No more taxes!

 

Like everything in Panama, the possible tax increase for Panamanians begins as gossip that runs on social media, where government officials on duty deny it, opponents of the government on duty insists on it and that is where it is creating, again, an unfavorable climate in wanting to recover our economy.

Similarly, most Panamanians, pessimistic from their bones, already sing that the country is burning to Nero's "Rome", in this case, Nito. More recently, we did this with Juan Carlos Varela and his government, who needed no further opposition help to sink the country into a negative climate that led us to grow less and less after the year of its five-year period.

Now, during the first 20 months of the Nito government, we have dedicated ourselves to giving hard any government action, whether good or bad, indiscriminately, and even many practically comparing ourselves to Haiti, something totally far from reality. And look, I am not saying that things are okay, but I do not think we are that bad that the country cannot get out of this hole either.

Yes, I am disappointed in certain government actions that do not make sense, but I always think things can be corrected, and that this country is much more than the government on duty and we are going to get ahead. But we must also remember that this is a unique situation, affecting everyone in the world, rich and poor countries, alike, some have handled the health part of the pandemic quite well, others have kept their economy open to avoid further decline.

In Panama, I remind you that we have been in total quarantine for more than 3 months, and in partial quarantines for the rest of the year. Still, everything indicates that we are closing with an economic decline of 18%, one of the worst in the world, but under the circumstances of lockdown, we did not do so badly. Now, the government must understand that without private enterprise it will not achieve economic recovery, so it is imperative that the opening of the economy is immediate and as broad as possible. I am sure that we can recover growth from 2021 to 10% by the end of 2021 and reach $70 billion in GDP by the end of 2024. But a structured plan must be followed, for private enterprise to do its job, investments are made (and not necessarily from the government), employment goes to normal, and demand picks up.

The problem on duty right now is the downgrade we were given in our investment grade, which we maintain but which we have also lowered the grade with a negative expectation. Still, nothing serious is to be expected, as government revenues have dropped 40%, and instead of lowering spending, we have gone out to borrow like crazy in order to maintain government spending. And the worst part is that the 2021 budget we left it at $24 billion, as if nothing were happening, and the state's revenue is likely to remain at the same level as 2020, so the actual budget must have been 40% less, or no more than $20 billion.

Local negativist economic pythons already say that we have lost the investment grade and that Fitch/S&P/Moody's have not told us yet, so the question is: are we going to lose it? I do not think so, but even if we lose it, as things are global, Panama could get it back quickly, and it would not affect us seriously. I remind people that we just earned our investment grade in 2011 and that before this we were in bad shape, asking the IMF for permission even to buy a pencil. We do not want to go back to this, but I am sure we are not going to get to this.

It should also be clarified that Panama's ability to pay has been squeezed a little by the economic situation, but we have not stopped paying and prepaying debt (as some of the pythons it cites earlier say) and that our debt-to-GDP ratio is considerably lessened. But this is the result of reaching $36 billion last year in debt with a GDP of as little as $52 billion (was $68 billion in GDP in 2019). But remember that we must recover GDP quickly and if we manage to keep the debt under control, this reason will bring it to 40% the Debt-to-GDP ratio, again by 2024.

We must control the budget, that is, despite having approved a budget of $24 billion, the president must give the order that the budget is self-adjusted to $20 billion or less so as not to borrow anything from anyone. This is the key to improving our finances, and the president and the executive branch must understand it. This is a year to play it safe, recompose the country's finances, without breaking down the state's finances, and trust that private enterprise can do its job of boosting the economy and not the government (i.e., opening the economy once and for all).

And since we cannot increase revenue quickly, what we have is to lower our spending. We need to cut $4 billion or more, and this task can be done, and here I give you some ideas. The problem is politics. The president must tighten his belt and tighten it for everyone – not travel, not travel expenses, not purchases of anything that is not essential like vaccines, in the short term – but he also has to make long-term adjustments, such as planning to move all ministries and institutions for government buildings and stop paying rents.

I know we cannot throw out government officials so easily without creating more unemployment, I have said that before, even if they are not productive, for now. But if we can eliminate the non-existent employees, the ghosts, the appointments by bribes, etc. here we will find about 50,000 "employees" for at least $500 million a year, plus everything that this employment brings in expenses, that we can eliminate immediately.

Another idea that will save you expenses quickly is the creation of the Transportation Authority, which will manage all the cars/transportation in the government, and which they would have to call from ministries and state institutions for any short or long mobilization. The ACP (Panama Canal Authority) has worked like this for many years, and the results are excellent. Here we save on gasoline, on drivers, on escorts, on maintenance, and even in cars. This authority would have workshops to fix its cars and keep them in condition and would consolidate all employees who are related to the subject.

You can send people to work in the house, and drastically reduce the rented space, immediately. You can automate all the processes of ministries and institutions, also looking for efficiency, and prepare for when you can make the adjustments of the number of employees - 300,000 is too much (with about 50,000 bottles included that we could eliminate immediately), and we can handle ourselves with 150,000 but we need to reactivate the private company to do this.

Panama does not need to raise taxes; it needs to manage its resources well. You should remember that private enterprise is the engine of the economy and not the government, it must emphasize job creation, and this will increase demand, creating new companies, and generating wealth. It is a domino effect.

How are we going to recover? The logistics sector will recover, with the Panama Canal, the ports, and the land transport leading the effort, and then the air transport that gradually regains its normality. I do not see the cruise business recovering this year, so the GDP increase in this sector could grow up to 5%.

The commerce sector can have good results, both in retail and in the ZLC. But his recovery will be a little slower.

The manufacturing sector can recover, but we can also increase its production with more investment – local and foreign (EMMA Law, for example).

The agricultural sector will continue with its growth that it maintained last year, and with more confidence by 2021. Here we include agriculture, livestock, poultry, porcine culture, fishing, which has kept the country with fresh food, a radical change to what we had been doing before.

The mining sector will continue to produce for export in both copper and gold, but even though it counts as part of GDP and wealth generation, its contribution to jobs is not really that great.

I am very concerned about the financial intermediation sector, as I said earlier, because what they have done in the moratorium is to delay the inevitable and not to restructure the debts so that they can be paid with the income that exists from its clients.

And the construction sector must reinvent itself. The real estate leasing law may help the sector, but they must also forget about the sector above $180,000 and focus on the construction sector below $180,000 which is where we will find demand.

Panama's future is not daunting, quite the contrary, we can get out of this, as we have always come out of trouble. I remind you of the political-economic crisis of 1988-89, which ended in the invasion and for which we also had a prolonged recession; we were also able to withstand the five-year-old Mireya Moscoso’s presidential years that had to face the introduction of the Euro into the world economy, the increase in the price of crude oil and the effects of 9/11; we also went through the 5th global crisis of 2008-9 that almost ended several countries and Panama passed this one with flying colors; and I remind you that we live 21 years in the military a dictatorship with much worse macroeconomic figures than we have now (GDP did not reach $10 billion per year, unemployment was 2 figures, and the military made and disposed of state resources as if Panama were their farm). All this happened, and the country moved on. And I am sure this will be no exception.