SCENESETTER: AMBASSADOR OTTO REICH'S VISIT TO

UNCLAS SECTION 01 OF 03 PANAMA 000085

SIPDIS


SENSITIVE


TO AMBASSADOR REICH FROM AMBASSADOR WATT


E.O. 12958: N/A
TAGS: PREL ETRD EWWT SNAR OVIP PM NAS
SUBJECT: SCENESETTER: AMBASSADOR OTTO REICH'S VISIT TO
PANAMA



1. (U) Embassy Panama welcomes Special Envoy for Western
Hemisphere Initiatives Ambassador Otto Reich on his January
17 - 24 visit to Panama. You will have the opportunity to
reiterate the Ambassador's good governance message to GOP
officials, including Panamanian President Mireya Moscoso,
private sector representatives and local media. Your visit
highlights our governments' mutual focus on the strategic
issues of enhancing counterterrorism capabilities, combating
international criminal networks and expanding trade and
investment. Expectations regarding the upcoming negotiations
on a bilateral free trade agreement (FTA) with the US 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, and supported the USG at the WTO
Ministerial in Cancun, Mexico. Panama has proved itself a
good friend and close ally.


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A Brief History
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2. (U) From its founding in 1903 until 1968, the Republic of
Panama was a constitutional democracy dominated by a
commercially oriented oligarchy focused on Panama as an
entrepot for international trade. In October 1968, Dr.
Arnulfo Arias Madrid-- the deceased husband of current
Panamanian President Mireya Moscoso-- was elected to and
deposed from the presidency for the third time. General Omar
Torrijos (d. 1981)-- the deceased father of current
opposition leader and presidential candidate Martin Torrijos-
- became dictator and was succeeded in infamy by General
Manuel Noriega. On December 20, 1989, former President
George H.W. Bush ordered the US military into Panama to
restore democracy, protect AmCits and their property, fulfill
US treaty responsibilities to operate and defend the Canal,
and bring Noriega to justice. Noriega is still serving a 30-
year sentence in Miami for drug trafficking. Panama has
twice since 1989 held free and fair elections, transferring
power from/to opposition parties.


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May 2004 Elections
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3. (U) Panama will hold its next national elections on May 2,

2004. Candidates are vying for the presidency, 78
legislative seats, and all mayoral and local representative
positions. Democratic Revolutionary Party (PRD) candidate
Martin Torrijos maintains a small lead over third-party
candidate and former Panamanian President Guillermo Endara
(1989 to 1994). Both are well ahead of ruling Arnulfista
party candidate and former Foreign Minister Jose Miguel
Aleman (1999 to 2003) and minor Democratic Change (CD) party
candidate Ricardo Martinelli. You will meet with all four
presidential contenders. Panama's elections should not
warrant extensive monitoring or observation.


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A Mixed Record
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4. (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 US administration, and Canal-
related industries, especially cargo transshipment through
ports at both ends of the Canal, have boomed. But Panama's
overall economy went flat when nearly 30,000 US military
personnel and their dependents left during the late 1990s,
and the 2001 global recession has perpetuated the country's
estimated 13.4% unemployment. Also, Panama has failed to
attract large investments into the former Canal Zone.
Poverty, economic disparity, and unemployment are arguably
the biggest internal challenges facing Panama today. More
recently, the economy appears to have picked up, primarily as
a result of tax incentives given to a now booming
construction sector.


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Towards a Democratic Culture
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5. (SBU) Ambassador Watt's September 29 speech to Panama's
Chamber of Commerce, Industry and Agriculture, launching
Embassy's Good Governance Initiative (GGI),resonated firmly
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. Panama's "spoils system" allows politicians to
use the entire state bureaucracy as a patronage base. The
country's criminal libel laws, left over from military rule,
impose enormous costs and risks on whistle-blowers.
Legislative immunity is often abused, as elsewhere in the
region. Embassy currently supports good governance
activities directed toward judicial reform, civic education,
business ethics, and strengthening anti-corruption
prosecutors' institutional capacity. You will have a number
of opportunities to reiterate our GGI message through local
media outlets.


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Our Third Border
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6. (SBU) Panamanians have become increasingly willing to
accept mil-to-mil security training, equipment and other
assistance to enhance their capabilities to protect the Canal
and borders. Although the present terrorist threat to the
Canal is considered low, Panamanian planning, layered
defenses and security resources are generally well regarded.
Continued US training, equipment and other assistance are
vital to preempt a major terrorist attack. Panama has
committed to an ambitious maritime security agenda, which
should help it meet new obligations under the International
Maritime Organization's (IMO) International Shipping and Port
Security (ISPS) Code by the July 1, 2004 deadline. Panama's
ship registry blossomed from the third largest in the world
in 1990 to the largest in the world by 2002, comprising
nearly 7,000 large commercial vessels. Of all foreign
flagged vessels arriving at US ports, 27% are Panamanian.
About 13% of US ocean-going cargo transits the Canal each
year. Panama's seafarer registry has licensed approximately
400,000 crewmembers. And port services grew dramatically
from about 200,000 containers per year in the early 1990s to
almost two million by 2002, giving Panama Latin America's
leading port complex.


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Fighting International Crime
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7. (SBU) Law enforcement cooperation with Panama is
excellent. The Moscoso Administration set up a new, GOP-
interagency counternarcotics vetted unit; expanded upon the
basic shiprider agreement to facilitate maritime/air
operations in pursuit of drug, arms and explosives smuggling
(and may soon include WMD); expedited maritime drug prisoner
transfers to USG custody (saving U.S. taxpayers US$1 million
per event); and captured and expelled seventeen fugitives
from US justice (most recently, on January 14, Colombian drug
kingpin Arcangel de Jesus Henao Montoya, wanted in New York
for smuggling five tons of cocaine). Panama is working much
more closely with Colombian President Uribe's government
against narco-terrorists. The GOP has also welcomed USG
assistance-- DOD special operations forces (training National
Police (PNP) border units) and AID community development
(enhancing productive capacity and governmental presence in
the Darien border province).



8. (U) The GOP revamped its legal and administrative
structures to fight money laundering, becoming a model for
other countries, such as Russia, that are trying to bring
their regimes up to grade. Panama assisted the USG in the
prosecution of money laundering cases and provided crucial
information against former Nicaraguan President Arnoldo
Aleman. However, at the 2004 Summit of the Americas in
Monterrey, Mexico, several hemispheric neighbors chided
Panama for recently granting "asylee" status to a former
Ecuadorian cabinet minister, who is charged with embezzlement
of government funds.


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International Trade and Investment
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9. (SBU) Economic issues top Panama's agenda with the US.
First, for political and economic reasons, President Moscoso
is pushing for quick action on a bilateral FTA. Second, 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),in order to capture a
larger share of the cruise ship trade. The USG is studying
the possibility of a re-designation. The GOP estimates that
up to US$50 million per year could be gained for Panama's
growing tourism sector. Third, over the last several months,
we have seen a marked improvement in the GOP's willingness to
make progress on a number of US investment cases, to address
bilateral trade issues, including agricultural concerns, and
to enhance cooperation/coordination in regional and
multilateral trade fora. The USG has asked Panama to
continue its progress on resolving investment disputes and
improving its investment climate through responsiveness to
investor concerns, clear rules of the game, predictability,
and transparency in decision-making. During your visit, you
will have the opportunity to meet several private sector
representatives to solicit their views on these issues.


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Biography: Mireya Moscoso
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10. (U) Mireya Moscoso is President of the Republic of Panama
and leader of the Arnulfista Party. In the 1999 national
elections, she defeated Democratic Revolutionary Party (PRD)
presidential candidate Martin Torrijos by seven and a half
percentage points (44.9 percent to 37.6 percent). Moscoso
took office on September 1, 1999. Moscoso was born on July
1, 1946, in Panama City, but was raised in the small coastal
town of Pedasi in the southwest province of Los Santos. At
age 18, Moscoso met former Panamanian President Arnulfo Arias
Madrid in 1964, who was 45 years her senior, and the two fled
to Miami following the 1968 coup d'etat. They were married
in the US in 1969 and lived in exile until 1978. Moscoso
served as Arias' personal secretary and political understudy
until his death in 1988.



11. (U) Moscoso's formal post-secondary education includes
English and computer courses and an Associate's degree in
Interior Design from Miami Dade County Community College.
She has a young teenage son Ricardo, whom she adopted during
her four-year marriage to former Arias coffee plantation
manager Ricardo Gruber. She owns a large home in Panama
City, but prefers to spend time at the coffee plantation and
cattle ranch in the western province of Chiriqui, which she
inherited from Arias. Moscoso understands English well but
prefers Spanish.


WATT