Bad legal news for Martinelli, bad political news for president Varela, good news for the economy
U.S. District Judge Marcia Cooke declined to accept the writ of habeas corpus submitted by Martinelli´s defense and ratified judge Edwin Torres’ decision to approve Martinelli´s extradition to Panama for illegally monitoring phone calls and other communications of 150 people using a surveillance system bought during his administration.
Martinelli’s lawyers mentioned that he plans to voluntarily return to Panama despite the judge´s ruling in February. Martinelli also plans to exit PARLACEN (the Central American parliament), which will mean that the ordinary justice will treat him rather than the Supreme Court.
During Cambio Democratico´s elections, Martinelli lost his position as president of the party to Rómulo Roux (which is accused by Martinelli’s faction of being close to the Varela’s administration) in an election where Roux’s supporters won the entire party’s board of directors’ positions.
On January 30th, the National Assembly rejected the ratification of the two proposed Supreme Court justices Ms. Tovar and Ms. Moore with 18 votes in favor and 52 against. Legislators from the CD party and PRD party opposed to the appointment of the two new Supreme Court justices due to the lack of independence. President Varela argued that the National Assembly did not carefully review the candidates´ curriculum and rejected them based on political criteria. He will submit new candidates for review any time soon.
The European Union finance ministers agreed to remove Panama and other eight jurisdictions from the EU’s list of non-cooperative jurisdictions in tax matters (commonly known as “tax haven blacklist”), less than two months after the list was published. Panama’s commitment is to remove the elements of “ring fencing” of the call center regime. We don’t expect this reform to have an impact on the economy. Conversely, it will improve country’s reputation in international transparency.
The Minister of Economy and Finance presented a bill in the National Assembly that seeks to prosecute tax fraud. The establishment of tax fraud as a criminal offense was strongly demanded by international organizations such as the FATF, given that the legislation treats tax fraud as an administrative offense since 1956. The bill has generated controversy since legislation of this type could be used by governments to persecute opponents.
The Monthly Economic Activity Index showed an expected 4.2% y/y in November, and 4.7% YTD, compared with the same period in 2016. The main drivers of growth continued to be transportation and communications and construction. The slowdown in the last half of the year is aligned with our projections of 5.4% real GDP growth in 2017.
Foreign Direct Investment (FDI) totaled $4.3 billion from January to September 2017 and grew 1.7% compared to the same period in the previous year. As a percentage of GDP, FDI shrank from 9.9% in 2016 to 9.4% in 2017. Reinvested earnings of international firms continue to be the main component of FDI by representing 64.8% in 2017.
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