The global recession and the U.S. crackdown on offshore jurisdictions have seriously affected Caribbean economies. One of my colleagues recently returned from a two-week visit to several Caribbean countries. Here's his report:
Panama: Real Estate Boom Ending
A year ago, the real estate boom was in full swing. About 17,500 units—mostly high-rise condos—were ready to come on the market. In some cases, a condo would double in value during the time it was being built. Some developers even sold the same unit twice. For instance, a developer would sell a unit for US$500,000, and then sell it a second time for US$1 million. If the first buyer complained, the developer would refund his or her deposit.
Fast forward 12 months…prices are in free-fall. Many buyers who put down deposits are simply walking away from their units. Numerous high-rise condo towers are empty. Foreclosure is inevitable, and several complete towers are now up for auction. You can buy a nice apartment or condo in Panama City for US$80,000 today that a year ago cost US$500,000.
The cash fueling the boom was primarily Venezuelans fleeing with their money to Panama, but those with real money arrived years ago. Venezuelan men often seek out Panamanian women to date, but these women joke among themselves that if a Venezuelan man arrived in the last three years, he probably has no money. Local real estate developers hope for an influx of American expats—but it can't happen soon enough to unload the thousands of unsold condos on the market.
On the political front, Ricardo Martinelli won the latest presidential election. His election platform was essentially, "I own lots of grocery stores and since I'm already wealthy, I don't need to steal from the people or the government." About as effective as a platform I have heard anywhere in the world.
Panama hopes to join the North American Free Trade Agreement in the next few years. That could spell major benefits of Panama's economy, but the price may be relaxation of the country's famous bank secrecy laws. Still, Panama has the canal, and that may give it enough leverage to push through NAFTA and keep bank secrecy intact. The next few years should be very interesting!
Bahamas: Demise of the US$10 Million Yacht
It's spring and the US$100 million yachts are in the harbor of the Atlantis Hotel, but the US10 million ones are in foreclosure. And so it goes: the mega-rich haven't been affected—yet—by the recession, but those who can only afford a small yacht have had to sell it to pay the bills.
Nearly a decade ago, the Bahamas shot itself in the foot by enacting a series of laws and regulations that satisfied U.S. government demands, but also resulted in the loss of most of its offshore business. Since then, the Bahamas has tried to reinvent itself by catering to Latin American and European clients. Unfortunately, this effort hasn't been particularly successful.
In the meantime, violent crime is becoming an increasingly severe problem. The murder of Hywell Jones, a longtime Bahamian offshore services provider is a recent example. Late in April, Jones was shot in the back of the head execution-style as he exited his car at his office. Before his murder, Jones told friends he feared for his safety after being badly beaten and left severely injured in an attack at his home. Perhaps coincidentally—or not—Jones was engaged in ongoing litigation with local businessman Lester Turnquest, a former member of Parliament.
Jones's death marks the 25th homicide in the Bahamas in 2009. This grim statistic underscores the reality that the Bahamas has become one of the most violent locations in the western hemisphere. On an annualized basis, there more murders per capita in the Bahamas than in the most violent U.S. cities.
Turks and Caicos Islands: Is Captive Insurance Enough?
Still recovering from two Category 2 hurricanes last year, the Turks & Caicos Islands (TCI) faces a major challenge in restoring its infrastructure. And it doesn't help that the U.K. government doesn't want to invest more money in a dependent territory with massive corruption problems. Indeed, the U.K. government recently suspended the constitution to deal with corruption issues. A governor appointed in London now rules the island.
One of the few sources of hard currency for the TCI is tourism. However, the government recently announced that it planned to ding departing tourists US$100 for the privilege of leaving. Come back soon, now! Meanwhile, import duties are to increase as well to raise revenue. While the TCI was never a low cost jurisdiction, it's quickly getting even more expensive.
On the offshore front, the TCI is best known as a haven for captive insurance. This industry remains relatively healthy, but the real question is whether this one trick pony is enough to make the TCI a viable offshore jurisdiction. There simply isn't much else here, with banking and Internet infrastructure years behind what other offshore jurisdictions offer.
Copyright © 2009 by Mark Nestmann
Comments