PANAMA'S BUSINESS LEADERS FRET THAT INEQUALITY MAY

C O N F I D E N T I A L SECTION 01 OF 02 PANAMA 002141

SIPDIS

DEPT FOR WHA/CEN - SCHIFFER
ALSO FOR WHA/EPSC
USDOC/MAC FOR GAISFORD
USTR FOR VARGO AND MALITO

E.O. 12958: DECL: 10/25/2015
TAGS: ECON ETRD PREL PM ECONOMIC AFFAIRS
SUBJECT: PANAMA'S BUSINESS LEADERS FRET THAT INEQUALITY MAY
SPUR BOLIVARIAN MISCHIEF

Classified By: Ambassador William A. Eaton for Reasons 1.4 (b and d)


1. (C) Summary: Worried that Panamanians can no longer "live
in Switzerland and Haiti at the same time," local business
leaders blame Venezuelan and Cuban-influenced agitators for
stalling the GOP's reform agenda and for flirting with
anarchy. In recent meetings with the Ambassador, these
business leaders have urged strong U.S. support for Panama's
democratic institutions and economic competitiveness to help
counter negative trends. They maintain that combating
corruption, concluding a bilateral Free Trade Agreement
(FTA),and expanding the Panama Canal are crucial to Panama's
ability to resist the populist appeals of "false messiahs" as
the country must focus on improving income distribution,
creating jobs, and alleviating poverty. The question is
whether Panama's business elites and GOP leaders can muster
the will and the money put an end to a culture of corruption
and official impunity underlying these challenges. End
summary.

Panama: Divided by the Canal and by Income
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2. (U) Panama is divided by more than the Canal. Panama
City's modern appearance and a growing trade and
services-dominated economy obscure the second-worst income
distribution pattern in Latin America, persistent poverty (40
percent overall, higher than 90 percent in some rural areas),
and stubbornly high unemployment (officially about 12
percent, with 20-25 percent underemployment). Panama's solid
GDP growth in recent years (6.2% in 2004, about 5.7% so far
in 2005) and pursuit of trade liberalization do not translate
into broadly shared prosperity. As one Panamanian
businesswoman told the Ambassador on Oct. 7, "We can no
longer live in Switzerland and Haiti at the same time."


3. (SBU) Since arriving at Post last month, the Ambassador
has met with dozens of Panama's top business leaders,
including the Panama Chamber of Commerce, the National
Council for Private Enterprise (CONEP - the "chamber of
chambers"),the American Chamber of Commerce, the Association
of Panamanian Business Executives (APEDE),and others. The
business community stressed that combating corruption,
securing a bilateral Free Trade Agreement (FTA),and moving
forward with Panama Canal expansion are key to ensuring
Panama's ability to create jobs, alleviate poverty, and
improve income distribution. (Comment: This may be wishful
thinking on their part. See further comments in para 8.)

Strong Suspicions of "Bolivarian" Mischief
--------------


4. (SBU) A number of business leaders believe that leftists
are increasingly better organized and financed. Though none
point to hard evidence, they maintain that Chavez-inspired
"Bolivarian circles" are supporting efforts by certain labor
and student groups to foment a sense of crisis and anarchy in
Panama. For example, they are convinced that the "National
Front for Defense of Social Security ("Frenadesso") is trying
to sabotage Panama's ongoing "national dialog" on social
security reform. Likewise, they think they see a Venezuelan
shadow behind recent student protests, ostensibly over rising
gasoline prices and other issues.


5. (SBU) Panama's business leaders stress that their
criticisms of President Torrijos are intended to strengthen
the government, not to bring him down. Some of them
suggested that a "weak" or "nave" Torrijos administration
has unwittingly opened the way for Venezuelan and
Cuban-influenced agitators to stall the GOP's agenda of
fiscal and social security reform. Expecting that these same
elements will likewise aim at torpedoing a future proposal to
expand the Panama Canal, some business groups hope to
discredit and possibly neutralize Frenadesso and other
radical elements. Failing that, they fear that Panama could
succumb to the populist appeals of "false messiahs" and "end
up like Bolivia." In appealing for strong U.S. support to
build on "shared values," one businessman told the Ambassador
on Oct. 7, "Don't believe that democracy is not threatened."
Others urged the U.S. to help persuade the GOP that these
threats are real. Some suggested that the U.S. offer
"matching opportunities" to counter Cuba's
medical education for poor Panamanians. They said they want
to emulate successful Cold War-era partnerships between the
U.S. and the private sector to counter the former Soviet
Union's influence in the region.

All Eyes (if not "Ayes") on FTA and Canal Expansion
-------------- --------------

6.(U) Although some worry that the FTA will hit particular
agricultural sectors especially hard (e.g., rice growers),on
balance, the vast majority of business leaders see an FTA as
a net plus for Panama. They believe it will boost Panama's
investment climate, promote jobs creation, and bolster GOP
efforts to combat corruption and modernize the government.
Encouraged by signs of renewed GOP engagement with USTR,
leading business groups are discussing ways to work with each
other and with responsible labor leaders to help the Torrijos
administration "sell" the FTA to the Panamanian public and
the National Assembly.


7. (U) Likewise, local business leaders widely expect that
future Panama Canal expansion would create thousands of new
jobs. Many were dismayed by a U.S. Defense Dept. officials
recent suggestion that the project could cost $15-$25
billion, which is two to three times greater than local
(unofficial) estimates. As any Canal expansion proposal
would be subject to a referendum, they worry that this
suggestion could undermine the Panamanian public's confidence
the GOP's credibility and erode their support for possible
Canal expansion.

Comment: Are Panama's Elites Ready to Change?
--------------


8. (C) Despite the lack of hard evidence of "Bolivarian"
influence, the Panamanian business community rightly sees the
country's poor income distribution and high rates of poverty
and unemployment as ticking time bombs. The question is
whether Panama's business elites and GOP leaders can muster
the will to defuse these threats effectively. Canal
expansion and an FTA, on their own, will likely do little to
close the yawning gap in living standards and income between
Panama's rich and poor. A serious effort to reduce poverty
must include greater spending on education and infrastructure
and much higher levels of investment. In turn, to accomplish
these goals, Panama's elites must be willing to put up the
money and put an end to a culture of corruption and official
impunity. There are probably few who are willing to gulp
that hard.
EATON