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Interview with Dulcidio de la Guardia, Finance Minister of Panama, from the World Economic Forum 2017

Following are excerpts from a CNBC interview with Dulcidio de la Guardia, Finance Minister of Panama, from the World Economic Forum 2017 with Geoff Cutmore and Steve Sedgwick.

GC: Thanks for being with us. So just tell us, what action has the government now taken to try and improve transparency around tax affairs?

DG: First, well we took office. We started a campaign – anticorruption campaign. And we took very specific measures to make sure that the Panama financial system was on par with world standards. First we adopted a whole new legislation in terms of anti-money laundering and for the financing of terrorism. We made sure that Panamanian corporations could not issue shares in bearer form. And finally last year, Panama joined, not only the BEP's initiate but also the multi-lateral agreement on tax matters of the OECD. So Panama has been working with international community, with the Global forum to make sure that we meet the international standards and Panama is on the forefront on this issue.

GC: It's clear that in corporations are down, so there has been some impact as a result of the tax scandal. But to what extent do you think it's damaged Panama's image worldwide?

DG: It's clear that that the Panama paper had a reputational - damage the reputation of Panama – that's clear. However the legal sector represents less than one percent of GDP. Panama is much more than a financial centre. It is a world class logistics centre, it has the best air connectivity in Latin America by the World Economic Forum. Has the best infrastructure in Latin America, because of the Panama canal. More shipping lines come through Panama than any other country in Latin America. So Panama is much more than a – that's why we continue to attract strong FDI into the country. Last year, FDI grew 18% in comparison to 2015. And we will continue to develop our strengths and our competitive advantages in the future.

SS: Talking about the canal and the widening – it's costing a huge amount of money but it means I think you can take 97, 98% of all container ships in the world can get through the canal now as well. But the problem is Global trade is down and East-West trade, West-East trade, it's down across the board as well. Do you have great concerns about the profitability and when you are going to start seeing some decent returns from that expansion?

DG: For this a huge infrastructure project. I mean it's a long term project, and we are already starting to see a large number of new Panamax vessels coming through the Panama canal. I think the last number is over 500 new vessels have used the Panama canal which before they couldn't. But it is true that world trade is down, but again this year we should see an increase in transfers for them Panama canal to a treasury of 45% increase so it's making a significant impact for the Panamanian people.

GC: We've seen clearly Donald Trump taking shots at Mexico, raising concerns about immigration from Mexico and of course about a trade relationship he views as unfair. To what extent are the Panamanians nervous about the arrival of Donald trump in Washington?

DG: Well Panama has a long relationship with the US. We are a natural ally of the US. And Panama has a Free Trade agreement with the US. However, unlike Mexico, we run a deficit with the US. It is unlikely that Donald Trump will change the policy where the US is exporting more goods to Panama than Panama is exporting to the US. So on that front, we are not concerned. We are concerned in terms of immigration. Because Panama is the leading country in terms of GDP growth in Latin America. We may see more immigrants coming from Central America and from Mexico into Panama instead of going to the US. So, on that front, we are concerned.

SS: But a general atmosphere potentially of protectionism. That's got to be a very big negative for a country that relies so much on financial services, services more generally and of course trade as well. It's got to be a big blot on the horizon potentially.

DG: It is a - we have a big 'what if' in terms of the world economy. Clearly world trade benefits Panama because we are a very small economy. We export a lot, in particular services. So a reduction is world trade could damage – could have an impact on the economic perks of the country. However, we are optimistic that world trade benefits all countries and Panama is willing and is going to stand ready to make sure that we continue to promote world trade in this new era.