Goodbye, UNESCO: Israel and US quit UN heritage agency

The countries announced in 2017 that they would withdraw from the UN Educational, Science and Cultural Organization, accusing it of bias against Israel. That went into effect at the stroke of midnight.The tumultuous relationship between Israel and UNESCO came to an end with the close of 2018. And the US has followed suit, leaving the United Nations Educational, Scientific and Cultural Organization after accusing it of bias against Israel.

“Unfortunately, UNESCO has adopted systematic discrimination against Israel and UNESCO is being used in order to rewrite history by people who hate the Jewish people and the state of Israel,” a Foreign Ministry official said on Sunday.

The United States and Israel had announced their decisions in 2017, but, according to the UNESCO statute, withdrawals go into effect at the end of the following year — in this case after the final tick of the clock on December 31, 2018.

Israel joined UNESCO in 1949. The agency is best known for its World Heritage program, which designates cultural sites and aims to preserve traditions. But it also works to defend press freedom, promote education for women, and fight extremism and anti-Semitism. Israel has nine World Heritage Sites, including the Bahai Gardens in Haifa, the biblical site of Masada near the Dead Sea, and the White City in Tel Aviv. The Old City in East Jerusalem is listed with no territorial status specified. UNESCO has added three locations within the Palestinian territories to its World Heritage List.

Israel’s withdrawal will not have an impact on the sites listed within the country’s borders: Stewardship is in the hands of the local authorities, and the country apparently continues to be a state party to the World Heritage Convention.

Some Israeli conservationists question whether withdrawing is the right move. “I don’t think it is a clever decision,” said Giora Solar, an architect who has prepared several applications for World Heritage Sites in recent years. “It’s political. I surely don’t agree with much of the voting in UNESCO, but it’s politicized; by leaving it, we are not punishing anyone but ourselves. It’s not UNESCO which is against Israel — it’s the countries that vote against it.” Controversial resolutions

When UNESCO became the first UN body to admit Palestine as a full member in 2011, the Obama administration soon stopped paying its annual dues, which amount to about 22 percent of the organization’s total budget. A national law requires the United States to cut funds to UN agencies that recognize Palestine as a full member. Israel also stopped paying its dues.

In 2016, diplomatic relations deteriorated further after UNESCO approved resolutions that Israeli officials said ignored Judaism’s ties to holy sites in Jerusalem, including referring to the Haram al-Sharif/Temple Mount complex by only its Arabic and English names and omitting the Hebrew. “To say that Israel has no link to the Temple Mount is like saying that China has no link to the Great Wall or that Egypt has no connection to the pyramids,” Prime Minister Benjamin Netanyahu said at the time, adding that UNESCO had lost what little “legitimacy it still had.” UNESCO has also referred to Israel as occupying power and called into question the country’s actions in the Palestinian Territories.

In 2017, UNESCO passed another resolution that upset Israeli officials, designating the Hebron/al-Khalil Old Town in the occupied West Bank — with its Tomb of Patriarchs, known in Judaism as Machpela — as a Palestinian World Heritage Site only. The holy cave, believed to be the burial place of the Hebrew patriarch Abraham, is known to Muslims as the Ibrahimi Mosque and is divided today, with separate entrances for the site’s mosque and synagogue.

The United States announced that it would withdraw from the organization, citing the language of bias against Israel, which followed suit and pledged that it, too, would leave the organization. The United States has left UNESCO once before, in 1984, under President Ronald Reagan, and only rejoined in 2003, under the administration of George W. Bush to “emphasize a message of international cooperation” as the US launched its war on Iraq.

Under UNESCO Director-General Audrey Azoulay, who assumed her role in November 2017, the diplomatic spats became quieter in 2018, and mediation efforts were even introduced to sway Israeli officials to keep their country in the organization. The biannual resolutions on Jerusalem were toned down.

Israel’s ambassador to UNESCO at the time, Carmel Shama Hacohen, spoke about a “new spirit” and appeared to leave open the possibility that the country’s exit might be delayed. Though progress was being made, it was apparently not enough for Netanyahu. In September he declined an invitation to attend a conference on anti-Semitism organized by UNESCO on the sidelines of the UN General Assembly. “If and when UNESCO ends its bias against Israel, stops denying history and starts standing up for the truth, Israel will be honored to rejoin,” he said.

IMF

Panama

2018 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR PANAMA

IMF Executive Board Concludes 2018 Article IV Consultation with Panama On December 12, 2018, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Panama.

• Despite slowing in 2018, Panama is expected to remain among the most dynamic economies in the region with strong fundamentals. Growth is estimated at 3.7 percent in the first half of 2018 (compared to 5.4 percent a year ago), reflecting a sharp deceleration in key sectors including construction, which was affected by a prolonged strike in April/May.
• The unemployment rate increased marginally to 5.8 percent in March 2018 from a year ago, reflecting less dynamic activity. Inflation remains subdued at 0.8 percent (year on year) in September 2018, (compared to 0.5 percent in December 2017) despite supply shocks that have increased food and fuel prices.
• The overall deficit of the Non-Financial Public Sector (NFPS) reached 1.6 percent of GDP in the first half of 2018 (compared to deficit of 0.2 percent of GDP in the first semester of 2017), due to accelerated budget execution to support the economic weakening.
• The external current account deficit stood at 8.0 percent of GDP in 2017, as a significant increase in oil imports (fueled by higher international oil prices) was offset by strong service exports, driven partly by additional revenue from the expanded Panama Canal.
• Credit growth has decelerated as financial conditions have started to tighten. The outlook remains positive, albeit set against heightened downside risks. Growth is projected at 4.3 percent in 2018, but to rebound to 6.3 percent in 2019 supported by the opening of a large mine (Minera Panamá) and a recovery in construction, and subsequently converge to its potential of 5½ percent over the medium term.
• Inflation is expected to average about 2 percent. The external current account deficit, mostly covered by FDI, is expected to reach 9 percent of GDP in 2019 and gradually decline to about 5½ percent of GDP over the medium term.
• Fiscal policy is expected to remain guided by the amended Fiscal Responsibility Law (FRL). The overall NFPS deficit is projected to increase to 2 percent of GDP in 2018–19 and gradually fall to 1½ percent of GDP over the medium-term, keeping public debt sustainable and below the FRL indicative of target of 40 percent of GDP.
• Key risks relate to setbacks in implementing the remaining Financial Action Task Force (FATF) recommendations and making continued 1 Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies.

On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. International Monetary Fund 700 19th Street, NW Washington, D. C. 20431 USA progress on tax transparency, continued oversupply in the domestic property markets, delays in completing the large mining project (following the recent Supreme Court ruling which creates uncertainty about some elements of the contract), political uncertainty ahead of the upcoming elections; a sharper-than-expected tightening of global financial conditions, and rising trade protectionism.

Executive Board Assessment:

Executive Directors commended Panama’s impressive growth performance and noted that macroeconomic fundamentals remain solid, with growth set for a rebound in the near term. Directors considered that, while the outlook remains positive, the balance of risks is tilted to the downside. Against this background, they called for sustained policy efforts to strengthen the AML/CFT framework and enhance tax transparency to preserve Panama’s competitive advantage as a regional financial center.

They also recommended measures to enhance financial sector resilience and reforms to facilitate continued robust and inclusive growth. Directors welcomed the recent good progress on technical compliance with FATF standards, bringing Panama on par with its peers, while underscoring the importance of effective implementation of the Anti-Money Laundering/Combatting the Financing of Terrorism (AML/CFT) framework. In this context, they encouraged the authorities to continue strengthening supervisory capacity for AML/CFT oversight, including through risk–based approaches, and further addressing AML/CFT risks to which Panama is exposed. Directors emphasized the need to promptly address the remaining shortcomings in the AML/CFT framework, including making tax crimes a predicate offense to money laundering and ensuring the availability of timely and accurate beneficial ownership information of entities incorporated in Panama.

In addition, the authorities should advance the implementation of tax transparency initiatives to ensure a successful Global Forum assessment against enhanced standards. Directors were encouraged by the authorities’ continued commitment to a prudent fiscal stance and agreed on the importance of preserving the track record of fiscal discipline to keep the public debt-to-GDP ratio on a downward trajectory.

They concurred that the revised deficit ceilings provide the budgetary space to accommodate additional capital spending, given the softening activity this year, but recommended a gradual withdrawal of the stimulus in the near term as growth gathers pace. Directors also saw scope for raising tax revenue through improvements in revenue administration to support key social expenditures.

They welcomed modifications to the social fiscal responsibility law, which simplified and enhanced the transparency of the fiscal rule; and noted the approval of a law to establish a fiscal council, which further bolsters the fiscal framework. Directors noted the stability of the financial system and the continued progress in financial sector reforms, including the alignment of prudential regulations with Basel III.

They urged the authorities to strengthen risk-based supervision and reiterated the importance of putting in place 2 At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities.

An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm. robust frameworks for crisis management and bank resolution.

In addition, Directors recommended measures to further strengthen macro-prudential policies and systemic risk oversight, including through improved inter-agency coordination. Directors called for a reinforcement of the structural reform agenda to sustain high potential growth, while also reducing inequality. They agreed on the need to sustain productivity growth through reforms to improve skills and education quality, attract talent, and further improve the investment climate. Strengthening social policies to continue reducing poverty, improve income distribution, and ensure inclusive growth over the medium-term were also encouraged.

STAFF REPORT FOR THE 2018 ARTICLE IV CONSULTATION KEY ISSUES Background. Panama has had the longest and fastest economic expansion in recent Latin American history. The economy has expanded at an average rate of about 6 percent per annum over the last quarter of a century, with Panama achieving one of the highest per capita income in Latin America.

More recently, GDP grew by about 5½ percent in 2017 (driven by the expanded Canal), and then slowed to 3¾ percent (y/y) in H1-2018. Inflation remained subdued, reaching almost 1 percent (y/y) in September 2018.

The external current account deficit stayed at 8 percent of GDP in 2017, mostly covered by FDI. The fiscal position continued to be strong, with the overall deficit of the non-financial public sector (NFPS) at about 1½ percent of GDP.

Credit growth has decelerated as financial conditions have started to tighten. Outlook and Risks. The outlook remains positive. Growth is projected to decelerate to 4⅓ percent in 2018 and to rebound to 6⅓ percent in 2019 before converging to its potential of 5½ percent over the medium-term. However, the balance of risks is tilted to the downside.

Domestic risks include reputational risks from potential setbacks in addressing outstanding GAFILAT recommendations and tax transparency initiatives, as well as risks to financial stability and the real sector from the oversupply in property markets and winding down of several large infrastructure projects.

External risks include rising protectionism, a sharper-than-expected tightening of global financial conditions that may contribute to an appreciation of the U.S. dollar, and weaker-than-expected global growth. Policy Advice.

• Maintain the conditions for sustained growth by preserving Panama’s competitive advantage as an attractive destination for business.
• Further enhance AML/CFT and tax transparency and information exchange, including criminalization of tax evasion, to prepare for the Global Forum and GAFILAT reviews and solidify Panama’s position as a regional financial center.
• Preserve fiscal discipline and establish a fiscal council.
• Ensure adequate buffers to mitigate fiscal risks.
• Further enhance revenue administration and review of tax exemptions to create space for key social needs.
• Rebalance expenditure from current to strategic public investment and enhance recording the public investment in fiscal accounts.
• Continue vigilant monitoring of the financial system and alignment of prudential regulation with Basel III.
• Enhance the role of the Financial Coordination Council in systemic risk assessment and put in place robust frameworks for macroprudential policy, crisis management, bank resolution and FinTech regulation.

November 20, 2018 PANAMA 2 INTERNATIONAL MONETARY FUND Approved by: Patricia Alonso-Gamo (WHD) and Zuzana Murgasova (SPR)

Discussions took place in Panama City during September 24- October 3, 2018. The staff team comprised Alejandro Santos (head), Joel Okwuokei, Olga Bespalova, Julia Faltermeier, Ruth Petcoff (all WHD), and Francisco Figueroa, who joined the mission from October 2-3. Kimberly Beaton, Metodij Hadzi-Vaskov and Vibha Nanda (all WHD) assisted the team from Washington. Alfredo Macia (OED) also participated in the meetings.

The team met with the Minister of Economy and Finance Eyda Varela de Chinchilla, Banks Superintendent Ricardo Fernandez, as well as other senior public officials, and private sector representatives.

STAFF APPRAISAL 35. Despite slowing in 2018, Panama is expected to remain among the most dynamic economies in the region. Panama is poised for a strong growth in the near term, supported by construction, transport, logistics and exports from a new copper mine.

In the absence of sustained, strong policy efforts, medium-term growth is expected to moderate to its potential, although it will remain among the most dynamic in the region. External imbalances are expected to decline and to remain broadly consistent with fundamentals and desirable policy settings.

Public debt is expected to remain on a downward trajectory. Key risks relate to setbacks in implementing the remaining GAFILAT recommendations and making continued progress on tax transparency, a sharper-than-expected tightening of global financial conditions and rising trade protectionism.

Effective implementation of the AML/CFT framework must remain a priority. Building on the recent favorable assessment by GAFILAT, the authorities should continue strengthening supervisory capacity for AML/CFT oversight, including through risk-based approaches given the significantly high number of financial and non-financial intermediaries operating in Panama.

36. It will also be important to further enhance the understanding of AML/CFT risks to which Panama is exposed, particularly in the highly vulnerable sectors. Outstanding gaps in the legal framework should be addressed promptly to strengthen Panama’s position as a regional financial center. Making tax crimes a predicate offense to money laundering by approving the draft legislation without further delay and ensuring the availability of beneficial ownership and accounting records of Panamanian entities are important to avoid being listed as a non-cooperative jurisdiction, and thereby eroding the recent gains.

37. Efforts to further enhance tax transparency and information exchange should continue. Actions being taken to share tax information more widely and promptly under the OECD’s common reporting standard and the Multilateral Competent Authority Agreement should continue. Going forward, the priority should be to further advance the implementation of tax transparency initiatives towards a successful Global Forum’s assessment against enhanced standards.

38. Sustained fiscal discipline is required to keep public debt on a downward trajectory. While a small fiscal impulse is appropriate in 2018 given the softening in economic activity, a gradual PANAMA INTERNATIONAL MONETARY FUND 23 withdrawal of the impulse in the coming years will be necessary as the economy strengthens.

There is urgent need to contain current expenditure growth to provide room for strategic public investment critical. The track record of fiscal discipline ensures public debt sustainability, and an external position broadly consistent with fundamentals and desirable policy settings.

39. Staff welcomes the amendments to the SRFL which aim to simplify and enhance transparency of the fiscal rule. The proposed new rule sets limits on the headline deficit of the NFPS at 2 percent of GDP in 2018-19, 1¾ percent in 2020-21, and 1½ percent of GDP after 2021.

The new deficit limits will provide the necessary budgetary space to accommodate an adequate fiscal impulse (given the weakened economic activity). Staff agrees with the authorities that the fiscal impulse for 2018 should be accommodated with additional capital spending.

The proposed law to establish a fiscal council was approved by the National Assembly to further strengthen the fiscal framework. 40. Efforts to enhance the assessment of the impact of fiscal policy on economic activity should continue.

Efforts should be made to eliminate the disconnect between actual execution and recording and accounting of investment projects financed by turnkey and deferred payment contracts, to better gauge the fiscal policy stance. It will be important to provide data on these projects on a systematic basis, covering all the different stages.

41. Continued and sustained progress to strengthen revenue administration is needed. Governance and institutional capacity of the custom administration needs to urgently improve, along several dimensions, namely, human resources, ad hoc exemptions, control processes, and data collection and management. In addition to initiatives to modernize tax administration, strong action is also needed to review complex tax incentives and exemptions that continually erode the tax base. 42. Systemic risk oversight should be strengthened to build financial resilience and guard against macro-financial feedback loops.

Addressing data gaps with respect to household and corporate balance sheets and property prices remains a top priority. Coordination on the assessment of systemic risk across financial sector supervisors and with the Ministry of Economy and Finance should also be enhanced through the CCF.

An institutional framework for macroprudential policy and tools should be developed to provide more policy flexibility in addressing macro-financial risks. 43. The alignment of prudential regulations with Basel III is welcome. With the regulatory framework now broadly aligned to Basel III, the priority should shift to a strengthening of risk-based supervision of both banks and non-banks. It will also be important to put in place robust frameworks for crisis management and bank resolution frameworks, including by adequate liquidity support for banks and enhancing the range of resolution tools available to facilitate the timely resolution of failed banks.

FinTech has the potential to transform Panama’s regional banking sector, with close supervision and adequate regulation of developments needed to nurture the benefits while preserving financial stability. 44. A reinforcement of the structural reform agenda will be necessary to maintain high potential growth while reducing poverty and inequality.

High sustained growth will require continued improvements in productivity and competitiveness, as well as a strengthening of policies related to education and public health services.

Improvements in total factor productivity will involve a PANAMA 24 INTERNATIONAL MONETARY FUND substantial update in skills, training and quality of education, relaxation of regulations to facilitate attraction of foreign talent, and renewed efforts to further improve the investment climate. At the same time, it will be important to strengthen social policies to continue reducing poverty, improve income distribution and ensure inclusive growth over the medium-term. 45. Staff propose that the next Article IV consultation take place on the standard 12-month cycle