The business community is back to normalcy and new
records are being set in several segments of the economy,
including peak revenues from the enterprising Colon
Free Zone and from Canal Zone shipping traffic. However,
the United States Embassy in Panama and several major
multinationals in the United States have criticized
the Panamanian Government for its "monopolistic"
markets and "unjust" treatment of United States
investors doing business in Panama.
Gross national product has been averaging an annual
increase of 6% in the past few years while the construction
industry has been growing by 60% annually. By 2001,
activity in the Colon Free Zone had grown to exceed
$19 billion and handover of the Panama Canal by the
United States, Panama successfully faced the challenges
of running Canal traffic efficiently, widening the 51-mile
long waterway so as to permit large modern ships to
sail through, and successfully developing 535 square
miles of land on a commercial rather than the previous
nonprofit basis.
Economic Comeback
After the successful invasion by the United States
military forces to restore democracy to Panama and the
return of the previously-elected government of President
Guillermo Endara to control country, Panama embarked
upon rehabilitation of its economy without the hindrance
of General Noriega's presence. One of the first steps
taken by the Government was passage of a law creating
incentives for development of small and micro businesses,
exempting them from income, property and other taxes.
The Government has also approved a revised program to
establish export processing zones in which a 20-year
exemption from income tax and exemption from restrictive
clauses of the Labour Code are some of the benefits
being offered. The zones were designed to attract Asian
capital. Foreign investment is flowing back, with China,
Hong Kong and Taiwan investing heavily in the first
stage of a major infrastructure and computer project
now that the Asian currency crisis of 1997 has been
tamed.
Since Noriega's unlamented departure, about 50,000
new companies have been formed. The resurgence of Panama's
stature as a tax haven was helped by more than a billion
dollars of aid and the repatriation of hundreds of millions
of dollars of refugee funds, which had sought other
sanctuaries. The standstill in offshore banking transactions
and loss of business confidence in Panama's financial
status primarily were responsible for the transfer of
domiciles of hundreds of United States and European
multinationals to more politically stable tax sanctuaries
at that time where the redomiciliation laws welcomed
the arrival of companies from other nations. However,
the estimated $30 billion in offshore funds that left
Panama has now returned.
The traditionally strong shipping industry had suffered
severely by the transfer of some maritime registries
to such other flagship carriers as the Bahamas, Bermuda,
the Cayman Islands, British Virgin Islands, Liberia,
Singapore and Vanuatu but has steadily recovered. Lifting
of the embargo by former President Bush, allowing Panamanian
ships to call at United States ports, finally stopped
a heavy outflow. Panama's New York City Office of Consular
and Maritime Affairs, the only one outside the country
empowered to handle safety inspections and issue licenses,
is as busy as ever. Partly because of the political
turmoil in Liberia, for the first time Panama has outranked
Liberia not only in total number of registered vessels
but also in total gross tonnage. The Panama registry
has recorded more than 70 million gross tons compared
with Liberia's one-time high of 51 million. Even before
political strife descended upon the Republic, other
shipping alternatives, including pipelines, airlifts
and inter-modal sea-to-rail transport, and growing competition
had caused deep concern in the Panamanian maritime industry.
Banking Recovery
Lifting of sanctions and unfreezing of $400 million
of blocked assets by the United States also eased the
road to recovery. United States banks have reopened
and issued new lines of credit for trade. Unemployment
has dropped from 31% to 12%. The trade deficit of $350
million is more than offset by some $800 million of
servicing income. Bank deposits have doubled since 1990.
"A Proposal for Economic Reconstruction"
in the hands of the Government includes substantial
amounts of United States financial aid. The United States
Congress initially approved $420 million of aid to Panama,
but withheld $80 million until Panama signed of mutual
legal assistance treaty covering tax evasion in addition
to money laundering. After negotiators reached a compromise,
the treaty covering drug dealing and money laundering
but not related to purely fiscal matters generally was
disappointing in attaining the objective as the Government
was not as cooperative as hoped in clamping down on
money laundering and drug abuse. Although Panama was
one of the first Caribbean nations to adopt a money
laundering law in 1994, the Administration has been
under constant pressure from the United States, OECD,
FAFT, and other world organizations critical of the
Caribbean Islands for being lax in tightening laws against
crime, drug smuggling, and money laundering. In fact,
Panama was declared a "harmful" tax haven
in the OECD Report, placed on the "black list"
of the Financial Action Task Force, and graded "uncooperative"
by the Financial Stability Forum.
Finally, in 2000 Panama adopted four stringent decrees
to further screen out perpetrators of those unsavory
devices used by money launderers around the world. These
measures were: (1) Legislative Assembly Law No. 41 of
October 2, 2000, entitled "Capital Laundering"
and amending the Penal Code by imposing harsh penalties
of up to ten years imprisonment for publicly breaching
the secrecy of information or carrying out unlawful
transactions related to capital laundering; (2) Legislative
Assembly Law No. 42 of October 2, 2000, setting down
Measures for the Prevention of the Crime of Capital
Laundering; (3) Ministry of the Presidency Decree No.
136 of October 3, 2000, creating the Financial Intelligence
United for the Prevention of Capital Laundering; and
(4) Executive Decree No. 213 of October 3, 2000, amending
the 1984 Decree relating to the practice of trusts and
making it compulsory for banks and certain financial
institutions to render information on "suspicious
transactions" (see section on Banking and Foreign
Exchange for additional details).
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