Panama hopes to beat the global financial crisis

By Jeremy Schwartz - INTERNATIONAL STAFF for the statesman.com- PANAMA CITY — Cranes hover over the skyline like futuristic insects, buzzing around half-finished skyscrapers that make Panama City look like Miami or Hong Kong. If any country is poised to withstand the ravages of the global financial crisis, it just might be tiny Panama, which has quietly become a regional economic powerhouse in the past five years. Fueled by a superheated real estate market, windfalls from the Panama Canal and a burgeoning banking system, economic growth hit 9.2 percent in 2008 after soaring to 11.5 percent the year before. As nations from the United States to Japan confront shrinking economies in 2009, officials in Panama are predicting relatively robust growth of 4 or 5 percent this year. "This global crisis arrived in a moment in which we find ourselves stronger than we have been in the past," Minister of the Economy Hector Alexander said. "In Panama, the dominant topic isn't the recession." (more) (See Comments)
Editor's Comment: There's one part in this article where an economist named Gordon is quoted as having said "...the percentage of Panamanians laboring precariously in the nation's informal sector — doing things such as selling fruit at intersections — has risen from 33 percent in 2001 to 44 percent today." That's just plain wrong. In fact, the informal employment market has dropped substantially in the past five years to their lowest levels in modern history. There are now more formal jobs - positions in which the employees receive a standard wage, pay income taxes, and appear on the rolls of social security - than ever before. In fact back just eight years ago unemployment was pegged at about 15% or higher, and "underemployment" (informal or non-reported positions) were much higher than they are now. Without a doubt, the entire labor force in Panama has been moving towards formalization. Unemployment is down to about 6% or less. And this guy Gordon's statements are just flat-out incorrect.

(Comments Conclude, Article Continues)

While unemployment has soared in the United States, the unemployment rate in Panama fell from about 14 percent in 2004 to 6.5 percent last year. And as the U.S. is adjusting to life with 12-digit budget deficits, Alexander said Panama is hoping 2009 will be its third consecutive year with a budget surplus.

But the nation hasn't been immune to the global recession. Its real estate market might be heading for a sharp downturn.

Matt Landau, a New Jersey native and Panama City investment consultant, said real estate sales have declined precipitously in recent months, especially among the U.S. and European buyers who largely fueled the boom.

"When I first got here (about four years ago), people were buying (properties) for $200,000 and then flipping them for double or more in six to 12 months," he said. "That was happening even up to a year and a half ago."

Now, Landau said, Panama City is bracing for a glut of high-priced condominiums.

And as global trade is pummeled by the recession, Panama Canal officials expect the number of cargo ships passing through the waterway — and the tolls they pay to the Panamanian government — to fall almost 6 percent this year.

Even there, Panama has an ace up its sleeve in the form of a $5.2 billion Panama Canal expansion, which will widen the canal's locks to allow larger ships to pass through.

Although recession wasn't on the minds of Panamanian voters when they approved the expansion in 2006, officials see the megaproject as a perfectly timed stimulus that will directly create nearly 7,000 jobs in a country of 3 million and spark the creation of thousands of secondary jobs, just as the economy begins to sag.

"It's as if we are increasing public sector spending by 35 to 40 percent," Alexander said. "Today it works as a fiscal stimulus."

Percentagewise, the canal expansion dwarfs any stimulus project the United States is planning. The project represents nearly a quarter of Panama's $23 billion gross domestic product. By comparison, the $787 billion stimulus package in the U.S. represents about 5 percent of America's $14 trillion gross domestic product.

Counternarcotics officials have long suspected that Panama's boom has also been aided by an influx of money from criminal organizations. According to the U.S. State Department's 2008 International Narcotics Control Strategy Report, the country's construction and offshore banking sectors are particularly susceptible to money laundering.

But Panama's economy has been helped by a stable and peaceful political scene, which the nation has enjoyed since the 1989 ouster of dictator Manuel Noriega.

When Noriega was captured by U.S. troops, Panama's economy was in shambles, paralyzed by an economic embargo of Noriega's regime. Successive democratically elected administrations have focused on economic recovery, enacting reforms and privatizing sectors such as telecommunications and electricity.

But some critics say Panama's spectacular economic growth in the past five years has left out the majority of its people.

"The problem is that the growth has stayed in a few hands," said Rolando Gordon, a University of Panama economics professor. "The economic boom hasn't been able to resolve any of the great social problems of the country."

Gordon said government statistics obscure the fact that even as the country's economy exploded, the percentage of Panamanians laboring precariously in the nation's informal sector — doing things such as selling fruit at intersections — has risen from 33 percent in 2001 to 44 percent today.

Gordon added that public schools are underfinanced, and access to drinking water remains problematic for many Panamanians. At the same time, the price of basic foodstuffs has increased.

"This boom we're having is tremendous," taxi driver Jose Cano said. "But for the poor, the humble, we aren't seeing the boom. The price of food is going up. I have my own taxi, so I'm doing pretty well, but there are a lot of people who are recycling cans and stealing scrap metal."

Ivanka Trump: It's Time To Party In Panama

Our newly disovered financial guru, Ivanka Trump, says that Panama’s real estate market is the strongest in the world. Ivanka, the executive vice president of development and acquisitions her fathers Trump Organization, impressed us mightily when she appeared on SquawkBox last week. It wasn’t so much that a pretty young thing turned out to be smart that caught us off guard. Lots of pretty girls are smart. But we had kind of figured that a scion of a celebrity family like the Trump’s would be a bit dim. In fact, she shines. “I have projects all over the world [and] have a unique sense of the global real estate climate and submarkets,” she tells Latin Business Chronicle. “With great conviction, [I can say that] Panama is one of the strongest, if not the strongest, real estate market. Our biggest problem is not having enough inventory. We only have a small percent of the building left.”


Apparently, Panama is pouring huge tax incentives into real estate development. She contrasts this with America, where taxes are going up. And the Panama Canal is still going strong.


Of course, both factors raise red flags. The Panama Canal is heavily exposed to international trade and shipping, both of which are looking at huge downturns as the world slips deeper into a recession. And tax incentivized building can often lead to unsustainable bubbles.


She also may be talking her book here. The Trumps have a major development underway in Panama. That said, this also gives her a unique perspective on the opportunities in Panama. So perhaps we shouldn't make too much of the conflict of interest.

John Carney - Wall Street Journal

5 Good Reasons to Buy Property in Panama

Detailing five very good reasons why it is still a great idea to invest in some stunning property in Panama – whether you’re an investor or a new home seeker. The world is in financial crisis, globally speaking real estate markets are in decline, no banks are lending money for consumers to buy houses with, and chances are there has never been a worse time in our recorded history to buy property – and yet, in our opinion there are still at least 5 good reasons to buy property in Panama! You may have read the hype that the boom is continuing and that every property that’s for sale in Panama is a sound investment bet – well, that’s not entirely true. But neither is the negative hype about the market being saturated with greedy speculators and that Panama is heading for an almighty crash. There are 5 very sound and solid reasons why property in this stunning Central American nation is a good bet for long-term investors, holiday home seekers or even retirees and early retirees… (more)


1) Tourism is Increasing in PanamaPanama is a first world nation offering the associated comforts, and at the same time it is an ‘undiscovered’ gem of a nation where it’s possible to get truly away from the madding crowd and discover hidden coves and beaches, stunning rainforests, amazing flora and fauna, unaffected people and communities steeped in history and culture. In other words, Panama has something for everyone – and it’s cheap too, relatively speaking! All of these are reasons why the country has been welcoming increased numbers of tourists year on year – in fact, it has welcomed a 12% increase annually since 2004.



Hotel occupancy rates are exceptionally high, new airline routes are opening up bringing travellers direct from nations such as Italy and the Netherlands for example, and the government in Panama is continuing to plough substantial funds into the promotion of the nation internationally.



All this bodes very well for anyone who is interested in buying property in a country with a healthy and affluent outlook for the long-term. It means that desirable homes will make good rental properties, and that as more people arrive and learn about the delights of Panama, so more people will think over the long-term about relocating to live there – thus giving a property owner an exit strategy.



2) Desirability of Panama and its Property Product. Panama has it all – from a bustling and cosmopolitan capital city to tiny rural enclaves, from high rise luxurious real estate, to beach huts and fabulous fincas. Therefore, yet again there is something of appeal to everyone. So whether you want to live on the coast and be a beach-bum or you want to live the high life in Panama City, you can when you choose the right type of home for you in Panama. This makes the nation a great choice for anyone thinking about moving abroad – because you can likely find your perfect home in this one nation – no matter what it is you’re looking for in a property!



3) Property in Panama Can be Competitively Priced. Because the really booming times in Panama’s recent history are currently over, there are many speculators keen to exit the market and consolidate their debts, there are developers doing their best to off-load already constructed stock, and there are private vendors willing to accept below asking price offers for property. What’s more, away from the glitzy, modern high-rise property market in Panama City, most real estate in Panama is sold on a more personal basis. You’ll find that those who are selling a family home for example, are far less likely to want to sell to an anonymous buyer from abroad and far happier to sell to you if you befriend them, enter into direct negotiations with them and remain calm, open and friendly throughout. These sorts of vendors would rather sell to you for a lower sum if you take this approach, than they would to an overseas buyer they have never met who is dealing with a slick real estate agent and offering them their asking price!



In other words, Panama is a market where there is a lot of room for movement when it comes to asking prices – no matter which approach you take and which properties you’re looking at. And it’s also a market with some exceptional bargains.



4) Long-term Potential for Profit. Panama’s canal extension project is on track, tourism numbers are consistently rising well, the government and business environment are stable, fiscally speaking Panama is affluent and successful, the ‘pensionado’ scheme attracts more wealthy ‘retirees’ annually and the real estate market’s transparency is improving. These are all very good reasons why Panama has exceptionally good long-term potential in terms of its property investment prospects. Whilst things are looking less favourable at the moment due to the current state of the global financial market, those who look to the long-term and take anything but a speculators approach to the market stand to reap the rewards eventually.



5) Lifestyle. The final reason why we feel that property in Panama is a good bet is simply because the lifestyle available in Panama is fabulous! It’s once again the case where you can get what you want from life – so, if your idea of heaven is shopping in glitzy boutiques, working in the City, dining out in posh restaurants and living in luxury – you can have that lifestyle in Panama City. Or, if you prefer the thought of living in a friendly expat community close to the sea and with wonderful views and a very laid back pace of life, this type of lifestyle is also possible. Alternatively, those who want to get away from it all or who want to live on the beach, in the mountains or perhaps in the local community can also find a property that will give them the lifestyle they want.



Hopefully this article has demonstrated that property in Panama can be a solid investment purchase, a lifestyle home choice or just a great buy for long-term potential appreciation…and that you can find whatever it is you’re looking for in Panama.

The World's Top Property Hotspots for 2009

Oxford 26 January 2009 - International real estate investment specialists Property Frontiers have named their top six property investment hotspots for 2009 – and the list contains some surprises. Panama, the Central American republic tops the list due to a strong economy, a favourable tax regime and offshore banking attracting businesses from across the globe. Investors can choose a variety of different options, from hotels enjoying high occupancy rates, to offices, and beachside resorts. The expansion of the Panama Canal looks set to underpin future economic growth. The Malaysian capital Kuala Lumpur is a thriving city with affordable property and accessible cheaply with a new budget airline linking direct to London with flights from just £99. Outside of Kuala Lumpur is the teeming tourist playground of Sabah on North Borneo,Where Brazil is a booming economy and with sun, samba and a cheap cost of living, is taking over from Florida as the fun capital of the world – and is the same flight distance from London as Miami.


Tourism is lifting off around the northeast city of Natal, which boasts average daily temperatures of 28°C all-year-round and mile after mile of sandy, palm fringed beaches. If traditional buy-to-let is the target, Sao Paulo is one of the world’s largest and fastest growing cities with an insatiable demand for quality accommodation. Slovakia’s High Tatras national park offers all-year round tourism as a UNESCO area of outstanding natural beauty. In the summer, the mountains are an attraction for walkers and golfers, while in the winter cheap skiing lures visitors from all over Europe.



The USA is tipped as one to watch as prices bottom out. Apartments in Florida are selling at 54% lower than their launch price, and according to the builders, at less than their build cost and offer an instant 6% rental return. Coming in last is the UK, with property bargains piling up at auction houses and market commentators still forecasting that prices are stagnating or still falling in most areas. “In real terms the pound is at a point not seen for 10 years. This offers a fantastic buying opportunity for international investors. As a company we have never seen so many enquiries from our international investors looking for UK property. A combined depreciation of the pound and the market now makes UK property some 54% cheaper than a year ago.



source: Panama-Guide.com

Consumer confidence high in Panama

Although the rest of the world's consumer confidence may be in the toilet, Panama's is still riding high. As this particle points out, it is due partially to a 13th month year end mandatory bonus and Panamanian's belief in a brighter future.

Excerpt From La Estralla:

Jacques de Raucourt of GFK Marketing Group, the company that carries out the consumer’s confident surveys for the Panamanian Chamber of Commerce said the increment of the index in Panama was directly related to the high level of commercial activity in December, mainly because during that month the Panamanians receive more income, like the 13th month payment and other incentives.
Consumers expectations about the financial situation of their homes went up to 118, five points higher that in November, which indicates optimism for the future.

With U.S. economy stuck, economists look abroad

By Jack Chang, McClatchy Newspapers WASHINGTON — As U.S. consumers stop spending and investors keep their money to themselves, government and business leaders hoping to get the country's ailing economy moving again are playing one of their few remaining cards. They're trying to sell more U.S. goods overseas despite the decline of both global demand and U.S. competitiveness. Exports currently make up about 13 percent of the country's total economic activity, far less than the 70 percent taken up by production for domestic consumption. But that's where economic growth can still happen, analysts say, especially as the domestic housing and credit crises promise to freeze spending at home for at least another year. Economists and business leaders suggest the incoming Obama administration implement export-friendly measures such as streamlining U.S. customs operations, negotiating more free trade agreements and developing industries such as alternative energy that can become the next generation of U.S. economic powerhouses. (more)

Fitch Affirms HSBC Bank Panama & Sub's Ratings; Outlook Positive

NEW YORK--(BUSINESS WIRE)--Today Fitch Ratings has affirmed HSBC Bank Panama (HBPA) and its subsidiary Primer Banco del Istmo's (PBI) ratings as follows: HSBC Bank Panama: --Foreign Currency Long-term Issuer Default Rating (IDR) at 'BBB+'; --Foreign Currency Short-term IDR at 'F2'; --Individual Rating at 'C/D'; --Support Rating at '2'. The Rating Outlook is Positive. Primer Banco del Istmo: --Foreign Currency Long-term IDR at 'BBB+'; --Foreign Currency Short-term IDR at 'F2'; --Individual Rating at 'C/D'; --Support Rating at '2'. The Rating Outlook is Positive. HBPA and PBI's IDRs reflect the support from its parent (HSBC, rated 'AA' by Fitch Ratings) and are constrained by Panama's country ceiling rating. The individual ratings reflect HBPA and PBI's strong franchise, market share and improving revenue diversification; they also factor in the challenges of their merger and the weakening economic scenario. (more)



In Fitch's opinion, considering HBPA's (and PBI's) size, importance and key role in HSBC's strategy in the region, support from its parent should be forthcoming, if needed. An upgrade in Panama's country ceiling rating (reflecting a strong economy) would allow HBPA's and its subsidiary's IDRs to be upgraded. A disruptive integration of PBI, declining asset quality or weaker capitalization could pressure individual ratings.

HBPA's performance in 2008 is driven by stable margins and increasing non-interest revenues that offset modest loan portfolio growth (+2.2% for the year to date at August 2008). Margins are somewhat underpinned by decreasing funding cost while growing fees and commissions supply about 25% of operating revenues. Operating costs have increased, reflecting the on-going integration effort that involves significant investments in premises, training and an IT overhaul. Provisions have gradually returned to normal levels hence resulting in higher efficiency and improved profitability.

The loan portfolio is widely diversified and little concentrated while asset quality and reserve coverage improved within HSBC's stricter credit policies. The investment portfolio is smaller, less risky and a substantial liquidity cushion is in place. Deposits, which are broad-based and little concentrated, increased in line with assets and funding costs eased as institutional funding declined. Capital was strengthened by fresh capital injections (about $156 million) and retained earnings (over $160 million), hence BIS capital ratios attain 10.9% at August 2008 (11.4% in 2007, 9.4% a year earlier).

Going forward, moderate loan growth should be driven by corporate lending and later on by retail lending; margins should remain under pressure, but funding costs are likely to stabilize/decline. Operating costs should start declining in 2Q09, after the integration is completed while credit cost should stabilize in line with asset quality. Efficiency and profitability should improve only by 2Q09 while capital ratios should remain fairly stable. The merger has been delayed by the IT overhaul; however, these glitches do not change Fitch's belief that the completed merger will result in a very sound, efficient and competitive regional player as originally planned.

HBPA is 100% owned by HSBC; its operations are highly integrated within HSBC's regional franchise where it is considered a key subsidiary. A universal bank active in consumer, commercial and corporate lending, HBPA holds 21% of the system's assets at September 2008; it merged with Grupo Banistmo (PBI's parent) in July 2007 creating Panama's largest bank and a major regional player operating in Central America and Colombia.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

A Tree Grows in Panama

By ANDREW C. REVKIN

While working in eastern Panama between 2002 and 2006, four young Peace Corps volunteers conceived of a plan to help restore the region’s disappearing tropical forests, provide income for struggling landowners and make money for investors and themselves.

It’s one thing to have an idea and another to start a business, of course. But the partners — using skills gleaned from academic programs in business, design and international relations — have pulled it off.

Their company, Planting Empowerment, leases land in the region — a pocket of biological riches that has been eroding under decades of slash-and-burn farming. Money from investors is used to plant and tend about 500 trees an acre that, in 25 years, should become a source of valuable tropical hardwood.

The key to the model is the concept of leasing, according to Damion Croston, a 29-year-old graduate student at Ohio University who is studying international development. (Another founder graduated in May from Thunderbird School for Global Management in Phoenix. The two others have degrees from Johns Hopkins and Virginia Tech.)

When land is bought outright for tree plantations, the farmer is displaced. But Planting Empowerment is using only uncultivated, deforested parcels of a farmer’s land, allowing agriculture to continue on other parcels. A lease clause prevents the use of the money to buy and clear more land. And to guarantee that the tree canopy is always increasing, trees are planted on different tracts at different times; as one patch of trees matures and is harvested, others will be in various stages of growth.

Investors, who must plunk down a minimum of $7,000, have so far been mainly family and acquaintances, Mr. Croston says. But Planting Empowerment is now selling $50 and $100 forest savings bonds with an expected return, after lumber is harvested, equivalent to 7.8 percent a year. Some income from the plantings, now on 50 acres, is possible after five years, when foresters start thinning the dense stands of young trees to make room for others to grow to maturity.

The business plan has won recognition in college-sponsored competitions aimed at fostering socially responsible ventures, including those at the University of Washington, Notre Dame, Yale and the University of Texas, Austin, where Planting Empowerment was second out of more than 1,000 ideas.

To promote sustainable economic opportunity, Planting Empowerment intends not only to pay indigenous people for the use of their land but also to provide some higher-level employment and a share of profits.

“We believe,” Mr. Croston says, “in a more inclusive sort of capitalism.”