According to Finance Minister Hector Alexander, the crisis has resulted in lower taxes and higher spending. This means that the economy necessitates to modify the law on fiscal spending limits. The ministry has projected that the deficit will range between 9 percent and 10.5 percent this year following which it will fall between 7 percent and 7.5 percent next year. 

That said, the fiscal deficit is estimated to drop to 1.5 percent by 2025. More recently, the country obtained credit at 2.2 percent on the back of urging foreign investors to lend it $1.25 billion in September, a media report said. This is for a debt issue with a stipulated deadline in 2032. 

Even Costa Rica’s ratings have been downgraded with repeated increases in public debt.  In this context, Moody’s said “They are subject to speculation and ‘high credit risk’. They do not meet the desirable qualities for an investment instrument.” It downgraded the rating from B2 to B1, and in June the outlook was negative. Even Fitch Ratings had downgraded it from B+ to B with a negative outlook and S&P followed suit, media reports said. 

For Panama, Moody’s said “Panama’s ability to access external financing at relatively low costs keeps the risks of refinancing and government liquidity contained.”

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It is reported that the route will connect Copa Airlines with airports in Colombia, Brazil, Ecuador, the United States, Mexico, Uruguay, Chile and Canada. The carrier is selling the tickets through its website and in offices of the company.

Copa Airlines has also resumed operations from Toronto to 11 destinations in eight countries in the Americas, all through Panama. Fernando Fondevila, Commercial Regional Manager North America, Copa Airlines told the media, “The opportunity of connecting Toronto again through our ‘Hub of the Americas’ gives us a lot of optimism. These flights will allow Copa Airlines to serve thousands of passengers who wish to return to their homes, reunite with their families, visit their favourite vacation destinations, attend to health issues, important meetings, family or professional matters.”

He further said that the carrier is committed to the economic and tourism development of the countries that the carrier operates in. “We will continue to focus on gradually re-establishing the vital connectivity we offered before the pandemic.”

Recently, Copa Airlines signed a new long-term, worldwide distribution agreement with leading software and technology company Sabre Corporation. According to the deal, Sabre will continue to distribute Copa Airlines’ content to hundreds of thousands of travel agencies and corporations.

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A press release by the government said that the inclusion ignores the clear progress of the country in terms of cooperation and fiscal transparency, by irresponsibly indicating that the preferential tax regime of Panama is ‘harmful’ and that the country did not clearly commit to amend it or eliminate it by the end of 2018.

The Republic of Panama has adopted international commitments in record time, and carried out an unprecedented process to adapt its legal framework. Panama has no outstanding commitments regarding international standards of tax cooperation.

Panama adopted the automatic exchange mechanism consistent with Common Reporting Standard objectives, promoted by the OECD Global Forum. In addition, the country ratified the Convention on Mutual Administrative Assistance in Tax Matters, and has joined the Inclusive Framework of the Project on the Erosion of Taxable Bases and the Transfer of Benefits (BEPS).

In addition, through the Ministry of Economy and Finance, Panama’s commitment to review the preferential tax regimes by 2018 has been clearly stated in writing to the European Union.

These and other commitments resulted in Panama’s approval by the OECD’s Global Forum rigorous peer review process. Many European countries are active participants in the Global Forum. Panama’s score reflects the concrete advances for the modernisation of the financial system.

Given the incorporation of the country in this discriminatory list, the government has decided to call its ambassador to the European Union, Dario Chiru, to chart the future course of action.

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In March 2017, Panama requested a Fast-Track review, as the previous evaluation was based on out-dated legal frameworks and had failed to take into account the country’s new regulatory developments as well as policy decisions. Additionally, Panama, in record time, ratified the Convention of Mutual Administrative Assistance (MAC), which allows for exchange of tax information with over 100 jurisdictions, one of the key requirements to obtain a positive evaluation by the Global Forum.

The Fast-Track review process was created to evaluate continuing efforts by some jurisdictions to meet transparency standards in the run-up to the G20 Summit, which will take place next July in Hamburg.

“This is great news to us. It is a testament to all of our hard work to fight against tax evasion and to meet international expectations and standards regarding transparency, which have been ongoing from day one of the Varela administration. We will continue working for transparency, and we celebrate that the international community recognizes our commitment to international standards,” said Minister of Economy and Finance, Dulcidio De La Guardia.

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May 19, 2016: Luis Miguel Hincapie, Minister of Foreign Affairs of Panama, met with France’s Presidential Special Appointee for Latin America and the Caribbean, Jean-Pierre Bel. During the meeting in Paris, the Panamanian diplomat emphasised the importance of working under equal conditions to solve the differences between both nations through diplomatic means — to advance the bilateral agenda, and to cooperate effectively on tax issues, without the pressure of being part of a discriminatory list.

Hincapie shared the steps that Panama has taken to reform its legal framework, to strengthen its service center, and to shield it against illegal tax and financial activities. Additionally, he stated that Panama is currently enhancing its capacities to fulfill the existing agreements with France.

“Panama is willing to continue working to improve effectiveness in tax cooperation with the international community, and to continue negotiating agreements about this matter. But we do not think that it is positive that friendly countries such as France insist on not recognizing our efforts and the progress that we have made, taking into account every aspect of our bilateral relationship,” said Hincapie.

He also emphasised the importance of the French investments in Panama and the interest in continuing this relationship expressed by companies in France, as shown by the visit of  Panama Vice President Isabel de Saint Malo de Alvarado last October.

“During the meeting de Saint Malo with the then Minister of Foreign Affairs, Laurent Fabius, it was agreed that we would advance on a mutually beneficial bilateral agenda, including tax cooperation. This would be very difficult if we are part of the non-cooperating countries for tax purposes,” Hincapie added.

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May 18, 2016: As part of President Juan Carlos Varela administration’s ongoing commitment to financial transparency, a delegation of government officials from Panama will travel to Paris this week to meet with members of the OECD to discuss various issues related to financial transparency. The visit follows an official communication from Panama to the Global Forum of the OECD stating that starting in 2018, the Government would begin implementing the Common Reporting Standard through bilateral agreements.

In a letter to the OECD, Vice President Isabel Saint Malo pointed out that recent events had shown the world the vulnerabilities of the global financial system and that according to the expectations of the international community, Panama would advance in the implementation of automatic exchange of information. Panama will work with the OECD on a framework based on the realities of the country and the region. Panama is currently negotiating such bilateral agreements with countries including Japan, Germany, and Singapore, which expand on existing commitments of a similar nature with other relevant partners.

Panama considers the implementation of CRS through reciprocal bilateral agreements appropriate because it will allow the country to safeguard information and privacy with greater certainty and greater efficiency.
The delegation will also discuss the second phase of Panama’s peer review process by the Global Forum of the OECD, as well as a framework for the Base Erosion and Profit Shifting (BEPS) project, to allow countries and jurisdictions to work together to fight tax avoidance. The BEPS Project helps governments close the loopholes in international rules that cause profit to be artificially shifted between countries.

The meeting will take place in Paris on May 17, 2016, and members of the delegation include Vice Minister of Foreign Affairs, Luis Miguel Hincapie, advisors and technical team from the Ministry of Foreign Affairs and the Ministry of Economy and Finance (from the Income Direction).

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May 10, 2016: In light of the announcement made by the United States Department of Justice and the United States Department of the Treasury’s Office of Foreign Assets Control regarding a ten-year investigation of the waked organisations, Panama’s Attorney General, Banking Superintendent, and Securities Market Superintendent have issued the following statements regarding immediate actions taken in Panama:

• From Kenia Porcell Diaz, Attorney General of Panama: My office has launched an immediate investigation into the specific individuals and organizations named in the US action. We are cooperating fully with U.S authorities in this matter, and we will ensure justice is served by the people of Panama. This investigation further strengthens our efforts and resolve to vigorously attack criminal activity in Panama so that the rule of law prevails.
• From Gustavo Villa, Secretary General, Banking Superintendency of Panama: As a result of the US actions against the Waked Economic Group and in our overriding interest in protecting the best interest of depositors of Balboa Bank & Trust and its subsidiaries, the Superintendency of Banks of Panama (SBP) is seizing the administrative and operating control of the banking group. The SBP reiterates the stability and soundness of the Panamanian banking system.
• From Marelissa Quintero de Stanziola, Securities Markets Superintendent of Panama: In the interests of protecting the financial assets of investors in Panama’s securities market, we have assumed control of the brokerage house Balboa Securities Corp. This action, which is effective today, will allow brokerage activities to continue but under the oversight and secure control of the Superintendency.

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April 22, 2016: The Republic of Panama announced the signing of a historic agreement with the Government of Japan valued at PAB/USD $2.6 billion to fund the construction of Line 3 of Panama’s Metro, the largest project in Panama since the expansion of the Panama Canal. The monorail system will be the first to use Japanese technology in the Americas.

The agreement, in addition to funding the Metro construction, will include non-refundable technical cooperation up to PAB/USD $35 million to hire a project manager.

“The funding granted today by Japan is a recognition of Panama’s credibility, stability, and strength” President Juan Carlos Varela said in the joint press conference with the Prime Minister of Japan Shinzo Abë, “Today’s announcement proves that our economy is sustained by solid foundations.”

The President added, “Today is a historic day in Japan-Panama relations.”

“This great project,” he explained, “It will benefit hundreds of thousands of Panamanians that have to commute every day to the west side of Panama City, and will allow us to showcase Japanese technology to everyone in the region”

Conditions

President Varela and Prime Minister Abe were witnesses to the exchange of notes and documentation between the Japanese International Cooperation Agency (JICA) on behalf of the Government of Japan and Vice Minister of Foreign Affairs, Luis Miguel Hincapie, Minister of Economy and Finance, Dulcidio De La Guardia, and President of the Metro, Roberto Roy on behalf of the Government of Panama.

The funding granted by JICA is a loan with soft financial terms and conditions. It has a 20-year term, which includes 14 years of amortization, 6 years of grace period and 3 years for disbursement. The interest rate will be 6-month LIBOR JPY minus 1.05%, with an initial fee of 0.20%. The first contract will be for up to ¥29,575,000,000.00, and there will be up to 5 contracts for loans until the completion of the Project.

Project Administration

The project manager will support the Metro of Panama in the implementation of the project for Line 3, overseeing the preliminary design of Line 3 and together with the team from Metro of Panama developing the conditions for the public bidding for the construction and supervising the bidding and the evaluation of the proposal. Additionally the project manager will manage the overall execution of Project Line 3, including the integration of the monorail system with the fourth bridge over the Panama Canal.

The company that will execute the project will be chosen through a process of international public bidding.

According to the Government, Japan is implementing this project as a measure to support developing countries in climate change. Japan announced in November 2015 its “Actions for Cool Earth 2.0,” a programme to support activities against climate change for 1.3 billion yen, funded by public and private partners. Japan will continue to cooperate with Panama in Project Line 3 to reduce CO2 emissions and minimise the impact of climate change.

Line 3 of the Panama Metro will be 26.75 km long with 14 passenger stations. The line starts with a connection with Line 1 in Alborrok station before heading to the Balboa area and crossing the Canal over the superstructure of the fourth bridge, running beside the Pan-American Road before heading to the Special Economic Zone Panama Pacific and continuing through the center of Arraijan City.

From Arraijan it continues through the Pan-American Road with a few stops before the end in Ciudad del Futuro, where the line will have its maintenance and storage facilities. The first phase of Project Line 3 will be built to facilitate phase two which will reach La Chorrera.

The first phase of Line 3 will meet the demand of 20 thousand daily commuters in rush hour in 2020. With the second phase Line 3 will benefit 31,862 commuters in 2050. The project will begin in 2017 and its operations are estimated to begin in the end of 2021.

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Nigel Green

April 5, 2016: The allegations made in the Panama Papers case are not representative of the international financial services industry.

Regards the leak of confidential documents from Panamanian law firm Mossack Fonseca, like many people, I have found the details of the Panama Papers case, outlined in the BBC Panorama programme, very concerning as it suggests there might have been tax evasion on a grand scale. Clearly, tax evasion is illegal and punishable by law. It is a serious criminal global issue that needs to be tackled with more vigour.

However, I do not believe that the Panama Papers allegations are representative of today’s wider international financial services industry.

The overwhelming majority of the offshore sector only provides services that are fully compliant and legal and they are used by law-abiding clients, who are simply looking for typically better returns, more investment options and greater flexibility.

Many of the documents that have been revealed by the Panama Papers case date back decades and for the last several years, a new and totally unprecedented era of transparency and disclosure has been ushered in.

Indeed, the idea of a ‘tax haven’, in the traditional sense of the phrase, is now somewhat outdated.  In today’s world, in which financial information is being automatically exchanged with tax authorities globally, it is almost impossible to hide money. No longer can people stash assets on ‘treasure islands’ and not expect to be caught.”

The international financial services industry plays a vital and largely positive role in the global economy.  Yet, this is typically overlooked by the media.

As the press is quick to point out, there are many questionable reasons why people might want to keep money in an offshore account, which is simply an account in a jurisdiction different to the one in which the person currently lives.

However, in my experience of working with expatriates and international investors, who have generally more transient lifestyles, offshore accounts are preferable simply for convenience. They offer centralised, safe, flexible and international access to their funds no matter where they live and no matter to which country the individual moves to in the future. In addition, they offer a wide choice of multicurrency savings and investment solutions.

Offshore financial centres allow those who qualify to do so to use legal, bona fide international investment products to form part of a robust and sensible financial planning strategy.

Other major advantages of such centres include that they allow companies to avoid getting taxed twice on the same income and that they offer legitimate financial refuge for those in countries where there is economic and political turmoil, such as extremely volatile currency and confiscation of assets.

Whilst most international financial centres are now well regulated, transparent and cooperative, and provide a much needed and in-demand service for people and firms all over the world, the Panama Papers claims underscores that more can still be done.

Indeed, this should act as an opportunity to further enhance the effectiveness and credibility of these international financial centres and the sector. This is especially important as the industry is set to grow exponentially in the coming years as individuals and companies become ever more globalised.

Nigel Green is the founder and chief executive of deVere Group

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February 8, 2016: Grupo Aval is Colombia and Central America’s largest financial conglomerate; it operates in 12 countries, serving more than 13 million banking customers and 11 million pension and severance fund affiliates. It consolidates more than $68 billion in assets, with over $128 billion in assets under management. Grupo Aval posted a net income of $592 million in the last 12 months (LTM) ended on September 2015. Furthermore, the company has posted strong growth and profitability metrics, as evidenced by a compound annual growth rate of more than 20%[1] and a solid return on average equity currently standing at 13.5% (LTM).

Its current position within the markets it operates is the result of both the vision of Mr. Luis Carlos Sarmiento Angulo, founder, Chairman of the Board and majority shareholder of the group, and the leadership skills and tenacity of Mr. Luis Carlos Sarmiento Gutiérrez, CEO and President of Grupo Aval, who has led Aval into the international arena and who now leads the innovation strategy for the group, a key area of future success as traditional banking is being redefined and as the needs of the clients have to be met in diverse ways.

Grupo Aval consolidates four commercial banks in Colombia (Banco de Bogotá, Banco de Occidente, Banco Popular and Banco AV Villas); one bank in Central America: Banco de America Central (BAC) Credomatic with presence in Panama, Costa Rica, Guatemala, El Salvador, Nicaragua and Honduras; the largest private pension and severance fund manager (Porvenir); and the largest merchant bank (Corficolombiana), both in Colombia.

Grupo Aval operates through a multi-brand banking model that allows maximum penetration and profitability. Banco de Bogotá is a full-service bank with nationwide coverage and focuses on commercial lending; Banco de Occidente focuses on mid-market and affluent segments and has a leading presence in the southwest region of Colombia and in niche products, such as auto loans and leasing.

Banco Popular is the market leader in payroll loans and is the leading provider of financial solutions to government entities across Colombia; and finally, Banco AV Villas is a consumer-focused bank and targets mid-income segments of the population.

As of September 2015, Grupo Aval´s banks in Colombia held a 30% market share of loans and a 34% market share of net income and served more than 10 million banking clients through its 1,397 branches and 3,775 ATMs.

Grupo Aval’s merchant bank Corficolombiana holds investments in various sectors, such as energy and gas, infrastructure, agro-industrial and hospitality, among others. The company focuses mainly on two areas: infrastructure projects and energy. In infrastructure, Corficolombiana stands out as the largest concessionaire in the country, while in energy, it consolidates the largest gas pipeline in Colombia.

Grupo Aval´s Private Pension Fund Manager, Porvenir, is the largest private pension and severance fund manager in Colombia and holds close to 50% of market share in each category. Porvenir has 7.1 million affiliates in the mandatory pension fund, 3.8 million affiliates in the severance fund and 169 thousand affiliates in the voluntary pension fund.

Grupo Aval will continue to benefit from its scale and leadership position in Colombia as growth expectations in the country are amongst the strongest in the region despite the economic difficulties resulting from the drastic drop in oil prices and its implications on government revenues.

One of the main drivers of marginal GDP growth in the coming years in Colombia is the 4^th generation concession program. This program includes the construction of more than 3,000 km of new roads and will demand at least $15 billion of capital investments. The program is expected to contribute with more than 100 pbs of GDP each year in the coming years and will increase the competitiveness of the country as it will decrease the transportation in a material form.

Grupo Aval will take part in the 4^th generation concession program in two ways. On the one hand, it expects to participate, with its natural market share and through its four banks, providing funds to the constructors who were granted the concessions. On the other hand, it will participate as an equity investor through Corficolombiana, which has already been granted three concessions, which involve the construction of 366 kilometres of roads and will require demand CAPEX of approximately $2 billion.

Aside from a positive mid-term GDP scenario, banking penetration will continue to favour financial institutions in Colombia. Measured as total loans to nominal gross domestic product (GDP), banking penetration stands below 50% suggesting that loan growth can continue to outpace that of the economy. Furthermore, the country’s middle-income class is expected to continue to expand and unemployment is expected to improve in the mid-term, both positive for the financial industry.

On top of the Colombian story, new foreign winds are boosting the size and profitability of Grupo Aval thanks to a decision taken five years ago to diversify risks and sources of revenue. Back in 2010, Mr. Luis Carlos Sarmiento Gutiérrez decided to start the internationalisation process of Grupo Aval with the acquisition of BAC Credomatic, the leading and most profitable regional banking group in Central America with operations in six countries.

Central America, as a region, presented vast opportunities because of its size, low banking penetration and high returns. Having close ties to the United States, the region’s economy is expected to grow more than Colombia both in 2015 and 2016. Furthermore, being a net importer of oil the region has benefited from the decline in oil prices that affected Colombia negatively. From a macroeconomic standpoint the diversification option taken by Aval has proven to be successful.

Aside from the culture similarities, BAC Credomatic turned out to be the perfect fit for Grupo Aval. Led with solid corporate governance standards and similar risk and reporting models, BAC started to generate synergies almost immediately after the acquisition. Between 2010 and 2014, Grupo Aval was able to double the size of the bank in Central America and double its net income. It now serves more than 3 million clients in those six countries (on top of the 10 million it serves in Colombia), through 356 full-service branches and 1,736 ATMs.

Cross synergies include best in class credit card operations imported to Colombia and solid corporate banking practices exported to Central America. With room for further improvement, returns should remain strong over the coming years.

The internationalisation process of Grupo Aval has surpassed the M&A field. In 2012, Grupo Aval entered the debt capital markets when it issued two Reg S/144A senior bonds, and in 2014 it entered the equity capital markets when it issued fully registered ADRs in the NYSE.

The last five years have been transformational for this group and new projects are already on their way. Materialisation of further synergies among its Colombian and Central American subsidiaries and investments on innovation are on top of Mr. Sarmiento´s to-do list. Aside from this, the group will remain true to its core principles and continue to look for growth opportunities in close-by markets where it can achieve a dominant position with sizable market share.

To be noted

[1] Compound annual growth rate for the last 5 years

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