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business & economy
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President Torrijos passing out envelopes of cash to Embera women and asking for "yes" votes in the October 22 referendum. In the Embera language numbers only go up through five (5), so maybe he's figuring that these voters won't notice the difference between the $35 in the envelopes they get and the nearly $400,000,000 that the five principal Banistmo shareholders got. Photo courtesy of the Presidencia
$400 million tax break for Banistmo shareholders by Eric Jackson, partly from other media
The rabiblanco media are saying very little about it, and critical mention from the left and from factions of the Panameñista Party has been a bit delayed in coming, but now that the government is pleading poverty in its dealings with public employee unions, the full enormity of a tax change that rushed through the legislature and was signed by the president this past June is beginning to sink into the public consciousness. As a long-time isthmian resident and prominent member of the country's American community remarked to this reporter, "it's the biggest scandal in Panama since they cut off Balboa's head."
The basic fact is that just prior the sale of Banistmo to HSBC, the legislature and president created a capital gains tax break that created a windfall of more than $400 million, most of which went to five politically connected men. There are indications that the legislation may have been in exchange for opposition political support for the "yes" campaign for the October 22 referendum on the Torrijos - Alemán Zubieta Plan to expand the Panama Canal.
The sequence of events went like this:
On April 4, Solidaridad Party founder and Banistmo president Samuel Lewis Galindo advised stockholders that negotiations for the bank's sale were underway, but that the time was not yet ripe. Banistmo, until its recent sale, was the largest private bank based upon Panamanian capital. Its principal owners are the Grupo Lewis / Vallarino, who include Lewis Galindo's nephew, Vice President and Foreign Minister Samuel Lewis Navarro; former and rumored future opposition presidential candidate Alberto Vallarino; Roberto "Chato" Alemán, who was the bank's largest individual shareholder and is the father of 2004 Mireyista presidential candidate José Miguel Alemán and Banistmo board of directors member Jaime Alemán; and Antonio Boyd Sasso, who was recently appointed as head of the Junta Nacional de Escrutinios to count the ballots in the October 22 referendum.
On April 18 President Torrijos met with Alberto Vallarino and José Miguel Alemán, and at the end of the meeting both endorsed the Torrijos - Alemán Zubieta Plan to expand the canal, which had not yet been unveiled to the public. (So what's in a name? José Miguel Alemán is canal administrator Alberto Alemán Zubieta's cousin.)
On May 15, the Cabinet Council approved a package of changes to the Tax Code, one of which was to reduce the maximum capital gains tax from 30 percent to five percent.
On May 31 this law was submitted to the National Assembly by Minister of Economy and Finance Carlos Vallarino --- Alberto Vallarino's uncle.
In May and June, with leadership of the Panameñista Party up for grabs, Alberto Vallarino leveled a blast at the party factions that had gained the upper hand for failing to support the canal expansion plan.
On June 12, while on a trip to Europe to promote the canal expansion project, Samuel Lewis Navarro stopped off in London to meet with HSBC's top executives. That same day the full legislature began its debate on the tax changes.
Two days later, the law was approved by the deputies on third and final reading by a 52-2 vote.
Also in that late June legislative rush was another tax break, the abolition of sales tax on legislator's cars. That also passed without public debate or discussion, as a section inserted into legislation to enable the government to make a deal with Venezuela's PDVSA oil company to build a refinery here.
During the second week of July, the reduction in capital gains tax and the sales tax break for legislators went into effect, and the National Assembly unanimously put the Torrijos - Alemán Zubieta Plan on the ballot for a referendum which the Electoral Tribunal later set for October 22.
On July 20, Banistmo was sold to HSBC for $1.77 billion. The government lost a little more than $400 million in tax revenue because of the recently passed capital gains tax cut, and critics say that almost all of this windfall went to five individuals, one of whom is a top government official, others of whom are leading "opposition" figures and maybe not coincidentally relatives of top people in the Torrijos administration.
And then the Torrijos adminstration pleaded poverty in its wage negotiations with public employee unions, when if it caved in to everything the workers demanded the cost would still be well under half of the windfall that the top Banistmo shareholders got.
The anointed ones are not only well connected with the world of politics, but also with the mainstream media, so the hue and cry by and large did not come on television or in the daily newspapers, although some columnists commented about the situation in the latter. Instead it was from organized labor, various groups in the "no" campaign and Panameñistas who would rather not have Alberto Vallarino as their 2009 standard bearer that the cries of protest arose.
Will any of this matter on October 22? The people who are going to vote "no" because they think the present government is not to be trusted probably didn't need this extra convincing. However, there are two ways in which the tax windfall might play into the referendum campaign.
Look at which political party has been sitting on the fence: MOLIRENA, with its conservative business orientation and a following that amounts to around 10 percent of the electorate. Yes, within this party there are those who say they want to "run the government like a business" when they really mean they want to run it for the benefit of a few particular businesses, and who in principle are for any tax break that goes to the rich. But there are also "good government" types in MOLIRENA, people who are habitually concerned about surpluses or deficits in the public treasury, the national debt and other hard-nosed details of government finance. The party will declare its position on the referendum by the end of August, and if it and especially one of its elder statesmen, former Comptroller General Rubén "Chinchorro" Carles, turn thumbs down a huge breach will be torn in the wall of business support for the expansion plan.
Then also consider that President Torrijos has gone out of his way to engineer a confrontation with public school teachers and Seguro Social workers, and on the campaign trail he's equating them with the entire "no" campaign and calling them "those who promote chaos." However, public awareness of the large tax giveaway might play into perceptions about the wage dispute and lead fewer people than the president expects to label the unions as the bad guys.
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