PANAMA: SCENE SETTER FOR GEN. HILL'S AUG. 12 VISIT

UNCLAS SECTION 01 OF 03 PANAMA 001949

SIPDIS


SENSITIVE


TO GENERAL HILL FROM AMBASSADOR WATT


E.O. 12958: N/A
TAGS: OVIP PREL MASS PGOV PM POL CHIEF
SUBJECT: PANAMA: SCENE SETTER FOR GEN. HILL'S AUG. 12 VISIT

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1. (SBU) I warmly welcome your August 12 visit to Panama.
You will have the opportunity to reiterate USG commitment to
expanding training programs shared between our two countries,
and to press for continuing focus on civilian controlled
security forces, transparency and anti-corruption within
Panama's institutions. Panama's negotiation of a bilateral
Free Trade Agreement (FTA) with the US and the September 1
inauguration of a new administration will reign paramount in
the minds of many of your interlocutors. It is worth noting
that Panama was an early member of the Coalition of the
Willing, has signed and ratified a bilateral Article 98
Agreement, is a strong anti-narcotics ally, and a supporter
of US maritime security/trade-security initiatives. The
Canal is well-run and efficient. Although the Moscoso
government's reputation has been tarnished by corruption and
ineffectual administration, Panama has been a good friend and
ally.


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National Security Workshop
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2. (SBU) This Embassy, in conjunction with the Center for
Hemispheric Defense Studies (CHDS) and representatives of the
incoming Torrijos administration, is organizing an August
11-13 bilateral "National Security Planning Workshop" to
encourage the new administration to plan strategically its
approach to security issues related to its borders, the
Canal, public security (i.e. crime),and counter-narcotics,
and focus on ways to cooperate with the USG. Torrijos'
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. This workshop
presents a unique opportunity for the USG to support Panama's
strategic security planning while it is being formulated and
position ourselves to participate in its implementation.
Your contribution to this important endeavor is greatly
appreciated.


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New Administration
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3. (SBU) President-elect Martin Torrijos, due to take office
on September 1, is pushing an energetic and ambitious
transition agenda featuring clear-cut goals in foreign policy
(with a priority on the US and Colombia),security
(cooperation with US objectives, new attention to the
Caribbean coast),the economy (employment generation, a Free
Trade Agreement with the US, Canal expansion, social security
reform, and making Panama a regional focal point for
investment, eco-tourism, and logistics),and politics
(constitutional reform). Torrijos campaigned on a strong
anti-corruption platform and hopes to clean up Panama's
politicized Supreme Court. Thus far, Torrijos' cabinet
appointments have been respected professionals without
excessive baggage from the PRD's close ties to Panama's
21-year dictatorship and its anti-US faction, a promising
sign. Despite the good intentions of the Torrijos
administration, anticipated pressures from a well-entrenched
oligarchy could frustrate its reform plans.


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Canal Expansion
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4. (SBU) The Torrijos team plans to make Canal expansion a
top priority. It expects this $4-10 billion (estimates vary
widely and the Canal Authority has been deliberately silent),
10-year project to be a transforming event for Panama that
will provide jobs and set the tone economically for years to
come. The US Army Corps of Engineers (USACE) has provided
feasibility and engineering studies for one set of locks for
the proposed expansion and looks forward to further
involvement with the ACP (Authority of the Canal of Panama)
as the project moves forward. A national referendum on the
issue is likely in 2005. Actual groundbreaking, if the
referendum passes, could be three years off.


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International Ship and Port Facility Security Code
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5. (SBU) On July 1, Panama announced that it had met the
deadline for implementing its International Ship and Port
Facility Security Code (ISPS) obligations. According to
Captain Luiz Perez Salamero, the departing Deputy
Administrator of Panama's Maritime Authority (AMP),all ships
that call on US ports have completed the International Ship
Security Certification (ISSC) process; however some will have
onboard either a short-term certificate (valid for five
months) or an interim certificate during the first months
after July 1. Final ISSCs will be issued to those ships as
quickly as possible and prior to expiration of the
Interim/Short-term certificates. The AMP has developed an
on-line database (www.amp.gob.pa) listing all Panamanian
flagged vessels with issued ISSCs, which is intended to
assist countries with the certificate validation process.
Controversy dogged this process, as some maritime lawyers and
shipping companies protested the designation of a sole firm
as Panama's ISPS certifier.


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Toward a Democratic Culture
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6. (SBU) The recent visa revocation of a US visa to the
former Minister of Public Works as a result of President
Bush's initiative to deny US visas to corrupt public
officials, has captivated the press. This is only the latest
in a series of high-profile media coverage of
transparency-in-governance issues. Last month, my speech
concerning poverty and the need for government action
generated a series of positive responses as well as a pro
forma rebuttal from the Foreign Minister. Last year, my
September 29 speech to Panama's Chamber of Commerce, Industry
and Agriculture, launching this Embassy's Good Governance
Initiative (GGI),resonated with Panamanians and generated
front-page headlines. Venality, conflict of interest,
nepotism, and lack of transparency are ingrained in Panama's
political culture and institutions. To encourage public
demand for reform in the judicial sector, AID Panama has
extended grants totaling US$150,000 to civil society
organizations for projects designed to address structural
barriers to the administration of justice and other Embassy
sections promote good governance as a focused mission-wide
priority.


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A Mixed Macroeconomic Record
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7. (SBU) Since the turnover of Canal operations and US
military bases in 1999, Panama has had a mixed record of
economic success. The Canal is run more efficiently, safely
and profitably than under USG administration. Canal-related
industries, especially cargo transshipment through ports at
both ends of the Canal, have boomed, as have visits by US
cruise ships, which surpassed 200 port calls in Panama this
year. Panama's overall economy went flat when nearly 30,000
US military personnel and their dependents left during the
late 1990s, privatization slowed, and the 2001 global
recession took hold which perpetuated the country's estimated
13.4% unemployment rate. Also, Panama has failed to attract
large investment into the former Canal Zone. Poverty, income
disparity (second only to Brazil in the Hemisphere),an
actuarially bankrupt social security system and a heavy
sovereign debt load are arguably the biggest internal
challenges facing Panama today. Since mid-2003, however,
economic growth has picked up, primarily as a result of tax
incentives given to a booming construction sector, low
interest rates, and a global economic recovery. Panama's
growth rate for 2003 reached about 4%.


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International Trade and Investment
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8. (SBU) Economic issues top Panama's agenda with the United
States. The fourth round of bilateral free trade
negotiations will take place in Florida in August. There are
several outstanding obstacles to closing the agreement,
including agricultural protections and Intellectual Property
Rights. Should additional rounds be necessary, the two sides
hope to finish the negotiations by October. The GOP views
the FTA as a vehicle to lock in the status quo or better in
US import programs for agricultural and manufacturing
products, improve market access in niche areas (e.g.,
banking, maritime, non-traditional agricultural products and
sugar),and most importantly to attract significant US and
other foreign investment.


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Passenger Vessels Services Act concern
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9. (SBU) The GOP has long argued for Panama's re-designation
from a "near foreign port" to a "distant foreign port" under
the US Passenger Vessels Services Act (PVSA),to capture a
larger share of the cruise ship trade. The USG is studying
the possibility of a re-designation, but US domestic maritime
interests are creating political impediments. The GOP
estimates that Panama's growing tourism sector could gain up
to US$50M annually from such a re-designation.


WATT