Alan & Geri - travel log

Costa del Este
Panama City, Panama 

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Alan and Geri Canada visiting Panama February 2008  check out Alan's investment website Trust Intelligence

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We just ate at Roxanne's, which is on the main drag of Boquete. We ate there last year and had the most tender ribs, ever, so we looked forward to going back. We both ordered the Baby Back Ribs and enjoyed them, although they didn't just fall off the bone like last year. At the end of the meal, after we asked for the check, the waitress, who spoke no English, came over and asked us something that we did not understand. Something like "Oubilando" or "Oubilado", so drawing on my French I thought she wanted to know whether we perhaps forgot something, but that wasn't it.

Next, I'm thinking she was perhaps running her words together and swallowing an indeterminate number of letters, saying that we forgot to order ice cream, which I saw on the menu but didn't think was included with the ribs (salad and bread and potatoes were), as in "Oubi-helado" so I said to her, "helado?"
She of course looked at me like I was crazy and went off to find someone who I think is the owner.
The owner came up to the table and asked us, in broken English, if we were "retarded" and quickly caught herself and repeated "retired".

I didn't hear the "retarded" but Geri did and was immediately starting to grimace in an attempt to keep from cracking up, while I explained that we didn't have our papers yet (Geri volunteered to certify me a few minutes later). It then hit us that the waitress was asking us if we were "Jubilandos", something we had never heard a Panamanian say before. This is the name for the "retired" in Panama...and a significant part of the Panamanian Social Security system is that the "retired" get discounts on meals, power bills, doctor bills, drug costs, transportation, etc. Nobody had ever offered a discount to us (usually Gringos get a special price, as in "anti-discount"). When we get our Residency Visa, we'll get a Panamanian Cedula (identity card) that will say we are retired and qualify for all the discounts.

Anyway, she said that it was OK to not have papers and deducted some money off the bill, which we then quickly added to the tip, paid, and rushed out of the place, cracking up. Total, with tax and 4 beers was $21, plus the $5 tip we left for the "entertainment" and language lesson.

Perhaps you had to be there, but it is not so bad to be retarded if you get a discount as a result.

Looking at Panama as an Investment

This country is like one of its many real estate renovation projects. It has some attractive sections but most of it is run down and neglected, having been occupied by tenants who often didn't take great care of it, at least partly because they were very poor and couldn't afford it. But it is a property with great "bones", the location is good and the structure and exquisite detail is all there if only it got enough care backed by lots of money. The renovation has started.

Presently GDP is a bit over $10 billion and the population is a bit more than 3 million people. The country runs east-west for about 350 miles and averages about 100 miles wide in the north-south direction, with a mountainous spine running through the middle. It has both Caribbean and Pacific coastal property, mostly undeveloped and is bordered by Costa Rica on the West and Colombia on the East.

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The country has the same electrical system as the US and Canada, uses the US Dollar as currency (calling it the Balboa) and has safe and ample drinking water, unlike many areas in Central and South America. You do not run a significant risk of stomach ailments from drinking the water, eating whole fruit, or from the food.

The Banking system is well known and has a good reputation that makes people from all around the world put their money here and/or invest with Panama as a base. Panamanian bank-secrecy laws motivate people to hide their money here, usually from possible claims from creditors or in case of confiscation dangers elsewhere, making the country a center of commerce for Central and South America. Of course, Panama as a safe-haven Banking center is helped by high taxes in other jurisdiction and the policies of Venezuela and similar govt.s in the region. Panamanian Bank secrecy has been pierced somewhat by continued unrelenting pressure from the USA relating to money laundering, drug smuggling, and over terrorist financing concerns. Having been invaded not too long ago, Panama has introduced laws to question the source of funds and require the many, many Banks from all over the world that are located here, to know their clients. You need two letters from financial institutions and possibly an introduction from local lawyers to open an account (but IMO if you have enough money, you can get these one way or another, if you catch my drift).

Tourism is big business and growing. The sector grew 20% in 2006 and seems to be continuing. Infrastructure to service this growing source of revenue is helped by tax incentives that exempt or partially exempt tourist-related business income. Prices of land and homes in tourist areas (including Panama City) are climbing noticeably and are unlikely to be significantly affected by the US housing slowdown, because the overwhelming majority of people coming here are not Americans. Venezuelans and Colombians are streaming in much more than Americans, along with Argentinians, and other from South America. The interest from Canada seems also to be growing but is not yet as large as the US involvement. Even Europeans are visiting and moving to Panama and French, British and Spanish companies have major large-money development projects going in construction, development, tourism, etc.

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And the money is pouring in.

The Canal expansion is already underway and will pump $5 billion directly into the economy, with another 5 indirectly, providing employment in a country with high unemployment. This economic activity alone is as much as a year's GDP. There is another 13 billion in direct (double it to include the indirect benefits) investment already booked for the next 8 years, including a $405 million European-funded project to redevelop the Howard Air Force base outside Panama City, expected to create 20,000 new jobs for this one project alone. The trans-istmus oil pipeline is getting a $100 million investment to increase capacity and reverse the flow so that Venezuelan oil can get shipped to the Pacific and then to China. Originally it was going the other way to take Alaskan oil to the US Gulf ports, but there is not much Alaskan oil any more. There is a possible $7 billion refinery project being pushed by Occidental Pete in partnership with the Emirate of Dubai, which I have my doubts about).. Asian institutional investors are funding a $1 billion expansion of the Pacific port facilities. The old US Canal Zone is also being developed for residential and tourism. Lots of roads (e.g. a $300 million road linking the north and south coasts) are being fixed and many new ones built, often to places that never had a paved road before, opening them up for settlement and development. This is going to make the rural people less isolated and give them some employment other than very low-paid farm jobs, but will present the need to increase education in the boonies...and most of Panama is very sparsely populated and without utilities off of paved roads. It is common to see peasants walking long distances with their families and bundles, through heat, wind and rain, going to and from work or a local store and home.

Businesses are moving in too. The fellow from Edmonton I met in Panama City moved his software company's call center here and is very satisfied. Actually, he is more than satisfied. He is enthusiastic about the effects of the move and his new life in Panama, including all the nice Panamanians he's met and those he's hired. Costs here for him are less than half of what they'd be in Vancouver and his employees are fluent enough in English that clients don't know they are Spanish speakers. Whereas in Canada, call center employees are notorious for high turnover, requiring constant costs and effort to train new people, here his employees are stable and happy to be earning the premium (by Panamanian standard) but tiny (by Canadian standards) salaries. Hewlitt Packard is moving a call center down here, eventually to reach 5000 employees, to be in operation this May.

Panama recently passed a law reducing taxes for major companies to move headquarters here. Caterpillar, obviously seeing all the infrastructure work going on in this small country, is moving its Regional Office here, opening a 250 acre operations center near Panama City. The United Nations is opening their first regional (Latin America & the Caribbean) office in the old US Canal Zone and this is being funded by the European Union, which obviously sees spin-off investment possibilities for their member countries and is using the opportunity to get a foot in the door into this formerly (and still somewhat) US-dominated land. The strength of the Euro compared to the US$ is helping and makes it easier and more attractive for Europeans to invest here, because it seems much cheaper to them than for Americans or Canadians.

Living Costs.

As I've outline throughout this series of reports, most things are cheaper in Panama than in the US and certainly cheaper than in Canada. Of course, items imported from the US are priced at about the same price or a bit higher. In my research, I've found that my living costs in Canada, where I have significant heating and cooling costs and much higher food, drink, and restaurant costs (not to mention higher taxes) cost me less in Panama even with the addition of a full-time maid (and live-in that is about $6 a day plus room and board or about $300 not live-in) or handyman. ALthough it sound kind of Imperialistic to be hiring the natives for house labor, the local foreigners view it as helping the unskilled Panamanians earn a living and better themselves. They often get in trouble with well-off Panamanians for paying to much and giving their employees too many amenities, thereby "raising the market" and ruining the status quo. Well off Panamanians tend to have maids. As I understand it, some have one per child. Of course, those people who find employment because of the influx of foreign money and people directly benefit and those that don't personally get jobs indirectly benefit in many ways...although higher living costs is a drawback (as those in Alberta are only too happy to tell us).


The fees to go through the Canal provides the bulk of Govt. tax revenues. Banking related revenues are also significant and the many Panamanian companies, owned by people from all over the world, pay yearly fees and help keep Panamanian lawyers part of the upper middle class here. Income taxes are a flat 30% but most people don't pay much or any income tax. There is no tax on money earned from outside the country or for internet-based businesses. Most tourist-related business also has no income tax liability. Capital gains taxes are only 10% and people structure their affairs, often using corporations and foundations, to minimize taxes. The Panamanian Govt. has just passed a tax exoneration bill for manufacturers, processors, packagers and industrial and high tech. developers, to expire in 2015. It basically eliminates all taxes except real estate taxes and license fees, although I think that new real estate construction from the business will get the 20 year exoneration I mentioned before.

This means that there is NO income tax on business profits, NO export taxes, NO sales taxes, NO production taxes, NO capital levies on assets and I think there is no import taxes on machinery and equipment to use in the business.

These benefits include companies that process food for example, but it does not include natural resource extraction companies like miners (and there is gold in Panama, as the Spaniards of old knew, but now it is economic to extract poorer deposits...but the country is not especially friendly to miners, inmy opinion).

If you look at the tax situation as a whole, the country has given tax incentives to almost everything in order to spur development and employment, rather than levying taxes and then paying people welfare and unemployment benefits. This is more of an extreme free-market capitalism than the US or Canada or Europe. It is more like Hong Kong than the US

Real estate taxes run about 1.5% of the value of the property, apparently. But laws to encourage construction, development and jobs give a new home a tax exoneration for 20 years on the building, almost eliminating all real estate tax liability. The exoneration gets passed on, so a home built 5 years ago comes with 15 more years of essentially no taxes. This law expires in 2 years, but may be renewed, as it already expired and was renewed.

The only tax-related problem I have found so far is the probate laws. The Lawyers have (IMO) arranged for a 30% cut of assets going through probate here, including homes. This catches the unwary who may end up having to sell the family home to pay the lawyer 30% of its value. There is a solution for those in the know...put the home in a corporation or foundation to avoid probate completely. This is very similar to the US practice of older people putting their assets in a trust to avoid complications involved in inheritance.

Bottom line

If Panama was a stock, I'd put out a buy on it. Land values are soaring, especially in the newly developed and developing ocean-front areas in Panama City, whether it is a new neighborhood being built on land reclaimed from the sea or areas reclaimed after the official US presence was decreased in the Canal Zone. The other areas of growth are the tourist areas in the more temperate highlands or at the nicer beaches. If this is developing into a bubble, it still has a long way to go, given the fundamentals and the reasons why there is an influx of money and investment.

Drawbacks and risks

Any absentee ownership presents drawbacks. And being on-site without fluent Spanish is a drawback, although you can hire translaters and "facilitators", which is a growing business function in Panama. Possible changes in Govt. policy and in Govt. is a definite risk. Although Panama is a Republic, powerful families and companies control much of what happens...although is that all that much different than anywhere else? It may be more obvious here because it is a small country. They could change the rules on immigration and property ownership, but that would send a very bad signal to investors and make Panama a place were people would flee from, rather than flee to. This could happen in spite of it not being in their self-interest, but it is less likely in Panama than elsewhere, partly because the Canal made Panama. Panama needs to be a country open to International commerce and the people have always known this. And, IMO, the USA would not allow Panama to do otherwise because this is a major strategic interest of the USA given the need for shipping between east and west cost and transit of US warships.

Weather-wise there are less risks here, other than mildew from the heat and humidity in the lowlands and coastal areas or infrequent high winds in the mountains. Certainly there is less weather risk than Canada or the US. There are only small earthquakes, no direct hurricane hits or tornadoes. There is a chance that the Volcano called Baru could wake up after 500 years and erupt, but there would be lots of seismic warning of that.

Politics and Labor Unions seem a bit more dangerous but I have not found them significantly worse than what I experienced in Quebec. There are left-wing labor unions with political agendas and they fight among themselves and with the govt. The upper classes spend lots of money helping establishment parties keep power and that is not much different from the US or Canada, although the wider poverty here may make political change more dangerous here. In my experience and from data I have seen, improving conditions, not abject poverty, is what tends to trigger political change (in Alberta or Panama), so in that sense, increased prosperity may be starting to sew the seeds of political changes.


More to come!

I have been writing almost daily to keep my Premium Service subscribers informed about my trip and some of the highlights of retiring and/or investing in Panama on the Premium Service section of the investment website, Trust Intelligence

Well, we got to Boquete!

We got lost getting out of Panama City, missing a turn and having to go a mile or so out of the way. The traffic was crazy and I had to drive like you play basketball, with elbows flying under the boards, and when you start a drive, you have to have conviction or you get cut off.

The road to David was partly 4 lane divided and partly 2 lane undivided and not as bad as we were led to believe. Having spent 25 years living in Montreal, I didn't feel the potholes were all that bad, although I hear that many people do. We were not always sure we were on the right road (the InterAmerican Highway) from PC to David, but we were and only got lost again when we were trying to find our Hotel in David. The names of the streets on the roadmap were too small for Geri to read without a magnifier so I had to navigate by sense of direction, which worked out to be more direct than the route I had planned, but I didn't exactly know where I was and that is not much fun. David is a mostly run down but didn't look as poor as the poor parts of PC. We went into a couple of stores and, for example, you could buy women's shoes for $2 or $3 a pair (mostly China's cheapest, I'd guess). Domestic Beer in a restaurant or bar can be from $0.50 to maybe $1.50. Medium sized shrimp pizza, clams in garlic sauce, calamari Romana, shrimp ceviche and 7 beers came to $30 for dinner in the restaurant of the Gran Hotel Nacional, where we stayed last night. It is supposed to be the best hotel in David and was originally built for the people to stay from the United Fruit Company, which recently moved out of the area. The hotel was tolerable but not very nice. It was $78, unlike the Veneto at $178.

For breakfast we went to the famous "24 hour restaurant". We had OJ (about 12 oz glasses), cafe con leche (the cup was about 10 oz), and 2 orders of toast, which was like toasted French bread (a baguette) that came buttered with something that tasted better than butter. Total bill was $2.50 It was quite good. The restaurant and town was hot. When PC is 88, David can be 90, but who's counting. One wall of the restaurant was open to the outside so it was tolerable and the hotel had a noisy air conditioner.

This morning we drove from David, up the mountain to Boquete, called the "land of eternal spring". Again, one wrong turn and a quick double back was the extent of getting lost before we got to Boquete. On the way up we stopped to see Las Montagnes de Caldera, a housing/resort development that my Geri picked out on the web. It was just getting started so we looked at the area, saw a couple of unfinished models and tested the air (too hot for me because it was too low on the mountain). I was surprised that going up the mountain was not steep at all. But the temperature got into the 70s, with a breeze in Boquete. There was even a bit of what they call baraquete (not sure of the spelling at the moment), which is like a mist that falls for a few moments and refreshes you. Perhaps it is an errant part of a cloud.

This time I really got lost trying to follow the directions to the hotel, called Villa Marita (google it if you like). After driving up and down some steep mountain roads outside of town, we went back to a resto-bar and had a beer and asked. The English speaking owner gave me good directions.

Tonight we went to dinner at Machu Pichu with the owner of the Villa Marita and some people I met on the web who are from Virginia. He is developing an organic farm (called a finca here) where he will build a home and spend half of each year, with Panamanians running it for him. The owner of Villa Marita is a very interesting and accomplished guy who has been an agricultural and economic consultant and has a large thriving greenhouse and farming business on the side. He seems also very well connected within the power structure in Panama.

The weather is cool nights at about 70 and in the 70s with a breeze during the day and I am finally comfortable. Geri wore a light sweater to dinner at a Peruvian seafood restaurant which was interesting and reasonably priced. If you like Aqua, you'd like it if you haven't already tried it.



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