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Weekly Update Bulletin On-Line.........  
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In The News and Readers Write In (with our answers to Questions)..........
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IN THE NEWS:
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US SECURITY CHECKS: BBC NEWS WIRE – January 15 - 2004
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British diplomats are said to be working with their US counterparts to try to save thousands of British visitors having to apply for visas to enter the US.   At the moment travellers from 27 countries including the UK can visit the US for up to three months without a visa under the "visa waiver programme".   But from 26 October they will have to carry new "biometric" passports containing digital photographs and fingerprints or obtain a visa from their American embassy.  Earlier this week, it was announced that international travellers arriving in the USA will have their photographs taken and fingerprints checked, under new security regulations.
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http://news.bbc.co.uk/2/hi/talking_point/3368839.stm
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OTHER NATIONS RETALIATE:
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RIO STARTS ID CHECKS ON US FLYERS:  Police in Brazil's tourism capital have begun photographing and fingerprinting all US visitors arriving at its main international airport.   The security measure extends a law passed by a Brazilian federal judge on Thursday to check all incoming US citizens at Sao Paulo airport.  The judge's order is in response to a US announcement that it would be vetting visitors from many countries
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http://news.bbc.co.uk/2/hi/americas/3366519.stm
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THE VIEW OF NON-AMERICANS - AS PUBLISHED IN BBC NEWS REPORT:
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READER COMMENT:  I dare say bravo to the Brazilians, I hope that they continue to treat American tourist with the same treatment as those wishing to enter the US are afforded. The way the US treats visitors is appalling to say the least - I have spent three hours in the customs line at Dallas Fort Worth Airport. Bush claims to be a Christian so I say do unto others as you would have them do unto you.  READER COMMENT:  As for the Visas do the US authorities really expect someone from Scotland to travel all the way to London to get a visa in person before they go on holiday? How much will this add to the cost of a holiday in the US? If you add this cost to the rest of a holiday - then you could really have a super time elsewhere!  There really is an elsewhere and I think American tourism is going to be hit severely by the new penalties imposed on their friends who would like to visit.  READER COMMENT:  I don't think things will be much safer- what the US fails to see that where there is a will there is a way. So those who want to do harm to the US and its citizens will do so anyhow. Eventually you will have a closed prison - sort of cold war Eastern Europe - everything the US is against. Aside from that the US has lost another decent visitor and investor, like me. Why should I pass wealth to a country that is increasingly being more aggressive to me!  READER COMMENT:  If I recall correctly, Oklahoma City was done by an American!  So what will the US government do next, fingerprint and photograph every American every time they leave their house?  I felt like a total criminal waiting inline to be vetoed. What I don't understand is what is the point of getting a visa? Surely it's up to the US embassies in the respective countries to do a complete background check before issuing a visa, right? And how will it deter terrorists? 911 would have still have happened.  READER COMMENT:  The Americans are going security crazy. Fingerprinting and eye recognition is one thing, but visas for UK citizens is quite another. Who do the Americans think they are? We go into Iraq with the US troops and then George "Dubya" Bush goes and repays us like this. They are getting to a point where they are power and security crazy.  And the simple answer to all of this? Don't go to America!  READER COMMENT:   The one thing sadder than America's paranoia is that any Briton would still want to go there. Although born and raised in America I am now a British citizen. Next thing you know, they'll want me to get a visa too! Forget it, I'd rather go to Europe.   READER COMMENT:   As an American who lives a large part of the year in Sweden, all I can say is that I can't wait until my move over here becomes permanent. I feel that I have more freedom and privacy here as well as safety on city streets that Americans have given up. Perhaps the US should just build a wall around itself until it can elect a leader who has a true worldview and respect for law-abiding citizens of all nations.
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ECONOMIC REVIEW (and News):  Predictions, Opinions, Statistics and Thoughts about the World Economy.
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One comment or point we have made in the past is that ALL NATIONS are in competition with each other, for jobs, for investment, for economic growth and so on.  Which is to say, the idea of a new world order and global harmony is all well and good, but the bottom line is, every nation that operates under and believes in the free market system also believes in the right to free and fair competition (often the problem is found with what IS and what is not considered fair, all depending upon who has the advantage).  This is how the free market system works, does it not?  In other words, to the victor goes the spoils, or stated another way, the company producing a better product at a lower cost ends up getting the customers (and making money in the process).  In line with this idea, the country offering lower tax rates and lower labor costs gets the manufacturing jobs and the business investment.  This being said, it is not surprising that any country pursues an economic or other kind policy aimed at helping themselves and not other nations (this is what the free market is all about – may the best man, or country win). 
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What is the point and what does it have to do with the economic outlook?  Well, looking at short term economic news is always helpful and important, but the real goal is to keep an eye on what is happening long-term as a clue where to invest, or maybe even where to live for that matter.  So, that said, we do have some very interesting longer-term trends both politically and economically (often enough the two are intertwined) taking place that may very much effect you and your investments as we go forward into the next 18 months (and beyond).  In the case of the US and Europe as well, to start off with, one of the long-term trends taking place has been the exit of manufacturing to low labor cost countries, leaving behind a service economy and a very large imbalance in terms of imports-exports (importing much more than what is exported).  The net result is an ongoing shortage of tax dollars to support social welfare commitments made many years prior and economic growth levels probably not to exceed low single digits for years to come.  In addition to this trend (which of course has been happening for quite some time), is the new idea of a change in domicile (change in nationality if you will) of incorporated companies as well to lower tax jurisdictions (one might say the expatriation of American companies especially).  Some news on the above mentioned topic from the BBC:
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US PAYS OFFSHORE FIRMS US$1 BILLION DOLLARS: Companies which have moved offshore to avoid paying US taxes are making a billion dollars a year from US government contracts, an Associated Press investigation has found.  The biggest beneficiary of government largesse in the 2002 financial year was Bermuda-based consulting firm Accenture with $440.9million, according to AP.  Tax loopholes have encouraged a number of big firms to carry out a corporate inversion, where the company moves - usually in name only - to an offshore location while its operations and management remain in the US.  Which offshore companies (former US Corporations) make the most out of the US government in 2002?  Accenture (accounting): $440.9m, Foster Wheeler (engineering): $292.3m, Tyco (electronics, healthcare, security): $72.9m, APW (electronics): $9.1m, Ingersoll-Rand (equipment, security): $7.6m
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http://news.bbc.co.uk/1/hi/business/2939966.stm
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TYCO VOTES TO STAY OFFSHORE:  Shareholders in scandal-hit conglomerate Tyco have voted to keep their company registered in Bermuda, resisting a move to bring it back to the US.  The company, whose shares plummeted 71% last year, is one of a handful which have come under the microscope for reincorporating abroad to save on US taxes - a practice decried by many as unfair and even unpatriotic.
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http://news.bbc.co.uk/1/hi/business/2827683.stm
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Another trend we reported on some time back was the idea of other trading blocks coming into existence (third world or developing countries), to counter what is often seen as wealthy countries trying to hold onto to their respective positions politically, in the face of lost jobs and export revenue.  It is interesting to see how these new economic powers will develop.  The news story below touches upon this idea: 
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21ST CENTURY WILL BELONG TO INDIA, BRAZIL, RUSSIA AND CHINA:  Visiting Brazilian President Luiz Inacio Lula da Silva said yesterday that the 21st century would belong to India, Brazil, Russia and China and they would rewrite the “economic geography” of the world.  They (developed world) will not come to our rescue if we keep crying. We have to be saved by our own strength. The moment we have business options they will come running after us. We will get what we have not got in 20 years.  India, China, Brazil and other developing countries also opposed what they considered an accord forced on them by rich nations on such issues as trade, investment, competition and government spending.  Lula, who was chief guest at India’s Republic Day parade, also inked a landmark agreement with India and the Latin American trading bloc Mercosul.  The signing of the preferential fixed tariff agreement between India and the Mercosul trading block of Brazil, Paraguay, Uruguay and Argentina will contribute to greater trade dynamism, said Lula.
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http://www.bahraintribune.com/ArticleDetail.asp?CategoryId=5&ArticleId=20676
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Note: Mercosul is the trading block created in 1995 by Argentina, Brazil, Paraguay and Uruguay, comprising 200 Million consumers and the fourth largest market after NAFTA and The European Community.  Most Americans especially have never heard of it, and have no idea it even exists.

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CHINA AND INDIA SET TO OUTPERFORM – January 27, 2004
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China and India will be among the three biggest economies in the world by the middle of this century, researchers have predicted.  The World Bank said on Tuesday that India could achieve a sustainable annual growth rate of about 8% provided it cut its fiscal deficit and pushed through urgently needed economic reforms.  Earlier this month, official statistics showed that China expanded by 9% in 2003, its fastest growth rate in six years.

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http://news.bbc.co.uk/1/hi/business/3434285.stm
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THE US DOLLAR:  HOW LOW WILL IT GO?  It is no secret that the current US administration is supporting a weak dollar policy, however, the danger of such a policy is always inflation, which is potentially bad news for the US consumer as a possible outcome on the horizon.  Two things are happening at the moment to facilitate this policy.  One is the rampant running of the printing presses at the US Treasury (taking a clue from the Chinese, trying to beat them at their own game of a weak currency policy), and the other is simply the allowance for the US Dollar to fall in currency markets to whatever levels without much active intervention by the US Federal Reserve.  Why is this being done and what are the pitfalls?  The logic or goal is to price US products so low that they undercut the cost of goods from other nations and stimulate US exports.  In addition, because the US Dollar is weak and other currencies such as the British Pound and Euro so much more expensive, Americans will most likely NOT travel to Europe (and spend their vacation money at home) plus shy away from European products due to the higher costs.  The converse to this is that perhaps European tourism to the US will increase (now that a vacation in America is so cheap) and European consumers will buy the lower priced US products. 
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However, there are some potholes on the weak dollar policy road.  For example, many Europeans have in fact chosen to stay away from any sort of travel to the US, simply to avoid all the current hassles.  This of course has nothing to do with currency, but rather new US immigration and State Department policy (requiring Visas to visit the US, etc.)
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While US firms have posted profit margins at the end of 2003, for the most part this is due to job layoffs and cost cutting rather than a rash of new sales abroad.  In addition, the US consumer (which is the real engine of growth in the US economy, and not exports) has had some problems, namely a US economic recovery with NO jobs and like the government, still has a tremendous load of debt to pay off in the future.  The following news stories highlight some of these issues:
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US PERSONAL BANKRUPCY FILINGS HIT NEW HIGH IN 2003, SURPASSING 2001 RECORD:
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http://www.abiworld.org/stats/image001.gif
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US TRADE GAP WIDENS TO NEW RECORD – December 12, 2003
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America's trade deficit has hit a new record annual high of $490.8bn.  Although expected, the latest trade data is bad news for President George W Bush, as it follows 40 straight months of jobs losses in manufacturing.  His administration has consistently blamed cheap Chinese imports for the deficit, and the latest figures show these now total a record $16.43bn.   Even though the trade deficit between the US and China now stands at $13.6bn against America, the US is also exporting more goods to China.   It has led to the US to threaten China with a number of import tariffs, and strong calls for the Chinese to lower the value of the Yuan.  The US trade deficit with Japan was up an even sharper 25.4% to $6.44bn.  But despite the overall deficit, US exports have actually been increasing.  Aided by a weakening in the dollar, which makes American goods cheaper overseas, US exports were up by 2.6% to $87.96bn in October.  Economist Sal Guatieri, from BMO Financial Group, said: The main culprit is imports expanding, largely because of the accelerating US economy and perhaps still an over valued US dollar.  It likely means the dollar will need to fall further to stabilize the US trade imbalance.
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http://news.bbc.co.uk/1/hi/business/3313759.stm
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DOES THE US BUDGET DEFICIT MATTER? February 2, 2004
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The US will be in the red by almost half a trillion dollars next year - but will the growing budget deficit harm the economy?  These are telephone directory numbers, almost hard to imagine.  The budget deficit is now one quarter of total Federal spending, and 80% of the total receipts from Federal income taxes.   It is equal to $1,600 per US citizen this year, and the accumulated deficit over ten years would be nearly $20,000 per person.
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http://news.bbc.co.uk/1/hi/business/3430565.stm
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GOLD MAKES A COMEBACK.  The new old story is gold once again, as a safe harbor for the declining values of paper money.  Placing even more pressure is the desire for many countries to shift assets out of US Dollars (which are declining in value) and replacing those assets with gold instead.  China especially has been a key player in this concept, as has been many of the central banks is Asia, which are choking on US Dollar based securities.  In addition, it is interesting to note that China is now America’s banker:
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Through currency intervention, CHINA IS ONE OF THE LARGEST SINGLE PURCHASER OF US TREASURY BONDS, helping to finance the US budget and current account deficits, and keep American interest rates low.
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http://news.independent.co.uk/business/comment/story.jsp?story=484190

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VIETNAM PLANS GOLD BUYING SPREE – Jan. 8, 2004
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Vietnam's central bank has given the go-ahead for the country to import up to 10 tons of extra gold in the first quarter of 2004.  The diving dollar pushed gold prices to a 15-year high on world markets two days ago, hurting business and savers in Vietnam.  Gold is used as hard currency for big business deals in Vietnam, which has a thriving black market for the metal.  The central bank hopes to push down the local price by pumping up supplies.  This decision was made last week by the State Bank of Vietnam because of the rise in gold prices on the world market," the Agence France Presse news agency quoted a Bank official as saying.  Gold hit $430.50 an ounce on 6 January, shooting past the $430 mark for the first time since December 1988.   The US dollar has plumbed an 11-year low against sterling and an all-time low against the euro since the start of 2004.  The result has been to push up the gold price by creating a rush of buyers for the dollar-denominated bullion.

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http://news.bbc.co.uk/1/hi/business/3378555.stm
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IN SUMMARY:  While politicians and central banks prod and push for certain short-term economic goals (and to win brownie points with the voting public during an election year), certain long-term trends, and one might even say problems - still exist.  Unfortunately, it would seem that the average middle-class American will be most affected, even more so then their equivalent European counterparts.  The value of US currency looks likely to continue it’s fall in value, if not for any other reason than the growing deficit (which always weakens a nation’s currency if the amount is high enough).  Gold on the other hand, looks likely to increase in value as many central banks look to reduce paper money holdings and shift into a hard asset - putting more pressure on gold prices.  The old rule of: save more than you spend, or on a national level – export more than you import, remains a basic rule to follow for wealth accumulation.  It has been the golden rule before, and it remains so today.  Those nations that have large amount of natural resources and those that continue to export more than they import, will do well over the next 10 year time horizon (and perhaps the currencies of such countries might be interesting to examine as an investment option as well).
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Regardless, the old boy scout motto of: be prepared comes to mind.  This was never more true and blatant in the case of the middle-class in Argentina.  Those that had all their savings tied up inside one country (their own) and with foreign banks inside their own country especially (more on this in our next newsletter) have had a rough time of things.  Those that saddled themselves with debt, and basically lived hand to mouth on a monthly basis, have found themselves in dire straights.  Those that kept at least some savings in US Dollar or Euros outside their country, and or put some assets into gold, and or lived relatively debt free have survived just fine (in fact living inside their own country has become even cheaper these days).  So, the questions remain:  If your own nation’s currency continues to devalue, will you be able to maintain your current standard of living?  If you loose your employment, how fast and easily can you acquire another job?  Are you prepared if you cannot?  Are you prepared if the government decides to cut your pension (Social Security) benefits when you are ready to retire?  Do you have another way to retire at 70 years of ago should the government change their mind and push the retirement age to 85?  They claim we now live in a global economy.  So, is it the case that the world in now cross-border connected economically, but that you are still locked into the tides and turns of only one country?  Short-term economic whims of politicians will be with us forever, but long-term trends are a natural force that often gains momentum, albeit slowly but surely.  You can love your country, wherever that might be, but do the politicians currently in power - are they out for themselves or for the betterment of the people they govern?  Can you afford to live or survive, even prosper there over the next ten years?  In other words, will you be prepared?
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READERS WRITE IN:
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According to DR1.com, a fiscal crisis is currently in progress in the D.R. The World Bank and the IMF have their fingers in this pie, so it looks like more of the same when it comes to the installation of command and control systems around the globe. I may be wrong, but it looks like the high interests possible in the D.R. for American investors in CD's and Banco de Cambios may soon be a thing of the past. Am I reading this wrong? Your considered opinion would be appreciated.
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EDITORS REPLY:  Well, anytime the IMF goes anywhere, it never seems to be of benefit for the country in question, and devaluation of currency (along with other things) is the standard mode of operation for them as well.  However, in countries like Argentina and now the Dominican Republic, politicians are becoming more brazen in taking a stand against them (for their own sake).  Argentina initially flat out refused to pay back the debt (this is the first time in history this has happened), but have now agreed to discuss paying back 25 percent of it.  The Dominicans too are starting to realize what they have done by letting the IMF back in the door (after the previous President canceled the drawing rights, in essence telling them to go away).  So, I would say that the IMF is not going to have an easy time of playing some of the games they have played in the past, although that will not stop them from trying.  Of course, to be fair, no one told Argentina or any other country to invite the IMF in either, so there are two sides to this.  However, it is somewhat like many of the US banks making credit cards all too easy to obtain (sending you one without even asking because you are a subscriber to TIME magazine, for example), and then the ensuing problems consumers get into accordingly with a plethora of new credit cards in their wallet.
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On the issue of interest rates for US Dollar deposits, I would tend to disagree with you.  The political tack will be quite different in the Dominican Republic than what was done by the government in Argentina, so currency controls are not really a plausible solution that is on the horizon.  So, this being the case, foreign currency deposits will be even in more demand than before, and this pressure alone will maintain the need to attract such deposits.  Obviously higher interest rates are one of the ways and often the only way to do this.  Foreigners do not open bank accounts in the Dominican Republic because they like Dominicans and want to help them.  They open bank accounts and make deposits because interest rates ARE higher and also locally tax-free.  If these two advantages go away, then so will the money, and the bankers and businessmen know it. 
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Another Reader Writes:
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Hi, I recently went on a week trip to the Dom. Republic.  While I was there I got this crazy idea to open a bank account after looking at the Dominican Republic website where they promote their country.  I talked to the tour representative there and he said one could open an account at Popular Bank in La Romana.  When I went there they and turned me down saying that after 9/11 you had to have a reference from your local bank and 2 references from people who know you in the DR.  Is there an easier or better way or better bank to use?
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EDITORS REPLY:  First and foremost, I do not have any relations with any US owned banks (Banco Popular is a Puerto Rican Bank) and part of the reasons are as follows:  Most of our clients want nothing to do with US owned banks for privacy reasons, they tend not be very competitive on interest rates (paying clients perhaps4 percent on a US$50,000 CD when the going rate at other banks is 7 percent), and are generally a pain to deal with both in what you mentioned but also for things like wire transfers as well.  However, it is not unreasonable for a bank to ask for at least one letter of reference although some things are a bit ridiculous in terms of establishing a simple savings account or CD.   The banks we work with are not that negative or ridiculous and that is one of the reasons we steer our clients to such institutions accordingly.  Keep in mind, Banco Popular is not the only bank in the Dominican Republic and their own internal policies are not necessarily mimicked elsewhere.  After all, 9/11 was a very tragic and despicable event, but it involved a few Arabs who passed through US immigration (inside the US), hijacked commercial airlines (inside the US) and brought down buildings (inside the US).  What this has to done with an individual opening a small savings account in another country is beyond my scope of understanding.
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Another Reader Writes:
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Hi John, The newsletter is very entertaining, but sometimes there is erroneous information on there. Take opening bank accounts in Panama for example. It seems popular these days to think it impossible to open one – let alone one dozen. I have opened a dozen in the last 3 months, both personal and corporate, just for the curiosity.  It is simple: Just have your paperwork in order when you show up, Have 4 references of a mixed sort and a passport, wear dress pants and a nice shirt, and tell them you plan to live there. Also, it is very helpful if you have already been in country for at least a month, have an address and a phone number. The one thing that IS almost impossible to do is fly in for a few days and have success, like in the good old days.  Those stinking terrorists changed that.  I have dealt with just about every brand of bank here and they have all been courteous and thorough.  Privately they will admit the government has gone overboard. They are welcoming to the intended resident type, but not to the from-a-distance offshore client.  Hope this helps.
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EDITORS REPLY:  I have said in the past that is has become very difficult, if not impossible, for a foreigner to walk in off the street in Panama and establish a bank account these days.  In fact, regardless if you have a Panamanian entity (Foundation or Company), many banks will not accept the account if the authorized signatory is not a local resident (with cedula card in hand).  Based upon what you wrote, it would seem that you are in agreement with this comment, so I do not see my previous comments to be erroneous.  The real problem is, that most people are not in a position to spend one month inside a country and feign a falsehood (that they are residents in the country) just to do something as simple as open a bank account.  In addition, while I understand the concept of know your customer, etc. – the idea of needing 4 banking letters of reference (and perhaps another from your neighborhood priest or rabbi) is a bit much.  So, I can only say, I defend my previous comments as being truthful and I can also say that your comments about your experiences are accurate as well.  
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This information has been compiled and presented by John Schroder of Ascot Advisory Services, for the benefit of clients and readers. Ascot Advisory Services provides assistance with such matters as offshore company formation, Panama Foundations, offshore banking, and special services in the Dominican Republic regarding residency, free zone applications, etc. For more information:  
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Telephone 809-334-5387 or 809-756-1917 
Email: info@ascotadvisory.com
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