April 2, 2010
Panama City, Panama
It’s been a great week so far in Panama. Each time I come back to this country I become even more sure in my conviction that Panama has a bright future.
For the next few days, though, I am going to set aside market forecasts and expatriation strategies… you see, my friends from the Atlas 400 club are starting to arrive, and I’m looking forward to a few days off at the very exclusive Tropic Star fishing lodge in Panama’s Darien province.
The cast of characters attending this event is really impressive– and I’m excited that several members of our own community will be there.
I’ll tell you more about it when I return on Wednesday. For now, though, let’s move on to this week’s questions.
First off, Jeff in Ohio asks: “Simon, thank you for the clarification about the new H.I.R.E. Act, I was really confused and concerned. Why do so many people continue saying that this new law is the same as capital controls?”
It’s easy to overreact and say that the sky is falling. To be fair, a layman’s reading of the bill makes it seem like the government is imposing a 30% tax on foreign bank transfers… but that’s exactly why I had my team of tax attorneys and CPAs analyze it– I wanted to know the truth.
The truth is, the H.I.R.E Act is an administrative enforcement of tax reporting; it’s bad news, but it’s no more capital controls than the qualified intermediary rules or withholding requirement for some payments to foreign companies.
The big problem is that this new law provides a disincentive for foreign banks to work with US customers… more and more, Americans are simply not worth the hassle for foreign banks.
There are still solutions, though. Americans who want to open a foreign bank account (as everyone should) ought to consider larger multinationals that already have a US presence. They’re accustomed to the paperwork already and are less likely to turn you away.
There are, of course, other jurisdictions that frankly don’t care much about the H.I.R.E. Act, and we can discuss those more in the future.
Steve writes, “Mr. Black, is Panama still self-reliant and independently wealthy if income from the Panama Canal drops off?”
This is a good question. Panama is heavily dependent on the Panama Canal, just as Saudi Arabia is heavily dependent on its oil supplies.
Fortunately, Panama has been able to diversify its economy away from transportation and trade– banking services, real estate, tourism, customer service, and others… but the Canal still generates the preponderance of external economic activity.
If global trade were to take a major hit (as it did in 2008/2009), Canal revenues would certainly decline and Panama would suffer economically… but bear in mind that Panama still posted positive economic growth last year.
I suspect that major economic pain would come only with a cataclysmic reduction in Canal usage, either due to another economically viable transportation route in the western hemisphere (unlikely) or a total collapse in global trade.
Mark writes, “Simon: I am a 65 year old disabled retiree. Later this year I will have about $30,000 per year to reside on. Can you give me several ultra low-cost living places to consider that have SOME civilization?”
Everyone has different personal tastes and circumstances, but here are some ultra cheap countries that are safe and reasonably civilized: Malaysia, Ecuador, Thailand, Sri Lanka, the Philippines, Egypt, India, Paraguay.
There are more, but this should be a good start.
Anonymous asks, “Simon, if I have a civil judgement ruled against me, would that disqualify me from a second passport?”
No, not in most cases. Most countries require a medical exam and a criminal background check. If you have a felony conviction, that’s a red flag. Civil judgments are usually not problematic… you’d undergo more scrutiny testing positive for syphilis.
That’s it for this week. Remember, I will be at the closed-door Atlas 400 event for the next few days in the middle of the jungle, so you will more than likely not be hearing from me until next Wednesday.