Panama Continues Debt Restructuring Program

by Mike Godfrey, for LawAndTax-News.com, New York

13 January 2006

On Tuesday, Panama continued its debt restructuring exercise by offering a new 30-year dollar-denominated bond in exchange for five shorter-dated bonds. The swap offer will expire on 17th January.

Panama says it wants to extend its debt maturity profile and reduce its short-term debt burden by swapping existing earlier-maturing debt into longer-dated debt.

The new bond, maturing in 2036, will have a collective action clause allowing Panama to amend its terms with the consent of not less 75% of the holders of outstanding bonds.

In November, Panama offered a new US$980m 20-year benchmark sovereign bond, in exchange for four of its global bonds, maturing in 2008, 2011, 2012 and 2020. That new paper matures in 2026.

In October, Panama filed with the US Securities and Exchange Commission (SEC) to issue up to $2 billion worth of debt. Panama said it planned to issue the securities to raise money for general refinancing and other spending needs. The ‘shelf registration’ allows Panama to sell securities in one or more offerings, determining details such as size and price at the time of sale.

The Panamanian economy expanded by 6.2% in the first six months of 2005, as measured by the monthly index of economic activity. The most dynamic sectors included fish and seafood exports, agriculture products and tourism.

The government forecast economic growth in 2005 of between 4.5% and 5%, below the 6.1% growth witnessed in 2004, which was partly a result of temporary real estate tax breaks. The tax breaks, which gave exemption from real estate taxes for up to 20 years, had led to a construction boom in 2004.

Fiscal austerity measures agreed last February are being implemented by the government, with the IMF's strong approval, and are expected to dent the economy this year. The package seeks to raise revenues from new business taxes, in a bid to reduce the country’s level of debt. The legislature voted 46 to 28 in favour of the measures, which will include a new 1.4% tax on companies’ gross revenues, and a levy on firms operating in the Colon Free Trade Zone – the largest free port in the Americas.

Finance Minister Ricaurte Vasquez said that the fiscal reform package will "stabilize Panama's public finances and establish conditions for the economic and social growth of the country”.

President Martin Torrijos hopes that the new measures will reduce Panama’s $700 million budget deficit, equal to 5.2% of GDP in 2004. He is also hopeful that the extra revenues will help the government to reduce its sovereign debt and restore the confidence of international institutional investors.

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