Panama City: Panama mounted a fierce defence of its crucial financial services sector on Wednesday, trying to head off a feared international clampdown on its offshore business in the wake of the ‘Panama Papers’ leak.

President Juan Carlos Varela vowed firmly to ‘confront whoever comes to put down Panama’s image.’

Diplomats accredited to the small Central American nation were called in to hear Varela and other officials argue that it was unfair to single out Panama in the expanding scandal.

The government has also written a harshly worded letter to the head of the OECD, Angel Gurria, attacking a statement he made describing Panama as ‘the last major holdout that continues to allow funds to be hidden offshore from tax and law enforcement authorities.’

Those accusations were false, ‘unfair and discriminatory’ and ‘distort the facts and tarnish the reputation of the country,’ Deputy Foreign Minister Luis Miguel Hincapie wrote in the letter, which was obtained by AFP.

Varela, in comments to reporters on Wednesday, said: ‘I call on the OECD countries to return to the table for dialogue and seek agreements, and to not use these events to affect Panama’s image.’

Panama has already warned it could retaliate against France if it makes good on a promise to put the country back on France’s blacklist of ‘tax havens’ — a status that would cause transactions in Panama to be viewed as likely tax-dodging gambits.

Secrecy blown apart

The aim of the pushback is to protect Panama’s discreet nexus of law firms and banks from a concerted international move to curtail business with it.

The financial sector accounts for seven percent of Panama’s gross domestic product, and attracts big multinationals to the small country, helping drive its enviable economic growth.

But the leak obtaining 11.5 million documents from Mossack Fonseca, the law firm at the centre of the scandal, has exposed the workings of offshore companies and the obscured lines of ownership that hide who really benefits from them.

Exposure of the secret Mossack Fonseca files has dealt a blow to Panama’s efforts to shed a reputation as a hub for shady deals.

Early this year, the nation managed to get off a ‘gray list’ of countries not deemed to be doing enough to fight money laundering after introducing a number of reforms putting some curbs on anonymous ownership of companies.

But the Organization for Economic Cooperation and Development (OECD) insists Panama falls well short in implementing international standards for the automatic sharing of tax information.

France on Wednesday urged the OECD to follow its lead by putting it on a global list of ‘uncooperative countries.’

‘Unfortunately Panama has a bit of a tendency to make u-turns, to play the good guy and then the bad guy. This cannot go on,’ French Finance Minister Michel Sapin said.

European Economic Affairs Commissioner Pierre Moscovici — a former French finance minister — gave heft to that appeal, saying the European Union should draw up a new list of tax havens.

‘Swift progress on this was important before the Panama Papers,’ he said. ‘It’s now absolutely essential’.

More reforms mulled

Faced with the possibility of a hard blow to its economy, Panama has promised to cooperate with any judicial investigation that emerges from the leak, and has said it will look at further reforming its financial sector.

The country ‘may analyse’ what legislative changes are needed ‘to protect this platform and make sure it not used for shady purposes,’ Hincapie said.

He added: ‘We can’t put down a system that has been effective for many years because of an attack or pressure.’