Letter from Panama

“There never was a democracy yet that did not commit suicide.” President Hugo Chávez’s words? No, they were spoken by one of the first presidents of the United States of America, John Adams.

Although there are over 120 democracies today there is no one system in place and like Joseph’s coat, democracy has many colours rather than being a black and white issue. Originally, democracy was created as an expediency, not as a noble cause; Plato was a critic and the Athenian leader, Cleisthenes, applied its principles only “to muster support against aristocratic rivals and Spartan allies”. The outmoded Athenian model permitted choices under a complex system of self-rule which covered war, justice and taxation whereas today power is placed in the hands of a small group who make decisions on behalf of the people and upon whose judgement we must rely. There’s the rub.

Despite democracy’s global progress, however, in large parts of Latin America we can see moves afoot to bring about even greater control in fewer hands; we need look no further than the president of Venezuela, Hugo Chávez, whose bid last December to change the constitution in significant ways failed. One of the key changes would have allowed the indefinite re-election of the president and an increase in his powers. Perhaps his defeat was the best Christmas gift the Venezuelan people received last year.

Venezuela’s influence has had its greatest impact on the presidents of Bolivia and Ecuador who are both left-wing allies of President Chávez. Countering this bloc, however, are countries such as Brazil, Mexico and Chile with Argentina, under its new president, Cristina Fernández (wife of former President Néstor Kirchner) somewhere between the two camps. On the other hand, according to Latinobarómetro, a non-profit organisation in Chile, Panama is only one of five countries in the region where there has been an increase in support for democracy, as practised in the developed European economies.

Panama, like so many other countries in the region, is a beneficiary of a move away from boom-and-bust cycles towards long-term Latin American investment opportunities. The number of regional liquid stocks available to institutional investors has increased from perhaps a total of 35 in the early part of this decade to about 250 today. These stocks represent a wide range of sectors; so when profits are spoken of, commodities is no longer the only word on people’s lips.

That never was the case in Panama where containers, not commodities, rule. It is true that a rising tide (in this case regional economic growth) lifts all boats but in Panama so do canal locks. The small republic deals with transporting, rather than producing, commodities. In the first six months of 2007 (these are the latest figures available at the time of writing) the container traffic through the Panama canal increased by just over 45% compared to the same period in 2006, according to the Panama Maritime Authority. In 2000 when Panama took control of the canal from the US, only 11% of the container traffic between Asia and the US East Coast used the waterway whereas today that figure has jumped to 40%.

The expansion of the canal facilities, now under way, includes the construction of a third set of locks with over $1 billion being earmarked for such items as 14 new tugboats and a new lighting system at the locks which will enable the largest vessels to transit 24 hours a day. Almost every large ship afloat, the exception being the Emma Maersk, the largest container ship in service, will be able to use the canal. If the expansion project meets all its targets the canal could just about double its present capacity of 330 million tons a year

In order to have the canal function efficiently (some 50 ships per day now pass through it) its operators need to be properly trained. The degree of competency required has been recognised by the canal authorities and the training programme put in place reflects this. Since its start in May, 2003, the study course, with its custom-designed content, has provided students with a solid base upon which to gain experience. The special Executive MBA tailored by Incae business school based in Costa Rica and Nicaragua is a 16-month course that concentrates on best business practices weighted towards the specific requirements of canal management. Besides studying the history of Panama and the canal, students learn about particular aspects of the shipping industry (this forms a separate element taught by Sweden’s Malmo University).

In today’s services industry the ability to diversify and adapt, despite being a well-worn cliché, is a must. But, as the canal has shown, competency remains key. This brings to mind Jamaica that is just several hundred miles off the South American coast and which wants to become an offshore financial services centre as part of its government’s drive to shake Jamaica loose from its economic inertia. Inspiration comes from having looked close by and watched the success some Caribbean neighbours have enjoyed as offshore centres. Kingston, the capital, is seen as the future magnet to which international investors, finance advisers and other business professionals will be drawn. If it was that simple.

As a poacher who was once a gamekeeper, and whose mandate, inter alia, included the establishment of an offshore regulatory regime, I would suggest to Mr. Bruce Golding, the new Jamaican prime minister, that before he draws up his finance centre blueprint he considers one of the fundamental reasons why Panama’s canal is so successful. It is because government put the canal in the hands of well-trained, competent professionals and then left them to get on with running it. Jamaica must do the same because without it this island in the sun will struggle to gain the long-term confidence of the international financial services community.

Even although John Maynard Keynes once said that it was better to be roughly right than precisely wrong, when it comes to creating offshore centres, “roughly right” will not do. Democracy, however, seems to be an entirely different matter.