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Roberto Brenes, CEO of the Panama stock exchange, reflects on his market's growth as a regional niche player

Why go to a Latin American stock exchange when you could go to New York or London?

Not everybody can go to New York or London. Company size, capitalisation, scope of the market and regulation are some of the many issues that prevent companies from accessing the world's largest capital markets. Smart local or regional exchanges should see these difficulties as opportunities to grow. The Panama Stock Exchange is doing precisely that - trying to become a regional niche player for issuers that, having surpassed the capacities of their local markets and being unable to access larger markets, could find adequate financing in a dollar-based regional market.

Are there any sectors that have been performing strongly recently, and why are any strong sectors performing well?

Most sectors have been performing well because of the positive outlook of the country but also because of the increased liquidity and transparency provided by the stock exchange. Stock prices have tripled in the last five years. In the medium to long-term, market performance will be more related to corporate success such as growth and profitability, which in turn will depend a great deal on how local and regional companies grasp the globalisation opportunities.

How greatly influenced are you by activities in the large US markets?

Panama is a dollar economy. We have no central bank, no money printing machine, no tequila hangovers. Obviously the US monetary and financial policies have a direct effect on our financial system. Interest rates tend to move in parallel and major movements have more than average influence.

What will be the impact on your stock exchange of increasing globalisation of the capital markets?

As a rule, successful globalisation triggers market activity. Many local companies enter into a do-or-die situation that leads to restructuring, merging or acquiring other companies. Foreign companies coming into the market may tap the local capital market if efficient. We are confident that under a sound regulatory system our exchange will thrive.

What incentives are there for foreign investors to place investments through your brokers instead of going through larger international exchanges? And if there is a lack of sufficient direct investment, what plans are there to rectify the problem?

As explained before, there is no value for us in listing securities that could be better traded in larger markets. Instead, by listing perhaps a few but carefully selected securities where we can provide a better market and better research than others, we are in fact exploiting a successful niche to the benefit of both the companies and the investors. With regard to foreign direct investment, what we lack is enough investment opportunities to capture such investment. The privatisations and the pensions system reforms will help generate new investment opportunities.

Are there any incentives regarding taxation and regulation for foreign investors?

There are lots of incentives. For example, there are no capital gain taxes, no tax on interest income from listed securities and a number of selected principal reduction incentives when investing in selected areas like forestry, infrastructure and communications. There is no discrimination between foreign or local investors as far as the capital markets are concerned.

Do you think that the proposed spread of NAFTA could bring benefits to your market?

Definitely. Our country and our neighbours have been pushing hard for an all-encompassing trade agreement.

What plans are there for any future privatisations? Will foreign investment play a part in any privatisation and, if so, how much of one?

There are many plans for future privatisations. The immediate plans are the privatisation of the electric utilities, breaking the Government monopoly in rational parts and selling them to qualified operators, the public or a combination of both. Panama has an ongoing programme for the privatisation of the reverted areas adjacent to the Panama Canal. There are numerous opportunities in tourism, ports, transhipment centres and repair centres. Foreign investment is the key to the success of all these projects.

How is the stock market regulated? What powers does any supervisory body have, and do you think greater regulation is necessary?

The market is regulated through the National Securities Commission, a mixed body of two government and three private sector appointees. Most regulation is concentrated on disclosure issues and the regulation of broker dealers and the exchange. A high level Commission was recently appointed by the President in order to examine the strategic situation of the capital markets and draft legislation. The new legislation will, among other things, greatly enhance the supervisory capabilities of the Commission, improve the scope for the development of international securities business and largely reduce bureaucratic procedures for filings and listings.

Is new technology going to have any impact on your stock exchange? If so, in what way?

The only way of creating an efficient and transparent cross-border market is by having state-of-the-art trading and clearing systems. We are well aware of this and we are already moving forward on critical decisions that entail not only technology but the development of regional capabilities to ensure we have effective networks.

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