Once-Formidable Banking Center Suffers Severe Setback
Apr. 30, 1988
PANAMA CITY, Panama (AP) _ Panama's international banking center was once a magnet for money from throughout the world, a safe haven for cash that earned the country a reputation as the Switzerland of Latin America.
Now, bankers worry that the system may never recover from a nearly two- month shutdown caused by political unrest surrounding the leadership of Gen. Manuel Antonio Noriega.
Frightened investors have pulled billions of dollars out of Panama. Bankers are anxiously studying their options.
''I assume ... (bankers) would be thinking about leaving the country because they can't do much business right now,'' said Edgardo Lasso, president of the Banking Association of Panama, which represents 93 of the 117 mostly foreign banks operating here.
Eiichi Motoshige, general manager of the local branch of Japan's giant Sumitomo Bank, said: ''Each bank is very, very seriously considering what we can do for the immediate future.
''The biggest problem,'' he said, ''is that nobody likes to place any funds here ... because of the risk.''
Not long ago, the tiny country attracted money from investors worldwide, many of them drawn by secrecy provisions limiting disclosure of information to foreign courts, governments and other third parties.
They also were attracted by the nation's use of the U.S. dollar as its currency, its prominent free-trade zone and its location on an isthmus linking Central and South America.
And, up until June, it offered investors political stability. But a wave of protest against Noriega's rule has shaken confidence in the system.
Noriega, chief of the country's defense forces and the power behind the civilian government, was indicted on drug charges in the United States in February. He forced the ouster of President Eric Arturo Delvalle on Feb. 26, one day after Delvalle tried to fire him.
On March 3, the government shut down 67 banks holding licenses to conduct local and international banking business after $50 million in Panamanian government money was frozen in U.S. banks.
The subsequent cash shortage prevented the National Bank of Panama from providing the dozen locally owned banks with enough money to cover a run on deposits that began Feb. 26.
The Reagan administration, seekng to force Noriega's ouster, has imposed sweeping economic sanctions on the country.
The administration announced Saturday that it was relaxing some restrictions and would allow Americans to pay utility bills and sales and excise taxes to the government. Payments on corporate and personal income taxes, import duties, port fees and corporate social security payments still are prohibited.
Government figures show that assets held by the banking center tumbled from $40.3 billion at the end of 1986 to $31.4 billion at the end of 1987.
''There was a massive reduction in assets beginning in June,'' said Luis Luis, Latin American director of the Institute of International Finance in Washington.
''There must have been further shrinkage of assets in the first quarter (of this year),'' he said.
Motoshige said, ''So many banks, including ourselves, have had to move our assets outside.''
About three-quarters of the center's assets, or roughly $25 billion, were in off-shore activities at the end of last year.
Money in off-shore activities - those that take place outside of Panama - can be easily moved to competing banking centers in Miami, the Bahamas, Grand Cayman Island in the British West Indies and elsewhere.
Analysts have no figures on how much money has left the banking system so far this year. Estimates vary widely from a few billion dollars to more than $10 billion. One financial analyst, who spoke on condition of anonymity, said, ''They will be lucky if they come out of this with $5 billion in off-shore banking.''
Requests for interviews with officials of the National Banking Commission, a regulatory agency, were ignored.
Bankers say that only after the nation's political troubles are settled can the center begin healing.
''There would have to be several changes in the government,'' said Lasso. ''People would have to start getting confidence back in their people handling the government and that could take ... months.''
The banking commission has been trying to ease the situation.
On April 18, it allowed the banks to begin accepting deposits from customers. But it restricted the amount of money that could be drawn on the balance in checking accounts.
As a result, analysts say, about three-quarters of the newly deposited checks were returned for insufficient funds.
In March, the commission allowed banks to resume a dozen additional services, including handling letters of credit, collecting outstanding loans, transferring funds within the country and making foreign exchange transactions.
Clients still cannot withdraw cash from their accounts, and bankers fear a premature reopening of their institutions would trigger another run.
''People are afraid, and they are just waiting for the banks to open so they can get their money out,'' said Lasso.