More than 100 American banks have been closed by regulators between 1 January and 15 October 2009; another 400 banks have bad assets in excess of net assets and are teetering. They have not been closed because the FDIC is woefully underfunded and can not ensure the deposits represented by these banks. Otherwise, they would be gone. Smart Americans are looking for a safe place to put their money, and quickly.

So it appears that the Mongolian banking system is going to see huge influx of American money seeking safe haven… But let’s take a look at Panamanian “luck” first. The banks in Panama have not suffered in this crisis for precisely the same reason that Mongolian Banks have not suffered, no exposure. No exposure to the greed that permeated the global banking system; no exposure to ridiculous Ponzi schemes; no exposure to borrowers who had absolutely no ability to make good; no exposure to borrowers who had no ‘skin’ in the game.

Understand that Panama has no central bank to act as a lender of last resort.  Since there is no one to “bail them out,” Panama banks are still conservative in their approach to business. They create only safe, well-collateralized, properly documented loans. The financially deadly concepts of subprime mortgages, 10% down, 5% down or even No Money down loans, and NINJA (No Income, No Job or Assets) loans are concepts that do not exist here. Panama banks still require a 25% down payment from Panamanian residents and 30% from non-residents. They simply have not created for themselves the same types of risks that are causing the global financial problems.

That’s not to say that these good outcomes were strictly the result of market action and corporate prudence. Panama’s National Banking Commission ensures depositor safety. Monthly audits detect problems before they get out of hand.  The NBC is empowered to deal with potential problems and to direct banks actions to remedy any situations. Banking superintendent, Olegario Barrelier, told Reuters “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 the global crisis would eventually slow Panama’s economy rather than create havoc in the financial system.

Panama uses the U.S. dollar; there are no exchange controls to prevent the ready flow of monies into or out of the country; there is a stable government; the Canal and the Colon Free Trade Zone encourage free trade. Panama has a top notch telecommunications system, an excellent legal framework that allows 100% foreign owned investments, and a strategic location with access to the entire western hemisphere.

Mongolia or Panama? Panama is obviously the correct choice.

And “luck” didn’t have a thing to do with it.

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This result should not surprise anyone. The Republic of Panama is a great place to do business, just as it has been for decades. I live here and I have the experience of doing business here every day. It’s a wonderful experience. This is a nation that does business on an international scale and accommodates the wants and needs of international businessmen. Panama has always respected the entrepreneur and the go-getter. Great places to do business attract investors who want to do business there. I know that sentence sounds like circular logic, but self-reinforcing phenomena often seem that way.

Panama has also been consistently ranked amongst the world’s freest economies with an open door policy for foreign investment that provides important incentives to business. In 2007, Panama attracted $6.2 billion in foreign direct investment… from the U.S. alone, says the Office of U.S. Trade Representative. Enactment of Law 41 in August of 2007 has made investment in Panama an even more attractive proposition. Through the first quarter of 2008, 15 companies had taken advantage of the benefits offered under Law 41. I see no reason why this trend would not continue.

The success of Panama as a place to do business is no accident. All the key elements are here – A stable constitutional government, an economy based on the U.S. dollar, low inflation, no foreign exchange restrictions, equal treatment of foreign and local citizens, and a favorable tax system. The workforce is literate (91.9% literacy) and largely bilingual / multilingual.

Panama has Free Trade Agreements with the United States, Europe, Asia and Latin America countries, and is a member of the World Trade Organization (WTO). Panama is active in the Caribbean Basin Initiative. The Economic Commission for Latin America and the Caribbean, the Organization of American States, and the Interamerican Development Bank have given Panama positive ratings. Panamanian government bonds are consistently graded B+ or higher by Standard & Poors ratings service.

The Republic of Panama does not simply rely on its strategic location, privacy haven reputation, and low cost of living to attract foreign investment. While the various political parties have their differences, they all recognize the goose that laid the golden egg is business. The Colon Free Zone and City of Knowledge initiatives, as well as Law 41, are major efforts to ensure that corporations of all sizes will find Panama an attractive place to do business for many more years into the future.

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One of the things that I think speaks volumes to this idea is the consistent inflow of foreign investment capital. In another of my articles, I discuss the details of how and why foreign capital flows into Panama. I think an investment of $6.2B (US) by U.S. companies alone in 2007 is strong proof of credibility.

Mercer Multinational Consultants reported on quality of life and personal safety in 215 cities worldwide. Panama City, the national capital, was ranked 96th, which places it above all other Central American cities. Mercer created these ranking by analyzing social, political and economic environment, health, education and transportation factors for each city.

A major consideration in making the choice to do business in Panama is quality of life. Panama City is cosmopolitan and offers excellent living conditions. Office, commercial, industrial and housing spaces are available, as are skilled, multilingual employees. Panama City is 5th in Latin America behind San Juan, Montevideo, Buenos Aires and Santiago de Chile. Panama City is first in Central America, 12 places above San Jose, Costa Rica.

With an index of 91.4, Panama City is the third safest city in Latin America, only behind San Juan, Puerto Rico and Santo Domingo, Dominican Republic according to a report by International Scope.

With an 8% increase in GDP, Panama was the leader in economic growth in Latin America during 2008. Much of this due to the fact that Panama has a US dollar-based economy, low inflation and little foreign exchange risk, an absence of exchange controls, favorable and equal tax treatment of foreign and local citizens.

Panama has a stable Constitutional government with a keen understanding of its reliance on international trade. The Economic Freedom Index for 2009, a joint publication of The Heritage Foundation and the Wall Street Journal, ranked Panama 55th of 157 countries. Citizens and expatriates alike have freedom to make their own decisions for their benefit and for the benefit of their families.

You may argue that some of these are not indications of ‘credibility’ per se, but they are certainly evidence that something special is going on here in Panama; something worthy of international attention. Something worthy of your attention.

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The Republic of Panama is a great place to do business, and with a little planning your business can operate on a tax free basis.  It is a great place to live and I enjoy living here.  The national capital, Panama City, is inexpensive when compared to other cities of the same caliber.  A building boom over the past few years has kept prices down by increasing the supply of new real estate.  Don’t be fooled – inexpensive doesn’t mean that you sacrifice your quality of life.  This is a city, and a nation, that does business on an international scale and accommodates the wants and needs of international businessmen.  For example, Copa Airlines flies modern Boeing 737’s to 40 major cities daily and was named Best Airline in Central America in 4 of the last 5 years.

Despite this international bent, Panama manages to keep its charm.  You can find both a trendy sushi dinner for $100 per head with quality that would please Gordon Ramsey, and a simple Mom and Pop restaurant offering scrumptious tapas and a good local beer for $5.  You have an amazing range of choices and the freedom of choice; freedom that extends far beyond dining.

Panama stands out as a tax haven and financial hub. Because of the Canal trade, Panama has well developed international trade and banking systems.  These two sectors depend on technology.  So, Panama has invested in creating one of the finest telecom and internet systems outside of Europe or the U.S.  Internet banking, credit/debit card services, and credit facilities are as readily available as they are in the U.S and Europe.  You can link your corporate credit card directly to your Panamanian bank. Panama does not have its own currency – it trades in the U.S. dollar – and there are no currency controls or restrictions.
When Noriega’s ‘friends’ operated the banks, they had a poor record of customer service.  They didn’t have to care.  When the markets opened to competition, banking services got much better. Domestic banks such as Multibank compete with international banks like HSBC in the local market, and both are trying to take market share from expatriate-oriented banks like Credicorp.

Panama banking privacy is good, and the law still allows offshore corporations with bearer shares.  The ability of non-residents to own bank accounts, Panama Corporations (IBCs), Private Interest Foundations and other similar tools make for a business-friendly environment.

The government has no reason to keep the residents under surveillance.  As an international banking center, if it tried to do that, there would be capital flight.  That would wreck the economy.  The new President, Ricardo Martinelli, who is in office until June 2014, promised to root out corruption.  Domestic spying is not on his agenda. Lord Acton said “Power corrupts; Absolute power corrupts absolutely.” The Panamanian government has power, but not absolute power.  The fact is it doesn’t have the ‘need,’ the financial resources, or the political capital necessary to spy on residents.  Not even dictator Noriega spied on the citizenry.

The success of Panama as a place to do business is no accident. A temperate climate, great beaches, convenient travel, and tax free status make it an absolutely alluring place to live.

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It seems someone has spotted an opportunity after the recent news that various Panamanian banks, including HSBC and Banvivienda, are ceasing to offer safe deposit box facilities to their clients. A new operation named ‘Best Safety Boxes’ is due to open its doors (and safes) shortly in the Plaza Credicorp Bank Panama Building on Calle 50.

Clients have been asking us for years for a non-bank operated safe deposit facility in Panama. Since this is not a bank, you will not be required to open a bank account in order to use this safe deposit box facility. The privacy and confidentiality advantages to this are substantial. Also, in the event of a systemic collapse leading to temporary closure of all banks (a so called ‘bank holiday’) one hopes that Best Safety Boxes would not be affected.

What could you do with your safe deposit box? You could store gold bullion, the bearer share certificates for your Panama Corporation, or just plain cash that you wish to keep outside the banking system.

We are not sure when Best Safety Boxes are due to open, but if you drive by the Plaza Credicorp Bank Panama building you can already see the signage indicating its imminent opening, so we hope it won’t be long. We will keep you informed.

In the meantime remember that Do Business in Panama is your go-to source for Paama Offshore Legal Services such as Corporations, Foundations and Bank Introductions.  Please feel free to contact us with any questions.

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More than 100 American banks have been closed by regulators between 1 January and 15 October 2009; another 400 banks have bad assets in excess of net assets and are teetering. They have not been closed because the FDIC is woefully underfunded and can not ensure the deposits represented by these banks. Otherwise, they would be gone. Smart Americans are looking for a safe place to put their money, and quickly.

So it appears that the Mongolian banking system is going to see huge influx of American money seeking safe haven… But let’s take a look at Panamanian “luck” first. The banks in Panama have not suffered in this crisis for precisely the same reason that Mongolian Banks have not suffered, no exposure. No exposure to the greed that permeated the global banking system; no exposure to ridiculous Ponzi schemes; no exposure to borrowers who had absolutely no ability to make good; no exposure to borrowers who had no ‘skin’ in the game.

Understand that Panama has no central bank to act as a lender of last resort.  Since there is no one to “bail them out,” Panama banks are still conservative in their approach to business. They create only safe, well-collateralized, properly documented loans. The financially deadly concepts of subprime mortgages, 10% down, 5% down or even No Money down loans, and NINJA (No Income, No Job or Assets) loans are concepts that do not exist here. Panama banks still require a 25% down payment from Panamanian residents and 30% from non-residents. They simply have not created for themselves the same types of risks that are causing the global financial problems.

That’s not to say that these good outcomes were strictly the result of market action and corporate prudence. Panama’s National Banking Commission ensures depositor safety. Monthly audits detect problems before they get out of hand.  The NBC is empowered to deal with potential problems and to direct banks actions to remedy any situations. Banking superintendent, Olegario Barrelier, told Reuters “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 the global crisis would eventually slow Panama’s economy rather than create havoc in the financial system.

Panama uses the U.S. dollar; there are no exchange controls to prevent the ready flow of monies into or out of the country; there is a stable government; the Canal and the Colon Free Trade Zone encourage free trade. Panama has a top notch telecommunications system, an excellent legal framework that allows 100% foreign owned investments, and a strategic location with access to the entire western hemisphere.

Mongolia or Panama? Panama is obviously the correct choice.

And “luck” didn’t have a thing to do with it.

Related posts:

1. Panama Banks The international press keeps reporting that the global banking crisis...
2. Panama has International Credibility Panama has international credibility. It’s easy to make a statement...
3. Why Do Business in Panama? When someone thinks of Panama, the first two things that...