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Editorial

Doing Business in Panama

Contributed by EY Law Central America

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Introduction

Over the past decade, Panama has been one of the fastest growing economies worldwide. The Panamanian economy and its banking system have been known internationally over the years as one of the most solid systems in the continent. One of the main components for this economic solidity is the steady growth of the GDP, which reached an average of 5.3% since the mid-1990s until the beginning of the decade of 2016, and has not had contractions since 1988.
According to the world competitiveness ranking of the World Economic Forum, Panama is the most competitive economy after Chile, and consolidates its top position in Central America.

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Despite the fact that presidential elections are not due until 2019, associated political and economic uncertainties have already contributed to a slackening of the country’s investment environment. Moreover, the recent decision by the US to approve the extradition of former President Martinelli has thrown an additional, potentially destabilizing factor into the mix. Nevertheless, there have been a few significant transactions that have kept law firms busy and the establishment of diplomatic relations with China in June 2017 has unleashed a wave of interest from Chinese investors seeking to establish themselves in the county, and beyond that, in Central America as a whole. Negotiations regarding a free-trade deal are scheduled to take place in June 2018.

In the legal market, the Panamanian shipping sector has already reaped the first fruits of this economic rapprochement; an agreement on maritime transport signed in late 2017 seeks to improve passenger and cargo traffic, as well as maritime facilities and ports in the two countries. Furthermore, China awarded Panama ‘Most Favoured Nation’ status, which grants vessels under Panamanian flag lower port costs and more time-efficient procedures related to the registration of vessels and ship mortgages in China. Traditionally one of the key income streams of the country, the completion of the Panama Canal has also significantly boosted revenues stemming from shipping and trade-related work, although the current threat of a global trade war sparked by US protectionism is a further preoccupation.

The offshore sector in Panama is showing its first signs of recovery since the 2015 leak of some 11.5m documents, commonly referred to as the Panama Papers. However, the law firm at the centre of the scandal, Mossack Fonseca, announced the winding-up of all its operations by the end of March 2018, listing reputational damage, the media campaign and actions by Panamanian authorities among the reasons for its closure.

Partly as a result of the Panama Papers imbroglio, the local legal market has also sought to improve its regulatory framework. In 2017, a set of new regulations was introduced, including new guidelines pertaining to public offerings, as well as the regulation and supervision of trustees and trust businesses. In April 2018, the Ministry of Economics and Finance submitted a bill to the National Assembly, targeting a modernisation of the International Financial Centre of the Republic of Panama, in order improve its competitiveness and efficiency.

The domestic legal market is still largely dominated by well-known, full-service domestic firms –such as Alemán, Cordero, Galindo & Lee, Arias, Fábrega & Fábrega, Morgan & Morgan and Galindo, Arias & López– with the specificity of the Panamanian jurisdiction as yet making it largely resistant to the lure of regionalization seen elsewhere in Central America. Nevertheless, the legal landscape has seen modifications in an increasingly competitive market. Notable movements include the 2017 division of market-leading IP firm Benedetti & Benedetti into the Estudio Benedetti, which will remain strictly focused on intellectual property matters, and Central Law, which, retaining membership of the Central Law regional alliance, will look to broaden its service offering. In another significant development, Fabrega Molino strengthened its corporate and M&A department as a result of its early-2018 merger with Kuzniecky & Co, a boutique firm originally established in 1995. Other movements saw former president of Panama’s Supreme Court, arbitration and litigation specialist Graciela Dixon Caton, join the boutique firm Britton & Iglesias (founded in 2015), as of counsel.

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