PANAMA CITY - Panama's fiscal incentives are luring more and more people to its shores: multinationals, retirees in search of sun and investors seeking new opportunities. Real estate prices are ballooning into a mini Manhattan-on-the-Pacific.
The latest notable arrival is PKB Privatbank, the first private Swiss bank to open a "banking center" in Panama City. The bank's CEOs are waiting to obtain all the licenses they need in order to officially start trading. The Union Bank of Switzerland (UBS) also has a base here, which also serves as a springboard to attract clients to Switzerland.
PKB's arrival in Panama fits perfectly with this current trend of Swiss talent, and their assets, fleeing abroad. "They're leaving because Switzerland has shot itself in the foot, by implementing its new ‘clean money’ rules too quickly," says Giuseppe a Marca, the Swiss owner of GAM & Partners, which specializes in managing family holdings above $50 million, and who established an office in Panama a year ago.
"For those who want to leave Switzerland, it's easier to go to London, Miami or even Singapore," says a former UBS and Crédit Suisse banker. "People are also moving to Panama, but you've got to really like exotic places."
This exodus looks like it will last, according to another Swiss asset manager, who easily obtained a resident permit for Panama two years ago. He took advantage of a law offering resident visas to people who would commit to buying property in the country that exceeds $300,000. Remaining anonymous, he considers Panama as his "get out of jail free card."
"I don't want to wake up one morning in Switzerland with them asking me to denounce my clients who haven't declared their wealth," says the manager. "Nowadays, tax inspectors want to know everything. They would probably ask me the color of my client's grandmother's underwear!"
But why here? "Because in Panama, nothing gets in the way of my work. There is no wealth tax, no foreign income tax. However, it is not a just an artificial Caribbean tax haven. There is a real economy here; even if it is far from being perfect. If you come to Panama and you are a little savvy, there are lots of opportunities. In 10 years, if things go well, it could be the Hong Kong of Latin America."
In 2011, economic growth amounted to 10.6%, the largest of any Latin American country. For this year, the International Monetary Fund (IMF) has just revised its predictions, suggesting an increase of 8.5%. This economic boom is inexorably linked to the Panama Canal, which it has been controlling since 2000, after nearly half a century of American jurisdiction. Around 4% of global trade passes through its locks. Last year, this traffic lined the Panama’s pockets with a $1 billion return.
It is on these fertile lands that numerous multinationals are taking root. Procter & Gamble, Total and Sanofi have recently established regional headquarters here after taking advantage of a law, which came into effect in 2007, offering fiscal benefits.
"I was inspired by what was happening in Singapore: their main objectives were to create jobs and bring new talent into the country," explains Eduardo Morgan Jr., a powerful fiscal lawyer and one of the bill's authors. The companies that are settling here do not pay taxes on their foreign trade, and they do not pay national insurance contributions for their expats, which are equally exempt from income tax.
"We chose Panama because it is safe, it is central, its airline Copa has daily flights to every country in the continent and, what really made the difference - because of its extremely attractive fiscal package," says John Guttery, the Latin American President for Hilti, a Lichtenstein company that makes construction and building products, which uprooted its regional headquarters in the U.S. in 2010.
Since the start of the year, more than 260,000 jobs have been created, according to Panama's labor ministry, impressive in a country of 3.5 million people -- and especially in Latin America, where economic difficulties are often linked with the drug trade.
Despite this, some are condemning the authoritarian attitude of President Ricardo Martinelli, who was elected in 2009. They accuse him of taking the country on a path that completely ignores the long-term aspects. They say he is trying to exaggerate the country's economic growth with a series of decadent construction projects.
"A lot of people in government have conflicts of interests," says the director of a Panamanian bank. "Building sites are sprouting up all over the place, with enormous commissions, and with complete impunity. As long as jobs are being created, people are keeping quiet. That's our mercantilist mentality. However, when we go from a 10% to a 5% growth rate, the effect will be like that of a recession. The whole country will suffer."
*CORRECTION: Due to a translation error, a Panamanian bank director was incorrectly quoted as referring to a "mercenary mentality" rather than a "mercantilist mentality." Our apologies.