In The World’s Top Offshore Haven, Economic Boom Continues (Despite The Current Hotbed Of Political Semi-Chaos)
“I’ve just returned from a week-long trip to the Republic of Panama,” writes friend and attorney Robert Bauman following his visit to Panama for our Emergency Offshore Summit earlier this month.
“Even though the tiny Latin American country is still a hotbed of domestic political maneuvering, the Panama economic boom goes on.
“Let me explain…
“The government of Panama, headed by millionaire grocery store magnate Ricardo Martinelli, is in a state of mild, political semi-chaos that is far from impressive but very entertaining for locals.
“Minus the sex scandals, el presidente Martinelli, since his election in May 2009, has proven to be every bit as headstrong, rambunctious, and newsworthy as Italy’s beleaguered leader, Silvio Berlusconi.
“And that’s not all bad…
“Martinelli won an unprecedented 50% of the votes in 2009 in a three-way race, but now locals have differing opinions. The man in the street, Miguel, my driver from Tocumen Airport, says, ‘He’s no worse than the others; in some ways better.’
“At Panama City watering holes, like the new ground-floor bar at the Intercontinental Miramar or the modernistic, W-style Le Meridien just off teeming eight-lane Avenida Balboa, the word for Martinelli is ‘controversial’…but ‘he gets things done.’
“One long-time dual Panamanian/Canadian resident says, ‘The trouble is he thinks he can run Panama like his Super 99 grocery chain. Government here doesn’t move that fast.’
“The political scene is very familiar if you know Panama’s history, both recent and ancient. But this political circus pales in comparison to the country’s continuing economic boom…
“As The Economist recently described, ‘The 50-storey skyscrapers of Panama City jut out of the jungle like nowhere else in low-rise Central America. Panama’s smart banks, open economy, and long queues of boats at its ports have caused many to compare it to Singapore, another steamy success story.’
From 2005 to 2010, Panama’s economy grew by more than 8% a year, the fastest rate in the Americas. The IMF predicts growth of over 6% a year during the next five years. Accounting for purchasing power, it is one of the five richest countries in mainland Latin America.
“In 2010 the Panama Canal’s revenues were US$2 billion (7.5% of GDP). So far in 2011, they are up by a quarter thanks to more traffic and higher tolls. The canal and Panama’s business-friendly regulations have expanded big insurance, finance, and legal offshore industries. The traditional free-trade zone in Colón, at the canal’s Atlantic end, has lured the regional bases of firms like Procter & Gamble. In 2010, Colón and Balboa, Panama’s Pacific-side trade gateway, became Latin America’s two busiest ports.
“Panama’s import tariffs are among the lowest in Latin America, and the country has received foreign direct investment worth nearly 9% of GDP, the largest share on the continent. A US$5.3 billion expansion of the Panama Canal for bigger ships is to be completed in 2014.
“Martinelli’s government has begun a five-year, US$13.6 billion investment plan, focusing on schools, hospitals, sewerage, roads, and a metro transit system for the congested capital. Pensions for the poor and a universal scholarship will help to reduce inequality, which is among the worst in the Americas.
“What about the TIEA?
“The much-debated U.S.-Panama tax information exchange agreement (TIEA) has yet to be implemented in Panama. So far as anyone knows, no U.S. IRS requests have been made.
“That may be because President Obama, trying to please his noisy labor union and left wing base, has yet to push for the U.S.-Panama free trade agreement that has been languishing for the five years since George Bush signed it. The main reason Martinelli went along with the unwanted U.S.-Panama TIEA is to get the FTA.
“Since Panama only taxes economic activity within its territory, meaning that no Americans are subject to its levies, the TIEA represents a clear surrender to U.S. Internal Revenue Service demands.
“Indeed, Panama still has a greater level of financial privacy than the many tax havens that have been forced to surrender to the demands of the U.S. government, especially those of the IRS and the OECD.
“Despite all this, in my opinion, Panama remains the world’s best all-around offshore haven.
“This is due to all the other investor-friendly policies and opportunities it offers: its asset protection laws, a strong anti-money laundering law, a territorial tax system with tax exemptions for foreigners, an array of useful statutory legal entities, and a host of qualified offshore professionals and bankers.
“I have visited Panama many times over the years. During the turbulent 1970s, I was the ranking Republican member of the House-subcommittee on the Panama Canal.
“In 1999, I returned to Panama for the first time in 20 years, this time as a private U.S. citizen. The sleepy, slightly seedy U.S. colonial city, dominated by the American military…all that was gone.
“In its place was a thriving, gleaming metropolis with scores of modern skyscrapers, condos, first-class hotels, restaurants, shops, malls, digital Internet and international communications, fast-paced traffic, a brand-new airport, superhighways, and your pick of nightclubs.
“Sure, at first glance, today you might think the TIEA and the politics of Ricardo Martinelli have sullied Panama’s status as the world’s ultimate offshore haven. But let me assure you: They haven’t. Panama is still the ideal location for retirement, a second home, an offshore bank account, or any number of legal asset protection structures.
“Panama is a proud nation that will welcome you…as it has me.”
Kathleen Peddicord
