Most appealing, Panama stands up for its sovereignty. Notwithstanding the 1989 U.S. invasion to oust dictator Manuel Noriega, Panama does not accept dictates from the United States. Nor is it under colonial control from London, as are the British overseas territories, once known as reliable offshore havens.

In addition, the highly independent Panamanian government, regardless of the party in power, has consistently rebuffed the demands of the Organization for Economic and Community Development (OECD) and other global busybodies. From the outset of the OECD’s shameful “harmful tax competition” initiative, Panama has made it clear that it will not abolish bank secrecy and begin exchanging information about those who use its financial services with tax authorities in other nations until every other nation agrees to do the same. This “level playing field” scenario is highly unlikely to come to pass, particularly since the world’s largest tax haven, the United States, refuses to abide by it.

A New Regime; An Old Name
In early May, Panamanians went to the polls in the first national election since 1999. The clear victor was Martin Torrijos, the son of the late dictator, Omar Torrijos, who seized power in 1968 and ruled until his death in a mysterious plane crash in 1981. Although the younger Torrijos ran in the last presidential election, disenchantment with the president, Mireya Moscoso, gave him fresh appeal this time and he won a three-way race with 50% of the votes.

Many Panamanians fondly remember the new president’s father, Omar, as a benign dictator who promoted land reform, opened up universities to blacks and defended the rights of the indigenous Indian and Creole populations against the white elite oligarchy. The elder Torrijos is also revered for standing up to the United States and, in 1979, securing control of the Panama Canal, the maintenance and operation of which remains central to the success of the nation’s economy.

The son admires the memory of his father, but has made clear he wants no return to dictatorship. His policy statements are pro-business and free market in specifics and tone. A Torrijos victory “should mean a considerable improvement in the outlook for policy in Panama, and a generally more pro business stance by the government,” Wall Street brokerage Morgan Stanley said before the election. Torrijos recognizes the highly important part offshore finance and banking plays in the national economy.
 

No Tax Information Exchange Agreement
One of the first orders of business for the new president is negotiating a free trade agreement with the United States. Talks with Washington are scheduled to conclude this month. No doubt, there will be more pressure from the United States to negotiate a tax information exchange agreement (TIEA), which might permit IRS fishing expeditions into Panamanian banks and trust companies. Although Panama has a mutual legal assistance treaty (MLAT) with the United States that provides for exchange of information in criminal matters, it has shown no interest in agreeing to a TIEA, even as many British “tax havens,” such as Bermuda, the Cayman Islands and the British Virgin Islands, have done so under orders from London.

The incoming president must also decide whether to proceed with a multi-billion-dollar expansion of the Panama Canal, which Torrijos says will be Panama’s “most important decision of the century.” Constructed by the United States and opened in 1914, the canal is in grave need of widening to accommodate larger ships, including supertankers. Revenue from canal operations in 2003 was US$900 million, and the costs of renovation are estimated to be US$4-$6 billion. Financing this project will be a daunting challenge, but the expansion will also require the government to purchase vast tracts of land, much of it occupied by impoverished farmers. Before it can begin, Torrijos must obtain approval for the project in a national referendum.

A Bright Future
After sluggish growth in recent years, Panama’s economy should grow at a brisk rate of about 6% in 2004, thanks to growing U.S. demand for its exports, plus a boom in construction fueled by real estate tax breaks that Torrijos plans to extend.

I believe this growth will continue, aided in large part by Panama’s unique history and relationship with the United States. While the United States has for years tried to strong-arm Panama into repealing its attractive offshore laws, they are tolerated because they undeniably insure Panamanian stability. And Washington needs a stable and prosperous Panama to safeguard its strategic interest in the Panama Canal.

For those who choose Panama as a retirement residence or their base for asset protection, estate planning and offshore business, these realities, as well as the recent election results, should provide continued confidence in the future.

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