Fallout from the Stiglitz-Pieth Disaster
The financial sector is in the midst of non-friendly fire from abroad. The resignations of renowned economist Joseph Stiglitz and anti-corruption expert Mark Pieth from an ad-hoc commission appointed by President Varela to recommend changes in Panamanian transparency laws was a PR catastrophe.
The mishandling of this situation will bring more damage than benefits to Panama, however the interim report and hopefully the final document by the commission should be an eye-opener about what Panama needs to do to clean its act in issues related to the financial sector.
Last week, Taiwanese Mega Bank was fined by the New York Department of Financial Services (DFS) for poor internal controls against money laundering in their New York office. In the same release they highlighted and expressed concern over the bank’s financial transactions with their branches in Panama, which they identified as a “high risk jurisdiction”. The Colon Free Zone was singled out as well piling on to the negative marks by international analysts including from the IRS and the U.S. Department of Justice. Balboa Bank, accused by the U.S. Department of the Treasury of facilitating money laundering on behalf of the so-called Waked Money Laundering Organization, remains under reorganization, after being intervened by the Superintendency of Banks.
Despite the international market turbulence and this year’s adverse events, thus far, the Panamanian economy remains resilient, albeit growing at a moderate pace. The Monthly Index of Economic Activity (IMAE) expanded 4.1% y/y in July, and 4.2% in H1. We expect real GDP to increase by around 4.5% in H1.
Data from the IMAE and other indicators confirm our recent projection of a GDP growth decline this year, from last year’s 5.8%, despite projections of 6% growth by the Panamanian government and international agencies. We do not foresee a positive turnaround in the external environment likely to change our projections for the rest of the year.
A month after the inauguration of the expanded Panama Canal, new data from the Panama Canal Authority (ACP) show a disappointing trend. Total transit services revenue declined 4.4% in July y/y, with an accumulated decrease of 3.2% from October to July. Slow global trade growth, an only-slight recovery in commodity prices, the contraction of regional economies, the reduction of Suez Canal tolls between the U.S. East Coast and Asia and the still-low oil prices (which makes the Cape of Good Hope route more affordable than the Panama Canal) are the factors behind the fall in revenue.
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