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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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."

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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.

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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).

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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