Germany and Panama moved a step closer towards signing an information-sharing agreement, German Chancellor Angela Merkel said on Tuesday.

Following a state visit to Berlin by Panamanian president Juan Carlos Varela, Merkel said: "I can only encourage Panama, to right the wrongs of the past, because this is very important in rebuilding the country's trust."

Negotiations are expected to be completed by early 2017, Merkel said.

In April 2016, a trove of leaked financial information from the Panama law firm Mossack Fonseca exposed how some of the world's most prominent individuals had used Panamanian offshore tax shelters to conceal their wealth.

Following high-level talks with Varela, Merkel said she was happy that Panama was prepared to adopt the common reporting standards (CRS) set out by the Organization for Economic Cooperation and Development (OECD) for automatic data exchange between states.

Varela said he had promised Merkel that the two countries would "fight side-by-side for greater transparency in the global financial sector, as tax evasion had become a "global problem." He went on to say that Panama wants to play a leading role in sealing legal taxation loopholes and finalizing an agreement with Germany "as soon as possible."

Panama's bilateral agreements

Panama is working hard to clean up its reputation in the aftermath of the leaked "Panama Papers," as it seeks to establish itself as a serious financial center.

The country is in talks with a number of countries, including Germany, on setting up an automatic information-exchange agreement for tax and financial data. Panama has said such exchanges will only be negotiated on a bilateral basis. Automatic multilateral data exchanges are prone to falling in the wrong hands, the government has argued.

Aside from Germany, Panama is also in talks with Belgium, Austria, Bahrain, India and Australia.

It has already signed a CRS agreement with OECD-member Japan. 

Meanwhile, Panama and the United States currently exchange tax data on request.

dm/gb (AP, dpa)