Latin Finance - July 2008 - (Page 34)

panama money flows Panama Draws Regional Cash by Andy Webb-Vidal anama may be barely an eighth of the size of Venezuela, but it has a welcoming investment environment and bright economic prospects. This contrasts markedly with the worsening business and political climate in some parts of LatAm, making Panama a magnet for cash fleeing for more stable havens. According to Panama’s Banking Superintendent, deposits from sources in Venezuela, including banks, surged from the $811 million in 2006 to $1.32 billion at end of 2007, a hike of 63%. This is partly driven by rising numbers of mostly wealthy Venezuelans migrating to Panama. “Many people prefer Panama over the US for a number of reasons, chief among them is the question of visas,” says Miguel Octavio, director of BBO Servicios Financieros, a brokerage in Caracas. “Culturally it’s more like Venezuela, and of course Panama has the US dollar, so it has received lots of attention from locals thinking of emigrating,” he adds. And there is more to it than just Venezuela, says Ricardo Arango, partner and the head of the capital markets and banking team at Arias, Fábrega & Fábrega in Panama City. “We have seen an increase, not only of bank deposits, but also of business, and not only from Venezuela but also from Ecuador, Colombia, and from other Central American and Caribbean countries,” says Arango. “You have money coming out of those countries looking for a safer jurisdiction,” he adds. Over the past five years, the policies of president Hugo Chávez have led to a marked deterioration in the business environment in Venezuela, including tighter regulation in many areas of the economy. Ecuador, which has also experienced political upheaval since the overthrow of president Lucio Gutiérrez in 2005, has also seen an increase in capital flight to Panama. Bank deposits from Ecuador in Panamanian banks rose from P Panama is developing as a regional money center, drawing the majority of flow from politically unstable countries. Locals are also generating significant deposits. $835 million at the end of 2006 to $1.145 billion at the close of 2007, a jump of 37%. year was through a dramatic increase in the use by Venezuelans of credit cards issued by their home banks. They can withdraw dollars at the subsidized official Bolivardollar exchange rate, which ballooned in 2006 and 2007. “Nothing would be actually bought in Panama with these credit cards, but a commission is charged to allow the cardholder to obtain cash,” says Loo. “A lot of profits made on those operations remained in Panamanian banks.” There are also visible changes in the level of funds from other countries. Deposits from Colombia, for example, more than doubled to $2.68 billion at the close of 2007 from $1.30 billion at the end of 2003. However, this is not due to increased risk in Colombia. Rather, as investment conditions have improved and concerns over political violence have ebbed, the Colombian economy has grown at a faster pace, boosting external trade through places such as Panama. Furthermore, Colombian commercial banks have maintained a presence in neighboring Panama for many years. Bancafé and Banco de Bogotá have had offices in Panama since the late 1960s, while Bancolombia has had a branch there since the early 1970s. Elsewhere, Panamanian deposits from the Bahamas surged by 790% from the end of 2003 to $1.15 billion at the end of last year, and those from the Cayman Islands more than doubled over the same period, to reach $1.39 billion last year. Argentine deposits practically evaporated from $789 million at the end of 2003 to barely $70 million a year later, and have since slipped further as the Argentine economy declines. Funding Investment Diego Alcazar, director in the LatAm financial institutions group at Fitch in New York, says that as well as going into plain deposits, Venezuelan capital has also likely fuelled private funds. These may be managed as medium or long-term assets, Panama Banking System ($m) Andean flow accelerates Deposits End-2003 End-2004 End-2005 End-2006 End-2007 Total 23,599 24,532 27,096 31,945 40,098 Foreign 10,306 10,589 11,363 12,743 16,872 Deposits Venezuela Ecuador Colombia End-2003 571 214 1,302 End-2004 627 405 1,717 End-2005 607 670 1,603 End-2006 811 835 2,027 End-2007 1,319 1,145 2,678 Source: Panama Banking Superintendent investment in real estate and other areas, and funds linked to offshore loans to Venezuelan firms. On top of the $509 million net increase in Venezuelan deposits in Panama during 2007, an additional – probably much smaller – amount has been invested in the form of deposits in Panama’s booming residential property market. Evans Loo, of Escritorio Jurídico Loo in Panama City, says that one of the main ways in which funds flowed to Panama last 34 LATINFINANCE July/August 2008

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Latin Finance - July 2008 Contents Investment Banking Outlook Compensation Survey Colombia Investment Banking Borrowers vs. Investors Banorte Profile Braskem Financing Strategy Brazil Hydro Finance Peru Port Privatization Panama Money Flows Argentina Local Markets Guide to Banking Technology Who Said That?

Latin Finance - July 2008

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