LATIN LETTERS
October, 2004.
PANAMA:
ONE YEAR ON
In
last October’s issue of Offshore Investment.com I wrote about Panama’s
forthcoming 100th anniversary (Gateway to South America).
In August of this year Panama celebrated the 90th anniversary
of the opening of its world-famous canal, and if the country can be described as
South America’s gateway, then its canal can most certainly be called the
continent’s waterway. In my
article last October I mentioned that although the future of the country’s
offshore industry (more later) can be affected by many unknown factors, the
canal was destined to remain, in effect, the little republic’s ace card.
Since
control of the canal was handed over to Panama by the United States of America
(with much trepidation in Washington circles at the time) vessel transit time
has been reduced by 24.4% (7.4 hours), container net tonnage has increased by
74% and accidents have decreased by 57%. Up
to 38 large ships pass through the canal each day and its operations contribute
10% of GDP. It is estimated, in
fact, that about one-third of GDP is derived from canal-related revenues.
The country’s shipping registry is the world’s largest (in number of
ships). Panama has also continued
to improve its democratic credentials. Gone
are the days described in 1868 by Mark Twain when he travelled on the Panama
railway and wrote about “the Isthmus people.”
Twain said that there was a revolution in Central America “every time
the moon changes.” “All you
have to do is to get out in the street…… and give a whoop, and the thing is
done.” Last month Martín Torrijos was appointed the new President
of Panama after May elections which were seen by outside observers as having
been free and fair. Voter turnout
was about 80% and the elections passed without incident.
Not even a whoop. The
country’s political climate, on the other hand, is in contrast to parts of
South America. Over the last 5
years there have been as many elected leaders who have not completed their term
in office, namely, Paraguay (1999), Ecuador and Peru (2000), Argentina (2001)
and Bolivia (2003). There is no
denying that Panama faces many challenges, despite good reasons for optimism,
and, as a developing country, it must get to grips, for example, with two
problems prevalent in Latin America: large bureaucracies and unemployment. There is, however, a middle ground between the Pollyannas and
the pessimists and although the pace of Panama’s
progress will never please the prejudiced, unchecked optimism is also out
of place. It should be recognised
that much needs to be done and, at the same time, that much has already been
done, especially during the past several years.
One
thing that Panama shares with readers of this magazine is a keen interest in the
offshore financial services landscape. Panama
has had an offshore industry for several decades and today is Latin America’s
largest banking centre (in number of banks).
The jurisdiction has not escaped scrutiny by the Organisation for
Economic Co-operation and Development that has established the Global Forum on
Taxation in order to achieve fair tax competition world-wide.
Panama, along with 43 other OECD and non-OECD governments, attended the
Forum’s meeting in June in Berlin. Importantly,
16 jurisdictions that the OECD considers vital to the process, if the tax
initiative is to succeed, did not attend. So
there is still a divide to overcome and while there certainly was progress, it
can’t be said that a wall came down in Berlin.
Dean William R. Inge once commented that “it is useless for the sheep
to pass resolutions in favour of vegetarianism while the wolf remains of a
different opinion”. In this
instance, the OECD has more than one wolf, I suspect, to deal with.
Panama,
together with many other offshore financial services centres, has agreed with
the OECD that, in principle, it will work towards an even-handed international
tax system. But
Panama has been lumped in with those jurisdictions that are, in my
experience as both a regulator and practitioner offshore, little better than
manufactured tax havens with designer tax advantages when, by comparison, the
country’s economic development in the field of international services is, as
its government puts it, “a consequence of history and not of initiatives to
help evade taxes in other parts of the world”.
In Panama’s opinion, the OECD’S initiative started out badly with
“the threat of economic sanctions disguised as defensive measures”.
So although Panama will continue in good faith as a member of the
OECD’s Global Forum on Taxation, its government has said that this willingness
“should not be interpreted as Panama’s resignation to (sic) its sovereign
right to conduct its international economic agenda” and that if
even-handedness is not applied then the conditions will not exist “in order to
develop effective commitments between the OECD and Panama”.
As
the canal celebrates its 90th anniversary there are proposals to
widen it to meet commercial demand. Whether
the canal or the gap between the OECD and “the Isthmus people” will be
widened remains to be seen, but what is beyond doubt is that the country is
widening its international appeal, based on economic and other indicators.