Article Courtesy from Trust Services S.A.
 

Letter from Panama 

January, 2007.
Volume 9, Number 1

A Swing to the Left

2006 was quite a year in Latin America. There were presidential elections in Brazil, Chile, Colombia, Costa Rica, Ecuador, Haití, Mexico, Peru, Nicaragua and Venezuela. An overall political swing to the left has been the result although radicals such as Ollanta Humala in Peru and Andrés Manuel López Obrador in Mexico were unsuccessful candidates. But in both cases the margin of victory for their opponents was slight. The left won in Chile, Ecuador and Nicaragua with both Luiz Inácio Lula da Silva in Brazil and Hugo Chávez in Venezuela being re-elected.

The United States of America, however, can take solace from the fact that pro-US moderates took control in Peru, Colombia and Mexico which, collectively, carry a greater weight of importance and influence than Ecuador, Nicaragua or Bolivia. But the US still has to contend with Venezuela, the largest South American thorn in Washington’s side. In buoyant mood, president Chávez called his own victory “a defeat for the empire of Mr. Danger”, referring to the US president. The ailing Fidel Castro in Cuba was effusive, rather than abusive, in his message to Hugo Chávez: “I shall be brief, lest emotion betrays me. The victory was resounding, crushing and without parallel in the history of our America”.

Like the 1,500 or so naked men and women who posed for the New York photographer, Spencer Tunick, last year in front of a statue of Simón Bolívar in Caracas, the Venezuelan president has already bared his political soul to the world. In a much-publicized speech at the United Nations in New York last September he called the US president “the devil” and he has suggested that George Bush should be analyzed by a psychiatrist because of his upbeat assessment of developments in the Middle East.

Unfortunately for Washington, this agent provocateur, already in power for eight years, will now enjoy a further six years as president. High oil prices over the past few years have bolstered his bravado and Venezuela probably has the largest energy reserves in the world. Yet despite everything, Venezuela is still a safer prospect to look for crude oil than some other major suppliers such as Iraq and Nigeria; so the foreign oil companies may grit their teeth, but it’s unlikely that they’ll be departing soon.



Progress in Panama

Rafael Correa, who won the presidential elections in Ecuador, is an ally of Hugo Chávez, which will sit uncomfortably with the US. It has its only garrison in South America in Ecuador and the lease for the military base at Manta is due to be renewed in 2009. Rafael Correa has repeatedly threatened not to renew the lease.

If the US will be thinking about the fate of its military base in two years time, the Republic of Panama (where the US had military installations until 2000) will be focused in 2009 on its presidential elections, following 5 years under president Martín Torrijos. His tenure, so far, has been productive and the current outlook for Panama is encouraging. Economic growth has been positive for several years and the Government’s determination to maintain fiscal discipline has seen privatization and de-regulation continue apace. Last year both tax and social security reforms were implemented by a government willing to grasp the nettle; at the same time, Panama has been restructuring its sovereign debt profile. It has retired most of its short-dated debt in favor of long-term bonds and Standard & Poor’s believes that the government has “demonstrated a firm commitment to reduce fiscal imbalances by advancing a politically aggressive tax reform to reduce loopholes in Panama’s tax regime, while at the same time reducing government expenditure over the next few years.”

In January, Panama replaced Argentina on the United Nations Security Council. The appointment is for two years and Panama joins four other non-permanent members (Belgium, Indonesia, Italy and South Africa). Washington will be pleased over Panama’s appointment and the 2006 US Congressional Research Service Report for Congress states that the appointment “bodes well for US interests at the United Nations”. The report adds that close relations exist between the two countries which are “characterized by extensive cooperation on counter narcotics efforts”.

This seat on the Security Council speaks volumes for the country’s growing stature and at the end of last year, Jane Armitage, World Bank director for Central America, reflected: “Panama’s economy has grown at a rate of more than 6 per cent during the past three years and the growth rate is expected to reach 7 per cent this year. This excellent growth performance in part reflects the past efforts by the Government of Panama to restore greater fiscal discipline and thereby strengthen the overall foundation for sustaining broad-based economic growth.” The World Bank’s board of directors has approved a US$60 million loan to support the Government’s public finance reforms.

Last October, and by a majority of almost 80%, the electorate approved a US$5.25 billion plan to expand the Panama Canal. President Martin Torrijos believes that it is the most important national vote in Panama’s 103 years of independence. Some 5% of the world’s seagoing traffic passed through the canal in 2005 which included over a third (by weight) of cargo going from north-east Asia to the east coast of the US.

With payments from the canal authority currently accounting for 17% of government revenues, the government has a vested interest in the canal’s future. It is a future which looks very promising following an upsurge in shipbuilding due to strong growth in maritime trade. New ships delivered in 2005 have a capacity of 70.5 million tones, the highest on record, and up from 49.4 million tones in 2004. (There was a significant increase in dry-bulk carriers which carry commodities.) The net result is that the world merchant fleet grew by 7.2%

Panama, however, is not just about shipping. Not only captains of ships, but captains of industry have also set sail for Panama because it has attractive offshore business laws and has displayed a healthy respect for privacy, refusing to be a push-over to pressure exerted by the Organization for Economic Co-operation and Development whose international tax campaign is detrimental to offshore financial service centers such as Panama.

The country still has its fair share of “nattering nabobs of negativism”, to use a Spiro Agnew expression, but 2007 promises to be quite a year for Panama, let alone again for Latin America.
 

Letter from Panama is published by Trust Services, S. A. which is a British- managed trust company licensed under the fiduciary laws of Panama. It is written by Derek Sambrook, our Managing Director, who is a former member of the Latin America and Caribbean Banking Commission as well as a former offshore banking, trust company and insurance regulator. He has over 40 years private and public sector experience in the financial services industry. Our website provides a broad range of related essays.

Engaging an offshore representative is an important decision and we advise all persons to seek appropriate legal and tax advice from professionals licensed to render such advice before making offshore commitments.



Article Courtesy of Trust Services S.A.
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