C O N F I D E N T I A L SECTION 01 OF 03 PANAMA 001948

SIPDIS

DEPARTMENT FOR WHA/CEN
SOUTHCOM ALSO FOR POLAD

E.O. 12958: DECL: 09/16/2015
TAGS: PGOV PREL PM CM TW POLITICS FOREIGN POLICY
SUBJECT: PANAMA TURNING TOWARD TAIWAN

Classified By: Charge d'Affaires Luis Arreaga for reasons 1.4 (b)&(d)

Summary
--------------


1. (C) Panamanian President Martin Torrijos's last-minute
September 22 announcement that he would attend a September 26
Taiwan-Central America Summit in Managua comes on the heels
of First Vice President and Foreign Minister Samuel Lewis's
September 19 remarks to Chinese Foreign Minister Li Zhaoxing
in New York that Panama plans no changes in its relations
with Taiwan. These two events confirm the picture emerging
from recent meetings with Taiwan diplomats in Panama that the
GOP is moving closer to Taiwan, apparently reversing what had
been a recent trend toward China. According to Taiwan
Embassy officials, the GOP has made a series of public and
private overtures since July that have left the Taiwans
hopeful of improved relations. The Taiwans cite several GOP
assurances, starting with the GOP's spin on its late-July
refusal to receive an early September visit by Taiwan
President Chen Shui-bian. The assurances include an apparent
180-degree public turn-about by First Lady Vivian Torrijos in
support of the Taiwan-funded Museo del Tucan and informal GOP
offers to resume budget information-sharing to earmark Taiwan
aid, both of which were in deep-freeze for most of the past
year. The Taiwans also claim that Panama balked at an
alleged PRC ploy to swap concessions in the one-year-long
Panama Ports Corporation (PPC) investment dispute for
diplomatic recognition. End Summary.

High-Level Signals
--------------


2. (C) On August 19, PolOff met with Cristobal Song Maw Tsaur
of the Taiwan Embassy and Jose Chong-Hon, President of the
pro-Taiwan Chinese Panamanian Cultural Center. Tsaur said
that the Taiwan Embassy had received public and private
"signals" from "high-level" sources in the GOP that the
Torrijos administration has taken initial steps toward
reestablishing the warm relations that had existed between
Taiwan and the former Moscoso administration. Taiwan
Political Counselor Jaime Chen (Chen Hsin Dong) confirmed

this view in an August 26 meeting with PolOff.


3. (C) Note: The Torrijos administration has publicly and
privately held Taiwan Embassy officials at arms length since
taking office. Millions of dollars in Taiwan aid money was
personally appropriated by former President Mireya Moscoso
and her sister, some of which was used to build the now empty
Museo del Tucan. President Torrijos, opposition leader
during the Moscoso years, viewed Taiwan's support for Moscoso
as a personal political slight. End Note.

Chen's Trip Blocked
--------------


4. (C) Panamanian press July 29 quoted Foreign Minister
Samuel Lewis that the GOP had turned down Taiwan President
Chen Shui-bian's offer to visit Panama on September 1 as part
of his Central American tour because the trip would interfere
with President Torrijos' one-year inauguration anniversary
celebrations. According to Tsaur, when the Taiwans sought an
explanation, "high-level" GOP officials told them that the
time was "not yet right" to receive President Chen, but not
to worry. Tsaur understood this message to mean that the
Torrijos administration was not ready to confront potential
public disapproval over the still unresolved Moscoso-era
corruption scandal, but that the GOP had no plans to shift
diplomatic recognition to China. (Note: During his
mid-September trip to the opening of the UN General Assembly,
FM Lewis met in New York with PRC Foreign Minister Li
Zhaoxing to discuss strengthening commercial ties. According
to the GOP, Lewis told Li that he did not foresee changes in
GOP's current diplomatic relationship with Taiwan and
commercial relationship with the PRC. End Note.) After a
trip to Singapore in early September, Minister of the
Presidency Ubaldino Real quietly stopped over in Taipei,
possibly to meet with Taiwan officials regarding Torrijos's
up-coming trip to the September 26 Taiwan-Central America
Summit in Managua.

Spanish Showdown
--------------


5. (C) Both Jaime Chen and Tsaur said that a decisive
behind-the-scenes meeting between the GOP, PPC, and PRC
officials took place in Spain (possibly Madrid) in July.
With PRC officials apparently present, the GOP and PPC
allegedly discussed a final monetary figure that would
constitute PPC's settlement of a dispute with the Torrijos
government about the sweetheart investment deal PPC received
from the Moscoso administration, allegedly in return for
bribes. The Moscoso government exempted Hutchinson-Whampoa
from an estimated $11 billion in taxes over 40 years and gave
it the land and port facilities that it occupied for nothing.
At Madrid, China's attempt to leverage the deal by asking
Panama to confer diplomatic recognition on China for an
undisclosed settlement appears to have backfired. (Comment:
PPC is owned by the Hutchinson-Whampoa Corporation, in which
the PRC government is an important stockholder. Minister of
Trade and Industry Alejandro Ferrer, the GOP negotiator, has
championed the GOP cause in correcting what he sees as an
unjust deal. Ferrer told Ambassador on September 19 that he
was able to hold firm in negotiating with PPC because he had
strong backing from Torrijos and because he was convinced
that he was doing the right thing for the Panamanian people
to reverse a deal that had been strongly opposed by the
public. A crass attempt to trade recognition for a PPC
payoff would likely have angered Ferrer. End Comment.)

Panama Bests PPC
--------------


6. (C) The Taiwans said that the Panamanians refused Chinese
overtures but agreed to a deal with PPC which would be
released piecemeal to the press, possibly to save face for
PPC and to show the GOP holding a hard line. Press reports
of the negotiations seem to bear this out. At the time of
PolOff's August meetings with the Taiwans, the press reported
the PPC offer hovered at $53 million. It has settled at $102
million in addition to payment of annual port facility fees
of $22.2 million plus 10% of annual revenue and a PPC
agreement to invest a further $1 billion that will allow them
to remain competitive with the other port facilities. This
settlement amounts to a major victory for Ferrer and the GOP.
According to Tsaur, the PRC openly used PPC to leverage its
interests in Panama. Tsaur winced at the mention of
Taiwan-based Evergreen's alliance with China-based COSCO,
commenting that Taiwanese investment in mainland China was
"our problem."

Museo del Tucan
--------------


7. (C) In early August, First Lady Vivian Torrijos announced
her support for the movement of one of Panama's most
important collections of archaeological and anthropological
artifacts from the decrepit Reina Torres de Arauz Museum, to
the new Taiwan-funded Museo del Tucan, which has stood empty
since construction was completed in 2004. When President
Torrijos was first elected, First Lady Vivian Torrijos was an
outspoken critic of the Museo del Tucan. The empty museum,
built by the Moscoso administration with Taiwan-donated
money, was conceived as a children's museum, but the money to
fill its elegant structure with art was effectively skimmed
and embezzled by the former administration. Tsaur said that
his Embassy saw Vivian Torrijos' recent change of heart as a
positive public sign that the GOP was tacitly dropping its
antagonism toward Taiwans.

Budget Sharing for Future Aid
--------------


8. (C) Jaime Chen said that recently the GOP had expressed
interest in sharing budget information for the purpose of
planning what aid Taiwan could offer Panama in the future.
According to Jaime Chen, prior to the Torrijos administration
taking office in 2004, the Panamanian government regularly
shared its proposed budget plan with the Taiwans in the
planning stages. The Taiwans would send this information
back to the Legislative Yuan. The Taiwans and Panamanians
would then decide how much Taiwan would donate to Panama and
how to spend it. Chen said that this process was transparent
and therefore should have exonerated the Taiwans from any
suspicion of involvement in Moscoso's appropriation of Taiwan
charitable donations. (Other Taiwan diplomats have
acknowledged that Moscoso pressed them for a bribe, which
they paid.) Torrijos completely shut down budget planning
after September 1, 2004.

Party Lines
--------------


9. (C) The Taiwans understand that, for now, the GOP wants to
maintain a "low profile" relationship with Taiwan, fearing
that demonstrably warm relations with Taiwan would still be a
contentious issue in the Panamanian press. Though the
Taiwans are currently hopeful that their relationship with
the GOP is on the upswing, they appear to take even positive
signs with a grain of salt. The Taiwans believe a number of
key GOP advisors are pushing a pro-PRC agenda, including
presidential advisor and former Noriega-era Foreign Minister
Jorge Ritter, Ministry of Foreign Affairs Foreign Relations
Director Dario Chiru (who served in Beijing and prior to his
current position started a business and government exchange
program with China,) and possibly Oyden Ortega (a former
Minister of Foreign Relations and Labor Minister under
Noriega, also one-time legislator since 1989, considered to
be a moderate PRD). Foreign Minister Sam Lewis has played a
somewhat enigmatic role, identified by some as supporting the
pro-PRC group behind the scenes while supporting the GOP line
on Taiwan in public. (There was speculation that diplomatic
relations with the PRC would benefit Lewis's banana box
business because the PRC had offered to buy up surplus
Panamanian bananas.) Muddying the waters, two of Lewis's
closest MFA staff, IO Director Javier Bonagas and Foreign
Mister's Office Director Guido Fuentes (a rising PRD)
maintain good relationships with the Taiwans according to
Jaime Chen.

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


10. (C) The Taiwans' message with Embassy contacts over the
past few weeks has been consistent--they believe the GOP is
planning to patch-up strained relations with Taiwan. They
still fear that the GOP ultimately will shift recognition to
the PRC. The GOP seems to be moving to stabilize its
traditionally strong foreign relationships to shore up its
currently weakened domestic political position (one August
poll put Torrijos's approval rating at 34%.) Taiwan policy
is part and parcel of this strategy. Although the
possibility of a shift to the PRC in the long-term cannot be
ruled out, Panama has no real financial incentive to do so.
Chinese investment in Panama and its use of the Canal will
continue to grow regardless of diplomatic ties but Taiwan aid
will flow only as long as Panama maintains diplomatic
relations with Taiwan. As FM Lewis told Panamanian
television a few days ago, it serves Panama's interests to
maintain its current position on this matter. Rumblings that
began even before Torrijos was elected of a Torrijos-era
shift toward China based on the PRD's leftist leanings have
not been totally disproved. But they contrast with
Torrijos's pragmatic, close-lipped approach to the
Taiwan-China issue. What has been proved is the deftness
with which the Panamanians have leveraged the issue thus far.


ARREAGA