SCENESETTER: CODEL BURTON JUNE 4-6 VISIT TO PANAMA

UNCLAS SECTION 01 OF 05 PANAMA 001117

SIPDIS

SENSITIVE

DEPARTMENT FOR H AND WHA/CEN
SOUTHCOM ALSO FOR POLAD

E.O. 12958: N/A
TAGS: OREP PGOV PREL AMGT ASEC PM
SUBJECT: SCENESETTER: CODEL BURTON JUNE 4-6 VISIT TO PANAMA



1. (U) This message is sensitive but unclassified. Please
protect accordingly.


2. (SBU) Embassy Panama extends its warmest welcome
on your upcoming visit to Panama. You will have the
opportunity to review a wide range of issues,
including bilateral security and the economic
environment. Your visit here, as the government of
President Martin Torrijos enters its tenth month,
signals the interest of the United States in
strengthening our excellent relations with Panama.
(Secretary of State Powell visited Panama on November
3, 2003, to attend Panama's Centennial celebrations,
and again on September 1, 2004, to attend the
presidential inauguration. Secretary of Defense
Rumsfeld visited Panama November 13-14, 2004, to
discuss ongoing security and law enforcement cooperation
and Canal issues.) On May 18, 2005, President Torrijos
announced his long-awaited Social Security legislative
reform package, one of his government's primary
objectives. The proposals are pending approval in the
Legislative Assembly. Your visit follows an April 28 visit
by President Martin Torrijos to the United States during
which he met with President Bush to discuss cooperation
in security, trade and democratic institution-building.
Panama's exemplary cooperation on a wide range of issues
including security, law enforcement policy, and trade --
promises to reach new levels under the Torrijos government.
Elected as a modernizing, anti-corruption reformer by the
largest post-1989 plurality on record, Torrijos has made
clear that his most important foreign policy priority is
relations with the United States and that he intends to
deepen our mutual focus on counter-terrorism capabilities,
combating international criminal networks, and expanding
trade and investment. Torrijos is the first Panamanian
president elected after the hand over of the Canal on
December 31, 1999, and the final withdrawal of the U.S.
forces. U.S. relations with Panama are more mature than
in the past, based on mutual economic and security
interests.

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A Brief History
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3. (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 former
Panamanian President Mireya Moscoso, was deposed from the
presidency by the Panamanian military. General Omar
Torrijos (d. 1981),the deceased father of current
Panamanian President Martin Torrijos, became dictator and
was succeeded in infamy by General Manuel Noriega. On
December 20, 1989, President George H.W. Bush ordered the
U.S. military into Panama to restore democracy, protect
AmCits and their property, fulfill U.S. 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 held
free and fair elections three times since 1989,
transferring power from/to opposition parties.

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President Torrijos and a New Generation
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4. (SBU) In his September 1, 2004, inaugural address,
Torrijos clearly identified his government's principal
priorities as sustainable economic development and poverty
alleviation, investment, fiscal reform, increased
government transparency, and job creation. The new
president and his Democratic Revolutionary Party (PRD) --
largely purged of its former anti-democratic, anti-U.S.
tendencies and holding an absolute majority in the
Legislative Assembly -- have faced large challenges from
the outset: a serious budget shortfall and tide of red ink
left by the outgoing government; urgently required action
to right the nation's foundering retirement and medical
system (the Social Security Fund); restoring public
confidence in government institutions and the rule of law;
completing the Free Trade Agreement negotiations with the
United States; launching a more activist and "coherent"
foreign policy (including closer relations with Western
Europe and a review of Panama's relations with Taiwan and
China); and a decision on how to proceed with Canal
expansion, leading to a 2005 national referendum. The GOP
has responded to the deficit with belt-tightening measures,
including passing an unpopular fiscal reform package in
late January. Reform of the social security system is
currently under discussion, with legislative action likely
in May 2005.


5. (SBU) Martin Torrijos Espino won the presidency on May
2, 2004, in general elections that amounted to a landslide
(47% of the popular vote),which propelled his
Democratic Revolutionary Party (PRD) into control of the
Legislative Assembly (41 out of 78 legislative seats).
Torrijos has surrounded himself with young, primarily
U.S.-educated professionals like himself, and has
marginalized "old guard" supporters of former President
Ernesto Perez Balladares (1994-99). Torrijos and those
closest to him have indicated that they intend to work
closely with U.S. officials, especially on security, law
enforcement, trade and investment. Overall, his cabinet
appointments have been inspired choices -- many of them
technocrats with a pro-U.S. outlook. Most (but not all) of
Torrijos's cabinet-level and other high-level appointments
are respected professionals without excessive baggage from
Panama's 21-year military dictatorship or the PRD's
anti-U.S. faction, a promising sign. Anticipated pressures
from a well-entrenched oligarchy could frustrate the
Torrijos administration's reform plans.


6. (SBU) After campaigning on a "zero-corruption" platform,
Torrijos launched a number of anti-corruption
investigations and initiatives in the opening weeks of his
administration. His most controversial action was the
removal and replacement of Supreme Court President Cesar
Pereira Burgos, who had passed retirement age, in a bid to
clean up Panama's politicized Supreme Court. The
controversy over corruption within the Supreme Court
continues to play out in the media, especially after a
recent spate of characteristically egregious rulings. In
March 2005, President Torrijos formed a commission to make
proposals on justice sector reform. The Embassy supports
this effort, and the Embassy continues to build its strong
Good Governance initiative, which began with Ambassador
Watt's 2003 speech against official corruption. That
speech resonated firmly with Panamanians from all walks
of life and generated front-page headlines. The Ambassador
has also stated publicly that poverty could pose dangers
for democracy and that skewed income distribution and
social injustice increase the appeal of unscrupulous
populist demagogues. The Embassy currently supports good
governance activities directed toward judicial reform,
civic education, business ethics, and strengthening the
anti-corruption prosecutors' institutional capacity. An
important element of the Embassy's Good Governance
initiative is its visa revocation program. Based on
Embassy recommendations, the State Department in summer
2004 revoked the U.S. visas of two former senior GOP
officials, which provoked a spate of mostly favorable press
commentary and huge support (85% according to one poll)
from average Panamanians. A third visa, of former Maritime
Authority Director Bertilda Garcia, was revoked in early
March. Several other corrupt officials have lost their
visas for money laundering or related issues and we are
ever alert to ensure that other corrupt officials who
have harmed USG interests may not travel to the United
States.

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Security and Law Enforcement Policy
--------------


7. (SBU) President Torrijos came to office with a clear
focus on security, particularly regarding canal and
maritime security, and combating terrorism and
transnational crime. His government is taking steps to
impose order, efficiency, and organization on Panama's
security agencies. On May 12, 2004, the U.S. and Panama
signed a Proliferation Security Initiative (PSI)
Shipboarding Agreement, underscoring the excellent
bilateral cooperation that the new GOP has assured us will
continue or improve. The Government of Panama (GOP) must
sort out its financial priorities to address issues such as
how to adequately patrol Panama's long Caribbean and
Atlantic coastlines and how to secure Panama's porous
border with Colombia against guerrilla infiltration.


8. (SBU) A centerpiece of U.S.-Panamanian relations in
recent years has been a steadily improving law enforcement
and security relationship. Close bilateral cooperation
with our Panamanian counterparts has yielded many successes
including, but not limited to, steadily increasing
narcotics seizures, more sophisticated investigations, an
active maritime law enforcement relationship, the
development of specialized units, and an enhanced ability
to combat money laundering and other illicit financial
flows. While the USG's relationship with the Torrijos
Administration has been positive, there remains work to be
done to solidify these gains and enhance the effectiveness
of joint operations. Panama's law enforcement institutions
remain weak and all suffer from a paucity of resources and
limited professional capacity. Through our limited
assistance programs, we are trying to address these
shortcomings, but real success will require additional
resources from the Panamanian budget.

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Security Cooperation
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9. (SBU) Panama's former sovereignty sensitivities are
slowly receding with recognition that the challenge of
securing the Canal and Panama's borders requires a more
mature and collaborative bilateral relationship. Panama
early on gave political support to the Coalition of the
Willing. It signed and, on October 8, 2003, ratified a
bilateral Article 98 Agreement. Related to Canal and
border security, Panamanians have become much more willing
to accept mil-to-mil security training, equipment, and
other assistance, as was shown during the August 2004
multinational Panamax naval exercise that centered on Canal
defense. The GOP has welcomed Ambassador Watt's initiative
to increase the number of Medical Readiness Exercises and
other DOD humanitarian programs that provide much-needed
assistance to rural Panamanians. During the 2003 New
Horizons exercise, both the GOP and local press praised
U.S. military for constructing schools and clinics.
Together, these programs highlight the humanitarian side of
the U.S. military and foster positive public perceptions of
the USG. New Horizons 2005 has just ended and received
wide and favorable press coverage. In May 2005, a U.S.
HVT completed a successful four-day transit of the Canal.

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Our Third Border
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10. (SBU) Panamanian planning, layered defenses and
security resources are generally well-regarded, although
the Canal remains an attractive and vulnerable threat to
terrorists. Continued U.S. training, equipment and other
assistance reduce GOP vulnerabilities to any potential
terrorist attack. To protect water resources, the Panama
Canal Authority (ACP) has committed to match
dollar-for-dollar AID's three-year $2.5 million
integrated watershed management program. Panama committed
to a robust maritime security agenda, which led to its
timely adoption of the new International Maritime
Organization (IMO) International Shipping and Port Security
(ISPS) Code, which entered into force July 1, 2004. In May
2004, Panama signed a shipboarding agreement with the
United States to support the Proliferation Security
Initiative (PSI). Despite significant progress, Panama
continues to be an important transit point for drug
smugglers, money launderers, illicit arms merchants, and
undocumented immigrants heading north.

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Maritime Security
--------------


11. (SBU) The GOP has sent strong signals that it intends
to clamp down on what it calls abuses countenanced by
previous governments in administering Panama's open ship
registry and mariner identification documents. Panama's
ship registry now is the world's largest and comprises
around one-quarter of the world's ocean-going fleet (5,525
large commercial vessels). About 13% of the U.S.
ocean-going cargo transits the Canal each year. Panama's
seafarer registry currently licenses over 264,000
crew members In response to our homeland security
concerns, the new GOP has announced intentions to greatly
improve security and transparency in documenting ships and
the crews that work on them. Panama has privatized and
developed some former U.S. military ports and other related
facilities. Port services grew dramatically from about
200,000 containers per year in the early 1990s to 2 million
by 2003. Panama now boasts the leading complex of port
facilities in Latin America. We are actively discussing
with GOP counterparts ways in which we can enhance maritime
security through more robust information sharing--a subject
that will likely come up during your visit.

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International Trade and Investment
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12. (U) Panama's approximately $14 billion economy is based
primarily on a well-developed services sector that accounts
for roughly 80% of GDP. Services include the Panama
Canal, banking and financial services, legal services,
container ports, the Colon Free Zone (CFZ),and flagship
registry. Panama also maintains one of the most
liberalized trade regimes in the hemisphere. U.S.
bilateral trade with Panama came to $2.1 billion in

2003. U.S. exports were $1.8 billion and imports were
$301 million in 2003. The stock of U.S. Foreign Direct
Investment (FDI) in 2002 was $20 billion. U.S. FDI is
primarily concentrated in the financial sector. Per capita
GDP is around $4,000.

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


13. (SBU) Former President Moscoso pushed to move forward
quickly on a bilateral Free Trade Agreement (FTA).
Negotiations began in April 2004; to date, the U.S. and
Panama have held eight negotiating rounds. The last round,
held January 31 to February 6 in Washington, failed to
close the agreement, primarily because of Panamanian
agricultural sensitivities surrounding rice, poultry, and
pork. Panama also has a strong desire to increase its
existing sugar quota. A final high-level meeting probably
will be scheduled by summer 2005 to resolve the principal
remaining issues. The Torrijos administration views a
bilateral FTA as imperative to attract investment, increase
exports, and make Panama competitive with the CAFTA
countries. Jerry Wilson, President of Panama's Legislative
Assembly, has commented to Embassy officials that, once
negotiated, the FTA agreement "will pass."

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Canal Stewardship
--------------


14. (SBU) During the past five years, the Panama Canal
Authority (ACP) has proven itself an able administrator,
turning the Panama Canal into an efficient and profitable
business. Since the 1999 hand over, the ACP has reduced
the average Canal transit times by one-third (from 36 hours
to 24 hours),has reduced accidents in Canal waters
significantly, and has overseen large-scale upgrade and
maintenance projects, such as widening the Gaillard Cut to
allow simultaneous two-way transits. The ACP also has
increased revenues, which in FY 2004, exceeded $1
billion for the first time. The Government of Panama
received $332 million from the Canal in FY 2004
(payments for government services, tolls, and profits).

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


15. (SBU) The Torrijos team plans to make Canal expansion a
top priority. The proposed Canal expansion project to
construct a third-set of locks has an estimated price tag
of $4-6 billion and is expected to take 8-10 years to
complete. It expects the project to be a transforming
event for Panama that will provide jobs and set the tone
economically for years to come. Given the driving forces
of international shipping -- containerization, construction
of "post-Panamax" mega-ships currently unable to traverse
the Canal, and growing trade between East Asia and the U.S.
eastern seaboard -- the expansion is central to maintaining
the Canal's future viability. The expansion is expected to
be financed through a combination of Canal revenues, new
user fees, and bridge loans. However, Panama's
constitution requires a national referendum first be
submitted to the Panamanian people for their approval. GOP
officials have stated this referendum will most likely
occur in late 2005 or early 2006. A May 2005 public poll
showed that 70% of Panamanians polled supported Canal
expansion.

MCMULLEN