Latin Finance - July/August 2010 - 34

panama

Panama Forges Ahead
by Sean Mattson aving turned the corner on the global recession with a stillexpanding economy, nearly balanced books and three investmentgrade seals of approval on its debt, Panama plans to plunge headlong this year into ambitious infrastructure spending under president Ricardo Martinelli. The expenditure, which this year will be financed by multilaterals and local treasury issues, raises concern that Panama could lose the fiscal restraint that won it upgrades from Moody’s, Fitch and S&P. Officials are however confident that budget deficits will be within strict legal limits, affirming Martinelli will end his term in 2014 with a reduced GDP-to-debt ratio. “It’s a government commitment,” says Dulcidio De La Guardia, Panama’s matterof-fact vice minister for finance, referring to fiscal discipline and debt reduction. Less than a year since Martinelli took office, the white-haired supermarket magnate wants to make good quickly on projects to immortalize his five-year tenure. They include an overhaul of Panama City’s gridlock-inducing public transportation system with a $1.5 billion subway line. Panama plans to tap multilaterals – CAF and the IDB – for $1 billion in loans for the subway, says De La Guardia. “We are very advanced,” he said in late May of the loan negotiations with the lenders. “We hope it will be concluded in two or three months,” he adds.

Panama is pushing forward on infrastructure, canal expansion and mining. The sovereign is also developing the local debt curve.

Expanding the canal: Panama’s marquee project remains on track, on budget the separately financed $5.25 billion expansion of the Panama Canal. Instead, the sovereign plans to continue targeting the local debt curve, which currently funds less than 10% of the national debt. In January, Martinelli’s cabinet authorized the issuance of $600 million in treasury notes, $135 million of which had been sold in installments through May at 3.5% coupon to yield 3.13%-3.32% on a 2013 maturity. Panama does eventually plan a return to international markets, but outside the US, says De La Guardia, who says the sovereign may tap Asian or European investors. “We will be looking for other avenues of financing from capital markets that are distinct from the traditional market we have used,” he says, explaining Martinelli’s policy to diversify Panama’s financing sources. Panama aims to roll over a 2011 deal of almost $333 million in either Asian markets – Japan, Hong Kong or Singapore – or through a sale of local paper. “We are evaluating alternatives of what to do with this transaction,” says De La Guardia. “We don’t have anything concrete at the moment.” The Martinelli government also plans liability management to deal with a $1.47 billion spike in maturities in 2015. “We want to reduce that amount in half,” says De La Guardia, adding that the government still has plenty of breathing room. “We will be carrying out [the operation] when the market conditions are favorable.”

Tweaking the Local Curve

In spite of attaining investment grade ratings, Panama does not plan on immediately turning to international bond markets to get the $13.5 billion it needs for infrastructure during Martinelli’s administration. This does not include
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July/August 2010

Latin Finance - July/August 2010

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