SCENESETTER: AMBASSADOR ARCOS APRIL 26-28 VISIT

C O N F I D E N T I A L PANAMA 000723 SIPDIS SIPDIS DEPARTMENT FOR WHA/CEN GREG SCHIFFER SOUTHCOM ALSO FOR POLAD E.O. 12958: DECL: 04/17/2016 TAGS: OVIP PGOV PM PREL SUBJECT: SCENESETTER: AMBASSADOR ARCOS APRIL 26-28 VISIT TO PANAMA REF: 06 PANAMA 00303 Classified By: DCM Luis Arreaga for reasons 1.4 (c),(d),and (g) ¶1. (U) This message is confidential. Please protect accordingly. ¶2. (SBU) On behalf of Embassy Panama, I would like to extend our warmest welcome on your upcoming visit to Panama. We see your visit as a key element of our strategy to partner with Panama on its Secure Trade and Transportation Initiative, as was discussed during the President's November 2005 visit. You will be able to continue our ongoing senior-level dialogue with officials from the Ministry of Foreign Affairs, the Panama Canal Authority, the Ministry of Government and Justice, National Security Council (Consejo) and the Maritime Authority on the wide-range of homeland security issues, including the Container Security Initiative (CSI) and our proposal for expanded P-3 operations from Panama. In addition to your participation in the U.S.-SICA Dialogue on Security, we would like to take advantage of your presence in Panama to advance our outreach efforts to the Panama Muslim Community (reftel). In a broader context, your visit signals our continued interest in strengthening our excellent relations with Panama. ¶3. (SBU) As you are aware, in September 2005, USG and Government of Panama (GOP) officials met to discuss Panama's Secure Trade and Transportation Initiative (PST&TI), including the possibility of P-3 flights originating from Panama. We have continued to raise this issue with senior GOP counterparts, but believe it is important that you explain the rationale for our request and be prepared to answer some tough questions from the GOP regarding why Panama is the ideal location for these flights. In April representatives from Customs and Border Protection (CBP) and the U.S. Coast Guard (USCG) visited with the GOP to review the Container Security Initiative (CSI). This visit went extremely well, and Panamanian officials are currently reviewing a draft Declaration of Principles for CSI. Reaching an agreement and beginning a CSI program by the end of 2006 are both achievable, and desirable, goals for the GOP and the Embassy. -------------- A Brief History -------------- ¶4. (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 -------------- ¶5. (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; nation wide 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 a possible 2006 national referendum. The GOP has responded to the deficit with belt-tightening measures, including passing an unpopular fiscal reform package in late January. Legislation for the reform of the social security system was also approved in December 2005. ¶6. (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 (41 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. ¶7. (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. The controversy over corruption within the Supreme Court continues to play out in the media, especially after a recent spate of characteristically egregious rulings. In March 2005, President Torrijos formed a commission to make proposals on justice sector reform. The Embassy supports this effort, and 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. ¶8. (SBU) 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. The summer 2004 visa revocation against two former senior GOP officials received a spate of mostly favorable press commentary and huge support (85% 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 -------------- ¶9. (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 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. ¶10. (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 limited assistance programs, we are trying to address these shortcomings, but real success will require additional resources from the Panamanian budget. -------------- Security Cooperation -------------- ¶11. (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 initiative 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. In April 2006, a U.S. HVT (the decommissioned attack submarine USS Portsmouth) completed a successful three-day transit of the Canal. -------------- Our Third Border -------------- ¶12. (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 -------------- ¶13. (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-- a subject that will likely come up during your visit. -------------- International Trade and Investment -------------- ¶14. (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 sector. Per capita GDP is around $4,500. -------------- Free Trade Agreement -------------- ¶15. (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 not been scheduled. The Torrijos administration views a bilateral FTA as imperative to attract investment, increase exports, and make Panama competitive with the CAFTA countries. Jerry Wilson, a member of Panama's Legislative Assembly and its former President, has commented to Embassy officials that, once negotiated and signed, the FTA agreement "will pass." -------------- Damage Control with Panama's Muslims -------------- ¶16. (C) Panama's Muslim Community of approximately 8,000 persons, is divided in two main national and ethic groups - the Gujarati Indians and Lebanese Arabs. The 2500 Gujaratis mainly live in Panama City and generally work in retail and used 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 met with EmbOffs for a frank discussion of the negative experiences they - and some of their family members - encountered while traveling through U.S. airports. Embassy has arranged a one-hour meeting for you with members of the Colon Muslim Community during your upcoming visit. -------------- Canal Stewardship -------------- ¶17. (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 hand over, 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. 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 -------------- ¶18. (SBU) Canal expansion is a top priority for the Torrijos administration. The proposed Canal expansion project to construct a wider third set of locks has an estimated price tag of $4-6 billion and 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. However, Panama's constitution requires a national referendum first be submitted to the Panamanian people for their approval. GOP officials are huddling to discuss a date for the referendum but have not announced any dates. A May 2005 public poll showed that 70% of Panamanians polled supported Canal expansion. EATON