BusinessWeek: January 10, 2000

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 International -- Spotlight on Panama

Will a Sweeping Bank Cleanup...Help Create a Latin Wall Street? (int'l edition)

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Will a Sweeping Bank Cleanup...Help Create a Latin Wall Street? (int'l edition)

MAP: Panama


Stevedoring Services of America Inc. (SSA) thought financing would be the least of its worries in its $110 million project to convert a U.S. Navy seaplane base in Panama to a container terminal. A transshipment hub at Colon, where the Panama Canal spills into the Atlantic Ocean, seemed a sure bet. But in 1994, "bankers were unenthusiastic about Panama," recalls Dave Michou, Latin American operations director for the Seattle company. "They said: `Haven't you heard of [former dictator Manuel] Noriega?"' SSA's last resort was an expensive $60 million loan from the World Bank's International Finance Corp. "We're still paying it off," says Michou.

The world's bankers have a whole new take on Panama today. The nation's wobbly reputation has improved since Noriega's drug-running days, when the shadow of money laundering led to a stampede of banks fearful of having their images tarnished. The banks were operating under laws governing the country's International Banking Center (IBC), which was created in 1970 and featured minimal regulation that allowed secret offshore transactions. By 1990, the year after the U.S. invaded Panama to seize General Noriega on drug charges, the IBC's total assets had plunged from a peak of $50 billion in the mid-1980s, to $5 billion.

But since then, Panama has taken special care to rebuild confidence in the IBC, whose 96 banks provide 11,000 jobs and contribute 11% of gross domestic product. The IBC now boasts a robust $36.6 billion in assets, and bankers say they are well poised to pick up business from the investment wave that should follow the U.S. turnover of the canal on Dec. 31. The government has earmarked the 360,000-acre former Canal Zone for projects in tourism, maritime services, export processing, and high-tech research. "We have a potential for development of industry, commerce, and infrastructure, and those projects require financing," says Mario De Diego Jr., executive vice-president of the Panama Banking Assn.

The rehabilitation of the IBC began with a crackdown on funny money. Banks have been required to report transactions of more than $10,000 since 1990, and banking secrecy was ended the following year. In 1996, the government created a financial-analysis unit to track questionable deposits. The final step came last year with a law to fortify oversight. "Panama now has legislation and controls on money laundering stronger than in the U.S.," says Guillermo O. Chapman Jr., former Economy Minister.

SUSPICIOUS. These days, even opening a savings account is a complex affair. Panamanians say they must have a personal reference at a bank, whose employees are obliged to report suspicious characters and keep them busy at the bank until authorities arrive.

Thanks to such measures, banking has revived, and companies can find ready sources of loans again. SSA has poured an additional $190 million into its Manzanillo International Terminal in Colon, quintupling the number of containers handled, and it plans further expansion. "Panama is seen as very stable," says Michou. While it may not yet be the Switzerland of Latin America, it has come a long way from being the continent's Casablanca.

Panama's currency, the U.S. dollar, has long lured Latin American offshore depositors to its banks. Now the Panama Stock Exchange hopes the greenback--or "balboa," in local parlance--will attract Latin companies seeking to raise capital and foreign investors seeking to make money. A November law created an independent National Securities Commission to provide a modern regulatory framework for the local stock market, which lists 30 Panamanian companies and trades $4 billion a year.

The goal is to build a climate of confidence to draw companies craving the stability of the dollar but too small to list on Wall Street. "There's an excellent niche here," says Felipe E. Chapman, Guillermo's son and executive vice-president of the exchange. "We're anticipating that we can double the number of companies and volume we're trading in the next two or three years." Although the plan has been talked about for a decade, financiers say the law was the missing link. Now all that remains is to go out and sell Panama.

Edited by Harry Maurer; By Christina Hoag in Panama City

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