VZCZCXYZ0009
RR RUEHWEB

DE RUEHZP #2287 3341356
ZNR UUUUU ZZH
R 301356Z NOV 06
FM AMEMBASSY PANAMA
TO RUEKJCS/SECDEF WASHDC
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS PANAMA 002287 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR WHA/CEN TELLO 
 
E.O. 12958: N/A 
TAGS: ECON ETRD
SUBJECT: PANAMA HINTS AT FUTURE PRIVATIZATIONS 
 
 
¶1. (U) SUMMARY.  The GoP has hinted through a letter to the 
World Bank that it may seek to privatize certain government 
assets in order to reduce public debt levels.  However, the 
GoP has no current plans or agreements to further privatize 
any public assets.  Private sector credit analysts believe 
the proceeds from any privatizations will not be significant. 
 With the upcoming $5.25 billion canal expansion and the need 
for $2.3 billion in debt financing, the GoP appears to be 
trying to improve, or at least maintain, its credit rating in 
order to obtain the best possible terms on such financing. 
END SUMMARY. 
 
¶2. (U) The GoP has hinted through a letter to the World Bank, 
dated September 8, 2006, that it is evaluating various 
alternatives to lower it public debt.  Included in these 
alternatives is the sale or concession of various public 
assets to the private sector.  Notwithstanding, Economics 
Minister Carlos Vallarino maintains that the GoP has no 
current plans or agreements to privatize any public assets. 
As of August 31, 2006, Panama's public debt was $10.48 
billion or approximately 62% of estimated 2006 GDP. 
 
¶3. (U) The media have speculated that the list of possible 
GoP assets which could be privatized include the Social 
Security System, the National Savings Bank, the National Bank 
of Panama, the Bank for Agribusiness Development, the 
Insurance Institute for Agribusiness, the National Casinos, 
the Convention Center ATLAPA, the National Institute of Water 
and Sewage, Tocumen International and Albrook Airports, and 
the Postal Service.  Also included is the possible sale of 
the GoP's equity interest in the telecommunications and cable 
company, Cable & Wireless. 
 
¶4. (SBU) Credit analysts from a leading Wall Street credit 
rating agency told EconOff they believe any privatization of 
the Social Security System is problematic given its financial 
situation and the political controversy which would accompany 
any such privatization.  The analysts also told EconOff they 
believe proceeds from other GoP assets would not be 
significant. 
 
¶5. (U) Panama had a wave of privatizations beginning in 1997 
which included the state-run energy utilities.  The GoP 
collected a total of $1.27 billion from such privatizations. 
The money was deposited into the Development Trust Fund. 
Under law the only the income on the underlying principal can 
be used for development projects.  To date, approximately 80% 
of the fund is invested in GoP debt obligations. 
 
¶6. (U) COMMENT.  With October 22, 2006 voter approval of the 
$5.25 billion Panama Canal expansion project, the GoP is 
seeking to improve its credit rating before approaching the 
public debt markets or banks for the estimated $2.3 billion 
in financing budgeted for the project.  Any lowering of the 
public debt, along with reduction in government payrolls and 
increased private sector participation, would be beneficial 
in attracting better financing terms.  While any financing of 
the canal expansion would be a debt of the Panama Canal 
Authority (ACP), some credit rating agencies link the ACP's 
rating to that of the GoP.  Accordingly, maintaining or 
improving the GoP's current BBB  rating is crucial in keeping 
the expansion costs within budget. END COMMENT. 
EATON