Forget the Panama Papers, Steve Forbes advises in the latest issue of Forbes magazine. Focus instead on the Central American country’s recent economic success.
Panama is a huge economic success story, enjoying an average annual growth rate that’s about the best in the world in the 21st century. Things have “slowed” recently: Growth last year was a tad below 6% but is expected to be a bit above 6% this year. Unlike the numbers coming out of China these days, which are ostensibly slightly higher, Panama’s are the real deal. Its growth is still light-years ahead of that in most of the world’s countries.
Contrary to global headlines, Panama is no sleazy money-laundering backwater. Quite the opposite. Panama City is becoming the financial center of Latin America, with scores of global and Latin-American financial institutions having a sizable presence there. The country has made considerable progress in transparency. The multigovernment Financial Action Task Force on money laundering removed Panama from its gray list this year. In 2012 it was taken off the OECD’s blacklist of tax havens. Panama is implementing other reforms, such as doing away with anonymous shareholder certificates, and expects to be in compliance with OECD transparency standards by 2018.
Investors think Panama’s prospects are bright. The government recently floated a $1.2 billion bond issue, which was quickly oversubscribed. Government debt to GDP is only 40%; in the U.S. it’s over 100%. …
… Panama has been attentive to building the necessary infrastructure to support all of this expansion. Construction of a major monorail is under way, and a new convention center to handle such “business tourism” as conferences and exhibitions is near completion.
Another source of growth with enormous potential is medical tourism. Johns Hopkins, for example, has a large facility there. With health care less available in the virtually bankrupt systems of many Western countries, especially in Europe, demand for what Panama offers–excellent care at affordable cost–is almost limitless. …
… Foreign direct investment is also welcome. Though obtaining permits can sometimes require patience–Panama has its share of environmentalists–entrepreneurs believe the process to be well worth the effort and less cumbersome than in much of the U.S. Capital is seen as a friend, not something to be feared or strangled.
The tax system is also benign. The general VAT is only 7%, and there’s no inheritance tax. But the government should go the distance and enact a Hong Kong-like flat-tax system. It must also slow down the growth in government spending that’s taken place over the past four years.
