January 29, 2010
Boquete, Panama

It’s a beautiful day in the Panamanian highlands, and I’m taking the opportunity to explore the countryside for undervalued land deals.  The Chiriqui province of Panama, where I am now, is sort of like the Panamanian version of Texas– fiercely independent and proud… locals consider themselves to be citizens of Chiriqui first, and Panamanians second.

As we’ve discussed in previous letters, I have been sincerely exploring the idea of developing a subscribers-only sustainable community, and Chiriqui is on the short list of locations.

On that note, I really want to thank you for providing me with your feedback about the community concept; over 650 people have filled out the survey so far, and I’m convinced that the idea has tremendous merit. More to follow on that in the future– for now, let me get to some subscriber questions:

From Denise Dale: “Simon- I enjoyed your comparison between Panama & Costa Rica, but I felt you missed an important comparison:  the medical aspects of each country.  I, being 73 years young, would appreciate some statement regarding the medical facilities and medical personnel.  I do intend to move to Central America this year and may even renounce my current citizenship.”

Denise- Thanks for reminding us of such an important lesson… regardless of your situation in life– young, old, rich, poor, employed, jobless, etc., you can always expand your opportunities by looking overseas. Many US citizens are finding that the cost of healthcare is absolutely crippling, and you are sharp to consider opportunities south of the border.

In my opinion, *western* medical facilities and staff in Panama are unquestionably of higher quality than in Costa Rica– the hospitals are better equipped, the doctors are often US trained, and the costs are comparable to Costa Rica.

In regards to holistic and eastern medical practice, however, I would say that Costa Rica still edges out Panama, but this is a sector that is gaining quite quickly in Panama and I would estimate that within a few years it will surpass Costa Rica in its quality and breadth of service.

From Louis: “Simon, I noticed that the Swiss have halted their deal with U.S. authorities to turn over Americans with secret UBS bank accounts.  What do you think? Is this just a battle or has the whole war ended?”

Unfortunately, neither. It’s just a speed bump in the worldwide campaign to end financial privacy. I want to be very clear about this– you cannot rely on privacy with any financial institution in any jurisdiction, period… and do not expect that piling a complex array of bearer share companies and trustees will make the situation any better. It won’t.

Governments can obtain access to your bank and brokerage accounts, they will find out who the beneficial owners are, and they will absolutely demand their ‘share’ of the income. Rest assured, penalties from noncompliance will be severe.

The reasons for going offshore have nothing to do with hiding money, but rather planting multiple flags– diversifying away from a single jurisdiction. If you are a US citizen with all of your money in the US, you will really wish that you had moved some money to a foreign bank account once they impose capital controls.

If you’re tired of giving your hard-earned money to corrupt bureaucrats, and your goal is to cut down on taxes, there are much, much better ways of doing that without taking the risk of ending up in prison.

Use foreign bank accounts for what they’re best purpose: protecting your capital from regulatory, litigation, and administrative risks. If you want to cut down on your taxes and achieve a lucrative deferral benefit, consider what I have discussed in the past about proper offshore and retirement structuring. I will continue to revisit these topics in the future.

Clayton asks: “Hello Simon, I am a new member. Are there any articles on buying foreclosed property in Panama?”

No, I have not yet specifically addressed foreclosures in Panama.  Like most things in life, to get access to foreclosure deals in Panama you have to know someone, usually a senior bank executive. There are a handful of real estate agents in Panama that tout foreclosed condos, but most of the time the deals have been stepped on and marked up so many times they do not even resemble a bargain.

On that note, one of the troubles about Panama’s real estate market is the lack of integrity and competence among the majority of agents. I’ve been operating down here for about 7 years and have burned through hundreds who have shown me their true colors. That’s why I put together the Panama Black Paper, which provides a short list of agents here that I actually trust.

Next week I plan on organizing a call with one of my trusted Panamanian real estate contacts who will discuss the state of the market, foreclosures, and some of the best deals he is working on.   Initially, I will make the call available exclusively to everyone who purchased a Black Paper, and then to the rest of the community.  Stay tuned for more details about that.

Lastly, Ken asks: “Simon, what are your thoughts on Belize?”

I wouldn’t go there. It’s pretty, but so are hundreds of other locations. Belize lacks the freedom that I’m looking for, and one needn’t look any further than their recent ‘amendment #6′ to the Belize Firearms Act.

This recent change to the law is about as draconian as it gets, threatening imprisonment without bail or trial for three months (and up to 5-years) just for being caught in the vicinity of an unregistered handgun. I won’t set foot in the country as long as this law is on the books.

That’s it for today, and I hope you have a great weekend.

January 27, 2010
El Valle, Panama

For a future expat, there are three places worth seriously considering in Central America– Panama, Nicaragua, and Costa Rica.  Much is written about Panama, and rightfully so; the country is the most stable, economically liberal, and business oriented.

Not to be completely ignored, though, Costa Rica has its own merits that are certainly worth an honorable mention.

First, to understand Costa Rica, you need to get a feel for the country’s life cycle.  The original North American expatriate movement started with Mexico right around the time of US prohibition.  Everything fun in the United States became illegal practically overnight, and Mexican border towns became a rally point for the disillusioned.

Mexico’s expat domination lasted for several decades until finally, around the 1980s, people became dissatisfied with the large number of foreigners living in Mexico, as well as the rising cost of living.  They sought greener pastures further south.

Costa Rica became the obvious choice– Panama was a complete disaster between Torrijos and Noriega, Nicaragua was embroiled in civil war, and Honduras was quietly exterminating its socialists.

Initially there were only a handful of expats living in Costa Rica, but eventually the word got out that living in Costa Rica was cheap, beautiful, and spiritual… it was like the India of the western hemisphere, cheap drugs and all.

For the next two decades, the steady inflow of North American tourists created steady demand, and new developments sprouted up all over the country. In time, the ‘cheap’ cost of living in Costa Rica had risen sharply, rivaling that of Mexico.

That’s when the expatriate market turned its sights on Panama in the early 2000s– the Canal had been turned over to the Panamanians without disaster, and the country had managed to build a stable government and society in the 15-years post-Noriega. At the time, Panama was much, much cheaper than Costa Rica as well.

Today, I find the costs of living in both countries to be comparable, as well as the real estate prices. But I find that, putting the two countries head-to-head, Costa Rica has the following advantages:

1) Costa Rica has no military. Technically Panama has no military either, but with so many national police (green uniforms), tourist police (tan uniforms), and Presidential guard (black uniforms) running around the country with automatic weapons, they might as well be an army, albeit a poorly trained, dysfunctional one.

I doubt that the Panamanian police forces have the capability or iron will to go house-to-house against the locals, but Costa Rica lacks the manpower resources altogether.

2) Environmental sustainability is much more prevalent in Costa Rica– and I’m not necessarily just talking about tree hugging… Costa Rica is simply cleaner, especially compared to Panama City.

Panama City’s boom has come so quickly that the city has experienced significant growing pains– notably with its infrastructure challenges. You see a lot of garbage, sewage, etc. piled up where the city hasn’t figured out how to deal with its problems.

To be fair, it’s not the same outside of Panama City, but head-to-head, I would still say that Costa Rica is cleaner and more pristine.

So what are Costa Rica’s chief flaws compared to Panama?

1) Currency– Panama is dollarized, but Costa Rica has its own currency (the colon); you might think this is a good thing, but the colon is so small and thinly traded that it essentially follows the dollar, without necessarily getting any of the benefits of being the world’s reserve currency.

The bottom line is that the Costa Rican colon (CRC) is essentially the worst of both worlds, and in a currency crisis, the country will likely be hit hard between the eyes.

2) Costa Rica’s main city, San Jose, is small, ugly, and devoid of anything interesting to do. Panama City, on the other hand, is vibrant, exciting, and open for business. This is central to Costa Rica’s personality– it is designed for one thing: eco-tourism. Panama, conversely, is multifaceted with both business and tourism opportunities abundant.

As a consequence of this, Costa Rica is overrun with tourists, week-in, week-out, doing the same zip-line, bird-watching snorkel tour over and over again. Plus, there is a noticeable lack of available products and services in Costa Rica when compared to Panama.

3) Costa Rica is far more bureaucratic. In Panama, obtaining a residency visa, importing household goods, and buying property is a much easier process than in Costa Rica, which usually has much stiffer fees and taxes associated with everything that you do. Just getting the cable turned on in San Jose can be a nightmare.

Based on my experience between the two countries, and given the relative cost comparison, I would definitely recommend Panama over Costa Rica unless your sole priority is environmental purity… in which case you should go to the Maldives.