Coming off the back off of an unprecedented period of prosperity and growth, the Panamanian government recently created a National Savings Fund (the "Fund") as a forward-looking initiative aimed at safeguarding the country against future negative shocks (e.g., natural disasters, tail risk events, economic recessions, etc.). The product of an extensive canvassing of sovereign wealth funds from around the world and a review of their respective best practices, the Fund Law seeks to provide the Panamanian government with a sophisticated and transparent investment vehicle to manage the country's surpluses.
"Only Panamanian nationals can practice law in Panama, so it's
difficult for foreign firms to set up shops here," one partner points
out. As a result, the legal market in Panama sees little participation
from international firms and is consequently dominated by a handful of
local firms....
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"Only Panamanian nationals can practice law in Panama, so it's
difficult for foreign firms to set up shops here," one partner points
out. As a result, the legal market in Panama sees little participation
from international firms and is consequently dominated by a handful of
local firms. One partner estimates that 70-75% of the well-recognised
business entities in the country are represented by the few major
players, while another says that with plenty of business activity going
on in the country, there is enough work for all the firms.
In
October 2011, the US – Panama Free Trade Agreement won approvals from
both countries after the US Congress passed the agreement. However, the
implementation process may still take up to 18 months, according to the
US Commercial Service's estimate. As the largest foreign direct investor
in Latin America, the US accounts for 30% of Panama's imports market.
"Once the Free Trade Agreement with the US is in force, it will generate
more investment in Panama," one partner predicts.
In terms of
legislation, Law 67 of September 1 2011, which amends Panama's current
securities law, replaced the three-commissioner structure that oversees
the securities market with a board of directors and a Superintendent.
Lawyers agree that this modernisation of the internal structure has
brought the regulatory entity more up-to-date.
Another important
piece of legislation is the new insurance law, also known as Law 12,
which came into force in April 2012. Under the new law, insurers can now
offer their products through alternative marketing channels while
previously brokers have dominated the market. Another notable feature is
the increased minimum capital requirements for local insurers from $2
million to $5 million.
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CONTEXT AND TRENDS
As one of the fastest growing economies in Latin America, Panama recorded a 10.6% economic growth in 2011 while many of the bigger economies just had a modest growth....
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CONTEXT AND TRENDS
As one of the fastest growing economies in Latin America, Panama recorded a 10.6% economic growth in 2011 while many of the bigger economies just had a modest growth. In July 2012, Standard & Poor raised its long-term foreign- and local-currency sovereign credit ratings on the country from 'BBB-' to 'BBB', attributing its decision to the "the increasing resilience and diversification of Panama's economy" and "the stable outlook".
With a service-oriented economy, the country relies heavily on foreign investment and has been successful in creating a good climate for such investment. As one of the five Latin American countries that have been granted an investment grade rating by all three major credit rating agencies, the country has become attractive to foreign investors. Lawyers report that investment has kept coming into the country over the past year, with Canadian and South Korean investors focusing on the mining sector while Brazilian and Mexican firms are investing in construction projects. Besides, investors from Venezuela and Colombia are spending heavily here as well. One partner notes that a lot of Latin American investors are looking for opportunities in the local region, since they are reluctant to spend money in the global market because of the ongoing crisis in the Eurozone. "That has resulted in a lot of activity in the M&A sector in Panama," the partner says.
Additionally, the country's two free trade zones, Colon and Howard Panama Pacifico, continue to attract foreign investors. These investors, who are looking to register in the free zones to take advantage of the tax, customs, immigration and labour benefits, have generated more work for local lawyers.
Infrastructure is another area in the spotlight. "The government has put in place in the last two years very aggressive programs of infrastructure investment," one partner points out. The list of the projects is long, including: the $5.25 billion Panama Canal expansion, the Panama City Metro System, the new Panama Bay sewage system, the Tocumen and Enrique Malek airport expansions and major repairs to the Bridge of the Americas. Most of these large infrastructure projects are carried out by the government, as one partner notes: "There is a lot of government money floating around, generating economy growth." A mix of local and international banks has provided the rest of the financing. As some European banks are facing funding difficulties, Panamanian and other Latin American banks have actively participated in these transactions and filled out the gap. Multinational entities such as IMF and the World Bank, as well as regional entities like OPEC, also account for a large component of these projects' foreign financing.
Tourism is booming as well, stimulating the residential construction and hotel business at the same time. "People not only come to visit, but set up second-homes here," one partner remarks. The country has also witnessed a series of international chain-hotel openings, including the Trump Ocean Club opened in 2011, the 213-room Double Tree by Hilton opened in February 2012 and a 1500-room Hard Rock Megapolis opened in April 2012.
MAJOR LEGISLATION CHANGES
Law 67 of 2011 (securities law)
In effect as of September 2011
Law 12 of 2012 (alternative insurance marketing law)
In effect as of April 2012
RISING STARS
Arias Fábrega & Fábrega
Julianne Canavaggio
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