Interview: Jorge Vallarino Miranda
How feasible is the integration of Central American capital markets? What would its benefits be?
JORGE VALLARINO MIRANDA: It is certainly feasible, following the example of what has been done in other regions such as Europe or South America. It is important to take into account that countries in Central America have different regulations and tax regimes. These differences are the main challenges to integration. The main benefit of integration is that it broadens investment options. Furthermore, issuing companies also have a larger pool of investors to reach.
How can Panama attract more international listings?
VALLARINO: Panama has advanced significantly in its efforts to attract more international listings. When Euroclear and Latin Clear launched an international link to allow investors to enter Panamanian capital markets, it was an important step in attracting foreign investors. This is a key factor in bringing more issuing companies, as the pool of local investors is relatively small. Further improvements might also include changing regulations, especially adapting disclosure standards and implementing global custody.
What steps can be taken to increase the listings of small and medium-sized companies?
VALLARINO: Panama has taken important steps in this direction. Before attracting small and medium-sized companies, there was a need to first develop the market by attracting sophisticated players. In this regard, the government played an important role in the development of the market by issuing local bonds, which increased the volume of transactions. As the market grew, the range of investment options became wider and more investors became acquainted with the market. Meanwhile, banks have also used the local market as a recurring funding source. There is a need to ensure regulations continue to evolve to include retail investors, considering that regulations to date have been designed primarily for sophisticated institutional investors.
How dependent is the market on institutional investors? How can retail investors be encouraged?
VALLARINO: The requisites to be listed and the level of disclosure for retail investors should be higher than for more sophisticated investors. This is not the case in Panama. Regulations should be able to help the market define what its pool of investors should be, as happens in more developed markets. Retail investors need to be protected and feel comfortable. A way of doing this could be to require additional disclosure for issues targeting retail investors.
To what extent would accepting transactions in other currencies such as the euro make the local market more attractive for foreign investors?
VALLARINO: It would certainly be beneficial, as it would increase the pool of investors. If Panama wants to become a regional capital markets hub and build a platform that covers the whole region, opening the market to transactions in Latin American currencies would make more sense. Accepting euro transactions should be a secondary step in efforts to open up the market, considering that the majority of companies in this region do not own assets in euro.
The cost of the public debt interest rate is expected to increase by 101% between 2009 and 2019. What explains such a significant increase?
VALLARINO: The increase in the cost of public debt interest rate can be explained by the growth levels of the economy in recent years. Another factor is that the government has been making large mid-term infrastructure investments. As long as these investments generate the necessary returns, the country should not have any trouble meeting its financial obligations. In fact, debt indicators have remained manageable, and GDP debt has decreased. Although budget deficit levels have increased, they are far from alarming, partially thanks to the high levels of foreign direct investment (FDI). As long as FDI levels remain steady, growth will continue.
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