Panama Replaces Banking Sector Chief

by Mike Godfrey, Tax-News.com, Washington

10 August 2006

Panama's Banking Superintendent, Delia Cardenas, has been replaced by banker Olegario Barrelier. Initially, Panama’s president, Martín Torrijos, pictured, said that Ms Cardenas had resigned; but afterwards she said that she had been fired.

Mr Barrelier was formerly a Vice-President of Chase Manhattan Bank and chief executive of the National Banking Commission. He has also served as Vice-President of Operations and Administration at Banco Andino.

Whatever the exact circumstances, it seems that the President was unhappy with the pace of banking sector reform. The office of the Presidency says that Delia Cárdenas told Torrijos in May that she wanted to return to the private sector.

Panama has been cleaning up its banking sector and restructuring its sovereign debt profile; it has retired most of its shorter-dated debt in favour of longer-term bonds, and has swapped all of its remaining Brady bonds for conventional debt.

In February, Panama’s unicameral legislature approved a major fiscal reform package that 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.

Shortly after, ratings agency Standard & Poor's announced that it had revised its outlook on Panama’s long-term sovereign credit rating to 'stable' from 'negative,' whilst also affirming its 'BB' long-term sovereign credit rating.

According to S&P credit analyst Lisa Schineller, the stable outlooks reflect anticipated improvement in the government’s fiscal deficit and debt situation following passage of the fiscal reform package.

"President Martín Torrijos and his economic team recognize that fiscal reform was and is necessary to stem the increase in Panama's debt burden and strengthen creditworthiness," observed Ms Schineller.

"The government has demonstrated a firm commitment to reduce fiscal imbalances by advancing a politically aggressive tax reform to reduce loopholes in Panama's tax regime, while at the same time reducing government expenditure over the next few years," she added.

S&P expects that Panama’s fiscal reforms will reduce the general government deficit to 2% of gross domestic product by 2006, down from almost 5.5% in 2004.

"Stronger-than-expected results of reform could generate positive implications for creditworthiness,” Ms Schineller continued.

“The stable outlook also assumes that any expansion of the Panama Canal, which would enhance economic opportunities in Panama, will be managed in a fiscally prudent manner that imposes little pressure on government finances," she concluded.

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