Identifier
Created
Classification
Origin
05PANAMA331
2005-02-14 23:14:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Panama
Cable title:  

SCENESETTER: CODEL TAYLOR'S FEBRUARY 20-22 VISIT

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UNCLAS SECTION 01 OF 05 PANAMA 000331 

SIPDIS

SENSITIVE

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

E.O. 12958: N/A
TAGS: OREP PGOV PREL EINV AMGT ASEC PM POLITICS FOREIGN POLICY
SUBJECT: SCENESETTER: CODEL TAYLOR'S FEBRUARY 20-22 VISIT
TO PANAMA


UNCLAS SECTION 01 OF 05 PANAMA 000331

SIPDIS

SENSITIVE

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

E.O. 12958: N/A
TAGS: OREP PGOV PREL EINV AMGT ASEC PM POLITICS FOREIGN POLICY
SUBJECT: SCENESETTER: CODEL TAYLOR'S FEBRUARY 20-22 VISIT
TO PANAMA



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


2. (SBU) On behalf of Embassy Panama, I would like to
extend our warmest welcome on the upcoming February 20-22
visit of your delegation to Panama. You will have the
opportunity to review a wide range of issues including
security and law enforcement. Your visit here, as the
government of Martin Torrijos enters its sixth month,
signals the great interest of the United States in
strengthening our excellent relations with the Panamanians.
(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.) 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 handover of the Canal on December 31,
1999, and the final withdrawal of U.S. forces. U.S.
relations with Panama are more mature than in the past,
based on mutual economic and security interests.

--------------
A Brief History
--------------


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.

--------------
President Torrijos and a New Generation
--------------


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 -- has 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 unpoular fiscal reform package in late January.


5. (SBU) Martin Torrijos Espino won Panama's May 2, 2004,
general elections by what amounted to a local landslide (47
percent of the popular vote),which propelled his
Democratic Revolutionary Party (PRD) into control of the
Legislative Assembly (42 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 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
percent according to one poll) from average Panamanians.
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.

--------------
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 assistance
programs, we are trying to address these shortcomings, but
real success will require additional resources from the
Panamanian budget.

--------------
Security Cooperation
--------------


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. The
next New Horizons begins February 2005. Together, these
programs highlight the humanitarian side of the U.S.
military and foster positive public perceptions of the USG.

--------------
Our Third Border
--------------


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 USD 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. Despite significant
progress, Panama continues to be an important transit point
for drug smugglers, money launderers, illicit arms
merchants, and undocumented immigrants heading north.

--------------
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 percent of U.S. ocean-
going cargo transits the Canal each year. Panama's
seafarer registry currently licenses over 264,000
crewmembers. In response to our homeland security
concerns, the new GOP had 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.

--------------
International Trade and Investment
--------------


12. (U) Panama's approximately $14 billion economy is based
primarily on a well-developed services sector that accounts
for roughly 80 percent 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 USD 2.1 billion in

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

--------------
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. It's not clear when a new round will be scheduled;
however, the GoP needs to be more realistic regarding its
aspirations if the agreement is to close. 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."

--------------
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 handover, 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 USD one
billion for the first time. The government of Panama
received USD 332 million from the Canal in FY 2004
(payments for government services, tolls, and profits).

--------------
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 USD 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.

WATT