Forums, Gurus, and International Organizations

The Pandemic has brought us many forums through Zoom, with easy accessibility, where many of us have been able to learn new things, learn things we didn't have time to find out before, and attend as many webinars and meetings as humanly possible.

We've learned in many cases, in others not so much. We've agreed on many topics, but not on others. In my case in particular, I have a serious problem with most of the recommendations of IDB, World Bank, IMF, GAFI, OECD, EU, UNESCO, UN, and any global/international/regional organization that tries to comment on our country (or any other), without actually knowing it.

If there is one thing that is true in our country, it is that its economy is a hybrid, it does not behave the same as that of developed countries, since it has many peculiarities, which are generally forgotten by many experts. One of the most important is that since 1845 the US$ circulates in our country unofficially with the entry of the Americans who crossed our country from north to south, to head towards El Dorado in California to seek their "gold".

Panama managed 4 different currencies at one point, the Spanish Doubloon, the Colombian Peso, the French Franc, and the US Dollar, coins that had an interesting impact on Panama in the 1800s, in a century, where the construction of the Transisthmic Railway and the Canal, where the main points of the development of a new country and a new economy.

Panama has never been a normal country, nor an ordinary country. But, in many ways, it is a real simple country, its economy although is not complex, is different thanks to the railway and the canal cluster, and obviously because of the privileged geographical location.

In mid-November, CONEP (The National Council of Private Enterprise) held a Business Forum, with a large number of guests/exhibitors with experience and cartel, and others that are always worth listening to, for different reasons.

The President of the Republic opened the Forum and gave us an update of the 12 actions for the economic recovery as if he had responded to my analysis of the same topic a couple of weeks ago. It is worth mentioning the figures given by the president about his financial actions, very in a gross way, but which, according to the amounts he exposed, gave the appearance that these financial actions were a success. Without wanting to label the president a liar, I would just like to comment on this since I have yet to find any SME owners who have obtained any credit facility from these programs nor a generally positive comment on this matter from SME associations.

The other thing that made a lot of impression on me is the community support program, where until then nothing was known about any recruitment, but the president told us about bids that were being made for this purpose. I imagine that the government's bureaucracy did not allow it to move so fast in this action and that this was the time when the respective bids were being made to launch this revival of employment in small counties (something that could quickly lower unemployment and put money on the street).

The other panelist who draws my attention a lot, and who is really at the heart of my article is Veronica Zabala of the IDB, which set out his views, and I imagine, those of the IDB, about our economy. The most interesting thing about her speech is that she does not oppose the budget of $24 billion recently approved by the Assembly, but that her concern about it is that Panama did not generate the necessary income to cover the expenses and that for this we need more taxes!

It's like there is nothing wrong with an unreal budget, as we explained in our article on the 2021 budget, and that your answer to cover the 2021 deficit was to raise taxes, as in Panama we don't collect enough taxes. And I just can't disagree with Zabala anymore!

The deficit in Panama increases as the government does not lower operating expenses, but still maintains a high level of Investment Spending, which is the highest than the rest of the region (Central America). In the year 2020, where government revenues are expected to decline by the order of 40% less than the previous year (figures until  September), maintaining a budget of $24 billion, which is 3.5% higher than in 2020, is not correct when our economy is going to fall back from 12% to 15% (remaining at 2015 levels) and could only grow by 4.5% in 2021 at best.

Tax revenues go down radically because Panama doesn't have an economy running for 7 months, it's simple. The incomes of the world's governments dropped according to the vast majority of the countries. This is not only a situation in Panama (and I say it not as comfortable, but as a fact). Unemployment – starting with informals – rises to 35% at its highest peak – August. The 300,000 unemployed wage-earners are a hard blow to tax income (even though they have already regained their jobs by about 100,000 by November).

THE SOLUTION, LADIES AND GENTLEMEN OF THE IDB, IS NOT, MORE TAXES, BUT TO TIGHTEN THE GOVERNMENT'S BELT TO BRING THE DEFICIT DOWN. If the solution for Panama to reduce the fiscal deficit is to raise taxes, I have to tell you that you haven't done your homework.

Now let's look at the other issue that made a lot of impression on the IDB representative's statements and that is, in between lines, she suggested that Panama needs a central bank (and for this, we need a currency) so that Panama can control its fate.

Again, gentlemen of the IDB, Panama does not need a central bank. Our economy has remained, transformed, and advanced through more than 100 years of Republican history, with the US$ as a legal tender and without Central Banking. We are none improvised in this regard, we do not have a dollarized economy (as Ecuador and El Salvador) or anything like that, our economy is based on the US$. The Panama Banking System works this way, without having to have a lender of last resort. It wasn't necessary.

I remind you all that less than 10 banks have gone bankrupt in Panama (and only 3 of them has gone bankrupt due to Panama's condition of the bank, since the others went bankrupt as their HQ outside of Panama went bankrupt) in more than 50 years of having a modern Banking Law that catapulted us as an International Banking Center, and that survives, despite attacks by own and strangers, as if the Panamanian Banking System were to blame for the tax revenue problems of the countries of the world. To say that we need to have a Central Bank in Panama is to have the slightest idea of how our economy works, let alone how international finance works, nor our tax revenues. Nor do they have any idea how much the number of assets in the Panamanian banking system is to say that we have a global impact.

Finally, I would like to continue to talk about SMEs in Panama and their real problems. The problem with SMEs is that no one funds them in Panama. Believing that these IDB funds will meet this goal is a fallacy, as they are not interested, and worse, they do not know how to do it the right way.

The idea of a government Opportunity Bank (Banca de Oportunidades) is an excellent one, but its implementation is lousy. The Opportunity Bank deserves a chance. That is, put the politicking aside, to make a light financial institution, but with knowledge. That is, that their processes are automated, that customers anywhere in the country can access the loans quickly and easily, that they are properly served and follow up necessarily given to an MSM (Micro, Small and Medium-sized businesses), and that the project is financially viable and can last for the long term.

Of course, MSMEs can be helped, and we can take a quantum leap with the sector to get things right. You need to run the project well and without politicking.

For International Organizations, not all of their recipes work the same way in all countries. Continuing to think this way only tells us that they are still in the past when they intended to give orders to everyone, and when things didn't work the way they thought, they didn't accept the blame for their wrongdoings. Panama has more than 10 years that it does not have to accept "recommendations" from these agencies, and we go straight to international markets to offer our debt papers. We have to take care of this, so it is extremely important to be able to take control of our finances in the best possible way.

Panama will be able to get out of the crisis. 2021 is going to be an interesting year from every point of view. Several variables are necessary to get out of this crisis: we need credibility in government (that the government does not make mistakes, and if it commits them to accept and correct them at once), confidence in decision-making (enough threats to close the economy, that instills fear in entrepreneurs and prevents investment), the private sector has to invest in the country (many new projects are coming in to try to fill the companies that closed), we need more jobs (the faster we lower unemployment, the faster we recover), the government must not hire anyone else and must lower its current spending as much as possible (that $24 billion budget should fall to at least $20 billion urgently), and activate domestic tourism and buy all domestic products (this will activate employment in these sectors where a large number of workers move).