How Panama Financial Institution Helps Stabilize the Economy

By: Laurie Cooper

Panama economy is dictated mostly by service industries. This includes tourism, banking, Panama financial institution, telecommunications, Panama Canal and the Colon Free Zone to name a few. As a service oriented country, most of its infrastructure is towards servicing needs like banks, financial institutions, hotels, resorts, telephone facilities, and others. One of the contributory factors for Panama's economic stability is the provision and policies in Panama financial institution.

Because of the strategic location of Panama, it has provides financial services to the areas in Central America, South America and other parts of Europe. In fact, it is one of the pioneer centers for offshore banking and financial services worldwide. Panama then becomes one of the havens for financial security in Latin America. Panama has seventy commercial banks per February census of 2004. Among the seventy banks, there are twenty-nine international banks, thirty-nine local banks, and two state banks. Basically, the banking sector of Panama comprises 8 percent of the country's GDP, employing approximately 10,000 people. Among other Panama financial institution, the banking sector has the highest contribution in GDP.

The banking sector in Panama is regulated by Superintendence of Banks instead of the common central banks. This makes Panama unique in it banking systems compared to other countries in Latin America. Banks in Panama are licensed either for general license, international, or representative. With the three types of banking license, the bank is required to have an office within Panama where there are corresponding office staffs and personnel. The general license of banks in Panama can be given to local and international banks and can employ both local and international employees. International license, on the other hand, should only employ non-residents of Panama as it is provided only to international banks.

Based on the assessment of International Monetary Fund in 2001, Panama's banking system meets most of the standards in international banking system. This means that Panama has meet standards in accounting and auditing, Basel capital framework for capital adequacy, implement standard limitations on loans and investments, and standard for managing risk on interest, country risk, and internal risks. In the same assessment, IMF noted that Panama operates more in general banks that offer opportunity for both non-residents and residents even though it is known for its offshore financial services. In essence, the general license carried 82 percent of assets which means that Panama is gaining more control on its asset in the bank sector. International license of banks only hold 18 percent of assets.

Other Panama financial institution includes insurance and securities which are relatively small compared to the banking sector. The regulatory agency for insurance is the Superintendence of Insurance while the agency for securities is the National Commission Securities.

Generally, Panama financial institution is one contributory factor of Panama's economic stability. The fiscal policies in Panama favor foreign investments and other financial services to foreigners. It comes hand in hand with tourism campaign which opens many opportunities for foreigners to invest in the country. The current result is growth in GDP and economic stability.

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