Letter from Panama

TRUST SERVICES, S.A.

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Professional Firms, Institutions and Individuals since 1981

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Offshore Pilot Quarterly and Letter from Panama are published by Trust Services, S. A. which is a British-owned and managed trust company licensed by the Superintendency of Banks in Panama. We shall be pleased to provide you with details of our qualifications, experience and services. Our website provides a broad range of related essays. Readers may reprint or forward the newsletters in whole or in part, provided the source is stated and the material is not altered or distorted.
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Roosevelt vs. Rhodes
An almost anachronistic event will take place on 31^st December, 1999, when the flag of a colonial power will be lowered for the last time over another overseas territory. The rare happening is especially unusual for two reasons: firstly, the territory is in Central America and, secondly, the colonial power is the United States of America. The narrow strip of land upon which the Panama Canal is built and which has been controlled by the United States since 18^th November, 1903, is the territory in question. Balboa, the small town in this enclave, is home to the Panama Canal Commission headquarters from where the passage of more than 13,000 ships through the waterway are co-ordinated each year. It is a typical American small town. The streets are wide, lawns are manicured and a suburban calm prevails. A subsequent treaty in 1977, signed with the then United States President, Jimmy Carter, determined the date for the transfer of sovereignty, but the story behind how Theodore Roosevelt at the turn of the century got the right to build and run the Canal, after the fiasco of the failed attempt by the French, is worthy of a spy novel and draws comparisons with the many escapades attributed to Cecil John Rhodes in Africa.


Currencies: A Tender Issue
Future events in Panama, however, are overshadowed by the economic turmoil which, over the past 18 months, has spread from Asia to Latin America. Emerging markets world-wide have been hit hard and the article in the last issue of S A Banker entitled "The Currency Crisis" illustrates this point. Panama, which had its early history so closely linked with the United States after gaining independence from Colombia in 1903, found it palatable to adopt the U.S. dollar as legal tender, and over the past 40 years or so has enjoyed an annual inflation rate which has hardly exceeded 2%. Costa Rica, by contrast, is attempting to douse an inflationary rate that could reach 13.5 per cent this year and the Mexicans have seen their currency fall 25 per cent in value against the U.S. dollar. In a fiercely proud Mexico it is revealing, therefore, to find that influential voices are calling for the Mexican Government to adopt the U.S. dollar and abandon the peso. Leading Mexican private sector institutions, including Banamex, the country’s largest bank, are urging a monetary union with the United States similar to the European Union model.


The Brazilian Nut Cracks
During this year optimists have said that Latin America could emerge from the financial crises in Asia and Russia relatively unscathed, but the recent pressures stemming from lower commodity prices suggest otherwise. Regional stock markets have plunged and currencies have been battered. During September two countries, Colombia and Ecuador, have devalued. Bond yields in Latin America have risen to their highest levels since 1995. Brazil recently completed Latin America’s biggest privatisation, raising $19.3 bn from the sale of Telebrás, its telecommunications company. Since then, it has seen its reserves fall from more than $70 bn to less than $50 bn within the short space of a month. Brazil is the economic pulse in Latin America and a crisis in that country could particularly threaten Mexico and Argentina. In this deadly reverse domino effect, this would again put Hong Kong and the rest of Asia under the spotlight. Even Chile, which has been the star of the Latin economies, is watching its growth slow: its copper prices have dropped some 30% in the last twelve months.
What these events show us is just how dependent countries have become on one another in this global village that we have created, and transfers of sovereignty, whilst they may be a boost for national pride, in themselves do not bestow economic independence. The Panamanian flag will fly over the Canal Zone as we herald in the next century, but the Canal’s prosperity is inextricably tied to the economic fate of other nations whose ships pass through it and who are at the centre of the present economic maelstrom.

Published by Trust Services, S. A. which is a British-owned and managed trust company licensed by the Superintendency of Banks in Panama. Our website provides a broad range of related essays

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