SCENESETTER FOR VISIT OF UNDER SECRETARY FORE

C O N F I D E N T I A L PANAMA 002018 SIPDIS SIPDIS E.O. 12958: DECL: 10/12/2016 TAGS: AMGT OVIP PGOV PREL ECON PM SUBJECT: SCENESETTER FOR VISIT OF UNDER SECRETARY FORE Classified By: Classified by Ambassador William A. Eaton - Reasons 1.5 (b and d) ¶1. (SBU) On behalf of Embassy Panama, I would like to extend our warmest welcome on your upcoming visit to Panama. Your visit provides us with an excellent opportunity to share our transformational diplomacy agenda and to help advance U.S. interests. Your dialogue with our Mission and key government and private sector leaders will reinforce our commitment to democracy. In a broader context, your visit signals our continued interest in strengthening our excellent relations with Panama. -------------- A Brief History -------------- ¶2. (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 a hub 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 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 -------------- ¶3. (SBU) Martin Torrijos Espino won the presidency on May 2, 2004, in general elections that amounted to a local "landslide" (47% of the popular vote),which propelled his Democratic Revolutionary Party (PRD) into control of the Legislative Assembly (42 out of 78 legislative seats). Torrijos initially surrounded himself with young, primarily U.S. educated professionals like himself, and marginalized "old guard" supporters of former President Ernesto Perez Balladares (1994-99). Torrijos and those closest to him indicated that they intended to work closely with U.S. officials, especially on security, law enforcement, trade and investment. ¶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 -- have faced large challenges from the outset: a serious budget shortfall and tide of red ink left by the outgoing government; nationwide demonstrations against legislation to reform 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 an October 22, 2006 national referendum. The GOP has responded to the deficit with belt-tightening measures, including passing an unpopular fiscal reform package in late January 2005. Legislation for the reform of the social security system was also approved in December 2005. ¶5. (SBU) Anticipated pressures from a well-entrenched oligarchy have thwarted the Torrijos administration's reform plans. Since taking office in 2004, President Torrijos has done many favors for Noriega-era PRD "dinosaurs" and has placed many of them -- including Noriega's immediate family ) in positions of power and influence in his government. In June, President Torrijos nominated three new vice ministers to his cabinet. This latest cabinet change was the third round of personnel changes in two years for the Torrijos administration, coming two months after the April 2006 reshuffle. The changes appear to be aimed at pleasing hard-line members of the PRD. More disturbing than changes within the Cabinet, has been the Torrijos administration's push to remove leaders of independent regulatory bodies such as the Civil Aviation Authority and the Banking Superintendency. ¶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 October 2004 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. 7.(C) In a move contrary to his anti-corruption pledges, however, President Torrijos recently signed a law restoring some of the legislative immunities taken away by Panama's 2005 constitutional reforms. Senior GOP officials maintain privately that the Assembly extracted this decision from Torrijos in exchange for unanimous passage of the bill establishing the October 22 Canal Referendum. Nonetheless, the law deals a blow to Torrijos' anti-corruption bona fides and raises serious questions about the future of Panama's anti-corruption efforts. ¶8. (SBU) 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 against corrupt public officials. Based on Embassy recommendations, the State Department in November 2005 revoked the visa of Supreme Court Justice Winston Spadafora for soliciting and accepting bribes related to cases before his court. Earlier, in March 2005, the State Department revoked the visa of former Maritime Authority Director Bertilda Garcia for selling Panamanian seafarer's licenses at inflated prices to unqualified individuals. -------------- 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 2005 sixteen nation Panamax naval exercise that centered on Canal defense. The GOP has welcomed Embassy initiatives to increase the number of Medical Readiness Exercises and other DOD humanitarian programs that provide much-needed assistance to rural Panamanians. During the 2005 New Horizons exercise, both the GOP and local press praised U.S. military for constructing schools and clinics. Together, these programs highlight the humanitarian side of the U.S. military and foster positive public perceptions of the USG. ¶10. (C) Despite these positive efforts at security cooperation with the U.S., Panama has undertaken efforts to strengthen relations with Cuba. Torrijos has visited Havana twice since taking office. The GOP has eagerly backed the Cuban-Venezuelan Operacion Milagro and dropped visa restrictions on Cuban diplomats. President Martin Torrijos, VP/FM Samuel Lewis Navarro, and other cabinet members also appear to be eager proponents of further cooperation with Venezuela on energy. -------------- Our Third Border -------------- ¶11. (SBU) Panamanian planning, layered defenses and security resources are generally well-regarded, as 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 $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. In May 2004, Panama signed a shipboarding agreement with the United States to support the Proliferation Security Initiative (PSI). 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 -------------- ¶12. (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% of the U.S. merchandise trade transits the Canal each year. Panama's seafarer registry currently licenses over 264,000 crew members. In response to our homeland security concerns, the new GOP has 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. We are actively discussing with GOP counterparts ways in which we can enhance maritime security through more robust information sharing. -------------- Canal Stewardship -------------- ¶13. (SBU) During the past six 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 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. During this time, the ACP also has nearly doubled Canal revenues, which in FY 2004, exceeded $1 billion for the first time. The Government of Panama received $350 million from the Canal in FY 2005 (payments for government services, tolls, and profits). -------------- Canal Expansion -------------- ¶14. (SBU) On October 22, Panamanian voters will decide a referendum on the proposed expansion of the Panama Canal, a top priority for the Torrijos administration. The proposed $5.25 billion Canal expansion project to construct a wider third set of locks is expected to take 8-10 years to complete. The GOP 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. Panama's constitution requires a national referendum first be submitted to the Panamanian people for their approval. Public opinion polls have consistently shown that a majority of Panamanians favor the proposal. The most recent polls indicate that more than 70 percent of Panamanian voters intend to vote "yes." ¶15. (C) Torrijos has tried to sell Canal expansion as a non-political "matter of state." However, despite the lofty rhetoric, the referendum is an irreplaceable political vehicle for Torrijos to ensure the victory of the ruling Democratic Revolutionary Party (PRD) in the 2009 election and to guarantee, if possible, the presidential aspirations of VP/Foreign Minister Samuel Lewis Navarro, his widely presumed choice to be his successor. Winning the referendum will position Torrijos to do both. -------------- International Trade and Investment -------------- ¶16. (U) Panama's approximately $14 billion economy is based primarily on a well-developed services sector that accounts for roughly 80% 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 approximately $2.5 billion in 2005. U.S. exports were about $2.2 billion and imports were $327 million in ¶2005. The stock of U.S. Foreign Direct Investment (FDI) in 2002 was $20 billion. U.S. FDI is primarily concentrated in the financial and energy sectors. Per capita GDP is around $4,500, relatively high by regional standards. However, fifteen straight years of economic growth have yet to result in meaningful changes in poverty (still at 40% overall) and vast income disparities. -------------- Free Trade Agreement -------------- ¶17. (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 nine negotiating rounds. The last round, held January 10-13, 2006 in Washington, failed to close the agreement because of Panamanian agricultural sensitivities surrounding sanitary and phytosanitary (SPS) issues. Panama also has a strong desire to increase its existing sugar quota. Pending further progress on SPS issues, a tenth (and final) negotiating round has been delayed, as the GOP turned its focus on the Canal referendum. A final round may be held shortly after the referendum, e.g., possibly in November. The Torrijos administration views a bilateral FTA as imperative to attract investment, increase exports, and make Panama competitive with the CAFTA countries. -------------- Security and Law Enforcement Policy -------------- ¶18. (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. ¶19. (SBU) On May 16, DEA and several Latin American authorities knocked out a sophisticated multi-national drug cartel that smuggled tons of cocaine monthly to the U.S. Named Operation Twin Oceans, this multi-jurisdictional investigation targeted and effectively dismantled the Pablo Rayo-Montano drug trafficking organization. Rayo Montano, a Colombian citizen, ran a cocaine ring that smuggled more that 15 tons of cocaine per month from Colombia to the U.S. and Europe. Authorities arrested over 100 of his collaborators, seized almost 52 tons of cocaine and nearly US$70 million in assets in six countries. In Panama, a long list of cartel assets is now under Public Ministry control. Using his real name, Rayo Montano became a legal resident in Panama. What he could get away with and how local authorities continually turned a blind eye to his suspicious activities is a cautionary take for law enforcement in Panama. ¶20. (SBU) 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. The Embassy's Illicit Finance Task Force coordinates the anti-money laundering activity, training and reporting between the multiple agencies and sections involved in this area. -------------- Damage Control with Panama's Muslims -------------- ¶21. (C) Panama's Muslim Community of approximately 8,000 persons, is divided in two main national and ethnic groups - the Gujarati Indians and Lebanese Arabs. The 2500 Gujaratis mainly live in Panama City and generally work in retail andused car businesses. The more prosperous Lebanese Arabs mainly live 50 miles from Panama City in the Caribbean port city of Colon. The Lebanese group overwhelmingly works in the export-import trade at the Colon Free Zone. Starting in 2003-2004, many Panamanian Muslims -- often well-heeled, middle-aged businessmen who had traveled to the United States for many years -- began to experience problems at U.S. airports with visa cancellations. The Ambassador launched the Embassy's reconciliation effort to Panama's Muslims following public allegations -- including newspaper articles -- of abusive treatment at the hands of U.S. port-of-entry officials. Ambassador Eaton hosted dinners at his residence for both communities to mark important Muslim religious holidays in late 2005 and early 2006. Both events were mostly social in nature but recently the Colon Muslims have met with EmbOffs for frank discussions of the negative experiences they - and some of their family members - encountered while traveling through U.S. airports. -------------- Management Agenda -------------- ¶22. Construction is currently underway on a New Embassy Compound within the confines of the former Ft. Clayton on a 'green', 41-acre site located four miles from the current facility and 18 miles from the airport with low rise/low density middle-class housing and a new private school as neighbors. The NEC will have an NOB, GSO annex and MSGQ. Total cost of the project, including site purchase and preparation, and construction and OBO oversight US$100 million. The NEC will unite under one roof the Department elements and fifteen of post's tenant agencies, currently housed in eleven annexes throughout the city. The target completion date is March 2007 with occupancy in June. ¶23. Embassy Panama is using the move into the NEC as an opportunity to restructure fundamentally its management and support operations. While consolidating its annexes into one NEC, we are eliminating duplicative support service operation that have proliferated around Panama City. This consolidation, we believe, will increase efficiency, standardize operations, reduce costs and permit re-deployment of duplicative service assets. 24.(U) As part of our re-evaluation and rationalization of support service operations Embassy Panama supports regional service that include clear standards with consequences for non- and under-performance. The Regional Support Center in Fort Lauderdale already provides support services for Embassy Panama's blackberries, thereby reducing operating costs. We are now working with RPS Fort Lauderdale to transfer human resource support to Florida. Panama could also serve as a center of excellence to assist other posts in the region that lack support staff and the infrastructural capabilities Panama enjoys. Panama is also a regional and available platform for conferences, such as the WHA Management Officers' Workshop October 4-6, 2006, and MED's regional nurses conference for WHA scheduled for Panama in February ¶2007. With a strong management team in Panama, Panama welcomes opportunities to serve as a test bed for new management initiatives and programs; Panama, for example, volunteered for, and has been selected as, an ILMS pilot post. 25.(U) Family member employment is a key goal of Embassy management. Our SNAP coordinator has assisted numerous family members over the past year to identify employment. In addition, a new recruitment process for LES positions has provided a uniform and equitable interagency system to staff positions with qualified persons giving preference to U.S. Citizen EFMs and U.S. Veterans resident in country. In FY-05, Post hired three EFMs and two veterans under the program; in FY-06 nine EFMs and two veterans. However, this important program is in jeopardy as no funding has been identified to make up the difference in salaries between the local wage rate and the EFM/Veteran rate. M/FLO's 'cost equalization fund' helped by providing funds for a consular (Program) position in FY 05 and 06. ¶26. Embassy Panama plans to use the ISO 9000 process to evaluate our HR operation before the end of the calendar year. We plan to undertake a similar process with the GSO section after we move into the NEC. ¶27. To expand Mission Panama's reach beyond the capital city, in March 2004 we launched a Virtual Presence Post (VPP) in Colon. The Colon VPP provides a cost-effective means to extend the mission's outreach to a population center otherwise underserved by traditional diplomacy. We are also exploring the possibility of establishing a virtual Consulate in Panama's western province of Chiriqui with its rapidly growing amcit population and U.S. investment opportunities. EATON