Business & Economy Briefs

On September 4 the Social Security Fund’s board of directors rejected Seguro director Juan Jované’s proposed budget for the next fiscal year, which would have raised payroll withholding by 1.5 percent and cut back the fund’s subsidies for several health care facilities run by the Ministry of Health or quasi-private foundations, including the Instituto Oncologico Nacional, the Hospital del Niño and the Hospital San Miguel Arcangel. Jované had been under pressure from the board, Comptroller General Alvin Weeden, the Moscoso administration in general and much of the business community to submit a balanced operating budget, but with revenues down the past few years and demand for public services up, stern measures will be necessary to balance the budget. Particularly criticized were the subsidy cuts to non-Seguro health care facilities, which take care of both patients who are insured by the fund and those who aren’t, and which are in large part run as political patronage fiefdoms by the Moscoso administration. The Instituto Oncologico, for example, is directed by Juan Carlos Barés, who is the brother of National Police Chief Carlos Barés and the brother-in- law of Immigration director Ilka de Barés.

On August 26 the Panama Canal Authority announced that its project to deepen Gatun Lake’s shipping channel is 40 percent complete, which puts it ahead of schedule. The authority also said that the project is within its budget. By deepening the lake from which Colon and some of the Pacific side of the metro area takes its water, the project not only helps to avoid costly draft restrictions on transiting ships during dry spells, but also adds a bit of insurance to the urban drinking water supply. Before the work started, ships passing through the channel would have a maximum 12 meter draft, plus a meter and one-half clearance between their keels and the bottom of the channel when the lake level was 25 meters. When the $190 million job is done (the projected completion date is in 2009), ships will get the same draft and clearance space when the lake’s level is down to 24 meters. The canal has three dredges working 24 hours per day, seven days per week on the job.

Despite protests from a coalition of Panama Canal employee unions, Canal Affairs Minister Jerry Salazar says that the Panama Canal Authority will hire a private dredging company to deepen the Atlantic and Pacific entrances to the canal. When the Americans ran the canal dredging was done in-house, but now all of the equipment that the Dredging Division has are being used to deepen the channel through Gatun Lake and Salazar says that it’s not economical to buy more equipment and hire more workers to dredge the entrances. To organized labor, the authority’s decision is simply a matter of union busting.

The first phase of a long and expensive process to clean Panama Bay will begin next year, involve a lot of legal, administrative, land acquisition and educational expenses and will include the installation of new sewers and pumping stations for the sewage that flows into the bay between Casco Viejo and Rio Abajo. The plan for next year also includes a start on the construction of one of several sewage treatment plants that will be needed. According to the government the tab will be $352 million and talks are underway with the Inter-American Development Bank and the International Cooperation Bank of Japan to nail down the details of financing the project.

In one more sign that the worst of Panama’s economic crisis is behind us, La Prensa reports that the El Rey supermarket chain is investigating some $4 million in a centralized computer system to keep track of its inventory at all of its 16 supermarkets. The hardware for the new system is by Hewlett Packard.

The Moscoso administration’s “equalization” (equiparación) deal that could give Hong Kong-based Hutchison Whampoa’s Panama Ports subsidiary more than $1 billion in rent, tax and revenue sharing breaks if it is maintained over the life of the Balboa and Cristobal port concession has been upheld by the Supreme Court. Attorney Rolando Mejía had sued to set the deal aside, arguing that since it was a modification of a contract ratified by the legislature, it could only be changed with the approval of the assembly. The “equalization” deal was made by executive decree without being submitted to the Legislative Assembly. The court rejected the challenge, holding that the case was a matter of administrative rather than constitutional law, which may mean that another set of legal proceedings will be brought before a different set of tribunals. The ports concession contract by its original terms called for periodic renegotiations on the subjects of rent and other fees, and there may well be litigation down the road about whether “equalization” amounted to the government’s waiver of this provision in a way that would bind future administrations.

Credit Suisse/First Boston emerging markets analyst Jan Dehn warns that current rising government spending trends are putting Panama in a “precarious” debt situation. He said that “Panama is on track for an end-year in overall deficit of 6.0 percent of GDP, after controlling for cyclical effects” and noted that this exceeds the legal government debt limit. Because there is an election coming up, Dehn doesn’t expect the Moscoso administration to rein in spending, and he also noted that a lot of this year’s budget has been spent paying debts carried over from last year. From a bank policy point of view, he opines that “the fiscal risks are now already so high that we do not rule out a ratings downgrade in the final quarter of this year.”

On September 1 the Banking Superintendent took control of Bancredito Panama SA, “to protect the interests of depositors.” The bank is the Panama branch of an institution that was established in 1980 in the Dominican Republic, and which in 1991 acquired the Chase Manhattan Bank’s branches in that country. The decision to intervene came because of questions about the bank’s solvency, and the resolution putting the institution in the hands of a receiver (in this case, Eduardo Pazmiño, who has also played the same role with respect to the failed Banco DISA) is good for 30 days, which can be extended by another 30 days before a decision must be made either to return the bank to its old management, liquidate it or reorganize it.

On September 1, Mercedes De Lourdes Villalaz took office as the new general director of the state-owned Caja de Ahorros savings bank. She replaced Carlos Raúl Piad, who was one of several Piads on the Moscoso administration payroll until he resigned to head the presidential campaign of Arnulfista standard-bearer José Miguel Alemán. Mercedes Villalaz’s mother, Merceded García de Villalaz, is the head of Panama’s Customs Directorate. Under the circumstances, and given President Moscoso’s open embrace of nepotism, there wouldn’t have seemed to be a problem. However, the law that created the Caja de Ahorros provides that no two administrators can be within the fourth degree of consanguinity, and the Caja’s executive director was Gustavo Villalaz, Mercedes’s father. Her dad resigned in order for her to get the job.

The Free Trade and Consumer Affairs Commission (CLICAC) has fined three real estate developers for deceptive advertising about the price of the homes they sell. The problem is that the advertised prices were based on low interest rates that aren’t actually available on the market. Terrano was fined $3,000 and Sucasa and Su Vivienda $1,000 apiece, which for businesses of their sizes were token amounts. The companies deny that they were trying to cheat anyone and claim that the fluctuations in interest rates are beyond their control.

CLICAC has fined the UK-based Cable & Wireless phone company $5,000 for deceptive ads that represented that prices for international and national long-distance telephone calls would be figured by the second rather than by the minute (with fractions of minutes being charged as whole minutes). What C&W failed to disclose was that the advertised practice only applied after one minute had been spent talking on the phone. Given the nominal amount of the fine, C&W likely profited by the illegal practice despite the commission’s action. It has been the practice of Cable & Wireless Panama, whose board of directors includes President Moscoso’s sister-in-law and several other cabinet members, to come up with some new scam every month or two, then back down in the face of public protest or legal condemnation but keep most or all of the proceeds of their misconduct.

The Supreme Court has suspended the Public Services Regulating Board’s edict that 24 Internet portals used for Internet phones --- and also business data transmissions --- must be closed to protect the government’s right to collect a $1 per international phone call tax. The closure, however, was not sought by the Panamanian taxman, but by Cable & Wireless, which doesn’t like the competition from Internet phones. The ruling was challenged by the Net2Net Corporation, and the court suspended the decree while they consider that company’s appeal.

The Dominican Republic-based Tricom telecommunications company defaulted on an $11.4 million interest payment on commercial bonds on September 2, and the Standard & Poors bond rating agency immediately lowered the company’s credit and unsecured debt ratings from “CC” to “D.” Bonds rated CC are already considered junk bonds. The company has a 30- grace period on the payment and says it’s looking for a way to pay within that time, but S&P says that it is unlikely to be able to do so. Tricom has about 10,000 clients in Panama, mostly in business long distance telephony. The Supreme Court overruled its attempt to offer a wireless phone service that was close enough to cellular that it was held to violate the exclusive cell phone contracts that Cable & Wireless and BellSouth have through the end of 2007.

Now they notice. The Comptroller General’s office says that the National Lottery paid some $14,256,000 to UNISYS since 1999 for computer software systems that it never completely received and has never been used. More than $13 million of this was apparently paid by the Pérez Balladares administration, the rest by Mireya’s government, so there’s a certain amount of partisan finger-pointing going on about it. UNISYS used to have the contract with the Electoral Tribunal to make Panama’s cedulas, until it was discovered that blank forms for the national identity document had been diverted to the Colombian underworld. A couple of UNISYS execs fled Panama when the diversion was discovered and are wanted by authorities in this country for their alleged roles in it. Meanwhile, UNISYS has major airport security contracts in the US.

Two lottery vendors and a National Lottery administrative employee have been arrested and another lottery administrator is wanted by police for allegedly stealing at least $1.5 million from the system, by way of falsifying records of the tickets that were sold and turned in and the payments made to vendors for them. In this way about $5,000 was skimmed from lottery receipts for each drawing and it seems that the scam had been running for years. An investigation is ongoing to determine how widespead the practice has been.

Members of the Sindicato Unico Provincial de Transportistas de Darien, the Darien bus drivers’ syndicate, picketed at the Labor Ministry on September 2 to demand that Esteban Rodríguez, padre be removed as secretary general of their organization. They say that he stuffe the ballot box to get his position and has sold 20 new permits for the Darien- Panama bus route at $6,000 each, endangering the incomes of existing drivers. Esteban Rodríguez, padre’s son, Esteban Rodríguez, hijo, is president of the Camara Nacional de Transporte, the umbrella organization that allegedly represents the interests of the nation’s bus driver syndicates. The person at the Labor Ministry in charge of certifying union and owner-operator syndicate elections, the protesters complained, is not doing his job. That official is Alfonso Rosas, a member of the extended Rosas tribe that holds many government jobs in the Moscoso administration.

The National Land Transport Authority has cancelled some 50 bus cupos due to the drivers’ persistent traffic law violations. There has been a crackdown on buses since a high school student was run over and killed by two buses that were racing in the street in front of her school. A suspect in that case was arrested but then released for lack of evidence.

Former Christian Democrat legislator, El Universal editor and current attorney and talk show pundit Milton Henríquez has been hired to take the number two spot at El Panama America, one of Panama’s two serious broadsheet daily newspapers. In a country where most of the media are aligned with political parties if not directly owned or controlled by them, EPASA, the corporation that publishes El Panama America and the country’s leading-circulation paper, the sensationalist tabloid La Critica, is run by the descendants of the late President Harmodio Arias. As the company was seized by the Torrijos regime (and Rubén Blades’s father was the cop who carried evicted the owners), these papers have long had a generally anti-PRD attitude and savaged Blades during his 1994 presidential campaign, and beyond that generally take a conservative editorial stance. However, El Panama America’s stable of regular opinion columnists is much broader than the spectrum of ideas expressed in its editorials and the acquisition of Henríquez is likely to enhance the paper’s reputation for independence and give it a boost in the race with La Prensa for the unofficial honor of being Panama’s “newspaper of record.”

The handling of medical wastes by the Ministry of Health’s facilities has been a recurring scandal over the past few years, presenting such scenes as alley cats rummaging through torn red trash bags containing infectious wastes and children scavenging in landfills where the red bags are in the mix with ordinary household and business garbage. Panama City’s municipal waste authority has also complained that the disposal of medical wastes along with regular trash and garbage is a threat to the health and safety of its workers. Now the Health Ministry says it’s looking for a private contractor to establish and run collection services and a special dump for medical wastes.

Five employees of the Ministry of Agricultural Development’s Agrarian Reform Directorate have been arrested in connection with their alleged roles in illegally giving title to some 400 hectares of land in Calovébora, Veraguas to a person or persons who don’t live there, and despite the possession of part of that land by people who had lived and farmed the land for many years. Agrarian Reform’s job is to legalize titles to public land that would be held by squatters’ rights had its occupants been living on or farming private property. The arrests were made after a complaint by Agriculture Minister Lynnette Stanziola. The recipients of the titles have not been publicized, nor have any such persons been charged in connection with the affair, but the titles have been cancelled and land transfers stopped.

If ARI has its way the former Fort Amador will no longer be the one place in the city where people can go to ride their bicycles and go skating on weekends. The authority has granted a concession to build a shopping mall behind the Balboa Yacht Club and plans to put in a four-lane highway along the length of the Amador Causeway.

The National Council of Organized Workers (CONATO), an alliance of the nation’s labor federations, has published its plans to save the Social Security Fund’s retirement program. It involves an increase in payroll withholding, the transfer of the government’s shares in privatized utilities to Seguro and also putting the unsold real estate from the former Canal Zone into the fund. But the Interoceanic Regional Authority (ARI), which is in charge of properties acquired by Panama under the 1977 Carter-Torrijos Treaties but which is by law set to go out of business in 2005, objects to the latter transfer. ARI, which has been something of a cash cow for corruption and an urban planning disaster since its creation, would have its life extended if its present directors and administrators have their way. Mireya Moscoso has the votes to pass legislation to do this if she wants, but the odds are slim that the next president and legislature would leave any such arrangement in place. Meanwhile the CONATO plan has received some criticism from the business sector and so failed to find a politician to champion it. As the present legislature and administration are unlikely to address serious changes in the Social Security system except possibly in the lame duck period between next year’s election and inauguration, labor’s proposal is dormant but not dead on arrival and will likely be revived when the government gets around to seriously considering changes to the retirement fund.

On August 26 the squalid San Miguel tenement in Panama City’s corregimiento of Calidonia burned down, leaving about 100 people homeless. Many of the people who were living in the building were not paying rent, and the government only had makeshift temporary quarters and a promise to the displaced that in a couple of months there will be replacement housing for those who can pay market prices. That caused a couple of days of angry street blockages on Avenida Central, which were finally ended when the police moved in and made a number of arrests. Fire inspectors say that the fire was caused by a short circuit in an illegal connection by which residents were stealing electricity from the power grid. The fire has also provoked an argument between the bomberos and the IDAAN water and sewer utility, with the former claiming and the latter denying that low water pressure in the neighborhood’s fire hydrants hampered efforts to put out the blaze.

Liriola Pittí, who oversaw the mass firing of old employees and the importation of a new batch of political activists at the government’s IPAT tourism bureau at the beginning of the Moscoso administration, now wants the agency to become an autonomous authority with its own budget, legal identity and insulation against the political decisions of the next administration. She may get the legislation she wants, but IPAT is not well liked by many people in Panama’s tourism industry and is present crew is unlikely to remain in place long into the next administration.

Although they have existed for several years and are founded on loan guarantees from the US government, Mail Boxes Etc. (MBE) is illegal, according to Panama’s post office. MBE is the largest of several companies in Panama that offers a post office address in Miami and a box down here to which letters and parcels addressed to it can be picked up. The MBE service is more expensive that an apartado with Panama’s postal service, but for certain businesses and for people who want to order things deliverable only in the USA it’s a practical solution to their needs. Also, if you want to order compact discs with music or computer programs by mail, MBE is a safe way to do it while such things sent through the Panamanian post office are almost inevitably stolen. (The same is not true about books, however, which seldom disappear in the regular mail.) La Prensa reports that Correos is now asserting the claim that it has a legal monopoly on mail boxes and is threatening to sue to shut MBE down. MBE operates down here as a franchise of a US-based multinational chain, and does not appear likely to cease operations just because officials in the Moscoso administration would like them to do so.

The National Environmental Authority (ANAM) has rejected an environmental impact study by Wind Power, a company that wants to set up a windmill farm on hilltops within the Gualaca district forest reserve that protects the watershed behind the Fortuna Dam. Fortuna, SA objected to the project, claiming that it would case severe deforestation that would immediately reduce the water flow to the hydroelectric dam. (It would have also been a competitor with Fortuna in the electricity generating business, but that point of contention was not emphasized.) Wind Power said that less than one percent of the Fortuna watershed would have been affected in any way, but the authority rejected their study and unless modifications are made to the plan (or to ANAM after next year’s elections) Panama won’t get its first wind farm in Gualaca.

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Business & Economy Briefs
Alemán's economic platform
The problem with investing the Social Security Fund
Panama-Taiwan Free trade pact signed
Arguments over shopping center permits