VZCZCXYZ0007
RR RUEHWEB

DE RUEHZP #0307/01 0602242
ZNR UUUUU ZZH
R 012242Z MAR 07
FM AMEMBASSY PANAMA
TO RUEHC/SECSTATE WASHDC 9901
INFO RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHMFIUU/NGB WASHINGTON DC

UNCLAS PANAMA 000307 
 
SIPDIS 
 
SIPDIS 
 
FOR WHA/CEN TELLO 
ALSO FOR EB/IFD/OIA - HATCHER 
STATE PASS USTR 
STATE PASS TO CIMS NTDB WASHDC 
 
E.O. 12958: N/A 
TAGS: EINV ECON EFIN ETRD OPIC KTDB USTR
SUBJECT: PANAMA 2007 INVESTMENT CLIMATE STATEMENT 
 
REF: STATE 178303 
 
A.1. OPENNESS TO FOREIGN INVESTMENT 
 
¶1.  The resolution of a number of investment dispute cases in 
recent years opened the way for the April 2004 start of 
bilateral negotiations for a free trade agreement between the 
United States and Panama.  The negotiations concluded 
successfully in December 2006.  As of early 2007, the 
re-named &Trade Promotion Agreement8 remained subject to 
final approval by the U.S. Congress and the Panama,s 
National Assembly. 
 
¶2.  Traditionally, Panama has maintained a rather liberal 
regime for foreign investment and investment in financial 
instruments.  The Government of Panama (GOP) and the 
Panamanian business community actively encourage foreign 
direct investment (FDI).  Laws in general make no distinction 
between domestic and foreign companies.  In 1998, the GOP 
enacted the Investment Stability Law, which, among other 
things, guarantees foreign investors, who invest at least two 
million dollars in Panama, equal treatment under the law to 
that of their domestic competition. 
 
¶3.  The Panamanian Vice Ministry of Foreign Trade (VICOMEX) 
is the principal entity responsible for promoting foreign 
investment.  It provides investors with information, 
expedites specific projects, leads investment-seeking 
missions abroad, and supports foreign investment missions to 
Panama. However, depending on the character of the planned 
investment, several different governmental entities may have 
a passive or active interest in the investment in terms of 
setting its parameters of operation, particularly within 
relevant regulations, land use, employment, special 
investment incentives, business licensing, etc.  There is no 
formal investment screening process by the GOP, although the 
government does tend to monitor large foreign investments. 
 
¶4.  The GOP does impose some limitations on foreign 
ownership, such as in the retail and media sectors where 
ownership must be Panamanian.  Foreign retailers, however, 
have been able to work within the confines of Panamanian law 
primarily through franchise arrangements.  Some professions, 
such as medical practitioners, lawyers, and custom brokers, 
are currently reserved for Panamanian citizens.  The GOP also 
requires foreigners in various sectors to obtain from the 
government explicit permission to work, but to Embassy's 
knowledge these restrictions have not hindered U.S. firms 
operating in Panama.  Once ratified and implemented, the TPA 
Panama will accord substantial market access to Panama,s 
retail sector and across its entire services regimes, subject 
to very few exceptions. 
 
¶5.  There is no de jure discrimination against U.S. or other 
foreign investors in most sectors.  A domestic investment 
protection law was enacted in 1991 and remains in force; 
however, it has not yet been invoked or used in contravention 
of U.S. investment.  There is a constitutional prohibition 
against foreign land ownership within ten kilometers of the 
national border or on an island.  Neither Panamanian citizens 
nor foreigners may own beaches or the shores of rivers or 
lakes.  Law 2 was enacted in 2006 to foster tourism 
investment on islands, beachfront and government properties 
through a concession, requiring projects to have an 
environmental impact study, financial support and bonds, as 
well as other requirements. 
Builders and investors may rent such lands for 40 years, via 
the Ministry of Economy and Finance, extendable for an 
additional period of 30 years.  When there is a major 
investment with potential job creation, Law 2 expands this 
period for up to 90 years. 
 
¶6. Land titling continues to be an issue for foreign 
investors.  Outside of Panama City and a few selected areas, 
there is no formal land titling system.  The Embassy is aware 
of several cases where American citizens have had their real 
estate title contested or where they have purchased land 
without obtaining the requisite land title.  Embassy is aware 
of various schemes to defraud foreign real estate buyers in 
such popular areas as Bocas del Toro.  Law 2 of 2006 
clarified ownership rights for Panamanian coastal and island 
properties.  Law 2 confirmed the validity of existing 
&Rights of Possession8 (ROP) ownership rights (a concept 
similar to squatter,s rights) and established a process to 
convert ROP to a title (similar to a property title deed). 
The underlying regulations remain in draft form and some are 
concerned that indigenous holders of ROPs may be financially 
unable to convert their ROPs to titles.  Under Law 2, those 
not in possession of a ROP for island property must now 
obtain a concession from the GOP to continue occupying such 
property.  Some U.S. investors find themselves having to 
defend their ROP rights against claims of previous title and 
various spurious claims.  The Panamanian courts are slow and 
at times arbitrary in resolving property disputes. 
 
¶7.  Panama experienced a boom in foreign investment during 
the late 1990s as a result of GOP privatization and 
modernization efforts. program.  Foreigners, including U.S. 
firms, participated actively and successfully in the 
privatizations of ports, electrical generators, and 
telecommunications firms.  The conduct of major public bids 
and tenders for some public sector projects raised concerns 
about the openness and transparency of the process and the 
responsiveness of authorities to participants.  U.S. 
companies complained that some bidding processes lacked 
transparency. 
 
¶8.  The Panamanian government has "corporatized" Tocumen 
International Airport as a private entity, with all shares 
owned by the GOP.  The airport is undergoing a $70 million 
expansion of the passenger and cargo terminals. Historically, 
the GOP pledged not to privatize its inefficient water and 
sewage utility, its electric transmission company, &Atlapa8 
(Panama,s primary convention center and the largest such 
facility in Central America), or the Caja de Seguro Social 
(Social Security System).  However, in October 2006, GOP 
officials began to discuss the possible privatizations of 
various state-owned enterprises in order to lower the level 
of public sector indebtedness. 
 
¶9.  Panama's privatization framework law does not distinguish 
between foreign and domestic investor participation in 
prospective privatizations.  The law calls for pre-screening 
of potential investors or bidders in certain cases to 
establish technical viability, but nationality and Panamanian 
participation are not criteria. 
 
¶10.  Following the privatizations of the late 1990s, Panama's 
FDI dropped to only $98.6 million in 2002, primarily as a 
result of losses by major banks and the drop-off in 
privatizations.  However, FDI rebounded dramatically to 
nearly $800 million in 2003 and over $1 billion in 2004 and 
2005 as a result of major investments in port expansions, 
Colon Free Zone profits, the sale of shares of a 
telecommunication company, dividends from the electrical 
companies, as well as a resurgence of the banking sector. 
There are announced projects in the energy sector, golf 
courses, residential and commercial construction (including 
the planned 102-story "Ice Tower," which would be the tallest 
building in Latin America).  A $600 million new megaport near 
the Pacific entrance of the Panama Canal was announced by the 
GOP in 2006.  However, despite GOP efforts to attract bidders 
in late 2006 for a  contract to design, build and operate the 
megaport, only five firms (including one US firm) bid on the 
project.  The project is currently being scaled back and its 
future is uncertain. 
 
¶11.  On October 22, 2006, Panamanians voted by a margin of 
78% to 22% to approve a $5.25 billion project to expand the 
Panama Canal by constructing a new third set of locks, along 
with new access navigational channels and deepening the 
existing navigational channels and the depth of Gatun Lake. 
In addition, voters approved the construction of a $300 
million bridge over the Caribbean entrance to the Panama 
Canal which was added to the canal expansion project by the 
Panamanian legislature.  Construction will begin in 2008 and 
continue for seven to eight years.  The project will be 
financed through increased tolls and a budgeted $2.3 in debt 
financing.  Given the size of the project and the Panama 
Canal Authority,s announced policies, foreign companies will 
be able to bid on such contracts on the same terms and 
conditions as Panamanian companies.  Moreover, once ratified 
and implemented, the TPA will ensure that U.S. suppliers are 
granted non-discriminatory rights to bid on purchases of 
Panamanian government ministries and other entities, 
including the Panama Canal Authority.  The TPA,s government 
procurement provisions include the purchases of all of 
Panama,s first-tier sub-central entities (comparable to U.S. 
states); and requires fair and transparent procurement 
procedures, including advance notice of purchases, and timely 
and effective bid review procedures. 
 
¶12.  The Panamanian government developed some of the U.S. 
government properties transferred to Panama by the United 
States from 1979 through December 1999.  The commuter airport 
development at the former Albrook Airfield, now known as 
Marcos A. Gelabert Airport, has been one of the most 
successful ventures.  Other projects now underway include 
major tourist projects at the former Fort Amador, as well as 
a museum of ecology designed by world-renowned architect 
Frank Ghery.  In December 2005, the luxury resort, Playa 
Bonita, was completed in the Farfan area on the Pacific 
coast. On the former Howard Air Base, Dell Corporation opened 
a customer service call center in August 2003 that employs 
about 2,000 people.  Progress in the academic and research 
community (City of Knowledge) has been slow but steady. 
Several U.S. universities have located campuses in various 
former military installations as well as international and 
regional organizations. 
 
¶13.  Panamanian Law forbids monopolistic and anti- 
competitive behavior.  The GOP passed in February 1996 an 
Antimonopoly Law, designed to prevent monopolistic practices 
and create a consumer protection authority.  Although 
Panama's Free Competition and Consumer Affairs Commission 
(CLICAC) was set up to protect consumers against practices 
such as the sale of expired products to price gouging, it was 
widely viewed as ineffective and under-funded.  In February 
2006 the Torrijos Administration enacted by "decree law" the 
elimination of CLICAC and creation of a new "Authority for 
Consumer Protection and Defense of Competition."  The GOP's 
aim is to create a more agile entity with greater autonomy 
and stronger capabilities to protect consumer rights by 
combating false advertising, monopolistic practices and 
unfair competition. 
 
A.2.  CONVERSION AND TRANSFER POLICIES 
 
¶14.  Panama has no legal restrictions on the transfer abroad 
of funds associated with or capital employed in an 
investment.  There are no restrictions on capital outflows or 
convertibility.  Panama uses the U.S. dollar as legal tender. 
 Currency conversion therefore is not an issue. 
There is, therefore, no independent monetary policy in 
Panama.  Inflation, bound by the U.S. dollar, is low and 
predictable.  According to the IMF, "dollarized Panama has 
had significantly lower inflation (and inflation volatility) 
at a cost of more volatile GDP growth."  Although inflation 
topped 3.5% in Panama during 2005 owing to high fuel prices, 
it has since fallen to 2% as of late 2006.  Panama's annual 
inflation averaged less than 3.2% over the previous 30 years. 
 This apparent predictability enhances the attraction of 
foreign investment. 
 
A.3. EXPROPRIATION AND COMPENSATION 
 
¶15.  The Embassy is unaware of any outright expropriation of 
property by the Panamanian government in recent years.  Very 
few U.S. investors have alleged that irregular or illegal 
actions of some government entities, past and current, have 
resulted in "de facto" expropriation of their property. 
 
A.4. DISPUTE SETTLEMENT 
 
¶16.  Panama has a court and judicial system built around a 
civil code, rather than the Anglo-American system of reliance 
upon case law and judicial precedent.  Fundamental procedural 
rights in civil cases are broadly similar to those available 
in U.S. civil courts, although some notice and discovery 
rights, particularly in administrative matters, may be less 
extensive than in the U.S.  Judicial pleadings are not always 
a matter of public record, nor are the processes always 
transparent. 
 
¶17.  The business community lacks confidence in the 
Panamanian judicial system as an objective, independent 
arbiter in legal or commercial disputes, especially when the 
case involves powerful local figures with political 
influence.  When disputes with foreign investors arise the 
investors often choose not to pursue remedies available to 
them via the court system.  The court system is slow and 
prone to massive case backlogs and corruption. 
 
¶18.  An increasingly popular and viable alternative for 
settling disputes, particularly in the construction sector, 
is the Center for Mediation and Arbitration established by 
the Panamanian Chamber of Commerce.  Depending on the issues 
there are other disputes resolution centers as the Panamanian 
Construction Chamber, and the Supreme Court. Rulings by 
arbitrators are generally fair and reasonable.  In 1998, 
these rulings were given status as judicial rulings. 
 
¶19.  The GOP accepts binding international arbitration of 
disputes with foreign investors.  Panama became a member of 
the International Center for the Settlement of Investment 
Disputes (ICSID) in 1996.  The United States and Panama 
signed an amendment to the Bilateral Investment Treaty to 
incorporate Panama's membership into ICSID on June 1, 2000. 
This amendment took effect in May 2001.  Panama also became a 
member of the World Bank's Multilateral Investment Guarantee 
Agency (MIGA) in 1997. 
 
¶20. Once ratified and implemented, the TPA will solidify the 
legal framework for U.S. investors operating in Panama. All 
forms of investment will be protected under the agreement, 
including enterprises, debt, concessions and similar 
contracts, and intellectual property.  With very few 
exceptions, U.S. investors will be treated as well as 
Panamanian investors (or investors of any other country) in 
the establishment, acquisition, and operation of investments 
in Panama.  The TPA draws from U.S. legal principles and 
practices to provide U.S. investors in Panama substantive and 
procedural protections that foreign investors currently enjoy 
under the U.S. legal system.  The TPA,s investor protections 
are backed by a transparent, binding international 
arbitration mechanism, under which investors may, at their 
own initiative, bring claims against a government for an 
alleged breach of the TPA,s investment chapter.  Submissions 
to investor-state arbitral tribunals will be made public, and 
hearings will generally be open to the public.  Tribunals 
will also be authorized to accept amicus submissions from 
non-disputing parties. 
 
 
¶21.  Panama's bankruptcy law is antiquated and remains under 
review to be adapted to modern business practices. 
 
A.5.  PERFORMANCE REQUIREMENTS/INCENTIVES 
 
¶22.  There are no legal performance requirements such as 
minimum export percentages or significant local procurement 
rules.  There are special tax and other incentives for 
manufacturers to locate in an export-processing zone (EPZ). 
Official support for investment and business activity is 
especially strong for the Colon Free Zone (CFZ), the banking 
sector, the tourism sector, and EPZs.  Companies in the CFZ 
pay no income taxes.  Banks and individuals in Panama pay no 
tax on interest or other income earned outside Panama. No 
taxes are withheld on savings or fixed time deposits in 
Panama.  Individual depositors do not pay taxes on time 
deposits.  EPZs offer tax-free status, special immigration 
privileges, and license and customs exemptions to 
manufacturers who locate there. 
 
¶22.  Law 8 of 1994 offers tax and other incentives to 
investors in tourist industries.  As part of the Torrijos, 
Administration,s review of all fiscal incentive programs, 
the GOP has decided to eliminate certain incentives contained 
in Law 8.  The GOP will remove the incentives granted to 
investments in new casinos, shopping malls, and night clubs. 
It is contemplated that the GOP will maintain the incentives 
related to residential projects, such as hotels, 
apartment-hotels, hostels  and time shares. 
 
¶23.  In 1997, the Panamanian government enacted legislation 
to promote the restoration of historical buildings and sites 
Panama City's old downtown area known as "Casco Viejo." 
Tourism incentive laws provide, among other measures, tax 
exemptions for vehicles and other designated goods imported 
for use in, or to build infrastructure for, the tourist 
sector.  Similar incentives exist for the mining sector. 
Legislation affecting the mining sector is under review.  Law 
28 of 1995 extended national industry and export incentives. 
However, contracts that were created prior to Law 28 continue 
to receive the benefits of the previous incentives.  In 1997, 
the GOP eliminated tariffs on fuel imported by electricity 
generators to promote privatization of the former state 
electric company.  The government has gradually phased out 
tariff incentives that favor the importation of raw materials 
for further processing in Panama.  The Torrijos 
Administration is also reviewing fiscal incentive programs as 
part of its overall fiscal reform. 
A.6.  RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT 
 
¶24.  With the current exception of retail trade, the media, 
and a few professions, foreign and domestic entities have the 
right to establish, own, and dispose of business interests in 
virtually all forms of remunerative enterprise.  Once 
ratified and implemented, the U.S.-Panama TPA Panama will 
accord substantial market access across its entire services 
regimes, subject to very few exceptions, using a "negative 
list" approach.  Under the TPA, Panama agreed to dismantle 
significant services and investment barriers, such as lifting 
restrictions on investment in retail trade, ensuring access 
to contracts related to the Panama Canal, and providing new 
access in professional services that previously had been 
reserved exclusively to Panamanian nationals.  This will 
allow U.S. firms to take full advantage of the benefits of 
the TPA across all sectors, including, but not limited to 
express delivery, logistics, energy, audiovisual, computer, 
construction, wholesaling, health, education, and 
environmental services. U.S. financial service suppliers have 
full rights to establish subsidiaries or branches for banks 
and insurance companies.  Portfolio managers in the U.S. will 
be able to provide portfolio management services to both 
mutual funds and pension funds in Panama.  Foreigners need 
not be legally resident or physically present in Panama to 
establish corporations or to obtain local operating licenses 
for a foreign corporation.  Business visas (and even 
citizenship) are readily obtainable for significant 
investors.  Banking, financial services, and the legal 
profession are receptive toward attracting foreign business. 
 
A.7.  PROTECTION OF PROPERTY RIGHTS 
 
¶25.  Some of Panama's business, corporate, and banking codes 
have been modernized and are, in general, enforced so as to 
strengthen confidence in property rights.  Mortgages, liens, 
and other security interests are recognized.  The public 
property registry is undergoing expansion and modernization. 
Unique features of Panamanian law and practice in specific 
areas (including but not limited to banking, accounting 
requirements, formation and functioning of corporations, and 
taxation) make retention of local legal counsel highly 
advisable. 
 
Intellectual Property Rights 
---------------------------- 
 
¶26.  Panama is a member of the World Intellectual Property 
Organization (WIPO), the Geneva Phonograms Convention, the 
Brussels Satellite Convention, the Universal Copyright 
Convention, the Bern Convention for the Protection of 
Literary and Artistic Works, the Paris Convention for the 
Protection of Industrial Property, and the International 
Convention for the Protection of Plant Varieties.  In 
addition, Panama was one of the first countries to ratify 
the WIPO Copyright Treaty and the WIPO Performances and 
Phonograms Treaty, although the government has yet to 
introduce implementing legislation to put these treaties 
fully into force in Panama.  Panama is not a signatory to 
the Patent Cooperation Treaty, Trademark Rights Treaty and 
the Madrid Protocol.  Should Panama conclude a Free Trade 
Agreement with the United States, Panama would become a 
signatory to these agreements. 
 
¶27.  The legal framework for the protection of intellectual 
property rights (IPR) in Panama has improved significantly in 
recent years.  The government passed an Anti-Monopoly Law in 
1996 mandating the creation of commercial courts to hear 
anti-trust, patent, trademark, and copyright cases 
exclusively.  Two district courts and one superior tribunal 
began to operate in June 1997 and have been adjudicating 
intellectual property disputes.  IPR policy and practice in 
Panama is the responsibility of an Inter-institutional 
Committee for Intellectual Property (CIPI).  This comittee 
consists of representatives of six government agencies and 
operates under the leadership of the Vice-Minister of 
Commerce.  CIPI coordinates enforcement actions and develops 
strategies to improve compliance with the law, including 
organizing training and public awareness seminars, among 
other activities.  In January 2003, the GOP designated an 
IPR-specific prosecutor with national authority, which has 
consolidated and simplified prosecution of those cases.  The 
U.S.-Panama TPA provides for improved standards for the 
protection and enforcement of a broad range of intellectual 
property rights, which are consistent with both U.S. 
standards of protection and enforcement, and with emerging 
international standards.  Such improvements include 
state-of-the-art protections for digital products such as 
U.S. software, music, text, and videos and; stronger 
protection for patents, trademarks and test data, including 
an electronic system for the registration and maintenance of 
trademarks. 
 
 
Copyrights 
---------- 
 
¶28.  The National Assembly in 1994 passed a comprehensive 
copyright bill (Law 15), based on a World Intellectual 
Property Organization model.  The law modernizes copyright 
protection in Panama, provides for payment of royalties, 
facilitates the prosecution of copyright violators, protects 
computer software, and makes copyright infringement a felony. 
 
¶29.  The Copyright Office has yet to introduce long-promised 
improvements to the Copyright Law to implement the new WIPO 
treaties (the WIPO Copyright Treaty and the WIPO Performances 
and Phonographs Treaty) and to establish new offenses, such 
as those needed for internet-based copyright violations and 
to enhance border measures. 
 
Patents 
------- 
 
¶30.  Panama's Industrial Property Law (Law 35) went into 
force in 1996 and provides 20 years of patent protection from 
the date of filing.  The Industrial Property Law provides 
specific protection for trade secrets.  However, at least one 
pharmaceutical company has raised the alarm that these 
protections are not being respected by the office of the 
Ministry of Health that registers generic medicines, though 
the Ministry is attempting to address the concerns. 
 
Trademarks 
---------- 
 
¶31.  Law 35 also provides trademark protection, simplifying 
the process of registering trademarks and making them 
renewable for ten-year periods.  The law's most important 
feature is the granting of ex-officio authority to government 
agencies to conduct investigations and to seize materials 
suspected of being counterfeited.  Decrees 123 of November 
1996 and 79 of August 1997 specify the procedures to be 
followed by Customs and Colon Free Zone (CFZ) officials in 
conducting investigations and confiscating merchandise.  In 
1997, the Customs Directorate created a special office for 
IPR enforcement, followed by a similar office created by the 
CFZ in 1998.  The Trademark Registration Office continued to 
undertake significant modernization in 2005 with the 
introduction of imaging and workflow automation of their 
processes and on-line application processing.  This includes 
a website that allows applicants to track the status of their 
Trademark and Patent applications and the creation of a 
Customer Service Center.  The Trademark Registration Office 
claims to be the most advanced in the region, with 90% 
automation.  This office reports that it has reduced 
trademark registration processing time in half, down from one 
year to six months.  This office also reports that it has 
conducted classes on the importance of IPR protection at the 
Technical University of Panama and recently sponsored a 
National Inventor's Competition that brought inventors 
together with prospective investors and customers. 
 
A.8.  TRANSPARENCY OF THE REGULATORY SYSTEM 
 
¶32.  Panama's 1997 accession to the WTO, wholesale 
privatization, and overhaul of various laws that regulate 
economic activity created a fluid regulatory climate. 
Panamanian regulators have been exposed only recently to 
complex issues, many of them technical.  Regulators' 
responsiveness to the concerns of those they regulate has 
been mixed, depending on the sector.  U.S. businesses had 
complained for several years of arbitrariness or a lack of 
responsiveness by officials responsible for issuing 
sanitary/phytosanitary (SPS) permits for the importation of 
agricultural products.  They also complained about 
unannounced and costly sanitary controls imposed upon arrival 
of various shipments of agricultural products that had 
previously been pre-cleared for importation.  In December 
2006, the U.S. and Panama signed a bilateral agreement on SPS 
measures in which the Panamanian government agreed to 
recognize the equivalency of the U.S. food safety inspection 
system and to require only USDA Food Safety Inspection 
Service &Certificates of Wholesomeness8 (or other 
applicable export certificates of U.S. authorities) for the 
importation and sale of meat and poultry products from the 
U.S.  In February 2007, Panama,s Health and Agriculture 
Ministries published resolutions formally granting this 
equivalency.  In early 2006, the Torrijos Administration 
created the Panamanian Food Safety Authority (&AUPSA8), 
which assumed control over the inspection of all food imports 
into Panama as of November 15, 2006.  AUPSA established an 
online system to ensure transparency and prompt processing 
for the importation of food products into Panama. 
 
¶33.  Public Utilities and telecommunications industries long 
complained of slowness of Panama's Regulatory Entity ("Ente 
Regulador") in responding to competitive concerns or requests 
for information.  In February 2006, the Torrijos 
administration enacted by "decree law" the elimination of the 
Ente Regulador and creation of a new "National Public 
Services Authority."  The GOP's aim is to provide more 
effective oversight by separating administrative and 
regulatory functions related to water, electricity, and 
telecommunications providers.  The National Public Services 
Authority,s director has taken steps to resolve regulatory 
disputes in the electricity and telecommunications sectors. 
In the banking and finance sector, private entities generally 
give good marks to the Panamanian entities that regulate 
them, such as the Superintendent of Banks. 
 
¶34.  On July 12, 2006, Panama enacted Law 27 which allows the 
Government of Panama to create enterprises to conduct oil and 
gas exploration, distribution, production, storing, 
industrialization, commercialization, importation, 
exportation and refining activities.  Certain American 
companies have expressed concern that Law 27 is ambiguous and 
may result in greater government intervention and 
restrictions on the energy sector. 
 
A.9.  EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT 
 
¶35.  Panama's 1998 Banking Law regulates the country's 
financial sector.  The law, which concentrates regulatory 
authority in the hands of a powerful and well-financed 
Superintendent, transformed the previously inadequate regime 
into one that is by and large able to meet international 
standards.  The Bank Superintendent has worked since 2004 
toward bringing Panama,s bank supervision up to &Basel II8 
standards.  In July 2006, the Bank Superintendent reported 
that Panama largely complies with the international standards 
for effective bank supervision.   However, the Superintendent 
determined that, to fully meet Basel II standards,  Panama 
needs to bolster and modify its regulatory framework for 
banks in areas such as capital adequacy; liquidity, market 
risk, and loan and investment portfolio ratings. 
 
¶36.  Traditional bank lending from the well-developed banking 
sector is relatively efficient and is the most common source 
of financing for both domestic and foreign investors, 
offering the private sector a variety of credit instruments. 
 Panamanian interest rates closely follow international rates 
(i.e., the London Interbank Offered Rate - LIBOR), plus a 
country-risk premium.  The rate on a domestic commercial loan 
averaged 8.3% in 2005 and increased to 9.00% as of December 
12, 2006.  The six-month domestic deposit rate was 3.0% as of 
December 12, 2006.  Total assets in Panama's banking system 
topped $44.8 billion in December 2005 and grew to $49.5 
billion as of September 30, 2006. 
 
¶37.  Early in 1999, Panama passed a securities law that 
established a National Securities Commission to regulate 
brokers, fund managers, and all matters related to the 
securities industry.  The Commission began to function in 
early 2000.  Some private companies, including multinational 
corporations, have issued bonds in the local securities 
market.  Companies rarely issue stock on the local market 
and, when they do, they often try to issue shares with no 
voting rights.  As a result, these stocks are less attractive 
than those with voting rights.  Moreover, investor demand is 
generally limited because of the small pool of persons, 
companies, and investors with the resources to invest. 
 
¶38.  In 2006, Panama, El Salvador and Costa Rica entered into 
an agreement to develop a regional, centralized stock 
exchange in 2007.  The goal of the exchange is to provide 
greater liquidity to the existing exchanges.  The new 
exchange will be U.S. dollar-denominated, trade equity and 
debt issues, and will operate in addition to, and not 
replace, the existing national exchanges. 
 
¶39.  Interest from fixed bank deposits and certain bonds are 
tax-exempt.  There is a 10% withholding tax on dividends, 
although capital gains from the sale of equities listed on 
the Panamanian exchange is tax exempt.  Cross-shareholding or 
stable shareholder arrangements, designed to restrict foreign 
investment through mergers and acquisitions, do not exist. 
There are no restrictions on, nor practical measures to 
prevent, hostile foreign investor takeovers, nor are there 
regulatory provisions authorizing limitations on foreign 
participation or control or other practices to restrict 
foreign participation.  There are no government or private 
sector rules to prevent foreign participation in industry 
standards-setting consortia. 
 
¶40.  Financing for consumers is also relatively open, as 
mortgages, credit cards and personal loans, even to those 
earning modest incomes, are widely available on terms similar 
to those in the U.S. 
 
A.10.  POLITICAL VIOLENCE 
 
¶41.  Panama's Constitution provides for the right of peaceful 
assembly, and the Government generally respects this right. 
No authorization is needed for outdoor assembly, although 
prior notification for administrative purposes is required. 
Throughout 2006, police showed restraint and professionalism 
while monitoring protests by retirees, students, political 
activists, and the teachers, union. 
 
¶42.  Political violence in Panama since the end of the 
Noriega era in 1989 is not common, but there are exceptions. 
Between April and June 2005, Panamanian police forces 
peacefully subdued large, potentially violent nation-wide 
protests against Social Security reforms with few complaints 
of use of force. A local protest against utility rate hikes 
in Bocas del Toro in October 2004 left 24 PNP officers 
wounded and ended with charges of police brutality by the 
protesters. The charges were subsequently dismissed when the 
police presented video evidence that they acted in 
self-defense.  September 2003 protests spurred by the ouster 
of Social Security Director Juan Jovane turned violent when 
construction workers led by the SUNTRACS labor union attacked 
police. In 2002, there were several public demonstrations, 
including a major public protest against corruption in Panama 
City. Several times during the year, rural groups protested 
against the presence of Panama Canal authorities in the 
watershed and potential expansion of the Canal.  In August 
2002, rioting broke out in Colon for two days, ostensibly to 
protest persistently high unemployment, halting commerce and 
causing minor property damage. 
 
¶43.  Two high-profile incidents in 2001 were triggered by the 
government's decision to allow bus owners to raise fares and 
by the delay in raising the minimum wage (which was increased 
in August 2003). The former led to weeklong riots that caused 
over 20 injuries, hundreds of arrests, and sporadic looting 
in the capital. Opposition to the proposed privatization of 
the state water utility in 1998 also led to vociferous, but 
generally nonviolent, protests.  The lack of economic 
opportunities, a high overall unemployment rate (officially 
at 8.6% as of late 2006, but much higher in certain areas), 
increasing gang-related activity and a growing use of illicit 
drugs have been cited as the chief causes of crime. 
 
A.11.  CORRUPTION 
 
¶44.  Panama is a member of the Organization of American 
States (OAS) Inter-American Convention Against Corruption 
(IACC), but not a signatory to the OECD Convention on 
Combating Bribery.  Panama's submission to the IACC lacks 
empirical examples of how its anti-corruption laws have been 
applied.  The general perception is that anti corruption laws 
are not applied rigorously and that the government 
enforcement bodies, such as the Comptroller General's and the 
Attorney General's offices, have been ineffective in pursuing 
and prosecuting those accused of corruption, particularly in 
high-profile cases.  However, the Torrijos Administration has 
taken steps to permit official investigation of corruption 
cases involving public officials and the public release of 
information regarding government activities and expenditures. 
 Constitutional reforms that permit the Supreme Court to 
decide whether to investigate or indict legislators while in 
office were implemented on November 15, 2004.  However, the 
Torrijos Administration has since rescinded some of its 
anti-corruption measures.  In July 2006, President Torrijos 
signed Law 25 which restored some of the legislative 
immunities eliminated in earlier constitutional reforms.  The 
government has not acted to dismantle Panama's 
dictatorship-era libel and contempt laws, which often are 
used to punish whistleblowers, while those accused of acts of 
corruption are seldom prosecuted and almost never jailed. 
Panama's government lacks strong systemic checks and balances 
that incentivize accountability.  The lack of a strong 
professionalized career work force in Panama's public sector 
also hinders systemic change. 
 
¶45.  Allegations of corruption have been endemic for many 
years.  Complaints by American firms about allegedly corrupt 
judicial and governmental decisions prejudicial to their 
interests remain problematic.  In 2005, the Torrijos 
Administration successfully reversed a deal struck between 
the Moscoso Administration and Panama Ports Company (PPC) 
that would have enabled PPC to walk away from $1.4 billion in 
payments to Panama as part of a 40-year port concession 
agreement.  Amid allegations of corruption in the Moscoso-PPC 
deal, the Torrijos Administration successfully renegotiated 
new terms for the agreement with PPC that effectively erased 
the Moscoso-PPC deal. 
 
¶46.  Since taking office in September 2004, the Torrijos 
Administration took steps toward following through on its 
"zero tolerance" anti-corruption campaign, including the 
launch of investigations into the finances of several 
prominent figures in the Moscoso Administration.  The GOP 
rescinded former President Moscoso's June 2002 decree that 
impeded enforcement of the January 2002 Transparency Law. 
Moscoso's decree imposed regulations that hindered access to 
information on public entities.   In addition, President 
Torrijos established a "National Council for Transparency 
Against Corruption" that makes recommendations to the 
President, but the Council's influence on the administration 
is not strong.  Meanwhile, several high- profile cases remain 
unresolved by the Panamanian courts. The Torrijos 
Administration also passed a package of fiscal and social 
security reforms through the National Assembly that included 
increased transparency measures. 
 
¶47.  Corruption in Panama's Supreme Court remains a 
significant public concern.  In March 2005, four Court 
magistrates hurled accusations of corruption against each 
other, provoking wide-spread public demands for the dismissal 
of all nine justices.  In response, President Torrijos 
created a State Justice Commission to recommend improvements 
to the administration of justice, mainly in the areas of 
transparency, efficiency and public accessibility.  The 
Commission released its report in October 2005, but thus far 
no long term substantial changes have been made.  In November 
2005, the National Assembly's Judicial Affairs Committee 
dismissed a complaint filed by NGO Alliance for Justice 
against eight of the nine magistrates for questionable 
rulings.  Coincidentally, a day later the U.S. government 
revoked the visa of Supreme Court magistrate Winston 
Spadafora under section 212(f) of the Immigration and 
Nationality Act (regarding public corruption). 
 
¶48.  Although Panama's overall efforts to combat public 
corruption have been lackluster, both the Attorney General 
and Comptroller General have worked to improve the 
transparency of their organizations and pursue public 
corruption.  The GOP has also launched new websites, such as 
"Panama Compra" ("Panama Buys"), to foster greater 
transparency.  All GOP agencies must now post procurement 
solicitations online and will only be able to receive online 
bids.  Awards will be posted on the website.  The GOP has 
also launched &Panama Tramita8 (&Panama Transacts8) and 
&Panama Emprenda8 (&Panama Undertakes8) and other online 
systems to simplify and increase transparency in government 
bureaucratic processes and in establishing new businesses. 
 
¶B.  BILATERAL TRADE AND INVESTMENT AGREEMENTS 
 
¶49.  The U.S. and Panama concluded negotiations on a &Trade 
Promotion Agreement8 (TPA) in December 2006.  As of early 
2007, the TPA remained pending signature and final approval 
by the U.S. Congress and Panama,s National Assembly.  Panama 
currently has bilateral free trade agreements with El 
Salvador, Taiwan (Taiwan's first such accord), and Singapore. 
 In December 2006, Panama,s National Assembly unanimously 
approved the Panama-Chile free trade agreement.  In the 
1990s, Panama had negotiated a framework for free trade 
negotiations with all five countries of Central America, 
although many of these are on hold.  The GOP is currently 
negotiating bilateral free trade agreements with Guatemala 
and Costa Rica.  The Torrijos Administration also seeks to 
deepen Panama's trade integration with Andean and Mercosur 
countries.  By regional standards, Panama has been a strong 
advocate of trade liberalization.  For example, Panama joined 
with the U.S., Mexico, and Chile in pushing for progress on a 
Free Trade Area of the Americas (FTAA) at the November 2005 
Summit of the Americas in Mar del Plata, Argentina. Panama's 
strong international thrust was also evidenced by the fact 
that it served as Secretariat for the Free Trade of the 
Americas from 2001-2003. On November 5, 2004, Panama 
announced it would start negotiations to join the G-3 
consisting of Colombia, Venezuela, and Mexico.  However, 
negotiations to formally join the G-3's commercial framework 
have not begun. 
 
¶50.  Panama has bilateral investment agreements with the 
United States, the United Kingdom, France, Switzerland, 
Germany, Taiwan, Canada, Argentina, Spain, Chile, Uruguay, 
the Czech Republic, Netherlands, Cuba, and Korea.  Panama 
also has signed bilateral investment agreements with the 
Dominican Republic, Mexico and Ukraine but these have not yet 
entered into force.  Commerce Ministry officials have said 
that there have been some exploratory talks toward investment 
agreements with other countries, but they acknowledge that 
these discussions have a lower priority than ongoing free 
trade negotiations.  In 2000, the United States and Panama 
amended their Bilateral Investment Treaty (BIT) to reflect 
Panama's joining the International Center for the Settlement 
of Investment Disputes (ICSID).  Once the U.S.-Panama TPA is 
ratified and implemented, it would supersede the BIT. 
 
¶C.  OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS 
 
¶51.  The United States and Panama signed a comprehensive 
Overseas Private Investment Corporation (OPIC) agreement in 
April 2000.  OPIC offers both financing and insurance 
coverage against expropriation, war, revolution, 
insurrection, and inconvertibility for eligible U.S. 
investors in Panama.  OPIC can insure up to US $200 million 
per project for U.S. investors, contractors, exporters, and 
financial institutions. Financing is available for overseas 
investments that are wholly owned by U.S. companies or that 
are joint ventures in which the U.S. firm is a participant. 
Panama is a member of the Multilateral Investment Guarantee 
Agency (MIGA). 
 
¶D.  LABOR 
 
¶52.  Panamanian labor law, in requiring the Labor Ministry's 
permission to dismiss employees for "economic reasons" may 
act as a legal barrier to a firm wishing to reduce its 
workforce or repatriate its capital.  If a firm is insolvent, 
the law also gives workers priority over all other 
non-secured creditors. 
 
¶53.  According to the GOP figures, Panama's non-indigenous 
labor force as of August 2006 was approximately 2.14 million, 
with 85% employed in the private sector and 15% in the public 
sector.  As of August 2006, non-indigenous unemployment 
officially declined to 9.1% from 10.3% in 2005, however, the 
GOP reports underemployment to be at 22.7% as of August 2006. 
 Pockets of chronic high unemployment continue, notably in 
the provinces of Colon and Panama, where several districts 
have unemployment rates in excess of 10%.  In February 2006, 
the GOP hiked Panama's minimum wage by 8% raising the monthly 
minimum wage from $263 per month to $284. 
 
¶54.  Labor unions hold some political influence in Panamanian 
society and often protest in order to further their 
objectives. 
 
¶55.  While the GOP has periodically revised its labor code, 
including a modest revision in 1995, it remains highly 
restrictive.  Several sectors, including the Panama Canal 
Authority, the Colon Free Zone, public sector employees, and 
export processing zones/call centers are covered by their own 
labor regimes and all or portions of the Labor Code may not 
apply.  Employers outside of these areas such as tourism have 
called for greater flexibility, easier termination of 
workers, and the elimination of many constraints on 
productivity-based pay.  Employers frequently cite the lack 
of skilled labor as a constraint to growth.  In connection 
with the Panama Canal expansion and in recognition of the 
skilled worker shortage, the GOP, through the National 
Institute for Professional Formation and Training, has 
embarked on a $55 million worker training program. 
 
¶E.  FOREIGN TRADE ZONES/FREE PORTS 
 
¶56.  Law 25 of 1996 provides for the development of "export 
processing zones" (EPZ's) as part of an effort to broaden the 
Panamanian manufacturing sector while promoting investment in 
former U.S. military bases transferred to Panama.  The law 
also includes specific labor and immigration provisions that 
are more favorable than the current Panamanian labor code. 
The government also provides numerous tax incentives to 
companies that operate in EPZ's. 
Companies operating in these zones may import inputs duty- 
free if products assembled in the zones are to be exported. 
Of the thirteen registered EPZ's, most remain small and 
underdeveloped with only a few tenants.  They are said to be 
facing difficulties combating Panama's high relative wages, 
low industrial base, and weak infrastructure particularly 
outside the Panama-Colon Corridor.  Law 25 also provides for 
the development of call centers.  Of the 39 companies 
licensed to operate call centers, only 16 have begun 
operations.  The call centers are operated mostly by U.S. 
companies and employ approximately 10,000 persons. Law 41 of 
2004 provides for the development of "Panama Pacific 
Special Economic Area" in the former Howard Air Base to 
encourage investment, specifically regarding logistics, in 
the area.  In 2006, Singapore Technologies Aerospace entered 
into an arrangement to use the facility to provide aircraft 
heavy maintenance services.  Also in 2006, IP Leather and 
River Latin-America announced an $18 million investment using 
the Howard Air Base facilities. 
 
¶F.  FOREIGN DIRECT INVESTMENT STATISTICS 
 
See Appendices. 
 
MAJOR FOREIGN INVESTORS 
 
- AES Corporation 
- American Airlines 
- American Life Insurance Co. 
- Ashmore Investment Ltd. 
- Banco Azteca 
- Banco Do Brasil 
- Banco Cuscatlan 
- Boeing 
- Bristol Laboratories International Corp. 
- Burger King Corp. 
- Cable and Wireless (U.K.) 
- Chiriqui Land Company (Chiquita) 
- Chevron-Texaco 
- Citibank, N.A. 
- Clientlogic 
- Coca-Cola Bottling Co. 
- Colgate Palmolive 
- Compania Recreativos S.A. (CODERE) 
- Continental Airlines 
- Decameron Hotels 
- Dell Computers 
- Delta Airlines 
- DHL 
- Dunkin Donuts 
- El Paso Energy 
- ENEL 
- Exxon Corp. 
- Evergreen Corp. 
- Federal Express 
- General Electric Consumer Finance 
- Glidden 
- Globeleq Ltd. 
- Goldstar Corp 
- Group Mall 
- Grupo Olloqui 
- Hong Kong Shangai Bank Corp. (HSBC) 
- Hospital Corporation of America 
- Hutchison Port Holdings (Hong Kong) 
- ICA (Mexico) 
- Influent 
- Johnson and Johnson 
- Kansas City Southern Railway 
- Kentucky Fried Chicken 
- Kraft Foods, Inc. 
- Maersk-Sealand 
- Mail Boxes Etc. 
- Marriott Hotel Corporation 
- McCann-Erikson 
- McDonald's Corporation 
- Microsoft 
- Mi-Jack Products 
- Nabisco Brands Inc. 
- NARS - National Asset Recovery Services, Inc. 
- Nestle Company 
- Office Depot 
- Chas. Pfizer & Company, Inc. 
- Panasonic Latin America 
- Pepsi Co., Inc. 
- Phillip Morris, Inc. 
- PriceSmart 
- Produbank 
- PSINet 
- PYCSA, S.A. 
- SAB Brewing 
- Samsung Electronics 
- Schering Corp. International 
- Singapore Technologies Aerospace 
- Shell Co. (WI) Ltd. 
- SITEL 
- Sol Melia 
- Sony Corporation 
- Starwood Hotels 
- Sterling Drugs International 
- Stevedoring Services of America 
- Swift and Company 
- Swiss Bank Corp. 
- Technoserve Inc. 
- Union Fenosa, S.A. 
- UNISYS USA 
- Universal Fidelity corp. 
- Wendys Restaurants 
 
ECONOMIC AND TRADE STATISTICS 
 
APPENDIX A: Country Data - Panama 
 
Population:  3,280.00 (2006) 
Population Growth Rate:  1.4% annual (est. 5 year average) 
Religion:  82% Roman Catholic, 10% Evangelical, also has 
large populations of Jews, Hindus, Muslims and Buddhist. 
(Complete religious freedom) 
Government:  Republican, Representative, Democratic, 
Unicameral Legislature 
Language:  Spanish, English widely spoken in business 
community. 
Work Week:  Monday-Friday and Saturday mornings depending on 
business 
 
APPENDIX B:  Domestic Economy (in millions of U.S. dollars 
unless otherwise indicated) 
 
      2004  2005  2006 
Current GDP (base 1996 U.S. Dollar) 13,099      14,005(1) 
15,125(2) 
Real GDP Growth Rate (%)      7.5%  6.9%  8.0% 
Current GDP Per Capita (base 1996 U.S. Dollar)  4,131 4,318 
4,611 
Central Government Spending (as % of GDP) 19.8% 19.0% 27.7%(3) 
Inflation (CPI, end of period) (%)  2.0%  3.5%  2.5% 
Unemployment (%)  11.8% 9.6%  8.6%(4) 
Foreign Exchange Reserves (5)       634(1)       1,218(2) 
            1,168(2) 
Balance of the Trust Fund (6) 1,216  1,151      1,136(7) 
Average Exchange Rate (Panamanian Balboa to U.S. Dollar) 
1.00  1.00  1.00 
Public Debt to GDP ratio      70%   66%   60% 
 
Source: GOP Comptroller General and Ministry of Economy and 
Finance 
(1) Preliminary figure. 
(2) Estimated. 
(3) Superintendent of Banks 
(4) As of August 2006. 
(5) According to the IMF definition, since Panama does not 
have international reserves as conventionally defined, this 
includes Panama,s reserve position at the IMF. 
(6) The Trust Fund contains the proceeds from the 
privatization of government enterprises. 
(7) Unaudited as of June 30, 2006. 
APPENDIX C: Trade (in millions U.S. Dollars) 
      2004  2005  2006 (thru Sept.) 
Total Country Merchandise Exports   891.1    963.2       797.9 
Total Country Merchandise Imports   3,592.2      4,152.8 
3,613.3 
U.S. Share of Panama Imports    28.9%     27.3%    26.6% 
U.S. Share of Panama Exports    48.6%     43.5% 38.7% 
 
Source: GOP Ministry of Commerce and Industry; Comptroller 
General; 2006 
 
The figures above do not include trade to/from the Colon Free 
Zone (CFZ), which the GOP keeps separate from official GDP 
figures.  In 2006, the CFZ imported USD 7.04 billion and 
re-exported USD 7.52 billion.  These levels reflect an 
increase in free zone imports of 13.3 percent, and an 
increase in re-exports of 12.9 percent, compared to 2005. 
The total net contribution of the CFZ to the Panamanian trade 
balance for 2006 (Exports-Imports) was USD 480 million, down 
from 2005, when the surplus was USD 689 million. 
 
APPENDIX D: Investment Statistics 
 
Foreign Direct Investment (FDI) in Panama 
1997-2005 
(In nominal US$ millions and as percent of GDP) 
 
Year  FDI   GDP   Stock/GDP 
1997  1,300.2     9,730 13.36% 
1998  1,218.7     10,935      11.14% 
1999  517   11,456      4.51% 
2000  623.8 11,620      5.37% 
2001  467.1 11,807      3.95% 
2002  98.6  12,272      0.80% 
2003  817.5 12,933      6.32% 
2004  1,003.9     14,179      7.08% 
2005  1,027.0     15,483      6.63% 
 
Source: GOP Comptroller General,s Office 
 
 
Foreign Investment in Panama 
By Country or Area of Origin 2004(1) 
 
      US$ Thousands     Percent of total 
            Net FDI 
Spain 253,196     25.22% 
Hong Kong   $72,106     7.18% 
United States     $70,804     7.05% 
South Korea $66,175     6.59% 
Japan $61,200     6.09% 
Switzerland  $52,824    5.26% 
Venezuela   $35,712                   3.55% 
Taiwan      $20,929     2.08% 
Argentina   $18,895     1.88% 
Costa Rica  $12,737     1.27% 
Ecuador     $3,228      0.32% 
Canada      $1,549      0.15 
Others      $683,802    68.12% 
Mexico      ($27,538)   (2.74%) 
United Kingdom    ($39,221)   (3.90%) 
Colombia    ($282,550)  (28.15%) 
Total $1,003,848  100% 
 
Source: GOP Comptroller General,s Office 
(1) Preliminary figures. 
 
Foreign Direct Investment 
By Sector 2005 
 
      US$ Millions      Percent of Total % 
Colon Free Zone Businesses       440.9    42.9% 
Banks, Int,l License      110.6    10.8% 
Banks, General License     169.7    16.5% 
Other Businesses      305.8   29.8% 
Total   1,027.0          100% 
Source: GOP Comptroller General,s Office 
Eaton