Credit Suisse on Panama, March 2007

20 03 2007

Credit Suisse on Panama, March 2007

This week, the International Monetary Fund (IMF) released its Public Information Notice for the
Article IV consultations with Panama which concluded last month. The assessment was quite
positive as the Fund applauded the work the Panamanian authorities have done for their sound
macroeconomic management, which have produced an average real GDP growth of 7.2% in the
2004–06 period, coupled with low levels of inflation (albeit high oil prices) and a declining
unemployment rate.

The Fund’s staff supported the governance given so far to the Panama Canal
expansion project and welcomed the safeguards and monitoring put in place to avoid the
development of economic imbalances. Specifically, the IMF praised the authorities’ intention to
monitor expenditures and borrowing strategies. Regarding the all-important public-debt-to-GDP
ratio, which is currently around 63%, the staff suggested to the Panamanian authorities to anchor
their medium-term to long-term economic policies with a target fiscal deficit of 1% of GDP after
2009. With this target and the expected high levels of economic growth rates, the debt-to-GDP ratio
will likely trend downward and become better aligned with average BB-rated credits. The Fund also
recommended that such a criterion should be part of the Fiscal Responsibility Law currently under
preparation. In other news, Alejandro Ferrer, Panama’s Minister of Commerce, stated on Thursday
that Panama is working towards having the free-trade agreement with the United States signed on
June of this year. Negotiations concluded last December, and currently Panamanian authorities are
lobbying to get the agreement approved by the U.S. Congress. We reiterate our underperform
recommendation on Panama based on valuations. (CR/FU/EM)

Sources: Credit Suisse, Panama Investor Blog




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