Act 4/1994 established a system of preferential interest rates in Panamanian territory for the agricultural sector, the purpose of which was to create a mechanism for offsetting the interest rates paid on loans to the sector. This allocation was achieved by creating the special interest compensation fund (FECI), establishing a 1% surcharge on clients with commercial and personal loans (the main customer base of Panama’s banks), using this to set up a fund to offset a lower rate for personal loans.

Due to high demand for loans from the agro sector in 2016, the existing funds, allocated to the Agricultural and Livestock Development Bank, were oversubscribed by 200%. In response, Bill 448 proposed amendments to certain articles in Act 4/1994, presented by the parliamentarian Rubén de León.

Proposed amendments to Act 4/1994

• Increase the number of loans per productive cycle by item, by natural and legal person: this proposal is a consequence of agro productive cycles and the importance of increasing production, since projects may have two or three stages, whereas loans have been limited to one, which restricts sector growth.

• Increase the proportion of the FECI Fund that is used for research and investment in the agro sector: by reducing the proportion that goes into the National Treasury, these revenues would instead be allocated to the Ministry for Agricultural and Livestock Development (MIDA), the Agricultural and Livestock Development Bank (BDA), the Agricultural and Livestock  Insurance Institute, the Trust for Agricultural and Livestock Science Studies, the FECICOOP (fund exclusively for agricultural and livestock production cooperatives, managed by the BDA) and the Ministry of Economy & Finance.

• Draw up a list of activities eligible for the FECI program subsidy: all the activities eligible for the subsidy will be listed, to eliminate the gap in current legislation, which leaves it up to the civil servant’s individual criterion to decide whether the potential beneficiary’s activity is eligible or not.

Veto of the Bill

The Bill was passed on its third reading on 31 October 2017, after the proposal had been assessed. Nevertheless, the Bill was not given definitive approval, given that it might give rise to:

• Deficit: more capital would be used on paying this subsidy than the amount incoming from amortization.
• Possible extinction of the Fund: the amendments passed would endanger the sustainability of the fund given that the outgoings from the Special Interest Compensation Fund (FECI) would grow at a faster rate than its income.
• Activities specified in the project: The project proposes a closed list of economic activities eligible for the FECI subsidy, which could give rise in the future to an activity in the agro sector not being covered, in which case the regulation would have to be amended again.

The Agricultural and Livestock Affairs Committee has requested that the passage of the law be unblocked, in light of the fact that the proposed draft contravenes no existing laws, agreements or conventions.

Approval of the Bill

At its third reading, Panama’s National Assembly finally decided to approve Act 448, amending Act 4/1994, on preferential interest rates for the agricultural and livestock sector.  The regulation will be published in the next few days in the Official Gazette.