Signs of Recession in Panama – And other Notes
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Dear Panama E-Letter Subscribers:
Signs of Recession in Panama – And other NotesBy Matt Atlee The world recession has unfolded very slowly in Panama until recently when the economy began to see negative growth in the months of April and May. Certain sectors of the economy have remained strong like construction and telecommunications but other sectors like real estate and trade through the Panama Canal have begun to feel the pinch of the world recession. In response to the slower economy the new Panamanian government has gotten very tough with tax collections with the hope of increasing government revenue while expanding its ambitious social agenda. So the one change since the recession hit is a much more active Panamanian government. ‘Cutting Back’ In the Panamanian private sector people are cutting back on essentials like electricity, dining and entertainment. But the clearest signs of the recession are appearing in the real estate sector. Panama’s banks were, and are, very conservative about lending large amounts of money to homeowners, so most banks shielded themselves from the kinds of crazy financial offerings found in the U.S. during the great real estate boom. For example, as a foreigner you can’t buy a house in Panama without putting down a large down-payment – usually 20 to 35 per cent of the sale price. So the banking system in Panama has remained stable. ‘Bust Underway’ What did happen in the Panamanian real estate market was that lots of people over-extended themselves by buying too much property. And now that the economy has begun to slow people are very anxious to unload the properties they picked up during the boom. As the bust begins to pick up velocity rental signs are popping up all over Panama, especially properties in upper middle-class neighborhoods: homeowners are trying to either rent or sell their property holdings. In many cases people are trying to rent their primary home as a way of securing a flow of income during difficult times – the bust. When homeowners rent their primary home in order to stay afloat that is a definite sign that a bust is under way in Panama. ‘Step Down To The Economy Of The Poor’ Renting your home is a very traditional way of making it through a bust in the Panamanian economy: the same kind of thing happened in the last bust which ran from 1998 to 2002. Though the feeling now is that the current bust might be longer and more severe as the U.S. economy is also in a deep recession. People in Panama know how to weather an economic slowdown as the “traditional” Panamanian lifestyle is not expensive. The Panamanian basic diet is cheap and Panamanian clothing is also affordable as is private education and entertainment, so Panamanians by nature are not over-consumers – they over-consume when there’s an economic boom, but their traditional tastes are generally to the cheap. For example, the favorite supermarket of the poor in Panama is Super Extra which you only find in the poorer neighborhoods of Panama City. Just about everything in Super Extra is aimed at the customer who makes $300 a month. That means if you come from the middle or upper class and are short on money you can always step down to the economy of the poor in Panama and survive. And this is what many middle-class families are now doing. The real concern in Panama, like the U.S., is how many people will slip from the middle to lower class. ‘Gonzalez Still Wanted’ One of the more controversial characters in Panamanian politics is Pedro Miguel Gonzalez who is wanted in the U.S. for the murder of an American soldier, Zak Hernandez. The murder happened soon after the U.S. invaded Panama in 1989. Gonzalez, whose father was a famous Panamanian president and politician, denies there are former U.S. soldiers out to do him in. Rumors have floated around Panama for years that Gonzalez would eventually be kidnapped to the U.S. or tracked down by U.S. Special Forces – there is a pending warrant for his arrest in the U.S. Gonzalez was voted out of office this year and is now no longer an elected government official, but a private citizen. Not only is he a private citizen but his political ties are with the PRD party which was just voted out of power. So a private citizen on the wrong side of a very anti-corruption government that is going after former government officials might not be a good thing to be in Panama today. Its doubtful Gonzalez would ever be sent to the U.S. to face trial, but he must be a little worried when he lies down to go to sleep each night. ‘FDR’s Head Lost And Found‘ Franklin D. Roosevelt’s head was recently discovered in Panama after having gone missing for 22 years. The statue of Roosevelt’s head was discovered in a box in one of the government ministry’s in Panama. The statue of Roosevelt disappeared in 1987 because of protests in the streets of Panama. The statue was removed from the street and put away until it was recently discovered. Roosevelt was the first U.S. president to travel the complete length of the Panama Canal. Roosevelt’s trip to Panama was in support of his Good Neighbor Policy which helped to normalize relations between the U.S. and Latin America after 30 years of U.S. interventions in the region. ‘Offshore Tax Havens Under Pressure’ The G-20 countries are planning to meet in Pittsburgh, Pennsylvania later this month and one of the major topics of discussion will be offshore “tax havens” and what to do about them. Of course, this means Panama will be one of the countries discussed as far as tax havens are concerned. G-20 countries want to tighten the rules about the conditions in which a person can wire money offshore in order to avoid taxes in their home country. The setting up of offshore corporations has been an important source of income to Panama since the 1970s. Panama at that time was a popular offshore destination for private and corporate money because its banking hours were the same as New York banks and its secrecy laws were some of the best in the world. However, since about the late 1980s and because of the War on Drugs and the crackdown on money laundering as laid out in the Vienna Convention, truly secret offshore tax havens have disappeared. Almost all electronic money transfers go through the U.S. banking system and therefore any money being sent to Panama has to pass through the U.S. first so the U.S. government knows who sends how much to Panama. What the G-20 countries would like is to collect taxes on any money sent to Panama or any other tax haven. They want to have access to information about which citizens of their country are depositing money in Panamanian banks. Of course, Panama has no interest in allowing G-20 countries to do this because it would destroy the banking system of Panama by chasing away foreigners who deposit money in the country to avoid taxes. Panama, other than in cases of money laundering and drug trafficking, has been able to offer banking secrecy to clients who want to locate money in an offshore tax haven to avoid taxes. Written By Matt Atlee Panama 101 – E-Book – $69
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