Internal Revenue Service and withhold 30 percent of U.S. interest and dividend payments from account holders who provide inadequate information to determine their U.S. status. The Foreign Accounts Tax Compliance Act will complicate offering services to clients with U.S. links when it takes effect in two years, Hummler said.

“The risks run by financial intermediaries promising to respect these rules are considerable,” said Hummler, who is also chairman of the Swiss Private Bankers Association. Banks “could be held liable for making a commitment” that a client isn’t subject to U.S. tax, he said.

St. Gallen-based Wegelin, founded in 1741, advised clients 16 months ago to sell U.S. assets because extended reporting requirements may saddle investors with tax obligations for themselves or their heirs. Wegelin, which is an unlimited partnership, has said that it can’t afford the risk of increased liabilities at time when American tax authorities are cracking down on international banks.

Implementation Costs

Implementation of the law risks costing the U.S. more than it will generate over ten years, Hummler said. It’s unclear whether Swiss banks will be allowed to sign such agreements with the IRS under Swiss law, he said.

“We still don’t know whether these criticisms will be taken into consideration or on the contrary, ignored by the American administration,” Hummler said.

Banks have been lobbying for an easing of the rules since the law, known as FATCA, was incorporated into jobs legislation enacted in March. Now diplomats are stepping into the campaign, with countries including Switzerland, the U.K. and Canada weighing in with the Treasury.

According to the Joint Committee on Taxation, the law is estimated to bring in $8.7 billion in revenue to the U.S. over 10 years--an amount banks and governments say is relatively low compared with the expense of complying with the law.

UBS Fallout

The Obama administration pushed for the measure in the wake of the political firestorm arising from the case against UBS AG, which in 2009 settled U.S. government claims that the Zurich-based bank helped thousands of rich Americans hide their money offshore.

Wegelin, along with Geneva-based Pictet & Cie. and Lombard Odier Darier Hentsch & Cie., is one of 13 banks in Switzerland in which partners collectively own and have unlimited liabilities for commitments made by the bank.

Switzerland manages an estimated 27% of the world’s privately held offshore wealth.

Public debt reaches $11.5 Billion

Most state economists try and paint a Rosy picture when it comes to debt and Panama is no exception. With debt at over 42% of GDP they point out that it is considerably better that the 70% of years past decade. It should be noted that this is not due to a decrease in government spending but an increase in the production of the citizens of the country. Any increase in production is always met with an increase in government spending beyond what they collect, forcing them to sell bonds to cover the increased deficits. The bright side is that Panama is discovering significant natural resources which is in effect money in the bank.

Public debt balance reaches $ 11.585 million

The increase in public debt for 2009 was 613 million dollars. The MEF said that Panama's financial reality is positive.

Roberto González Jiménez
roberto.gonzalez @ prensa.com

The balance of Panama's public debt in 2010 would have closed $ 11, 585,613,000 or a 5.6% increase over the $10,972,000,000 that ended in 2009. This estimate is handled by the Ministry of Economy and Finance (MEF).

Confirmed the figure, the balance of the debt would have suffered the highest increase since 2004, when it rose more than $ 1.300 million.

In an earlier conversation, the Minister of Finance Alberto Vallarino said that the net increase in debt is within the limits of the Fiscal Responsibility Act and noted that the "financial realities of Panama is quite positive."

The MEF is estimated that the balance of the debt relative to gross domestic product (GDP) will be approximately 42.6%, well below the levels of 70% stake in the early years of the decade of 2000.

Raul Moreira, president of the College of Economists, said that the debt / GDP ratio is relatively low, however, described as "significant" increase in the balance.

"It is preferable that most of the expenditure may be financed through current income and work towards a reduction in funding," said the economist, who noted that the ambitious government investment plan will be required rather than formulas and funding and procurement direct or turnkey make projects more expensive.

New deficit ceiling

In 2011 the trend of the debt will be similar: to grow the balance and will lower the debt / GDP. The Government's aim is to fall below 40%.

However, after the declaration of national emergency as a result of rainfall occurred in December, the government will have a waiver on the Social and Fiscal Responsibility Act and may raise the fiscal deficit to 3% of GDP.

Moreira said that the Comptroller General of the Republic should ensure that, in fact, these additional costs are related to the disaster.

For now, the last National Economic Council authorized the government to issue up to $ 600 million in Treasury notes in 2011.

In addition, during the first quarter of this year the Government plans a bond issue "samurai" in the Japanese market by not less than $ 500 million.

Panama selling $600 million in bonds to fund deficit

With no printing press available Panama must borrow to fund its deficit. As this article points out, the deficit could grow to twice this amount with the latest flood damage in the country. Although this amount is a rather small percentage of the GDP, it still is a lot of money and is nearly the amount of net revenue generated by the canal.

Machine translated from La Prensa

$ 600 million in Treasury Notes

Roberto González Jiménez
roberto.gonzalez @ prensa.com

The Government yesterday received authorization from the National Economic Council (dinner) to issue Treasury notes in 2011 up to $ 600 million. The bonds will be used to meet debt maturities and to finance part of the Central Government's deficit, said Alberto Vallarino, Minister of Economy and Finance.

The planned deficit for 2011 in the State Budget is $ 436 million, 1.5% of nominal gross domestic product.

However, following the declaration of national emergency following the flooding, the Government could double the deficit.

Internationally, the highlight of 2011 will be issuing $ 500 million in bonds on the Japanese market.

In 2010, the balance of the debt of the state closed at $ 11, 585,000,000, $ 613 million more than the end of 2009.

They also approved a credit line of $ 500 million with Banco Nacional de Panama.

The minister explained that this is a line that usually hires to meet the expenses in the first half of the year and closes at the end of the year when the state receives as much income.

Saving Social Security with Personal Retirement Accounts

Our Friends from the Cato institute have come out with another great video, this time with a way to save social security. Many countries have privatized SS to the benefit of their citizens and maybe Panama could consider do the same. Unfortunately for the U.S. there is no money in the account so one wonders if their is really any sort of solution to this unfunded liability.

 

 

Construction sector recovers in Boquete

Although other than the new highway under construction, there appears to be little activity in the construction sector in Boquete, the municipal is reporting an increase in building permits in 2010 over the previous year. These permits continue to be the main source of revenue for the district and the majority is driven by foreigners who come to live or invest in the area.

From La Prensa

Construction sector recovers in Boquete

Theophilus A. González
Boquete, Chiriqui
economí[email protected]

The partial reactivation of the construction sector and strengthening the service economy contributed to the recovery of the finances of the Municipality of Boquete, which grossed 1.8 million dollars in 2010.

Last year's budget was $ 1.38 million, but managed to collect only $1,282,050 dollars, reported Ivan Cheva, treasurer of Boquete, Chiriqui.

Cheva described as "satisfactory" fiscal 2010 performance and was confident that the boom in Boquete will recover to what it was in 2007, when they raised $1,475,282, $ 142,222 000 more than budgeted.

"While it is true that the construction, the main source of income for the region, has not yet been fully recovered, the service economy experienced significant growth, mainly in the hotel, the sale of food and retail," said Chev.

The construction of major public works such as the expansion of the David-Boquete-David, rehabilitation of roads of production and the development of electrification projects are positively impacting the economy of Boquete, the official said.

In 2010 the construction sector generated revenues of $428,310.

The activity of restaurants, cafes and snack bars represented a contribution of 13, 837, $1, 837  more than expected.

Panama in Seach for Oil & Gas

I have posted on Panama's search for  oil in the past year and although much was made of reports of oil literally pouring out of the ground in the Darian, nothing more has been made public. According to this article in La Prensa, the government has hired a company to do some exploration in a number of areas around the country. It certainly would be interesting if Panama were to make a significant discovery in oil deposits to add to their other 'in the ground natural resources', copper and gold.

Machine translated from La Prensa;

Search for oil and gas in Panama

Roberto González Jiménez Roberto González Jiménez
[email protected] roberto.gonzalez @ prensa.com

The National Secretariat of Energy contracted the OTS Latin America to identify potential areas for hydrocarbon exploitation.

The state will spend $ 90,000 for this study, while the Andean Development Corporation will contribute $ 476 000 through a non-reimbursable fund.

The Minister of Finance Alberto Vallarino said that studies are carried out throughout the country, and mentioned areas in Bocas del Toro, on the border with Costa Rica, south of Chiriqui, in the Gulf of Panama in the Gulf of Urabá , among other locations.

 The study will shed which would have greater chances of success in exploration, he added.

 The National Economic Council yesterday also approved the purchase of land for $ 1.8 million to build a new hospital that will serve the districts of Chilibre, Las Cumbres and Mayor Diaz.

 The hospital will be built with a donation of $ 25 million from the Government of Taiwan.

 

 

President Martinelli's 18 Month State of the Union Adress

The following is the Presidents recent address to the nation on the accomplishments of his administration over the last 18 months. Like most addresses of this type, they are self serving and there is no rebuttal from his adversaries, but I believe it is a fair assessment in regard to his efforts thus far. He certainly has had some missteps,  but I believe these have more to do with him being very direct as the businessman and less diplomatic as a politician. I prefer the honest and direct approach as to the usual politicians who you know are lying because their lips are moving. I certainly don't agree with everything the president is doing, but this is not my country and other than to observe and comment I am free to leave if things are not to my liking. For most Panamanians, this is not an option and they are the ones who need to become involved if they want change. Thus far the presidents approval ratings say they are pleased with his performance. I know one thing for sure, unlike our U.S. president, this guy rarely takes a break.

I have used a machine to translate and left the Spanish with it for those who may wish a better translation.