#Panamapapers : Panama on Collision Course (updated)

Francisco Rivas Ríos. 

apronad@gmail.com 

https://www.facebook.com/apronadpanama/

"If they have differences heads of States from other countries they go and define them in their countries”, Juan Carlos Varela, President of Panama.

The #Panamapapers are being used in the international arena for political and economic struggle. According to Mr. Juan Carlos Varela, President of Panama " if the big powers want to fight, they do, but in their countries and will not allow the Panamanian territory and its fiscal and financial system are used, for that fight “. 

 In Panama, the consequences can be catastrophic, by eroding the service economy. It is foreseeable that internal conflicts affecting the stability of a small country with a strategic and traditionally pro- Western position, although some of the attacks come precisely from his "friends”. 

After the caused damage, officials of the World Bank and the International Monetary Fund have been quick to minimize the impact of #Panamapapers. Augusto de la Torre, chief economist of the Bank for Latin America and the Caribbean, explained that the impact would be limited in Panama because of its ability to grow from the network of services connected to the expansion of the Panama Canal. "The effect on Panama, although it will be negative, won't be as powerful because Panama derives its capacity of economic growth from other activities," the economist said. Panama will present its half-yearly report on the state of the country's economy at the spring meeting of the World Bank and the International Monetary Fund being held this week in the U.S. capital. However, the hurt already is made. 

The Center for International Services of Panama. The Panamanian economy since the colonial period, when the isthmus served as a way to American treasure from Peru and European goods transported by the Spanish fleet, specialized in the provision of financial, commercial and logistics services. 

This "hyper" tertiary specialization, after more than 500 years to this day. The International Services Center currently includes: • The International Banking Center (the largest in the region). • The Panama Canal. • The Corporations Act. • Merchant Marine Law and Ship. • The Colon Free Zone. • The laws of Insurance, Reinsurance and Insurance Captives. • A capital market with a stock exchange. • The Trust Law. • The new Railway trans Isthmian.

The predominance of the tertiary economy has been accompanied by three characteristics: the territorial centralization of economic activities, around the axis Panama - Colon; the concentration of capital in a small number of families and transnational (Panama is one of the countries with the greatest inequality); and the concentration of business skills and knowledge in a small group of the population (the country reflects a small number of micro and small business ventures). 

During 2015, the production of goods and services in the Panamanian economy, measured by GDP at 2007 prices, grew 5.8% over the previous year. GDP in nominal terms amounted to US $ 52,132.3 million. About 70% of GDP in 2015 corresponded to the following activities: Construction 14.8% Wholesale and retail trade 17.6%, transport, storage and communications 14.3% financial intermediation 7.7% and real estate, business and rental activities 6.0 %. The predominance of the tertiary economy has been all components of the tertiary economy are interrelated, even though personal and family ties. You cannot separate the Panama Canal and expansion of other sectors. Plating something illusory as the World Bank official. 

OFFSHORE TAX BENEFITS OF A SOCIETY IN PANAMA.

Panama corporations are subject to the United Nations System Territorial Tax, a single scheme requiring payment Tax for activities undertaken or considered done within the territory of the Republic of Panama. According to the Panamanian Tax Act, the Commercial transactions entered into, run or take effect outside of Panama son considered offshore and are not subject to tax, even if these operations are managed or directed from an office in Panama. 

Except for the annual corporate tax, rate or annual Unique in the amount of USD 300.00 All Company and Private Interest Foundation must pay any other tax obligation would have to pay for part of Panamanian companies offshore. • Billable selling products or merchandise through a corporate office in Panama at a higher price than that charged to society in Panama for the same products or goods , while those products or goods stay out of Panama. • Direct, through a company in Panama, transactions that take effect are held or perfect outside Panama. • Distribute dividends and shares of a Panamanian corporation or other legal entity when income has not been produced in Panama, which includes the above-mentioned situations. 

The International Banking Center of Panama (CBI), in the crosshairs. The International Banking Center of Panama (CBI, for its acronym in Spanish) was formally created in 1970 by the Cabinet Decree No. 238, which amended the Banking Regime and created the National Banking Commission as a supervisory body. Decree No. 238 was in force until 1998 when Decree Law No. 9, with the Superintendence of Banks, replaced it. The CBI is comprised of the National Banking System (SBN for its acronym in Spanish), the Private Banking consists of 48 banks (31 foreign, 17 Panamanians). International Banking License (28 banks) and Representative Offices (13). According to official figures from the Superintendence of Banks of Panama (SBP), the assets of private banking to August 2015 amounted to 34 thousand 999 million dollars, representing a rise of 10.7%. That is about 3 thousand 409 million dollars more than last year. 

However, these figures show that the country's banking sector is going through a slowdown, since in the same period last year, the amount of assets was 31 thousand 590 million dollars, an increase of 14.1% compared to 2013, when it reached $ 27 billion 676 mil.

• The CBI Panama has lost its main competitive advantage: banking secrecy. International investors now prefer going to do business with other countries with fewer restrictions than Panama, which is reflected in the decline in bank assets. Banking secrecy is special legislation that allows and requires banks and financial institutions to protect and keep confidential customer information to third parties, even though these are public or tax administrations. Banking secrecy refers to all types of personal and economic data, including deposits, number of accounts or transactions. Countries that have these banking centers have been classified as "tax havens". 

It is estimated that the total sum of money hidden in these jurisdictions offering low or no tax burden worldwide amounts to US $ 21 billion. This is equivalent to the annual economic output US and Japan combined. Of course, this can be seen in two ways. For a country like Panama the shelter of this capital is a source of direct and indirect employment and the availability of investment capital. For citizens of rich countries, countries like Panama allow large companies and millions do not pay taxes affect investment plans of their governments. 

From 2002, with especial emphasis 2009 onwards, various international organizations such as the OECD and the G -20 took various initiatives to try to force tax havens and offshore jurisdictions to relax its banking secrecy and allow its removal in the case of crimes of tax evasion. He identified those jurisdictions that supposedly applied “harmful tax practices” (harmful tax practices), for which sanctions were proposed in case of not collaborating in greater fiscal transparency. It was published among others the famous which was basically inherited from previous "black " lists gathered to countries that did not fight enough against money laundering, but now was given a dimension "gray list" of tax havens by the The Organisation for Economic Co-operation and Development (OECD),fiscal. "Panama has become the dullest place on earth", the director of the Center for Fiscal Policy of the Organization for Economic Co-operation and Development (OECD) Pascal Saint - Amans, the French chain Tele said Sunday. Union leaders and Panamanian lawyers like Eduardo Morgan, Adolfo Linares and Alvaro Thomas, among others, have criticized harshly the strong position of the OECD and have made their voices heard in protest at what looked like a malicious intent to deal a crushing blow to Panama's economy and turn Panama into a kind of tax gendarme of the tax system of the countries that promote these initiatives. 

• Increased banking costs. Banks are communicated to their customer’s upward adjustment in interest rates on their loans. The increases are being applied to non-preferential mortgages, car loans and credit cards, among others. The amount of the variation depends on the type of product: on cars and mortgages, increases are between 0.50% and 0.75%. The main argument of the banks is that in December 2015 the Federal Reserve System (FED informally in English), increased by 25 basis points in interest rates, putting the figure at 50. However, other analysts have warned that Panamanians settings they are doing Panamanian banks multiply two and three times the rise in the Fed. A rise of that size or banks are taking as an excuse the international situation? Wonder justified.

• Restrictions on non-financial sector (banking). The existence of an important sector of non-traditional alternatives and even informal financial system in the Panamanian, is a clear indicator of the large informal economy that thrives alongwith the tertiary economy. These forms of financing offered promptly, flexibility and direct relationship with the complainant of resources. Under pressure from FATF the Panamanian government has recently created way the Administration of Supervision and Regulation of Non-Financial. This can close an important "safety valve" for families who have traditionally relied on these mechanisms, just at the time when the banking sector increases interest rates. Other indicators show the difficulties of the service economy. The blow to the economy of services, dissemination of #Panamapaper came as several sectors show serious difficulties. 

• The Canal will enter $ 9.419 million less until 2021. 2015 to 2019, it was expected that the expanded Canal will provide $ 12.816 million and then reduced to $ 6.586 million in the corresponding projection years, down $ 6.230 million. Among the causes are mentioned: climate change, the new global macroeconomic scenario, the competition Suez Canal, the opening of the Northern route and Nicaragua Canal construction. 

• Concerns raised over deficit. In 2015 the public sector did not make a financial deficit of $ 1,459.8 million cash (2.8% of GDP). This was the missing revenue to cover expenses for the year. However, the government adjusted the balance and reduced the deficit by $ 426.3 million to $ 1,033.5 million square it at just 2% of GDP allowed by the Social Fiscal Responsibility Act (LRSF, for its acronym in Spanish) for last year. As the Canal contributions have not come and will not reach that level, according to official estimates, the government will have more room for spending. Economist Philip Chapman considers the setting that allows LRSF is a self-deception and must be reformed. 

• Decreases the creation of corporations. In March 2016 605 companies were created less than the same month in 2015. 

• Cargo movement at ports fell 11.6% in January 2016. In January, it is produced in a low load ports 11.6% compared to January 2015. In January 2016 mobilized by national ports a total of 508 000 833 TEUs (20-foot) while January 2015 she mobilized a total of 575 000 763. Panama International Terminal (PSA) recorded in January a decrease of 22.3% compared to January 2015, while Balboa registered a -11.9%; Manzanillo International Terminal (MIT), an -18.6%; Colon Container Terminal (CCT), -15.7%. Meanwhile, Bocas Fruit positive numbers recorded an increase of 15.7% in cargo movement and Cristobal on the Atlantic, 19.6%.

• The Colon Free Zone "in a coma". The Colon Free Zone, the largest in Latin America, some of the pillars of the Panamanian economy services, is undergoing a crisis. According to the Minister of Commerce and Industry of Panama (MICI), Augusto Arosemena "The patient (Colon Free Zone) is in a coma because re-exports have gone down and some companies have closed." Users Association reported that free zone for days in January this year closed 55 companies, while in 2015 155 were the companies closed, with thousands of jobs lost in the last two years. 

• Shopping tourism, business and conventions in crisis. Closing hotels, low rates and retrenchment are the results of the crisis of tourism shopping, business and conventions that characterizes Panama. There are hotels that have had to lower their rates over 30% and only 35% of their rooms are occupied, coupled with that employers must assume a minimum wage increase of between 30% and 40% in the last five years. Other internal problems that reiterated the hotel was hosting illegal offering homeowners and apartments hogging between 10% and 20% of tourists entering the country. The inability to diversify supply and establish partnerships with hosting an informal sector (which must be formalized) are two of the structural causes of the tourism sector. 

• The construction industry: healthy but with loss of momentum. The construction industry still maintains its dynamism, but with a greater share of residential construction. Statistics from the Office of the Comptroller General of Colombia, indicate that in 2015 investments totaled US $ 137.5 million, of which US $ 87.5 million corresponded to the residential sector, while in 2013 of 135.2, investment in the residential sector was 43.3 million. The president of the Panamanian Chamber of Construction, Ivan de Ycaza, expressed concern guild by increased cost of materials and supplies for construction, he referred to the rise in: The value of the land available for new projects, Salary workers to become more rigid and costly regulations governing the sector and tariffs, Charges and fees charged by various public institutions providing services to this industry increase. 

• Reduces employment in the private sector. The number of workers in the private Panamanian company fell 0.6% in 2015, for the first time in seven years, reveals a report prepared by the Labor Foundation. According to the document, at the end of last year private payroll was 800.952 people, 5,107 workers less than in December 2014. The decline contrasts with the increase of the national workforce between 2014 and 2015: 2.2%. 

• Increases employment in the informal sector. The decline in private employment has been supported by a marked increase in self-employed, which increased 6.3%, the highest growth rate throughout the Panamanian labor market. Reflecting a growth of the informal sector of the economy. Independent workers went from 429.108 in 2014 to 456.113 people over 2015. So, represent little more than a quarter of the workers.

• Increases employment in the state. In the same period, the payroll grew 5.9 % State after moving from 258.048 to 273.225 workers. They are 15% of the employed population. But at the prospect of a reduction in public spending, it is expected that this “safety valve" is closed to social conflicts. #Panamapapers: Blow to the economy of Panamanian services. 

Why investigative journalists of offshore companies, partially funded by the government of the United States, chose Panama? There are all kinds of theories and meaningless engage in a speculative discussion of this kind. The truth is that the attack focused on one of the components of the Panamanian economy services: Corporations law, specifically the creation of offshore companies. It is foreseeable capital flight for fear of being linked to a "tax haven" as Panama entrepreneurs. 

The reduction in investment especially affect the construction sector, with the consequent drop in employment. The economic slowdown will induce employers to demand a reduction of the tax burden and greater labor flexibility as raised by the President of the Chamber of Construction. Lower taxes to encourage employers (as now happens in the Colon Free Zone and tourism sector) will cause a higher deficit in public finances, which will try to cover new international loans, but organizations such as the International Monetary Fund International are recommending the "classic" neoliberal measures: reduction of public spending, the state payroll and increase the retirement age. 

That is, access to international financing will now strongly conditioned on strict "discipline" fiscal negative impact on social programs (Opportunities Network, 120 to 65, fellowships, etc.). In addition, as "punishment" for the scandal #Panamapapers, the country will lose the business of offshore companies and the International Banking Center (CBI) will be subject to harsh restrictions, definitely losing its international position. Domestic credit is more expensive impacting refusal to residential investment (the main engine of the construction industry) form. 

THE FIGHT IN THE CORPORATE CUPULA.

The Panamanian powerful economic elite, historically has established a strong alliance with military, social and political sectors from the media, which have been responsible for political representation and state administration actors. This system began to crack on the eve of the 2009 elections Political parties showed great wear and "managers" of the state, from the middle class, massively they used it to enrich themselves. In this context, he emerged Ricardo Martinelli, leader of a business conglomerate, which includes investments in supermarkets, the agro-export sector, banking, insurance and media, among others. Mr. Martinelli was able to convince the majority of voters (60%) than to eradicate corruption "clean" (middle class policy); it was necessary to place the head of state to a successful businessperson like himself. 

This fusion of political and corporate power caused a serious conflict internally in the economic elite and was the beginning of a process of wear and instability of the system of control and domination so far stable. A few days after taking office as president in August 2009, the US Ambassador to Panama, Barbara Stephenson reported on Martinelli (leaked by WikiLeaks cables): "His penchant for intimidation and blackmail may have led to stardom supermarket but it is hardly a statesman. You risk losing the goodwill of his followers in communities and business elite of Panama". "The thug style with Ambassador Martinelli makes clear that he is willing to push beyond the limits to get what you want, even with the help of his 'friends'," writes Stephenson concerned. And it gives another example: "During the meeting last August 12 [2009], Martinelli told proudly ambassador how that day, he had managed to twist the arm of casino operators and threatened them to cancel their concessions if they did not pay their back taxes and cut their relations with representatives of the opposition".

A president only gets his "first hundred days" once, and Martinelli is spending his obsessing about vengeance against his political foes. Most of his government appointments have favored loyalty over competence. This is negatively affecting his ability to pursue his top priorities, as well as our bilateral cooperation on shared priorities. His penchant for bullying and blackmail may have led him to supermarket stardom but is hardly statesmanlike. He risks losing the good will of his backers in the Panamanian elite and business communities. The #Panamapapers, to help intensify the deterioration of economic indicators, has exacerbated internal conflicts.

Now it has added an external factor: allegations of corruption from other countries and international organizations. While Martinelli directly performing "dirty work", now the economic elite uses international allegations of corruption, to take advantage over their competitors. Thus, it has launched a relentless campaign to remove the company Odebrecht contracts formalized with the Panamanian state, worth several billions of dollars.

The Waked Case.

Recently, one of the most powerful economic groups in the country, in the hands of the Waked family, of Arab origin, has been bound by was linked yesterday to an international network of drug trafficking and money laundering by the United States Department of the Treasury (EU) and the US Drug Enforcement Administration (DEA).

Entrepreneurs Abdul and Nidal Waked were included in the "Clinton List" of activities linked to money laundering and drug trafficking, according to the US Treasury.

According to a report by the US Treasury Department, a network of six executives and 68 research companies called the Waked Money Laundering Organization (Waked MLO) was investigated.

Among the companies mentioned in the investigation are Vida Panama (Free

Zone) S.A., an import and export company in the Colon Free Zone of Panama; Grupo Wisa S.A., a holding company of companies engaged in real estate, construction, commerce, hospitality, and the media, including the Riviera chain of duty-free shops operating throughout Latin America; Soho Panamá S.A. And related entities, including a luxury shopping mall and real estate development in downtown Panama City; Balboa Bank & Trust, a bank in Panama; And the strategic Investors Group Inc., a company that owns and controls Balboa Bank & Trust, as well as two other financial services companies. Balboa Bank & Trust was used for the laundering of narcotics and other illicit profits for multiple international criminal organizations.

Companies of the Waked family were sold to their competitors at prices below real value.

Following Odebrecht contracts: $ 6 billion.

Odebrecht Panama has a presence in the country and has developed more than a dozen strategic projects in the city and in the interior.

At present, it carries out the following projects, through government contracts (in million): Extension of Tocumen Airport ($ 880.8), Revitalization of the Public Spaces of the City of Panama ($ 100.5), Rehabilitation and Extension of the Pan American Highway, Section 1 -Santiago-Viguí ($ 382.3); Third Electric Transmission Line of Panama ($ 233.8) , Line 2 of the Panama Metro ($2,062.00), Urban Renewal of Colon ($ 569.00), Highway Chiriqui, Veraguas, Ngabe – Buglé ($ 27.5), Juan Diaz Treatment Plant ($ 211.00). Total: $ 4,466.9 million.

Odebrecht's competitors have raised two lines of action: Plan A, take away the ongoing contracts, Plan B, prevent Odebrecht from participating in future tenders.

As a result of the pressure from its competitors Odebrecht withdrew from the bidding process for the fourth bridge over the Panama Canal. In addition, it gave up a hydroelectric project of $ 1 billion.

But Odebrecht is not alone. It has established alliances with important Panamanian construction companies like CUSA, and with the support of the banks. The attack on Odebrecht also hits an important Panamanian business sector.

In February 2017 Mr. Ramón Fonseca co-owner of the company Mossak-Fonseca, linked to Odebrecht bribes, denounced that President Juan Carlos Varela received money from that company to help finance the election campaign in 2014.These accusations Of a former collaborator, provoked a national commotion and voices have arisen calling for his resignation.

Possibly, these attacks on the President of Panama are related to the refusal to take the contracts from Odebrecht. Arguments are that Odebrecht's withdrawal from construction works would lead to the unemployment of 8,000 workers and a further contraction of the construction sector, while selecting new companies to take on those commitments.

GOVERNANCE THREATENED.

Conflicts in economic elite, involving external actors, possibly generated the perception among the popular sectors and media groups that traditional power factor can no longer exercise authority. Begins to emerge a situation of social anomie: the crisis resulting from the impairment of ethical values extending from within the state structure and social system, even the most isolated family. Panama takes toward ungovernability. 

The powerful economic groups that try to assume total political control require a controlled and measured social protest. It was supported by middle-class lobbyists and mainly the media. The problem is that the pressure groups have no capacity for social mobilization. They are good to use twitter and to talk on television news, but when it calls for street actions, they lack effectiveness.

The media lose credibility. The media, in general, belongs to different economic groups in conflict. Much of the information is made to exalt or denigrate elite groups systematically and selectively, using the latest "fashion" that is conveniently manipulate international complaints about companies and the Panamanian financial system. 

The loss of credibility in the media is reflected in the absence of full participation of the population, pressure actions are called. Nobody wants to be an instrument of the battle between powerful groups. The ideological crisis Panamanian media communication is beginning to worry factors external power, before a potential rise of leftist leaders.

In this context, the various Panamanian actors, unions, communities, business

associations, civil society organizations, informal sector, professionals, etc. come into collision course. Collision economic elite. In 2004 a study by the University of Panama showed that a group of about 80 people, many linked by family ties and business, they control about half of the gross domestic product of Panama. This excessive concentration of wealth is a key factor explaining the high levels of inequality that characterize the country.