If he keeps this up, they might start calling it Panama, Inc.
Panamanian President Ricardo Martinelli has been in office less than 6-months, yet to the extent that it is politically possible, he seems bent on running Panama with the same vision as when he ran the chain of supermarkets that made him one of the country’s wealthiest men.
Step 1– eliminate corruption in the government. All side deals and back room handshakes that were entered into under previous administrations are now off the table. Martinelli has been leading from the front, personally strong-arming several businessmen who had been paying off bureaucrats for years.
His efforts seem to be working. In the past, anyone in the government beyond the level of basic peon used to be Old Faithful when it came time to accept ‘expedite fees.’ Not anymore. People are actually focused on doing their jobs and playing by the rules.
Martinelli is also keen on business and tax reforms. He proposed a flat tax during the campaign and will likely push for relaxing Panama’s strict labor code to make it easier for entrepreneurs to hire and fire employees.
He is also taking advantage of historically low interest rates to make some much needed investments in the country’s infrastructure; as a business owner, he would do the same thing– capitalize on cheap money to invest in positive NPV projects that will generate a return for shareholders.
As such, the Panamanian government recently issued $1 billion in 10-year notes, yielding 5.224%. This is about 1.8% higher than the US 10-year yield. The issuance coincided with S&P’s very enthusiastic upgrade of Panama’s credit rating, which is now one level below investment-grade.
$1 billion is a lot of money in Panama, roughly 6% of GDP. It would be like the United States issuing $1 trillion in debt, all at one time… it’s an enormous amount of money, but Panama’s dollarized economy can handle the inflows.
With so many capital-intensive public projects like highway construction, the Canal expansion, airport renovations, etc., the money will likely be spent quickly. But considering the direction that Panama is headed, Martinelli will likely come away looking very smart for making these investments with a cost of capital at only 5.224%.
At the moment, he has popular support as well. His approval ratings are just about the highest in the western hemisphere at over 90%, compared with Barrack Obama’s 53%, Hugo Chavez at 46%, and Argentina’s Cristina Kirchner at a laughable 20%.
So what does all of this mean for banking and real estate?
Panama still has banking secrecy and will likely be, along with Hong Kong, the last holdouts that will buckle to the OECD’s offshore witch hunt. But that’s not necessarily the reason you want to consider Panama for international banking.
Panama’s banking system is very mature and offers a variety of unique products and services– online wire transfers to anywhere in the world, debit/credit cards, and personal attention from a private banker. Furthermore, it is actually possible to obtain a loan in Panama, which is next to impossible in many other jurisdictions.
Most importantly, though, Panamanian banks are well capitalized; they largely dodged the meltdown that wrecked havoc in North America and Europe, and their balance sheets remain strong.
Regarding real estate, I have been very vocal about my thoughts on Panama’s future; it is not without its problems, but given the maturing economic growth engines and massive infrastructure development that is underway, the country is clearly on an upward trajectory.
Martinelli’s actions are keeping Panama on the right track, and I believe the country will remain a safe long-term bet for investors and residents, as long as you don’t end up with the wrong people.
Like any boomtown, Panama has attracted its share of shady characters. You see the same types of folks in Dubai, New York, and even here in Bangkok.
The problem is that many gringos rely solely on Google for their ‘due diligence’; they do a search for “Panama Property” and the first presentable looking, English speaking bloke who pops up becomes ‘their guy’.
This sort of thing is truly dangerous, yet it happens all the time. I personally have burned through dozens of bankers, lawyers, and real estate agents in Panama who didn’t measure up, either lacking competence, character, or both.
The fact is, some Panamanians have made a science out of taking advantage of gringos coming down to Panama. These guys look good, sound good, but absolutely cannot be trusted.
Over time, I assembled a list of the most intelligent, honest people that I have worked with in the country, as well as a list of people who should be avoided like the plague. The whole thing was packaged together in what I called the “Panama Black Paper.”
Initially, I released only 25 copies because I did not want to inundate my trusted contacts. I know that many subscribers were not able to get in on the first release, so after clearing it with many of my contacts, I’ve decided to release another 25 copies of the Panama Black Paper.
I plan on doing this on Tuesday, December 1st at a cost of $297. I fully expect all 25 to sell very quickly again, so if you’re interested in getting access to my personal Panama rolodex, I suggest you fill out the following Pre-Notification Form.
By signing up for the early notification, I’ll email you a special purchase link at least two hours before The Panama Black Paper officially launches. 12/1/2009 update: We received a lot of feedback from subscribers around the world in ‘inconvenient’ time zones that would be unavailable for the pre-notification launch… I understand this more than most people– 12pm on the east coast is the middle of the night in Sydney. Consequently, we are sending out a public notification on December 1st will keep it open for 24-hours.