Panama's bonds experienced a significant rally following the decision by the nation's supreme court to clear the path for frontrunner Jose Raul Mulino to compete in the upcoming presidential election. This move alleviated a major concern for the markets, as judges rejected a challenge that aimed to disqualify Mulino, who is known for his pro-business stance and currently leads in polls. The Associated Press reported the last-minute ruling, which was warmly received by investors, with Panama's dollar-denominated bonds leading gains across emerging markets. In particular, securities maturing in 2057 saw a substantial jump of up to 2.8 cents on the dollar, as per indicative pricing compiled by Bloomberg.
The decision by the supreme court was seen as inevitable ahead of the election, prompting a "slight relief rally" in the bond market, according to Siobhan Morden, managing director for Latin America fixed income at Santander in New York. With the key obstacle removed, investor focus is now expected to turn towards Mulino's level of congressional support. Morden emphasized the importance of political capital, highlighting that a majority legislative backing is crucial for implementing a reform agenda effectively.
Mulino, who is aligned with the business-friendly former President Ricardo Martinelli, currently holds a commanding lead in opinion polls over his competitors, including former President Martin Torrijos. The attempt by political opponents to disqualify Mulino's candidacy was based on the argument that he had not fulfilled all the necessary requirements under electoral law. Analysts had warned that barring Mulino would not only undermine institutional integrity but also amplify political uncertainties in the country.
The definitive ruling by the supreme court, backed by prior clearances from the attorney general and electoral tribunal, has provided a sense of stability leading up to the election. Despite recent market jitters stemming from concerns over the economic impact of the closure of the controversial $10 billion Cobre Panama mine, Mulino's cleared candidacy has brought a sense of reassurance to investors.
Panama's credit rating was downgraded to junk status by Fitch Ratings in March, citing a tense social environment and anticipated growth slowdown as factors that may impede the next administration's ability to implement necessary fiscal reforms. While bond spreads already reflect the market's perception of Panama's debt as junk, traders will closely monitor the incoming administration's approach to addressing fiscal challenges and stimulating growth.
Amidst commitments from most candidates to abide by the court's decision on the mine's closure post-election, the focus now shifts to the outcome of the upcoming vote. With results expected to be announced on Sunday evening, the medium-term outlook remains challenging for implementing essential reforms, as highlighted by Fernando Losada, managing director at Oppenheimer & Co. in New York.