Panama's president-elect to push US trade deal

Mon May 4, 2009 4:00pm EDT

* New president want U.S. trade deal "as soon as possible"

* Government to seek foreign investment in infrastructure

By Mica Rosenberg

PANAMA CITY, May 4 (Reuters) - Finalizing a free-trade deal with the United States is a major goal for Panamanian President-elect Ricardo Martinelli, but the supermarket tycoon rejects U.S. accusations that the country is a tax haven.

"It will be our number one priority," Martinelli said of the accord on Monday in front of his house after sweeping Sunday's election with over 60 percent of votes.

The U.S.-Panama trade pact was signed in June 2007 by Panamanian President Martin Torrijos, but the agreement has been stalled in the U.S. Congress over criticisms that Panama is an offshore tax haven for wealthy foreigners.

Panama only collects income tax on money judged to have been earned in the tiny Central American nation.

Martinelli's economic team disagrees with U.S. lawmakers who say Panama has failed to deal with tax evasion and needs tougher labor rights standards.

"The perception that Panama is a tax haven is totally false," Frank De Lima, Martinelli's top economic adviser told Reuters. De Lima said the new government will be open to sharing information with U.S. authorities and plans to work to pass the agreement as soon as possible.

Other Central American countries and Mexico already have free trade deals with the United States, putting Panama at a disadvantage, De Lima said.

Torrijos has pledged to sign the trade agreement before stepping down on July 1, but negotiations are moving slowly.

The administration of U.S. President Barack Obama has said it hopes to win approval of the Panama deal relatively quickly and to work with Congress to establish "benchmarks" for progress on pending trade deals with Colombia and South Korea.

Panama's economy has led Latin America with growth of around 10 percent in recent years, fueled by luxury real estate, a booming banking sector and U.S.-Asia trade through the Panama Canal.

But growth in 2009 could slow to below 3 percent as the global financial crisis hits credit and shipping, making a U.S. trade deal all the more important.

"Martinelli will enter office during a challenging period," said Theresa Paiz Fredel, an analyst at Fitch Ratings in a note. Fitch said the election result will not affect the country's ratings, since Martinelli is expected to push ahead with Panama's $5.25 billion canal expansion plan.

Martinelli, a 57-year-old U.S.-educated businessman who owns the dominant Super 99 grocery chain, is open to foreign investment and has pledged to simplify the country's tax code with a 10 to 20 percent flat tax.

He has promised massive infrastructure spending on a new Panama City subway system, highways and new airports built in partnership with foreign investors. (Additional reporting by Elida Moreno and Sean Mattson)

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