South America has 4 major trade agreements in place:  NAFTA, MERCOSUR, the Andean Community and CACM.  Each is distinct, but all seek to stabilise and strengthen the region’s collective economies.  NAFTA is a trade agreement between Canada, the United States and Mexico which came into force in January, 1994, creating the largest free trade area in the world which stretches from the Yukon to the Yucatan.  MERCOSUR, less ambitious, is a customs union covering trade tariffs between Argentina, Brazil, Paraguay and Uruguay which has operated since January, 1995, and the Andean Community, which is the oldest, is an organisation which has existed (in one form or another) since 1969. Today the Andean Community represents 105 million people, an area of 4.7 million square kilometres and a collective domestic product of approximately USD$254 billion.   Its members comprise Bolivia, Colombia, Ecuador, Peru and Venezuela and in addition to the objectives of liberalising trade and adopting a common external tariff, it would like to see a Latin American common market.  The Central American Common Market (CACM) is still at the nascent stage and its present members (Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua) besides wanting a free trade area and a common external tariff, wish to be included in NAFTA. At the time of writing, Panama is testing the waters by having meetings with some of the governments in Central America. 

But Latin America is also benefiting from technology.  Use of the internet has more than tripled in two years and it is estimated that this year users could top 11 million. Latin America today is roughly where North America was six years ago in internet usage.  Even although telecoms infrastructure is less developed south of the border, the continent has a young and technology-minded population and Panama, as a regional financial services centre, has certainly been a huge beneficiary of these technological developments.  The internet, in the long term, is bound to dramatically change the economic landscape of South America.

Keeping a Secret

Whether or not the pessimists are right about the ephemeral nature of Latin America’s economic recovery in 2000, one sector is sure to flourish and that is offshore financial services.  Panama is a leading financial services centre in South America and besides having more than 100 banks, it has over 60 licensed trust companies.  I can foresee the number of trust companies especially increasing appreciably during the next decade because Europe, in particular, now views its dependent offshore financial services centres (which are major providers of international offshore services) with their billions of investor dollars protected by secrecy laws, as problematic.  Unlike Latin America, where privacy is sacrosanct, confidentiality is being compromised in those dependent islands as Europe comes to grips with huge tax revenue losses due in part to offshore financial structures.  Confidentiality can be seen as a diminishing commodity that will be constantly in demand – which is good news for Panama with its rigid confidentiality laws. Subscribers to the Offshore Pilot Quarterly (published by Trust Services, S.A.) have read our comments over the last two years concerning the radical changes which have taken place.  New stringent controls and regulations continue to be introduced offshore which are designed to prise open the mouths of its bankers, lawyers and accountants.  Those offshore financial services centres such as Panama, however, that are independent and have no filial ties with the European Community have been, and will be, less affected. 

What started out several years ago as a drive against money laundering (an issue which will increasingly affect South Africa) has ended as a blitz on taxpayers and the offshore financial services centres which are used by them.   It seems that money laundering was the Trojan horse put in the middle of many of those offshore financial fortresses and because of this Panama is sure to attract an increasing number of companies and individuals who value privacy in their business affairs.  Local bankers and trust companies have their mouths shut and their doors wide open:   they are not alarmed by the growing loss of confidentiality offshore because it is a commodity that Panama has in abundance.

Letter from Panama is published by Trust Services, S. A. which is a British- managed trust company licensed under the banking laws of Panama.  It is written by our Managing Director who is a former member of the Latin America and Caribbean Banking Commission as well as a former offshore banking and insurance regulator.  He has over 35 years private and public sector experience in the financial services industry.  Our website provides a broad range of related essays.

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