PANAMA PRESIDENT TORRIJOS BOWS TO LABOR PRESSURE

C O N F I D E N T I A L SECTION 01 OF 03 PANAMA 001377

SIPDIS

DEPARTMENT FOR WHA/CEN
SOUTHCOM ALSO FOR POLAD
VANCOUVER FOR CG ARREAGA

E.O. 12958: DECL: 06/23/2015
TAGS: PREL PGOV ECON PM VE POLITICS FOREIGN POLICY
SUBJECT: PANAMA PRESIDENT TORRIJOS BOWS TO LABOR PRESSURE
BUT NOT LOW ENOUGH TO SUIT HIS OPPONENTS

REF: PANAMA 1352

Classified By: AMBASSADOR LINDA WATT FOR REASONS 1.4 (B) AND (D).

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


1. (C) In a surprise move on the evening of June 21, as
anti-CSS (social security) strikes that no one thought would
last more than a few days were set to enter their fifth week,
President Torrijos announced that he would "suspend" writing
regulations for the June 1 CSS reform law (Law 17),pending a
90-day National Dialogue. His principal antagonist, the
FRENADESSO ad-hoc umbrella strike committee, again called for
the suspension of the law itself, rejected Torrijos's
gesture, which was to placate striking workers, teachers, and
medical professionals, and refused to attend the Dialogue.
Although the Dialogue will go ahead, Torrijos appears weak
for bowing to demands at all, the more so because strikes and
demonstrations continue despite his concessions. His break
in stride is an admission that his administration erred by
rapidly pushing the reform package through the National
Assembly almost without compromise. At the root of his
problem is widespread lack of confidence in the GOP's good
intentions, bred by years of government corruption and public
cynicism. Tellingly, Hugo Chavez went out of his way at
MERCOSUR last weekend in Asuncion to assure GOP officials
that he was not stirring up trouble in Panama. End Summary
and Comment.

Troublesome Priests
--------------


2. (SBU) On June 20 Panama City Archbishop Jose Dimas Cedeno
pulled the rug out from under President Torrijos and his
apparent intention to resist making concessions to anti-CSS
strikers when told the press he had "humbly begged" Torrijos
to suspend the law to facilitate dialogue. That statement
permitted FRENADESSO (National Front to Defend Social
Security) to portray Torrijos as standing in the way of a
settlement. Meanwhile, the regulations that Torrijos
"suspended" on June 21 actually do not change the active
status of Law 17. Following a June 21 meeting with Catholic
bishops, Torrijos told a news conference that collection of
newly increased CSS employer and employee taxes would proceed
as planned on the graduated time frame set to begin January
2006, although some deductions from previously exempt
"representation expenses" already are taking place. Torrijos
said he would consider "improvements" to the law (known as
Law 17) that the National Dialogue proposes. Torrijos also
agreed that any amendments made to Law 17 will be retroactive.

Labor Refuses to Come to the Table
--------------


3. (SBU) Striking FRENADESSO supporters, especially 20,000
SUNTRACS construction workers and 25,000 teachers, have
refused to come to the table unless Torrijos suspends the law
itself. Confirmed participants in the National Dialogue, set
to begin June 28, include the National Council of Private
Business (CoNEP),the umbrella labor union CONATO, and
leaders of Panama's academic and religious leaders. (Note:
CONATO has ties with Torrijos's Democratic Revolutionary
Party (PRD) and has not actively supported the strikes. End
Note.) FRENADESSO leader Andres Rodriguez on June 23
reaffirmed the group's decision not to participate in the
dialogue and not to end the strikes or demonstrations.
FRENADESSO has made little headway in courting transportation
groups.

Cynical Businessmen
--------------


4. (SBU) So far, Torrijos has failed to win the confidence of
the population by arguing that his measures to put CSS on a
firm footing, as reflected in Law 17, are the best choices
for Panama. Cynical attitudes toward government continue to
color public perception of the Torrijos fiscal (tax) reforms
of February and CSS reform. In one example, the GOP was
caught short last week by heated anti-GOP public remarks by
Panama's Chamber of Commerce president August Simons, which
seemed to play to the interests of the strikers. Although
the GOP might have imagined that business would be a natural
ally against labor radicals, Simons blasted GOP actions and
the GOP's alleged lack of credibility for causing the public
mistrust that has produced daily disorders in the streets.

5. (SBU) Simons also blamed the Torrijos administration's
failure to resolve several "grave" corruption cases as
contributing to public distrust. In addition, Simons claimed
that in designing the fiscal/CSS reform laws, the GOP had
ignored the concerns and suggestions of Panama's business
community, even though it contributes $600 million in annual
tax revenues. He also alleged that the strikes, up to last
week, had caused $100 million in economic losses. Simons
further claimed that CSS and tax-law changes threatened to
"strangle" the economic well being of Panama's citizens.
(Comment: Simons has a point in complaining about the GOP's
failure to deal with notorious corruption cases. PECC,
CEMIS, and several involving Mireya Moscoso all are worthy of
immediate attention. Many believe that Torrijos also has
failed to deal adequately with Panama's widely discredited
Supreme Court, whose most recent decisions granted former
presidents Moscoso and Perez Balladares immunity from
non-criminal investigation. End Comment.)

Privatization of 25% of CSS Funds
--------------


7. (SBU) Torrijos has repeatedly denied any intention of
privatizing CSS. But a little-noted amendment slipped into
the text of the June 1 reform package by PRD legislator Pedro
Miguel Gonzalez (accused of murdering U.S. serviceman Zak
Hernandez in 1992) at the eleventh hour that arguably broke
that pledge was signed into law along with the rest of the
package without a vote. The amendment allows two private
investing firms, ProFuturo and Progreso, to invest 25% of CSS
funds in private securities. Several links exist between
members of the current government and the financial
institutions encompassed within the firms. The continuing
strikes momentarily have pulled the measure from the public
eye but the National Dialogue is likely to comment on it.

School's Out
--------------


8. (SBU) Labor Minister Rivera said that the public
resistance to CSS reforms has been far worse than even he
expected, even though several months ago Rivera had told
PolOff that public reaction to the reforms would be more
severe than the fight for national sovereignty. The
Association of Independent Teachers estimates that of 500,000
public school students in Panama, 95% have been affected by
the strike. As a result, patience for the disorders among
parents faced with homebound school children is wearing thin.
Also, the lost time in all probability will be tacked on to
the end of the school year, thus interfering with holiday
plans.

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


9. (C) By alienating business groups, labor, teachers,
doctors, and salaried workers, Torrijos has managed to create
a "perfect storm" of protest and opposition to clearly
justified and overdue public policies. Inexperience plays a
part here but there is more to the story. Many Panamanians
nurse a festering grievance bred by the impunity with which
many powerful Panamanians have looted the public purse. That
grievance impels many to reject the idea that average
citizens should be compelled to share the pain of increased
taxes and decreased benefits.


10. (C) Also, many Panamanians vividly recall the $110
million pillaged from CSS by military-backed PRD governments
of the mid-1980s in real estate and insurance fraud schemes.
Although possibly Panama's biggest public scandal, no one
ever has been tried or convicted, much less accused or
arrested for those misdeeds.


11. (C) Tellingly, as GOP paranoia grows about whether
SUNTRACS labor radicals are getting "outside" funding,
Venezuela wants to avoid the blame. Institutional Protection
Service (SPI) Director Leonel Solis told Embassy staff that
during the June 18-19, 2005 MERCOSUR summit in Asuncion,
Venezuelan President Hugo Chavez approached Panamanian
Foreign Minister Samuel Lewis Navarro and Minister of
Government of Justice Hector Aleman with the following
message: "Please tell Martin that I am not involved in what's
going on in Panama." Solis reported that Chavez added that
he would check in his entourage to see whether anyone was
"making revolution on his own" and would get back to them.


12. (C) Torrijos eventually will get through the present
crisis -- the number of daily marchers is dwindling and
SUNTRACS workers begging contributions for their depleted
strike fund are increasingly forlorn -- but moving forward he
must be mindful of the corrosive accumulation of public
distrust on the legitimacy of the state. Meanwhile,
Torrijos's political opposition within the PRD (Perez
Balladares and his associates) and outside (Guillermo Endara,
Ricardo Martinelli, the disjointed Panamenistas et.al.) are
enjoying the moment and seeking their own ways to take
advantage of it.

WATT