Panama Investor Blog

Dirty Diamonds in Panama?

Last month I posted several articles from the local press praising the opening of a new diamond center here in Panama. On the surface it looks like another good thing to come to the country, but according to an article in International Relations and security network, it could turn into another black eye for the country. The article goes into detail about the illegal diamond trade in Latin America and the connections to Chavez and Iran.

Excerpts: Leaders from the global diamond trade met in Panama City on 13 October to persuade President Ricardo Martinelli to establish a tax-free zone for Latin America’s first regional diamond exchange. The lobbyists won over Martinelli, who by 19 October had publicly committed to support legislation in the Panamanian National Assembly designed to give free trade zone status to the Panamanian Diamond Exchange (PDE).

Panama will also work to pass the necessary legislation to join an international diamond trading regulatory regime known as the Kimberley Process, Martinelli said.

But observers worry that Panama’s role in laundering illegal diamonds mined in South America might only grow as the Central American country becomes a regional hub of the Latin American diamond trade.

Read the rest of the story here...

Martinelli goes after "pirate" developers

Several of the first more public actions the new President has taken is to go after developers who have not only fallen behind on the concession payments, but also filled in areas of the sea to make marinas and more area for construction on the causeway. Apparently they were allowed to do these major changes to their original concession with the latest administration turning a blind eye. From the comments I have heard, most Panamanians are extremely happy to see this take place. It sends a clear message that the old ways of doing business are over and it is time to play by the rules. As this article points out, the developers may move with litigation, but time and money are on the side of the government. The developers projects and sales are now in jeopardy and no one else will buy in those projects knowing they may never see their money or property for the years it may drag on in the courts. Although several say they want to make deals, considering laws broken and environmental damage, the question is should they even be allowed to do so. I would think the government within its right to sell them off to the highest bidder.

Excerpts: New irregularities surrounding concessions on the Amador Causeway continue to surface as investigators with the Martinelli administration dig deeper into the area long left to the whim of developers that flourished under the previous government's laissez-faire strategy.

Projects that flaunted building and zoning codes, unauthorized filling in of sea bottom for marinas and leases allowed to accumulate debt estimated at $26.8 million sets the backdrop in what will likely be a legal battle between the state and high-profile leasees of property on the peninsula. 

Read the rest of the story here...

Foreigners accused of forcing land sales

I was amazed at this story in La Prensa where the writer seems to be painting a picture of and idealized paradise and then throws in wild accusations at the end of the story. I have seen such accusations before and I doubt seriously the validity of them. I can't imagine foreigners resorting to violence in order to acquire land for development, especially in an area so remote as Bahia Honda. The story was in Spanish from La Prensa and I have translated some excerpts. Anyone with more knowledge about the allegations please comment.

Excerpts from La Prensa: Bahia Honda is one of the villages closest to the Coiba National Park, but residents say they no longer enjoy the tranquility offered the place years ago. The natural wealth has attracted foreigners to buy land and, according to neighbors, in some cases forcing the occupants to sell.

The issue, say, has reached the point that some ranches have been burned because the owners refuse to sell.

For these cases, neighbors have brought complaints to the Mayor's Soná and the Public Ministry of Veraguas, but not yet opened an inquiry.

Development gone wild?

From La Prensa Wednesday

City's growth unchecked!

Many have wondered why developers aren’t being made to follow existing regulations.

On the web site for the Mayor of Panama, the link for Municipal Engineering states that it “promotes and strengthens the management of urban development and municipal infrastructure, through monitoring and enforcement.”

But a tour of the city's streets tells a much different story, one of urban chaos and development gone wild.

Along Avenida Balboa and in Punta Pacifica, some of the tallest buildings in Latin America are under construction. Many, however, are encroaching on public space or have exceed the boundaries of their property lines. Sidewalks regularly become part of a project, forcing pedestrians into the street.

The city's building codes require builders to place perimeter fencing and install covered walkways to protect pedestrians from falling debris.

Those codes also state that sidewalks can be used only “temporarily” to load and unload materials. If there is no sidewalk, the loading and unloading must take place “entirely on the property of the site.”

This has not happened at one building site in Obarrio, which is in plain view of municipal officials. There, the developer is using public property to store construction materials.

Violators are supposed to pay fines ranging from $50 to $100,000, but Municipal Engineer Jaime Salas has declined to reveal how much in fines have been levied during his time in office.

Several controversies have emerged over developments that have taken place under Salas's watch.

These include the construction of a bridge by the operator of Multicentro shopping center which has been opposed by residents living nearby who say that the project will bring increased congestion.

Another area that has been mired in controversy is development in Casco Viejo, a U.N. World Heritage Site.

Salas has allowed the resumption of work on a six-story building in the area, although the rules regarding development in this area states that buildings are limited to four stories.

Salas ignored the request of a preservation agency to stop work on the project, saying the project has received the proper approval to go ahead.

Finally, Salas has been criticized over his policy of awarding occupancy permits before buildings have been finished.

In the last two years, there have been 13 consumer complaints that these permits were issued prematurely, and that people were not been able to move into the buildings because of unfinished work.

In one case, residents say that basic work is still undone a year after Salas issued the occupancy permit.

The current and future state of Panama Real Estate Development

Earlier this week I received the following detailed analysis of Panama's real estate situation as a comment to a post. It was so well written that I asked the writer if I could re-post it this week. I believe with her extensive background in real estate and her time spent here in Panama as a first hand observer, her analysis is well worth the time to read.

PANAMA ODIO ET AMO

It's interesting to read all the well written comments on the "great real estate rip off" occuring now in Panama. We moved to Panamá, enticed by the promise of a quieter, less expensive life in a tropical paradise. During the few years we’ve been here, many prices have tripled and the city has sprouted with literally hundreds of real estate projects that have poisoned the air and created unsolvable traffic problems. Now, we find ourselves surrounded by the dense urban chaos from which we were escaping. Additionally, throughout the country, the building fever has corrupted and ruined miles of the most beautiful beaches in the world and raped the mountain sides. The land is now littered with ill conceived, half completed projects that offer thousands of units to a handful of buyers.

Soon after our arrival, we purchased a small farm. We resisted buying in the City. There were too many condo projects already under construction. The situation reminded us far too closely of the 1980’s-Wilshire Blvd. debacle in Los Angeles where a “down zoning” ordinance literally coerced the developers to build simultaneously and immediately. There was no choice. You either build immediately or face an enormous financial loss. Everyone who owned a lot on Wilshire, built. The city fathers received millions of dollars in permit fees and soon thereafter, thirteen gorgeous towers sat for years, unsold and empty, as a constant reminder of greed and bad planning.

In Panama, two hundred towers are being built practically at once for a very similar motive. If you did not build by 2009, the tax exemption allocated to new luxury construction would drop from 20 years to a mere 5 years. Even taking into account the rise in competition, it still made sense to come under the 20 year exemption and build, rather than risk the potential gain. (A sad aside: the present government waited until April 2008 to extend the 20 year fiscal-grace period. By that time, everyone had alas started to plan and /or build.)

Want Less Corruption? Shrink the Size of Government

From our friends at the Freedom and Prosperity organization comes this new video about corruption in government.

Another U.S. ponzi scheme washes up in Panama

I have hesitated putting this story up until confirmation of the local Panama branch of Stanford International Bank had been closed. The story broke over a week ago, but there were questions on what entanglement this branch might have and I did not want to add to the concerns of depositors. Unfortunately the Bank commission has seized the banks assets and the $9 plus billion supposedly scammed by Stanford will be looking to Panama for help in retrieving lost funds. This is especially troubling because it ads fuel to the fire burning to extinguish all offshore banking. The operation in Antigua has nearly caused the country to default as Stamford is the number one benefactor and employer in the country.

From the Latin Business Chronicle we get this report on the likelyhood of other scams that will break in Latin America and why Latins are more suseptible to this kind of fraud.

Latin Americans have lost billions in Ponzi schemes organized by Allen Stanford and Bernard Madoff. The bad news is that there are likely more Ponzi schemes affecting Latin American investors thanks to a combination of factors such as the stronger dollar, worsening local conditions for capital, exchange controls and the need for confidentiality, experts say.

Latin Business Chronicle asked three leading experts to share their insights to the Ponzi schemes and the impact they have had on Latin American investor confidence in

U.S.

institutions.

Should investors depend on Panama's Fitch ratings?

Today Fitch rating agency came out with a BB+ positive rating on Panama mostly weighted on the canal expansion project driving the economy. This of course helps Panama in borrowing money for the canal and any other projects it may want. Don't get me wrong, it is great to have good credit and I applaud Panama if they indeed deserve the rating but, given the track record of Fitch over the past year I question how much due diligence they do on the countries they rate. After all, Lehman Brothers, Bear Stearns, AIG and Merril Lynch were among the financial companies which went bankrupt even after being positively graded by Fitch.

""Credit-rating agencies use their control of information to fool investors into believing that a pig is a cow and a rotten egg is a roasted chicken. Collusion and misrepresentation are not elements of a genuinely free market " - US Congressman Gary Ackerman"

"The smooth functioning of global financial markets depends, in part, upon reliable assessments of investment risks, and Credit Rating Agencies play a significant role in boosting investor confidence in those markets.The above rhetoric, although harsh, beckons us to focus our lens on the functioning of credit rating agencies. Recent debacles, as enunciated below, make it all the more important to scrutinize the claim of Credit Rating Agencies as fair assessors."

When we read the martketwatch press release from Fitch on Panama we get these statements:
Panama's macroeconomic and structural strengths will continue to set it apart from 'BB' peers.
Higher savings and investment, partly due to the ongoing Canal widening project, should help Panama maintain stronger economic growth this year relative to the global slowdown in 2001/02 and also compared to regional peers. As such, Fitch believes that Panama should be able to absorb future increases in public debt related to the expansion of the canal without precipitating downward pressure on the ratings given its growth prospects and the expectation that fiscal discipline will be maintained even during an election year.

They go on to say;
"Panama's key credit metrics continue to strengthen, with growth averaging 8.8% for the five years ending in 2008, one of the highest rates in the world," according to Theresa Paiz Fredel, Senior Director in Fitch's Sovereign Ratings team. This has contributed to the convergence of per capita income with that of low investment grade sovereigns. "As a result of Panama's robust growth performance, as well as its improved fiscal and external position, the country is well situated to face a reduction in external demand and international capital flows," added Paiz Fredel.

Ms. Fredel obviously is not looking beyond government provided date and press releases to come up with these and other such statements.

She must not be considering the fact that Panama's debt stands at $11 billion and the canal expansion will easily raise this by between 50-100% within 7 years. All the while the world economy is sinking further and shipping is dropping dramatically. The canal commission promised the people during the referendum that the money would come from higher tolls and an ever increasing demand for transits. Now it all will have to come from borrowing which will put a severe crimp on public spending on important areas such as health and education for the population of the country. All this when cracks are showing in just about every segment of the countries financial landscape. The real estate market is dead, layoffs in construction will begin in earnest in the coming months. Projections of growth have been cut in half twice and defaults on consumer credit are climbing fast. All of these billboards are clear for any ratings agency to see if they took the time to look beneath the official B.S. coming from the ACP and PRD.

Here is what Senator Pementil from the Phillipines had to say about the recent Fitch ratings for their country.

Pimentel: How reliable are credit rating agencies?
Senate Minority Leader Aquilino Q. Pimentel, Jr. (PDP-Laban) said the people should not be lulled into believing that the national economy is in a fine shape just because it received positive marks from international credit agencies.

Pimentel made this comment following reports that the London-based Fitch Ratings has maintained its stable outlook for the Philippines, saying its economy is "reasonably healthy" despite the crisis in global finance.

Pimentel said this comment smacks of an unfounded flattery considering that the Arroyo administration was forced to abandon its zero budget deficit goal in 2008 due to the failure of revenue agencies to meet collection targets.

He said the amount of public debt hardly decreased even if the government was religiously repaying its loans because it kept on contracting new borrowings.

Sounds like Panama to me.

The Pitfalls of buying property in Panama

The Star newspaper in Panama carries an article about the challenges foreign buyers face in Panama, picking up on the post I wrote last week. There are several places pointed out in the article where those who have experienced problems can go online to share their stories.

Excerpts:

One of the main problems of acquiring real estate in Panama is that if you have any complaints about an agent or a promoter and on top of that you do not speak the language, it is difficult to report them.

A group of foreigners are fighting back and have created a web site dedicated to the victims of all unscrupulous real estate agencies like “Homes Real Estate of Panama” and developers such as “A2SN”, which allegedly have sold at least 6 pre-construction projects in Panama over the last two years and none have broken ground. They include the Plaza Obarrio, Plaza San Francisco, Loft One and Two and Plaza Costa del Este.

Read the story here.

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