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Tuesday, June 25 2019 @ 11:38 PM UTC

Panama and Its Banks Weather the Global Storm

Money Matters The Sovereign Society - Today's comment is by Bob Bauman JD, former U.S. Congressman and long-time Legal Counsel and Senior Writer for The Sovereign Society. Concerned about the gloomy economic situation and the liberal drift in U.S. politics, a good many Americans are seriously considering the possibility of moving themselves and their finances offshore - while they still are able to do so. The Sovereign Society (and yours truly) have long suggested that the Republic of Panama is the ideal place for retirement, a second home, or even to house your asset offshore protection trust or family foundation. It's one country in this turbulent world that is proud to be known as a tax haven. (more)

Healthy, Liquid Banks Thumb Their Noses at Global Crisis

Now Reuters reports (Oct. 13) that Panama's banks are flush with liquidity and well-placed to weather the international credit crisis.

The country's banking superintendent - Olegario Barrelier - says liquidity in Panama's banking sector stands at around 58% of deposits. Plus, they also have manageable exposure to the international markets that have been pummeled by the U.S. credit crisis.

"At the moment our banks are good, very good. They are healthy, they are liquid, capital is nearly double what is required. They are being financed by local deposits and are not dependent on external financial markets," he said.

No Lenders of Last Resort in Panama So Banks Have to Be Responsible

Panama has long been a center for offshore banking, where the U.S. dollar has been the official currency for nearly a century.

Panama is home to 90 banks, nearly 40 of them international. That makes Panama Latin America's largest banking center south of Miami, (which it is rapidly overtaking in assets). Among the major banks are HSBC, Citigroup and BBVA.

With no central bank, no federal reserve and no government lenders of last resort, Panama's banks have been encouraged to stay highly liquid, which they have.

These banks maintain a solid 58% loan to holdings ratio, which puts the banks in a strong position. Compare that to major U.S. banks that have had to resort to billions in federal bailouts to stay afloat.

Preemptive Strikes to Cool Credit and Manage Inflation

Superintendent Barrelier said the global crisis would eventually hit Panama, but it will only slow Panama's economy, not inflict major damage on the financial system. Since January, Panamanian banks have been encouraged to tighten credit to cool spiraling annual inflation, which is near 10%, a reflection of how the dollar has declined over the last few years.

Between 1955 and 2000, inflation averaged 2.4% per year, during the 1990s barely exceeding 1% a year. Annual inflation has averaged 1.4% for the past 30 years, which is much lower than in the United States or most major nations.

Bad Timing in Washington

In late September, Panama's President Martin Torrijos, his Vice President and Minister of Foreign Affairs, Panama's Minister of Commerce and Industry and the Panama Canal Administrator met with President George Bush and members of the U.S. Congress in Washington.

This was the fifth time that the two leaders met since President Torrijos took office in September 2004. But his timing for this visit was less than auspicious.

One seasoned Panama observer commented: "President Torrijos must have thought he had the worst luck in the world. Here he was with three of his top guns in Washington, with hat in hand, hoping to get a trade deal, when the flood gates of an economic disaster unfolded around him. You can bet there was little time to talk about anything but the economy with the various congressmen and senators."

Plenty to Brag About in Panama

Nevertheless, Torrijos still has plenty to brag about when it comes to Panama's economic status. Panama's strong economic performance of the last few years continues, despite the deteriorating global environment. Even the local real estate boom - while definitely cooling down - continues with skyscraper condos going up all over Panama City.

Panama was one of the fastest growing economies in the world in 2007 with real growth rising to 11.2%. The GDP is expected to post a growth of 9.5% during 2008. Buoyed by a strong, sophisticated services industry and a maritime and logistical transportation hub, Panama has taken advantage of global trade flows, recording an average annual GDP growth rate of 8.6% over the past four years.

It is now positioning itself as a "gateway to the Americas" and beyond.

Why Smooth Sailing Will Continue for Panama's Economy

Don't forget the Panama Canal wealth. Panama's economy benefits every year from the land, infrastructure and the tolls paid by ships and other Canal income.

Canal operations generated over US$1 billion in total revenues during the 2006 fiscal year. They needed much of that for the constant maintenance the Canal requires, but they still earned enough to generate a surplus. Tolls have declined this year as overall shipping has slipped worldwide.

The massive expansion of the Panama Canal now underway is on schedule to be completed by 2014 - exactly 100 years after the original canal opened in 1914. The Inter American Development Bank is loaning Panama US$400 million towards the estimated US$6 billion canal expansion costs.

All things considered, Panama, with its special pensionado program aimed at attracting foreign residents, is worth your consideration too.

BOB BAUMAN, Legal Counsel

P.S. Next week I'll be at The Sovereign Society's Third Annual Offshore Advantage Academy. We're bringing together some of the best and brightest from the world of offshore banking, asset protection and global investing to make setting up your own plan a breeze. We'll be in Cancun, Mexico from November 4th through the 8th. I believe we have only a few spots remaining, so if you'd like to join me, please click here for more information.

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