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LC

60-90 days

D&B payments performance data show that 37.3% of payments were made 30 or more days beyond terms in Q1 2007, marking an improvement from the 38.2% recorded in Q4 2006. While 21.4% of payments were made 60 or more days beyond terms, 10.6% were made 90 or more days late and 3.5% were made 120 or more days beyond terms in Q1. Meanwhile, 58.3% of payments were paid promptly.

0-1 month

3.0 months

Although data releases are not current, Panama's net FX reserves generally stand at above USD1.0bn in any given month. Based on this, we estimate import cover of 3.0 months in Q3 2007. External solvency risks are also mitigated by the dollarisation of the economy and a well-developed banking sector, which reduces payment transfer risks.

US Eximbank

Full cover available

Atradius

ST cover available

ECGD

Full cover available

Euler Hermes UK

Full ST cover available

Panama's risk outlook continues to benefit from healthy levels of economic activity and prospects for the implementation of a free-trade accord (FTA) with the US in the near term. On 28 June, Panama and the US signed an FTA just two days before US President George W. Bush's fast-track authority expired; fast-track authority had allowed the executive to negotiate trade deals without modifications from the US legislature. Following this, President Martin Torrijos passed the FTA to Congress for ratification, which approved it by an overwhelming 58 to three vote (with one abstention) on 16 July. While it remains uncertain when the US legislature will vote on the trade accord, we expect that it will occur in the near term and will ultimately win passage following a recent bipartisan agreement between the Democratic and Republican parties on the accord. In particular, the two parties agreed to strengthen labour provisions in the FTA with Panama (among other the pending trade accords) in order for the agreement to ultimately be approved. Positively, D&B expects that the eventual implementation of the FTA will boost export and investment levels, helping to spur stronger economic activity in the short to medium term.

Meanwhile, popular protests against the accord have been fairly sedate in comparison with expectations of more widespread public disapproval. While we had expected the congressional vote on the accord to be closer, partially reflecting public opinion (which is generally against the FTA), this factor did not figure as prominently in lawmakers' positions on the FTA. We believe that this reflects stronger support for the government at present, stemming from its prudent management of the economy, particularly regarding the Panama Canal enlargement project. Indeed, only 400 demonstrators turned out to protest against the FTA, on the grounds that the accord would undermine domestic industry, particularly the sensitive agricultural sector. Notably, the protestors, from the pressure group Frenadesso, which is comprised of trade unions, student groups and farmers, have used sustained public protests in the past to successfully convince the government to redraft legislation after its implementation. While prospects for greater protests led by Frenadesso remain, based on the comparatively low turnout for the 16 July protest we do not expect them to be significant enough to cause the government to abandon the FTA.

Elsewhere, Panama finalised FTA talks with Costa Rica in late June. While bilateral trade between the two Central American countries is comparatively small, it marks a step forward in Panama's continued drive toward external trade liberalisation. We expect the passage of the accord to happen easily, accompanied by little controversy.

Confirmed Letter of Credit

Claims Waiting Period

Foreign Exchange

Letter of Credit

Long-term

Medium-term

Open Account

Sight Draft

Short-term

A measure of a country's net trade, service, and other non-capital flows.

The total of a country's debt interest and principal payments in relation to annual export revenues.

The public sector balance expressed as a proportion of total domestic economic output.

The growth in the total goods and services produced within a country, taking account of inflation.

The increase in consumer prices reported as an end-year or annual average figure.

The proportion of total output directed toward investment.

A measure of the importance of industry within an economy.

The degree of dependency of an economy on oil.

Oil price per barrel.

Average daily output of oil.

The total public sector debt in relation to the size of the domestic economy.

A measure of a country's net import and export flows.

The percentage of the registered labour force that is unemployed.