WHERE IS PANAMA'S NEW GOVERNMENT HEADING?

C O N F I D E N T I A L SECTION 01 OF 04 PANAMA 001700

SIPDIS


DEPARTMENT FOR WHA/CEN WHA/AND


E.O. 12958: DECL: 06/28/2014
TAGS: PREL PGOV ECON ETRD PM POL CHIEF
SUBJECT: WHERE IS PANAMA'S NEW GOVERNMENT HEADING?


REF: A. PANAMA 1537

B. PANAMA 1116

C. PANAMA 0802

D. PANAMA 1274

E. PANAMA 1396


Classified By: AMBASSADOR LINDA WATT FOR REASONS 1.5 (B) AND (D).


SUMMARY
--------------


1. (C) Martin Torrijos and his inner circle, due to take
power on September 1, are pushing an energetic and ambitious
transition agenda featuring clear-cut goals in foreign policy
(priority to the U.S. and Colombia),security (cooperation
with U.S. objectives, new attention to the Caribbean coast),
the economy (free trade agreement, Canal reconstruction,
social security reform, making Panama a regional focal point
for investment, eco-tourism, and transshipment),and politics
(constitutional reform). (See Refs B and C for background.)
They have publicly named only a few cabinet members (see Ref
A) so far but have floated names for Minister of Government
and Justice and for Ambassador to the U.S. The Torrijos
inner circle -- Vice President/Foreign Minister-designate
Samuel Lewis Navarro, Minister of the Presidency-designate
Ubaldino ("Uba") Real, and Minister of Commerce-designate
Alejandro ("Andy") Ferrer -- all FOMs ("Friends of Martin"),
have repeatedly told us that the new government will take a
strong anti-corruption stand that will begin with cleaning up
Panama's notoriously deficient Supreme Court (Ref D) and have
asked for our "help," without being more specific. If the
new Torrijos government prevents officials from using their
offices for personal gain, and if it makes an attempt to run
a clean government and establishes a respected, politically
neutral Supreme Court that would mark a change of
revolutionary proportions in Panama. Despite the good
intentions of the Torrijos inner circle, anticipated
pressures from a well-entrenched oligarchy could frustrate
these plans. End Summary.


"Don't Step Out of Line"
--------------


2. (C) The Ambassador's late-May meeting with Martin
Torrijos (Ref E) and numerous subsequent Emboff discussions
with FOMs have confirmed the Embassy's view that the new
government is pursuing an energetic, ambitious agenda that
aims at making permanent changes and improvements in Panama.
At that meeting Torrijos made clear that he would not
tolerate deviations by cabinet members from his pro-U.S.,
anti-corruption policies, and he will not hesitate to fire
those who step out of line. Public expectations are high,
perhaps impossibly so, that Torrijos will break decisively
with the now-discredited, out-going Moscoso government's
corruption and inefficiency. Torrijos has done nothing so
far to disappoint in his few cabinet appointments and in his
intensive strategic planning during the transition period.
Following is a subject-by-subject analysis of issues that the
Torrijos team has emphasized in private conversations with
Emboffs.


Foreign Policy -- A Focus On the U.S.
--------------


3. (C) As the Torrijos team has emphasized many times,
relations with the United States will be the new government's
top foreign policy priority, with emphasis on security and
law enforcement matters. Frederic "Freddie" Humbert Arias is
the probable nominee for ambassador to the U.S.; the Torrijos
team plans to ask the current government to send an agrement
request ASAP. (Strictly protect -- this is still
close-hold.) Humbert, a long-standing FOM and La Prensa
newspaper president with interests in shipping and shrimp
fishing, is young, energetic, and has excellent connections
with US press and international organizations. Torrijos
believes that Humbert has the personal skills to network
Congress and other power centers in Washington. (Note:
Following a request from Samuel Lewis during his May 2004
visit to Washington, NSC is exploring whether a
Torrijos-President Bush meeting may be possible before
September 1.)


Colombia is a Priority
--------------


4. (C) Torrijos has traveled as candidate and as
president-elect to Spain (where he met former president
Aznar),Mexico (where he recently met President Fox),Costa
Rica, and Brazil. (Note: Torrijos plans to travel to Paris,
Madrid, Brussels, and Berlin in mid-July. He will also
travel to Argentina, Brazil, and Chile in mid-August.)
Torrijos traveled to Colombia to meet with Colombian
President Uribe shortly before and shortly after Panama's May
2 election. Panama's most important issues with Colombia are
security, illegal immigration and job displacement, and drug
trafficking. The Torrijos-Uribe personal chemistry was
described as "very good," (as was the Torrijos-Fox
chemistry). Uribe and Torrijos discussed possible fallout
from Colombia's "Plan Patriota," a Colombian military
offensive currently focused on Colombia's south. Uribe
pledged to warn Torrijos when the offensive moves north,
where it could affect security on the Panamanian side of the
border. Uribe reportedly was shocked when Torrijos told him
that between 250,000 and 300,000 Colombians are living in
Panama, most of them illegally. (Colombian estimates were
one-third of that number.) The ELN peace negotiations
figured prominently in their recent talks, and Torrijos has
left open the possibility that Panama may serve as a neutral
site for the GOC/ELN negotiations. Uribe pitched the idea of
building a highway and an electrical transmission line
through Panama's eastern Darien province. Torrijos promised
to "study" the matter.



5. (C) (Comment: The two nations never have had a road link.
For environmental and security reasons, the Panamanians
probably will want to keep it that way. Currently, the Pan
American Highway ends in Yaviza in Panama's Darien province,
not far from a national park that skirts the border.
Electrical power reportedly is cheaper in Colombia than
Panama, which lacks adequate investment in power generation,
two reasons why a cross-border transmission line may be
attractive to the Torrijos government. But power line
construction probably will bring a road along with it, which
the Panamanians want to avoid. End Comment.)


Security
--------------


6. (C) This Embassy, in conjunction with the Center for
Hemispheric Defense Studies (CHDS) and the Torrijos team, is
organizing an August 11-13 bilateral "National Security
Planning Workshop" to encourage the new GOP to focus on
security issues in general (such as border, canal, police,
and narcotics) and on cooperation with the USG in particular.
Reception by both sides to the workshop has been highly
positive and planning is already well advanced. (See
Septel.) Torrijos's Democratic Revolutionary Party (PRD) is
the Panamanian party traditionally most focused on security
matters, but Torrijos planners admit that they have not
progressed very far in terms of their overall security
strategy. Torrijos contacts for security planning are
(legislator) Hector Aleman and (former PDF officer) Daniel
Delgado. In private, even these members of the PRD "Old
Guard" have pledged close cooperation with the USG on
national security and law enforcement issues. To enhance GOP
control over its Caribbean north coast and improve its
intelligence, and attract more teachers and doctors to the
area, FOMs have floated the idea of starting regular
fixed-wing air service to selected World War Two-vintage air
strips near the coast.


The Economy
--------------


7. (C) The Moscoso Administration is leaving a strongly
growing economy. Growth last year was 4.1% (vs. 0.6% in
2001); the optimistic forecast for 2004 is 4.5%. Nominal GDP
in 2003 was $12.8 billion or around $3,900 per capita. The
incoming Torrijos government initially will face tight budget
constraints, with short-fuse imperatives to make Panama's
Social Security Fund solvent and launch a strategy on Canal
expansion. FOMs often have expressed concern about the state
of public finances after September 1 and are worried that
they could inherit up to $300-600 million in accounts payable
from the Moscoso administration. (The year-end budget
deficit could top 3%, exceeding the 2% legal maximum.) The
Finance Ministry's (MEF) welcome decision to cut spending by
$361 million ($125m in current expenditures, $113m in capital
expenditures, and $123 million in public enterprise
expenditure) was probably already vitiated by the Moscoso
administration's pre-election spending (e.g., subsidizing
electricity) and below-forecast tax revenues. Torrijos's
party (with its previous populist focus) vastly increased
public employment in the 1970s and 1980s, now would like to
reduce the government's role. One senior Torrijos insider
noted that the GOP currently employs 181,000 people, quite
extraordinary for a country of 3.1 million.


Debt Service Unaffected
--------------


8. (C) Rating agencies agree that the deficit will not
affect Panama's ability to service its large debt load, which
Panamanian governments treat as a priority. International
observers will only be concerned if Torrijos does not act
soon to reform the actuarially bankrupt social security
system and appoint competent leadership at MEF, which he
plans to do. Currently, the leading candidate for minister
is Ricaurte "Catin" Vasquez, now Deputy Canal administrator.
(Note: Vasquez would bring considerable experience and
expertise to the job, having served as Minister of Planning
and Economic Policy 1984-1988, and as chief negotiator for
Panama's debt refinancing program in 1995.) Although it will
be costly in political capital, the Torrijos inner circle
plans to make social security reform a top priority early on,
to get rid of a millstone that could destabilize Panama's
finances by 2010-2014.


Free Trade Agreement
--------------


9. (C) Led by Minister of Commerce and Industries-designate
Alejandro Ferrer, the new GOP will be pro-trade
liberalization, strongly supportive of a bilateral FTA, and
less beholden to agricultural interests than the Moscoso
government. But for now they are willing to let the current
government carry the flag for now. The new GOP will have the
task of ratifying the FTA. The new GOP plans to have a
coherent overall economic policy, which will include making
Panama an investment, eco-tourism, and transshipment magnet,
where trade policy will be one important component.


Canal Expansion
--------------


10. (C) The new GOP expects this $5-10 billion (estimates
vary widely),10-year project to be a transforming event for
Panama that will provide jobs and set the tone economically
for years to come. It plans to make Canal expansion a top
priority. A national referendum on the issue is likely in
2005; we are told Torrijos wants the referendum to take place
as early as possible. Actual groundbreaking, if the
referendum passes, could be three years off.


Political Reform
--------------


11. (C) In mid-June, Torrijos publicly announced ambitious
ideas for constitutional reform (see septel),which crucially
involve the cooperation of the out-going Moscoso government
and legislative assembly. (The constitution can be amended
if two consecutive legislatures back the same provisions.)
Somewhat surprisingly, following a meeting with Torrijos,
Moscoso called a special legislative session starting July 5
to consider the wide-ranging proposals:


-Reduce the size of the legislative assembly;


-Eliminate one (of two) vice presidents and limit each
legislator to one alternate (from two);


-Reduce legislative immunity; permit the Supreme Court to
remove a legislator from office without asking the Assembly
to lift immunity;


-Permit independent legislative candidates to run for office;


-Halve the transition period between governments to two
months;


-Make the Electoral Tribunal financially independent and not
subject to Supreme Court oversight;


-Fix the number of Supreme Court justices by law, rather than
in the constitution; Note: Critics have charged that
Torrijos will be able to "pack" the Court if the number of
justices is set by law because laws are much more easily
changed than the constitution.)


-Ban active politicians from serving on the Supreme Court;


-Require greater qualifications for would-be justices and
legislators;


-Establish a clear constitutional requirement for referendums
on Canal expansion;


-Establish procedures for convoking constitutional
conventions.


Strategy Seminar
--------------


12. (C) Showing that he is serious about planning an
efficient government (and despite his lack of haste to
announce appointments),in mid-June Torrijos convened a
week-long strategy seminar for PRD leaders. The retreat
produced good results, insiders said, with 13 working groups
(mirroring 13 ministries) hammering out 100-day and one-year
action plans, complete with specific goals and benchmarks.
Torrijos plans to monitor each minister's progress in meeting
his respective objectives.


Comment
--------------


13. (C) Even more intriguing than the incoming team's
confident enthusiasm and apparent efficiency is its avowed
and oft-repeated intention to bring lasting change to Panama,
especially in eliminating government corruption. FOMs insist
that efforts to make the government more honest will founder
without a credible, effective, politically neutral Supreme
Court. They are entertaining various expedients to cleanse
the Court, from mass impeachment to packing it. Expectations
of the new government's ability to end corruption are
sky-high (and unrealistic). A serious attempt to run an
honest government would have revolutionary implications in
Panama, overturning the long-accepted consensus among the
political class that using one's office for personal gain is
acceptable behavior, if not the name of the game. Officials
in Panama almost never go to jail for corrupt acts. In a
small country, where practically everyone is related by
blood, marriage, or friendship a presiding official or
magistrate typically finds himself deciding cases that
involve relatives or friends. In Panama, "official" actions
are construed personally. Government decisions are seldom
viewed as solely motivated by a desire to uphold the law, as
based on objective facts, or devoid of caprice or
arbitrariness. To be willing to act in disregard of personal
and political ties implies tremendous change, and will
require great courage because it will bring tremendous
dissension, even within Torrijos's own party. Until the
evidence is in, skepticism of the new government's ability to
bring about such sweeping change is justified. (Septel will
address Torrijos's proposed constitutional reforms.)


WATT