By Andrew Beatty - Reuters

Panama's banks are flush with liquidity and well placed to weather the widening international credit crisis, the country's banking superintendent told Reuters on Monday.

Olegario Barrelier said liquidity in Panama's banking sector stands at around 58 percent of deposits, with manageable exposure to international markets pummeled by the U.S. credit crisis.

"At the moment our banks are good, very good. They are healthy, they are liquid, capital is nearly double what is required. They are being financed by local deposits and are not dependent on external financial markets," he said.

Long a center for offshore banking, dollarized Panama is home to almost 90 international banks, making it one of Latin America's largest banking centers.

HSBC, Citigroup and BBVA are among Panama's biggest banking players.

With no central bank or lender of last resort, Panama's banks have been encouraged to stay highly liquid.

Barrelier said the global crisis would eventually hit Panama, but that the effect would likely be a slower economy rather than damage to the financial system.

Since January banks in Panama have been encouraged to tighten credit to cool spiraling annual inflation, which is near 10 percent.

The economy is expected to post a growth of 9.5 percent this year.

Latin America's overall competitiveness is improving, according to the 2008-09 Global Competitiveness Index from the World Economic Forum. Brazil is gaining ground, while Mexico is becoming less competitive, the index shows. Mexico's decline, coupled with the growth of Panama, has led Panama to replace Mexico as Latin America's second-most competitive economy.

The Global Competitiveness Index looks at competitiveness in 134 nations worldwide, including 18 in Latin America. It is based on twelve pillars of competitiveness, including institutions, infrastructure, macroeconomic stability, health and primary education, higher education and training, goods market efficiency, labor market efficiency, financial market sophistication, technological readiness, market size, business sophistication and innovation.

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In what is considered excellent news in the midst of global financial uncertainty and a sign of confidence in the economic achievements of the Government of Panama and the management of the Panama Canal, the Inter-American Development Bank’s (IDB) board of directors approved a $400 million loan offer to help finance the historic Panama Canal Expansion Program.

“We are very pleased with the decision of the IDB board to offer financing for the Panama Canal Expansion Program. This signifies that Panama and the Canal are on the right track. As a country, we have laid the foundation that helps to make expansion possible. This also reinforces the Bank’s trust and confidence in the Panama Canal Authority,” said Panama Canal Authority (ACP) Administrator/CEO Alberto Alemán Zubieta.

Expansion will build a new lane of traffic along the Panama Canal through the construction of a new set of locks, which will double capacity and allow more traffic and longer, wider ships.

Two weeks ago in Washington, IDB President Luis Alberto Moreno emphasized that Panama has achieved impressive economic growth and performance. This has made it possible for the country to undertake the historic expansion of the Canal. Moreno also highlighted the sound financial management and technical quality of the Panama Canal Expansion Program, which has helped the IDB in considering financing the said project.

Recently, the ACP received its first-ever investment grade rating. Moody’s Investors Services, one of the world’s top credit rating agencies, gave the ACP an A1 as a government-related issuer, and a prospective A2 investment grade for the possible $2.3 billion financing for the expansion project – thus reaffirming Panama’s growing presence in the global marketplace.

Since July 2007, the ACP has been approaching financial institutions to determine the most viable financing for the waterway’s Expansion Program. The process began in Panama and continued with presentations to a number of financial institutions in New York, Washington, Hong Kong and London.

While concern about the impact of the U.S. crisis is spreading throughout Latin America, at least one country is still dominated by general optimism: Panama. While stock markets were crashing in the United States, Brazil, Mexico, Europe and Asia, the Panamanian agency that runs the Panama Canal last week managed to raise $2.3 billion in financing for the expansion of the waterway.

"Despite the meltdown in the rest of the world...the effects have not reached here yet," says David Hunt, the executive director of the American Chamber of Commerce in Panama.

Robert McMillan, the former chairman of the Panama Canal Commission and author of Global Passage: Transformation of Panama and the Panama Canal, is also upbeat. "The Canal expansion, coupled with tourism and second homes for Americans, signals only positives for economic and business development in Panama," he says.

ECONOMIC BOOM

Panama is expected to become Latin America's fastest-growing economy next year, the International Monetary Fund predicts in its latest outlook released this month. This year, it will likely end up just behind Peru as the fastest-growing economy, it estimates.

While there is sure to be a slowdown in the long-booming real estate sector, in part due to over-supply before the U.S. crisis, demand is still strong thanks to many Latin Americans - especially Venezuelans - buying up new or second homes. Many Latin Americans are also helping to fill up the hotels, avoiding previous destinations such as Miami.

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As property specs go it isn't often there's the opportunity to park a yacht out front. "I thought I'd woken up in paradise," says Philippe James, recalling his first morning in Panama.

James, a 59-year-old property developer from Devon, discovered Panama by accident in 2001. Caught in a storm in the Caribbean island of Aruba, he was invited by a fellow yachtsman to sail to Panama's mysterious San Blas islands. Arriving late, they moored in a small lagoon near the Spanish fortress town of Portobelo, where they woke to palm trees and smooth waters.

"Within a month I'd bought a £43,000 lagoon-front property and a yacht which I keep in my garden," he says. James, who bought his first property in Colon province, has just purchased a second property in Panama City's up-and-coming old quarter, Casco Viejo. Alongside Colón, Casco takes a starring role in the new Bond film, Quantum of Solace.

When 007 touched down in Panama City earlier this year, he could have been forgiven for thinking he had been re-routed, on a secret mid-air missive from M, to Hong Kong. But, while the city's vertiginous waterfront skyline and dramatic mountain backdrop resemble that of the Asian city, similarities don't stop there: Panama is the second-largest free-trade zone in the world, after Hong Kong. The sky is a tangle of cranes hovering over pencil-thin towers of gleaming glass and steel in various stages of completion. Landfill sites dot the coast as reclamation forges seawards.

In the city's exclusive Punta Pacifica area, where Donald Trump's ''billowing sail" structure, the Ocean Club, is taking shape, an entire mini-city is under construction. The project's estimated investment of more than £125?million makes it the largest real-estate investment in Latin America. According to the IMF, Panama is the fastest-growing economy in the region.

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• Tourist arrivals in Panama increased by 13.1%