Panamania!

Ok the title's lame but you try finding something funny to work Panama into.

An interesting paper on public debt markets in Central America, prepared for the IMF by authors Hemant Shah, Andreas Jobst, Laura Valderrama-Ferrando, and Ivan Guerra, gives us a closer look at Panama.

This morning I had a sudden interest in Panama, why? No idea, my fellow snarky economists here asked me the same thing, but now I am a firm believer in looking deeper into this quiet country. It is worth our while to start looking past Brazil, Mexico and Columbia into other areas that while not exhibiting growth certainly is increasing stability.

Reasons to look more closely at Panama

1. Panama continues to have sustained and strong economic growth - 7.6% Real GDP in 2004, 6.4% in 2005 with low inflation (2.9%)

2. Panama has a well developed and liquid banking center - it's always a plus to have a liquid domestic credit market

3. There is plenty of room for growth in the nonbank financial sector e.g. insurance, investment management, etc. And there seems to be good insulation from financial crisises in neighbouring countries.

4. There isn't an enormous amount of secondary trading in the Bolsa de Valores de Panama SA but if the Bovespa IPO is any indication, there is a continued "flight to quality" in Latin America where companies continue to seek stable financial centers to list their companies and are not shy about crossing borders.

5. Taxes are attractive - I wouldn't buy any munis but that's another issue. Our authors note "Domestic income is only lightly taxed and foreignsourced
earnings as well as dividends and capital gains from exchange-listed companies are tax-exempt. Interest income from nonlisted securities is subject to a flat tax rate of 5 percent."

6. Sovereign credit quality has continued to improve. The country has gone from borrowing a 10 year tenor @ 10.75% in July 2000 to it's more recent March 07 30 year offering @ 6.7%. Current 5 year CDS spreads place it higher than it's neighbors (Brazil, Venezuela, Mexico, and Colombia) Though I would argue that Venezuela poses far greater political risks.

Current attractive corporate offerings include

Panama Canal Railway Co - 20years @ 7%
Banco de Credito del Peru (Panama) - 15years @ 7.17%
AES Panama SA - 10years @ 6.35%