In the first months of the current administration, and seeing the initial measures it was taking, I saw fit to point out that the necessary elements for a perfect storm of social unrest were forming in Panama. We stated at the time that these elements are: the continued increase in bank interest rates, the elimination of the Housing Solidarity Bonus, leaving the price of Panamanians’ staple food, rice, to the free supply and demand, the resolution of the deficit in the Social Security Fund’s Disability, Old Age, and Death program, the decision on the future of the Donoso mining project in the province of Colón, and the construction of the reservoir proposed by the Canal Authority in the Indio River basin. We also emphasize that, at this moment, the words dialogue and consensus are more necessary than ever, since if one sector intended to win 100% on all points, this would only happen through imposition, which would cause, at the end of the discussion of all these issues, we would have a highly fragmented country with high social instability that would only contribute to affecting the economy of local companies and would scare away the attraction of foreign investment, which would constitute this “triumph” in a Pyrrhic victory, since it would have behind it an economy and society with serious impacts.

Regarding the continued increase in bank interest rates, with the indirect support of the Superintendency of Banks of Panama (SBP), it is important to note that, while there is no regulation governing the level of rates that banks can set, they do use the increase in bank rates at the United States Federal Reserve as an excuse to justify themselves. It should be the case that when rates at the Federal Reserve increase, in their opinion, they should increase in Panama. However, if this were true, it should also be the case that when rates at the Federal Reserve decrease, local bank rates would decrease; however, that is not the case.

As can be seen in the graph, which compares the behavior of rates in the United States with the reference rates of the local Panamanian mortgage market, in 2018, while interest rates in the United States decreased from 2.50% to 0.25%, in Panama, the reference rate increased from 5.44% to 5.69% and then to 5.75%, and subsequently increased to 5.88% reflecting an increase of up to 5.50% in rates in the United States. It is important to note here that when the US rate fell from 5.50% to 4.50%, and following the banking institutions’ logic of attributing the increases in Panama to US rates and, therefore, expecting a decrease in these, not only was there an opposite response in Panama with two increases to 6.13%, but, when they had said that they had to wait to see how the markets performed before making a decision, the superintendent of the SBP bluntly stated that “the rates that had increased were going to stay that way and that they would only see what would happen with new loans,” once again dismantling their bullish logic that never contemplates decreases. Within the complicated economic scenario in the United States, it has been indicated that two decreases are expected between now and the end of the year (2025), but as in Panama it seems that they are children of pain and within the framework of a serious economic and social crisis that threatens to worsen, the Banking System, including the former “Bank of the Panamanian family” that until now had remained on the sidelines of rate increases, has responded to these upcoming decreases in the United States with letters to its clients informing them of upward adjustments to the rates of their mortgage loans.

Once the local explanation for the increase in interest rates has been disproved, we can analyze the additional justification for their upward trend. It is pointed out that, since banks must finance themselves abroad, they face the cost of higher funds, so they must pass this increase on to their clients. If we look at the graph of Local Deposits versus Local Loans in the National Banking System from 2022 to 2024, the balance of local deposits in these three periods shows an average of $65.205 billion, while the average balance of loans shows an average of $61.037 billion. This means that, historically, in Panama, deposits have been more than $4 billion above loans, demonstrating that banks use their own deposits to finance the loans granted, so the argument of having to borrow abroad to lend locally is not applicable to the Panamanian case.

A third excuse to justify the increase in bank rates in Panama is related to country risk. This justification ignores two important issues. First, during the international financial crisis of 2008-2009, in which many of the world’s largest banks were on the verge of bankruptcy, leading to intervention by the United States government, Panama’s bank safety and risk management mechanisms worked. This resulted in the fact that, although many Latin American countries recorded negative growth figures, we continued to grow here, and no bank was at risk. Second, every time the Bank Safety and Performance figures are published, they show an unbeatable performance that proves the solidity of our International Banking Center (IBC). Thus, according to the SBP’s Banking Activity Report as of April 2025: “The system’s average liquidity ratio stood at 55.94%, exceeding regulatory requirements. The Liquidity Coverage Ratio (LCR) remains above the minimum threshold, reflecting prudent management of maturities and asset quality. The CBI’s Capital Adequacy Ratio (CAR) reached 15.71%, almost double the regulatory minimum, demonstrating an adequate capital cushion to withstand financial shocks.” “The National Banking System reported profits of $815.6 million (+0.4%), driven by growth in interest income (+3.2%) and expense containment, despite a 5.9% drop in net interest income.” These results only demonstrate that, “despite country risk,” our banks are not only solid, but continue to grow. But, speaking of country risk, it must be said that although Fitch Ratings unduly downgraded our risk rating before the 2024 elections, Moody’s has just confirmed our rating and no changes are expected from Standard & Poor’s, since, in our case, how can you downgrade the rating of a country that continues to grow and that has every positive outlook for improving its situation? Unless there is an evident political inability to manage social crises that could jeopardize this risk.

But why are rising interest rates considered a perfect storm for social instability? It turns out that if we take the example of a bank customer who is informed that due to “adjustments” in their interest rate, they will be forced to choose between repaying their loan for 15 more years or increasing their loan payment to $200 to maintain the same term, these $200, for an individual with a considerable income of $1,500, represent approximately 13.3% of their gross salary; they also represent 55% of the caloric cost of the Basic Family Basket for the districts of Panama and San Miguelito as of January 2025, according to the Ministry of Economy and Finance. This significant increase in interest rates severely diminishes not only their overall consumption capacity, but also their ability to meet families’ basic needs, including food. There is no doubt that a hungry population will never be at peace.

“To my friend Ciro Ortega, may God keep him in his glory.”

“To my friend Ciro Ortega, may God keep him in his glory.”