Ministro Dulcidio De La Guardia and Panama: Moving forward

Ministro Dulcidio De La Guardia and Panama: Moving forward

A GRI Power Brokers feature on Dulcidio de la Guardia, Panama’s minister of economy and finance

Throughout his tenure as Minister of Economy and Finance, Dulcidio de La Guardia has been leaving a positive impact on Panama and its economy. Earning a well-respected reputation in Panama and in the region, he was ranked third best Finance Minister in Latin America, and here’s why.

De la Guardia’s background

Tapped in May 2014 to become the Minister of Economy and Finance, De la Guardia has had an extensive political and professional career in the financial sector. Through his policies and office, he has been focusing on the banking sector, an essential pillar of Panama’s economy, to help Panama’s thriving economy strengthen.

De la Guardia has been able to take advantage of Panama’s momentum since mid- 2014 to invite more foreign investments by building up business insurance, bonds, promoting a reasonable tax structure, and much-needed social harmony in order to keep the business going in Panama.

Panama’s economy booming

Thus, despite low oil prices and inflation rate increases, Panama has managed to emerge out as a powerhouse in the region under De la Guardia’s leadership. Indeed, in recent years, Panama has been one of Latin America’s fastest growing economy, with a 6.2% GDP growth in 2014.

Indeed, since 2008, Panama has enjoyed favorable tax structures and implemented exemptions from income, property, and import taxes to attract large foreign investments and companies, including 40% from Colombia. Panama’s lax financial regulations helped facilitate its shipping industry, and have strengthened its banking sector.

The small country was ranked by the World Economic Forum as Nr. 2 in Latin America’s top 10 competitive economies, and was expected to experience further financial market development, and improvements on a macro level.

While critics claim that its economy should be cooling down due to its $15 billion infrastructure projects that are almost completed, including the Panama Canal expansion project, the small country is expected to sustain growth rates above 6% for 2016.

Crackdown on illicit financial activities

Close to Colombia and Brazil geographically and politically, Panama is not unfamiliar with dealing with the political scandals ongoing in the two neighboring countries, and has itself experienced incoming illicit financial activities due to its geographical position as a major drug trafficking route.

Indeed, Panama was known as a major safe haven for criminal activities since the 1980s, where well-known organizations like Colombia’s Medellin Cartel were hiding and transferring illicit profits in Panama.

However, the government, and De la Guardia, have doubled efforts in fighting corruption, leading to a strong crackdown on illicit financial crimes, since a report published in 2014 by the International Financial Action Group found that Panama was indeed struggling with money laundering activities.

Panama was placed on the Financial Action Task Force’s grey list, which identifies countries that lack sufficient anti-money laundering legislation and regulations.

As Panama was recently removed from the Financial Action Task Force’s grey list, Minister de la Guardia led anti-money laundering efforts by helping to implement legal and regulatory frameworks to address money laundering and other illicit criminal activities. In addition, he also audited specific infrastructure and investment projects that could potentially harm Panama’s reputation.

In particular, De la Guardia investigated the potential financial risks brought about by a construction plan led by Odebrecht – a large Brazilian engineering company involved in the Petrobras scandal – which secured the rights to build a new Panama City metro line.

De La Guardia and the Panamanian government maintained talks with banks involved in the process to evaluate the validity of the $1.86 billion bid. The Minister of Economy and Finance stated that through this query, he deemed that Odebrecht’s troubles in Brazil would not adversely affect the metro expansion project.

Tax evasion controversies

Back in October 2014, tensions were high between Colombia and Panama, after Colombia sanctioned the country for failing to meet a deadline to sign a bilateral tax information exchange agreement. Colombia listed Panama as a tax haven through its sanctions, money transfers between Colombia and Panama incurred a 33% increase in taxes, and the country imposed visas requirements for travel for Colombian nationals to Panama. Panama threatened in return to deport the thousands of Colombians living illegally in the country.

In order to resolve the issue, both countries agreed to sign an agreement for cooperation in the exchange of tax information, with a deadline set for September 30th, 2015. If Colombia were to be successful it would have access to the savings of Colombian tax evaders hiding in Panama, a number estimated between $2-7 billion.

After failing to meet the deadline in October 2015, and determined to end Panama’s reputation as a safe haven for Columbian tax evaders, Panama’s government and De La Guardia threatened to implement sanctions against Colombia. De la Guardia took a firm stand against Colombia and stated that Panama did not negotiate with fine limits. Thus, De la Guardia’s rigid stand on these issues has allowed Panama to gain more leverage and political power to steer negotiations in its favor.

Looking forward: Panama Canal, growing debt, and relations with Colombia

In the center of declining economies and political strife, Panama has been thriving thanks to De la Guardia’s financial policies.  Indeed, under De la Guardia’s leadership and strong financial maneuvering, Panama has become one of the major powerhouses of Latin America.

Throughout his tenure, De la Guardia has managed to capitalize on his political support and position in the government to lead efforts in cracking down on corruption, money laundering, and helping Panama to move towards a more stable financial future. With Panama’s binge of construction projects, such as a new subway, and the $5.2 billion expansion of the Panama Canal, the Minister of Finance and the government expects large financial growth and double the current cargo tonnage passing through the country, which currently carries about 300 million tons of shipping traffic annually.

However, critics have raised concerns over environmental regulations that were suspended under the past administration of President Ricardo Martinelli, and over the resulting growing national debt that has now reached $23 billion. Consequently, some monetary institutions have warned officials and De la Guardia to keep Panama’s finances in check.

In addition, Panama’s Colon free trade zone, a vital part of the country’s economy, and the biggest in Latin America, has been in decline since 2012, and companies located there are starting to demand tax cuts.

Due to ongoing economic crisis in Venezuela and Colombia, major export customers for Panama, the free trade zone in the small country saw over 200 companies shut down since 2015. Venezuelan companies have had difficulties paying invoices due to their currency devaluation, and Colombia also imposed duties and tariffs on textiles; large imports from Panama’s free trade zone, to protect its own domestic textile industry.

Rooting out and addressing corruption will also remain a long-term problem for De la Guardia and the Panamanian government. After former president Ricardo Martinelli stepped down in July 2014, he has since been accused of bribery, and the current Panamanian government has been facing the consequences of his controversial presidency.

Moreover, as Panama is the second largest foreign investor in Colombia after the U.S, relations with its neighboring country will remain a key issue for De la Guardia and the Panamanian government in the near future. Since tax evasion issues remain a tense subject for the two nations, it will be worthwhile to monitor De la Guardia’s involvement in the negotiations.

GRI Power Brokers features high-level individuals having a positive impact on political risk environments. Through interviews, in-depth analysis and insider profiles, GRI explores how power brokers are affecting the distribution of political or economic power, offering unique insight into those individuals that are shaping market trends in all corners of the world. 

About Author

Alicia Chavy

Alicia Chavy is currently pursuing a Master's in Security Studies at Georgetown University. Previously, Alicia worked at Kroll where she conducted due diligence and compliance research for Fortune 500 companies. There, she analyzed open sources intelligence on corruption, fraud, money laundering, and organized crimes perpetuated by companies and senior executives in Spanish, Portuguese, French, and English-language speaking jurisdiction. Alicia also worked at The Asia Group, where she provided political and business risk analysis, and strategic support for Fortune 500 companies working to expand their business presence in the Asia-Pacific region. Prior to her consulting experience, Alicia worked at non-profit organizations where she conducted detailed assessments on foreign policy, security and economic issues in Latin America, Europe, and the Middle East. Alicia Chavy graduated from Georgetown University's School of Foreign Service, earning a Bachelor of Science in International Politics.