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 -------------- ¶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