Category Archives: Panama

Panama, United States

No, Bernie wasn’t right about Panama — and offshore havens have little to do with trade

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Even before a bilateral free trade deal with the United States, Panama City was thriving as a center of commerce, banking and shipping in the Caribbean. (Kevin Lees)
Even before a bilateral free trade deal with the United States, Panama City was thriving as a center of commerce, banking and shipping in the Caribbean. (Kevin Lees)

During Barack Obama’s presidential administration, the United States entered into bilateral free trade agreements with not only Panama, but Colombia and South Korea as well.USflagPanama Flag Icon

It might surprise Vermont senator Bernie Sanders, but that didn’t transform Colombia and South Korea offshore tax havens.

Panama, like the British Virgin Islands or a handful of well-known jurisdictions (including Delaware), was known as a top offshore destination for foreign assets well before 2012, when the U.S.-Panama Trade Promotion Agreement took effect. Today, in the aftermath of the jaw-dropping leak of the ‘Panama Papers,’ a 2011 video clip of Sanders, the insurgent candidate for the Democratic presidential nomination, is now going viral.

But it’s far from evidence that Sanders was somehow prescient, and the suggestion that the U.S.-Panama free trade agreement somehow led to Panama’s reputation as a tax haven is disingenuous.

The truth is that offshore jurisdictions have been under siege for years, and the United States has been at the forefront of that fight. It began in earnest in the 1990s, a result of efforts to stymie money laundering related to drug trafficking. But it accelerated to warp speed after the 2001 terrorist attacks in response to concerns about the intricate networks that financed terrorism. Both before and after the aftermath of the global financial crisis in 2008-2009, the Organization for Economic Co-operation and Development took steps to force many of the worst global offenders, named and shamed on its ‘blacklist’ and ‘graylist’ of violators, to weaken their bank secrecy regimes.

That included, perhaps most notably, Switzerland, once the gold standard of secret bank accounts, which agreed to relent its famous standards of bank secrecy in 2009 and 2010. For the record, neither Panama nor the United States signed a more recent effort from 2014 to introduce greater tax transparency. Yet, under the Obama administration, the Foreign Account Tax Compliance Act (FATCA) has put unprecedented burdens on foreign financial institutions in the effort to root out American tax cheats.

Despite the easy meme about Sanders, the U.S.-Panama free trade agreement was always about free trade.

Continue reading No, Bernie wasn’t right about Panama — and offshore havens have little to do with trade →

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Meet Juan Carlos Varela, Panama’s new president

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Polls showed Juan Carlos Varela trailing in third place going into Sunday’s presidential vote, but the outgoing vice president shocked the country, and he will become Panama’s next president after leapfrogging both the candidate of the outgoing, term-limited president and the candidate of the Panamanian center-left.Panama Flag Icon

With 82.12% of the votes counted, Varela (pictured above), the candidate of the conservative Partido Panameñista (Panameñista Party), one of the country’s oldest parties, led with 39.00% of the vote.

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Trailing in second place was José Domingo Arias, the candidate of term-limited, outgoing president Ricardo Martinelli and the center-right Cambio Democrático (CD, Democratic Change), with 31.87%. In a surpassingly weak third place was environmentalist and former decade-long mayor of Panama City Juan Carlos Navarro, the candidate of the center-left Partido Revolucionario Democrático (PRD, Democratic Revolutionary Party), who was winning just 27.79% of the vote. 

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RELATED: Panamanian presidential race is all about Martinelli

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Until the votes were actually counted, the race seemed like it was set become a photo finish between Arias and Navarro. 

So what happened?  Continue reading Meet Juan Carlos Varela, Panama’s new president →

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Panamanian presidential race is all about Martinelli

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Ricardo-Martinelli

If he could run for reelection, it seems certain that Ricardo Martinelli, the grocery chain tycoon-turned-politician, would almost certainly win a second term in office — he’ll leave the Panamanian presidency this year with approval ratings in excess of 60%.Panama Flag Icon

But with Panama’s law prohibiting consecutive terms, the closest Martinelli can come to a second term is by supporting the ticket of his own center-right Cambio Democrático (CD, Democratic Change), whose vice-presidential candidate is Panama’s first lady, Marta Linares de Martinelli.

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RELATED: The internal politics of the widening of the Panama Canal 

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Martinelli has a strong record. Panama’s economy has grown by an average of between 8% and 9% through his five-year term (significantly boosted by the revenues garnered from the country’s eponymous canal.). He’s also introduced supplementary pensions for Panamanians over 70, built Panama City’s metro system, and spent around $20 billion on infrastructure projects. That includes the $5.25 billion Panama Canal expansion initiated by his predecessor, though the expansion has faced cost overruns and worker strikes that have postponed the expected completion date from 2015 to 2016.

He’s faced accusations, however, that he’s undermined Panamanian democracy, bullied opponents and presided over such a culture of corruption that Martinelli himself may face bribery charges in Italy after leaving office.

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Critics argue that the CD’s presidential candidate, José Domingo Arias, another former businessman who served two years as minister for foreign trade and three years as minister for housing and land development under Martinelli, is merely a figurehead. They worry that if Martinelli’s wife (pictured above with Martinelli and Arias) is vice president, the incumbent will continue to control too much power in Panama. Despite a constitutional provision that appears to limit family members of the incumbent from running for president or vice president, Martinelli’s allies on the Panamanian supreme court have not blocked Linares’s vice presidential candidacy. But there’s also a sense that most Panamanians realize this going into the weekend’s vote.

In a fierce column for the Wall Street Journal last month, Mary O’Grady chastised Martinelli for trampling Panamanian democracy. She was shocked (shocked!) that a Central American president may have promised greater spending in exchange for a parliamentary majority over the past five years, and she ultimately compared Martinelli (unconvincingly) to Nicaraguan strongman Daniel Ortega:

In 2012, Mr. Martinelli tried to pack the Supreme Court by adding three new seats to guarantee his influence and raise the odds that he might overcome the prohibition on re-election the way Daniel Ortega did in Nicaragua. When Panamanians went to the streets to resist, he withdrew the proposal. The lust for power remains.

It’s worth noting that even in Costa Rica, which has the best governance standards in all of Central America, two recent former presidents have been convicted of corruption. It’s also a pretty rich argument for a columnist in a country where the frontrunners for the 2016 presidential election are the wife of a former president (Hillary Clinton) and the son and brother of two former presidents (Jeb Bush). Martinelli himself took to Twitter to attack her in a fairly petty retort, which wasn’t perhaps the most convincing step.

All pearl-clutching aside, and without getting into the theoretical question of ‘good corruption’ and ‘bad corruption,’ Martinelli certainly isn’t the first Latin American president on the right or the left to chafe at term limits. Though initially instituted to prevent the kind of personality-based caudillos that had a tendency to co-opt presidential systems throughout Latin America in the 19th and 20th centuries, strict one-term limits make presidents from Mexico to Chile lame ducks from the first day of their administrations. It’s not surprising that politicians like Martinelli (and like former Honduran president Manuel Zelaya) are looking for ways to escape the yoke of single term limits.

The two main challengers to Arias come from Panama’s two traditional parties. Continue reading Panamanian presidential race is all about Martinelli →

Costa Rica, El Salvador, Honduras, Panama

Chart of the day: Central American GDP per capita

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Central America holds its fair share of elections over the coming months, starting with the November 24 general election in Honduras, where voters will select a new president and all 128 legislators in the Congreso Nacional (National Congress).honduras flag iconPanama Flag Iconcosta_rica_flagel salvador

But that’s just the beginning — El Salvador holds the first round of its presidential election in February 2014, with a potential runoff in March 2014, Costa Rica holds a general election in early February 2014, and Panamá holds its general elections in May 2014.  Guatemala will hold off until autumn 2015 and Nicaragua and Belize will hold off until 2016, when president Daniel Ortega (yes, that one) may well attempt to cling to power.

What’s more, in each of the four Central American elections set to take place in the next seven months, presidential term limits prohibit the incumbent from reelection, so four countries with over 21 million people will make political transitions of some kind.

But what’s most staggering is that the issues in each of the four elections are massively different — GDP per capita varies widely.  Though you can see a slight variance in 1960 setting Panamanian and Costa Rican GDP per capita apart, Guatemala briefly overtook Costa Rica in the early 1980s and Nicaragua was also on essentially the same path as Panamá and Costa Rica before flatlining for a decade starting in the late 1970s (following the Managua earthquake and anticipating the fall of the Somoza regime) and actively falling during the 1980s and early 1990s when the Cold War-inspired civil war devastated the country.  Though El Salvador continued to growth at a slow, steady rate throughout its civil war, which raged from 1979 to 1992, its growth rate exploded in the mid-1990s, and pushed the country to appreciably higher standards of living than its neighbors.

Still, the greatest relatively gains have been made over the past two decades:

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Costa Rica, with its tourism (and its position as a regional hub for Intel microprocessors), and Panamá, with its canal revenues, banking and insurance sectors and, increasingly, also tourism, lead the way.  Panamá City long overtook Managua as Central America’s financial hub.

In short, Panamá and Costa Rica are becoming tropical extensions of North America, with GDP per capita approach $10,000, essentially equivalent to that of México, and just a little lower than Brazil, Argentina, and Chile.

The remaining four countries major countries (minus Belize) are languishing further behind, with some of the lowest standards of living in all of Latin America.

Especially in Honduras, which features the higher homicide rate in the world — a rate that’s more than doubled since 2005 from around 37 homicides per 100,000 to 91.6 in 2011.  The World Bank estimates that violence and crime levels cost Honduran economy about 10% of GDP annually.  Security dominates the election campaign, but it’s a real drag on the economy as well.

Nonetheless, the economy has grown steadily at around 3.5% for the past four years, in part due to the strength of its export economy, fueled by the passage of the Central American Free Trade Agreement (CAFTA-DR) among the United States, Honduras, the Dominican Republic and several other Central American countries.  That has boosted the maquila (assembly) industry, as well as other service and manufacturing sectors in Honduras — agriculture remains important, but bananas represent just about 3.5% of exports in the original ‘banana republic,’ and coffee amounts to just 10% of exports.  The economy remains incredibly tied to the United States — exports to the United States account for about 30% of Honduran GDP and remittances from the United States and elsewhere contribute about 20% of Honduran GDP.

But whereas economists and observers once joked that Honduras was so poor that it couldn’t even afford an oligarchy, it now has the highest Gini coefficient in Central America (57) and one of the highest in the world as inequality continues to rise.  About 60% of Hondurans live below the poverty line.  Moreover, corruption remains a real impediment to foreign investment — Transparency International ranked the country 133rd in 2012, again the lowest score in Central America (and just barely topping the more lowly ranked Venezuela).

In global terms, however, Honduran GDP per capita (around $4,600 on a PPP basis), is relatively wealthy — that’s still higher than in India, Pakistan, Vietnam, Nigeria, Kenya or Ethiopia.

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The internal politics of the widening of the Panamá Canal

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Joshua Keating at Foreign Policy‘s blog Passport today points to the global ramifications of the widening of the Panamá Canal — a third lane is set to open in 2014, and it will allow much wider ships to pass through the Canal than the “Panamax” vessels currently designed to pass the Canal.

The new lane, which will allow for more efficient ships — economically and environmentally — is expected to affect global trade and energy flows in multiple ways, absolutely.

It’s not quite as rosy as all that — the third lane’s opening date is now all but certain to be later — in 2015 (well after the date of the next Panamanian general election in May 2014).

Although the Canal’s expansion is indisputably an economic boon to the small Central American country, it may not be such a boon for the fortunes of Panamá’s current president, supermarket magnate Ricardo Martinelli, who swept into office in a landslide 2009 promising to restore Panamá’s record GDP growth rates following the worldwide economic slump in 2008.

Since the U.S. handed over sovereignty and control of the Canal to Panamá in 1999 (the result of a controversial agreement — at least in the U.S. — signed by Jimmy Carter in 1977), Panamá’s already solid postwar GDP growth skyrocketed.  Starting in 2000, Panamá saw a rise in GDP growth that peaked at 12% growth in 2007 — it bottomed out at 3% in 2009 before bouncing back up to nearly 11% growth last year.

Much of that growth is of course linked to the Canal and construction and service industries tied to it.

Each successive administration has taken advantage of Panamá’s increased wealth: Mireya Moscoso, who came to power in 1999 and presided over the transfer of the Canal to Panamá, used Panamá’s economic prospects to strengthen social programs, especially for children.  Her successor, Martín Torrijos, initiated the Canal expansion project in 2006, and tried to lessen political corruption in Panamá.

Martinelli has presided over the return to breakneck GDP growth, and he’s also enacted a fair share of legislative reforms, which have merited approving nods from global investors.  As you might expect from a center-right businessman-president, Martinelli has enacted tax reforms to simplify tax collection, he has invested $20 billion into Panama’s infrastructure and he has championed the U.S.-Panamá free trade agreement, which was approved by the U.S. Congress and enacted into law by U.S. president Barack Obama in late 2011.  But Martinelli has also enacted an increase in the minimum wage and instituted pensions for the elderly.

Given his success so far, given the return of the Panamanian economy to double-digit growth rates, and given the lead up to the opening of the Canal’s third lane, you’d think that Martinelli would stand to gain most of the credit for that.  Instead, however, it’s much more unclear — Martinelli’s party is far from certain to make gains in 2014.

Continue reading The internal politics of the widening of the Panamá Canal →