The trouble with Panama's credit card debt...
(primapanama.blogs.com) It may be hard to believe, but Panama's average credit card debt is higher than that of the U.S. according to statistics put out in an article in today's La Prensa. This is especially concerning when you consider that the average wage in Panama is less than 1/10th that of the U.S.. A recent report in the Miami Herald on U.S. credit card debt places it at $1717. per card which is 8.6% higher than in 2007. The median U.S. household income is currently $43,200 and the typical family's credit card balance is now almost 5 percent of their annual income. (Statistics can be found here.)
Obviously many Americans have more than one card and there are many who have debts of $10,000, $20,000 and even $30,000. on their credit card but they make up a very small percentage of the whole. Most pay their debt every month and the average balance per household is only $2200.
When I first came to Panama in 1997 there were very few people who had a credit card. Now the country is awash in them with over 613,000 issued, which on average is nearly one for every family of four. According to the Panama credit association, card issuance has slowed dramatically this year to about 5% from last years nearly 20% growth. I imagine this has more to do with saturation rather than their desire to cut back on credit expansion. With an increase of $173 million this year the current debt stands at about $1.5 billion. When dividing the number of cards issued into the total debt it comes to nearly $2500 a card on average, which is considerable higher than that of the U.S.. That would be closer to 60% of average yearly income.
The article goes on to state that 46% of the cards have limits of $1000 and are at about 80% debt load and 22% have a $2000 limit with about a 50% load. The other 32% of the cards must have a much higher credit line and balance in order to account for the $2500 average card balance of my calculation above. It is interesting to note that someone making only $350 a month can get a credit card.
These numbers show that in a country where the average wage is about $500 a month most are carrying several months debt load at rates between 11-26%. The article goes on to list the banks with the highest exposure. Not surprisingly Citibank is at the top of the list with $624 million, some 42% of the total.
We were in Panama City this last week and went to the Albrook mall on three occasions where the masses of Panamanians in the city do their shopping. It was incredibly packed, even in the middle of the week. People are really spending and now I can understand how they are doing it at a time when food and fuel costs have gone up dramatically. Even here in Chiriqui where another mall is tripling in size this year, there seems to be an abundance of shoppers buying everything from clothing to electronics. As we passed through Santiago on our way to the city a new mall had opened and was doing a brisk business. The new fast food outlets were packed as well.
When you consider that the provinces are not really seeing a huge amount of new economic activity you would wonder how they can justify building all these new malls and fast food outlets in a strictly agricultural area. I am fully aware that the foreigners coming into the provinces are adding greatly to the economy, but not on a scale large enough to justify the many millions of dollars in construction of shopping centers and fast food outlets in the interior. This is mostly driven by local consumption and obviously a large amount on credit.
Panamanians are now into a similar cycle of debt as U.S. consumers where they are living beyond their means due to the easy access of credit. The number of new cars, homes and credit cards are a telling tale. Dont' get me wrong, I believe that access to credit is important and justified when used as a tool to start or expand a business that can generate wealth, or to finance a home you can afford, but to enslave a poor nation with high interest on revolving credit is dangerous and will put them at the mercy of the lenders even if the economy continues to be red hot. God forbid it begins to cool.
