Panama has achieved spectacular growth in the last few years, keeping an average GDP increase of 8% since 2008. There are plenty of reasons to assume that Panama is on its path to becoming a main logistic and financial hub. Nevertheless, some opinions suggest that Panama’s growth is the result of capital injection. From your point of view, as the regulator of the banking sector, what are the pillars upon which Panama is growing?
Being here you can ascertain whether Panama is a real country with a real economy. We have many other activities besides the Canal, logistics, finance, tourism, etc. There are a wide variety of workings so we don’t rely on one exclusive sector. We have a service-based economy, which represents an advantage to us because we don’t depend on commodity prices. Services’ prices can also decrease but at a smaller scale than those of commodities when there are economic slowdowns.
Traditionally we’ve had an open, dollarized economy. Today we have a great amount of activity in every field. The international opinion on the country is not good, but also certainly mistaken.
Bearing in mind the importance of our image, we have decided to actively visit the United States financial institutions through a joint, public and private, delegation. They had many questions on the report published by the IMF about money laundering and financing of terrorism in Panama. These questions were clearly answered and the misconceptions corrected. The truth is that, for example, the banks’ activity is regulated, and in fact, there are stipulated sanctions for certain types of prohibited movements. We even have the power of taking their licences from them, and that is a fairly important power. The gap between perception and reality then becomes narrower through these meetings and interviews. We have arranged meetings with very important regulators and the solid intention of continuing to demonstrate our credentials, which contribute to a better and truer view on Panama.
On the other hand, everything related to the Colon Free Zone is a very important matter. There are many wrong perceptions about this subject, in which we are also submerged and working restlessly. The banks operating in this zone, for example, are also regulated by us and ruled by the same norms. So, little by little, and through these initiatives, we are changing Panama’s negative perception into a more profitable one.
What sort of cooperation between the private and public sector is needed in order to carry out these actions? What is your plan? When do you think you will be back in the famous white list?
We, as a country, have made a commitment to the Financial Action Task Force, based upon an action plan established a few months ago, in which we have committed to achieve meaningful results in the matter. We want to shut the breach between reality and how we were evaluated as a country, and we want it done by June 2015. We are committed as a country; the president himself has addressed this as an affair of state. In fact, the Minister of Economy and Finance was with us in the United States last week, demonstrating the political commitment and the government’s intention. It is a very important issue not only for the country’s competitiveness but also that of the banking centre.
How would you describe and qualify the banking sector’s organic growth in Panama? What are its main strengths and what services does it offer?
The domestic market is thoroughly served by the banks operating in the system. We have a very well established banking centre, with very solid banks, solvent and liquid, which finance our national economy. They provide internal credit, but also possess the capacity of financing economic activities in other countries of the region. Panama works as a financial and touristic hub, which reaches many other countries. We are the gateway for Europeans into the region.
What are the outstanding points in the way the Panamanian banking system is growing? What are its main flaws?
During the last ten years, Panama has been growing at a very high rate. But the truth is that Panama has traditionally been a very stable country. From 1950 to 2013 it has only had two years without growth. This is an outcome of our economy’s composition; you will see that none of the sectors means more than a 10 or 12% of all the activity. We have a widely diversified economy. The service sector takes 80% of the economy, but within, its supply is truly diverse.
Our economy grows mainly because of two factors. First, due to our goods and services exports, and second, thanks to investment—hence the importance of the banking system. The banking and monetary systems are this economy’s anchors. In order to bring dollars we have two mechanisms. The first one is, again, our exports. The other one is bank credit. Therefore the need for a functional and well-supervised banking system.
Here banks work mostly in four segments. First, in the corporate business, international commerce—they do not only local but also external financing. Second, in private banking: management of private capital and patrimonies. Third, in the interbank market. Fourth, in the domestic market. Lately, economy has grown in these two directions—exports and investments—in a relevant fashion.
How do you expect the enlargement of the Canal in 2016 to impact the banking sector?
We expect it to bring the biggest growth potential into the country. The Canal’s enlargement project will provide us with many opportunities in logistics, transportation, commerce, along with many more activities around the Canal zone.
These are niches we haven’t been able to develop so far. We are talking about a practically virgin area with huge development prospects.
Under the North Americans, the Canal was a non-profit public entity. Nowadays it is a commercial entity, and we intend to make it as profitable as we can.
What are Panama’s risks regarding the grey list? What do you expect from the United States? How do you plan to work along your main commercial partner in order to portray Panama’s real image?
We have already been working closely with the United States, particularly in regards to the grey list. In fact, the US Department of Treasury have already come to Panama, and have made a diagnosis of the financial analysis unit, and they are supporting us significantly with this issue.
Our contact with the US Embassy in the last five years has been permanent. We have excellent relations with the country and especially with their embassy here.
Because we are in the list, financial institutions see Panama as a high-risk country, which therefore has higher costs in operations. And this affects the interest financial institutions might have on doing business in Panama. That’s why we promote the meetings we are having, through which we want to gain trust, change Panama’s image, and boost our commercial relations.
We are a real economy, a serious country with honest people. We are willing to fulfil the international regulations, to keep up with them. This way we will be much more competitive globally.
Where would you like to be in five years? Where would you like the Panamanian banking system to be?
I hope Panama and the banking system, of which I am now responsible of regulating and supervising, are then stronger, larger, with deeper relative importance in the region, and with the deserved international recognition that will dissipate any bad perception.