Panama: Covid-19 hits the economy hard
AFRA partner Alejandro Alemán F. explains how the government is working to support families and businesses struggling as a direct result of the pandemic
Over the past 25 years, Panama has been among the largest and fastest-growing economies in Latin America. Average growth over the last five years has been 4.6%, and it was even higher before then.
This is, in part, attributable to the multibillion-dollar expansion of the Panama Canal. However, Covid-19 has dramatically changed all previous projections and trends. It is expected that this year Panama will see an actual reduction of its economy of -2%: something that has not been seen since the 1990s. The effects of Covid-19 in Panama – which, at the time of writing, has still not been brought under control – could be even more devastating.
In an effort to provide economic relief to thousands of families in Panama, the National Assembly recently approved Bill No. 287 of 2020, which grants an automatic exemption on payments of capital, interests and surcharges for all loans until December 31 2020. Bill No. 287 of 2020 will be implemented once it has been signed by the president. The president could still veto the bill – which he did back in May with the original version that was approved by the National Assembly.
If signed into law, the bill will grant automatic exemption to all individuals and corporate entities, allowing them not to pay any amounts due under any loans granted by banks, financial entities and cooperatives, public or private, until December 31. During this time, banks, financial entities and cooperatives cannot demand the payment of any amount owed by their clients, nor can they report defaults to credit reporting agencies. Similarly, at the end of the exemption period, no late payment fees or charges of any kind may be imposed by banks, financial companies and cooperatives to clients that benefited from the exemption.
According to the bill, this relief will be offered only to those clients that are able to prove that their income has been affected by measures taken by the government to fight Covid-19, such as the suspension or termination of their employment contracts or reduction of salaries. In the case of entrepreneurs and small and medium-sized businesses, an affidavit will have to be filed attesting to the reduction of their income.
Upon expiration of the exemption period, all financial institutions must agree with each of their clients the necessary mechanisms to allow for each client to resume payment of the portion of the debt (including interest) left to be paid, either through a refinancing of their debts or by proportionally allocating outstanding amounts throughout the remaining lifetime of the loan.
If signed by the president, the law will eventually be regulated. Banking, financial companies and cooperatives must carefully follow the implementation of such rules to ensure that the law is fully complied with.