Panama’s Finance Minister Resigns on Ruling Coalition Split

Panamanian Finance Minister Alberto Vallarino resigned amid a split in President Ricardo Martinelli’s ruling coalition, deepening a political crisis in Central America’s fastest growing economy.

Vallarino, who said he will remain in his position until a replacement is named, quit late yesterday after Martinelli called on Vice President Juan Carlos Varela to step down as foreign minister. Vallarino and Varela have both run for the presidency under the opposition Panamenista party, which aligned with Martinelli’s Democratic Change party in 2009.

In an e-mailed statement, Vallarino said he had contributed to an investment climate that was “without precedent in our history.”

Moody’s Investors Service and Standard & Poor’s have placed the country’s credit rating on a positive outlook, citing economic growth of 7.2 percent in the first half of the year. The rating was raised by Fitch Ratings in June to BBB, the second-lowest investment grade, putting it on the same level as Mexico and Brazil.

The breakdown of the governing alliance isn’t likely to harm the country’s credit rating, though Martinelli may be “tempted” to bolster spending to shore up popular support, Barclays Capital Inc. analysts Alejandro Arreaza and Alejandro Grisanti said in a research note to clients today.

“Right now, it’s just a domestic fight of who will run for president in 2014,” Arreaza said in a phone interview. “But all these political problems could eventually tarnish managing public accounts.”

The extra yield investors demand to own Panama’s bonds over U.S. Treasuries widened 10 basis points to 192, according to JPMorgan Chase & Co.

To contact the reporter on this story: Eric Sabo in Panama City at esabo1@bloomberg.net.

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net.

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