Panama Investor Blog

Panama's Growth Continues to Surprise

Although the pace of growth has declined, the Panamanian economy remains the most dynamic in the entire continent.

On average, the projections from diferent sources suggest that in 2014 and 2015 the expansion of gross domestic product (GDP) will be of 7%, well above the average of 1.2% this year in Latin America, according to the World Bank.

The Ministry of Economic Affairs and Competitiveness said yesterday that the second quarter GDP showed a 6.3% increase from the same period of 2013, after reporting a total of $8,657.4 million.

All sectors increased their value in that semester, except for hotels and restaurants; the supply of electricity, gas and water and the agricultural sector.

The fastest growing sector was construction (15.5%), followed by transport and communications (7.7%) and trade (3.3%). All of which are extreamly important for the economy.

For the Executive Secretary of the Secretariat, Michelangelo Esbrí, these figures show that the Panamanian economy "is alive, it is thriving and is not stagnant."

He also stated that foreign direct investment (FDI) in the first half was for $2,575.4 million, 26% more than the previous year. This is a quite surprising figure, and hopefully it will continue to grow as more incentives are provided to foreighn investment.

"Direct Foreign Investment" Sustains Economic Growth in Panama

How can the Gross Domestic Product (GDP) grow 6.2% in a country where construction workers paralyzed most of the ongoing projects, including the expansion of the Panama Canal; a nation where the crisis endures in the Colon Free Zone (CFZ), due to a great debt of Venezuela to companies operating in the Free Zone, totaling USD 1,7 Billion; and where hotel occupancy is at its lowest point (67% in 2010 and 53% in June 2014)?

How can Panama be the country with the highest economic growth in Latin America and the Caribbean, if in the first half of this year - exports of goods in the nation grew only 0.1%, agricultural production continued to deteriorate, had to take cost-saving measures energy, falling production of hydraulic and thermal energy; and transit of vessels through the canal declined in the first six months of the year?

How is it that Panama's economy grows 6.2%? The government has just approved a cut in public spending of about $ 500 million, based between their technical arguments, which was not fulfilled in the first half with the programming of the collection of current revenues of the central government.

FOREIGN DIRECT INVESTMENT

What, then, is the macroeconomic variable that sustains economic growth in Panama of 6.2% in the first half? 
It Is Foreign Direct Investment (FDI), which grew 26% in the first six months of 2014 compared to the same period last year.

To get an idea of ​​the impact of FDI in the first half of the relationship of this variable with respect to real GDP was 15%.

In recent years, FDI has been a significant variable in the growth of the economy.

From 2000 to 2013, it went from $ 624 million to $ 4.65 Billion, an increase of over $4 Billion during these thirteen years, an expansion of 646% in this period.

One explanation of why FDI grows so strong in Panama is because foreign companies are constantly buying Panamanian companies. This phenomenon has involved almost all activities of the country, but mainly in the banking, industrial and trade sector.

If it is good or bad to depend on foreign investment for the growth of a country, that is another debate. At this time Foreign Direct Investment is what keeps Panama growing…

 

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Panama: Fastest Growing Economy in Latin America - 6.7% in 2014

LaPrensa - Panama will grow 6.7% this year, which will make it the fastest growing economy in Latin America, according to the latest projection of the Economic Commission for Latin America and the Caribbean(ECLAC.

The Ministry of Economy and Finance (MEF) of Panama said the new estimate after learning that "progress ECLAC match those announced by the MEF, which place the performance of the local economy with a positive change this year will range between 6 % and 7% ", a result that would be below 8.4% in 2013.

Behind Panama is Bolivia with (5.5%), Colombia, Ecuador, Nicaragua and Dominican Republic (all with 5% growth)

Across the continent, Venezuela only experience negative (-0.5%) growth.

The growth forecast for all l Latin America and the Caribbean was reduced from the 2.7% to 2.2% forecast last April.

According to the Economic Survey of Latin America and the Caribbean 2014, since 2011 the economic growth of the region has been slowing, a trend that continues this year.

"In particular, during the first months has seen a sluggish due to a stagnation of gross fixed capital formation and slowing growth in private consumption. Counterpart has accelerated government consumption and net contribution exports has been more favorable than in the same period last year. growth for the exercise of economic activity in the region of 2.2% is expected, "said ECLAC in its report.

 

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Electrical interface: It is expected that Panama and Colombia will be connected by 2018

By 2018 it is expected that Panama and Colombia are connected by electrical interconnection, so said the president of Colombia, Juan Manuel Santos.

Santos told reporters said some studies for the interconnection will be in October this year. "The timeline presented to us is that some studies will take a year, then the construction process and implemented, so we hope that in 2018 we have connected to Panama and Colombia will be in October," he said.

 

For his part, President Juan Carlos Varela Varela said that coordination with security agencies of both countries plan to provide security to the construction site of this important project, as well as near the inhabited areas.

The project involves the construction and operation of a transmission line to direct current electric power with a 300 to 400 megawatts and a length of 590 kilometers, of which 310 are developed in Colombia and the rest in Panama.

Other topics addressed by the leaders was boarder security, tourism promotion and cooperation on trade and investment.  

For sightseeing, the two countries agreed through increased connectivity of several cities in Colombia to Panama by air, especially at the airport in Rio Hato, to 120.7 kilometers west of Panama City, and by sea between the cities of Cartagena and Colon.

MEF blames "World Economic Crisis" for $2.7 Billion loss in Panama Canal Operations between 2014 - 2019

The Ministry of Economy and Finance foresees a loss of approx. 2.7 Billion Dollars due to the World Economic Crisis and delay of the expansion between 2014 and 2019.

According to studies presented by the MEF last April in regards to the period between 2014 and 2019 the Panama Canal will represent approx 7,2 Billion Dollars income to the Nation – This is being compared to the what the Authority of the Panama Canal (ACP) in 2006 presented for the expansion of the canal saying it would represent approx 10 Billion Dollars for this same period.

According to the chronogram agreed in the construction and design contract of the third set of locks, the expansion should have started operations in October 2014, but because of delays it will be operative beginnings of 2016.

With this known, the government of Juan Carlos Varela will not be receiving $653.8 million which were planned to have for 2015 and another $765 millions less in 2016. Amounting to $1.4 Billion loss, because of the "World Economic Crisis" and delays of expansion detween 2015 and 2016. No more than $400 million loss each year between  2017 - 2019 expected. 

 

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Why Pursue a Citizenship in Panama?

 

 Well there are many reasons. And this we know. But there are as many correct answers to that question as there are people who ask it. The answer is highly subjective, depending on the individual’s circumstances and what he or she is seeking. Panama has the whole package, but still we must consider many factors when explaining why. When considering factors that range from one’s family and financial situation and climate preference to language ability. Panama and Uruguay are the countries that now offer the most welcoming and fastest laws for foreign residents.

 

For many reasons the Republic of Panama is ideally suited for the offshore investor who wants strong financial privacy and no local taxes, corporate or personal. Panama and its territorial tax system impose taxes only on earnings from within the country. Its offshore professional community is one the best. South of Miami, Panama is the leading banking and financial center in Latin America with over 80 banks, many local branches of global banks. It has strong financial privacy laws and its asset protection laws go back to the 1920s governing creation of corporations, trusts and, since the 1990s, private family foundations.

 

The country is classified in the category of investment grade by credit rating companies like Standard and Poor's, Moody's and Fitch Ratings, and the GDP has enjoyed a sustained growth for more than twenty years in a row (1989). Making it a wise decision to come and invest in Panama. 

 There are many and varied programs for foreigners who wish to make it their home. All resident visa applications must be made through a Panamanian attorney. In recent decades, Panama deliberately has positioned itself as a first-class retirement haven, with some of the most appealing programs of special benefits for foreign residents and retirees anywhere in the world. Whether an individual may want to become a citizen of Panama depends on their financial and tax situation. Foreign persons residing in Panama are exempt from income taxes on all earnings unless the income is from within Panama. Citizens pay taxes of up to 30%. Official foreign resident status usually is sufficient since it grants virtually all rights, including property ownership, as well as an identification and travel document (but not an official passport).    

This country offers several kinds of visas for person of high net worth, persons seeking to invest, wealthy retirees, entrepreneurs of all kind like agricultural or business investors, and those who simply want to become a resident or citizen. Also, there’s the “ Pensionado Program” which offers tax exemptions and discounts of many services and goods along with immediate residence to qualified retirees. Nevertheless, it does not provide a citizenship. A visa is however available for foreign nationals who have invested in businesses in Panama, that leads to eventual citizenship. It is known as the “Immediate Permanent Resident Visa” 

 

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IMF now happy with Panama finances

The International Monetary Fund is apparently happy with the new tax reforms and public pending according to the machine translated article from La Prensa.

riting in La Prensa
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Achievements like the consolidation of public finances and a strong banking system were highlighted by the Executive Board of the International Monetary Fund (IMF) at its meeting in July, the behavior of the Panamanian economy and the Ministry of Economy and Finance ( MEF).

In regard to tax reform, which came into effect in July, executives of the IMF acknowledged that the goal is to raise revenue to finance more capital spending, while improving the efficiency of the tax system.

The IMF believes that the banking system remains a strong base, aided by effective supervision and a cautious attitude of banks. "Financial indicators are solid banks with high capitalization and low default rates," he said.

The agency endorsed the credit rating was Panama in early 2010, said a statement from MEF.

Panama banking after 40 years holds $64 billion

This is a good overview on the history on banking in Panama and provides some interesting statistics such as the fact that over $60 billion is currently held here in over 90 banks.

The Bank Act of 1970 allowed the development of the financial center of Panama, which has emerged unscathed from various crises, including 2008.

Machine translated from La Prensa

EVOLUTION. The Panamanian banking center there are 91 banks with assets of $ 64 000 438 000 000 and a liquidity ratio of 65.87%. PRESS / Maydée Romero Sprang1422806

EDITH CASTILLO DUARTE
[email protected]

While the banking business in Panama dates back to well before the Republican era (back in mid-nineteenth century), it was not until 1970, with the enactment of the Banking Act, the first Cabinet Decree N ° 238 July 2, 1970 - which began the real development of this business, and with it the flowering of Panama's international banking center.

40 years have passed this historic initiative, which involved a group of well-known bankers.

Among them were the economist Nicolás Ardito Barletta, Louis H. Moreno, then general manager of Chase Manhattan Bank, José Antonio de la Ossa, who served as Minister of Finance and Treasury, Balbino Moreno, comptroller, Robert Willis, vice president and general manager of Citi Bank, Arthur Miller, who was deputy manager of Banque Nationale Paris and other contributors.

The law achieved its primary objective: to encourage the presence of foreign banks from around the world, enabling the development of an international financial center took advantage as the use of the dollar as legal tender, the absence of restrictions on capital markets and the absence of a central bank.

At that time the system was composed of only 23 banks, two of them state-with assets totaling $ 853.6 million and a workforce of 881 employees 2000. Twelve years later, those assets soared to $ 40 billion, with the presence of 118 banks and 428 employees 7000.

In its evolution, the banking center grows and specializes in financing to Latin America, its main market.

For 1983 reached its peak with the presence of 125 banks, which operated 68 general and 43 licensed international license, the highest number of banks in school history.

The greatest achievement of Decree 238 of July 2, 1970 was the creation of the National Banking Commission, the first regulatory body for this activity.

Luis H. Moreno, who was a member of that Committee and editor of the banking law, says that one of the first tasks of this organization was to establish serious requirements for licensing, while eliminating 247 banks operating license granted under Act 101 of 1941 a standard "incomplete and not very stimulating" in less than 30 articles.

The political and economic crisis of the late 1980s hit hard in banking, who saw off their assets in 1989 to $ 11,593 000 000 and the number of banks started to decline from 110 in 1990 (see table). Overcome this crisis, in 1998, when banking assets totaling $ 28,495 000 000, the law is reformed by Decree Law 9 of February 26 and creates the Superintendency of Banks.

With this new provision has been incorporated into the rules and principles of the Basel Committee established a legal framework with clear authority and powers to the regulator, and strengthened the institutional aspect by providing administrative and financial autonomy to the Superintendency of Banks.

In 2008, at the gates of the worst global financial crisis, was modified and modernized the Act 9 in a single text, in areas such as bank resolutions, race banking supervisor, customer service and greater authority to the superintendent.

To date, the center operates 91 banks with assets of $ 64,438 000 000 and a liquidity ratio of 65.87%.

For the president of the Banking Association of Panama, Moses Cohen, from here forward the priority is the "internationalization" of banking services to more dynamism and strength to the financial center.

He stressed that the financial crisis was a test where the Panamanian banking system overcame and showed his strength.

Luis H. Moreno reaffirms this position. "The reliability and robustness of the system were tested by this crisis, and instead of lowering the operating level, the Panamanian banking received a considerable increase in international deposits," he said.

The prospect, he says, is flattering while driving with honesty, efficiency and responsibility that has been done so far. "Given the importance of Panamanian and foreign investments that are taking place, could return some of the prestigious giants who joined us in the first stage of the banking center and retired," he said.

>>>>

Fair value
The banking regulator from the perspective
Amauri Castillo
[email protected]

OPINION. Panama has developed a vocation as a provider of international services as a financial center and still have a long future, but more towards the Latin American market. The Panamanians throughout our history we have shown that momentous issues of national priority and we can overcome personal and political interests and put the country ahead.

The Banking Act of 1970, the Colon Free Zone and the Panama Canal are three examples. The main component of the 1970 Act was the promotion, to attract the Panamanian banking center frontline institutions around the world and that purpose we have succeeded in spades.

In 1998 the country was decided to have a banking legal framework to respond to the highest international standards, particularly the Basel Concordat, and on the basis of focus or reform the supervision and strict prudential regulation issues.

However, as this is an industry and a highly dynamic sector in 2008, before the financial crisis, the authorities deemed appropriate legal framework to introduce the concepts already pointed to the new Basel II capital accord, with emphasis on monitoring based on risk and making more rigorous market discipline.

In addition, the Superintendency has set its Strategic Plan 2010-2012, which seeks to consolidate with Panama as an international banking center in Latin America and that leads us to study with great thoroughness banks objectives of the region and the OECD to invite them or increase their presence in our plaza, which now has the additional element of being in the privileged category of investment grade.

In domestic terms, the country has a myriad of opportunities with the public investment plan of over 13 billion dollars and the expansion of the Canal. The country continues to grow and in the same way as a regulator of banking and I am proud to be part of sector.El author is secretary general of the Superintendency of Banks.

Foreign banking for U.S. citizens just got a lot more dfficult

The new Wall Street reforms implemented by the U.S. government are certain to make banking in Panama (and everywhere else) for U.S. citizens a lot more difficult. I have not yet confirmed this report, but based on this article in La Prensa today, the local banks are taking it seriously. The issue for them is the cost of compliance. If they must withhold 30% of all funds transferred out of their bank and report it to the U.S. government, it costs time and money and for small account holders such as U.S. retired folks, it just may not be worth it. There may be a rash of account closings and gnashing of teeth by disgruntled U.S. account holders and I don't blame them. From the photo of the democrats at the signing of the bill, they seem very pleased with it.

U.S. reforms expected to have local impact

Financial reforms in the United States could disrupt credit markets and investment in Panama, according to local industry officials.

The reforms was one of the topics discussed yesterday at the closing of the 19th National Banking Convention.

Raul Guizado, vice president of Security and Compliance with Banco General, spoke about the scope of the changes. He said that the new regulations impose certain restrictions on foreign financial institutions that have U.S. clients.

Foreign banks with these account holders have to retain 30 percent of all outgoing capital and report these transactions to the U.S. Internal Revenue Service. Guizado said that Banco General's lawyers have said that if the 30 percent is not retained, the bank will be forced to provide detailed information about the holders of the accounts.

Metrobank Vice President of Operations Rolando de Leon warned that the impact of this regulation is that it could be used as a model for other countries. He recommended that local regulators take into account the differences between the U.S. and Panamanian banking systems before proposing any similar reforms here.

Israeli banks urge America clients to close accounts

All over the world banks are closing investment and bank accounts with U.S. clients. As a bank official states, "Since the U.S. is desperate to get any kind of revenue possible, because things are tough there and they're running huge deficits, this is one of their ways: to make American citizens either pay huge fines or repatriate the money back to America."

I am afraid that this is just the beginning of pressure the U.S. will apply to foreign banks. It will become very difficult to have a bank account outside of the U.S. if you are a U.S. citizen, and it is difficult to live outside the U.S. without one. I would expect there will be banks that will accept U.S. accounts on the condition that all transactions will be subject to review by the IRS. There are thousands of expats working abroad and they will need to have bank accounts.

Hat tip to Michael for this article.

Excerpts from Haaritz.com;

Obedient to intensifying U.S. government pressure to crack down on offshore tax evaders, in January Israeli banks began ordering clients they identify as "Americans" or "U.S. tax residents" to close investment accounts they hold in Israel. It is apparently an anticipatory measure, ahead of changes in U.S. law. Local banks are apparently responding to changes in American regulations as their legal counsels interpret them.

"If we do not receive your instructions by March 16, 2010, we may liquidate the securities in your account," Mizrahi warned.

Local finance professionals agree that the situation is likely will evolve as the Americans develop and implement new banking guidelines, but differ in their assessment of the possible consequences for U.S. citizens living in Israel.

Americans in Israel are left with "with very few options," added Philip Braude, CEO of Beit Shemesh-based financial planning company Anglo Capital Limited. His suggestion: "Take the money back to America. If you're an American you should be investing in America." He agrees that the current situation is murky, with Israeli banks aiming to avoid conflict with U.S. authorities.

"Israeli banks have branches in the U.S. and they know [the U.S.] would make it very hard for them to operate if they don't give them the same information that UBS gave them," Nir Amikam, head of research at Wareham Investment Bank, told TheMarker. "I don't know if it makes economic sense, I guess it depends on how much money [Americans have in Israeli banks]," he added. "The banks are probably thinking that it's not as much as they themselves are making by having branches in the U.S."