finance

Panama unqualified for highest rating

An agent from Fitch ratings says Panama could reach investment grade by the year 2009.

But the country must first reduce public debt, govern itself better, and reduce social inequalities.

LA PRENSA

Warning: Social inequalities represent a time bomb for the stability of any democratic nation and an obstacle to achieving the highest Fitch investment rating.989192

Panama could reach the coveted investment grade rating in 2009 if, according to the risk rating agency Fitch Ratings and the consulting firm Indesa, the country reduces its level of public debt, signs a free trade agreement with the United States, further develops its capital market, demonstrates good governance and also provided that the external economic environment "does not deteriorate much more." So remarked Mauritius Choussy, an analyst at Fitch Ratings Central America, during his speech at a conference entitled "Panama's Economic Engines," which took place last week at the Marriott Hotel, sponsored by Saam Consulting

Choussy´s studies of the Panamanian economy show that the country is in a time of transition. The majority of its macroeconomic indicators are better than those of its "peers"---countries that have the same risk rating, such as Brazil, Peru, Colombia, Guatemala and El Salvador---but still have not reached the levels of other countries already considered investment grade, such as Chile and Mexico."Some things must be improved. For example, Panama´s public debt is equivalent to 54 percent of gross domestic product (GDP) and that weight is greater not only than the average for countries with the best credit rating (29 percent), but also the average of its peers (35 percent) " said Choussy.

"That remains its greatest weakness." Panama is also compares poorly with its peers in terms of its dependence on commodities---raw materials such as oil. Fitch recommends that the Government exercise still better control public on spending and work to reduce the country's enormous social inequalities, which represent a time bomb for the stability of any democratic nation. "We are seeing signs of overheating in the economy," warns Choussy.

The current growth of GDP (10 percent) is higher than the potential growth rate in the country, which Fitch estimates to be between 5 percent and 5.5 percent. That is why analysts believe that the current high demand is outstripping Panamanian production capacity.That explains the inflationary spiral. "The question we have is how much of the inflation comes from rising oil and food prices and how much is due to the overheating of the economy," he said.