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Business & Economy Briefs


Hutchison Whampoa's break upheld by Supreme Court


The Supreme Court's Third Bench, with Magistrate Winston Spadafora and two suplentes hearing the case, has upheld the government's decision to waive rents and a percentage of the gross receipts that would have been due under the contract by which the ports of Balboa and Cristobal were privatized. The decision was supported by Spadafora and Hipólito Gil (suplente to the court's president, Arnulfo Arjona), while Jorge Fábrega Ponce (Magistrate Arturo Hoyos's alternate) abstained. The deal had been challenged by several legislators, who argued that the Legislative Assembly must approve such a change to a contract that required legislative approval in the first instance. Former cabinet member Spadafora and Gil ruled that the cabinet's approval of the change, which will directly cost Panama more than $1 billion over 45 years and has already indirectly cost the country hundreds of millions more due to claims by other companies demanding equal treatment, was sufficient. The port concessions are run by Panama Ports, the local subsidiary of Hong Kong-based Hutchison Whampoa.


Hutchison Whampoa gains new assets in Panama


Hong Kong-based Hutchison Whampoa has added telecommunications assets to its Panamanian portfolio. Li Ka-shing's company has bought out the bankrupt Global Crossing, whose international network of underground and undersea fiber optic cables includes important intersections in Panama. The deal, approved by a US bankruptcy court, was reportedly for $250 million, a fraction of the cost that Global Crossing incurred to install its cables.


Homeowners' windfall vetoed


Under the Moscoso administration, everybody who owes the government is not equal. Despite her understanding for Li Ka-shing's troubles, she vetoed legislation that would have forgiven the debts owed to the Banco Hipotecario Nacional, a state-owned entity that finances the purchase and contruction of homes. The legislation, part of a package of measures passed by a Legislative Assembly whose public approval ratings have fallen into single digits in opinion polls, would have definitively bankrupted the troubled institution. President Moscoso, however, wants to reorganize and rescue the bank. Over the years, many of those who obtained loans from the bank did so not on the basis of their credit ratings but on the strength of their political connections, and many of those who received loans have not considered themselves obliged to repay. Thus any genuine attempt to reorganize the bank according to normal business principles is likely to lead to a flurry of foreclosures and evictions with political overtones.


ARI moves to evict former CZ residents


The Interoceanic Regional Authority (ARI) has begun judicial proceedings to evict some 900 families from houses in the former Canal Zone, because they have not accepted the terms offered to buy their houses. ARI first demanded about $30 per square meter for the houses, and later dropped their price to $20. However, many residents say that's still a lot more than the market will bear for a house that's 40 or 50 years old, and also claim that the rents that they have paid over the years should be applied toward the purchase price. A lot of the residents who stand to be affected were able to move in during prior administrations on the basis of their political connections and haven't paid rent for many years. Some of those who would be affected moved into their houses because they were US military or Panama Canal employees, have paid their rent to ARI over the years, and say that they're being unjustly squeezed now.


Ngobe-Bugle Comarca gets $41 million in agricultural support


The International Agricultural Development Fund and the UN's Food and Agricultural Organization have approved a $33 million grant for farm development in one of Panama's poorest and hungriest areas, the Ngobe-Bugle Comarca. The international grant will be matched by $6 million from the Panamanian government.


Panama Canal Authority defends its right to raise tolls


The Panama Canal Authority plans to raise tolls by an average of 16 percent in October, and this is being protested by many of the canal's users, especially by yachties and the owners of non-containerized freighters, who say they will share disproportionately in the increases. On the July 28 edition of RPC TV's "Enfoque" program, the canal's deputy administrator Ricaurte Vásquez appealed to nationalism to defend the decision, arguing that it's Panama's right to raise tolls as it pleases. Within the shipping industry that right is not contested, but as one executive told The Panama News, there is a limit to what the market will bear and the Panama Canal could easily price itself out of the world's important shipping lanes.


US fast track authority both bilateral and multilateral


Though most countries in the Americas agreed in 1995 to create free trade zone throughout the Western Hemisphere by 2005 and that's the stated policy of the US government, the congressional "fast track" authorization recently given the Bush administration includes the power to negotiate a series of bilateral agreements as well as a regional treaty. Fast track means that the US Congress retains the right to ratify or reject any agreement, but gives up its right to make amendments, which would complicate any negotiation over a comprehensive economic integration plan. In a series of bilateral accords, the United States has an advantage over Latin American and Caribbean countries, each of which is smaller, poorer, militarily weaker and less populous than the US. The disparity is much more pronounced with respect to smaller countries like Panama. In a multilateral negotiation among the countries of the Americas, that US advantage would largely be lost. The Moscoso administration's ambassador to the United States, Guillermo Ford, hailed the fast track authorization as a positive step toward a free trade deal that would benefit Panama.


Free Trade talks with Taiwan


During a recent visit by Taiwanese Prime Minister Yu Shyi-kun and Foreign Minister Eugene Chien, Panama and Taiwan formally began talks aimed at a free trade agreement within six months. The aim is to greatly reduce import duties and completely eliminate non-tax trade barriers.


FIS complains about mismanaged NGOs


The Social Investment Fund (FIS), which has its own record of preferential spending on things like roads whose few users include Moscoso administration bigwigs, is complaining that several non-governmental organizations that receive international funding are poorly managed. The alleged mismanagement ranges from inefficiency and bad record keeping to fraud and peculation. The unstated solution is the transfer of international funding for the denouced NGOs to the FIS or other entities that are more acceptable to the Moscoso administration.


Montenegro: PCA must transfer unused property to ARI


Administrative Prosecutor Alma Montenegro de Fletcher has issued an opinion that real estate abandoned by the Panama Canal Authority (PCA) must be handed over to the Interoceanic Regional Authority (ARI). The PCA has announced that its policy will be to hand such properties over to the Ministry of Economy and Finance instead. ARI, which has been unable to sell or develop much of the real estate on the former US military bases that it now controls, is set to disband in 2005 according to the law by which it was created. Throughout its history, under both Arnulfista and PRD administrations, ARI has a sordid record. Having become notorious for using fraudulent misrepresentations in its real estate sales, announcing grandiose projects that come to nothing, giving special preference to politically-connected individuals and businesses, and wasting public recreation assets, ARI now finds it difficult to attract customers. Meanwhile the PCA controls several residential neighborhoods and vast tracts of land that were classified as "Canal Operating Areas" under the 1977 Torrijos-Carter Treaties and would rather not dispose of any of these assets through ARI.


Unemployed protesters blockade Colon Free Zone


On July 30 several of Colon's organizations of the unemployed blocked the entrances to the Colon Free Zone for an hour. The jobless workers were demanding public works projects to create jobs in the economically distressed Atlantic side province.


EU gives City of Knowledge a $6.5 million grant


The European Union has awarded a $6.5 million grant to attract European businesses to the former Fort Clayton's technological park. At the moment the park has about half of its buildings occupied, by about 25 businesses.


BLADEX posts losses


BLADEX (El Banco Latinoamericano de Exportaciones), one of the few Panamanian companies with shares listed on US stock exchanges and thus subject to public disclosure laws that are far more serious than Panama's, has posted losses of $299.7 million for the first half of this year. The bank says that the main cause was Argentina's crisis, from which it expects its losses to increase. BLADEX has increased its cash reserves to meet the challenge, which in turn has reduced the bank's capitalization from $598.4 million to $291.9 million. It has been a bad year for most Panama-based banks, but with our weak public disclosure laws and practices it's in most cases hard to say just how bad.


Colon garbage collection privatized


Colon has awarded its garbage collection business to Aguaseo, a private company with Colombian and Panamanian directors and undisclosed ownership. The company paid back wages that had been owed to the municipality's 42 garbage collectors and hired them for its operations, which involve 10 collection teams. Aguaseo began work on August 1.


Howard may become Governmental City


The Moscoso administration is floating trial balloons about moving three or more ministries to the former Howard Air Force Base, which is also being considered as the seat of the controversial Governmental City project. Public workers' unions have expressed concerns about the time and expense involved in commuting over the bridge to Howard, but the government promises that it would help to resolve any transportation problems. A move to Howard would likely make the currently vacant former US military housing areas west of the bridge attractive to public employees.


Davis may get tech center


ARI has announced that the former Fort Davis may be the site of a seven-hectare, $106 million Technology Development Center to be operated by Washinton, DC-based Information Technology Development. The National Economic Council has approved the deal, but as this issue was uploaded there had been no word that the contract had been signed.


University of Panama's fine arts, phys ed departments in the dark


Electric company Union FENOSA has pulled the plug on the former Curundu Middle School, which is now one of the University of Panama's campuses at which the fine arts and physical education faculties are housed. The university is some $3 million in arrears to the electric company. Economy and Finance Minister and Cable & Wireless director Norberto Delgado claims that the national government gave the university $2 million toward payment of its utility bill, but the university's rector, Julio Vallarino, flatly denies Delgado's assertion that any such payment was made.


Government buys back $200 million of its debt


The national government has bought back $200 million in bonds that paid eight to nine percent annual interest with money from the Fiduciary Development Fund created by the proceeds from privatizations of state-owned enterprises. Meanwhile, the cash-strapped government has borrowed $44.21 by issuing bonds that pay 7.25 to 7.68 percent annual interest. The bond sale attracted more private bidders than expected, as Panama, though caught in a deep and prolonged economic crisis, isn't as bad off as many other Latin American countries and has no significant political party that advocates a default in or renegotiation of payments on the national debt.


Inspectors mobilized in burger war


Last year McDonalds cancelled its contract with meat supplier Mangrafor, after the latter was cited for illegally importing mislabeled beef from countries affected by hoof-and-mouth disease. Mangrafor is the food packing and import arm of the Mangravita family business, which also includes the Casa de la Carne supermarket chain. After the loss of its important McDonald's contract, the Mangravitas went into competition with the US-based franchise chain, creating Hamburguesas Rancheras. The new company, which operates out of mobile trailers, offers a hamburger and a soft drink for $1 and is hammering McDonalds and other fast food chains in the lunch competition. McDonalds says that it's not worried about the competition. However, Hamburguesas Rancheras outlets have been descended upon by government inspectors lately, to a much greater extent than other urban food stands tend to experience. So far the health inspectors have given Hamburguesas Rancheras a clean bill of health, but fire inspectors, making their visits accompanied by reporters and photojournalists, have cited the trailers for some safety violations.


South Africans may buy Cerveceria Baru


As its purchase by the Colombian-based Bavaria Group was rejected as monopolistic by the Free Trade and Consumer Affairs Commission (CLICAC), Cerveceria Baru which includes Panama's Coca-Cola bottling franchise, is for sale again. Now it seems likely that the company will be bought by South African Breweries, whose accountants and analysts are poring over the books to see if they want to proceed with the buyout of what has been the crown jewel of JJ Vallarino's troubled business empire. South African Breweries is the world's fifth-largest beer company.


Banco Disa may pay 70¢ on the dollar


Liquidators of JJ Vallarino's failed Banco Disa seem to have found more assets than expected, but it seems that when all is said and done, depositors will receive about 70 percent of the money that they had deposited in the institution. The lawyers and accountants are still bickering, but a liquidators' report says that the bank has $62.5 million in net assets to pay $88.4 million in debts. The costs of liquidation stand at about $3.2 million.

The Marc Harris Underground

What does a purported offshore finance guru do when his name becomes so notorious that nobody who knows anything will do business with him? Go into business under another name, of course. According to the OffshoreAlert newsletter, Harris, who has fled from Panama to Nicaragua, now does business under the name "Mitchell Astor Gilbert Trust Co." For a point of view from former Panama City employees of The Harris Organisation, see the Letters section in this issue.


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