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International Monetary Fund. Western Hemisphere Dept.
This Selected Issues paper argues that Panama’s prospects for maintaining buoyant growth critically depends on continued productivity growth underpinned by comprehensive reforms focused on improving education quality, attracting talent, and continuing to enhance the investment climate. Panama experienced both episodes of growth convergence and divergence over the past several decades. Following a stellar performance in recent decades, Panama’s prospects of maintaining high growth rates and moving toward the club of high-income economies critically depends on continued productivity gains. Panama’s economy embarked on a path of rapid growth since the political stabilization in the 1990s, which has brought it closer to moving from the middle to the high-income bracket. However, maintaining high growth rates may prove increasingly challenging, particularly for countries at Panama’s current level of income. Policies that focus on improving education quality, attracting foreign talent toward knowledge-based sectors of the economy, and strengthening the investment environment are likely to be essential for sustaining productivity growth.
International Monetary Fund
Correspondent banking relationships (CBRs), which facilitate global trade and economic activity, have been under pressure in several countries. So far, cross-border payments have remained stable and economic activity has been largely unaffected, despite a recent slight decrease in the number of CBRs. However, in a limited number of countries, financial fragilities have been accentuated as their cross-border flows are concentrated through fewer CBRs or maintained through alternative arrangements. These fragilities could undermine affected countries’ long-run growth and financial inclusion prospects by increasing costs of financial services and negatively affecting bank ratings.
International Monetary Fund
Many Latin American economies have experienced significant reductions in growth recently, as a result of the end of the commodity super-cycle and the rebalancing of China’s growth, and a number of global banks have been leaving the region. AlthoughLatin American countries were generally less affected by the global financial crisis (GFC) than other regions, the region continues also to suffer from the protracted sluggish growth in advanced economies. In addition, there has since 2008 been a withdrawal of global banks from the region, thus potentially worsening access to credit or reducing competition in the financial sector. More broadly, the GFC demonstrated that extreme economic volatility can originate from outside the region, rather than internally, as was the experience of the 1980s and 1990s...
International Monetary Fund. Western Hemisphere Dept.
This Selected Issues paper assesses risks in the Panamanian banking sector. The analysis suggests that Panama’s banking system seems able to withstand reasonably severe shocks, while contagion risks stem primarily from foreign banks. Ample starting capital buffers and bank profitability prevent translation of higher loan defaults under stress into materially impair capital adequacy ratios. Reverse engineering the exercise to gauge what it would take to erase one-fourth of system capital reveals that the shock would need to be not only unprecedented, but also extremely large. In terms of contagion, while failures of both domestic and foreign banks would result in significant capital losses for Panamanian banks, the risk of contagion propagation is much higher in the case of the latter.
International Monetary Fund. Western Hemisphere Dept.
This article is a synopsis on Costa Rica’s international spillovers, potential estimates, fiscal challenges, and banking systems. Spillovers are originated by cross-country trade and financial linkages, and also by the impact of global fiscal consolidation. The banking sector has about one-third foreign bank assets, and these foreign investments are controlled by the United States. So a shock in the United States or China will have adverse effects on Costa Rica. To have a medium- and long-term sustainability, Costa Rica needs to have some fiscal adjustments.
Ms. Corinne C Delechat, Ms. Camila Henao Arbelaez, Ms. Priscilla S Muthoora, and Svetlana Vtyurina
Banks’ liquidity holdings are comfortably above legal or prudential requirements in most Central American countries. While good for financial stability, high systemic liquidity may nonetheless hinder monetary policy transmission and financial markets development. Using a panel of about 100 commercial banks from the region, we find that the demand for precautionary liquidity buffers is associated with measures of bank size, profitability, capitalization, and financial development. Deposit dollarization is also associated with higher liquidity, reinforcing the monetary policy and market development challenges in highly dollarized economies. Improvements in supervision and measures to promote dedollarization, including developing local currency capital markets, would help enhance financial systems’ efficiency and promote intermediation in the region.
International Monetary Fund
Bank financial soundness indicators are solid, with high levels of capitalization and low nonperforming loan rates. Among other measures, they include broadening of the tax base, changes to dividend taxation, an increase in the value-added tax, lower personal and corporate income tax rates, and elimination of loopholes. They welcomed the adoption of a medium-term fiscal framework and the government’s ambitious plans for fiscal consolidation over the medium term. The resilience of the banking system to the global financial crisis was welcomed.
International Monetary Fund
This Selected Issues paper on Panama explores the current situation and trends of the Caja del Seguro Social (CSS) in Panama. The autonomy is embedded in its Organic Law, which also provides the agency with the right to have separate funds from the central government. The slowdown in economic activity and employment has led to a decline in the coverage of the social security system. The Panamanian pension levels are generous, despite the lack of indexation, even by the high standard of advanced European countries, and among the highest in Latin America.
International Monetary Fund
This report provides background information and supporting analyses for the staff report for the 2000 Article IV Consultation discussions with Panama. The paper presents an overview of economic developments since 1998. The study summarizes the financial and economic aspects of the operation of the Panama Canal, and discusses the economic impact of the reversion of the Canal and its adjacent areas to Panama. The paper also analyzes the progress of bank supervisory reform, and describes poverty and poverty alleviation programs.