Dear A-Letter Reader, If you've been reading the A-Letter, you know the Republic of Panama is one of our favorite tax havens.  A stand out among current offshore tax havens, Panama combines maximum financial privacy, a long history of judicial enforcement of asset protection friendly laws, strong anti-money laundering laws, tax exemptions for foreigners and, due to its unique historic relationship with the United States, a high degree of independence from outside pressures, including those from Washington, D.C. Since Balboa crossed the Isthmus of Panama in 1513 and claimed the Pacific for the King of Spain, this Central American country has been invaded by Spanish conquistadors, English pirates and the United States military.  In recent years, a new invasion has been under way.  Americans, Canadians and other international investors have been flocking there to buy into one of the hottest real estate markets in the western hemisphere.  Aging North American baby boomers are in the majority, but a growing number of Europeans are developing projects or buying properties. Panamanian Amenities Are Still Cheap Compared to Miami  Despite its relatively advanced industrial and financial infrastructure, Panama remains an affordable place to live.  A live-in maid earns as little as US$150 a month and first-run movies cost US$3.75.  Unlike much of Central America, Panama boasts a first-class healthcare system with low costs compared to the United States.  A doctor's office visit costs about US$15. Panama has by now attained world class tax haven status.  Indeed, in many respects, including financial privacy, solid asset protection and freedom from outside political pressures, Panama has moved to the head of the class.  Panama is in much better shape financially than its Central American neighbors to the north, or Colombia to the south.  Between 1955 and 1998, inflation averaged only 2.4% per annum. Annual inflation has averaged 3.2% for the past 30 years, much lower than in the United States. In many ways, the Republic of Panama is ideally suited for the offshore investor who wants to enjoy the increasingly rare privileges of strong, legally guaranteed financial privacy and no taxes, either corporate or personal.  The 2006 A.T. Kearney/Foreign Policy Magazine Globalization Index ranked Panama first in Latin America and 24th in the world, up three slots from 2005, based on such factors as trade, investment flows and Internet use.

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At 30,000 square miles, about the size of the State of South Carolina, Panama offers urban living, Atlantic and Pacific beaches, tropical forests and coffee-growing highlands.

The European air of the Spanish-speaking country reflects its colonial history, but American influence can be seen in its supermarkets, malls and currency.  The balboa, fixed at a one-to-one ratio with the U.S. dollar, is the official currency, but only coins are minted.  U.S. Dollars are used in all transactions.

Many North Americans in Panama are seeking retirement homes where they can save money. Europeans, generally younger and wealthier, are drawn by the investment potential as much as by the lifestyle. 

The exchange rate - 80 euro cents or 55 British pence to one balboa - means bargain prices, often prompting purchase of more than one property. 

It is easier for foreigners to enter Panama than the United States, especially since 9/11.  One Panamanian broker points out that Panama offers everything Florida does, but without the Miami airport security hassles or the hurricanes.  Plus, it's only a couple hours farther away by air.

With so much real estate activity, the word "overheated" has been heard, along with reports that many high-rises are going empty.  Three major residential tower projects in Panama City have been either postponed or canceled in recent weeks, raising concerns that hype may be outrunning the realities of the market. 

The three tower projects, Palacio de la Bahia, the Ice Tower and Park 32, were among the most discussed and ambitious developments in the country.  The Ice Tower was planned for 104 stories.  Palacio de la Bahia was 97 stories and Park 32, the latest to shut down, was planned for 54 stories.  Each offered luxury residential units priced at US$300,000 (€217,000) and above.

"I'm being told that the developers still plan to build on the lots, however with completely different designs," said Jessica Ramesch, who writes the Panama Insider newsletter for International Living.  She downplayed talk of the bubble bursting in the market, noting the three projects represent only a small percentage of the 380 projects under construction in Panama.

A government-backed industry commission met last week to discuss the real estate issues, focusing on speculators.  There was a discussion about protecting the buyers, but the local consumer protection agency only offers assistance for what they term "true consumers and not investors." 

This speculation has been encouraged and actively sought out by the local real estate industry.  Now that things appear to be overheating, these very investors and speculators are being blamed for the problem.  Investors and speculators understand risk and they know the rules of the game.

But to say they are the cause of the "problem" in Panama City is a bit disingenuous, according to Paul Bride of Prima Panama, a tourist and real estate agency.

But Panama City is only half the population and in many more rural areas, such as mountainous Boquete in Chiriquí province, there are bargains still to be had.  My advice on Panama still is - come on down.
 

The Strange Disappearance of 100,000 American Millionaires. Last year, the number of American millionaires fell by 100,000.  Yet 200,000 new millionaires showed up overseas.  Why?  Because hugely profitable investments are being hidden from you by a cartel of lawyers, regulators and Wall Street special interests. Like our recommended investments that gained 787% and 1,894% during the bear market and our other investments up 106%, 131% and 169%. Find out what they don't want you to know...